S. Dhanapal, Liquidator of Servalakshmi Paper Ltd. vs Income Tax Officer and Anr. - The aspect of inconsistency could be made subject to judicial scrutiny only when the Appellant, approaches before the Income Tax Authorities, seeking an order of exemption under Section 140 of the Income Tax Act, and the decision of the Income Tax Authorities, on said aspect of extension / non-extension of the exemption as pleaded by Appellant under Section 140 of the Income Tax Act, is given.

 NCLAT (2026.04.02) in S. Dhanapal, Liquidator of Servalakshmi Paper Ltd. vs Income Tax Officer and Anr. [(2026) ibclaw.in 597 NCLAT, Company Appeal (AT) (CH) (Ins) No. 644/2025] held that;-.

• Rather, the fact is just the opposite, where the Ld. Adjudicating Authority by the impugned order has directed that the Liquidator was to approach the Income Tax Authorities along with an account sheet showing the income and expenditure on the basis of the existing balance sheets, prepared during the liquidation period, and upon submission of the said documents, Income Tax Authorities were to take an appropriate decision on the application.

• The questions of what exemptions the Appellant would be entitled and whether Appellant would be entitled to verify the returns as per Section 140 of the Income Tax Act would still be a decision, falling within the domain of the decision-making process of the Income Tax Authorities, and not within the domain of adjudication of either the Ld. NCLT or in continuation thereto before this Appellate Tribunal.

• The aspect of inconsistency could be made subject to judicial scrutiny only when the Appellant, approaches before the Income Tax Authorities, seeking an order of exemption under Section 140 of the Income Tax Act, and the decision of the Income Tax Authorities, on said aspect of extension / non-extension of the exemption as pleaded by Appellant under Section 140 of the Income Tax Act, is given.

• It is only there is a decision of the Income Tax Authorities then only the Appellant gets an actual cause of action to approach before the competent Authorities created under the I & B Code, 2016, for redressal of his grievances and not before it.

Blogger’s comments;  Hon’ble NCLAT (08.02.2021) in Om Prakash Agrawal Liquidator - S. Kumars Nationwide Limited Vs Chief Commissioner of Income Tax (TDS) [Company Appeal (AT) (Insolvency) No. 624 of 2020] held that TDS deduction during liquidation process tantamounts distribution, which cannot be violative of the provisions of Section 53 waterfall. 

• Actually TDS under Section 194 IA, is an advance capital gain tax, recovered through transferee on priority with other creditors of the company. Hence, inconsistent with the provision of Section 53 (1) (e) of the Code and by virtue of Section 238 of the Code, the provision of Section 53(1) (e)shall have overriding effect. Thus, the impugned order is not sustainable in law. Therefore, it is hereby set aside.

Excerpts of the Order;

The Appellant, Liquidator, having been thus appointed in pursuance to the order dated 24.04.2018 as passed by Ld. NCLT, Chennai Bench, in CA/152/IB/2018, which was preferred in CP/514/IB/2017, was to act as a Liquidator in the liquidation process of M/s. Servalakshmi Paper Limited, which was undergoing with the liquidation process, on the basis of the proceedings that were being held under Section 9 of I & B Code, 2016, at the behest of the Operational Creditor, M/s. Shakti Energy Private Limited.

# 2. In the proceedings thus carried, owing to the fact that, after the admission of the CIRP process by an order of 21.06.2017, as there was no acceptable plan, which was received thereafter, the Corporate Debtor was directed to face the liquidation process by an order dated 24.04.2018. In pursuance to the orders that has been passed by the Ld. Adjudicating Authority, the assets of the Corporate Debtor, M/s. Servalakshmi Paper Limited, were said to have been sold as a going concern basis, by way of an e-auction, that was held on 05.10.2022, showing the realisation of the sale consideration of Rs. 105 Crores.

# 3. The amount thus realised under the e-auction process, as it stood concluded on 05.10.2022, the sale consideration amount, pending distribution to the stakeholders, was directed to be kept in a fixed deposit with Respondent No.2, the State Bank of India. Obviously, the amount thus deposited in the shape of a fixed deposit with the State Bank of India, was bound to accrue interest upon it as per admissible rates. The Respondent No. 2, before remittance of the amount of interest accruing on the fixed deposit into the liquidation account, had deducted TDS on the same. It is contended by the Appellant, that the said deduction of the TDS amount from the interest accruing on the fixed deposit by Respondent No. 2 on the fixed deposit kept with it, was unlawful.

# 4. For the purposes of airing his grievances, the Appellant contended that in fact no TDS could have been deducted on the interest accruing on the fixed deposit by Respondent No. 2 and that, he has written a letter on 13.04.2023 to Respondent No. 2, to refund the amount of TDS which has been thus deducted and further, not to deduct the said amount in future from and out of the interest, which was accruing on the said fixed deposits.

# 5. The grievance of the Appellant is that, despite the said correspondence of 13.04.2023, seeking a restraint from deduction of the TDS from the interest earned on fixed deposit, they contended that Respondent No. 2 thereafter still persisted with the deduction of the TDS amount at source, on the interest accruing on the fixed deposit, ignoring the request made by the Appellant. The Appellant contends that, for the purposes of seeking a restraint, as against Respondent No. 2, from deducting the TDS on the interest, they have also written a letter to the Respondent No. 1, pointing the above grievance.

# 6. In response to the said letter written by the Appellant to the Income Tax Department, the Respondent No. 1, in turn, has requested the Liquidator to file the return of income tax for all the assessment years for claiming refund as against the TDS deductions, already made.

# 7. It is contended by the Appellant that, when there was no positive response extended, nor there was a restraint from deduction of the TDS from the interest accruing on the fixed deposits, and when despite various correspondences, as endeavoured to be made by the Appellant were not heeded, they filed an application before the Ld. Adjudicating Authority, being IA(IBC)/74(CHE)2025, seeking a direction to the Respondent No. 1 to return the TDS amount along with the interest, and further sought a direction that Respondent No. 2 may not in future deduct the TDS from the interest accruing on the fixed deposit, which was deposited in pursuance to the e-auction of 05.10.2022. It is this application, which has been disposed of by the Ld. Adjudicating Authority, by the impugned order, dated 25.11.2025, which is under challenge, in the instant company appeal.

# 8. In the IA which was thus preferred by the Appellant, in CP/514/IB/2017, being IA(IBC)/74(CHE)2025, the Appellant has sought for a prayer to the following effect:

This Application has been filed seeking the following reliefs: –

• “a. To direct the Income Tax Department to return TDS of Rs.1,57,47,550/- deducted till filing this Application along with interest of 12% per annum in the Liquidation Bank account of the Corporate Debtor M/s. Servalakshmi Paper Limited (in Liquidation). 2

• b. To direct the State Bank of India further not to deduct the TDS in the Fixed Deposits maintained with them till completion of Distribution to the stakeholders of the Corporate Debtor M/s. Servalakshmi Paper Limited (in Liquidation).

