Showing posts with label claims-pf-pension-gratuity. Show all posts
Showing posts with label claims-pf-pension-gratuity. Show all posts

Monday, 19 January 2026

Regional Provident Fund Commissioner-II Vs. Harshavardhan Cotton and Synthetic Mills Pvt. Ltd. and Anr. - a part of ‘all sums due to the workmen/employee’ will be within the meaning of Section 36(4)(a)(iii) and accordingly will have to be treated as a third-party asset under Section 36(4)(a)(iii) to be kept outside the liquidation estate.

  NCLAT (2026.01.13) in Regional Provident Fund Commissioner-II Vs. Harshavardhan Cotton and Synthetic Mills Pvt. Ltd. and Anr. [(2026) ibclaw.in 41 NCLAT, Company Appeal (AT) (CH) (Ins.) No. 455/2023 (IA Nos. 1421 and 1422/2023)] held that; 

  • The implications of the above ratio as propounded are very clear; that is, Section 36(4) of the I & B Code, 2016, will take precedence over Section 53, as far as the distribution of assets of the liquidation estate is concerned.

  • First, the Liquidator will identify the assets of the CD and take charge of them, then he will exclude assets that falls under Section 36(4) of the I & B Code, 2016, including third-party assets falling under Section 36(4)(a) and thereafter, form the liquidation estate which he then proceeds to realise and distribute among the stakeholders as per the formula prescribed under Section 53 of the code. Thus, it is clear that distribution under Section 53 of the I & B Code, 2016, will have to be done subject to Section 36(4) of the code.

  • In view of the above ratios, it has to be accepted that the issue is no more Res Integra and that all sums due from provident fund will include within it the amounts determined under Section 7Q and 14B as well.

  • Thus, if an enterprise has not been permitted to maintain separate provident fund/pension fund/gratuity fund, it has to remit the dues to be paid into the respective funds maintained by EPFO by law and even if it has not done so, which is the case on hand, then the said amount will be deemed to be a part of the said funds and consequently, a part of ‘all sums due to the workmen/employee’ will be within the meaning of Section 36(4)(a)(iii) and accordingly will have to be treated as a third-party asset under Section 36(4)(a)(iii) to be kept outside the liquidation estate.


Blogger’s Comments; Observations of the Hon’ble NCLAT are quite baffling. How come the PFdues (a liability) can be a part of assets under ”Liquidation Estate”. The issue has been clarified by Hon’ble HC Bombay (2025.04.29) in Dalmia Cement (Bharat) Limited & Ors. Vs. The Central Board of Trustees, EPFO, [2025:BHC-NAG:4461-DB, Writ Petition No. 693 /2022] as under;

  • As discussed above the Provident Fund of an employee, which includes both the components (a) employee contribution and (b) employers contribution, cannot be held to be ‘assets’, over which the corporate debtor can be held to have any rights of ownership or  dominion and would, even in case it is not deposited in the Provident Fund account, by the employer would continue to be property owned by the employee, held in trust by the employer, on behalf of the employee for being deposited in the provident fund account and thus would be outside the scope and ambit of the duties of the IRP as specified in sec.18 of the IB Code.

  • Not only this, sec.10, even directs that neither the Official assignee appointed under the Presidency Towns Insolvency Act, nor any received appointed under the Provincial Insolvency Act, shall be entitled to or have any claim on such provident fund amount of an employee, thereby indicating that it is to be preserved sacrosanct, by granting it immunity even in respect of insolvency proceedings, which may be initiated, even against such employee.

  • It would thus be apparent that since the employers provident fund contribution, cannot be included in the definition of ‘assets’, in view of Explanation (a) to Sec.18(1) of the IB Code, there would be no obligation upon the provident fund department to lodge a claim for the dues, in that regard with the IRP and get such claim verified so as to be included in the Resolution Plan.


Excerpts of the Order;

This appeal arises from the Impugned Order dated 17.11.2023, issued by the National Company Law Tribunal, Division Bench-I, Chennai, in IA(IBC)/116(CHE)/2022 in MA/623/2018 as it was preferred in CP/104/IB/2018. The said application, IA(IBC)/116 (CHE) /2022, had been filed invoking Section 54 of the I & B Code, 2016, by the Liquidator of the corporate debtor (CD) M/s. Harshavardhan Cotton and Synthetic Private Limited, seeking an order for dissolution of the CD. The said application was allowed by the Ld. Adjudicating Authority, against which the present appeal has been filed.


