Regional Director, ESI Corporation Vs. Manish Kumar Bhagat Liquidator - Appellate Tribunal had categorically held that the amount of ESI, contributed both by the employer and employee, lying with the CD/Company in liquidation, is in trust in view of Section 40(4) of the ESI Act, 1948 to which the provisions of Section 36 (4) (a) (i) shall squarely apply.

 NCLAT (2025.09.24) in Regional Director, ESI Corporation  Vs. Manish Kumar  Bhagat Liquidator [Comp. App. (AT) (Ins) No. 301 of 2024  &  I.A. No. 1013, 4529 of 2024] held that;

• Appellate Tribunal had categorically held that the amount of ESI, contributed both by the employer and employee, lying with the CD/Company in liquidation, is in trust in view of Section 40(4) of the ESI Act, 1948 to which the provisions of Section 36 (4) (a) (i) shall squarely apply.

Excerpts of the Orders

24.09.2025: This appeal is filed by the Regional Director of ESI Corporation, being aggrieved against the order dated 28.11.2023 by which IA No. 184/NCLT/AHM/2022, filed by the appellant in CP (IB) No. 537/NCLT/AHM/2018 under Rule 11 of NCLT Rules, 2016 against the liquidator of M/s Gupta Dyeing & Printing Mills Pvt. Ltd., Navrangpura, Ahmedabad Corporate Debtor for the purposes of keeping the ESI dues out of the liquidation estate by the corporate debtor has been dismissed.

# 2. Shorn off unnecessary details, the aforesaid application was dismissed by the Ld. Tribunal while making the following observations:

• “20. The liquidator had considered the claim of the applicant in terms of provisions of IBC 2016 and also included the applicant as an operational (unsecured) creditor. Applicant also attended various CoC meetings during the CIRP. The claim was settled in terms of the IBC provisions treating the applicant as an operational unsecured creditor and proportionately allotted the amount to be disbursed. Therefore, the Appellant for the purpose of determining the workmen’s dues as mentioned in Section 53 (1) (b) cannot derive any advantage of explanation (iv) Section 326 of the Companies Act 2013.

• 21. The consequences of non-payment of employees contribution from wages deducted in terms of Section 40(4) of the EST Act, 1948 and when not paid would be the responsibility of the principal employer which amounts to “breach of trust” and is punishable under IPC 406, 409 and also an offence u/s 85 of ESI Act. The liquidator has admitted the claims as per provision of the IBC 2016. The applicant has not proceeded in any manner against the corporate debtor, individually for which a provision is available in the ESI Act.

• 22. Role of Liquidator and powers are defined in Section 35 of the IBC, Liquidation Estate in Section 36 and determination of value of claims in Section 41 of IBC. Section 36 (4) (iii) of the IBC does not define the ESIC dues as workmen dues except for PF, Pension Fund and the Gratuity Fund. Secured Creditor is defined in Section 52 of liquidation proceedings in which the ESIC cannot make a claim or status to be included.

• 23.Insurance is a coverage on the premium paid whether run by private or government institution and offers a service when there is an even which is triggered and cannot be equated with other benefits which are protected under IBC. This applies for both state run and private institution, but there are imbibed provisions in the state insurance which gives it a statutory status for compliance and is on par with the other authorities who are treated as operational creditors. There is no provision in the statute of ESIC for any charge or special status other than those provided in Section 45 A of the ESIC whereby the applicant could have proceeded individually against the defaulter.

• 24. While treating the claim filed by the applicant the liquidator has arrived at the admissible amount and priority as per the provisions of IBC, 2016”.

# 3. Counsel for the appellant has submitted that the Ld. Tribunal has committed an error in not appreciating the provision of Section 36(4) (a) (i) as per which the assets in trust of any third party with the CD does not become the liquidation estate as such.

