PF & Gratuity in IBC Liquidation:

Does No Separate Fund Mean No Protection?

Jet Airways Case Explained

Legal Analysis | Supreme Court Order dated 31 August 2026

KEY TAKEAWAY The Supreme Court declined to interfere with the NCLAT's 30 June 2026 order protecting Jet Airways workmen's provident fund, gratuity and pension dues from the liquidation estate. However, the Supreme Court expressly left the broader questions of law open for determination in an appropriate future case.

1. The Supreme Court's 31 August 2026 Order

On 31 August 2026, a three-judge Bench of the Supreme Court comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana declined to interfere with the National Company Law Appellate Tribunal (NCLAT) ruling concerning Jet Airways' employee provident fund, gratuity and pension dues. The case was State Bank of India and Others v. Manoj Kumar Das and Others, Civil Appeal Nos. 10778–10780 of 2026.

The Court noted that the appeals raised arguable questions of law, but, having regard to the peculiar facts and circumstances of the case, it was not inclined to interfere. Crucially, the questions of law were left open for consideration in an appropriate future case.

2. The Core Question: What Happens to PF and Gratuity in Liquidation?

The dispute arose after Jet Airways entered liquidation. The former workmen and employees had outstanding statutory dues, including provident fund and gratuity. The central question was whether these amounts should be treated as part of the liquidation estate and therefore distributed through the Section 53 waterfall, particularly where separate or segregated funds were not available on the liquidation commencement date.

Financial creditors argued for an asset-centric interpretation: if no identifiable PF or gratuity fund existed, there was no fund capable of being excluded from the liquidation estate. The workmen argued that Section 36(4)(a)(iii) is due-centric: the statutory entitlement itself is protected, and the employer's failure to segregate the money should not defeat the employees' rights.

3. Section 36(4)(a)(iii) of the IBC

Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 excludes from the liquidation estate all sums due to any workman or employee from the provident fund, pension fund and gratuity fund.

This provision is central because assets forming the liquidation estate are generally distributed according to the statutory waterfall under Section 53. The legal controversy is whether the exclusion depends upon the physical existence of a segregated fund or instead protects the underlying statutory dues.

PF & Gratuity Protection in IBC Liquidation

4. What Did the NCLAT Decide?

On 30 June 2026, the NCLAT held that PF, gratuity and pension dues payable to Jet Airways' workmen do not form part of the liquidation estate even where segregated funds were not available on the liquidation commencement date.

The NCLAT described the language of Section 36(4)(a)(iii) as 'due centric and not asset centric'. It reasoned that employees should not lose statutory entitlements merely because the corporate debtor failed to maintain a separate PF or gratuity fund.

The NCLAT also directed that 1,656 days spent in litigation beyond the statutory 330-day CIRP period be excluded while determining the relevant 24-month period for workmen's dues under Section 53.

5. Why the Supreme Court's Order Requires Careful Reading

The Supreme Court's refusal to interfere is significant, but it should not be overstated. The Court did not issue a blanket ruling that every unpaid PF or gratuity liability in every liquidation automatically falls outside the liquidation estate.

Instead, the operative result is that the NCLAT's relief to Jet Airways' workmen remains undisturbed. The broader statutory questions—particularly whether unpaid PF and gratuity can be excluded where no separate fund existed—remain open for a future case.

6. The Financial Creditors' Argument

The financial creditors relied on the structure of Sections 36 and 53 of the IBC. Their position was that the liquidation estate consists of assets available for distribution and that, where no segregated fund existed, unpaid liabilities should not be treated as a separate corpus outside the estate.

The Solicitor General, appearing for SBI, also highlighted the recurring nature of the issue and sought authoritative clarification on the relationship between Sections 36 and 53 of the IBC and the treatment of workmen's dues.

7. The Supreme Court's Important Concern

During the hearing, the Bench examined whether an employer's failure to deposit statutory PF contributions could ultimately benefit financial creditors. The Court considered the fact that non-payment of PF may itself attract penal consequences and questioned whether amounts that ought to have been protected for employees should consequently become available for distribution among creditors.

This line of questioning is important because it raises a broader insolvency principle: liquidation should not necessarily convert a statutory default against employees into an advantage for other creditors.