• c. To provide any other relief which may be found suitable to facilitate the Applicant to discharge his functions effectively and such further orders be passed directions be given as your Lordships may deem fit and proper.”

# 9. While considering the aforesaid application filed by the Appellant, in context of the relief that was sought by the Appellant/Applicant, the Ld. Tribunal observed that, primarily since the relief, which was sought in the application was in context of certain income tax refunds, which was made in the form of TDS deposits, which was deducted by the Respondent No. 2, and as per the law prevailing under the Income Tax Act, and besides also as per the stand taken by the income tax authority too before the Ld. Adjudicating Authority, the Liquidator was bound to file the income tax returns on the basis of the existing balance sheets, showing the income and expenditure, which would be obviously reflecting the interest accruing on the fixed deposit and the deduction of the TDS as made by Respondent No. 2 on the said interest, that was bound to be reflected in the balance sheet showing them as to be the income accruing from the deposits.

# 10. In accordance with the stand taken by the Liquidator, before the Ld. Adjudicating Authority, the Liquidator contended that contrary to the stand taken by the income tax authorities that income tax returns are required to be filed by the Liquidator, on the basis of the amount reflected in the balance sheet, the Liquidator is exempted from filing the income tax returns for claiming refund, and in reference thereto, the Ld. Counsel for the Appellant/Liquidator has drawn attention of this Appellate Tribunal to the provisions contained under Section 140 of the Income Tax Act. Section 140 of the Income Tax Act is extracted hereunder: –

• 140. Return by whom to be 3[verified].— The return under 1[Section 115-WD or] Section 139 shall be 3[verified] and verified—

• (a) in the case of an individual,—

• (i) by the individual himself;

• (ii) where he is absent from India, by the individual himself or by some person duly authorised by him in this behalf;

• (iii) where he is mentally incapacitated from attending to his affairs, by his guardian or any other person competent to act on his behalf; and

• (iv) where, for any other reason, it is not possible for the individual to 6[verify] the return, by any person duly authorised by him in this behalf:

• Provided that in a case referred to in sub-clause (ii) or sub-clause (iv), the person 7[verifying] the return holds a valid power of attorney from the individual to do so, which shall be attached to the return;

• (b) in the case of a Hindu undivided family, by the Karta, and, where the Karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family;

• (c) in the case of a company, by the managing director thereof, or where for any unavoidable reason such managing director is not able to 5[verify] the return, or where there is no managing director, by any director thereof 10[or any other person, as may be prescribed for this purpose]:

• Provided that where the company is not resident in India, the return may be 4[verified] by a person who holds a valid power of attorney from such company to do so, which shall be attached to the return:

• Provided further that,—

• (a) where the company is being wound up, whether under the orders of a court or otherwise, or where any person has been appointed as the receiver of any assets of the company, the return shall be 4[verified] by the liquidator referred to in sub-section (1) of Section 178;

• (b) where the management of the company has been taken over by the Central Government or any State Government under any law, the return of the company shall be 4[verified] by the principal officer thereof 8[or];

• 9[(c) where in respect of a company, an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under Section 7 or Section 9 or Section 10 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the return shall be verified by the insolvency professional appointed by such Adjudicating Authority.

• Explanation.— For the purposes of this clause the expressions “insolvency professional” and “Adjudicating Authority” shall have the respective meanings assigned to them in clause (18) of Section 3 and clause (1) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016);]

• (cc) in the case of a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to 5[verify] the return, or where there is no managing partner as such, by any partner thereof, not being a minor;

• 2[(cd) in the case of a limited liability partnership, by the designated partner thereof, or where for any unavoidable reason such designated partner is not able to 5[verify] the return, or where there is no designated partner as such, by any partner thereof 11[or any other person, as may be prescribed for this purpose].]

• (d) in the case of a local authority, by the principal officer thereof;

• (dd) in the case of a political party referred to in sub-section (4-B) of Section 139, by the chief executive officer of such party (whether such chief executive officer is known as Secretary or by any other designation);

• (e) in the case of any other association, by any member of the association or the principal officer thereof; and

• (f) in the case of any other person, by that person or by some person competent to act on his behalf.

11. In accordance with the finding, which has been recorded by the Ld. Adjudicating Authority, it was observed therein that, the return, which are submitted under Section 115 WD or under Section 139 of the Income Tax Act, are simplicitor required to be verified, in respect to the company, which is admitted to the CIRP process. Verification of the returns in respect of the company was a procedural requirement as per the provisions contained under Section 140 of the Income Tax Act, which specifically mentions that insolvency professional has to verify the return.

# 12. It was observed that in the light of the ratio laid down in the Matters of IA No. 659/2013 in CP (IB)/No.26/7/HDB/2018 Allahabad Bank Vs. Transstroy Tiruthani Chennai Tollways Private Limited, therein the Ld. NCLT has taken a view, that owing to the fact that Section 140 of the Income Tax Act, is silent as to, whether the insolvency professional meant the Resolution Professional during the CIRP or, the Liquidator during the liquidation process, who was required to verify the return.

# 13. Ld. NCLT observed that looking into the broader interest of the accounting, and where as a matter of fact, interpretation under Section 140 of the Income Tax Act, is required to be done in context of the CIRP, which includes within it liquidation and insolvency procedure, came to a conclusion therein that, the returns were required to be verified.

# 14. In accordance with the finding, which has been recorded by the Ld. Tribunal in the impugned order, it was observed that, though the Liquidator may not be required to prepare the profit and loss account showing the depreciation and losses etc. of the Corporate Debtor and its assets, and it was not a case before the Ld. Adjudicating Authority, but, under the normal accounting laws, the Liquidator was supposed to prepare an accounting sheet showing the income and expenditures on the basis of the existing balance sheets during the liquidation period. Be that as it may.

# 15. At this juncture, we may not be much concerned with regards to, the controversy as to what bearing the implications under Section 140 of the Income Tax Act, would have regarding the responsibility cast on the Liquidator pertaining to furnishing of the returns under Section 115 WD or Section 139 of the Income Tax Act. But, looking to the observation, which has been made in the impugned order, which is a subject matter under challenge before this Appellate Tribunal, the Ld. Tribunal in the impugned order has made the following observation:

• “It is not the case that the Liquidator has to prepare the Profit and Loss account, showing the depreciation, loss etc. He has to only prepare a sheet showing the income and expenditure on the basis of the existing balance sheets during the Liquidation period.”

• “Considering the above, we dispose of the application with directions to the Liquidator to submit a simplicitor account as relevant for the for the company in liquidation.

• The Income Tax Authorities is directed to do the process thereafter.”

