Shree Gopal Paper Mill Labour Union (Regd.) & Anr. vs Anuj Jain Resolution Professional & Ors.

Ashok Bhushan, J.

This Appeal has been filed against the order passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court III in I.A. No.1143 of 2022 by which order the Adjudicating Authority has allowed the I.A. filed by the Resolution Professional for approval of the Resolution Plan submitted by Finquest Financial Services Private Ltd. (Respondent No.3 herein). The Appellant claiming to be Registered Labour Union of the Employees of Shree Gopal Paper Mill, aggrieved by the approval of plan has come up in this appeal. Brief facts of the case necessary to be noticed for deciding the appeal are:

We have heard Shri Palash S. Singhai, learned counsel for the Appellant, Mr. Ashish Dholakia, learned senior counsel appearing for the Resolution Professional, Shri Ankur Mittal, learned counsel for the Committee of Creditors. Shri Dhruv Mehta, learned senior counsel and Mr. Gaurav Mitra, learned counsel for the Successful Resolution Applicant.

Learned counsel for the Appellant challenging the approval of the Resolution Plan submits that the Resolution Plan does not provide for payment of Provident Fund and Gratuity, hence, the plan is not in compliance with Section 30(2) of the I&B Code. It is submitted that workmen were entitled for full amount of Provident Fund and Gratuity till the commencement date. Resolution Plan having only made provision for 24 months’ salary of the workmen, the plan deserves to be set aside. It is submitted that after the insolvency commencement date, the workmen were asked to work and they are entitled for salary from May 2020 till November, 2020 during which period the workers have worked but not paid any salary. Non-payment of Provident Fund and Gratuity is violation of statutory provisions. Learned counsel for the Appellant has referred to judgment of this Tribunal in “Jet Aircraft Maintenance Engineers Welfare Association vs. Ashish Chhawchharia, 2022 SCC OnLine NCLAT 418” where this Tribunal has held that workers are entitled of full payment of Provident Fund and Gratuity. Learned counsel for the Appellant submits that total outstanding towards Provident Fund is Rs.11.49 Crores and Gratuity is Rs.8.84 Crores, which is admitted by the Resolution Professional. Resolution Professional has added only two months’ salary for May and June, 2020 as CIRP cost although salary slip was issued from June 2020 till November, 2020 to the employees.

Learned counsel for the Resolution Professional replying to the submissions of the learned counsel for the Appellant submits that there is no dispute that workers are entitled for full payment of Provident Fund and Gratuity. Learned counsel for the Resolution Professional submits that Appellant has not filed any claim before the CIRP and the claim which was filed was verified and final list of creditors was published as per which the workmen wages for 24 months prior to insolvency commencement date amount to Rs.6.71 Crores and employees’ wages for the period of 12 months preceding the insolvency commencement date amount to Rs.0.93 Crores. It is submitted that on 03.02.2021, the Resolution Professional received claim of Rs.10.20 Crore from Karam Chand Thapar & Bros. Ltd. Provident Fund Trust. It is further submitted that another claim was filed by EPFO Karnal which was subsequent to approval of the Resolution Plan by the CoC, which claim was filed only on 16.03.2023, which was after the Adjudicating Authority reserved judgment on plan approval application on 10.03.2023. The Resolution Professional in its Affidavit, however, has admitted that total Provident Fund dues is Rs.11.49 Crores and Gratuity dues is Rs.8.84 Crores, totaling to Rs.20.33 Crores. It is submitted that the commercial wisdom of the CoC approving the Resolution Plan cannot be questions by the Appellant. Resolution Professional has duly assessed the Resolution Plans and placed the same before the CoC. It is submitted that the judgment of this Tribunal in Jet Airways was not delivered at the time when Resolution Plan was submitted, hence, the law was not crystalized regarding entitlement of Provident Fund and Gratuity.