Brief facts of the case:-

# 2. The Corporate debtor, M/s Harshavardhan Cotton and Synthetics Pvt. Ltd., is an establishment, which stands covered under the provisions of Employees’ Provident Funds & Miscellaneous Provisions Act, 1952, with Code Numbers MD/MDU/41334 and MD/41334-A. The establishment employed 181 workers. On an application that, was instituted by the Operational Creditor, Bhadresh Trading Corporation, the Ld. Adjudicating Authority, directed commencement of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor by an order dated 12.03.2018 in CP/104/IB/CB/2018. During this process, the Hon’ble NCLT declared a moratorium and appointed Mr. Raghuram Mani as the Interim Resolution Professional (IRP). Since no resolution plans were received, the committee of creditors (COC) resolved to liquidate the Corporate Debtor during its 3rd meeting on 14.03.2018 and to file an appropriate application to that effect before the Ld. Adjudicating Authority. Consequently, vide the order dated 03.12.2018, the adjudicating authority allowed the said application and ordered liquidation of the CD.


# 3. Following his appointment, the Liquidator made a public announcement on 7th December 2018 inviting claims those the creditors and the stakeholders, verified the claims those were received, prepared the list of stakeholders and filed it before the NCLT on 15.02.2019. Further, the Liquidator admitted claims to the tune of Rs.16,79,16,396.49 and initiated steps for realising the assets of the CD, so as to enable him to settle such claims. There were no left over immovable/movable assets of the CD as they had already been sold even before the commencement of CIRP. As recorded in the impugned order by NCLT, the only asset that was available with the CD were financial assets in form of receivables, which the Liquidator took steps to realise from various debtors, including the related parties of the CD. In the process, he realised a total sum of Rs. 9,20,57,356.00 in the liquidation account. After this, the Liquidator submitted the Asset memorandum before Ld. NCLT and then proceeded to distribute the amount amongst the stakeholders in accordance with Regulation 42 of the liquidation regulations, 2016, to be read with Section 53(1) of the I & B Code, 2016. After the said distribution, the Liquidator filed the dissolution application before the Ld. NCLT, which was allowed by Ld. NCLT vide the impugned order.


# 4. The Appellant herein had also submitted a claim of Rs. 6,34,816/- in the shape of Form-C on 01.01.2019, which consisted of payment of interest and damages on account of default in paying the EPF contributions in time, for the period 2007 to 2015. The Liquidator had admitted the said claims in full, under Section 40(1) I & B Code and communicated the same vide his letter dated 01.02.2019. In the same letter, the Liquidator had also stated that the liquidation proceeds will be distributed as per the provision of Section 53 of the I & B Code, 2016, as and when it is realised from the assets of the CD. The Appellant had insisted through his letter dated 08.01.2020, that priority may be assigned to EPF dues, as they have the first charge over the assets of the establishment as per Section 11(2) of the EPF and MP Act, 1952, and therefore the same may be paid in priority to all other debts. The Liquidator by his letter dated 23.01.2020 informed the Appellant, that the claim of EPFO consists of penal damages and interest, and it has already been included for consideration under Section 53(1)(e) of I & B, Code 2016, for the purpose of distribution of liquidation proceeds.


