NCLT Bangaluru (2022.09.30) in Employees’ Provident Fund Organization (EPFO) Vs. Southern Batteries Pvt. Ltd. [(2025) ibclaw.in 2196 NCLT, I.A. No. 680 of 2024 in C.P. (IB) No. 357/BB/2019] held that;
The legislative intent behind this exclusion is to ensure that amounts already earmarked for employees under statutory social security legislations do not get diluted in the insolvency process and remain sacrosanct for their welfare.
By contrast, interest under Section 7Q and damages under Section 14B of the EPF Act are of a different character. Section 7Q casts a liability on the employer to pay interest for delayed remittances, while Section 14B empowers the authority to levy and recover damages as a penal consequence of default. The statutory design treats these sums as recoveries made by the Provident Fund Organization in its capacity as a statutory authority. They are not automatically earmarked to individual member accounts, and in fact the Act permits the authority to exercise discretion in levying or waiving damages. Thus, their nature is more akin to a statutory impost rather than a crystallized employee entitlement.
Accordingly, it is held that while the Sec. 7A contributions are rightly excluded from the liquidation estate as “sums due to employees”, the 7Q interest and 14B damages are of distinct character, and therefore correctly treated by the Liquidator as statutory dues ranking under Section 53(1)(e)(i) of the Code.
Excerpts of the Order;
# 1. This Application has been filed by Employees’ Provident Fund Organization, (hereinafter called the Appellant), under Section 42 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”), seeking to set aside the Liquidator’s decision treating Section 7Q & 14B of the EPF & MP Act as Government dues and a direction to release the balance amount of Rs. 2,06,02,288/- to the Appellant immediately.
# 2. Brief relevant facts of the Application are as follows: –
i. The CIRP was initiated against the Corporate Debtor on a petition filed by Allahabad Bank under Section 7 of the Code. The same was admitted vide order dated 19.02.2020 in CP(IB) No. 357/BB/2019 and Mr. Ramanahalli Shivanna Dodda Byregowda was appointed as the Interim Resolution Professional. Subsequently, vide order dated 09.04.2021 in IA No. 110/2021, the present Respondent was appointed as the Resolution Professional in place of the earlier IRP.
ii. The Corporate Debtor had been a chronic defaulter in remitting statutory dues to the Employees’ Provident Fund (EPF). After granting opportunity of hearing, the Regional PF Commissioner, Bengaluru, passed an order dated 26.06.2019 under Section 7A of the EPF & MP Act, 1952, assessing the liability of the Corporate Debtor at Rs.1,25,33,751/- for the period – August 2018 to March 2019, excluding statutory interest under Section 7Q and damages under Section 14B.
iii. Upon initiation of CIRP, the Appellant filed its claim in Form-F dated 12.08.2020 (submitted on 18.08.2020) for Rs. 1,27,13,927/- towards PF dues, enclosing supporting documents. The Resolution Professional neither admitted nor expressly rejected the said claim and did not communicate any decision. Despite repeated follow-ups, the dues remained unpaid.
iv. After lapse of nearly two years, the Appellant filed a revised claim on 27.07.2022, enhancing the claim to Rs. 2,93,24,169/-, comprising:
Assessed dues under Section 7A: Rs.1,25,33,751/-
Assessed damages under Section 14B: Rs. 82,341/-
Calculated interest under Section 7Q: Rs. 97,835/-
Anticipated damages under Section 14B: Rs. 1,12,23,138/-
Anticipated interest under Section 7Q: Rs. 53,87,104/-
v. Out of the above, only the principal assessed dues of Rs.1,25,33,751/- were eventually paid by the Liquidator on 02.04.2024 pursuant to a decision of the Stakeholders’ Consultation Committee. The balance claim of Rs.2,06,02,288/- under Sections 7Q and 14B was not admitted.
vi. The Appellant submits that despite numerous reminder letters, including one dated 12.12.2023, the Respondent did not provide any update or formal order regarding acceptance/rejection of the claim. For the first time, vide email dated 11.03.2024, the Respondent sought breakup of dues, to which the Appellant replied with a detailed explanation of law and supporting documents, reiterating its claim of Rs. 2,93,24,169/-.
vii. However, by letter dated 25.03.2024, the Respondent stated that the claim had already been admitted only for Rs.1,25,33,751/- by his letter dated 11.08.2022 (a communication which the Appellant denies ever receiving) and that payment had been made accordingly.
viii. Thereafter, by letter dated 08.04.2024, the Respondent took the stand that dues under Section 7Q (interest) and Section 14B (damages) of the EPF Act do not fall within the exclusion under Section 36(4)(a)(iii) of the IBC and must instead be treated as “government dues” under Section 53(1)(e)(i) of the IBC. Consequently, these dues were not admitted in full. Aggrieved, the Appellant filed the present application.
ix. The appeal is accompanied by a prayer to condone delay in filing beyond the 14-day limitation prescribed under Section 42 of the IBC, on grounds that the Liquidator failed to issue a speaking order, failed to share certified copies of relevant orders, and to properly inform the Appellant in time.