# 16. Under the common prudence of interpretation, if we scrutinize the only effective direction that has been issued by the impugned order, the Ld. Tribunal rather while recording the aforesaid finding in relation to the applicability of Section 140 of the Income Tax Act, is restricted in its context of verification of the return by the Liquidator. The IA was thus disposed of, thereby only directing the Liquidator to submit a simpliciter account as relevant for the company under liquidation. This was an act, which was otherwise supposed to be discharged by the Applicant/Liquidator, before the Income Tax Authorities could be directed to proceed, with regards to the refund of the TDS, which has been alleged to have been deducted on the interest accruing on the fixed deposit, and thereafter, the direction could have been issued to the Income Tax Authorities to resort to the due process. But in fact there was no specific direction with respect to the refund of TDS, which was deducted on interest accruing on Fixed Deposit.

# 17. Even on scrutinizing the Memorandum of Appeal, the documents on record, the arguments extended by the Ld. Counsels for the parties and also the written submissions filed by the parties, the application preferred by the Appellant was limited for seeking a direction for the Income Tax Department to return the TDS, on the interest which has accrued on the fixed deposit, in order to meet the objective of the relief prayed for in the application.

# 18. Even if it is presumed, as per the version of the Liquidator, that the Liquidator is not supposed to prepare the profit and loss account, showing the depreciation or losses, etc, as per the implications contained under Section 140 of the Income Tax Act, but still, the Ld. Adjudicating Authority, has rightly observed that to attach fairness to the proceedings the Liquidator was supposed to, at the least, prepare a sheet showing the income and expenditure of the Corporate Debtor under liquidation i.e., during the liquidation period. While disposing of the said application and for the purposes in furtherance of the proceedings for the return of the TDS deposit as it was prayed for in the interlocutory application, the Ld. Tribunal had only directed the Liquidator to submit a simplicitor account as would be relevant for the company under liquidation to be prepared, and there was no positive direction given in the impugned order as to, what would be the accounting documents or the particulars which were required to be disclosed by the Appellant before the Income Tax Department for the purposes of seeking the refund of the TDS, as deducted on the interest accruing on the fixed deposit.

# 19. Rather, nature and intent of the direction, which has been issued is that, even when a company, is under liquidation, the Liquidator is bound to prepare a simpliciter account from the existing books and the balance sheets showing the income and expenditure of the said company, and the said account was directed to be placed by the Appellant before the Income Tax Authorities, before their relief could be considered by the Income Tax Department, which they have requested in response to the letter sent to Respondent No. 2 on 13.04.2023 for renewal of the Fixed Deposit for Rs. 105 Crores in the name of Corporate Debtor on maturity, and credit the interest amount without deduction of TDS.

# 20. At present, the nature of the order, which has been subjected to challenge is rather a challenge in premonition. In fact, the Appellant claims that they intend to desist upon even to comply the directions issued by the Ld. Adjudicating Authority, of simplicitor submitting the account as relevant for the company under liquidation to be maintained before the Income Tax Authorities. The reason behind why the Appellant is hesitant and apprehensive to place the said account on record of the Income Tax Department, prior to considering of his request for the refund of the TDS is best known to the Appellant. The said intention sought to be judicially stamped, is not backed by any logic by the Appellant, because even if any exemption as contemplated to be drawn by the Appellant under Section 140 of the Income Tax Act, is required to be considered, that the aspect of verification of returns has to be done by the Liquidator. It is not the stage, when the Appellant’s challenge to the impugned order is required to be considered by this Appellate Tribunal, for the reason being that, it is yet still left open to be considered by the Income Tax Authorities, as it was directed by the Ld. Adjudicating Authority, in pursuance to the direction issued in the impugned order which was still to be considered by the Income Tax Authorities based upon a simpliciter accounting details, which were required to be supplied by the Liquidator before the Income Tax Authorities.

# 21. Looking to the nature of the impugned order, which has been passed by the Ld. Tribunal, its not deciding a dispute and rather it takes the shape of an interlocutory order. And since there happens to be no decision till date as such on merits of the application in context of the relief sought for by the Appellant in the application preferred before the Ld. Adjudicating Authority, and rather the decision on the same has been deferred to be taken by the Income Tax Authorities, which would under law be the competent authority to consider as to, whether at all the Liquidator of the company under liquidation falls to be within an exemption as contemplated to be claimed by the Appellant under Section 140 of the Income Tax Act, which would be an aspect which is still to be considered by the Income Tax Department and not by this Appellate Tribunal or by the Ld. Adjudicating Authority.

# 22. Hence, preference of this company appeal at this stage where the decision on the IA was still left open to be decided before the Income Tax Authorities, the company appeal appears to have been filed in an anticipation of the probable order to be passed by the Income Tax Authorities on the application preferred by the Appellant for seeking a refund of the TDS as deducted on the interest accruing on the fixed deposit.

# 23. Under I & B Code, 2016, there is no such provision of law, which prescribes for conferring of the power on the Ld. Adjudicating Authority, to issue any such direction for refund of the TDS already made on the interest accruing on the fixed deposit. The exercise of powers of refund of the TDS, would always be the prerogative to be exercised by the Income Tax Authorities under prevailing income tax laws, particularly when they have to consider the aspect of their ambit and exercise of their powers of deduction of TDS on the interest accruing on the fixed deposit, in relation to a company which is under liquidation, whether there could be a refund or not. These are all the issues which are yet to be decided by the Income Tax Authorities, which has been directed to be considered by the Income Tax Authorities in pursuance to the impugned order of 25.11.2025.

# 24. The Ld. Adjudicating Authority or for that matter even this Appellate Tribunal, couldn’t have been called upon by the Liquidator questioning the impugned order of 25.11.2025 to deal with the issue as to, what would be the implication of exemption as being contemplated by the Appellant to be extended to it under Section 140 of the Income Tax Act, which has been attempted to be attracted by the Liquidator, while dealing with the relief sought for by them in the interlocutory application, which otherwise couldn’t have been decided by this Appellate Tribunal or even the Ld. NCLT, because the intricacies of Section 140 of the Income Tax Act, and its judicial interpretation and its application under the conditions when can the TDS be deducted at source on the interest accruing on the fixed deposit, would be a question which was required to be considered by the competent income tax authority itself as the refund which was being sought by the Appellant has to flow from the Income Tax Authorities, and not from the authorities as constituted or created under the provisions of the I & B Code, 2016.

# 25. By the impugned order, calling upon the Liquidator to place the accounting sheet of income and expenditure, accruing to the Corporate Debtor during the period of liquidation, or accrued at least up to the stage when the application was filed, was only an enabling direction for the Income Tax Authorities, to take a decision on the application, to justify the refund of the TDS, as deducted by the State Bank of India, which has been deposited by them before the Income Tax Authorities, being the deduction of the income tax accruing on the interest at source. Hence, no refund as such of it could have been directed by the Ld. Adjudicating Authority on the TDS based on the relief sought by the Appellant, in the application being IA(IBC)/74(CHE)2025.

