The Insolvency and Bankruptcy Code, 2016 creates a tension between maximising creditor recovery and protecting workmen's rights. Analyse with reference to the treatment of PF/gratuity dues in liquidation proceedings.

The IBC, 2016 is built on value maximisation of the corporate debtor's assets for creditors, yet it simultaneously carves out statutory employee welfare funds from that pool [1]. The Jet Airways liquidation shows how these two objectives collide — and how the carve-out has prevailed.

The creditor-recovery logic of the Code

• Section 53 creates a waterfall mechanism: resolution costs first, then secured creditors alongside workmen's dues (24 months), employee dues (12 months), government dues, and unsecured creditors [1].
• Secured financial creditors therefore dominate distribution; IBBI data show realisation against admitted claims remains only around a third, making every rupee outside the estate contentious [5].

The countervailing protection of workmen

• Section 36(4)(a)(iii) excludes sums due to workmen from the provident fund, pension fund and gratuity fund from the liquidation estate — the debtor holds them in trust, not as owner [1].
• Section 30(2)(e) bars resolution plans contravening any law, requiring full PF/gratuity payment [1].
• These flow from independent obligations under the EPF Act, 1952 [3] and Payment of Gratuity Act, 1972 [4], which survive insolvency.

The tension crystallised: Jet Airways

• Post-liquidation (ordered 2024 after the Jalan-Kalrock plan failed), NCLT Mumbai directed the liquidator to pay PF, gratuity and pension dues in full, outside the estate.
• SBI and other lenders appealed, seeking to bring these dues into the waterfall; NCLAT dismissed the appeal, reaffirming the carve-out [2].
• Ethically, these sums are deducted wages, never the employer's money — so lender recovery cannot be built upon them.

The Code thus resolves the tension not by balancing equally, but by placing a floor of social security beneath the creditor bargain, consistent with Article 43's directive on a living wage. Going forward, ring-fenced PF/gratuity trusts, stricter EPFO compliance monitoring during CIRP, and faster time-bound resolution can protect workers without diluting recovery — making the IBC both an efficient and a humane statute.