2024 (10) TMI 293 - AT - IBC

Legality of attachment orders issued by EPFO prior to the initiation of CIRP - Preferential treatment given to claims of two EPFOs - appellant has sought quashing of impugned order of AA on the grounds that similarly placed provident funds are being treated differentially - HELD THAT - The claims of all the eight EPFO s are to be treated on par and the entire amount of claim under Section 7A, 7Q and 14B of the EPF Act must be paid to respective PF authority from the funds available in the attached bank accounts of CD. In case the amount available is not sufficient the same shall be met from disposal of other assets of the CD. Balance left after meeting the claims of the EPFO Authorities shall form part of the liquidation estate. The attachment on the bank accounts of the CD by the respondents is hereby removed and the liquidator along with Respondent 3 4 shall ensure payment of PF dues to respective PF authorities. The liquidator goes ahead with the liquidation process of CD thereafter. Appeal disposed off.

Issues Involved:

1. Legality of attachment orders issued by EPFO prior to the initiation of CIRP.
2. Treatment of Provident Fund (PF) dues during CIRP and liquidation.
3. Preferential treatment of creditors and adherence to Section 53 of the IBC.
4. Inclusion of PF dues in the liquidation estate under Section 36(4)(a)(iii) of the IBC.

Issue-wise Analysis:

1. Legality of Attachment Orders Issued by EPFO Prior to CIRP:

The primary issue was whether the attachment orders issued by EPFO before the commencement of the Corporate Insolvency Resolution Process (CIRP) could continue during the moratorium period. The Respondents argued that their attachment orders were issued before the CIRP commencement date and thus were not in violation of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC). The Tribunal referred to the judgment in Regional Provident Fund Commissioner vs T.V. Balasubramanian, which held that attachments made prior to the CIRP cannot be deemed against the provisions of the IBC. However, the Adjudicating Authority (AA) in the impugned order held that such attachments cannot continue after the imposition of the moratorium, emphasizing that PF dues do not form part of the Corporate Debtor's estate.

2. Treatment of Provident Fund (PF) Dues During CIRP and Liquidation:

The Tribunal examined whether PF dues should be excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC. The Tribunal reiterated that PF dues, including contributions under Sections 7A, 7Q, and 14B of the EPF Act, are not part of the liquidation estate and must be satisfied in full. The Tribunal relied on previous judgments, including Jet Aircraft Maintenance Engineers Welfare Association and the Supreme Court's decision in Maharashtra State Cooperative Bank Limited, which clarified that PF dues, interest, and damages are covered under Section 11(2) of the EPF Act and must be prioritized over other debts.

3. Preferential Treatment of Creditors and Adherence to Section 53 of the IBC:

The Appellant contended that the AA's order created unlawful preferential treatment by prioritizing EPFO payments over other creditors, violating Section 53 of the IBC. The Tribunal, however, held that the exclusion of PF dues from the liquidation estate under Section 36(4)(a)(iii) does not constitute preferential treatment. The Tribunal emphasized that similarly situated creditors must receive equitable treatment, but statutory dues like PF are protected and prioritized by law, as reaffirmed by the Supreme Court in Sundaresh Bhatt.

4. Inclusion of PF Dues in the Liquidation Estate Under Section 36(4)(a)(iii) of the IBC:

The Tribunal addressed whether the PF dues should be included in the liquidation estate. The Appellant argued that the attached accounts were not designated PF accounts and should be included in the liquidation estate. However, the Tribunal, citing the Supreme Court's decision in Sunil Kumar Jain, held that PF dues are excluded from the liquidation estate, regardless of whether specific PF accounts are maintained. The Tribunal concluded that all sums due to employees from PF, gratuity, and pension funds are protected and must be paid from the available funds of the Corporate Debtor.

Conclusion:

The Tribunal upheld the AA's order, emphasizing that PF dues are excluded from the liquidation estate and must be prioritized. The attachment orders by EPFO, even if issued before CIRP, cannot continue during the moratorium. The Tribunal directed the Liquidator to ensure payment of PF dues from the attached bank accounts and other assets of the Corporate Debtor, affirming the legal protection afforded to employee benefits under the IBC and EPF Act.

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