Mr. Divyesh Desai Vs. Employees Provident Fund Organisation - It is trite law that PF contributions of the employer and employee which are payable to the employee by the PF department do not form part of liquidation estate and has to be paid to the PF department for onward remission to the concerned employees in priority of all other debt.

 NCLT Mumbai-1 (2024.02.09) in Mr. Divyesh Desai Vs. Employees Provident Fund Organisation [I.A. 53 Of 2022 in C.P.(IB) No. 619/MB/2018 ] held that;

• It is trite law that PF contributions of the employer and employee which are payable to the employee by the PF department do not form part of liquidation estate and has to be paid to the PF department for onward remission to the concerned employees in priority of all other debt. 

• Accordingly, the Liquidator’s determination of the claim for a sum of Rs. 10,79,49,882/- being the amount of contribution to the Provident Fund included in the said demand of the Respondent is correct and that amount shall be considered falling outside the liquidation estate. 

• The remaining claim of the applicant in so far as it pertains to claim of interest and damages or any other contribution not payable to the employees of the Corporate Debtor by such fund shall be regarded as operational debt due to the statutory authorities and considered accordingly in terms of Section 53 of the Code. 

Excerpts of the order;

# 1. This Application bearing IA No. 53 Of 2022, is filed by Mr. Divyesh Desai, Liquidator of Nicomet Industries Limited (Applicant), seeking 

1.1. This Hon'ble Tribunal be pleased to pass an order taking on record the claim in the manner as adjudicated by the Applicant and as more particularly described in the present application; 

1.2. This Hon'ble Tribunal be pleased to pass an order permitting the modification of list of stakeholders filed with this Hon'ble Tribunal, in light of the admission of the claim of the Respondent as verified by the Applicant in the manner as explained in the present application: 

1.3. Pass any order as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the present case. 

# 2. That vide order dated December 14, 2018 this Tribunal appointed Mr. Devang Sampat as the Resolution Professional for carrying out the Corporate Insolvency Resolution Process of the Corporate Debtor. Thereafter, this Tribunal by way of order dated December 16, 2020 initiated the liquidation process of the Corporate Debtor and Mr. Divyesh Desai (the "Applicant/Liquidator") was appointed as the Liquidator of the Corporate Debtor. Thereafter, on December 24, 2020, The Applicant made a public announcement calling upon stakeholders of the Corporate Debtor to submit or update their claims latest by or before January 15, 2021. 

2.1. Pursuant to public announcement, the Employees Provident Fund Organisation ("Respondent") filed their claim in the liquidation process of the Corporate Debtor with the Applicant. During the course of the first meeting of Stakeholders Consultation Committee ("SCC") held on April 5, 2021, the claim filed by the Respondent towards Provident Fund (PF) dues was discussed. During the course of the second meeting of the SCC of the Corporate Debtor held on May 14, 2021, the status of claim adjudication was discussed and the Applicant requested further data and information from the Respondent. Thereafter, the Applicant had addressed an email dated September 6, 2021 to the office of the Respondent thereby informing them that with reference to the claim submitted and information provided by the Respondent, and on the basis of the books of accounts / other records of the Corporate Debtor as available with the Applicant, the Applicant has evaluated the claim and an amount of INR 9,87,66,568/- (Rupees Nine Crores Eighty Seven Lakhs Sixty Six Thousand Five Hundred and Sixty Eight Only) is found to be admissible as more particularly bifurcated and described in the aforesaid email. 

2.2. Further, during the course of the fourth meeting of the SCC of the Corporate Debtor held on September 23, 2021, the Applicant informed about the total amount as found to be admitted in respect of PF dues as claimed by the Respondent. 

2.3. Thereafter, the Applicant visited the office of the Respondent on October 4, 2021 and pursuant to the meeting held on the aforesaid date, the Respondent shared the minutes of the meeting with the Applicant vide email dated October 6, 2021. 