Shri Ankur Mittal, learned counsel for the Committee of Creditors submits that the CoC have no quarrel with regard to the claim of the workers towards the Provident Fund and Gratuity. It is submitted that the Resolution Plan did not provide for Provident Fund and Gratuity dues and in event any payment has to be made to the workers for Provident Fund and Gratuity dues, the said payment has to be made by the Successful Resolution Applicant. The CoC is not liable to bear any burden regarding Provident Fund and Gratuity. It is submitted that the Resolution Plan Para 4.5.2 provides for treatment of workmen liquidation dues at INR 9 Crores. It is submitted that the entitlement of Provident Fund and Gratuity is not part of the liquidation estate and in absence of any treatment provided for Provident Fund and Gratuity dues in the Resolution Plan, it is responsibility of the SRA to pay the said dues in full. The Provident Fund and Gratuity dues are not assets of the Corporate Debtor and do not fall under the waterfall mechanism of the Section 53 of I&B Code. It is liability of the Resolution Applicant to discharge the obligation to pay dues towards Provident Fund and Gratuity of workmen and employees. Learned counsel referring to the Jet Airways case submitted that in Jet Airways it was held that workers are entitled to receive full payment of Provident Fund and Gratuity Dues and direction was issued to the Successful Resolution Applicant to make the payment. It is submitted that in view of the law laid down by this Tribunal in Jet Airways, it is the Successful Resolution Applicant who has to make the payment. It is submitted that the Clarificatory Note of the Resolution Applicant dated 22.03.2022 was confined to CIRP cost and did not contemplate payment of Provident Fund and Gratuity Dues. It is submitted that payment of Gratuity and Employees Provident Fund not being contemplated by Resolution Plan, the liability has to be discharged by the Successful Resolution Applicant and the amount which is earmarked for the payment to the Financial Creditors cannot be subjected to any reduction due to any payment of Provident Fund and Gratuity.

Learned Counsel for the Successful Resolution Applicant refuting the submissions of Respondent No.2 submits that the Resolution Plan read with Clarificatory Note clearly deals with Provident Fund and Gratuity Dues. It is submitted that Clarification Note dated 22.03.2022, Para 1 sub-clause (vii) has clearly provided that due to operation of law or by any order of any Court or Tribunal or for any other reason if any additional amount is payable to any workman or employees, whether admitted claim or not, crystallized or uncrystalized, known or unknown, present or future, the same shall be paid out of the total financial outlay in order of priority. It is submitted that the Clarificatory Note which was issued by the Successful Resolution Applicant was approved by the Committee of Creditors in the 26^th CoC meeting. The CoC who had approved the aforesaid clause contained in the Resolution Plan along with Clarificatory Note is bound to honour the same. Resolution Applicant has clearly contemplated if any additional amount is paid to the workmen or employee known or unknown under any order of Court or Tribunal, the same shall be paid out of total financial outlay and Clause 1(vii) of the Clarificatory Note contemplate the manner of payment. The CoC who has approved the said plan cannot now resile from its undertaking. The Resolution Plan approved by the CoC is binding on the CoC and the payment of Provident and Gratuity has to be made to the workers as per the Resolution Plan. It is submitted that the judgment of Jet Airways on which reliance has been placed by the CoC was clearly distinguishable. In the said case there was no inter se issue regarding payment of Provident Fund between the CoC and the SRA. In the Resolution Plan of the Jet Airways, there was no such clause as contained in the Resolution Plan in the present case, which embraces all present and future payments. The judgment of Jet Airways is clearly distinguishable.

We have heard learned counsel for the parties and perused the record.

