NCLAT (19.12.2019) in Regional Provident Fund Commissioner-I, Ahmedabad Vs. Ramchandra D. Choudhary [Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019] held that; -
However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section 36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise.
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. The appeal preferred by ‘Regional Provident Fund Commissioner’ is allowed with aforesaid observations and directions. No costs.
Excerpts of the order;
In the ‘Corporate Insolvency Resolution Process’ of ‘Rainbow Papers Limited’- (‘Corporate Debtor’), the ‘Resolution Professional’ filed application under Section 30(6) r/w Section 31 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) seeking approval of the ‘Resolution Plan’ submitted by ‘Kushal Limited’.
# 2. In the said ‘Corporate Insolvency Resolution Process’, ‘Tourism Finance Corporation of India Limited’ (‘Financial Creditor’) moved Interlocutory Application No. 273 of 2018 alleging that the ‘Tourism Finance Corporation of India Limited’ (one of the Appellants herein) has been wrongly categorized as ‘Unsecured Financial Creditor’.
# 3. Another Interlocutory Application No. 337 of 2018 was filed by ‘Virag Enterprise’, an ‘Operational Creditor’ (Appellant herein) alleging wrong distribution and delayed payment shown in the ‘Resolution Plan’.
# 4. ‘Sales Tax Officer (1), Kadi, Dist. Mehsana, Gujarat’ (one of the Appellants) filed petition and prayed for payment of total dues of Rs.47,35,72,314/- towards Value Added Tax/ Central Sales Tax on the ground that the said ‘Sales Tax Department’ is a ‘Secured Creditor’.
# 5. The Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad, rejected the applications by reasoned order dated 27th February, 2019 and approved the ‘Resolution Plan’.
# 6. The ‘Resolution Plan’ approved by impugned order dated 27th February, 2019 suggests part payment of ‘Provident Fund’. The ‘Regional Provident Fund Commissioner-I, Ahmedabad, challenged the same alleging the plan to the extent of ‘Provident Fund’, is violative of Section 30(2) (e) of the ‘I&B Code’.
Case of the Appellant- ‘Regional Provident Fund Commissioner-I,Ahmedabad’
# 40. According to Appellant- ‘Regional Provident Fund Commissioner’, ‘Successful Resolution Applicant’ is supposed to pay the total provident fund amount, but only a part of the amount has been allowed by the ‘Resolution Professional’.
# 41. It was submitted that the ‘Resolution Plan’ is against the provisions of Section 36(4) (iii) of the ‘I&B Code’ as per which the ‘provident fund’ and ‘gratuity fund’ cannot be included as assets of the ‘Corporate Debtor’.
# 42. An Affidavit has been filed by ‘Kushal Limited’- (‘Successful Resolution Applicant’) stating that the approved ‘Resolution Plan’ has duly taken care of all the statutory dues amounting to total Rs.5.09 crore. It was further submitted that the principal amount of ‘provident fund’ has been taken into consideration whereas the order of levying of interest by the ‘PF Authority’ post ‘Corporate Insolvency Resolution process’ is not permissible under the law for the time being in force.
# 43. Further, according to ‘Successful Resolution Applicant’, Section 7Q and 14B of the ‘Employees Provident Funds and MiscellaneousProvision Act, 1952’ cannot be relied upon as the provision of the ‘I&B Code’ has overriding effect on the same in terms of Section 238 of the
‘I&B Code’.
# 44. However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section 36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise.
# 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. The appeal preferred by ‘Regional Provident Fund Commissioner’ is allowed with aforesaid observations and directions. No costs.
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SUPREME COURT (2020.05.20) In Kushal Limited vs The Regional Provident Fund Commissioner and others (Civil Appeal No.1920 of 2020) ordered as under;
“We find no ground to interfere with the impugned order passed by the Tribunal. The appeal is, accordingly, dismissed.
Pending interlocutory application(s), if any, is/are disposed of.”
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Let’s look into the issues from a different angle.
ReplyDeleteClaims of EPFO have the following components;
- Employee’s contribution (deducted from the wages of the employee)
- Employer’s contribution.
- Interest & penalties
A. Employee’s contribution towards PF (deducted from the wages of the employee) The amount deducted from the salary of the workmen & employees for onward remittance to EPFO for credit to the PF account of the concerned workman or employee, are the trust funds in the hands of the employer (CD). As per section 18(1)(f) of the Code, IRP is required to take control and custody of any asset over which the CD has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets, with the exceptions as mentioned in the explanation in the section;
Explanation. – For the purposes of this section, the term “assets” shall not include the following, namely: -
(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.
In my opinion IRP/RP cannot take possession of the amount deducted from the salary of workmen & employees, lying with CD, pending onward remittance to EPFO. The situation is similar to Section 36(4), which provides for the details of assets which do not form the part of the Liquidation Estate, and are required to be paid off prior the distribution as per Section 53. Similarly, Employee’s contribution towards PF, should be paid prior to distribution under resolution plan.
B. Employer’s contribution with Interest & penalties
Let’s look into the provisions of the Code & E.P.F & M.P. Act, 1952.
I & B Code, 2016
# Section 30. Submission of resolution plan. -
(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board:
E.P.F & M.P. Act, 1952
# Section 11. Priority of payment of contributions over other debts.—
(1). Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due. . . . . . . . .
(2) Without prejudice to the provisions of sub-section (1), if any amount is due from an employer whether in respect of the employee‟s contribution (deducted from the wages of the employee) or the , the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts.
Conjoint reading of the above two provisions, will reveal that provision of payment of Employer’s contribution with Interest & penalties is required to be made in priority to any secured creditor in the resolution plan.