NCLAT (2024.07.09) in Jitender Kumar Jain Vs. Employee Provident Fund Organisation [Company Appeal (AT) (Insolvency) No. 1227 of 2024] held that;
Accordingly, we direct the Liquidator to admit the dues on account of contribution to Provident fund (both employer and employee) and exclude the corresponding amount from the Liquidation estate to be dealt with in priority of all other claims.
We further direct the Liquidator to admit the dues on account of damages and interest as Operational Debt payable to Statutory Authorities and deal with the same accordingly in terms of section 53 of the Code.”
That provident fund claims are not part of the liquidation estate and Section 36 has been considered and interpreted which Judgment has also been affirmed by the Hon’ble Supreme Court.
That provident fund dues cannot be part of the liquidation estate under Section 36.
Blogger’s Comments; In the present case claims of EPFO in respect of PF dues, interest & compensation etc are claims/liabilities of the CD, and the question of their being included or excluded from the Liquidation Estate does not arise. A distinction is required to be made between the assets & liabilities/claims.
The position in this respect stands already clarified by the Appellate Tribunal as well as the Hon’ble Supreme Court in the following cases.
i). NCLAT (30.09.2022) in Mr. B. Parameshwara Udpa RP of M/s. Easun Reyrolle Ltd. Vs. Assistant PF Commissioner EPFO [Company Appeal (AT) (CH) (Ins) No. 231 of 2021] held that;
The `Provident Fund’ referred to Section 36(4)(a)(iii) of the I & B Code, 2016 applies to `Provident Fund Accounts’, maintained as per Section 16-A of the `Employees Provident Fund’ & `Miscellaneous Provisions Act, 1952’.
The Provident Fund referred to Section 36(4)(a)(iii) I & B Code, 2016 applies to Provident Fund Accounts maintained as per Section 16-A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952.
The Exclusion from the Liquidation Estate Assets as well as from Recovery in Liquidation, as stipulated in Section 36(4)(a)(iii) of I&B Code, 2016, applies in respect of sums due to any workman or employee from the Provident Fund, when the Corporate Debtor has maintained an Establishment fund in terms of Section 16-A of the Employees Provident Fund, Miscellaneous Provisions Act,1952.
This `Tribunal’ gave clear verdict that where no fund is created by a Company, the `Liquidator’ should not have been directed to make provision for payment of Gratuity to the Workmen.
Based on this, the only inference which can be drawn is that Pension Fund, Gratuity Fund and Provident Fund cannot be utilised, attached or distributed by the liquidator, to satisfy the claim of other creditors.
In a case, where no fund is created by a company, in violation of the Statutory provision the Section 4 of the Payment of Gratuity Act, 1972, then in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate.
Therefore, the `Resolution Professional’ is not duty bound to make adequate provisions for ‘Provident Fund’ when the `Corporate Debtor’ did not have separate `Provident Fund Account’.
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ii). Supreme Court (19.04.2022) in Sunil Kumar Jain and others Vs. Sundaresh Bhatt and others. [Civil Appeal No. 5910 Of 2019 ] held that;
Considering Section 36(4) of the IB code and when the provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen dues shall be kept outside the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available and the Liquidator shall not have any claim over such funds.
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Excerpts of the order;
O R D E R (Hybrid Mode) 09.07.2024:
Heard Counsel for the Appellant.
# 2. This appeal has been filed against an order dated 12.03.2024 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in I.A. No. 2705 of 2021 filed by the Employees Provident Fund Organisation (EPFO) which has been partly allowed.
# 3. The Learned Adjudicating Authority in paragraphs 3.2 & 3.3 has made following observations:
“3.2. The appellant has claimed dues on account of principal contribution, damages and interest on these two components. In so far as principal contribution is concerned the same no longer forms part of Liquidation estate, hence the Liquidator is directed to exclude this amount from the Liquidation estate and deal with the same in priority over all other claims. In so far as damage and interest are concerned, these dues are not payable to the employees, but the same are contributions to the general fund of Provident Fund Organisation and have statutory force.
3.3. Accordingly, we direct the Liquidator to admit the dues on account of contribution to Provident fund (both employer and employee) and exclude the corresponding amount from the Liquidation estate to be dealt with in priority of all other claims. We further direct the Liquidator to admit the dues on account of damages and interest as Operational Debt payable to Statutory Authorities and deal with the same accordingly in terms of section 53 of the Code.”
# 4. Learned Counsel for the Appellant challenging the order submits that there was no separate account maintained for the PF and claims relate two years prior to the CIRP commencement date.
# 5. Be that as it may, the law is now well settled by the Judgment of this Tribunal in the matter of `Jet Aircraft Maintenance Engineers Welfare Association’ Vs. `Ashish Chhawchharia Resolution Professional of Jet Airways (India) Ltd. & Ors.’ in Comp. App. (AT) (Ins.) 752 of 2021, that provident fund claims are not part of the liquidation estate and Section 36 has been considered and interpreted which Judgment has also been affirmed by the Hon’ble Supreme Court.
# 6. Learned Counsel for the Appellant has referred to the Judgments in the matter of `State Bank of India’ Vs. `Moser Bear Karmachari Union & Anr.’ reported in 2019 SCC Online NCLAT 447 and `Mr. Savan Godiwala’ Vs. `Mr. Apalla Siva Kumar’ in Comp. App. (AT) (Ins.) No. 1229 of 2019. All the above Judgments have been taken note in the Judgment of this Tribunal in `Jet Aircraft Maintenance Engineers Welfare Association’ (Supra) and has been held that provident fund dues cannot be part of the liquidation estate under Section 36.
# 7. We thus do not find any error in the order of the Adjudicating Authority directing the amount to be kept separate from the liquidation estate. There is no merit in the appeal. The appeal is dismissed.
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