2016 (1) TMI 1309 - HC - Indian Laws

Damages and interest payable by the employer in liquidation under Sections 14B and 7Q of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 on delayed payments of PF dues - whether such interest is provable in winding up of an insolvent company? - Held that - In the first place, such interest is paid only in the event of there being a surplus after payment in full of all claims admitted to proof and secondly, it cannot exceed 4 per cent per annum on the admitted amount of the claim. Creditors of a company (who would include even workmen to the extent of their dues) cannot claim in winding up interest for the period subsequent to the winding up if there is no surplus and even in the event of surplus, interest of more than 4 per cent per annum. Secured Creditors may pursue their remedy outside winding up. Likewise, workmen can enforce their charge over the property outside winding up to recover their dues. In such a case, the condition of interest being payable only in certain event and subject to a certain extent, may not apply. But if secured creditors or workmen approach the Company Court in its winding up jurisdiction for recovery of their dues, only those claims which are consistent with the provisions of the Companies Act and Companies (Court) Rules can be granted by the Company Court. There is, thus, no merit in the challenge to the adjudication of the Official Liquidator. The Company Application is, accordingly, dismissed.

Summary

Issues:
Challenge to adjudication order of Official Liquidator regarding PF dues, employer's contribution, employees' contribution, damages, and interest under PF Act.

Analysis:

Issue 1: Challenge to Adjudication Order of Official Liquidator
The Company Application challenges the Official Liquidator's rejection of a claim for PF dues, employer's contribution, employees' contribution, damages, and interest under the PF Act. The controversy mainly concerns damages and interest payable by the employer under Sections 14B and 7Q of the PF Act on delayed PF dues payments.

Issue 2: Employees' Contribution and Damages
The Official Liquidator admitted employer's contribution but not employees' contribution, as it was not deducted from arrears of salary. Additionally, damages under Section 14B were not admitted due to no prior levy before winding up. The Applicant challenges the rejection of this part of the claim, arguing for payment of employees' contribution and damages.

Issue 3: Legal Position on PF Dues Priority
As per legal precedents, provident fund dues have priority over other dues, including secured creditors' dues. This priority extends to provident fund dues, interest under Section 7Q, and damages under Section 14B. The critical question is whether these amounts are due at the winding up order or payment of PF dues.

Issue 4: Adjudication of Damages under Section 14B
Section 14B mandates an adjudication of damages after hearing the employer, subject to appeal. In this case, no adjudication occurred, and unliquidated damages cannot be provable in insolvency until assessed by the PF Act authorities. The Court cites legal principles on unliquidated damages claims and the absence of a debt without adjudication.

Issue 5: Interest Payable under Section 7Q
The Applicant seeks interest under Section 7Q on PF dues between the winding up order and actual payment. However, Rule 179 limits post-winding up interest payment to a surplus, not exceeding 4% per annum. Creditors, including workmen, cannot claim interest post-winding up without a surplus, with secured creditors pursuing remedies outside winding up.

Conclusion
The challenge to the Official Liquidator's adjudication is dismissed, as there is no merit in the claims for employees' contribution, damages under Section 14B, or interest under Section 7Q. The judgment upholds legal principles on priority of PF dues, the need for adjudication of damages, and limitations on interest post-winding up. The Company Application is dismissed, with no costs awarded.

This detailed analysis of the judgment addresses the issues raised in the challenge to the Official Liquidator's adjudication order regarding PF dues, contributions, damages, and interest under the PF Act, providing a comprehensive understanding of the legal principles and precedents involved.