Supreme Court Declines to Disturb Exclusion of Provident Fund and Gratuity Dues from Jet Airways Liquidation Estate
Background and Facts
A three-judge bench of the Supreme Court on August 31, 2026 declined to interfere with an order of the National Company Law Appellate Tribunal (NCLAT) in State Bank of India and Others v. Manoj Kumar Das and Others [Civil Appeal Nos. 10778-10780 of 2026], leaving intact the finding that provident fund, pension and gratuity dues of former Jet Airways employees fall outside the liquidation estate of the corporate debtor.
Jet Airways (India) Limited was admitted into the Corporate Insolvency Resolution Process and, following the collapse of the approved resolution plan, moved into liquidation. The National Company Law Tribunal directed the liquidator to pay the provident fund and gratuity dues of the airline's former workmen and employees in full. The NCLAT affirmed that direction by its order dated June 30, 2026.
The lenders, led by the State Bank of India, carried the matter to the Supreme Court. Their objection was practical rather than doctrinal. Jet Airways had not maintained segregated provident fund, pension or gratuity funds, and no such corpus existed at the liquidation commencement date. Paying these dues in full, the lenders argued, meant drawing on the same pool of realisations that would otherwise be distributed among secured financial creditors under the statutory waterfall.
Key Legal Issue
The question was whether the exclusion in Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 (IBC) operates where the corporate debtor never maintained a separate fund, and whether dues so excluded must nonetheless compete with secured creditors in the waterfall under Section 53.
The Supreme Court's Order
The bench of Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana dismissed the appeals. The Court recorded that although arguable points had been raised, it was not inclined to interfere with the impugned order.
The order is a refusal to interfere rather than a reasoned affirmation on the merits. Its practical effect, however, is that the NCLAT's construction of Section 36(4)(a)(iii) stands undisturbed and continues to bind tribunals below.
Section 36(4) Is a Carve-Out, Not a Priority
Section 36(1) requires the liquidator to form a liquidation estate from the assets described in Section 36(3). Section 36(4) then removes certain assets from that estate altogether. Clause (a)(iii) excludes
"all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund" from liquidation estate assets.
The distinction matters. An asset excluded under Section 36(4) never enters the estate, so it is not available for distribution to any class of creditor. It is not a first-ranking claim within the waterfall; it sits outside the waterfall entirely. Section 53 governs the distribution of the liquidation estate, and what has been carved out of the estate is not reached by that provision at all.
Absence of a Segregated Fund Is Not a Defence
The lenders' central point was that no fund existed to carve out. That argument has been consistently rejected. The NCLAT has held that the statutory obligation to maintain provident fund, pension and gratuity funds cannot be defeated by an employer's failure to discharge it, and that the exclusion attaches to the
sums due to workmen and employees rather than to the existence of a physically segregated corpus. A contrary reading would reward non-compliance: the employer that never funded its obligations would leave its workforce worse off than the employer that did.
The same reasoning appears in Regional Provident Fund Commissioner-II v. Harshavardhan Cotton and Synthetic Mills Private Limited before the NCLAT, Chennai, where the Tribunal held that provident fund, pension and gratuity dues stand excluded under Section 36(4)(a)(iii) even where no separate funds were maintained, and that interest under Section 7Q and damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 form part of the excluded sums.
Consistency With Moser Baer
The position is anchored in the Supreme Court's decision in Moser Baer Karamchari Union v. Union of India (decided May 2, 2023), which upheld the constitutional validity of Section 327(7) of the Companies Act, 2013 and confirmed that provident fund, pension and gratuity dues are not part of the liquidation estate and are therefore not recoverable through the Section 53 waterfall. The present order applies that principle to a corporate debtor that maintained no separate funds.
Practice Notes
In practice, the order has immediate consequences for liquidators, secured lenders and employee representatives:
For liquidators: Provident fund, pension and gratuity dues must be quantified and discharged in full before the Section 53 distribution is computed, irrespective of whether the corporate debtor maintained segregated funds. Treating these sums as a first-ranking claim within the waterfall, rather than as an exclusion from the estate, is an error that will not survive appeal.
For secured financial creditors: Recovery modelling in liquidation must treat these employee dues as a deduction from realisations before the waterfall begins, not as a competing claim within it. The absence of a funded corpus at the commencement date does not improve the lenders' position.
For workmen and employees: Claims for provident fund, pension and gratuity should be quantified separately from claims for wages and other dues. Wages fall within the Section 53 waterfall and are subject to the twenty-four month and twelve month limitations in Section 53(1)(b) and 53(1)(c); provident fund, pension and gratuity are not, and no such temporal cap applies to them.
For resolution applicants and purchasers: Diligence on a distressed target should verify whether statutory employee funds have been maintained and funded. An unfunded liability of this kind is not extinguished by the liquidation waterfall and will need to be met from realisations.
Key Provisions Discussed
Section 36(1) and 36(3) of the IBC: Formation and composition of the liquidation estate.
Section 36(4)(a)(iii) of the IBC: Exclusion of sums due to workmen and employees from the provident fund, pension fund and gratuity fund.
Section 53 of the IBC: Distribution of the proceeds of the liquidation estate in the order of priority.
Section 327(7) of the Companies Act, 2013: Disapplication of Sections 326 and 327 to liquidation under the IBC, upheld in Moser Baer.
Sections 7Q and 14B of the EPF Act, 1952: Interest and damages on delayed remittance of provident fund contributions.
Case Details
Case: State Bank of India and Others v. Manoj Kumar Das and Others
Case No: Civil Appeal Nos. 10778-10780 of 2026
Court: Supreme Court of India
Date of Order: August 31, 2026
Bench: Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana
Order Below: NCLAT order dated June 30, 2026 affirming the NCLT's direction to the liquidator of Jet Airways (India) Limited
Outcome: Appeals dismissed; the Court declined to interfere with the NCLAT order.
Sources and References
Jet Airways Workmen's PF, Gratuity Dues Must Be Paid, Fall Outside Liquidation Estate: NCLAT
Moser Baer Karamchari Union v. Union of India, decided May 2, 2023
Insolvency and Bankruptcy Code, 2016, Sections 36(1), 36(3), 36(4)(a)(iii), 53
Employees' Provident Funds and Miscellaneous Provisions Act, 1952, Sections 7Q and 14B
Companies Act, 2013, Section 327(7)
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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