2.4. Subsequently, the Applicant by way of an email dated October 7, 2021 pointed out the omissions and mistakes in the minutes of the meeting shared by the Respondent. 

2.5. The Applicant addressed an email dated October 26, 2021 to the Respondent thereby requesting them to share the document providing claim calculation in terms of Section 7A of the PF Act. Subsequently, The Respondent shared the Microsoft Excel file with the Applicant containing data pertaining to the calculation of dues in terms of Section 7A of the PF Act and the interest charged thereon. 

2.6. Thereafter, the Applicant addressed an email dated November 9, 2021 to the Respondent, thereby stating that the labour charge related liability of INR 475.34 Lakhs was calculated from the balance sheet, and hence, the same must have been taken as annual numbers. The Respondent once again shared the Microsoft Excel Sheet pertaining to calculation of dues in terms of Section 7A of the PF Act. The Applicant once again addressed an email dated November 10. 2021 stating that the Applicant needs break- of the amount of INR 475.34 lakhs pertaining to labour charges on monthly basis. 

2.7. The Applicant finalized the admissible claim amount as INR 12,97,85,105/- (Rupees Twelve Crores Ninety-Seven Lakhs, EightyFive Thousand and One Hundred and Five Only) and communicated the same to the Respondent vide email dated November 18, 2021. The Respondent addressed an email dated December 17, 2021 to the Applicant stating that the assessment of claim by the Applicant is not acceptable to the office of the Respondent and the Respondent further requested the Applicant to consider the claim of the Respondent in entirety viz. INR 20,07,60,746/- and liquidate the said dues immediately. 

# 3. The Respondent No.1 filed affidavit in reply dated February, 2022 stating that an enquiry u/s 7A of the EPF & MP Act 1952 was initiated for the period from 03/2007 to 07/2011 vide summons no. MH/PF/43283/Enf-VIII/RO/KND/3113 dated 04.02.2013 based on default committed by establishment and non-compliance of provisions of EPF & MP Act as per various complaints received and EO report. Later on the enquiry was extended up to 07/2013 vide summons no. MH/43283/Comp-I/RO/KND/1579 dated 26.09.2013 as observed by EO default committed by establishment again. Further, the enquiry was again extended from 08/2013 10 03/2019 Vide no MH/43383/MH/PF Comp-/RO/KND-418 dated 06/12/2019 based on various complaints received in EPF office from employees of establishment and as per EO report duly verifying the records of establishment under which it was found the establishment failed to comply the provisions of EPF & MP Act and made default in remittance of PF contribution of employees, however establishment had deducted PF contribution from employees' salary. In this regard during the default period complaints u/s 406/409 of IPC were also filed with police authorities. An order u/s 7A vide no. MH/43283/comp-I/CIR- 507/RO/KND-II/769 dated 13.12.2019 was passed with assessment of dues for Rs. 10,79,49,882/- for the period 03/2007 to 03/2019. Two order u/s 14B vide dated 13.12.2019 for Rs.4,70,071/- & Rs. 1,06,84,780/- as well as two orders u/s 7Q of the Act dated 13.12.2019 for Rs. 2,21,658/- & Rs. 52,44,363/- for the period from 04/1996 to 10/2019 were also passed by EPFO Authority. 

3.1. During the course of enquiry, it was come to notice that Corporate Insolvency Resolution Process (CIRP) was initiated against the establishment vide NCLT order dated 14.12.2018 and CA Devang Sampat was appointed as Interim Resolution Professional (IRP) for doing the task of CIRP. The same process was not informed by establishment representative during enquiry. Accordingly, this office had filed claim in form no. F with IRP on 14.12.2019 for Rs. 12,45,70,754/-(10,79,49,882/-(7A) + Rs. 1,11.54,851/-414B) + Rs. 54,66.021/-(7Q)) and the same was accepted by IRP. 

