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TMI Blog2024 (10) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - [Justice Rakesh Kumar Jain] Member (Judicial) And [Mr. Indevar Pandey] Member (Technical) For the Appellant: Ms. Shivani Rawat, Jojongandha Ray, Tine Abraham Advocates. For the Respondents: Mr. Hitesh Sachar, Ms. Anju Jain, Rabi Karmokar, Advocates for R-1,2. Mr.Amrendra Kumar, Ms.Sanidhya Kumar, Advocates for R-4. JUDGMENT INDEVAR PANDEY, MEMBER (TECHNICAL) This appeal has been filed under section 61(1) of the Insolvency and Bankruptcy Code, 2016 (in short Code) read with rule 11 of the National Company Law Appellate Tribunal Rules, 2016 challenging the impugned order of National Company Law Tribunal, Mumbai Bench, the Adjudicating Authority (in short AA) in I.A. No. 2152 of 2022 in C.P. (IB) No. 1443 of 2020 passed on 17th March 2023. The AA vide the aforesaid order directed the Appellant/Resolution Professional to: (a) Set aside amounts corresponding to the provident fund contributions of the employees of the Corporate Debtor from the funds available in the attached bank accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orders. The IRP also advised Respondent Nos. 1 and 2 to submit any outstanding claims in the prescribed format. A similar request for detachment was made to Respondent Nos. 3 and 4 on 6 July 2022. (iv)On 13 July 2022, Respondent No. 1 replied to IRP, stating that its attachment order was issued prior to the commencement of the CIRP, and in the absence of a specific order from the AA to withdraw the attachments, it was not inclined to vacate its order. On the same day, Respondent No. 2, in a separate letter to IRP, stated that the Provident Fund (PF) authorities are entitled to satisfy their full claim during CIRP, asserting that the attached accounts were not establishment accounts as per Section 16A of the EPF Act and that EPF dues do not fall under Section 53 of the Insolvency and Bankruptcy Code (IBC). (v)Despite filing their claims before the IRP on 11 July 2022 and 14 July 2022 respectively, and having their claims admitted in full under the government dues category, Respondent Nos. 1 and 2 did not withdraw the attachments on the Corporate Debtor's bank accounts. The list of admitted claims published by the Appellant on 13 February 2023 continues to reflect the claims of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt: 3.The Appellant (Liquidator) has made following submission on facts: The EPFOs issued attachment orders on 3 February 2022 and 6 June 2022 for the Corporate Debtor s failure to pay provident fund dues amounting to INR 7,34,37,074/- and INR 10,15,484/-, respectively. These orders targeted current and savings accounts, not maintained as PF accounts. Respondent No. 2 s attachment order pertains solely to damages and interest after the Corporate Debtor had settled the principal amounts. Despite this, the order incorrectly attached non-PF accounts. Despite serving notices, EPFOs did not appear before the AA. The RP argued that the attached accounts were not PF accounts, and that the attachment obstructed the CIRP. The De-Attachment Application was heard ex-parte, and the RP s request for submission of additional documents was denied. The Impugned Order, while partially granting the De-Attachment Application, imposed conditions requiring the RP to set aside PF contributions from the attached accounts, provide an undertaking to remit dues, and handle PF claims as per the EPFOs' demands. 4.The counsel for the Appellant submitted that the CD s statutory creditors include eight Emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cknowledge that when no PF funds are maintained, claims must be dealt with under Section 53. Similarly, The AA misinterpreted the judgments in Parameshwar Udpa and C.G. Vijay Laxmi, which address different contexts and obligations. The Impugned Order obstructs the liquidation process. Section 35(1)(b) of the Code grants the Liquidator control over all assets, including the Attached Accounts. The order restricts the Liquidator's access to necessary funds, hindering the completion of the liquidation within the statutory timeline, as mandated by Regulation 44(1) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. 9.The Counsel stated that the EPFOs' reliance on judgments is misplaced, particularly when arguing for the continuation of attachment orders issued before CIRP initiation. The Tribunal has clarified that such orders cannot continue during the moratorium. 10.In the end the Counsel submitted that the Impugned Order should be set aside due to its erroneous preferential treatment of EPFOs, its obstructive impact on the liquidation process, and its misinterpretation of relevant legal precedents. Submission of the Respondents : 11.The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned Order without considering the attachment order dated 04th August 2017. It is on record that the Recovery Officer to realise outstanding dues, attached the immovable properties belonging to the Corporate Debtor, in the exercise of powers vested in him under Section S(B) of the EPF and M.A. Act, 1952, vide order of attachment EPFCP-l Ebearing reference No. T.N./VL/6294/Recovery/2017 dated 04th August 2017. On perusal of this letter (Annexure A-4), Authorised officer, regional officer, Vellore, issued a Recovery Certificate to the Recovery Officer, Regional Office, Vellore in exercise of powers conferred under Section 8(8) to 8(G) of the Employees Provident Fund and Miscellaneous Act, 1952. Copy of Order of attachment EPFCP-16 is also enclosed with the attachment order passed by the Recovery Officer, Employees Provident Fund Organization. Thus, it is undisputed that the attachment of immovable property of the Corporate Debtor was made by the Recovery Officer EPFO Organization on 04th August 2017 much before the petition under Section 7 of the Code. 13.The counsel stated that the Impugned Order does not create any disparity between similarly situated creditors. the filing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 53 (1), which is the case with PF, Gratuity and Pension Funds. 