# 26. The contention raised by the Appellant is the converse of the controversy agitated by the Appellant at hand. It has been portrayed by the Appellant as if as per the impugned order, the Income Tax Department has required the Liquidator to file the regular return of the income tax for the assessment years for the purposes of claiming of the refund as against the TDS deductions, ignoring the legal status of the Corporate Debtor in the light of the provisions contained under Section 140 of the Income Tax Act. This may not be the correct interpretation which could be given to the direction that were contained in the impugned order under challenge. Rather, the fact is just the opposite, where the Ld. Adjudicating Authority by the impugned order has directed that the Liquidator was to approach the Income Tax Authorities along with an account sheet showing the income and expenditure on the basis of the existing balance sheets, prepared during the liquidation period, and upon submission of the said documents, Income Tax Authorities were to take an appropriate decision on the application.

# 27. In fact, up to this stage, when the Appellant puts a challenge to the impugned order, there is no directive of any nature issued by the Income Tax Department calling upon the Appellant to file the regular returns of the income tax for the assessment years for claiming a refund. Rather, the Appellant is attempting to forestall in advance the process, which anticipates that, in case if he approaches the Income Tax Authorities, in pursuance to the direction issued by the Ld. Adjudicating Authority, he may face these procedural consequences of the Income Tax Authorities, calling upon him to furnish the income tax returns for the assessment years for claiming the refund against the TDS deduction. In fact, he wants to nip the problem at its bud even before the problem has arisen.

# 28. The interpretation given by the Appellant to the implication of the insertion made to Section 140 of the Income Tax Act, by Act No. 13 of 2018, is that it is not applicable during the liquidation proceedings as it pertains to the company, which had been admitted to the CIRP process. At this stage, neither the NCLT nor this Appellate Tribunal is required to give any interpretation to Section 140 of the Income Tax Act and insertion too, because, that is still a chapter which is yet to be considered when the Appellant proceeds to comply the initial directions given by the Ld. Adjudicating Authority in the impugned order, and approaches the Income Tax Authorities for the purposes of seeking refund of the TDS as alleged to have been deducted on the interest accruing on the fixed deposit.

# 29. In fact, the relief sought and intended to be sought by the Liquidator/Appellant is in anticipation of a probable response anticipated by Appellant to be given by the Income Tax Authorities, upon the Appellant approaching them. This may not be a reason for us to interfere in an order, which only contemplates or gives a direction to the Liquidator to perform an act for the purpose to lead to a consequence of an action. Performance of an act, which might lead to a consequential action that in itself should not be a cause of action for the Appellant to file the instant company appeal.

# 30. The Ld. Counsel for the Respondent while opposing the company appeal took a stand that, the instant company appeal owing to the nature of directions issued in the impugned order is premature, and is not maintainable for the reason being that, the Appellant has not yet filed the return of income of the Corporate Debtor under liquidation, for seeking the alleged refunds, and he has approached this Appellate Tribunal only under an apprehension, intending to defer his responsibility to file the return of income before he claims a refund of TDS. The Respondents contended and rightly so, that in fact the objective of the Appellant is to cover its inaction of not filing the return and still seeking to get the refund of the TDS even without approaching the Income Tax Authorities by way of seeking direction from the Ld. Adjudicating Authority, which is not the ambit and scope of exercise of powers by the Ld. Adjudicating Authority, and also by way of filing a company appeal which is premature.

# 31. The issues of whether the Appellant was required to furnish the return of income, whether it was a precondition required to be satisfied by the Liquidator for the purposes of seeking of a refund and whether Appellant in the capacity of being a Liquidator of a company facing the liquidation process falls to be under an exemption as contemplated by the Appellant under Section 140 of the Income Tax Act! Are aspects which are required to be considered when the Appellant actually approaches and justifies the prescription of Section 140 of the Income Tax Act, that Liquidator is not required to furnish the income tax returns in relation to the Corporate Debtor under liquidation.

# 32. In fact, it appears that the proceedings before the Ld. NCLT and in continuation thereto before this Appellate Tribunal, against the impugned order is with an intention to avoid approaching the Income Tax Authorities, who would be the competent authority under law, to refund the TDS deducted, and that determination by the Income Tax Department could only be done, when all these factors are conjointly considered by the income tax authority, before whom the Appellant has been directed to appear by the impugned order. It appears that, the Appellant by contending that the direction for refund of the TDS should be discharged by the Ld. NCLT, wishes to avoid approaching the Income Tax Authorities, who, under law, would be the actual competent authority to refund the TDS because it is only the Income Tax Authorities which holds the deductions thus made and who have the authority to hold upon the TDS deducted at source on the deposits made as per the provisions of the Income Tax Act. The questions of what exemptions the Appellant would be entitled and whether Appellant would be entitled to verify the returns as per Section 140 of the Income Tax Act would still be a decision, falling within the domain of the decision-making process of the Income Tax Authorities, and not within the domain of adjudication of either the Ld. NCLT or in continuation thereto before this Appellate Tribunal.

# 33. Besides that, insofar as the argument extended by the Ld. Counsel for the Appellant, pertaining to the inconsistency of law by attracting the provisions contained under Section 238 of the I & B Code, 2016, contending that Section 140 of the Income Tax Act, would stand overridden by the provisions contained under Section 230 of the I & B Code, 2016, is concerned, it is opined that the taxation laws have a special reference, and that operate within their own domain and the aspect of alleged inconsistency would only come into play for consideration when there is actually a decision taken by the Income Tax Authorities, pertaining to the extension of benefit under Section 140 of the Income Tax Act, or its denial. Also, it can be seen that I & B Code, 2016, is silent on the aspect of refund of TDS. This aspect of inconsistency would prevail, when both the laws have equivalent provisions on the aforesaid subject matter, which are contradictory to each other.

# 34. The aspect of inconsistency could be made subject to judicial scrutiny only when the Appellant, approaches before the Income Tax Authorities, seeking an order of exemption under Section 140 of the Income Tax Act, and the decision of the Income Tax Authorities, on said aspect of extension / non-extension of the exemption as pleaded by Appellant under Section 140 of the Income Tax Act, is given. It is only there is a decision of the Income Tax Authorities then only the Appellant gets an actual cause of action to approach before the competent Authorities created under the I & B Code, 2016, for redressal of his grievances and not before it.

# 35. Hence, the ‘company appeal’ lacks ‘merit’ and the same is accordingly ‘dismissed’. All the pending ‘interlocutory’ applications, if any, would stand ‘closed’.

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Regional Provident Fund Commissioner-II Vs. Harshavardhan Cotton and Synthetic Mills Pvt. Ltd. and Anr. - a part of ‘all sums due to the workmen/employee’ will be within the meaning of Section 36(4)(a)(iii) and accordingly will have to be treated as a third-party asset under Section 36(4)(a)(iii) to be kept outside the liquidation estate.