3.2. Later on the establishment was considered for Liquidation by NCLT vide its order dated 16.12.2020 and Liquidation commencement date of Corporate Debtor was 16.12.2020. A mail dated 29.12.2020 informing to file fresh claim with liquidator by 15.01.2021 has been received from Liquidator Shri Divyesh Desai. Accordingly, this office has filed claim in Form C with supporting orders/records in favour of dues on 14.01.2021 for Rs. 20,07,60,746/- (7A dues for Rs. 11,45,79,863) 14B(Damages) for Rs. 1,11,54,851 & 70 (interest for 08/1996 to 10/2019 for Rs. 54,66,021 & interest accumulated on 7A dues for said period for Rs. 6.95,60,011/-). The total interest dues is of Rs. 7.50.26.032- (RS 11.45.79,863 Rs. 1.11.54,851 Rs. 7.50,26.032 = 20,07,60,746/-) 

3.3. By various emails, Liquidator called clarification regarding Increase in claim amount. Against which this office has aiso sent various mails/letters 11.02.2021, 17.02 2021, 25.03.2021. 05 04 2021, 01.06.2021 28.06.2021, 06.07.2021, 29.07.2021 clarifying in claim amount as 1. There was some error in calculation in 7A dues i.e. Annexure D part, which rectified and issued corrigendum dated 14.01.2021 calculating actual amount for Rs. 11.45.79,863/- instead of Rs. 10,79,49,882/-, 2. Interest calculated on 7A dues for the period 03/2007 to 03/2019 for Rs. 6,95,60,011/- 

3.4. Despite of several times clarifications offered by this office. the EPFO claim was not accepted & kept on evaluation by the Liquidator. 

3.5. 1st stakeholder’s consultation Committee meeting was held on 05.04.2021, therein EPFO participated and clarified its stand and emphasized on PF dues to be paid on priority over other debt & dues as PF dues is statutory dues and have Ist charge over other debt & due as section 11(2) of EPF & MP Act. 2nd Stakeholders consultation Committee meeting was held on 14.05 2021, therein also not informed that whether EPFO claim has been accepted or not except evaluation. Further, 3rd SCC held on 6th July, 2021, 4th SCC on 23rd September, 2021, 5th SCC on 12th November, 2021 & 6th SCC on 30th December, 2021 held. On 6th September, 2021 an email was received from the office of Liquidator evaluating the EPFO dues for Rs. 9,87,66,568 Hence it was not accepted and scheduled a meeting on 04.10.2021 with Liquidator, which was held on 04.10.2021 in Regional PF Office Kandivali-East by discussing EPFO Provisions and status of EPF dues in the matter. It was also requested by Liquidator during meeting to share the dues calculation excel file to cross examination and re- evaluation. Accordingly minutes of meeting held on 04.10.2021 was sent to Liquidator on 06.10.2021 & excel file was shared to him. Thereafter, an email dated 18.11.2021 has been sent by Liquidator to this office evaluating EPFO dues for Rs. 12,97,85,105/- by waiving of Labour charges for Rs. 4.75 Crores and interest thereon and considering EPFO as Unsecured Operational creditor, which is not acceptable. Hence, this office has issued a mail dated 17.12.2021 to Liquidator objecting evaluation of EPFO dues and informed that the evaluated dues is not acceptable. Further it is also requested to liquidate the EPFO dues in full and on priority basis as PF dues have last charge over other debts & dues as per section 11(2) of the EPF & MP Act and it has also been upheld by the Hon’ble Supreme Court of India. 

# 4. Heard the learned Counsel for both sides and perused the materials available on record. 

4.1. It is trite law that PF contributions of the employer and employee which are payable to the employee by the PF department do not form part of liquidation estate and has to be paid to the PF department for onward remission to the concerned employees in priority of all other debt. Accordingly, the Liquidator’s determination of the claim for a sum of Rs. 10,79,49,882/- being the amount of contribution to the Provident Fund included in the said demand of the Respondent is correct and that amount shall be considered falling outside the liquidation estate. The remaining claim of the applicant in so far as it pertains to claim of interest and damages or any other contribution not payable to the employees of the Corporate Debtor by such fund shall be regarded as operational debt due to the statutory authorities and considered accordingly in terms of Section 53 of the Code. 

4.2. Since, the employer and employee contribution to the provident which is payable by the PF department to the concerned employee is held to be outside the liquidation estate, the whole of such amount whether for the period of CIRP or prior to it shall be payable priority over all other claims. The rest of the amounts shall be admitted as unsecured operational debt and be dealt with in accordance with section 53 of the Code. 

# 5. In view of the aforesaid directions, this I.A. 53/2022 is allowed. 

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Mrs. Teena Saraswat Pandey, Vs, Regional Provident Fund Commissioner, - Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received.

 NCLT Mumbai-V (10.07.2023) In Mrs. Teena Saraswat Pandey, Vs, Regional Provident Fund Commissioner, [I.A. 962 OF 2022 IN C.P.(IB) No. 3703/MB/2019] held that;

• Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. 

• Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. 

• It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process.

• It is evident that the that amount deducted for `Provident Fund’, purely belongs to an `Employees’ and is not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. 

• However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. 

• If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016.

Excerpts of the Order;

# 1. The present Application is filed by the Applicant, namely, Mrs. Teena Saraswat Pandey, under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) seeking directions to the Regional Provident Fund Commissioner (hereinafter referred to as “Respondent”) to remove the lien and release the amount which is held in its custody during the Corporate Insolvency Resolution Process. 

FACTS OF THE CASE 

# 2. The Applicant is the Insolvency Professional of M/s S & H Gears Private Limited (hereinafter referred to as “Corporate Debtor”). 3. Company Petition No. 3703 of 2019 was admitted vide order dated 24.01.2020 under Section 7 of the Code and the Corporate Insolvency Resolution Process was commenced against the Corporate Debtor. Mr. Navin Khendelwal (Erstwhile IRP) was appointed as the Interim Resolution Professional. 

# 4. The Applicant has submitted that even after the erstwhile IRP had published Form A on 18.03.2020, the Respondent issued a notice through its authorised recovery officer on 15.06.2020 in order to initiate recovery proceedings against the Corporate Debtor. 

# 5. The Applicant has submitted that the Respondent had filed its claim vide email dated 01.12.2020 for an amount of Rs.2,98,11,102/- which the erstwhile IRP had accepted vide email dated 01.12.2020. In respect of the said claim, the Respondent had passed multiple orders calling upon the Corporate Debtor to pay the outstanding dues. 

# 6. Referring to the Item No.7 of the minutes of the sixth Committee of Creditors (COC) Meeting conducted by the erstwhile IRP on 16.12.2020, the Applicant has submitted that the erstwhile IRP had specifically taken the permission of the COC to operate the current account of the Corporate Debtor which was maintained in HDFC Bank, Dewas Branch for the receipts and payments during the CIRP Period, until the new current account was opened. 

# 7. The Applicant has submitted that the erstwhile IRP had communicated to the Respondent via email dated 16.04.2021 about the Initiation of CIRP and informed the Respondent that in order to meet the CIRP expenses, the HDFC bank Account needs to be maintained by the erstwhile IRP only and all the other signatories had to be suspended. Further, the erstwhile IRP had also requested the Respondent to instruct the HDFC Bank to remove the lien on the Corporate Debtors Account. The erstwhile IRP had also acknowledged that the Respondent's dues would be distributed as per the provisions of the Code. 

# 8. The Applicant was appointed as the Resolution Professional by the order of this Tribunal 24.06.2021. Subsequent to her appointment, she had taken over the affairs of the Corporate Debtor. It was brought to the notice of the Resolution Professional that one HDFC Bank Account bearing Account Number 08872320000129 (hereinafter referred to as “Bank Account”) was frozen by the Respondent on 24.08.2018 on the ground the Corporate Debtor was a defaulter. Hence the bank account was frozen by the Respondent. 

