--- title: "Claim for Unpaid Gratuity Is an Operational Debt Under the IBC, and Workmen Can Invoke Insolvency Proceedings for Its Recovery" date: 2025-06-30 author: "King Stubb & Kasiva" url: https://ksandk.com/newsletter/unpaid-gratuity-is-operational-debt-under-ibc/ --- # Claim for Unpaid Gratuity Is an Operational Debt Under the IBC, and Workmen Can Invoke Insolvency Proceedings for Its Recovery Posted On - 30 June, 2025 • By - King Stubb & Kasiva ## Summary The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, in Company Appeal (AT) (Insolvency) No. 214 of 2024, addressed whether a claim for gratuity with interest qualifies as “operational debt” under Section 5(21) of the Insolvency and Bankruptcy Code (IBC). The appeal was filed by a suspended director of M/s. Juggilal Kamlapat Jute Mills Company Limited (now Geo Jute Ltd.), challenging the order of the Adjudicating Authority (NCLT, Allahabad Bench) that admitted a Section 9 application filed by a workman, Devi Prasad, for unpaid gratuity and interest.  ## Facts - JK Jute Mills Company Limited underwent a series of legal proceedings, beginning with a reference to the Board of Industrial and Financial Reconstruction (BIFR) in 1994 under the Sick Industrial Companies Act.  - The company’s management changed hands, and the BIFR proceedings abated after SICA was repealed in 2016.  - Various suits and writ petitions were filed by and against the company and its workmen, including challenges to asset sales and demands for payment of workmen dues.  - Devi Prasad, a workman, sent a demand notice for unpaid gratuity and subsequently filed a Section 9 application under the IBC.  - The Adjudicating Authority admitted the application, holding that the claim for gratuity with interest constituted an operational debt, and initiated the Corporate Insolvency Resolution Process (CIRP).  ## Issues - Whether a claim for payment of gratuity with interest falls within the definition of “operational debt” under Section 5(21) of the IBC.  - Whether the Section 9 application was barred by res judicata due to earlier proceedings involving similar claims.  - Whether there existed any pre-existing dispute between the parties that would bar the admission of the Section 9 application.  - Whether the application was filed within the limitation period.  ## Held - The NCLAT upheld the Adjudicating Authority’s order, confirming that gratuity with interest awarded by the Labour Commissioner qualifies as “operational debt” under Section 5(21) of the IBC.  - The Tribunal found that there was no pre-existing dispute regarding the gratuity claim, as the Labour Commissioner’s award had become final and was not challenged by the company.  - The argument of res judicata was rejected since the earlier proceedings were dismissed on technical grounds (prematurity) and not on merits.  - The Section 9 application was found to be within limitation, and the CIRP was rightly initiated.  ## Analysis - The Tribunal emphasized that “operational debt” includes claims arising from employment, such as gratuity, which is a statutory right of the employee.  - The award of gratuity with interest by the Labour Commissioner was considered a crystallized debt, and the company’s failure to challenge the award or pay the amount constituted a default.  - The pendency of civil suits filed by the company did not amount to a pre-existing dispute concerning the gratuity claim, as those suits pertained to other issues and did not challenge the Labour Commissioner’s award.  - The Tribunal distinguished the present case from previous judgments cited by the appellant, noting that in those cases, the gratuity had already been paid, or the claims were of a different nature (e.g., leave encashment).  - The Tribunal also observed that the CIRP process was the only viable remedy for workmen to recover their statutory dues, given the prolonged closure and financial distress of the company. *Last Updated on 15 July, 2025* --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)