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TMI Blog2021 (4) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... ited. 2. At the time of initiation of the CIRP, this Tribunal had appointed the Applicant herein as the Interim Resolution Professional (IRP). After the constitution of the Committee of Creditors (CoC), it is seen that the IRP continued as Resolution Professional (RP) of the Corporate Debtor, in view of the decision of CoC of the Corporate Debtor choosing him to act as such. Based on the recommendation of the CoC for the liquidation of the Corporate Debtor, the RP filed an Application in MA/696/2019 seeking for the liquidation of the Corporate Debtor, which was ordered by this Tribunal on 08.07.2019. 3. While so, it is seen that the Respondent, namely, Employees' Provident Fund Organisation (EPFO) through the Office of the Recovery Officer had issued a sale notice dated 23.07.2019 for the sale of movable properties of the Corporate Debtor claiming that an outstanding amount in a sum of Rs. 38,89,229/- is due and the date of sale was also fixed as 22.08.2019 pursuant to the sale notice. The said notice provoked the Applicant herein, in the capacity as a Liquidator, to move the Application in MA/868/2019 before this Tribunal, wherein, it was stated that the Respondent without f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as due from the Corporate Debtor: S No RRC No Nature of due Period amount 1 CBSLM2574 Dt 06/04/2017 7A 06/2004 to 10/2012 2905380 2 CBSLM5814 Dt 09/05/2017 PD 04/2013 to 01/2014 477380 3 CBSLM5814 Dt 09/05/2017 INTEREST 04/2013 to 01/2014 229142 3611902 As a consequence of non-payment of the money admitted as demanded in the attachment notice, proclamation of sale has been made and in the circumstances, the interference of this Tribunal is not called for. Counsel for the Liquidator brings to the notice of this Tribunal that during the CIRP period as well as subsequent to the liquidation passed by this Tribunal on 04.07.2019, the Respondent has not lodged its claim as required under the provisions of IBC, 2016. It is also brought to the notice of this Tribunal that in the absence of any claim being lodged and an option being exercised with liquidation in relation to the property, the Respondent wants to invoke pursuant to the attachment notice and sell the property belonging to the Corporate Debtor which we find will not be in consonance with the provisions of IBC, 2016 and more particularly Section 32 to Section 42 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Respondent for relocating the machinery of the Corporate Debtor, namely, M/s. SAS Autocom Engineers India Private Limited while it is undergoing Liquidation Process; and (c) To pass such other orders or further orders which may deem to be fit and proper in the interest of justice". On its part, the Respondent herein, in relation to the Order dated 19.02.2020 passed by this Tribunal in MA/868/2019, had chosen to file a Writ Petition in WP/9036/2020 before the Hon'ble High Court of Madras seeking for the issue of Writ of Certiorari to call for the records of this Tribunal in MA/868/2019 and quash the same. 7. From the records available before this Tribunal, it is seen that initially the Hon'ble High Court of Madras vide its Order dated 09.07.2020 had granted an Interim Stay of four weeks and also with the further directions that the properties which are the subject matter of the Order dated 19.02.2020 not to be brought up for auction and no third party interest to be created in relation to the property. 8. It is further seen that, on 31.08.2020, the Hon'ble High Court of Madras (DB) had chosen to dispose of the said Writ Petition No. 9036 of 2020 filed by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very procedures were initiated as contemplated under the said Act under Sections 8B to 8G of the said Act read with Second Schedule of the Income Tax Act, 1961. Due notices and communication were also issued, as per the averments made by the Respondent in the Counter and in relation to the same, it is averred that the Order(s) of attachment of property was issued, dated 25.04.2018 and 23.10.2018 and the physical possession of the same was taken on 26.04.2018 pursuant to the Order of Attachment. iii. Subsequently, the property was valued on 11.04.2019 and the issue of RRC/CP-I was communicated to the Establishment on 11.04.2019 as well as 19.06.2019 and thereafter warrant of sale was issued on 23.07.2019. Proclamation of sale and publication was effected on 23.07.2019 and 24.07.2019 respectively for the auction, which was fixed on 22.08.2019 in relation to the dues payable by the Corporate Debtor under the EPF and MP Act, 1952. iv. It is also averred in the Counter that based on the representations of the employees of the Corporate Debtor that there has been default in payment of workmen dues and that the Corporate Debtor is planning to sell off the machinery, and based on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of Section 36(4) of IBC, 2016, as all sums due to the workmen under Provident Fund, Pension Fund and Gratuity cannot be included in the liquidation estate of the Corporate Debtor. In view of the attachment already being effected even prior to the initiation of the CIRP of the Corporate Debtor and as PF dues are not part of the liquidation estate, it will not fall under the water fall mechanism under IBC, 2016. Further, the attachment and possession of the property attached had happened, much prior to the initiation of the CIRP. The RP has to exclude the assets under Section 36 of the Code as not forming part of the liquidation estate. viii. In any case, it is submitted that proceedings under the EPF and MP Act, 1952 cannot be considered as a proceeding falling under Section 14 of IBC, 2016 and the moratorium cannot be applied to all proceedings. In this connection, the decision of the Hon'ble Delhi High Court rendered