# 4. In this regard, he has relied upon a decision of a coordinate Bench of this court rendered in the case of Nurani Subramanian Suryanarayanan, Liquidator of M/s Care IT Solutions Pvt. Ltd. vs. Employees State Insurance Corporation, Rep. by its Regional Director & 2 Ors., TA (AT) No. 212/2021 CA (AT) (Ins) No. 116/2020 decided on 18.07.2024 in which the similar controversy was involved and the Appellate Tribunal had categorically held that the amount of ESI, contributed both by the employer and employee, lying with the CD/Company in liquidation, is in trust in view of Section 40(4) of the ESI Act, 1948 to which the provisions of Section 36 (4) (a) (i) shall squarely apply.

# 5. Counsel for the appellant has also submitted that the amount of claim of Rs. 1,20,80,940/- submitted by the appellant was admitted by the liquidator under the category of operational creditor.

# 6. Ld. Sr. Counsel appearing on behalf of the Respondent has submitted that the decision in the case of Nurani Subramanian (Supra) will not apply to the facts of the case and has rather relied on three decisions of the Hon’ble Supreme Court in the case of Moser Baer Karamchari Union vs. Union of India & Ors., (2023) 9 SCC 499, Sunil Kumar Jain & Ors. vs. Sundaresh Bhatt & Ors. (2022) 7 SCC 540 and K. Kishan vs. Vijay Nirman Company Pvt. Ltd. (2018) 17 SCC 662.

# 7. We have heard Counsel for the parties and after examining the record, are of the considered opinion that the controversy at hand is squarely covered by the decision of this court in the case of Nurani Subramanian (Supra) and the Judgments relied upon by the Respondents are not applicable as the said judgments are not on the issue of ESI.

# 8. In view of the aforesaid discussion, the present appeal is hereby allowed and the impugned order is set aside.

# 9. The parties shall bear their own costs.

# 10. Pending IA’s if any are hereby closed.

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Employees’ State Insurance Act, 1948.

# 40. Principal employer to pay contributions in the first instance.—

(1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer’s contribution and the employee’s contribution. 

(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee’s contribution by deduction from his wages and not otherwise: 

Provided that no such deduction shall be made from any wages other than such as relate to the period or part of the period in respect of which the contribution is payable, or in excess of the sum representing the employee’s contribution for the period. 

(3) Notwithstanding any contract to the contrary, neither the principal employer nor the immediate employer shall be entitled to deduct the employer’s contribution from any wages payable to an employee or otherwise to recover it from him. 

(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted. 

(5) The principal employer shall bear the expenses of remitting the contributions to the Corporation.  

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IDBI Bank Ltd. Vs. Bhatia Global Trading Ltd - In a case where the trustee or the beneficiary of a particular trust make a claim against an asset held by the Corporate Debtor in trust, it cannot be inferred that the amount or the asset would be treated as a part of the assets of the Corporate Debtor and would be dealt with in accordance with the provisions of Section 53 of IBC, 2016.

NCLT Indore-1 (30.03.2023) In IDBI Bank Ltd. Vs. Bhatia Global Trading Ltd [IA/54(MP)2023 & IA/59(MP)2023 in TP 162 of 2019 [CP(IB) 18 of 201] held that;

• In a case where the trustee or the beneficiary of a particular trust make a claim against an asset held by the Corporate Debtor in trust, it cannot be inferred that the amount or the asset would be treated as a part of the assets of the Corporate Debtor and would be dealt with in accordance with the provisions of Section 53 of IBC, 2016.

Excerpts of the order; 

IA/154(MP)2022 The prayer made in the IA reads thus:- 

• “b) Your Lordship may be pleased to direct the Respondent herein to transfer the amount of Rs. 6,88,16,906/- (Rupees Six Crores Eighty Eight Lakhs Sixteen Thousand Nine Hundred and Six Only) along with interest lying in the separate interest bearing account maintained by the Respondent herein as per directions of this Hon’ble Tribunal in its order dated 25.06.2018 passed in IA No. 119 of 2018 in the liquidation estate of the Corporate Debtor; 

• c) Your Lordship may be pleased to permit the Applicant-Liquidator to distribute the aforesaid amount as received from the Respondent herein (including interest) to the Stakeholders as per Section 53 of the Insolvency and Bankruptcy Code, 2016 once, the same is received from the Respondent herein.” 