8. Earlier Jurisprudence

The Jet Airways dispute sits within a developing line of insolvency jurisprudence. In State Bank of India v. Moser Baer Karamchari Union, NCLAT held that PF, pension and gratuity dues do not form part of the liquidation estate and therefore are not distributed through the Section 53 waterfall.

The Supreme Court's decision in Sunil Kumar Jain v. Sundaresh Bhatt also recognised the statutory protection accorded to PF, gratuity and pension dues under Section 36(4). These authorities form an important background to the Jet Airways litigation.

The Jet Airways workmen had also previously litigated their PF and gratuity entitlements during the CIRP. The NCLAT's 21 October 2022 decision in Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia addressed these statutory employee benefits in the resolution-plan context.

9. Not Every Employee Claim Is Outside the Waterfall

A critical distinction is that the NCLAT did not place every amount owed to Jet Airways employees outside the liquidation estate. Salary/wage claims are treated differently under the statutory framework.

Claim / Issue	Position in Jet Airways proceedings
Provident Fund	Outside liquidation estate, as held by NCLAT
Gratuity	Outside liquidation estate, as held by NCLAT
Pension fund dues	Outside liquidation estate, as held by NCLAT
Salary dues	Subject to the applicable Section 53 framework
1,656 days of litigation	Excluded for calculation of the relevant workmen's dues period

10. Practical Implications

For employees and workmen, the decision reinforces the argument that statutory social-security benefits should not disappear merely because an employer failed to maintain or segregate the relevant funds.

For liquidators, the decision indicates that, in the Jet Airways factual setting, PF, gratuity and pension claims cannot simply be pushed into the Section 53 waterfall on the sole ground that separate funds were unavailable.

For financial creditors, the decision highlights the potential impact of employee statutory claims on the pool of assets available for distribution. For employers, it reinforces the importance of timely and accurate PF and gratuity compliance, particularly before insolvency or liquidation becomes a possibility.

11. Compliance Perspective

From a compliance perspective, the case demonstrates why PF and gratuity liabilities should be reconciled continuously rather than treated as ordinary book liabilities. Organisations should maintain accurate employee records, reconcile statutory contributions, address arrears promptly and preserve documentary evidence of payments and statutory filings.

Where insolvency proceedings are anticipated or already underway, employee-benefit liabilities should be separately identified and legally reviewed because their treatment may differ fundamentally from ordinary operational or financial debt.

12. The Bottom Line

The Supreme Court's 31 August 2026 order is an important development for employee protection in insolvency law. The Court allowed the Jet Airways workmen to retain the benefit of the NCLAT's ruling, but deliberately stopped short of conclusively resolving the broader statutory controversy.

The most accurate legal takeaway is therefore: the Jet Airways workmen's PF, gratuity and pension relief remains protected, but the wider question of whether Section 36(4)(a)(iii) applies where no segregated fund existed remains open.

Legal Snapshot

Issue	Current position after 31 August 2026
Supreme Court interference	Declined to interfere with the NCLAT order
Jet Airways PF / gratuity / pension	NCLAT protection remains undisturbed
Separate fund as a condition	NCLAT rejected this as a prerequisite; broader issue left open by SC
Section 53 waterfall	NCLAT held it does not apply to PF, gratuity and pension dues
Broader question of law	Expressly left open for an appropriate future case

Primary Sources

• Supreme Court: State Bank of India & Ors. v. Manoj Kumar Das & Ors., Civil Appeal Nos. 10778–10780 of 2026, order dated 31 August 2026.
• NCLAT: State Bank of India & Ors. v. Manoj Kumar Das & Ors., Comp. App. (AT) (Ins.) Nos. 419, 420, 440 & 551 of 2026, judgment dated 30 June 2026.
• Insolvency and Bankruptcy Board of India (IBBI): Jet Airways proceedings and orders.
• Insolvency and Bankruptcy Code, 2016 — particularly Sections 36 and 53.
• Relevant jurisprudence: Sunil Kumar Jain v. Sundaresh Bhatt; State Bank of India v. Moser Baer Karamchari Union; Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia.

Disclaimer: This article is intended for legal and compliance education and general information. It is not a substitute for case-specific legal advice. The broader questions expressly left open by the Supreme Court may be decided differently in a future appropriate case.