Mr. Divyesh Desai Vs. Employees Provident Fund Organisation - It is trite law that PF contributions of the employer and employee which are payable to the employee by the PF department do not form part of liquidation estate and has to be paid to the PF department for onward remission to the concerned employees in priority of all other debt.

NCLT Mumbai-1 (2024.02.09) in Mr. Divyesh Desai Vs. Employees Provident Fund Organisation [I.A. 53 Of 2022 in C.P.(IB) No. 619/MB/2018 ] held that;

• It is trite law that PF contributions of the employer and employee which are payable to the employee by the PF department do not form part of liquidation estate and has to be paid to the PF department for onward remission to the concerned employees in priority of all other debt. 

• Accordingly, the Liquidator’s determination of the claim for a sum of Rs. 10,79,49,882/- being the amount of contribution to the Provident Fund included in the said demand of the Respondent is correct and that amount shall be considered falling outside the liquidation estate. 

• The remaining claim of the applicant in so far as it pertains to claim of interest and damages or any other contribution not payable to the employees of the Corporate Debtor by such fund shall be regarded as operational debt due to the statutory authorities and considered accordingly in terms of Section 53 of the Code. 

Excerpts of the order;

# 1. This Application bearing IA No. 53 Of 2022, is filed by Mr. Divyesh Desai, Liquidator of Nicomet Industries Limited (Applicant), seeking 

1.1. This Hon'ble Tribunal be pleased to pass an order taking on record the claim in the manner as adjudicated by the Applicant and as more particularly described in the present application; 

1.2. This Hon'ble Tribunal be pleased to pass an order permitting the modification of list of stakeholders filed with this Hon'ble Tribunal, in light of the admission of the claim of the Respondent as verified by the Applicant in the manner as explained in the present application: 

1.3. Pass any order as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the present case. 

# 2. That vide order dated December 14, 2018 this Tribunal appointed Mr. Devang Sampat as the Resolution Professional for carrying out the Corporate Insolvency Resolution Process of the Corporate Debtor. Thereafter, this Tribunal by way of order dated December 16, 2020 initiated the liquidation process of the Corporate Debtor and Mr. Divyesh Desai (the "Applicant/Liquidator") was appointed as the Liquidator of the Corporate Debtor. Thereafter, on December 24, 2020, The Applicant made a public announcement calling upon stakeholders of the Corporate Debtor to submit or update their claims latest by or before January 15, 2021. 

2.1. Pursuant to public announcement, the Employees Provident Fund Organisation ("Respondent") filed their claim in the liquidation process of the Corporate Debtor with the Applicant. During the course of the first meeting of Stakeholders Consultation Committee ("SCC") held on April 5, 2021, the claim filed by the Respondent towards Provident Fund (PF) dues was discussed. During the course of the second meeting of the SCC of the Corporate Debtor held on May 14, 2021, the status of claim adjudication was discussed and the Applicant requested further data and information from the Respondent. Thereafter, the Applicant had addressed an email dated September 6, 2021 to the office of the Respondent thereby informing them that with reference to the claim submitted and information provided by the Respondent, and on the basis of the books of accounts / other records of the Corporate Debtor as available with the Applicant, the Applicant has evaluated the claim and an amount of INR 9,87,66,568/- (Rupees Nine Crores Eighty Seven Lakhs Sixty Six Thousand Five Hundred and Sixty Eight Only) is found to be admissible as more particularly bifurcated and described in the aforesaid email. 

2.2. Further, during the course of the fourth meeting of the SCC of the Corporate Debtor held on September 23, 2021, the Applicant informed about the total amount as found to be admitted in respect of PF dues as claimed by the Respondent. 

2.3. Thereafter, the Applicant visited the office of the Respondent on October 4, 2021 and pursuant to the meeting held on the aforesaid date, the Respondent shared the minutes of the meeting with the Applicant vide email dated October 6, 2021. 

2.4. Subsequently, the Applicant by way of an email dated October 7, 2021 pointed out the omissions and mistakes in the minutes of the meeting shared by the Respondent. 