Learned counsel for all the parties are ad idem on the entitlement of workers to receive full payment of Provident Fund and Gratuity. The Resolution Professional by filing affidavit has also given the details of Provident Fund dues and Gratuity dues upto insolvency commencement date. In Para 2 Sub-clause (s) details of dues relating to Workmen (24 months) and Employees (12 months) and details of PF dues and Gratuity dues have been tabulated. In Para 2 (s) Table No.1 and Table No.2 is as follows:

The issue which has arisen in the present appeal is regarding the liability of payment of Provident Fund dues whether has to be borne by the Successful Resolution Applicant or it has to be deducted from the financial outlay under the Resolution Plan. Thus, whether it is the Successful Resolution Applicant which has to bear the burden of Provident Fund dues and Gratuity Dues or it has to be discharged from the financial outlay in the Resolution Plan, is the question to be answered in this appeal.

For answering the issue which has arisen in the appeal, we have to first notice certain clauses of the Resolution Plan. The copy of the Resolution Plan has been brought on the record by Additional Affidavit filed on behalf of the CoC. Clause 4 of the Resolution Plan deals with ‘Financial proposal’. Clause 4.3.1 deals with total financial outlay proposed in the plan, which is Rs.700 Crores. Clause 4.5 of the Resolution Plan deals with Employee/Workmen claim. Clause 4.5.1 and Clause 4.5.2 of the plan is as follows:

Clause 4.5.2 mentioned that the Resolution Plan provides for payment of workmen liquidation dues to the extent of Rs.9 Crores and payment of Rs.0.49 Crores to employees which shall both be on pro-rata basis based on the admitted claims of the employees and workmen.

Learned counsel for the Successful Resolution Applicant has relied on the Clarificatory Note dated 22.03.2022 which was issued by the Successful Resolution Applicant. Clause 1 of the Clarificatory Notes is as follows:

Learned counsel for the Successful Resolution Applicant placed reliance on Clause 1 (vii), as extracted above. The Resolution Plan as updated on 17.03.2022 along with Clarificatory Note dated 22.03.2022 came to be considered in the 26^th CoC meeting held on 22.03.2022. One more clause which is relevant in the Clarificatory Note to be noticed is Clause 6, which provides as follows:

Before the CoC, Voting Agenda 1, which was placed for voting was as follows:

The result of voting on 26^th meeting held on 22.03.2024 was issued on 15.04.2022 as per which Item No.1 was approved with 88% voting rights. The Resolution Plan Clause 4.5, as noted above, dealt with process for payment of workmen liquidation dues to the extent of Rs.9 Crores and Rs.0.49 Crores for the employees. Clause 4.5 clearly does not contemplate payment of any Provident Fund or Gratuity dues. The question which needs to be answered in the present appeal is whether the Clarificatory Note, which was submitted by the Successful Resolution Applicant contemplated to cover Provident Fund or Gratuity dues or not. The clause which needs to be considered is Clause 1 (vii) of the Clarificatory Note, which is as follows:

The above clarification mentioned that if, due to operation of law or by any order of any court or tribunal or for any other reason if any additional amount is payable to any workmen or employees, whether admitted claim or not, crystallised or uncrystallised, known or unknown, present or future, the same shall be paid out of the Total Financial Outlay, and the priority is given in Sub-clause (a) and (b). In view of the above, the purport of Clause 1(vii) is extensive and the SRA’s intent was that if due to any reason by operation of law or by order of any Court or Tribunal any additional amount is to be paid to the workmen and employees, the same shall be paid out of the total financial outlay. We are of the view that the claim of Provident Fund and Gratuity which are liability to be paid as per law to the workmen are clearly covered by a very wide Clause 1(vii). Further, Clause 6 of the Clarificatory Note clearly mentions that the Clarificatory Note shall be deemed to be part of the Resolution Plan and in event there is any inconsistency between the terms of the Clarificatory Note and those of the Resolution Plan, the Clarificatory Note shall prevail. Thus, the intention of the Resolution Applicant was clear that what is contained in the Clarificatory Note has to be given overriding effect.