16.The aforesaid decision clearly upholds principles that the provision for dues of PF, Pension and Gratuity of employees must be made by the Liquidator irrespective of the fact whether a dedicated account/ fund is available for the same. The claims in this regard would have to be paid out of available funds of the CD. 17.The counsel for the respondent further stated that Hon ble Supreme Court in the case of State of Jharkhand and Or s. vs Jitendra Kumar Srivastava and Or s. /MANU/SC/0801/2013/ had held the following vide paras 7 8 of the Judgment: 7. It is an accepted position that gratuity and pension are not the bounties. An employee earns these benefits by dint of his long, continuous, faithful and un-blemished service. 8.It is the hard-earned benefit, which accrues to an employee and is in the nature of property. This right to property cannot be taken away without the due process of law as per the provisions of Article 300A of the Constitution of India. 18.The Counsel for Respondents stated that during the hearing the Hon'ble Tribunal sought explanation with respect to whether any of the attachment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n INR) and PERCENETAGE OF Claim Admitted Amount Cliamed (in INR) Amount (in INR) and Percentage of Claim Admitted EPFO Kolhapur 3,14,83,492 3,14,83,492 (100%) 3,14,83,492 3,14,83,492 (100%) EPFO Kandivali (Exleela) 11,16,919 6,68,614 (59.86%) 11,16,919 6,68,614 (59.86%) Central Borad OF Trustees EPF, Kannur (Respondent No.2) 8,10,048 8,10,048 (100%) 8,10,048 6,64,243(82%) Regional PF Commissioner and Recovery Officer, Bangalore (Respondent No.1) 23,68,44,933 23,68,44,933 (100%) 23,68,44,933 23,68,44,933 (100%) Employee Provident Fund organisation, Regional Office, Peenya 4,59,52,754 4,59,52,754 (100%) 4,59,52,754 4,59,52,754 (100%) EPFO, Regional Office, Thane 57,46,56,297 18,51,01,405 (32.21%) 57,46,56,297 18,51,01,405 (32.21%) EPFO, Solapur 20,89,95,071 1,51,81,898 (7.26%) 20,89,95,071 1,51,81,898 (7.26%) EPF Kandivali, West Mumbai (Tarapur) 23,30,27,625 23,30,27,625 (100%) 23,30,27,625 23,30,27,625 (100%) 22.The appellant has sought quashing of impugned order of AA on the grounds that similarly placed provident funds are being treated differentially. There are six other EPFOs who s claim have not been decided in the instant order. The preferential treatment given to claims of tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare of the workmen dues shall be kept outside the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available and the Liquidator shall not have any claim over such funds. 24.The directions of Hon ble Supreme Court (supra) are contained in para 54(ii) in reference to provident fund, gratuity fund and pension fund. Hon ble SC has clearly directed that share of workman dues shall be kept outside the liquidation process and the concern workman/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any available. The appellant relies on the specific word if any available , in the Judgment supra and claims that the attached accounts are savings and current accounts of the CD and do not fall in the purview of dedicated provident fund, gratuity fund and pension fund as ordered by the Supreme Court. 25.We find that this issue was analysed and decided by this Tribunal in the Jet Aircraft Maintenance Engineering Welfare Association V. Ashish Chhawchharia, RP of Jet Airways India Ltd. in CP (IB) No. 2205/B/2019 . The Tribunal has framed ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution Plan in addition to the 24 months workmen dues as the workmen is entitled to under Section 53(1)(b) of the Code. It is made clear that in addition to part amount of provident fund and gratuity as proposed in Resolution Plan to workmen, Successful Resolution Applicant is obliged to make payment of balance unpaid amount of provident fund and gratuity to workmen and employees. 72.Our answer to Question II and III is as follows: (i)The workmen and employees are entitled to receive the amount of provident fund and gratuity in full since they are not part of the liquidation estate under Section 36(4)(a)(iii). (ii)The workmen are entitled to receive their dues from the Corporate Debtor for period of 24 months as per provision of Section 53(1)(b) at least to minimum liquidation value envisaged under Section 32(2)(b) read with Section 53(1). 28.The question XI as framed by the Tribunal was answered in following manner in paras 117 to 119, which are reproduced below: 117.In the appeal filed by the Regional Provident Fund Commissioner, it has been pleaded that the claim was filed by the Appellant for an amount of Rs.24,40,65,594/- towards damages under Section 14B of Employees' Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Fund can visit him with the consequence of levy of damages. 