Sikander Singh Jamuwal Vs. Vinay Talwar Resolution Professional. - 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’

 NCLAT (11.03.2022) in Sikander Singh Jamuwal Vs. Vinay Talwar Resolution Professional. (Company Appeal(AT) (Ins)No. 483 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’

Excerpts of the order;

# 1. The present appeal has been filed by the Appellant under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 02.04.2019 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal), New Delhi in CA 371/C-II/ND/2018 (IB) -334(ND)/2017.

 

# 2. In order to bring clarity it is mentioned that originally as per the Appeal filed on 29th April, 2019 there were 5 (five) Appellants; but as per the order dated 19th October, 2020 Mr. Santanu, Ld. Counsel for the Appellant made the statement at Bar that Appellants No. 1, 3, 4 & 5 (names given in the memo of parties in bracket as ‘withdrawn’) have reached settlement with the Respondents and he has instruction to withdraw the Appeal. The Appeal was accordingly ‘dismissed as withdrawn’ insofar as the same relates to Appellant No.1, 3 4 & 5. Insofar as, the Appellant No.2 (Sikandar Singh Jamuwal, New Delhi) is concerned, the Appeal was heard and finally ‘reserved for judgment’ on 17th February, 2022.

 

# 3. The Appellant is an ‘ex-employee of the Respondent No.3’ who worked as ‘Supervisor’ (R&D) and he has a total outstanding dues of Rs. 12,49,702/-. It is the grievance of the employee that the employee and workman are the backbone of the Respondent No.3 Company/Corporate Debtor (CD) in CIRP who stood by Respondent No.3 by not resigning even when their rightful dues and salaries were not being paid / irregularly paid from the year 2012 which is much prior to CIRP. It is also their grievance that the ‘Resolution Plan’ has not considered the full Provident Fund (PF) dues (1,35,06,391 full dues –(minus) considered in the Resolution Plan Rs.78,00,000) ‘Provident Fund’ (PF) dues of the employees which R3 /CD in CIRP was supposed to remit to the PF Authority under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 for the default period from 1st October, 2012 to 31st March, 2018 as assessed and communicated by the Assistant Provident Fund Commissioner regional officer Noida, Ministry of Labour and Employment, Govt. of India vide its order no.15521/Noida/48763/Comp.-III dated 19th March, 2019. Apart from the fact that the Resolution Plan is discriminatory insofar as it relates to the employees. It has also been submitted that the ‘Financial Creditors’ (21.6%) have been paid much more than the ‘Operational Creditors’ (12.67%). It is also their grievance that they have not been paid the gratuity amount as required under the ‘Payment of the Gratuity Act, 1952’. In view of the above, the Appellant prays for setting aside the impugned order dated 02.04.2019 passed by the Adjudicating Authority.

 

# 4. Pursuant to issue of demand notice issued to Respondent No.3 by one of the employee of the Company i.e. Nitin Gupta and subsequently on his filing petition, the Adjudicating Authority vide its order dated 26th October, 2017 initiated the CIRP of the CD/Respondent No.3 under Section 9 of the Code. Mr. Naveen Kumar jain was appointed as the Interim Resolution Professional by the Adjudicating Authority who took charge on 18th November, 2017. The IRP was changed in the 1st ‘Committee of Creditors’ (CoC) meeting held on 22nd December, 2017 and Mr. Vinay Talwar, the Resolution Professional (RP) was confirmed by the Adjudicating Authority on 29th January, 2018 (appearing at page no.42 at para 3 of the impugned order).

 

# 5. The CD in CIRP is engaged in designing and manufacturing of customized solutions in the field of electronic/IT applications including digital solutions. The liabilities of the CD as verified by the RP is Rs.68.50 Crore. The Resolution Applicant has provided an amount of Rs.12.99 Crore towards settlement of all past dues and liabilities of the CD which includes an amount of Rs.9 crore towards ‘Secured Financial Creditors’ and Rs. 50 lac towards ‘Unsecured Financial Creditors’. The employees and workman are getting Rs.1.03 crore against the claim of Rs.8.17 crore. What is stated in the impugned order at page 45 para 5 (a) that the Resolution Application will infuse Rs.5 crore as working capital requirement of the Company out of the sale proceeds of the assets of the CD.

 

# 6. The Ld counsel for the Appellant is stated that the Resolution Applicant / R2 is in the business of manufacturing Ghee and schemed milk powder. It is one of the numerous groups of companies headed by ‘Director’ Sharad Maheshwari (appearing at page 11 of the Appeal paper book). It is also revealed from page 41 of the Reply of RP / R1 that Sharad Maheshwari has been supporting the CD since 4-5 years by providing financial facilities.