  NCLAT (2026.01.13) in Regional Provident Fund Commissioner-II Vs. Harshavardhan Cotton and Synthetic Mills Pvt. Ltd. and Anr. [(2026) ibclaw.in 41 NCLAT, Company Appeal (AT) (CH) (Ins.) No. 455/2023 (IA Nos. 1421 and 1422/2023)] held that; 

• The implications of the above ratio as propounded are very clear; that is, Section 36(4) of the I & B Code, 2016, will take precedence over Section 53, as far as the distribution of assets of the liquidation estate is concerned.

• First, the Liquidator will identify the assets of the CD and take charge of them, then he will exclude assets that falls under Section 36(4) of the I & B Code, 2016, including third-party assets falling under Section 36(4)(a) and thereafter, form the liquidation estate which he then proceeds to realise and distribute among the stakeholders as per the formula prescribed under Section 53 of the code. Thus, it is clear that distribution under Section 53 of the I & B Code, 2016, will have to be done subject to Section 36(4) of the code.

• In view of the above ratios, it has to be accepted that the issue is no more Res Integra and that all sums due from provident fund will include within it the amounts determined under Section 7Q and 14B as well.

• Thus, if an enterprise has not been permitted to maintain separate provident fund/pension fund/gratuity fund, it has to remit the dues to be paid into the respective funds maintained by EPFO by law and even if it has not done so, which is the case on hand, then the said amount will be deemed to be a part of the said funds and consequently, a part of ‘all sums due to the workmen/employee’ will be within the meaning of Section 36(4)(a)(iii) and accordingly will have to be treated as a third-party asset under Section 36(4)(a)(iii) to be kept outside the liquidation estate.

Blogger’s Comments; Observations of the Hon’ble NCLAT are quite baffling. How come the PFdues (a liability) can be a part of assets under ”Liquidation Estate”. The issue has been clarified by Hon’ble HC Bombay (2025.04.29) in Dalmia Cement (Bharat) Limited & Ors. Vs. The Central Board of Trustees, EPFO, [2025:BHC-NAG:4461-DB, Writ Petition No. 693 /2022] as under;

• As discussed above the Provident Fund of an employee, which includes both the components (a) employee contribution and (b) employers contribution, cannot be held to be ‘assets’, over which the corporate debtor can be held to have any rights of ownership or  dominion and would, even in case it is not deposited in the Provident Fund account, by the employer would continue to be property owned by the employee, held in trust by the employer, on behalf of the employee for being deposited in the provident fund account and thus would be outside the scope and ambit of the duties of the IRP as specified in sec.18 of the IB Code.

• Not only this, sec.10, even directs that neither the Official assignee appointed under the Presidency Towns Insolvency Act, nor any received appointed under the Provincial Insolvency Act, shall be entitled to or have any claim on such provident fund amount of an employee, thereby indicating that it is to be preserved sacrosanct, by granting it immunity even in respect of insolvency proceedings, which may be initiated, even against such employee.

• It would thus be apparent that since the employers provident fund contribution, cannot be included in the definition of ‘assets’, in view of Explanation (a) to Sec.18(1) of the IB Code, there would be no obligation upon the provident fund department to lodge a claim for the dues, in that regard with the IRP and get such claim verified so as to be included in the Resolution Plan.

Excerpts of the Order;

This appeal arises from the Impugned Order dated 17.11.2023, issued by the National Company Law Tribunal, Division Bench-I, Chennai, in IA(IBC)/116(CHE)/2022 in MA/623/2018 as it was preferred in CP/104/IB/2018. The said application, IA(IBC)/116 (CHE) /2022, had been filed invoking Section 54 of the I & B Code, 2016, by the Liquidator of the corporate debtor (CD) M/s. Harshavardhan Cotton and Synthetic Private Limited, seeking an order for dissolution of the CD. The said application was allowed by the Ld. Adjudicating Authority, against which the present appeal has been filed.

Brief facts of the case:-

# 2. The Corporate debtor, M/s Harshavardhan Cotton and Synthetics Pvt. Ltd., is an establishment, which stands covered under the provisions of Employees’ Provident Funds & Miscellaneous Provisions Act, 1952, with Code Numbers MD/MDU/41334 and MD/41334-A. The establishment employed 181 workers. On an application that, was instituted by the Operational Creditor, Bhadresh Trading Corporation, the Ld. Adjudicating Authority, directed commencement of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor by an order dated 12.03.2018 in CP/104/IB/CB/2018. During this process, the Hon’ble NCLT declared a moratorium and appointed Mr. Raghuram Mani as the Interim Resolution Professional (IRP). Since no resolution plans were received, the committee of creditors (COC) resolved to liquidate the Corporate Debtor during its 3rd meeting on 14.03.2018 and to file an appropriate application to that effect before the Ld. Adjudicating Authority. Consequently, vide the order dated 03.12.2018, the adjudicating authority allowed the said application and ordered liquidation of the CD.

# 3. Following his appointment, the Liquidator made a public announcement on 7th December 2018 inviting claims those the creditors and the stakeholders, verified the claims those were received, prepared the list of stakeholders and filed it before the NCLT on 15.02.2019. Further, the Liquidator admitted claims to the tune of Rs.16,79,16,396.49 and initiated steps for realising the assets of the CD, so as to enable him to settle such claims. There were no left over immovable/movable assets of the CD as they had already been sold even before the commencement of CIRP. As recorded in the impugned order by NCLT, the only asset that was available with the CD were financial assets in form of receivables, which the Liquidator took steps to realise from various debtors, including the related parties of the CD. In the process, he realised a total sum of Rs. 9,20,57,356.00 in the liquidation account. After this, the Liquidator submitted the Asset memorandum before Ld. NCLT and then proceeded to distribute the amount amongst the stakeholders in accordance with Regulation 42 of the liquidation regulations, 2016, to be read with Section 53(1) of the I & B Code, 2016. After the said distribution, the Liquidator filed the dissolution application before the Ld. NCLT, which was allowed by Ld. NCLT vide the impugned order.

# 4. The Appellant herein had also submitted a claim of Rs. 6,34,816/- in the shape of Form-C on 01.01.2019, which consisted of payment of interest and damages on account of default in paying the EPF contributions in time, for the period 2007 to 2015. The Liquidator had admitted the said claims in full, under Section 40(1) I & B Code and communicated the same vide his letter dated 01.02.2019. In the same letter, the Liquidator had also stated that the liquidation proceeds will be distributed as per the provision of Section 53 of the I & B Code, 2016, as and when it is realised from the assets of the CD. The Appellant had insisted through his letter dated 08.01.2020, that priority may be assigned to EPF dues, as they have the first charge over the assets of the establishment as per Section 11(2) of the EPF and MP Act, 1952, and therefore the same may be paid in priority to all other debts. The Liquidator by his letter dated 23.01.2020 informed the Appellant, that the claim of EPFO consists of penal damages and interest, and it has already been included for consideration under Section 53(1)(e) of I & B, Code 2016, for the purpose of distribution of liquidation proceeds.