119.The above judgment lays down that any amount due from employer appearing in sub-section (2) of Section 11 also covers the amount determined under Section 14B and there cannot be any quarrel to the preposition as laid down by the Hon ble Supreme Court in the above case. The priority for payment of debt under Section 11 of the 1952 Act must be investigated in view of the mechanism which is specifically provided under Section 53(1) of the Code. We have already dealt the provision of Section 36(4)(a)(iii) of the Code and held that provident fund dues are not subject to distribution under Section 53(1) of the Code. The issue is fully covered by three-member bench judgment of this Tribunal in Tourism Finance Corporation of India Ltd. vs. Rainbow Papers Ltd. Ors. (Supra). In view of foregoing discussion, we hold that provident fund dues were entitled to be paid in full. In view of the judgment of Supreme Court in Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner Others (Supra), the claim of Appellant was to be satisfied in full, otherwise breach of provision of Section 30(2)(e) would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supposed to pay the total provident fund amount, but only a part of the amount has been allowed by the Resolution Professional . 41.It was submitted that the Resolution Plan is against the provisions of Section 36(4) (iii) of the I B Code as per which the provident fund and gratuity fund cannot be included as assets of the Corporate Debtor . 42.An Affidavit has been filed by Kushal Limited - ( Successful Resolution Applicant ) stating that the approved Resolution Plan has duly taken care of all the statutory dues amounting to total Rs.5.09 crore. It was further submitted that the principal amount of provident fund has been taken into consideration whereas the order of levying of interest by the PF Authority post Corporate Insolvency Resolution process is not permissible under the law for the time being in force. 43.Further, according to Successful Resolution Applicant , Section 7Q and 14B of the Employees Provident Funds and Miscellaneous Provision Act, 1952 cannot be relied upon as the provision of the I B Code has overriding effect on the same in terms of Section 238 of the I B Code . 44.However, as no provisions of the Employees Provident Funds and Miscellaneous Provision Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice, Coimbatore and Or s. were respondents. ii. The CD was admitted into CIRP vide order of AA dated 26.02.2020 and the respondents had filed their claim before the IRP of Rs.1,24,86,850/-. The CD was subsequently directed to be liquidated, and the appellant was appointed as the Liquidator who asked the respondents to file the claim during liquidation period. iii. It is the case of the appellant that the CD did not maintain sperate funds with respect to pension fund and provident fund and therefore according to the appellant the claim of the respondent is to be treated under the water fall mechanism as per the Section 53 of the Code. iv. EPFO Authorities issued sale proclamation for the assets of the CD and started recovery in terms of provisions of the Employees Provident Fund Miscellaneous Provision Act, 1952. v. The Liquidator issued public notice for auction of a certain property and during such e-auction notice the appellant came to know of the charge created by the respondent on the said property. On the prayer of the appellant the AA allowed him to create a fixed deposit to the extent of Rs. 1,24,86,750/- as claimed by EPFO. The auction sale of the subject property was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred 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 relation to an exempted [establishment] in respect of any contribution to the provident fund or any insurance fund] (in so far as it relates to exempted employees), under the rules of [the provident fund or any insurance fund] [any contribution payable by him towards the [Pension] Fund under sub-section (6) of section 17,] damages recoverable under section 14B or any charges payable by him to the appropriate Government under any provision of this Act under any of the conditions specified under section 17, shall where the liability therefor has accrued before the order of adjudication or winding up is made, be deemed to be included] among the debts which under section 49 of the Presidency Towns Insolvency Act, 1909, or under section 61 of the Provincial Insolvency Act, 1920, or under [section 530 of the Companies Act, 1956], are to be paid in priority to all other debts in the distribution of the property ofthe insolvent or the assets of the company being wound up.as the case may be [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court of India the contention of the Appellant was not tenable, and it has been rejected. 43.We have already seen that this position has been affirmed in the case of Jet Aircraft Maintenance Engineers Welfare Association supra and Tourism Finance Corporation of India Ltd. v. Rainbow Papers Ltd. Ors., Company Appeal (AT) (Ins.) No. 354 of 2019 and both these decisions have been upheld by the Hon ble SC. 44.The present matter before us relates to the claim of eight EPFO authorities which are placed in identical situation as in the case of Anuj Bajpai Judgment supra and are further covered by aforesaid Judgments. 45.In view of position explained above, we hold that: (i)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. (ii)The attachment on the bank accounts of the CD by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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