Liquidator of M/s. Empee Power Company India Ltd. Vs. Stakeholders Consultation Committee & Another - Considering the averments made and in view of the law laid down in the cases supra, we direct that the sum of Rs.47,73,270/- (PF Dues) be treated as the amount outside the liquidation estate and be distributed to the workmen in priority. The remaining sums realized be distributed to the stakeholders in accordance with Section 53 of IBC, 2016.

NCLT Chennai-1  (2024.03.04) in Liquidator of M/s. Empee Power Company India Ltd.  Vs. Stakeholders Consultation Committee & Another  [IA/2191(CHE)/2023 in CP/1254/IB/2018] held that; 

• It is stated that as per Section 36(4)(a)(iii) of the IBC, monies due to any workman or employee from the Provident Fund, Pension Fund, or the Gratuity Fund are considered to be outside the purview of the liquidation estate of the Corporate Debtor. Therefore, monies, insofar as they relate to any PF dues, are beyond the liquidation estate, and accordingly, cannot be subject matter of distribution in terms of Section 53 of the IBC.

• Considering the averments made and in view of the law laid down in the cases supra, we direct that the sum of Rs.47,73,270/- (PF Dues) be treated as the amount outside the liquidation estate and be distributed to the workmen in priority. The remaining sums realized be distributed to the stakeholders in accordance with Section 53 of IBC, 2016.

Blogger’s Comments;

1. Reliance has been placed on three case laws, all are concerned with distribution of funds under the resolution plan during Insolvency Resolution Process.

2. I am a bit confused. Liquidation estate is supposed to comprise assets of the CD. How come PF dues (a liability) can be considered/ discussed as a part or not part of liquidation estate.

3. Provident fund, the Pension fund and the Gratuity fund mentioned under Section 36(4)(a)(iii) are funds created/established under the provisions of Section 16A of EPF & MP Act, 1952 & Section 4A(2) of Payment of Gratuity Act, 1972. 

4. However, the important question here is whether the amount of employees contribution (PF deducted from the salaries of the workmen & employees) & employer’s (CD’s) contribution towards PF, not deposited with  EPFO can/are to be treated as trust funds in the hands of employer (CD), under the provisions of Section 36(4)(a)(i) of the Code

5. As far as non filing of claims by the workmen & employees are concerned, Regulation 19(4) of the Liquidation Regulations is quite clear on this aspect;

• # Regulation 19(4) The liquidator may admit the claims of a workman or an employee on the basis of the books of account of the corporate debtor if such workman or employee has not made a claim.

NCLAT (2022.09.30) 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) 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.

• 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’.

Excerpts of the Order;

This application has been filed seeking the following reliefs:

• a. Permit the Applicant herein to treat Rs.47,73,270/- payable as PF and Gratuity to Workmen, irrespective of whether they have filed their claims or not, as per the books of the Corporate Debtor, as being outside the liquidation estate of the Corporate Debtor which may be distributed directly to the concerned workmen in priority and consequently permit the Applicant herein to distribute the remaining sums realized in the liquidation estate of the Corporate Debtor to the various stakeholders of the Corporate Debtor, in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016; and

• b. Pass such other order or orders as this Hon’ble Tribunal may deem fit.

As per the Affidavit of Service filed vide S.R. No.803 dated 15.02.2024, all the three Respondents were served on 01.12.2023.

This Tribunal vide order dated 02.02.2024, had directed the Applicant to serve copy of the

application on the Respondents again.

Ld. Counsel for the Applicants submits at Bar that all the Respondents were again served on

16.02.2024.

Despite calls and case awaited till 3.15 P.M., none of the Respondents is present. Respondents are set as ex-parte.

Heard.

This application has been filed seeking permission to treat Rs.47,73,270/- payable as PF and Gratuity to the workmen, irrespective of whether they have filed their claims or not, as per the books of the Corporate Debtor, as being outside the liquidation estate of the Corporate Debtor which may be distributed directly to the concerned workmen in priority and consequently permit the Applicant herein to distribute the remaining sums realized in the liquidation estate of the Corporate Debtor to the various stakeholders of the Corporate Debtor, in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016. 

The Corporate Debtor in the present case was admitted into CIRP vide an order 13.01.2019. Since no resolution plan came, liquidation order was passed on 21.02.2022. The Liquidator issued the public notice inviting the claims as detailed in para-1 of the application. About 29 workmen filed their claims for a sum of Rs.45,76,520/- out of which, claim for a sum of Rs.41,15,294/- were admitted. It is stated that the Liquidator sold the assets of the Corporate3 Debtor and realized Rs.15,13,10,000/- which are to be distributed inter-se the various creditors and stakeholders of the Corporate Debtor. It is stated that as per Section 36(4)(a)(iii) of the IBC, monies due to any workman or employee from the Provident Fund, Pension Fund, or the Gratuity Fund are considered to be outside the purview of the liquidation estate of the Corporate Debtor. Therefore, monies, in so far as they relate to any PF dues, are beyond the liquidation estate, and accordingly, cannot be subject matter of distribution in terms of Section 53 of the IBC. Reference is made of the cases.

• “C.G. Vijyalakshmi and Ors. V. Kumar Rajan, RP, Hindustan Newsprint Limited, MANU/NL/0098/2023”, 

• “Jet Aircraft Maintenance Engineers Welfare Association v Ashish Chhawchharia RP of Jet Airways (India) Ltd, Company Appeal (AT) (Insolvency)Nos. 752, 643, 792, 801 915 of 2021, 361, 771 & 987 of 2022 (“Jet Airways)”,

• “Assam Tea Employees Provident Fund Organizatiion, through an Authorized Representative vs Mr. Madhur Agarwal, Comp. App (AT) (Ins.) No.262/2022”.

It is stated that the Hon’ble Supreme Court time and again has held that mere non filing of claim would not denude or deny the benefit of Section 36(4) of the IBC to the concerned department or the workmen.

Considering the averments made and in view of the law laid down in the cases supra, we direct that the sum of Rs.47,73,270/- be treated as the amount outside the liquidation estate and be distributed to the workmen in priority. The remaining sums realized be distributed to the stakeholders in accordance with Section 53 of IBC, 2016.

Accordingly, IA/2191(CHE)/2023 is disposed of.

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