Learned counsel for the CoC contended that the Clarificatory Note was only with regard to CIRP cost and the clarification which was called for from the SRA was only with regard to CIRP cost, hence, the Clarificatory Note cannot be read beyond clauses pertaining to payment of CIRP cost. Clarificatory Note contemplate certain clarification with regard to CIRP cost, however, the Note cannot be said to be confined to the CIRP cost since any additional cost paid to the workmen and employees were fully covered. Clause 1(vii) cannot be confined to any payment towards CIRP cost only. Thus, the submission of the CoC cannot be accepted that Clause 1 (vii) has to read only confined to CIRP cost. Clause 1(vii) is couched in wide terms and encompasses all liabilities towards any additional payment made to workmen or employees and the entitlement of workmen and employees, as raised in this appeal, which is payment of Provident Fund and Gratuity dues to the workmen and employees, by virtue of law as is now crystalized by judgment of this Tribunal in Jet Airways. We, thus, cannot accept the submission of the CoC that Clarificatory Note has to be confined to only CIRP cost.

Further, as noted above, Clause 6 of the Clarificatory Note gives the overriding effect to the Clarificatory Note over the Resolution Plan. Hence, the Resolution Plan has to be read with in accord with Clarificatory Note. We have already noticed the Agenda Item 1 before the CoC, which in clear terms include the Clarificatory Note, which was put for voting. The Financial Creditors, who were expert in financial matters and were well aware of all contents of the Resolution Plan after considering all aspects of the matter have approved the Resolution Plan. Agenda Item 1 being approved by 88% vote share, approval was for Resolution Plan and Clarificatory Note which was specifically mentioned therein.

Learned counsel for the CoC also sought to contend that Clarificatory Note should be read against the SRA, the document in form of Resolution Plan having been drafted by the SRA, in case of any ambiguity. There is no ambiguity in the Resolution Plan and the Clarificatory Note. The Clarificatory Note is clear and covers any kind of additional payment. In this context, the learned counsel for the CoC has also referred to doctrine of Contra Proferentum. We may refer to judgment of Hon’ble Supreme Court in “(2020) 16 SCC 489, The Silppi Constructions Contractors vs Union of India & Ors.” where the Hon’ble Supreme Court has laid down that author of the document is the best person to interpret the document. In Para 20 of the judgment following was laid down:

This Tribunal also in “Company Appeal (AT) (Ins.) No.1072 of 2023, Authum Investment & Infrastructure Limited vs. SREI Equipment Finance Limited” reiterated the same preposition that the author of the document is the best person to interpret the same. In the present case, the SRA who has submitted the Resolution Plan as well as the Clarificatory Note with overriding clause in Clarificatory Note is the best person to know and explain the contents. More so, the clauses of the Clarificatory Note being not ambiguous does not require any interpretation. It is golden rule of interpretation that when words are clear and does not admit any ambiguity, no principle of interpretation need to be applied.

The learned counsel for the CoC has relied on the doctrine of Contra Proferentum, which doctrine was noticed by the Hon’ble Supreme Court in its judgment in “AIR 2022 SC 3056, Haris Marine Products vs Export Credit Guarantee Corporation (ECGC) Ltd.”. In Para 16 of the judgment, Rule of Contra Proferentum was explained. The doctrine of Contra Proferentum as relied by the CoC does not render any help in the facts of the present case. The Clarificatory Note and the Agenda Item 1 which was put for voting was clear and categorical. The Resolution Plan and the Clarificatory Note which was approved by the CoC cannot be now refuted by learned counsel for the CoC denying any liability.