# 5. The Appellant through his letter dated 27.10.2020 informed the Liquidator, that as per Section 36(4)(a)(iii) of the code, PF dues shall not form the liquidation estate and is bound to be treated as third-party assets in the hands of the Liquidator and therefore the PF dues may be released before initiating the process of distribution of the proceeds in accordance with the waterfall mechanism prescribed under Section 53 of the code. To this, the Liquidator replied on 02.11.2020, thereby contending that only PF contribution of the employee and of the employer are to be treated as the sum due to the workmen / employees from the provident fund, pension fund and gratuity fund and consequently, as third-party assets in the hands of the Liquidator as per provision of Section 36(4)(a)(iii) of the Code and that the claim of the Appellant towards penal damages and interest have been categorised and placed under Section 53(1)(e) of the code and same would be paid depending upon the realisation of the assets of the CD, as per the provisions of the code. The Appellant EPFO sent another detailed letter to the Liquidator on 19.11.2020, contending that the question of according priority to the PF dues, including interest and penal damages payable on it, is the ratio that has been already settled by Hon’ble Apex Court in the matter of Maharashtra State cooperative bank Limited Vs. Kannad Sahakari Sakhar Karkhana Ltd and others, as decided in SLP no. 14772-14773/2010 and Hon’ble High Court of Madras too, in the matters of EPF Commissioner V. Official Liquidator of M/s. ESSKAY Pharmaceutical Ltd and also in CA/899/12 in CP/230/2001 in the matter of Murugan Mills(P) limited, where Hon’ble Supreme Court has held that priority is to be given to EPF dues, and that EPF dues will include within itself not only the amount assessed under Section 7A but also interest under Section 7Q and damages contemplated under Section 14B of the EPF Act. To this, the Liquidator replied on 28.11.2020 that the said judgements pertains to a period prior to enactment of I & B Code 2016 and that, as the Liquidator, is strictly bound to follow the provisions of the Code, which will prevail over any other conflicting laws or instruments in force, including case laws by virtue of the implications of Section 238 of the code. Stating the same, he reiterated his position that he has categorised the claim of EPFO (which consisted of penal damages and interest) as govt. dues under Section 53(1)(e) of the code and will pay the same, depending on the realisation of the assets.

# 6. Accordingly, the Liquidator proceeded to categorise the claim of EPFO to the tune of Rs.6,34,816/- as government dues instead of treating it as a third-party asset and placed the same under Section 53(1)(e) of the code. He went on to realize a total of Rs. 9,20,57,356/- from various stakeholders and related parties towards the liquidation estate and distributed the same in accordance with the provisions of Section 53(1). In the process, EPFO, i.e., the Appellant, got nil amount.

# 7. Thereafter, the Liquidator, on completion of the distribution of liquidation estate among the creditors and stakeholders, filed the application IA/116/2022 before NCLT praying for the dissolution of the Corporate Debtor. NCLT, after observing that since no applications are pending for avoidance, preferential, undervalued, or fraudulent transactions and that the final report & the compliance certificate in the shape of Form-H have been filed, which indicated that the corporate debtor has been completely liquidated, passed the impugned order ordering dissolution of the corporate debtor on 17.11.2023. The Liquidator intimated the same to the Appellant through his letter dated 22.11.2023, enclosing a copy of the impugned order. Aggrieved by the said order, which dissolved the CD, without settling his claim, the Appellant herein has preferred the instant appeal.

Appellant’s submissions:

# 8. It is the case of the Appellant that the Liquidator has incorrectly concluded that only the contribution of the workmen, and the contribution of the employer towards PF will be covered by the provisions of Section 36(4)(a)(iii) of the Code and that the interest computed under 7Q and damages computed under 14B of EPF Act are in the nature of government dues and will come under Section 53(1)(e) instead of Section 36(4)(a)(iii). The Appellant has submitted that, the Liquidator has erred in law by placing the claim of the Appellant under Section 53(1)(e) of the code, in complete disregard of the settled position of law regarding distribution of assets of the CD under liquidation which has been laid down by Hon’ble Supreme Court in its judgement dated 02.05.2023 in the matter of Moser Baer Karamchari Union vs. Union of India and Others reported in (2023)238Compcas 458(SC).

# 9. He has further submitted that the issue; of whether the PF dues is expressly excluded from the assets of the CD as per the provisions of Section 36(4)(a)(iii) of the I & B Code, 2016, has already been dealt with by this Appellate Tribunal in in its judgement dated 19.08.2019 in the matter of SBI versus Moser Baer Karamchari Union and another in company Appeal (AT)(Ins) No. 396/2019 and it has been expressly declared therein that all sums due to workmen and employees from provident fund, the pension fund and the gratuity fund cannot be included in the liquidation estate for the purpose of distribution of assets under Section 53(1) of the code. He has been contended that the said order has attained finality with the dismissal of the appeal filed by SBI in Civil Appeal No. 258/2020 against the said order before the Hon’ble Apex Court. He has further placed reliance on yet another judgment dated 02.11.2022 that was rendered by this Appellate Tribunal in the matter of Assam Tea Employees Provident Fund Organization Vs. Madhur Agrawal, RP of Hail Tea Limited and Others in Company appeal (AT)(Ins) No. 262/2022 to assert that, any amount due from the employer under Section 11(2) of EPF Act also covers the amount that has been determined under Section 14B and that the provident fund dues are not subject to distribution under Section 53(1) of the code and that they are liable to be paid in full in view of the judgement of Hon’ble Supreme Court in Maharashtra State Cooperative Bank Limited Vs. Assistant PF Commissioner and Others. The Appellant has also relied upon the judgement of Hon’ble Supreme Court dated 19.04.2022 in Civil Appeal No. 5910/2020 in the matter of Sunil Kumar Jain and others Vs. Sundaresh Bhatt, which declares that the concerned workmen/employees shall be entitled to the provident fund, gratuity fund, and the pension fund which are specifically kept out of liquidation estate and as per Section 36(4) of the code, they are not to be used for recovery in the liquidation. Finally, the Appellant has cited the decision rendered by this Appellate Tribunal in the matter of Anuj Bajpai Vs. Regional PF Commissioner, Coimbatore to support his argument that Section 53(1) cannot be made applicable to the dues coming under provident fund, pension fund, and gratuity fund and that the PF dues should have been paid before commencing distribution of liquidation proceeds under Section 53(1) of the I & B Code, 2016.