# 3. The Respondent filed written submissions, on 19.07.2025 stating as follows:
i. The Respondent demonstrates the chronology of events where the Appellant had initially filed its claim during the CIRP for a sum of Rs.1,27,13,927/-, of which the Resolution Professional duly admitted an amount of Rs.1,25,33,751/- towards statutory PF dues under Section 7A. The said claim was incorporated in the Resolution Plan approved by this Authority, and subsequently, upon liquidation of the Corporate Debtor, the admitted dues were paid to the Appellant on 25.03.2024.
ii. The Appellant neither filed any revised claim during CIRP nor preferred any claim during liquidation within the timelines prescribed under Regulation 12 and 16 of the IBBI (Liquidation Process) Regulations, 2016, despite repeated public announcements and specific intimations. Instead, the Appellant, much belatedly, issued a corrigendum in July 2022 seeking to introduce “anticipatory dues” and thereafter initiated fresh proceedings under Sections 7Q and 14B of the EPF Act on 30.04.2024, i.e. after commencement of liquidation and even after distribution of liquidation proceeds.
iii. It is submitted that the corrigendum dated 28.07.2022 and the assessment orders dated 30.04.2024 are legally unsustainable. The corrigendum was issued during CIRP and is hit by Section 14 moratorium, while the fresh assessments were made after commencement of liquidation and are barred by Section 33(5). Judicial pronouncements such as Chandra Prakash Jain (Company Appeal (AT) (Insolvency) No. 1856 of 2024) and Manish Kumar Bhagat (Company Appeal (AT) (Insolvency) No. 808 of 2022) hold that no fresh assessment for interest or damages can be made after initiation of CIRP or liquidation.
iv. Also, it is pertinent to note that the amounts now claimed are largely under Sections 7Q and 14B of the EPF Act (interest and penalties). Only principal PF contributions under Section 7A are exempt under Section 36(4)(a)(iii) of the Code. Interest and damages are in the nature of government dues and fall within the waterfall under Section 53, ranking below employees, workmen, and secured creditors. This distinction has been recognized in Shri Addanki Haresh v. EPFO (NCLT Bengaluru, 2022) and EPFO v. Rajat Mukherjee (NCLAT, 2024).
v. The last date for filing claims in liquidation was 08.04.2023. Despite public announcements and direct intimation, no claim was filed by the Appellant. The present demand, raised only through the 30.04.2024 orders, is hopelessly barred by Regulation 16 of the Liquidation Regulations and Section 42 of the Code, since the Application itself has been filed more than six months beyond the 14-day limitation.
vi. Further, regarding the realization of assets, it is submitted that Liquidation assets have already been realized and distributed in accordance with Section 53. The admitted claim of Rs.1,25,33,751 has already been paid. The Corporate Debtor is at the cusp of dissolution. Hence, entertaining belated claims at this stage will upset settled distributions, prejudice other stakeholders, and defeat the objective of speedy resolution under the Code.
# 4. Heard Learned Counsels for the parties and carefully perused the material on record.
# 5. Before adverting to the merits, it is necessary to examine the maintainability of the present Application under Section 42 of the IBC. The said provision explicitly provides that:
“A creditor may appeal to the Adjudicating Authority against the decision of the liquidator accepting or rejecting the claims within fourteen days of the receipt of such decision.”
The time limit of fourteen days is not an empty formality but a conscious legislative choice. The object of the Code is to ensure certainty, speed and finality in insolvency resolution and liquidation. Strict adherence to statutory timelines is the backbone of the scheme.
# 6. The Hon’ble Supreme Court in V. Nagarajan v. SKS Ispat and Power Ltd. (2021) 4 SCC 171 (paras 25–27) has categorically held that the time periods prescribed under the Code are mandatory in nature, and condonation of delay cannot be granted mechanically, particularly when no sufficient cause is shown. The Hon’ble NCLAT has, in several cases reiterated that the 14-day window under Section 42 is sacrosanct and that a belated appeal cannot be entertained unless compelling and exceptional circumstances are established. In the present case, the Appellant has approached this Tribunal well beyond the statutory period of fourteen days where no cogent explanation has been tendered for the delay. The Application merely prays for a waiver of the limitation without demonstrating any exceptional cause such as non-receipt of the decision, illness, or circumstances beyond control. Allowing such belated claims would defeat the very object of the Code, as liquidation cannot be kept in suspended animation at the instance of one stakeholder. Therefore, the Appellant, having failed to approach the Adjudicating Authority within the stipulated period and having shown no sufficient cause for condonation, cannot now seek to reopen the decision of the Liquidator.
# 7. Before proceeding further, it would be in the interest of justice to recall Section 36 and Section 53 of the IBC in order to appreciate the submissions advanced by the Learned Counsels for the parties: . . . .
# 8. This Tribunal takes note of the fact that IBC is a special code governing Insolvency and Liquidation with an integrated waterfall where the legislature deliberately ranked different classes of creditors – and government dues have a fixed place in that ladder. Where a statutory levy falls within “any amount due to Central/State Government” the Code provides for payment under Section 53. It consciously carved out only “sums due to employees” from the liquidation estate. To extend that to statutory penalties and interest and permitting litigants to ignore that distribution based on broad policy claims would enlarge the exclusion beyond the text and disrupt the priority structure of Section 53.
