SECTION 17B OF THE PROVIDENT FUND ACT IS NOT IN CONFLICT WITH THE PROVISIONS OF INSOLVENCY AND BANKRUPTCY CODE, 2016

[Mr. M. GOVINDARAJAN]

In SIKANDER SINGH JAMUWAL VERSUS VINAY TALWAR RESOLUTION PROFESSIONAL, S.M. MILKOSE, APPLIED ELECTROMAGNETICS PVT. LTD.  [2022 (3) TMI 601 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] the corporate debtor was engaged in designing and manufacturing of customized solutions in the field of electronic/IT applications including digital solutions.  The appellants are employees of the corporate debtor.  The employees initiated corporate insolvency resolution process against the corporate debtor for nonpayment of their dues as operational creditors before the Adjudicating Authority.  The corporate debtor did not remit the PF dues of their employees to the PF Authorities.  The Adjudicating Authority initiated corporate insolvency resolution process on 26.10.2017.  The Interim Resolution Professional was appointed by the Adjudicating Authority.  The said Interim Resolution Professional was later replaced by another Insolvency Professional, the respondent No. 1 - Vinay Talwar.  

The liabilities of the corporate debtor as verified by the RP are ₹ 68.50 Crore. The Resolution Applicant has provided an amount of ₹ 12.99 Crore towards settlement of all past dues and liabilities of the corporate debtor which includes an amount of ₹ 9 crore towards ‘Secured Financial Creditors’ and ₹ 50 lakh towards ‘Unsecured Financial Creditors’. The employees and workman are getting ₹ 1.03 crore against the claim of ₹ 8.17 crore.

The Resolution Plan was called for and approved by the Committee of Creditors and also the Adjudicating Authority.  Employees’ Provident Fund organization, Government of India vide order under Section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 has determined an amount of ₹ 1,35,06,391/- as the dues from the corporate debtor  for the period up to March, 2018 against which only ₹ 78 lakhs has been provisioned for in the Resolution Plan submitted by the Resolution Applicant.

Since the amount allotted for the payment of their provident fund dues is very less in the resolution plan as approved by the Adjudicating Authority five employees filed appeal before the NCLAT, New Delhi Bench against the order of the Adjudicating Authority.  Out of the five appellants four of them withdrew their appeal since settlement has been reached.  The second appellant continued his stand before the Appellate Authority.

The appellant submitted the following before the NCLAT-

• The employee and workman are the backbone of the Corporate Debtor in corporate insolvency resolution process 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.
• The resolution plan has not considered the full payment of provident fund dues.
• The Provident Fund dues of the employees of corporate debtor in corporate insolvency resolution process  was supposed to remit to the Provident Fund  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,
• The ‘Financial Creditors’ (21.6%) have been paid much more than the ‘Operational Creditors’ (12.67%).
• The employees have not been paid the gratuity amount as required under the ‘Payment of the Gratuity Act, 1952’.
• The Resolution Applicant is in the business of manufacturing Ghee and schemed milk powder totally unrelated business in dairy industry and how the Resolution Applicant is eligible to take over highly technical and specialized field working on projects of national importance requiring expertise in the related field.
• 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 provident fund   dues amounts to violation of the provisions of Employees’ Provident Fund and Miscellaneous Provisions  Act, 1952.
• The initiation of corporate insolvency resolution process 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 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.

In view of the above, the Appellant prays for setting aside the impugned order dated 02.04.2019 passed by the Adjudicating Authority.

The Resolution Professional (Respondent No. 1) put forth the following submissions before NCLAT-

• There is no infirmity in the impugned order.

• Against the verified claims of the workmen / employees of ₹ 8.17 Crore the resolution professional has proposed an amount of ₹ 1.03 Crore.
• The appeal itself is not maintainable in view of  Supreme Court Judgment in case of  SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT].
• The financial creditors are being paid 21.6% and the operational creditors are paid 12.67%.
• It is the ultimate decision of the Committee of Creditors to decide what to pay and how much to pay each class or sub-class of creditors.
• The payments approved by the Committee of Creditors are a commercial decision of the Committee of Creditors and the Appellant has no locus standi to challenge the commercial decision of the Committee of Creditors.

The Respondent No. 2 and 3 submitted the following before the NCLAT-

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

• 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% and finally to 12.67% and the Resolution Plan has been unanimously approved in the 9^th meeting of the Committee of Creditors where representative of the Operational creditor was present.
• 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.

The NCLAT has gone through the submissions of the parties to the appeals along with the documents laid down under the provisions of the Code read with the provisions in Employees’ Provident Fund and Miscellaneous Provident Fund Act, 1952 produced before them.  The NCLAT observed that-

• The amount so computed to the appellants is ₹ 1,35,06,391/- whereas the provisions has been made for ₹ 78 lakhs only.
• Financial Creditors are being paid 21.6% whereas Operational creditors are being paid 12.67%.

The NCLAT analyzed the provisions of section 17B of the PF Act.  Section 17B provides that 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.

The NCLAT observed that 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.   The above said PF Act needs to be complied with. This aspect is justifiable 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 is not being looked into by this Tribunal as it is a commercial wisdom of Committee of Creditors.

The NCLAT further observed that since no provisions of the above said Act is in conflict with any of the provisions of the Code, the applicability of even Section 238 of the Code does not arise.   PF dues are not the assets of the Corporate Debtor as amply made clear by the provisions of Section 36(4)(a)(iii) of the Code. 

The NCLAT directed the second respondent the 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 (₹ 1,35,06,391 full dues – (minus) considered in the Resolution Plan ₹ 78,00,000).   The NCLAT modified the approved resolution plan to the above extent.