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2024 (7) TMI 762 - AT - Insolvency and BankruptcyDistribution of provident fund dues - waterfall mechansim - distribution of provident fund dues in accordance with Section 36(4)(iii) of the Code or in accordance with Section 53 of the Code? - treatment of the various components of claims of the EPFO (the Respondent herein) i.e., contribution under Section 7A, interest under Section 7Q and damages under Section 14 of the EPF Act - PF dues in terms of EPF Act or not - costitution of liquidation estate - HELD THAT - The sum due to any workmen or employee from provident fund, pension fund and gratuity fund are not to form the assets of liquidation estate - the EPFO Authorities have been given powers to determine the amount due from the employer under the provisions of the EPF Act, or the pension scheme or insurance scheme as the case may be under Section 7A of the EPF Act. From section 14B of the EPF Act, it is noted that the EPFO Authorities hae been given powers to recover damages in case of employer s defaults in payment of any contribution to the fund. There is no pre-conceived formula regarding what damages should be fixed under Section 14B of the EPF Act and the same has been left to the discretion of the EPFO Authority to determine the damages in facts of each case - it becomes clear that the EPFO Authorities have powers to levy damages. It is also significant to note that damages is in relation to non- payment or delayed payment of contribution under Section 7A of the EPF Act by the employer (the Corporate Debtor herein) therefore, the damages in a sense is to be treated as extended part of the contribution. The Hon ble Supreme Court of India in Sunil Kumar Jain v. Sundaresh Bhatt 2022 (4) TMI 888 - SUPREME COURT 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(1) 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. This Appellate Tribunal in the case of State Bank of India v. Moser Baer Karamchari Union, 2019 (8) TMI 915 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI also examined the question of whether gratuity fund, provident fund and pension fund should be included as part of liquidation estate by including the same for payments under the waterfall mechanism under Section 53 of the Code. In this case, the Liquidator denied payment of the said funds in a preferential manner and had included the same for payment under the waterfall mechanism prescribed under Section 53 of the Code whereas the workers union claimed dues cannot be part of the waterfall mechanism under Section 53 of the Code - It was decided that the dues are to be paid to the workmen/employees on priority, without reference to or waiting for distribution of liquidation assets as per the waterfall mechanism under Section 53 of the Code. There are no merit in the appeal. The appeal deserved to be dismissed and stand dismissed.
Issues Involved:
1. Whether provident fund dues are to be decided and distributed in accordance with Section 36(4)(iii) of the Insolvency & Bankruptcy Code, 2016 (the Code) or in accordance with Section 53 of the Code. 2. Treatment of the various components of claims of the Employees Provident Fund Organisation (EPFO) i.e., contribution under Section 7A, interest under Section 7Q, and damages under Section 14B of the Employees Provident Funds & Miscellaneous Provisions Act, 1952 (EPF Act) and whether all these will constitute as PF dues in terms of EPF Act. 3. What constitutes part of the liquidation estate and what does not constitute part of the liquidation estate in terms of Section 36 of the Code, especially with respect to Provident Fund dues. Issue-wise Detailed Analysis: 1. Distribution of Provident Fund Dues: The primary issue is whether provident fund dues should be distributed according to Section 36(4)(iii) or Section 53 of the Code. Section 36(4)(a)(iii) of the Code specifies that all sums due to any workman or employee from the provident fund, pension fund, and gratuity fund shall not be included in the liquidation estate and shall not be used for recovery in the liquidation. This provision ensures that provident fund dues are protected and prioritized over other claims in the liquidation process. 2. Treatment of Various Components of EPFO Claims: The components of EPFO claims include contributions under Section 7A, interest under Section 7Q, and damages under Section 14B of the EPF Act. The judgment clarifies that these components collectively constitute PF dues. The Supreme Court in Maharashtra State Cooperative Bank Vs. Assistant Provident Fund Commissioner & Ors. [(2009) 10 SCC 123] held that the expression "any amount due from an employer" includes contributions, interest, and damages. Therefore, all these components are considered part of the provident fund dues and are given priority in payment. 3. Inclusion in Liquidation Estate: Section 36(1) of the Code describes the liquidation estate, which includes assets mentioned in Section 36(3). However, Section 36(4) explicitly excludes certain assets from the liquidation estate, including sums due to workmen or employees from the provident fund, pension fund, and gratuity fund. This exclusion ensures that these dues are settled before any distribution of the liquidation estate under the waterfall mechanism in Section 53 of the Code. Findings and Conclusion: The Tribunal found that the Adjudicating Authority correctly classified the provident fund dues as assets not forming part of the liquidation estate under Section 36(4)(iii) of the Code. The claims of the EPFO, including contributions, interest, and damages, are covered under the definition of "any amount due from an employer" and are prioritized for payment. The judgment of the Supreme Court in Maharashtra State Cooperative Bank (Supra) supports this interpretation. The Tribunal also noted that the dues of the provident fund, pension fund, and gratuity fund are protected under Section 36(4) of the Code and are not subject to the waterfall mechanism under Section 53. This protection ensures that these dues are settled on priority without reference to the distribution of liquidation assets. The appeal was dismissed, and the Tribunal upheld the decision of the Adjudicating Authority, affirming that the provident fund dues should be treated as per Section 36(4)(iii) of the Code and not included in the liquidation estate for distribution under Section 53. Separate Judgments: No separate judgments were delivered by the judges in this case. The decision was a collective judgment by the Tribunal.
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