Learned counsel for the CoC has relied on judgment of Jet Airways. In the judgment of Jet Airways, which was decided by this Tribunal, it is true that one of the questions framed i.e. Question No. II was “Whether the workmen and employees are entitled to receive the payment of provident fund, gratuity and other retirement benefits in full since they are not part of the liquidation estate under Section 36(4)(b)(iii) of the Code?”. The said question was answered in Para 71 of the judgment, which is as follows:

In the Jet Airways case, this Court held that workmen are entitled for payment of Provident Fund and Gratuity dues and directed that the said amount to be paid by the SRA by virtue of Para 134. Subsequently, an application was filed by the Successful Resolution Applicant in Company Appeal (AT) (Ins.) No. 752 of 2021 seeking clarification of the judgment, which too was disposed of on 02.12.2022, where this Tribunal referring to Clause 6.4.2(e) of the Resolution Plan held that clause has only referred to liquidation value of the workmen and did not contemplate Provident Fund and Gratuity of the workmen. As in the present case, Clause 4.5, which we have noticed above which deals with employee and workmen and liquidation value clearly did not include Provident Fund and Gratuity. However, in the present case, the Clarificatory Note Clause 1 (vii) clearly contemplate inclusion of all additional payments to the workmen and employees’ consequent to any law, order of the Court or Tribunal. Hence, Clause 1 (vii) being wide in terms covers payment of Provident Fund and Gratuity Dues, as found by us. No such clause was there in the Jet Airways matter, as has been placed before us in the present case i.e. Clause 1 (vii) of Clarificatory Note and further there was no inter se issue between the CoC and the SRA in the Jet Airways case so it may be any precedence with regard to issue which is in the present appeal. We, thus, are of the view that the judgment of Jet Airways does not render any help to the CoC in the issue which is raised in the present appeal.

In view of the foregoing discussion we are of the view that Clause 1 (vii) of the Clarificatory Note clearly contemplate payment of Provident Fund and Gratuity dues which have to be paid as per priority as contemplated in Clause 1 (vii), as extracted above. Thus, the payment of Provident Fund and Gratuity has to be paid as per the Resolution Plan read with Clarificatory Note Clause 1 (vii) and we do not accept the submission of counsel for the CoC that amount of Provident Fund and Gratuity dues has to be borne by the Successful Resolution Applicant independent of Resolution Plan read with Clarificatory Note.

We have already noticed the amount of Provident Fund and Gratuity as admitted by the Resolution Professional i.e. Provident Fund dues – Rs.11.49 Crores and Gratuity dues – Rs. 8.84 Crores. We, thus, are of the view that the said amount has to be paid as per the Resolution Plan read with the Clarificatory Note.

Now we come to one more submission advanced by learned counsel for the Appellant that Appellants were called to work by the Resolution Professional and they have worked from May to November, 2020 and they have not been paid salary for the aforesaid period. Learned counsel for the Resolution Professional in his reply has admitted that certain employees were called to work and against the work in the month of May and June, 2020 salary has been included in the CIRP cost. In Para 19 of the reply of the Resolution Professional following has been stated:

It has been further stated that entitlement of salary from June to November, 2020 has never been accepted nor the employees actually worked. With regard to salary slips of five employees filed with the appeal, learned counsel for the Resolution Professional submitted that the said salary slips were issued on the request of the employees and is not proof of that they had worked. It is submitted that it is the Resolution Professional who has to take decision regarding allowing employees to work during CIRP period. It submitted by the Resolution Professional that certain employees were called to commence the work but the work did not proceed and in the CIRP cost the Resolution Professional has included the certain part of payment of salary to the workmen and claim of the Appellant for payment of salary from July to November, 2020 cannot be accepted or included in the CIRP cost.

When we look into the minutes of meeting of the CoC held on 22.03.2022, 26^th CoC meeting, details of CIRP cost till 28^th February, 2022 have been included. In Para 4 of the minutes following CIRP cost has been noticed:

The Resolution Professional is the best judge to compute the CIRP cost and pay wages to the workmen during the CIRP period. Thus, the Resolution Plan having already included payment of salary to some extent in the CIRP cost, we see no reason to issue any direction for payment of salary as claimed by the Appellant from month of July to November, 2020.

In result of the foregoing discussion and our conclusions, we dispose of this appeal in following manner: