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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Shri Vijay P Lulla, Liquidator of M/s. Bhuvana Infra Projects Pvt. Ltd. Vs. Axis Bank Ltd. & EPFO - Demand made by EPFO levying of liquidated damages & penalty/penal interest during the period of moratorium is not allowable under the provisions of the IBC.

 NCLT Bangaluru 05.01.2023) In Shri Vijay P Lulla, Liquidator of M/s. Bhuvana Infra Projects Pvt. Ltd. Vs. Axis Bank Ltd. & EPFO [I.A No.130 of 2022 in CP (IB) No. 122/BB/2017] held that Demand made by EPFO levying of liquidated damages & penalty/penal interest during the period of moratorium is not allowable under the provisions of the IBC. 

• Section 14 of the Code does not differentiate between any proceedings, whether they are assessment, quasi-judicial or judicial in nature. In fact, a moratorium is imposed on all proceedings irrespective of the nature. The object as succinctly put by the Hon'ble Supreme Court is clearly to shield the Corporate Debtor from all pecuniary attacks.

• This is also evident from a reading of provision 7A of the EPF and MP Act, which describes the proceedings under the said section as judicial proceedings within the meaning of sections 193 & 228, and for the purpose of section 196, of Indian Penal Code.

• The initiation of proceedings by the Respondent would therefore entail imposition of a pecuniary liability on the Corporate Debtor. This is exactly what is prohibited by the Code. 

• The contention of the Respondent therefore that the proceedings initiated are mere assessment proceedings and are not barred under Section 14 of the Code, is therefore liable to be rejected.

• In view thereof, without expressing any opinion on the merits of the Order passed by the Respondent, the orders being in violation of the moratorium imposed are liable to be set aside. Consequently, the recovery notice dated 28.06.2020 and 07.07.2020 are also set aside.

Excerpts of the order;

# 1. I.A No. 130 of 2022 in CP (IB) No. 122/BB/2017 is filed by the Liquidator of  M/s. Bhuvana Infra projects Private Limited (hereinafter referred to as  'Applicant/ Liquidator') U/s 60(5) of IBC, 2016, R/w Rule 11 of NCLT, 2016, by inter-alia seeking to instruct the Respondent No.1 to remit the amount of Rs. 1,92,901/- from the current account No. 51010100624747 of Corporate Debtor by way of DD in favour of "Regional Provident Fund Commissioner, Bengaluru (Koramangala)" along with the Bank Charges of Rs.55,325/- incorrectly levied by the Respondent No.1; and also waiver of penal damages and interest charged by the EPFO during the Liquidation period. 

# 2. Brief facts of the instant Application, which are relevant to the issue in  question, are as follows: 

(1) Initially, the main Company Petition bearing C.P.(IB) No. 122/BB/2017 was filed by M/s. New Age Real Properties LLP (Petitioner), U/s.7 of the IBC, 2016, by inter alia seeking to initiate CIRP in respect of M/s. Bhuvana Infra Projects Private Limited (Corporate Debtor), same was admitted by the Adjudicating Authority, vide its order dated 17.01.2018, by appointing Mr. Pavan Kankani as IRP, imposing moratorium etc. Subsequently, Mrs. Ramanathan Bhuvneshwari was appointed as Resolution Professional vide order dated 04.05.2018. Since, the RP did not receive any Resolution Plans for the Corporate Debtor, so the RP filed an I.A seeking Liquidation and to appoint Mr. Vijay Pitamber Lulla, as the Liquidator and the same was allowed vide order dated 18.12.2019. 

(2) In pursuant to the above, the Liquidator issued public announcement in Form B on 21.12.2019 for purpose of inviting claims. Subsequent to the same, the Liquidator has duly formed a Stakeholders Consultation Committee. Further, due to Covid-19 lockdown, the Liquidator was unable to carry out his duties and filed I.A seeking extension and the I.A  was allowed by this Adjudicating Authority vide order dated 09.03.2021. 

(3) During the course of Liquidation, the Respondent No. 1 informed the Applicant that the Respondent No.2 has issued notice U/s. 7A (2) of the Employees Provident Fund and Miscellaneous Act, to attach the bank accounts of the Company on account of default by the Company to extent of Rs.8,20,528/-- and accordingly, the Companies accounts in Axis Bank were blocked. It was noticed that the Bank Accounts of the Corporate Debtor with the Respondent No. 1 had a balance of Rs.21,70,377/- as on  01.04.2018. Despite having a balance as mentioned above, the Respondent No. 1 did not make any payment. Further, the Liquidator was informed by the Respondent No. 1 that in addition to the above, there was an attachment levied by the Commercial Tax Officer for outstanding VAT dues of Rs.1,71,95,483/-- vide notice dated 03.02.2017 and  Rs. 17,50,13,924/-- vide notice dated 11.06.2019. 

(4) It is submitted that the Liquidator wrote a letter dated 20.02.2021 to the Respondent No.2 and the Commercial Taxes Department stating that the attachment should be lifted and the monies remitted and requested for release of attachments from the Axis Bank accounts, so that the payment of Rs.8,20,528/- can be made on priority. Even after repeated request no payment was made by the Respondent No.1 and they stated that only when the Respondent No.2 and Commercial Taxes Department will remove their attachment from the accounts, the required payment of Rs.8,20,528 can be made. This resulted in an increase in liability of the Corporate Debtor. Later, the Liquidator got the attachment of the Commercial Taxes Department lifted vide letter dated 15.01.2021 and  21.06.2021. 

(5) The Respondent No. 1 informed the Liquidator regarding the another notice dated 12.06.2021 from PF Department for payment of Rs.22,83,476/- to be remitted to them instead of the earlier demand of Rs.8,20,528/- which included the following: 

Sr.No.	Payment Towards	Amount in Rs
1.	7A	10,63,433
2.	PD	2,06,443
3.	7Qq	99,092
4.	PD towards PF Contribution of Rs. 10,63,433/- calculated as on 15.09.2018 the date of letter sent to IRP earlier	3,81,916
5.	7Q towards PF contribution	5,32,592
	Total	22,83,476

(6) It is submitted that after continuous follow-ups and requests Respondent No.1 released the due pertaining to the arrears of PF and interest amounting to Rs. 19,01,560/- except for the penal damages of Rs.3,81,916/- via DD No. 062659 and 062661 dated 24.06.2021 & 25.06.2021. However, the Liquidator again received a letter dated 17.10.2021 from the Respondent No.2 to pay the amount of Rs. 10,70,804/- which includes penal damages of Rs. 10,63,433/- and interest of Rs.7,371/-. The Liquidator requested the Respondent No.2 to waive the amount of penal damages of Rs.3,81,916/- however, the Respondent No.2 declined to waive off the same vide email dated 20.01.2022. 

(7) It is submitted that even after several reminders there was no response received from the Respondent No.1, which resulted into delaying the liquidation process. Further, the Respondent No.1 after releasing the aforesaid payment in favour of EPFO levied bank charges for the period prior to commencement of Liquidation in the account of Corporate Debtor. It is submitted that the direct debit of bank charges without filing claim is a gross violation of section 53 of the IBC, 2016 and the Respondent No.1 being a Bank is well aware of the Liquidation process neither filed any claim nor is releasing the funds from the current account of Corporate Debtor. Hence, the Respondent No.1 is required to refund the amount deducted of Rs.55,325/-. 

(8) It is further requested by the Liquidator to issued direction to the Respondent No.1 to remit the amount of Rs.1,92,901/- along with the Bank charges deducted of Rs.55,325/- from the current account of Corporate Debtor by way of DD in favour of "Regional Provident Fund Commissioner, Bengaluru (Koramangala)" so that the PF dues can be cleared and the account of the Corporate Debtor with the Respondent No.1 can be closed or by issuing a Demand Draft on the name of the Corporate Debtor. Further submitted to direct the Respondent No.2 to waive off the Penal Damages and Interest they levied as the original dues have been cleared and the Corporate Debtor is under Liquidation and it  not able to meet the claim of all its creditors. 

# 3. The Respondent No.2 has filed statement of objections inter-alia contending  as follows: 

(1) It is submitted that on verification of the records, it was noticed that the Corporate Debtor had defaulted in remittance of statutory dues for the  period from 09/2016 to 06/2017 and accordingly, show cause notice was issued to the Corporate Debtor. The Inquiry Officer considering all the facts of the case passed an order dated 06.06.2018 determining PF dues for a sum of Rs.20,94,388/-. 

(2) It is submitted that the Applicant vide letter dated 20.02.2021 informed regarding the Liquidation order and requested for lifting of the attachment. In reply to the Order of Attachment, the Respondent No.1 vide letter dated 09.01.2017 intimated that the Corporate Debtor does  not have sufficient funds in the account and also confirmed that the 3  bank accounts of the Corporate Debtor have been marked as total freeze  and Nil balance available for the accounts as on 15.02.2018. In this  regard the Area Enforcement Officer was deputed to check the status of the attached Bank accounts and it was asked by the Axis Bank to issue  a letter clearly mentioning the amount outstanding and the Bank after  seeking necessary approval as the account is marked under lien, shall  release the outstanding amount and the Authority vide letter dated 12.06.2021 directed the Axis Bank to release Rs.22,83,476/-. 

(3) The Axis Bank forwarded two DDs for total amount of Rs. 19,01,560/- excluding penal damages U/s. 14B amounting to Rs.3,81,916/- through  the Liquidator. Later, the Applicant vide letter dated 29.06.2021 confirmed that the penal damages shall be paid upon Liquidation of the assets and agreed to make payment of penal interest from 10.06.2021 to 25.06.2021. It is submitted that the Respondent No.2 informed the Liquidator that the outstanding dues towards penal damages and penal interest was Rs. 10,70,804/-. Subsequently, the Applicant vide letter dated 05.10.2021 requested for waiver of the penal damages to which, the Respondent No.2 vide email dated 20.01.2022 replied that this  Authority is not empowered to waive-off the penal damages and since this office is not in receipt of any documentary proof of establishment being declared as a sick industrial company by BIFR the request to waiver of damages cannot be accepted. 

(4) It is submitted that after the initiation of the moratorium, the RP is now the employer of the Company and had the responsibility to pay their  statutory dues. If the RP had decided for payment of the determined dues and when sufficient balance was available in the said bank accounts, the heavy burden on the Corporate Debtor on account of penal damages and interest could have been avoided. Further, it is wrong on the part of the Respondent No.1 stating that the PF dues shall be paid only after the lifting of attachment by Respondent No.2 and Commercial Tax Dept. As laid by the Hon'ble Supreme Court in Maharashtra State Co-op Bank Vs. Assistant PF Commissioner & Anr. (Civil Appeal No. 6893 of 2009) (Arising out of S.L.P(C) No. 15243 of 2007), the provident fund and allied dues  including damages and interest have priority on all other dues. The Bank is committed to release the provident fund and allied dues immediately  on receipt of Order of Attachment. 

(5) It is further submitted that based on the assurance of the Liquidator as mentioned above that the Penal Damages and Interest and Provident  Fund dues, if any, shall be paid upon the completion of the Liquidation process, the attachment of the Bank accounts were revoked, but now the  Liquidator seeking waiver is not only illegal but also violation of law in  respect of making false declaration before the Recovery Officer. It is prayed that the Hon'ble Tribunal may direct the Respondent No.1 to release the outstanding dues of Rs. 10,70,804/- towards penal damages and interest to this authority without any further delay. 

(6) The Respondent No. 2 has relied upon the Section 14B, para 32A of the Employees Provident Fund Scheme, 1952, Para 5 of the Employees Pension Scheme, 1995 and Para 8A of the Employees Deposit Linked  Insurance Scheme, 1976 and Para 32 B of the Employees Provident Fund  Scheme, 1952 and Para 8B of the Employees Deposit Linked Insurance Scheme and also relied upon the following judgments of the Hon'ble Supreme Court: 

• i. Organo Chemical Industries and Anr. Vs. Union of India and Ors. (AIR  1979 SC 1803). 

• ii. Chairman, SEBI Vs Shri Ram Mutual Fund and Anr. (Civil Appeal No.  9523-9524/2013) 

• iii. Horticulture Experiment Station, Gonikoppal, Coorg Vs. Regional Provident Fund Organisation (Civil Appeal Nos. 2121, 2135 and 2141 of 2012).  

• iv. Kushal Ltd V. Regional Provident Fund Commissioner-1 and Ors.  (Civil Appeal No. 1920 of 2020). 

• v. R.P.F.C Vs. S.D. College, Hoshiarpur and Ors. cited in  1997(1)LLN.520 

The Respondent No.2 has also relied upon the following judgement of Hon'ble Orrisa High Court in Radhanath Cooperative Press Ltd Vs. Regional P.F Commissioner (1998), the judgment of the Hon'ble High Court of Kerala in the matter of Ernakulam Dist. Co-operative Bank Vs. Regional Provident fund Commissioner (2000-(001-LLJ-1662-KER), the judgment of Hon'ble NCLT, Special Bench, Chennai M/s. Regional Provident Fund Commissioner, Tirunelveli in MA/1227/2018, the judgement of Hon'ble Calcutta High Court in Dalgon Agro Industries Ltd. Vs. Union of India and Ors. (2005(3)LLJ356) and the judgment of the Hon'ble NCLT, Kochi Bench, I.A/176/KOB/2020 in MA/05/KOB/2020  in TIBA/01/KOB/2019. 

# 4. The Applicant has filed rejoinder to the statement of objections filed by the  Respondent inter-alia stating as follows: 

(1) It is stated that the Liquidator made a request for waiver of the penal damages, to which the Respondent No.2 vide its email dated  20.01.2022 refused such a waiver of damages. It is submitted that the Respondent No.2 failed to appreciate that as per Notification dated 30.12.2021 bearing No. KSFC/H.O./ED-1/LEGAL-031/16-17, the Sick Industries Companies (Special Provisions) Act, 1985 stood repealed and both AAIFR and BIFR have been dissolved. Hence, the matters  pertaining to said BIFR are now to be heard before NCLT. 

(2) It is evident that the Corporate Debtor would be categorised as a sick company as the Corporate Debtor incurred losses exceeding its net  worth. Hence, the Respondent No.2 giving a reason that there can be no waiver given for the said reason that it is not classified as a sick  company, it's a frivolous, vexatious and unreasonable excuse on the  part of Respondent No.2. Further, the respondent No.2 has relied on several judgements as annexed to its reply. However, not a single judgment records that the facts of case of those judgments is in respect  of Liquidation. Hence, it is not correct for the Respondent No.2 to state that the Respondent No.2 is empowered to waive off penalty. 

(3) It is stated that the claim of penal damages was made only during CIRP and specially during Liquidation. However, now it is a settled position of law that even though the terms and provisions of Employees Provident Fund and of EPF dues has already being paid amounting to Rs. 19,01,560/-, which has also been admitted by Respondent No.2. However, the fact that the amount of Rs.3,81,916/- which is being claimed as penal damages towards PF contribution cannot be levied as that is nothing but pecuniary liability over the company which cannot  be done after initiation of CIRP. 

(4) The Applicant has relied upon the judgment of the Hon'ble Supreme Court in M/s. Garden View Impex Private Limited Vs. APFC Bangalore, according to which the Section 14B of the EPF Act does not envisage mandatory levying of damages. Further, reliance has been placed on the judgment of Hon'ble NCLT Mumbai in KSS Petron Vineet K Chaudhary Vs. The Regional PF Commissioner bearing I.A No. 1694/2020, I.A No. 1086/2020 and I.A No. 1089 of 2020 in CP (IB) No. 1202/MB/C-II/2017, in which the issue of levying of penal damages and penalties under the EPF & MP Act, during the moratorium period has been specifically dealt with, and the order under Section 7A of the EPF & MA Act demanding payment of liquidated damages and penalty during moratorium period was set aside.. 

# 5. Heard Mr. Chaitanya Nikte, learned Counsel for the Liquidator and Mr. Saravana.P, learned Counsel for the Respondent No.2 and perused the pleadings on record.  

# 6. In compliance to the order dated 18.10.2022, the learned Counsel for the  Liquidator has filed written submissions vide Diary No. 4632 dated 28.10.2022 and the learned Counsel for the Respondent No.2 has filed memo  with citation vide Diary No. 4493 dated 19.10.2022 and the same are taken  on record. 

# 7. It is observed that though the Respondent No.1 having balance of  Rs.21,70,377/- in the accounts of the Corporate Debtor as on 01.04.2018, which was in excess of the amount i.e. Rs.8,20,528/- towards PF dues for the  period 03/2016 to 08/2016 as mentioned in the notice dated 06.01.2017 of  Respondent No.2, the Respondent No.1 did not make any payment to the Respondent No.2. Further, it was noticed that the total amount payable to the Respondent No.2 became Rs.22,83,476/- as on 12.06.2021, due to this non-payment by the Respondent No.1. Thereafter, the Respondent No.1 released dues pertaining to the arrears of PF and interest via. Demand Draft No. 062659 dated 24.06.2021 and 062661 dated 25.06.2021 amounting to Rs. 19,01,560/- which was excluding the penal damages of Rs.3,81,916/-. After releasing the aforesaid payment in favour of EPFO the Respondent No.1 levied bank charges on the Corporate Debtor for the period prior to commencement of liquidation amounting to Rs.55,325/-. Instead of filing the claim with the Liquidator as a creditor the Respondent No.1 has directly debited the bank charges from the current account of the Corporate Debtor, which is a gross violation of Section 53 of the IBC, 2016. Therefore, the bank charges levied by the Respondent No.1 towards issue of DD in favour of  Respondent No.2 is hereby cancelled. 

# 8. Moreover, the amount of Rs. 1,92,901/- lying in the separate current account of the Corporate Debtor with the Axis Bank is also directed to be remitted to  the Regional Provident Fund Commissioner, Bengaluru, in accordance with  request made by the Applicant/Liquidator. Coming to the issue of levying of liquidated damages along with penalty under relevant provisions of the EPF  & MP Act, it is a matter of record that the said levy was made and the demand raised for the first time when moratorium as per Section IBC, 2016 was in  force. The Applicant has furnished copy of the decision of the Hon'ble NCLT  Mumbai Bench, Court II vide order dated 29.07.2022 in KSS Petron Vineet K  Chaudhary Vs. The Regional PF Commissioner bearing I.A No. 1694/2020, I.A No. 1086/2020 and I.A No. 1089 of 2020 in CP (IB) No. 1202/MB/C-II/2017, in which the same issue of legality of order passed under Section 7A, 7Q and 14B of EPF & MA Act and levying of penal damages, penal interest and penalty  during the moratorium period was examined. In this decision it has been held  as under: 

• 12. A plain reading of Section 14 of the Code shows that there is complete prohibition imposed by the legislature on the institution of suits or continuation of proceedings against the Corporate Debtor including execution of any judgement, decree, or order in any court of law, tribunal, arbitration panel or other authority. Section 14 of the Code does not differentiate between any proceedings, whether they are assessment, quasi-judicial or judicial in nature. In fact, a moratorium is imposed on all proceedings irrespective of the nature. The object as succinctly put by the Hon'ble Supreme Court is clearly to shield the Corporate Debtor from all pecuniary attacks. 

• 13. In the case at hand, the proceedings initiated by the Respondent are not mere assessment proceedings as contented by the Respondent. The proceedings are legal proceedings as provided for in the circular dated 14.02.2020 issued by the Respondent, which encompass evidence to be led by parties to reach to a conclusion whether there is any amount which is due or payable under the EPF & MP Act. This is also evident from a reading of provision 7A of the EPF and MP Act, which describes the proceedings under the said section as judicial proceedings within the meaning of sections 193 & 228, and for the purpose of section 196, of Indian Penal Code. 

• 14. Further, in case any amount is due or payable, the Respondent, in terms of provisions of the EPF and MP Act also imposes penalty and damages. The initiation of proceedings by the Respondent would therefore entail imposition of a pecuniary liability on the Corporate Debtor. This is exactly what is prohibited by the Code. The contention of the Respondent therefore that the proceedings initiated are mere assessment proceedings and are not barred under Section 14 of the Code, is therefore liable to be rejected. 

• 18. In view thereof, without expressing any opinion on the merits of the Order passed by the Respondent, the orders being in violation of the moratorium imposed are liable to be set aside. Consequently, the recovery notice dated 28.06.2020 and 07.07.2020 are also set aside.. Accordingly, I.A No. 1694/2020, I.A No. 1086/2020 and I.A No. 1089 of 2020 are disposed of as allowed in above terms." 

Therefore, following the ratio of the above referred judgment of Hon'ble  NCLT Mumbai, the order and demand made consequent to levying of the  liquidated damages and penalty/penal interest during the period of  moratorium is not allowable under the provisions of the IBC, and hence it is  set aside.. 

# 9. In the circumstances, the instant I.A No. 130 of 2022 is allowed with the following directions: 

1. The Respondent No.1 is directed to remit the amount of Rs. 1,92,901/- from the current account No. 51010100624747 of Corporate Debtor by way of DD in favour of "Regional Provident Fund Commissioner, Bengaluru (Koramangala)”. account No. 

2. The Respondent No.1 is also directed to remit the amount of Rs.55,325/- to the Corporate Debtor and thereafter to remit the amount of Rs.55,325/- from the current 51010100624747 of Corporate Debtor by way of DD in favour of "Regional Provident Fund Commissioner, (Koramangala)". Bengaluru 

3. The order of levying the liquidated damages and penalties under  provisions of the EPF & MA Act is hereby set aside.. 

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