# 5. The Appellant through his letter dated 27.10.2020 informed the Liquidator, that as per Section 36(4)(a)(iii) of the code, PF dues shall not form the liquidation estate and is bound to be treated as third-party assets in the hands of the Liquidator and therefore the PF dues may be released before initiating the process of distribution of the proceeds in accordance with the waterfall mechanism prescribed under Section 53 of the code. To this, the Liquidator replied on 02.11.2020, thereby contending that only PF contribution of the employee and of the employer are to be treated as the sum due to the workmen / employees from the provident fund, pension fund and gratuity fund and consequently, as third-party assets in the hands of the Liquidator as per provision of Section 36(4)(a)(iii) of the Code and that the claim of the Appellant towards penal damages and interest have been categorised and placed under Section 53(1)(e) of the code and same would be paid depending upon the realisation of the assets of the CD, as per the provisions of the code. The Appellant EPFO sent another detailed letter to the Liquidator on 19.11.2020, contending that the question of according priority to the PF dues, including interest and penal damages payable on it, is the ratio that has been already settled by Hon’ble Apex Court in the matter of Maharashtra State cooperative bank Limited Vs. Kannad Sahakari Sakhar Karkhana Ltd and others, as decided in SLP no. 14772-14773/2010 and Hon’ble High Court of Madras too, in the matters of EPF Commissioner V. Official Liquidator of M/s. ESSKAY Pharmaceutical Ltd and also in CA/899/12 in CP/230/2001 in the matter of Murugan Mills(P) limited, where Hon’ble Supreme Court has held that priority is to be given to EPF dues, and that EPF dues will include within itself not only the amount assessed under Section 7A but also interest under Section 7Q and damages contemplated under Section 14B of the EPF Act. To this, the Liquidator replied on 28.11.2020 that the said judgements pertains to a period prior to enactment of I & B Code 2016 and that, as the Liquidator, is strictly bound to follow the provisions of the Code, which will prevail over any other conflicting laws or instruments in force, including case laws by virtue of the implications of Section 238 of the code. Stating the same, he reiterated his position that he has categorised the claim of EPFO (which consisted of penal damages and interest) as govt. dues under Section 53(1)(e) of the code and will pay the same, depending on the realisation of the assets.


# 6. Accordingly, the Liquidator proceeded to categorise the claim of EPFO to the tune of Rs.6,34,816/- as government dues instead of treating it as a third-party asset and placed the same under Section 53(1)(e) of the code. He went on to realize a total of Rs. 9,20,57,356/- from various stakeholders and related parties towards the liquidation estate and distributed the same in accordance with the provisions of Section 53(1). In the process, EPFO, i.e., the Appellant, got nil amount.


# 7. Thereafter, the Liquidator, on completion of the distribution of liquidation estate among the creditors and stakeholders, filed the application IA/116/2022 before NCLT praying for the dissolution of the Corporate Debtor. NCLT, after observing that since no applications are pending for avoidance, preferential, undervalued, or fraudulent transactions and that the final report & the compliance certificate in the shape of Form-H have been filed, which indicated that the corporate debtor has been completely liquidated, passed the impugned order ordering dissolution of the corporate debtor on 17.11.2023. The Liquidator intimated the same to the Appellant through his letter dated 22.11.2023, enclosing a copy of the impugned order. Aggrieved by the said order, which dissolved the CD, without settling his claim, the Appellant herein has preferred the instant appeal.


Appellant’s submissions:

# 8. It is the case of the Appellant that the Liquidator has incorrectly concluded that only the contribution of the workmen, and the contribution of the employer towards PF will be covered by the provisions of Section 36(4)(a)(iii) of the Code and that the interest computed under 7Q and damages computed under 14B of EPF Act are in the nature of government dues and will come under Section 53(1)(e) instead of Section 36(4)(a)(iii). The Appellant has submitted that, the Liquidator has erred in law by placing the claim of the Appellant under Section 53(1)(e) of the code, in complete disregard of the settled position of law regarding distribution of assets of the CD under liquidation which has been laid down by Hon’ble Supreme Court in its judgement dated 02.05.2023 in the matter of Moser Baer Karamchari Union vs. Union of India and Others reported in (2023)238Compcas 458(SC).