# 9. The Applicant has submitted that vide emails dated 21.08.2021 and 09.09.2021, she has communicated with the authorized representative of the Respondent and requested the Respondent to release the lien on the bank account in which an amount of Rs.3,81,676.32 was received from the prospective Resolution Applicants during the CIRP. 

# 10. The Applicant has further submitted that she had sent a legal notice on 30.09.2021 to the Respondent and has mentioned about creation of a lien on the accounts of Corporate Debtor which was under moratorium from 24.01.2020. The Respondent had replied to the legal notice through a reply letter dated 13.10.2021 stating that the Corporate Debtor was under liquidation not under CIRP and had asked the Applicant to clear the dues which is totally against the law. 

# 11. With the above averments, the Applicant has prayed to allow the present Applicant. 

REPLY FILED ON BEHALF OF THE RESPONDENT 

# 12. At the outset, the Respondent denied each and every contention raised by the Applicant in the present Application. 

# 13. The Respondent has submitted that the dues as on 23.01.2020 (date of commencement of CIRP) was Rs.3,10,68,057/- for the period from December 2007 to January 2020 under Section 7A, 14 B and 7Q of the EPF and MP Act, 1952 and a further amount of interest of Rs. 41,04,943/- was due under Section 7Q for the period January 2020 to April 2023. 

# 14. The Respondent has further submitted that the Code only provides for moratorium against commercial claims whereas EPF dues are social dues for the welfare of the workers and such statutory dues need to be assessed and recovered in the interest of the workmen so that their financial interests can be secured. 

# 15. The Respondent has further placed its reliance upon Section 529 of Companies Act 1956 and has submitted that the official liquidator is entitled to represent the workmen and enforce such charge. This section specifically empowers the official liquidator to represent the workmen and to enforce pari passu charge in favour of workmen in realization. Therefore, the official liquidator is duty bound to represent workmen even though no claim has been filed with respect to the provident fund dues. This is an obligation to be performed by official liquidator to satisfy the claim of provident fund dues prior to dealing with other debts, being the statutory amount to be paid to the workmen. 

# 16. It has been submitted that under the provision of IBC 2016 and EPF & MP Act, 1952 the Provident Fund dues are one of the most important dues to be considered by the liquidator and has undoubtedly privilege and preference over the other payments due from the corporate debtor. 

# 17. The Respondent has further submitted that the dues of workmen have to be given priority under Section of 53 of the IB Code and EPF & MP Act. It has further submitted that the EPFO Authority submitted a claim before the IRP/Liquidator but the same has not been allowed by the IRP/Liquidator. 

# 18. It has further been submitted that the Resolution Professional, while rejecting the claims of the Respondent, has failed to secure the rights of labourers and also to honour the statutory provisions of EPF Act. The Respondent has further submitted that it is well settled and established law that there is no inconsistency between Section 238 and other provision of IBC and section 11(2) and other provisions of EPF & MP Act. 

# 19. With reference to other contentions and allegation made in the application, the Respondent has denied the same and has prayed for the dismissal of the Application. FINDINGS 

# 20. We have heard the Ld. Counsels appeared for the parties and perused the record. 

# 21. The present Application has been filed by the Applicant against the lien created by the Respondent i.e Regional Provident Fund Commissioner on account of the Corporate Debtor during the pendency of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. 

# 22. It is an undisputed fact that the HDFC Bank Account bearing Account Number 08872320000129 (hereinafter referred to as “Bank Account”) was frozen by the Respondent on 24.08.2018. However, the CIRP was commenced against the Corporate Debtor vide order dated 24.01.2020. 

# 23. The issue which needs to be resolved is – Whether an Attachment on Corporate Debtor's bank account that was imposed before the initiation of CIRP, can continue during Moratorium under Section 14 of IBC? 