10. The Appellant has further contended that the financial creditor, the City Union Bank, has been the beneficiary of distribution of the assets of the CD and therefore it has to return the amount equivalent to his claim in view of specific provision under Regulation 43 of IBBI (liquidation process) regulations 2016. Accordingly, it was prayed that the impugned order of Ld. NCLT maybe set aside and the Respondent may be directed to re-distribute the claim amount of Rs.6,34,816/- due to EPFO on first priority from and out of the liquidation assets of the CD.

Case of the Respondent

# 11. On the contrary, the Respondent/Liquidator has submitted that, it had discharged its duties as contemplated under the code including publication of the notice, inviting claims, verification and admission of the claims, preparation of the list of stakeholders, preparing and completing the audit of the books of accounts for the entire period, appreciation, and preparation of the asset memorandum, realization of Rs.9,20,57,356/- in the liquidation account from various customers, including related parties, distribution of the same to the stakeholders as per the intention of Section 53 of the code, and preparation of the final report containing the details of liquidation of the assets and that the Liquidator had filed the application in IA No. 116/2022 seeking for an order of dissolution of the CD, which was allowed by Ld. NCLT by the impugned order.

# 12. He has contended that the amount realised by him, will have to be treated as part of the liquidation estate, which will have to be distributed under Section 53 of the code because of the non-obstante clause attached to it and therefore, he has not violated any of the provision of the code. He has further contended that, the true meaning of Section 36(4)(a)(iii) will be that if there are any funds of the corporate debtor that are specifically segregated or classified as provident fund, pension fund, and gratuity fund, the same shall not be used for settling the dues of other creditors in terms of Section 53 of the I & B Code, 2016, and that the same cannot be interpreted to mean that the dues payable towards provident fund, pension, and gratuity shall be paid from the liquidation estate in priority over other classes of creditors or at par with secured financial creditors. He has stated that since the corporate debtor did not have a separate account/fund to pay pension, provident fund and gratuity, no amount could be set apart and kept outside of the liquidation estate as per the provisions of Section 36(4)(a)(iii) of the code. He has relied upon the observations made in paragraph 25.2 of the judgment of the Hon’ble Supreme Court, in the matter of Sunil Kumar Jain Vs. Sundaresh Bhatt (supra) to support his argument that since there are no such dedicated fund, no amount could have been set apart to pay the provident fund dues in priority before commencing distribution of the proceeds of liquidation among the stakeholders / claimants as per the provisions of Section 53 of the Code. Accordingly, he has submitted that the prayer of the Appellant is in contravention to the provisions of Section 53 of the code and therefore it is liable to be dismissed as baseless.

# 13. We have heard the arguments extended by the respective counsels and gone through the submissions and records submitted by both the parties. The wider issues to be decided are threefold;

a) Whether, in the event of process of settlement of claims during liquidation, Section 36(4)(a)(iii) will take precedence over Section 53 of the I & B Code, 2016.

b) Whether ‘all sums due to any workmen or employee from the provident fund, the pension fund and the gratuity fund’ as described in Section 36(4)(a)(iii) of the Code, will also include interest under Section 7Q and damages under Section 14B as determined under the relevant provisions of EPF Act and claimed by EPFO as due from the CD?

c) Whether the sums as described above will have to be held in a dedicated fund in the CD so as qualify to be a third-party asset to remain outside the liquidation estate?

# 14. The first issue has already been conclusively decided by a series of judgements pronounced by Supreme Court and NCLAT. Supreme Court in its judgement dated 02.05.2023 in the matter of Moser Baer Karamchari union versus Union of India and Others reported in (2023)238Compcas458(SC) categorically has held that in case of liquidation of a company under the I & B Code, 2016, the distribution of the assets shall have to be done as per Section 53 of the I & B Code, 2016, subject to Section 36(4) of the I & B Code, 2016. The relevant paragraph is extracted below.

• “18 …. In case of the liquidation of a company under the IBC, the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36( 4) of the IBC, in case of liquidation of company under IBC.

• …. 8. For the purpose of the present decision, we are not interpreting Sub-clause (iii) to Clause (a) of SubSection (4) to Section 36 of the Code as this is an issue of some debate and pending consideration in other matters. The legal effect of exclusion is that, the amount of sums due to any workmen or employee from the provident fund, the pension fund or the gratuity fund cannot be made subject matter of reduction or dilution even in a rehabilitation or revival plan. They are excluded from the waterfall mechanism and would not be used in recovery on liquidation, and they cannot be shared …. ”

The implications of the above ratio as propounded are very clear; that is, Section 36(4) of the I & B Code, 2016, will take precedence over Section 53, as far as the distribution of assets of the liquidation estate is concerned. Intuitively too it also, this makes eminent sense. First, the Liquidator will identify the assets of the CD and take charge of them, then he will exclude assets that falls under Section 36(4) of the I & B Code, 2016, including third-party assets falling under Section 36(4)(a) and thereafter, form the liquidation estate which he then proceeds to realise and distribute among the stakeholders as per the formula prescribed under Section 53 of the code. Thus, it is clear that distribution under Section 53 of the I & B Code, 2016, will have to be done subject to Section 36(4) of the code.

# 15. The second issue of, whether amount determined under Section 7Q and 14B of the EPF Act, will come within the meaning of ‘all sums due to workmen/employee from Provident fund’ has also been settled by a series of judgements of this Appellate Tribunal. The Appellant has referred to the judgement dated 10.07.2024 that was rendered in the matters of Anuj Bajpai vs. Employee Provident Fund organisations (2024) to support his contention that the provident fund dues will fall within the meaning of Section 36(4)(a)(iii) of the I & B Code, 2016, will consist of not only the amount determined under Section 7A, but also the amounts to be determined under Section 7Q and Section 14B as well. The relevant paragraphs of the said judgement is extracted below:-

• “..,51.The Hon’ble Supreme Court laid down that there is no reason to give restrictive meaning of expression ..any amount due from the employer,, and to confine to only amount determined under Section 7A of the EPF Act, The Hon’ble supreme Court further held that interest payable.by the employee under Section 7Q and the damages levied under Section; 148 of the EPF Act will also be covered as dues from the employers for the purpose of Section 11(2) of the EPF Act.

• 52. we note that in the present appeal the amount which has been claimed by the employer are covered under Section 7A, 7Q and 14B of the EPF Act and therefore are fully governed by the judgement Maharashtra state Cooperative Bank (Supra).

• 53. In view of this clear judgement of the Hon’ble Supreme Court of India the contention of the Appellant are not tenable and stand rejected.