in Power Grid Corporation vs. Jyoti Structures Ltd., is sought to be relied on. ix. In the circumstances, it is stated by the Respondent that the whole machinery under the EPF and MP Act, 1952 cannot be made a prisoner of IBC 2016, which is not the intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n moved reads as follows: Section 60 Adjudicating Authority for Corporate Persons:- (1) xxxxxx (2) xxxxxx (3) xxxxxx (4) xxxxxx "(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of:- a) any application or proceeding by or against the corporate debtor or corporate person; b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code". (underline supplied) 13. In a recent judgment rendered by the Hon'ble Supreme Court in the matter of Gujarat Urja Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors. in Civil Appeal No. 924 of 2019, the Apex Court had an occasion to deal with in detail, the jurisdictional ambit of NCLT and NCLAT and more particularly, with reference to Sub-section (5) of Section 60 of IBC, 2016. Paragraphs 67 and 68 of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures adherence to the process. At all points, the adherence to the process and compliance with all applicable laws is controlled by the adjudicating authority. The adjudicating authority gives powers to the insolvency professional to take appropriate action against the directors and management of the entity, with recommendations from the creditors committee. All material actions and events during the process are recorded at the adjudicating authority. The adjudicating authority can assess and penalise frivolous applications. The adjudicator hears allegations of violations and fraud while the process is on. The adjudicating authority will adjudicate on fraud, particularly during the process resolving bankruptcy. Appeals/actions against the behavior of the insolvency professional are directed to the Regulator/Adjudicator". (underline supplied) As such, it is important to remember that the NCLT's jurisdiction shall always be circumscribed by the supervisory role envisaged for it under the IBC which sought to make the process driven by trained resolution professionals. 14. Again at Paragraph No. 72 of the judgment, the Hon'ble Apex Court taking into consideration the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radiction of the holding of this Court in Satish Kumar Gupta (supra). (underline supplied) 163. Although various provisions of the IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a 'going concern', there must be a specific textual hook for the NCLT to exercise its jurisdiction. The NCLT cannot derive its power from the 'spirit' or 'object' of the IBC Section 60(5)(c) of the IBC vests the NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process. We hasten to add, however, that the NCLT's residuary jurisdiction, though wide, is nonetheless defined by the text of the IBC. Specifically, the NCLT cannot do what the IBC consciously did not provide it the power to do. 16. Keeping in consideration the decision of the Hon'ble Supreme Court in relation to the jurisdictional aspect of this Tribunal under IBC, 2016 we now venture into the pleadings of the parties. From the rival pleadings, it is evident that since the admission of the Petition on 05.10.18 and initiation of CIRP of the Corporate Debtor, the concerned Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy of the Corporate Debtor under CIRP by way of approval of a resolution plan or for the liquidation of the Corporate Debtor. 18. While so, during the course of submissions made by the Respondent, a vehement contention was taken by the Ld. Counsel for the Respondent that it is not necessary for the Respondent even to lodge a claim with IRP/RP as the case may be during the CIRP or with the Liquidator during the liquidation process in view of Section 11 of EPF & MP Act, 1952. Section 11 of the EPF & MP Act, 1952 reads as follows:- 11. Priority of payment of contributions over other debts. [(1)] Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due-- a) from the employer in relation to an establishment to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under section 14B, accumulations required to be transferred under sub-section (2) of section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme; or b) from the employer in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n process. 20. Further, it is also pointed out that the provisions of IBC, 2016, more particularly, by virtue of Section 36(4)(a)(iii) of the Code provides that all sums due to any workman or employee from the Provident Fund, the Pension Fund and the Gratuity Fund are not to be included in the liquidation estate assets and shall not be used for recovery in liquidation. 21. Thus, we pose ourselves with a question as an Adjudicating Authority having jurisdiction exclusively over the insolvency of Corporates, like that of the company under liquidation can such a view be entertained or countenanced. 22. A careful perusal of both i.e., Section 11 of the EPF & MP Act, 1952 or for that matter Section 36(4)(a)(iii) of IBC, 2016 primarily deals with the assets concerned of the establishment, and the Corporate Debtor respectively and nowhere specifies that the EPF Authorities are not required to even lodge a claim before the IRP/RP/Liquidator in relation to a Corporate Debtor undergoing a Insolvency or Liquidation Proceedings even though liability accrued only prior to insolvency is deemed to be included amongst the debts. The Respondent, if at all, taking into consideration the decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor and in turn put on notice any Resolution Applicant during the CIRP or a purchaser of the assets of the company under liquidation as in the present instance. This enables the PF authorities to reinforce the claims arising out of PF dues avowedly for the welfare of the employees and the PF