2.5. The Applicant addressed an email dated October 26, 2021 to the Respondent thereby requesting them to share the document providing claim calculation in terms of Section 7A of the PF Act. Subsequently, The Respondent shared the Microsoft Excel file with the Applicant containing data pertaining to the calculation of dues in terms of Section 7A of the PF Act and the interest charged thereon. 

2.6. Thereafter, the Applicant addressed an email dated November 9, 2021 to the Respondent, thereby stating that the labour charge related liability of INR 475.34 Lakhs was calculated from the balance sheet, and hence, the same must have been taken as annual numbers. The Respondent once again shared the Microsoft Excel Sheet pertaining to calculation of dues in terms of Section 7A of the PF Act. The Applicant once again addressed an email dated November 10. 2021 stating that the Applicant needs break- of the amount of INR 475.34 lakhs pertaining to labour charges on monthly basis. 

2.7. The Applicant finalized the admissible claim amount as INR 12,97,85,105/- (Rupees Twelve Crores Ninety-Seven Lakhs, EightyFive Thousand and One Hundred and Five Only) and communicated the same to the Respondent vide email dated November 18, 2021. The Respondent addressed an email dated December 17, 2021 to the Applicant stating that the assessment of claim by the Applicant is not acceptable to the office of the Respondent and the Respondent further requested the Applicant to consider the claim of the Respondent in entirety viz. INR 20,07,60,746/- and liquidate the said dues immediately. 

# 3. The Respondent No.1 filed affidavit in reply dated February, 2022 stating that an enquiry u/s 7A of the EPF & MP Act 1952 was initiated for the period from 03/2007 to 07/2011 vide summons no. MH/PF/43283/Enf-VIII/RO/KND/3113 dated 04.02.2013 based on default committed by establishment and non-compliance of provisions of EPF & MP Act as per various complaints received and EO report. Later on the enquiry was extended up to 07/2013 vide summons no. MH/43283/Comp-I/RO/KND/1579 dated 26.09.2013 as observed by EO default committed by establishment again. Further, the enquiry was again extended from 08/2013 10 03/2019 Vide no MH/43383/MH/PF Comp-/RO/KND-418 dated 06/12/2019 based on various complaints received in EPF office from employees of establishment and as per EO report duly verifying the records of establishment under which it was found the establishment failed to comply the provisions of EPF & MP Act and made default in remittance of PF contribution of employees, however establishment had deducted PF contribution from employees' salary. In this regard during the default period complaints u/s 406/409 of IPC were also filed with police authorities. An order u/s 7A vide no. MH/43283/comp-I/CIR- 507/RO/KND-II/769 dated 13.12.2019 was passed with assessment of dues for Rs. 10,79,49,882/- for the period 03/2007 to 03/2019. Two order u/s 14B vide dated 13.12.2019 for Rs.4,70,071/- & Rs. 1,06,84,780/- as well as two orders u/s 7Q of the Act dated 13.12.2019 for Rs. 2,21,658/- & Rs. 52,44,363/- for the period from 04/1996 to 10/2019 were also passed by EPFO Authority. 

3.1. During the course of enquiry, it was come to notice that Corporate Insolvency Resolution Process (CIRP) was initiated against the establishment vide NCLT order dated 14.12.2018 and CA Devang Sampat was appointed as Interim Resolution Professional (IRP) for doing the task of CIRP. The same process was not informed by establishment representative during enquiry. Accordingly, this office had filed claim in form no. F with IRP on 14.12.2019 for Rs. 12,45,70,754/-(10,79,49,882/-(7A) + Rs. 1,11.54,851/-414B) + Rs. 54,66.021/-(7Q)) and the same was accepted by IRP. 