 

# 7. Pursuant to the issue of notification directing the ‘Prospective Resolution Applicant’ to submit their Resolution Plan by 25th March, 2018. The R2/Successful Resolution Applicant who is also one of the Financial Creditor of the CD submitted the Resolution Plan. The said Resolution Plan was presented in the 5th CoC meeting on 18th April, 2018 but could not be approved due to non-receipt of final approval from head office of Bank of India who is majority shareholder comprising approx. 90% of the voting power. The representative of Operational Creditor expressed their displeasure due to non – payment of gratuity and PF. Their rightful dues were not being paid. However, the revised Resolution Plan was submitted by the R2 to the RP. The revised plan was subsequently approved in the 9th meeting of the CoC of the CD held on 21st July, 2018 (page 46 of the reply of the RP). The extract from the voting on the Resolution Plan reflects the following:

“As per Schedule 8 of Resolution Plan, RA proposed to pay the dues of Rs. 2.80(as 2.25 Crores to BOI) crores before the expiry of 30 days from effective date which is as defined in the Resolution Plan and balance of Rs. 6.75 crores would be paid to Bank of India by 31.03.2019 and to the others within 9 months of the effective date. Further as Schedule 8 on the request of CoC, RA also agreed and ordered to pay 75% of the amount recovered/ realized after the effective date out of the amount outstanding from debtors as per list attached in the Schedule 10.”

 

# 8. It is also revealed from the appeal paper book at page 71 that EPF organization, Govt. of India vide order under Section 7A of the EPF and MP Act, 1952 has determined an amount of Rs.1,35,06,391/- as the dues from the CD for the period upto March, 2018 against which only Rs.78 lacs has been provisioned for in the Resolution Plan submitted by the Resolution Applicant. The Ld counsel for the Appellant has submitted that this is a misconduct on the part of R1/RP in calculating the provident fund amount. The employee has alleged that there is a disparity in releasing the percentage of payment between the dues of Financial Creditor and rightful due of employees and workmen. The plan is discriminatory and non-payment of PF dues amounts to violation of the provisions of EPF and MP Act, 1952. They have also alleged that initiation of CIRP has been filed first by the employees and workmen under Section 9 of the Code and their interest has not been taken care of in the Resolution Plan. The Resolution plan provides for unequal treatment to the employees and is violative of the principles enshrined under Article 14 of the Constitution of India. There is a large gap between the percentage of payment released to the Financial Creditor and workman. They have also challenged that how Resolution Applicant who is in totally unrelated business in dairy industry is eligible to take over highly technical and specialized field working on projects of national importance requiring expertise in the related field. They have alleged that the IRP Mr. Jain has leveled allegations in relation to extortionate transactions inter se between the R3 and sister concerned of R2 and others. They have also alleged that the Director of the Resolution Applicant is a related party and is covered by Section 29A of the Code and is disqualified for being considered as Resolution Applicant.

 

11. The Ld. Counsel for the R2 &3 has stated the followings:

a. The Appellant is the employee/Operational creditor. The Resolution Amount of Rs.12.99 Crore is more than the fair value and the liquidation value.

b. The non priority due of workman and employees were proposed at 7.5% but, however, on the request of the representative of the operational creditor was enhanced to 10% & finally to 12.67% and the Resolution Plan has been unanimously approved in the 9th meeting of the CoC where representative of the Operational creditor was present.

c. They have also stated that since the company has no separate gratuity fund so the employees are not eligible to get the gratuity however the Resolution Applicant has committed to make a payment of 20% of the gratuity claim. They have also stated that the commercial decision of the CoC is non-justiciable. Hence, the appeal needs to be dismissed.

 

# 12. The Adjudicating Authority has approved the Resolution Plan vide impugned order dated 02nd April, 2019 in terms of the approval of the CoC and has also made the following observations as depicted below:

“While we are not endorsing any specified waivers or extinguishing of claims, the Resolution Applicant shall be entitled to all such waivers as are legally permissible under law.”

 

# 13. We have carefully gone through the submissions made by the Ld counsel for the parties and the documents available on records and laid down provisions of the I& B Code, 2016, r/w the provisions of other related Acts as applicable to the case like the Employee Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act), and we are having the following observations:-

a. What is very much clear from the submissions made by the Ld counsel for the parties and the documents available on record that the Resolution Plan fails to consider the payment of provident fund dues as computed by the Assistant Provident Fund Commissioner vide its order dated 19th March, 2019. The Resolution Plan approved by the Adjudicating Authority is on 02nd April, 2019. The amount so computed is Rs.1,35,06,391/- whereas the provisions has been made for Rs.78 lacs only.

 

b. Financial Creditors are being paid 21.6% whereas Operational creditors are being paid 12.67%.