# 24. Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 is reproduced as under: Section 14: Moratorium. 

• *14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:— 

• (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; 

# 25. From the above, 14(1)(a), it is clear that continuation of pending suits or proceedings against the ‘Corporate Debtor’ including Execution of any Judgment, decree or order in any `Court of Law’, `Tribunal’, `Arbitration Panel’ or other `Authority’ will temporarily cease to operate during `Moratorium’. The purpose of the Section 14 is to ensure that no depletion of `Assets’ of the ‘Corporate Debtor’ takes place during the ‘Corporate Insolvency Resolution Process’ and the ‘Corporate Debtor’ is allowed to continue as a going concern in order to maximise the value for all the `Stakeholders’. Accordingly, this Bench is of the considered view that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till the completion of CIRP. Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received. It may also be inferred from the circumstances and intent of legislation that in the present cases, the lien created prior to the initiation of the ‘Corporate Insolvency Resolution Process cannot sustain as it will hinder the entire resolution process. 

# 26. The Bench is aware about the provision of Section 36(4) of I & B Code 2016 which provides as under:

•  “36(4). The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation- 

• (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;” 

# 27. From the above referred Section, it is evident that the that amount deducted for `Provident Fund’, purely belongs to an `Employees’ and is not to be treated as an `Asset’ of the ‘Corporate Debtor’ and cannot be touched by an `Interim Resolution Professional’/`Resolution Professional’/ `Liquidator’ as the case may be. However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016. 

# 28. It is pertinent to note that in the present case, the Resolution Professional in the 6th CoC meeting dated 14.12.2020 had sought permission to operate the Current Account which is being maintained with HDFC Bank, Dewas Branch for receipt and payment for the CIRP period and the same was approved by the members of the CoC. However, the said bank account had been frozen by the Respondent on 24.08.2018. Therefore, the Bench is of the considered view that since the Corporate Debtor had not opened a separate Bank Account for the `Provident Fund', the aforesaid account has to be treated as per Section 53 of the I & B Code, 2016. It would be pertinent to mention here that so far as the EPF claims are concerned, the Resolution Professional had admitted the said claims to the tune of Rs. 1,26,12,838/- , based on the records available with the Corporate Debtor and the admitted amount of EPF is proposed to be paid in the Resolution Plan approved by the CoC in its 21st meeting held on 13.12.2021 and 14.12.2021. Therefore, I.A. 962 OF 2022 IN C.P.(IB) No. 3703/MB/2019 9 the continuation of the lien on the bank account would not serve any purpose. 

# 29. Therefore, the Bench is of the considered view that the `Resolution Professional’ is in its right in seeking lifting of the lien created by the Respondent on Bank Account of the Corporate Debtor. 

# 30. Accordingly, this Interlocutory Application No. 962 of 2022 is “Allowed” with an order that the lien created by the Respondent on the HDFC Bank Account bearing Account Number 08872320000129 is hereby quashed/ set aside and the Resolution Professional shall be at liberty to deal with the same in accordance with the IB Code 2016. A copy of this order shall be forwarded to the Bank concerned for necessary compliance. 

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Employees Provident Fund Organisation Vs, Resolution Professional for M/s. Zillion Infraprojects Pvt. Ltd. - Since the EPF dues are not a part of the assets of the Corporate Debtor and are merely in possession of Corporate Debtor, we are of the view that the Applicant was not required to file his claim.

 NCLT New Delhi-IV (24.05.2023) In Employees Provident Fund Organisation Vs, Resolution Professional for M/s. Zillion Infraprojects Pvt. Ltd. [(IB)– 694/(PB)/2018, I.A. 5939/2022 ] held that;

• Therefore, it is clear from the scheme of the Code that EPF dues are not to be included in the assets of the Corporate Debtor.

• Upon commencement of the Corporate Insolvency Resolution Process (“CIRP”), the RP is tasked with making payment of EPF dues during the tenor of the CIRP. Once a Resolution Plan has been received, the Resolution Applicant must provide for payments to the outstanding EPF dues under the Resolution Plan.

• The workmen and employees are entitled for payment of full amount of provident fund and gratuity till the date of commencement of the insolvency which amount is to be paid by the Successful Resolution Applicant consequent to approval of the Resolution Plan

• Since the EPF dues are not a part of the assets of the Corporate Debtor and are merely in possession of Corporate Debtor, we are of the view that the Applicant was not required to file his claim.