3.2. Later on the establishment was considered for Liquidation by NCLT vide its order dated 16.12.2020 and Liquidation commencement date of Corporate Debtor was 16.12.2020. A mail dated 29.12.2020 informing to file fresh claim with liquidator by 15.01.2021 has been received from Liquidator Shri Divyesh Desai. Accordingly, this office has filed claim in Form C with supporting orders/records in favour of dues on 14.01.2021 for Rs. 20,07,60,746/- (7A dues for Rs. 11,45,79,863) 14B(Damages) for Rs. 1,11,54,851 & 70 (interest for 08/1996 to 10/2019 for Rs. 54,66,021 & interest accumulated on 7A dues for said period for Rs. 6.95,60,011/-). The total interest dues is of Rs. 7.50.26.032- (RS 11.45.79,863 Rs. 1.11.54,851 Rs. 7.50,26.032 = 20,07,60,746/-) 

3.3. By various emails, Liquidator called clarification regarding Increase in claim amount. Against which this office has aiso sent various mails/letters 11.02.2021, 17.02 2021, 25.03.2021. 05 04 2021, 01.06.2021 28.06.2021, 06.07.2021, 29.07.2021 clarifying in claim amount as 1. There was some error in calculation in 7A dues i.e. Annexure D part, which rectified and issued corrigendum dated 14.01.2021 calculating actual amount for Rs. 11.45.79,863/- instead of Rs. 10,79,49,882/-, 2. Interest calculated on 7A dues for the period 03/2007 to 03/2019 for Rs. 6,95,60,011/- 

3.4. Despite of several times clarifications offered by this office. the EPFO claim was not accepted & kept on evaluation by the Liquidator. 

3.5. 1st stakeholder’s consultation Committee meeting was held on 05.04.2021, therein EPFO participated and clarified its stand and emphasized on PF dues to be paid on priority over other debt & dues as PF dues is statutory dues and have Ist charge over other debt & due as section 11(2) of EPF & MP Act. 2nd Stakeholders consultation Committee meeting was held on 14.05 2021, therein also not informed that whether EPFO claim has been accepted or not except evaluation. Further, 3rd SCC held on 6th July, 2021, 4th SCC on 23rd September, 2021, 5th SCC on 12th November, 2021 & 6th SCC on 30th December, 2021 held. On 6th September, 2021 an email was received from the office of Liquidator evaluating the EPFO dues for Rs. 9,87,66,568 Hence it was not accepted and scheduled a meeting on 04.10.2021 with Liquidator, which was held on 04.10.2021 in Regional PF Office Kandivali-East by discussing EPFO Provisions and status of EPF dues in the matter. It was also requested by Liquidator during meeting to share the dues calculation excel file to cross examination and re- evaluation. Accordingly minutes of meeting held on 04.10.2021 was sent to Liquidator on 06.10.2021 & excel file was shared to him. Thereafter, an email dated 18.11.2021 has been sent by Liquidator to this office evaluating EPFO dues for Rs. 12,97,85,105/- by waiving of Labour charges for Rs. 4.75 Crores and interest thereon and considering EPFO as Unsecured Operational creditor, which is not acceptable. Hence, this office has issued a mail dated 17.12.2021 to Liquidator objecting evaluation of EPFO dues and informed that the evaluated dues is not acceptable. Further it is also requested to liquidate the EPFO dues in full and on priority basis as PF dues have last charge over other debts & dues as per section 11(2) of the EPF & MP Act and it has also been upheld by the Hon’ble Supreme Court of India. 

# 4. Heard the learned Counsel for both sides and perused the materials available on record. 

4.1. It is trite law that PF contributions of the employer and employee which are payable to the employee by the PF department do not form part of liquidation estate and has to be paid to the PF department for onward remission to the concerned employees in priority of all other debt. Accordingly, the Liquidator’s determination of the claim for a sum of Rs. 10,79,49,882/- being the amount of contribution to the Provident Fund included in the said demand of the Respondent is correct and that amount shall be considered falling outside the liquidation estate. The remaining claim of the applicant in so far as it pertains to claim of interest and damages or any other contribution not payable to the employees of the Corporate Debtor by such fund shall be regarded as operational debt due to the statutory authorities and considered accordingly in terms of Section 53 of the Code. 

4.2. Since, the employer and employee contribution to the provident which is payable by the PF department to the concerned employee is held to be outside the liquidation estate, the whole of such amount whether for the period of CIRP or prior to it shall be payable priority over all other claims. The rest of the amounts shall be admitted as unsecured operational debt and be dealt with in accordance with section 53 of the Code. 

# 5. In view of the aforesaid directions, this I.A. 53/2022 is allowed. 

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