# 9. Section 36(4)(a)(iii) of the Code vehemently provides that the liquidation estate shall not include “all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund.” A plain reading of the provision reveals that the exclusion is specifically targeted at monies that are directly payable to the employees, such as their accumulated contributions or entitlements under these welfare schemes. The legislative intent behind this exclusion is to ensure that amounts already earmarked for employees under statutory social security legislations do not get diluted in the insolvency process and remain sacrosanct for their welfare. By contrast, interest under Section 7Q and damages under Section 14B of the EPF Act are of a different character. Section 7Q casts a liability on the employer to pay interest for delayed remittances, while Section 14B empowers the authority to levy and recover damages as a penal consequence of default. The statutory design treats these sums as recoveries made by the Provident Fund Organization in its capacity as a statutory authority. They are not automatically earmarked to individual member accounts, and in fact the Act permits the authority to exercise discretion in levying or waiving damages. Thus, their nature is more akin to a statutory impost rather than a crystallized employee entitlement.
# 10. This interpretation finds support in decisions of coordinate Benches. In Enviro Bulk Shipping & Services Pvt. Ltd. v. EPFO (NCLT Chennai, 2020), the Tribunal distinguished between contributions payable to employees and penal damages recoverable by the authority, holding that Section 14B dues fall within the ambit of statutory dues payable under Section 53(1)(e)(i). A similar view was expressed in Regional PF Commissioner v. Sholingur Textiles Ltd. (NCLT Chennai, 2020), where damages and interest were treated as government dues under the waterfall. If the argument of the Appellant were accepted, it would result in every statutory levy raised by the Provident Fund authority, regardless of its penal or compensatory nature, being lifted out of the liquidation estate and placed above the waterfall. Such an interpretation would impermissibly enlarge the scope of Section 36(4)(a)(iii) and disturb the carefully balanced distribution scheme of Section 53.
# 11. This Tribunal further derives guidance from the recent judgment of the Hon’ble Supreme Court in Committee of Creditors of Bhushan Power & Steel Ltd. v. JSW Steel Ltd. (Civil Appeal No. 1808 of 2020, decided on September 26th 2025), wherein the Court has reaffirmed the principle that once a Resolution Plan is duly approved under Section 31 of the Code, it attains finality and binds all stakeholders, including statutory authorities. The Hon’ble Court observed that reopening claims or permitting fresh challenges after approval and implementation would “strike at the very root of the IBC framework,” which is predicated upon certainty, finality, and commercial wisdom of the Committee of Creditors. In that case, the Supreme Court emphatically held that claims not forming part of the approved Resolution Plan, or not raised during the CIRP, cannot be entertained at a later stage, whether by way of fresh petitions or collateral challenges. The Court emphasized that judicial fora cannot sit in appeal over the commercial wisdom of the CoC except on the limited grounds expressly enumerated in the Code. Once the plan is partly implemented, any attempt to revert to liquidation or reopen distribution would erode the sanctity of the process.
# 12. Applying this ratio to the present case, the contributions under Section 7A were already accounted for and admitted during the CIRP/liquidation process, and the present claim is a belated attempt to secure additional priority for penal and interest dues. Entertaining such a challenge at this stage would be contrary to the principle of finality laid down by the Supreme Court in Bhushan Power & Steel, and would undermine the binding effect of the resolution/liquidation framework under Sections 31 and 53 of the Code.
# 13. On the other hand, the EPF Act contains separate machinery for assessment, recovery, waiver, and adjustment where that machinery contemplates the EPFO recovering sums in its statutory capacity — this reinforces the view that 14B/7Q are recoveries by a statutory body, not immediate employee entitlements. Allowing every such recovery to leap out of the liquidation estate would effectively nullify that separate statutory mechanism.
# 14. Multiple NCLT judgements, as stated by the Respondent, have held that damages under Section 14B (and in certain cases interest under 7Q) are not sums “due to employees” for the purposes of Section 36(4)(a)(iii) and therefore fall in the Section 53 waterfall as government/statutory dues — particularly where EPFO has not shown the sums are directly attributable to employee accounts or produced clear evidence of vesting.
# 15. Accordingly, it is held that while the Sec. 7A contributions are rightly excluded from the liquidation estate as “sums due to employees”, the 7Q interest and 14B damages are of distinct character, and therefore correctly treated by the Liquidator as statutory dues ranking under Section 53(1)(e)(i) of the Code. This construction harmonizes the social-welfare objective of protecting employees’ actual entitlements with the legislative design of the IBC, which envisages that all other statutory claims must take their place in the waterfall in order to ensure equitable distribution among creditors.
# 16. For the reasons aforesaid, not only the claim in the appeal is grossly time barred but also not sustainable even on merits as interest under Section 7Q and damages under Section 14B of the EPF&MP Act are statutory/government dues, not “sums due to employees” under Section 36(4)(a)(iii) and having been accordingly bracketed, we do not find the Liquidator to have faulted on that count.
# 17. Accordingly, the I.A. No. 680 of 2024 filed by the Appellant is dismissed.
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