 

c. Let us look at the provisions of Section 31 (1), Section 30(2), Section 36(4)(a) (iii) & Section 238 of the I& B Code, 2016. For ease of convenience the same is extracted below:

It is very much clear vide Section 30(2) (e) that the Resolution Plan does not contravene any of the provisions of the law for the time being in force. The Resolution Professional/Adjudicating Authority is to look at the compliance of the provisions of law. In this context, we have to refer to Section 17-B of the Employees Provident Funds and Miscellaneous Act, 1952 which is depicted below:

“17B. Liability in case of transfer of establishment.—Where an employer, in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or [the [Pension] Scheme or the Insurance Scheme], as the case may be, in respect of the period up to the date of such transfer: Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.]”

From the above stated provisions of the PF Act that the Resolution Applicant is also liable to pay the contribution and other sums due from the employer under any provisions of this act as the case may be in respect of the period up to the date of such transfer.

All this requires that the explicit provisions of the above said PF Act needs to be complied with. This aspect is justiciable as a duty has been casted on the Resolution Professional/Adjudicating Authority/ on this Tribunal. This is not a commercial wisdom as compliance of law is a must. The aspect of parity for payment of Finance Creditors and Operational creditors are not being looked into by this Tribunal as it is a commercial wisdom of CoC.

d. Since no provisions of the above said Act is in conflict with any of the provisions of the I& B Code, the applicability of even Section 238 of the I& B Code does not arise. PF dues are not the assets of the CD as amply made clear by the provisions of Section 36(4)(a)(iii) of the I& B Code, 2016

 

e. In this context, the following judgments are also referred to:

 

i. The judgment of this Tribunal (3 Members Bench – comprising of Hon’ble Chairperson & two Members) in C.A (AT)(Ins) No.354 of 2019, decided on 19th August, 2019 Tourism Finance Corporation of India Ltd. Vs. Rainbow Papers Ltd. & Ors. 2019 SCC Online NCLAT 910 para 44 45 & 46 given below: 

“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.

46. In the result, Company Appeal (AT) (Insolvency) Nos. 354, 364 & 404 of 2019 are dismissed. Company Appeal (AT) (Insolvency) No. 1001 of 2019 is allowed. No costs.”

 

ii. The Hon’ble Apex court Judgment in State of Jharkhand and Ors. Vs. Jiterdra Kumar Srivastava and Anr. (2013) 12 SCC 210 held at para 7 & 8

“7. It is an accepted position that gratuity and pension are not the bounties. An employee earns these benefits by dint of his long, continuous, faithful and un-blemished service. Conceptually it is so lucidly described in D.S. Nakara and Ors. Vs. Union of India; (1983) 1 SCC 305 by Justice D.A. Desai, who spoke for the Bench, in his inimitable style, in the following words:

“The approach of the respondents raises a vital and none too easy of answer, question as to why pension is paid. And why was it required to be liberalised? Is the employer, which expression will include even the State, bound to pay pension? Is there any obligation on the employer to provide for the erstwhile employee even after the contract of employment has come to an end and the employee has ceased to render service? 

What is a pension? What are the goals of pension? What public interest or purpose, if any, it seeks to serve? If it does seek to serve some public purpose, is it thwarted by such artificial division of retirement pre and post a certain date? We need seek answer to these and incidental questions so as to render just justice between parties to this petition.

The antiquated notion of pension being a bounty a gratituous payment depending upon the sweet will or grace of the employer not claimable as a right and, therefore, no right to pension can be enforced through Court has been swept under the carpet by the decision of the Constitution Bench in Deoki Nandan Prasad v. State of Bihar and Ors.[1971] Su. S.C.R. 634 wherein this Court authoritatively ruled that pension is a right and the payment of it does not depend upon the discretion of the Government but is governed by the rules and a Government servant coming within those rules is entitled to claim pension. It was further held that the grant of pension does not depend upon any one’s discretion. It is only for the purpose of quantifying the amount having regard to service and other allied maters that it may be necessary for the authority to pass an order to that effect but the right to receive pension flows to the officer not because of any such order but by virtue of the rules. This view was reaffirmed in State of Punjab and Anr. V. Iqbal Singh (1976) IILLJ 377SC”.

8. It is thus hard earned benefit which accrues to an employee and is in the nature of “property”. This right to property cannot be taken away without the due process of law as per the provisions of Article 300 A of the Constitution of India.

 

f. Hence, We direct the Respondent No.2/Successful Resolution Applicant to release full provident fund dues in terms of the provisions of the Employees Provident Funds and Miscellaneous Provident Fund Act, 1952 immediately by releasing the balance amount of (Rs. 1,35,06,391 full dues – (minus) considered in the Resolution Plan Rs.78,00,000). The impugned order dated 02nd April, 2019 approving the ‘Resolution Plan’ stands modified to the extent above.

 

g. Accordingly, the appeal is disposed of with aforesaid observations and directions. The Appeal is partially allowed.

Pending applications, if any, stands disposed of. No order as to costs.