As we can say from the captioned prayer, the Applicant has sought issuance of a direction to Respondent to transfer the amount of Rs. 6,88,16,906/- along with the interest in a separate interest bearing account maintained by the Respondent as per the direction given by this Tribunal in terms of the order dated 25.06.2018. As has been espoused by the Applicant in the application, the amount of Rs. 6,41,64,162/- referred in the application constitute part of the assets of the Corporate Debtor, thus, needs to be utilized in terms of the provisions of Section 53 of IBC, 2016. 

Per contra, learned counsel for the Respondent (Union Bank of India) submitted that in terms of the order dated 28.04.2017 passed by the Hon’ble High Court of Mumbai/Bombay, the amount was deposited with prothonotary/senior-master in trust for the benefit of Union Bank of India. According to him, at that point of time, the CIRP had not even commenced and subsequently in terms of the order dated 25.06.2018, the amount was shifted to Escrow Account. In his submission, even when an application was moved for clarification of order dated 25.06.2018, this Tribunal passed the order dated 03.06.2022 making it clear that the order dated 25.06.2018 was clear and no further clarification was required. 

We have heard the learned counsels for the parties and perused the record. 

As can be seen from the letter dated 14.12.2016 written by the Union Bank of India to the Corporate Debtor, the goods supplied to the Corporate Debtor at the strength of letter of credit were held to be kept in the trust for the Union Bank of India. 

It was the proceed of these goods, which were kept in the trust account with prothonotary of the Hon’ble Mumbai High Court. The same amount was kept in Escrow Account and was not treated as a part of the assets of the Corporate Debtor. 

In terms of the provisions of Section 36(4)(a)(i) of IBC, 2016, the amount kept by the Corporate Debtor in the trust cannot be treated as a part of the assets of the Corporate Debtor in any manner. Section 36(4)(a)(i) of IBC, 2016 reads thus:- “the following shall not be included in the liquidation estate assets shall not be used for recovery in liquidation- (a) assets owned by a third party which are in possession of the corporate debtor including- (i) assets held in trust for any third party.” From the aforementioned, it is apparent that the assets held in trust for third party cannot be treated as liquidation estate asset.” 

In the present case, the situation is further different and peculiar i.e., it was before the commencement of the CIRP when the Hon’ble High Court could admit the lien of UBI over the amount in question and directed the same to be kept in the trust. 

Even in the aforementioned letter of UBI also, it was clearly provided that the goods to be supplied to the Corporate Debtor were to be held in the trust for the Respondent. Even this Tribunal also did not arrive at any conclusion that the amount could be treated as a part of the assets of the Corporate Debtor.

The best argument put forth on behalf of the Liquidator is that the amount could be included as a part of the claim of the UBI qua the Corporate Debtor. 

In a case where the trustee or the beneficiary of a particular trust make a claim against an asset held by the Corporate Debtor in trust, it cannot be inferred that the amount or the asset would be treated as a part of the assets of the Corporate Debtor and would be dealt with in accordance with the provisions of Section 53 of IBC, 2016. 

In a situation like the present one, the proposition which would arise to be determined is, “whether certain amount which was never given by the Claimant to the Corporate Debtor or which is never due to the Claimant against the Corporate Debtor can be claimed as the debt or loan by the Claimant.” The apparent answer would be in negative. 

The argument that the amount held in the Escrow Account/with prothonotary as an amount payable to the UBI as proceed of the goods supplied to the Corporate Debtor at the strength of letter of credit need to be treated as a part of the assets of the Corporate Debtor cannot be countenanced. It is not the case of the applicant that the Corporate Debtor had paid for the goods supplied to it. 

In our considered view, the plea raised in the IA is not tenable and is liable to be nixed. IA is accordingly dismissed. No cost. 

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