Excerpts of the Order;

# 1. This application has been filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016 against rejection of claims of the applicant by the Resolution Professional. The applicant in the present application has prayed for the following reliefs: -

• a) Allow the present application and condone the delay in filing claim;

• b) Direct the Resolution Professional to accept the dues of the Applicant and release the payment amounting to Rs. 9,38,64,181/-; and

• c) Pass any other order which this Hon'ble Tribunal may deem fit and proper in favour of the applicant,

# 2. Briefly stated the facts of the case as mentioned in the instant application, which are necessary for adjudication, are as follows: -

• i. That the Corporate Debtor came under the purview of Employees Provident Fund and Miscellaneous Provisions Act. 1952 and was required to pay the contribution and allied dues under code no. DL/15128 pertaining to the Employees' Provident Fund contributions.

• ii. That the establishment defaulted to pay the contributions and other allied dues for the period 04/2018 to 01/2019, within the prescribed time in respect of various employees.

• iii. That the Applicant organization issued a notice u/s 7A of the EPF Act bearing No. E/DL/15128/Comp- 4/10066 dated 12.02.2019.

• iv. That subsequently, vide email letter dated 01.11.2021 the respondent informed the applicant that company is in CIRP and most of staff has left the corporate debtor and records are not in synchronized manner and therefore company requested to provide a time period of 15 days to collate and compile all the remaining required documents.

• v. That vide letter dated 13.04.2022, the applicant informed the respondent /establishment and made demand of payment of Statutory EPF & allied dues amounting to Rs.5,22,37,018/- (considering tentative date as on 13.04.2022 of deposit of assessed dues vide 7A order dated 13.12.2021). It was communicated to respondent to make the payment of dues pertinent to workmen of the establishment.

• vi. That vide email communication dated 02.05.2022, the Respondent denied to recognize the outstanding dues of the establishment under the garb of the section 14 and 238 of IBC, 2016. 

• vii. That this Tribunal has not approved the resolution plan. Hence, the applicant may be permitted to file the claim or PF due may be cleared by the establishment/resolution professional. Further, the PF contribution shall be deemed to the first charge on the assets of the establishment. 

• viii. That Section 11 of the Employee Provident Fund Act, 1952 clearly states that the EPF dues have priority of payment of contributions over other debts of the insolvent company.

# 3. The resolution professional of the Corporate Debtor had filed his reply to the averments of the applicants. The defence taken by the resolution professional, respondent herein, are

stated in brief as below: -

• i. That, the RP made public Announcement on 07.02.2019 for inviting the claims of the Creditors of the CD, wherein no claim was received by the RP from the Applicant even after the expiry of 90 days from the date of CIRP in view of Regulation 12(2) of IBBI (Insolvency Resolution Process for Corporate Person) Regulation, 2016 (hereinafter referred to as “CIRP Regulations”).

• ii. That in the 23rd CoC meeting held on 03.07.2020, the CoC members approved the Resolution Plan with 88% voting shares. Thereafter the RP submitted the Resolution Plan before this Tribunal on 25.07.2020 vide IA 3018/2020.

• iii. The Applicant was required to submit its claim before the RP on or before 19.02.2019 (90 days from Insolvency Commencement date). However, the Applicant has not filed its claim till date.

• iv. That admitting the claim at a belated stage will not only affect the stakeholders but CIRP would be jeopardized. 

• v. It is submitted that CIRP is a time bound process and there are various duties which are entrusted to the RP and the CoC.

4. We have gone through the rejoinder and documents on record filed by both the parties and arguments advanced by counsels of both the parties.