• 54. we also note that the Hon’ble supreme court of India in Sunil Kumar Jain v, Sundaresh Bhatt [(2022) 7 SCC 540] held that the dues of the gratuity and pension shall be governed by Section 36(4) of the Code. It is reiterated that Section 36(4)(ii) of the code specifically excludes “all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund”, from the ambit of liquidation estate assets, Therefore, Section 53(l) of the code cannot be made applicable to such dues, which are to be treated outside the liquidation estate assets under the code. Section 36(4) of the code has clearly gives protection to workmen’s dues under provident fund, gratuity fund and pension fund which are not to be treated as liquidation estate assets and the Liquidator cannot claim over such dues,..,”

# 16. We find that this Appellate Tribunal had also delivered a judgement dated 21.10.2022 in the matters of Jet Aircraft Maintenance Engineers Welfare Association vs. Ashish Chhwachharia, RP of Jet Airways (India) Limited and others in which it had deliberated on the same issue in a substantial manner and came to the conclusion that the PF dues will also include within it the amount determined under Section 7Q and 14B. The relevant paragraphs are reproduced here under:

• “118. Challenge to the Resolution Plan by the Appellant is on the ground that Section 11 of the 1952 Act requires priority over all other dues and further Section 36(4)(a)(iii) excludes provident fund dues from the liquidation estate of the Corporate Debtor. We have already dealt with provisions of Section 36(4)(a)(iii) in foregoing paras of this judgment. Now, we, need to look into Section 11 of 1952 Act. The Section 11 of the 1952 Act provides for priority of payment of contributions over other debts. Learned counsel for the Appellant has relied on judgment of the Hon’ble Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others, (2009) 10 SCC 123”. The Hon’ble Supreme Court dealing with Section 11 of 1952 Act laid down following in Para 67:

• “67. The expression “any amount due from an employer” appearing in sub-Section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub-Section (1) of Section 11 and Sections 7A, 7Q, 14B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the mandate of Section 7Q. Likewise, default on the employer’s part to pay any contribution to the Fund can visit him with the consequence of levy of damages.”

• 119. The above judgment lays down that any amount due from employer appearing in sub-Section (2) of Section 11 also covers the amount determined under Section 14B and there cannot be any quarrel to the preposition as laid down by the Hon’ble Supreme Court in the above case. The priority for payment of debt under Section 11 of the 1952 Act has to be looked into in view of the mechanism which is specifically provided under Section 53(1) of the Code. We have already dealt the provision of Section 36(4)(a)(iii) of the Code and held that provident fund dues are not subject to distribution under Section 53(1) of the Code. The issue is fully covered by three member bench judgment of this Tribunal in “Tourism Finance Corporation of India Ltd. vs. Rainbow Papers Ltd. & Ors.” (Supra). In view of foregoing discussion, we hold that provident fund dues were entitled to be paid in full. In view of the judgment of Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others” (Supra), the claim of Appellant was to be satisfied in full, otherwise breach of provision of Section 30(2)(e) would have occurred. We, thus, are inclined to issue direction to the Successful Resolution Applicant to make payment of the admitted claim of the Appellant towards provident fund dues to save the plan from invalidity.”

# 17. Similar views have also been expressed by other coordinate benches of this Appellate Tribunal in the matters of Truvisory insolvency professionals Private Limited (IPE) versus EPFO in CA(AT)(Ins) No. 580/2023; and also in the matter of SBI versus Moser Baer employees union in Company Appeal (AT) (Insolvency) No. 396 of 2019. All the judgments draw their inspiration from the findings recorded in the judgment of the Honourable Supreme Court in the matter of Maharashtra State Cooperative Bank versus Assistant Provident Fund Commissioner. In view of the above ratios, it has to be accepted that the issue is no more Res Integra and that all sums due from provident fund will include within it the amounts determined under Section 7Q and 14B as well.

# 18. Now we will proceed to answer the third issue framed by us, i.e., whether the sums due to workmen/employee from provident fund, pension fund, and the gratuity fund are to be held in a dedicated fund so as to qualify for being treated as a third party asset, to be kept outside the liquidation estate? The Respondent argues that, as per the ratio laid down in the matter of Sunil Kumar Jain (Supra), there has to be a dedicated fund for such sums, failing which, the said amounts will be included in the liquidation estate. The relevant paragraph which is cited by the Respondent. is extracted below:-

• “25.2 considering Section 36(4) of IBC and when provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen’s dues shall be kept outside the liquidation process and the workmen/employees concerned 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.”

# 19. The Respondent relies on a cursory reading of the paragraph as above to contend that workmen/employees will be paid out of the provident fund, gratuity fund, and the pension fund, if any, available and if such funds are not available, then the dues of the employees in form of PF, pension, and gratuity will have to be paid in accordance with the provisions of Section 53 of the code. This is not a correct interpretation which can be assigned to the issue. If the entire judgement is taken into consideration, it will be apparently clear that the provident fund, gratuity fund and the pension fund will have to be kept outside the liquidation estate by treating it as third party asset. It is not material whether this funds are maintained in a dedicated account as long as such amounts are held by the CD. Even if they are not classified in a dedicated account, then too it has to be presumed that, the CD is holding these amounts and will have to pay the said amount to the workmen/employee at an appropriate time. It needs to be mentioned here that certain enterprises have been given the latitude to open their own provident funds/pension funds/gratuity funds by giving exemption under EPF Act, and these enterprises maintain separate funds. The rest of the enterprises who come under EPF Act are mandated to remit the dues to EPFO promptly, failing which they have to pay the same with interest and damages computed under Section 7Q and 14B respectively. Thus, if an enterprise has not been permitted to maintain separate provident fund/pension fund/gratuity fund, it has to remit the dues to be paid into the respective funds maintained by EPFO by law and even if it has not done so, which is the case on hand, then the said amount will be deemed to be a part of the said funds and consequently, a part of ‘all sums due to the workmen/employee’ will be within the meaning of Section 36(4)(a)(iii) and accordingly will have to be treated as a third-party asset under Section 36(4)(a)(iii) to be kept outside the liquidation estate. The third issue is answered accordingly.

# 20. From the above, we come to the conclusion that the Liquidator has erroneously placed the claim of the Appellant EPFO under Section 53(1)(e) of the code instead of treating it as a third-party asset under Section 36(4)(a), that the amount Rs. 6,34,816/-ought to have paid to the Appellant before the distribution under Section 53 was resorted to by the Liquidator and therefore, the said amount should be recovered from the financial creditor City Union Bank Respondent-2 herein under Regulation 43 of IBBI liquidation process regulations 2016 and paid to the Appellant.

# 21. We find that NCLT has already passed the order of dissolution. The right course would have been to set aside the order of dissolution, and to direct the Liquidator. to rectify this error and then to apply for dissolution of the CD. However, in the interest of cutting short the litigation, we are of the view that the interest of justice will be served, in case the financial creditor, Respondent-2, is directed to remit the amount Rs. 6,34,816/-to the Appellant herein within 30 days and report the same to NCLT, which will then direct for making the necessary entries in the liquidation records to the effect.

# 22. The appeal will be closed accordingly. Interlocutory applications, if any, will stand closed.

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