Calcutta HC Upholds Payment of Gratuity Despite CIRP– New Management Liable to Pay Unpaid Gratuity

The Hon’ble Calcutta High Court, in its judgment in Stesalit Limited v. Union of India and Others, addressed whether gratuity payments under the Payment of Gratuity Act, 1972 (Gratuity Act), could be limited to amounts sanctioned under a Resolution Plan during Corporate Insolvency Resolution Proceedings (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).

The Writ Petition was preferred by the Petitioner, Stesalit Limited, against an order dated November 11, 2024, passed by the Assistant Labour Commissioner (Central), directing payment of gratuity with 10% interest to Respondent No.4, Arun Roy – an ex-employee of the Petitioner Company. The Petitioner argued that Roy’s gratuity claim, admitted at Rs. 38,808.43 under the approved Resolution Plan during CIRP of the Petitioner Company, exhausted his entitlement and had already been settled. Roy countered that gratuity is excluded under the IBC, not subject to the liquidation estate, and sought full payment of Rs. 2,11,154, relying on precedents affirming employees’ rights to gratuity irrespective of insolvency processes.

The Calcutta High Court held as follows:

1. The Gratuity Act prevails over the IBC and gratuity is an earned employee benefit specifically excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC.

 

2. Gratuity, along with provident and pension fund dues, having been excluded from the liquidation estate and the IBC’s waterfall mechanism, are to be paid in full.

 

3. Roy’s entitlement to full gratuity (INR 2,11,154) with interest (as specified) was unaffected by the CIRP-approved amount, as the Petitioner Company continued operating under its new management.

 

4. It rejected the Petitioner’s defense of lacking a separate gratuity fund, citing Savan Godiwala v. Apalla Siva Kumar and Dnyanaba Namdeo Karande v. Calyx Chemicals, which mandates payment of gratuities regardless of fund maintenance, emphasizing statutory labour obligations over insolvency recovery. Non-maintenance of a fund therefore does not absolve a company from its statutory obligation.

 

Upholding the Controlling Authority’s jurisdiction, the High Court dismissed the Writ Petition, reinforcing that the IBC’s creditor-focused framework does not override labour laws protecting employee rights. It reiterated that gratuity must be paid in full, safeguarding employee welfare as a public policy priority.

This ruling highlights enforceability of statutory employee protections under labor law obligations despite corporate financial restructuring. New management of corporate debtors must therefore conduct their due diligence properly before acquiring entities under insolvency, as they may later be held responsible for the payment of outstanding statutory labor law dues.