# 9. He has further submitted that the issue; of whether the PF dues is expressly excluded from the assets of the CD as per the provisions of Section 36(4)(a)(iii) of the I & B Code, 2016, has already been dealt with by this Appellate Tribunal in in its judgement dated 19.08.2019 in the matter of SBI versus Moser Baer Karamchari Union and another in company Appeal (AT)(Ins) No. 396/2019 and it has been expressly declared therein that all sums due to workmen and employees from provident fund, the pension fund and the gratuity fund cannot be included in the liquidation estate for the purpose of distribution of assets under Section 53(1) of the code. He has been contended that the said order has attained finality with the dismissal of the appeal filed by SBI in Civil Appeal No. 258/2020 against the said order before the Hon’ble Apex Court. He has further placed reliance on yet another judgment dated 02.11.2022 that was rendered by this Appellate Tribunal in the matter of Assam Tea Employees Provident Fund Organization Vs. Madhur Agrawal, RP of Hail Tea Limited and Others in Company appeal (AT)(Ins) No. 262/2022 to assert that, any amount due from the employer under Section 11(2) of EPF Act also covers the amount that has been determined under Section 14B and that the provident fund dues are not subject to distribution under Section 53(1) of the code and that they are liable to be paid in full in view of the judgement of Hon’ble Supreme Court in Maharashtra State Cooperative Bank Limited Vs. Assistant PF Commissioner and Others. The Appellant has also relied upon the judgement of Hon’ble Supreme Court dated 19.04.2022 in Civil Appeal No. 5910/2020 in the matter of Sunil Kumar Jain and others Vs. Sundaresh Bhatt, which declares that the concerned workmen/employees shall be entitled to the provident fund, gratuity fund, and the pension fund which are specifically kept out of liquidation estate and as per Section 36(4) of the code, they are not to be used for recovery in the liquidation. Finally, the Appellant has cited the decision rendered by this Appellate Tribunal in the matter of Anuj Bajpai Vs. Regional PF Commissioner, Coimbatore to support his argument that Section 53(1) cannot be made applicable to the dues coming under provident fund, pension fund, and gratuity fund and that the PF dues should have been paid before commencing distribution of liquidation proceeds under Section 53(1) of the I & B Code, 2016.

10. The Appellant has further contended that the financial creditor, the City Union Bank, has been the beneficiary of distribution of the assets of the CD and therefore it has to return the amount equivalent to his claim in view of specific provision under Regulation 43 of IBBI (liquidation process) regulations 2016. Accordingly, it was prayed that the impugned order of Ld. NCLT maybe set aside and the Respondent may be directed to re-distribute the claim amount of Rs.6,34,816/- due to EPFO on first priority from and out of the liquidation assets of the CD.


Case of the Respondent

# 11. On the contrary, the Respondent/Liquidator has submitted that, it had discharged its duties as contemplated under the code including publication of the notice, inviting claims, verification and admission of the claims, preparation of the list of stakeholders, preparing and completing the audit of the books of accounts for the entire period, appreciation, and preparation of the asset memorandum, realization of Rs.9,20,57,356/- in the liquidation account from various customers, including related parties, distribution of the same to the stakeholders as per the intention of Section 53 of the code, and preparation of the final report containing the details of liquidation of the assets and that the Liquidator had filed the application in IA No. 116/2022 seeking for an order of dissolution of the CD, which was allowed by Ld. NCLT by the impugned order.


# 12. He has contended that the amount realised by him, will have to be treated as part of the liquidation estate, which will have to be distributed under Section 53 of the code because of the non-obstante clause attached to it and therefore, he has not violated any of the provision of the code. He has further contended that, the true meaning of Section 36(4)(a)(iii) will be that if there are any funds of the corporate debtor that are specifically segregated or classified as provident fund, pension fund, and gratuity fund, the same shall not be used for settling the dues of other creditors in terms of Section 53 of the I & B Code, 2016, and that the same cannot be interpreted to mean that the dues payable towards provident fund, pension, and gratuity shall be paid from the liquidation estate in priority over other classes of creditors or at par with secured financial creditors. He has stated that since the corporate debtor did not have a separate account/fund to pay pension, provident fund and gratuity, no amount could be set apart and kept outside of the liquidation estate as per the provisions of Section 36(4)(a)(iii) of the code. He has relied upon the observations made in paragraph 25.2 of the judgment of the Hon’ble Supreme Court, in the matter of Sunil Kumar Jain Vs. Sundaresh Bhatt (supra) to support his argument that since there are no such dedicated fund, no amount could have been set apart to pay the provident fund dues in priority before commencing distribution of the proceeds of liquidation among the stakeholders / claimants as per the provisions of Section 53 of the Code. Accordingly, he has submitted that the prayer of the Appellant is in contravention to the provisions of Section 53 of the code and therefore it is liable to be dismissed as baseless.