authorities being a statutory body created under the EPF & MP Act, 1952 is required to act more responsibly keeping in mind the overall interest of the Nation in relation to speedier resolution of insolvency of corporate and cannot act in an obdurate manner which makes the resolution or liquidation process under IBC, 2016 a never ending process similar to the one which was prevalent earlier stuck in a legal quagmire before judicial Forums. Further, under the provisions of IBC, 2016 the management of the Corporate Debtor is taken over by the IRP/RP/Liquidator as the case may be and in any event going by the provisions of EPF & MP Act, 1952 demand for EPF dues is required to be made to the establishment concerned which had defaulted as well as for any subsequent action including notice of attachment or proclamation by way of sale and in the circumstances, the PF authorities will in any case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions through old age and survivors' pensions as has been done in the industrially advanced countries. But in the prevailing conditions in India, the institution of a pension scheme cannot be visualised in the near future. Another alternative may be for provision of gratuities after a prescribed period of service. The main defect of a gratuity scheme, however, is that amount paid to a worker or his dependents would be small, as the worker would not himself be making any contribution to the fund. Taking into account the various difficulties, financial and administrative, the most appropriate course appears to be the institution compulsorily of contributory provident funds in which both the worker and the employer would contribute. Apart from other advantages, there is the obvious one of cultivating among the workers a spirit of saving something regularly. The institution of a provident fund of this type would also encourage the stabilisation of a steady labour force in industrial centres. 26. From the above paragraph, it is quite evident that the primary concern of EPF & MP Act, 1952 centres around the welfare of the employees and the necessity of providing a retirement nest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the successful resolution applicant that Sections 7Q and 14B of the EPF & MP Act, 1952 cannot be relied upon, as the provisions of IBC, 2016 has an overriding effect on the same in terms Section 238 of the Code, it was held that no provisions of EPF & MP Act, 1952 and IBC, 2016 are in conflict and on the other hand in terms of Section 36(4)(iii), the provident fund and gratuity funds are not the assets of the corporate debtor, there being specific provisions, the application of Section 238 of the Code will not arise. In the circumstances the successful resolution applicant was directed to release full provident fund and interest thereof in terms of EPF&MP Act, 1952 and the appeal of PF authorities was thereby allowed. (ii) In the matter of State Bank of India vs. Moser Baer Karamchari Union & Anr. (Company Appeal (AT)(Insolvency) No. 396 of 2019 The question which arose for decision before the Appellate Tribunal in this matter was as to whether for the purpose of distribution of assets of the Corporate Debtor during the course of its liquidation under Section 53 of IBC, 2016, whether dues of employees as mentioned in sub clause (c) of sub-section (1) therein incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to admission of Company Petition under IB Code, the statutory first charge having remained in force against the assets of the corporate debtor company, there is no merit to differentiate in respect of attachments made prior to filing of the Company Petition and during CIRP period; b) The charge in relation to PF dues will be the first charge in priority to all other debts, including Liquidator costs because the PF dues has been excluded from the Liquidation Estate; c) PF dues being treated as an asset of the workmen u/s. 36(4)(a)(iii) of the Code, for realisation of such debt, EPF Act 1952 is applicable, not IBC, 2016; d) Since Liquidation Process should not get obliterated by the attachment taken against the assets of the Corporate Debtor, the only viable answer to this situation is, the Liquidator shall pay the dues that are payable under the head of Provident Fund/Pension Fund/Gratuity Fund earmarking it as asset of the workmen and pay off the same to the respondents in priority to the waterfall mechanism made under Section 53 of the Code. In view of the law in force, we hereby hold that by virtue of EPF Act and Section 36(4)(a)(iii) of the Code, the charge will remain in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred supra. (ii) Since the attachment of movables effected by the PF Authorities by way of Order of Attachment of Property issued dated 25.04.2018 for the recovery of the PF dues is even prior to the initiation of CIRP by this Tribunal on 05.10.2018, the said order of attachment will not be hit by the declaration of moratorium under Section 14 of IBC, 2016 following the ratio of the Hon'ble NCLAT as held in Company Appeal (AT)(Insolvency) No. 1521 of 2019 also referred supra and hence this Tribunal is not required to delve any further on the aspect of attachment. (iii) As the Order of Attachment issued by the PF Authorities-Respondent dated 25.04.2018 is held to be not hit by the provisions of the moratorium declared thereafter and for the reasons stated in paragraph supra, the action of the Liquidator in conducting an auction on 12.02.2020 while the matter was pending before this Tribunal dealing inter-alia with the said property as well under attachment, is required to be set aside as the same cannot be sustained in view of the statutory first charge prevalent on the assets of the Corporate Debtor in relation to PF dues and not being discharged as provided under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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