5. Employee Provident Fund (“EPF”) dues pertain to contributions that are to be made by the employer on behalf of the employee as a part of the employee welfare scheme mandated by the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (“EPF Act”). Accordingly, Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 provides that all sums due to any workmen or employee from the provident fund are assets owned by a third party which are in possession of the Corporate Debtor held in trust, and will therefore not form part of the liquidation estate of the Corporate Debtor. The intent of the legislature can be further ascertained by referring to para 5.5.5 of the Bankruptcy Law Reforms Committee (BLRC) Report, wherein the Committee observed that assets held in trust such as pension funds will not include assets of the Corporate Debtor and could therefore not be used to realize the dues of the creditors. Therefore, it is clear from the scheme of the Code that EPF dues are not to be included in the assets of the Corporate Debtor.

6. Payment of EPF dues is a statutory liability that needs to be undertaken by the management of the establishment. Since the management of the Corporate Debtor passes over from the Suspended Directors to the Resolution Professional (“RP”) upon commencement of the Corporate Insolvency Resolution Process (“CIRP”), the RP is tasked with making payment of EPF dues during the tenor of the CIRP. Once a Resolution Plan has been received, the Resolution Applicant must provide for payments to the outstanding EPF dues under the Resolution Plan.

7. The Hon’ble NCLAT in Tourism Finance Corporation of India Pvt. Ltd. v. Rainbow Papers Ltd & Ors, Company Appeal (AT) (Insolvency) No. 354 of 2019, allowed an appeal filed by the Regional Provident Fund Commissioner for non-payment of entire EPF dues along with interest calculated as per the provisions of the EPF Act, by concluding that there was no inconsistency between the EPF Act and the Code since EPF dues have been categorically treated as assets not forming part of the liquidation estate under Section 36(4)(a)(iii) of the Code. The NCLAT partially modified the approved Resolution Plan while making the following observation: 

• “45. Therefore, we direct the ‘Successful Resolution Applicant’- 2nd Respondent (‘Kushal Limited’) to release full provident fund and interest thereof in terms of the provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ immediately, as it does not include as an asset of the ‘Corporate Debtor’. The impugned order dated 27th February, 2019 approving the ‘Resolution Plan’ stands modified to the extent above.”

8. Further, the Hon’ble NCLAT in Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia Resolution Professional of Jet Airways (India) Ltd. & Ors Company Appeal (AT) (Insolvency) No. 628 of 2020 held as follows:

• “The workmen and employees are entitled for payment of full amount of provident fund and gratuity till the date of commencement of the insolvency which amount is to be paid by the Successful Resolution Applicant consequent to approval of the Resolution Plan in addition to the 24 months workmen dues as the workmen is entitled to under Section 53(1)(b) of the Code. It is made clear that in addition to part amount of provident fund and gratuity as proposed in Resolution Plan to workmen, Successful Resolution Applicant is obliged to make payment of balance unpaid amount of provident fund and gratuity to workmen and employees.”

9. In light of the above judgements, we are of the view that the EPF dues being a statutory liability of the Corporate Debtor cannot be escaped. The delay in claiming the EPF dues was on account of delay in adjudication of Section 7A proceedings under The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Section 36(4) of IB Code, 2016 states that all sums due to any workmen or employee from the provident fund, the pension fund and gratuity fund will not be included in the liquidation estate assets and shall not be used for recovery in the liquidation. Since the EPF dues are not a part of the assets of the Corporate Debtor and are merely in possession of Corporate Debtor, we are of the view that the Applicant was not required to file his claim. Rather, the Resolution Professional was duty bound to release the dues of the Applicant. The EPF dues are to be given priority over all the other creditors during Liquidation. We thereby direct the Respondent/Resolution Professional to consider the claim of the Applicant. Further, since the Resolution Plan has already been approved by the CoC, the Resolution Professional should take steps to apprise the Successful Resolution Applicant (“SRA”) about the claim of the Applicant to enable the SRA to make amends in the Resolution Plan to provide for the claim of the Applicant. In the alternative, the SRA may file an additional affidavit undertaking to settle the claim of the Applicant.

10. I.A. 5939/2022 stands allowed and disposed off. Let copy of the order be served to the parties concerned.

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