# 13. We have heard the arguments extended by the respective counsels and gone through the submissions and records submitted by both the parties. The wider issues to be decided are threefold;

a) Whether, in the event of process of settlement of claims during liquidation, Section 36(4)(a)(iii) will take precedence over Section 53 of the I & B Code, 2016.

b) Whether ‘all sums due to any workmen or employee from the provident fund, the pension fund and the gratuity fund’ as described in Section 36(4)(a)(iii) of the Code, will also include interest under Section 7Q and damages under Section 14B as determined under the relevant provisions of EPF Act and claimed by EPFO as due from the CD?

c) Whether the sums as described above will have to be held in a dedicated fund in the CD so as qualify to be a third-party asset to remain outside the liquidation estate?


# 14. The first issue has already been conclusively decided by a series of judgements pronounced by Supreme Court and NCLAT. Supreme Court in its judgement dated 02.05.2023 in the matter of Moser Baer Karamchari union versus Union of India and Others reported in (2023)238Compcas458(SC) categorically has held that in case of liquidation of a company under the I & B Code, 2016, the distribution of the assets shall have to be done as per Section 53 of the I & B Code, 2016, subject to Section 36(4) of the I & B Code, 2016. The relevant paragraph is extracted below.

  • “18 …. In case of the liquidation of a company under the IBC, the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36( 4) of the IBC, in case of liquidation of company under IBC.

  • …. 8. For the purpose of the present decision, we are not interpreting Sub-clause (iii) to Clause (a) of SubSection (4) to Section 36 of the Code as this is an issue of some debate and pending consideration in other matters. The legal effect of exclusion is that, the amount of sums due to any workmen or employee from the provident fund, the pension fund or the gratuity fund cannot be made subject matter of reduction or dilution even in a rehabilitation or revival plan. They are excluded from the waterfall mechanism and would not be used in recovery on liquidation, and they cannot be shared …. ”


The implications of the above ratio as propounded are very clear; that is, Section 36(4) of the I & B Code, 2016, will take precedence over Section 53, as far as the distribution of assets of the liquidation estate is concerned. Intuitively too it also, this makes eminent sense. First, the Liquidator will identify the assets of the CD and take charge of them, then he will exclude assets that falls under Section 36(4) of the I & B Code, 2016, including third-party assets falling under Section 36(4)(a) and thereafter, form the liquidation estate which he then proceeds to realise and distribute among the stakeholders as per the formula prescribed under Section 53 of the code. Thus, it is clear that distribution under Section 53 of the I & B Code, 2016, will have to be done subject to Section 36(4) of the code.


# 15. The second issue of, whether amount determined under Section 7Q and 14B of the EPF Act, will come within the meaning of ‘all sums due to workmen/employee from Provident fund’ has also been settled by a series of judgements of this Appellate Tribunal. The Appellant has referred to the judgement dated 10.07.2024 that was rendered in the matters of Anuj Bajpai vs. Employee Provident Fund organisations (2024) to support his contention that the provident fund dues will fall within the meaning of Section 36(4)(a)(iii) of the I & B Code, 2016, will consist of not only the amount determined under Section 7A, but also the amounts to be determined under Section 7Q and Section 14B as well. The relevant paragraphs of the said judgement is extracted below:-

  • “..,51.The Hon’ble Supreme Court laid down that there is no reason to give restrictive meaning of expression ..any amount due from the employer,, and to confine to only amount determined under Section 7A of the EPF Act, The Hon’ble supreme Court further held that interest payable.by the employee under Section 7Q and the damages levied under Section; 148 of the EPF Act will also be covered as dues from the employers for the purpose of Section 11(2) of the EPF Act.

  • 52. we note that in the present appeal the amount which has been claimed by the employer are covered under Section 7A, 7Q and 14B of the EPF Act and therefore are fully governed by the judgement Maharashtra state Cooperative Bank (Supra).

  • 53. In view of this clear judgement of the Hon’ble Supreme Court of India the contention of the Appellant are not tenable and stand rejected.

  • 54. we also note that the Hon’ble supreme court of India in Sunil Kumar Jain v, Sundaresh Bhatt [(2022) 7 SCC 540] held that the dues of the gratuity and pension shall be governed by Section 36(4) of the Code. It is reiterated that Section 36(4)(ii) of the code specifically excludes “all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund”, from the ambit of liquidation estate assets, Therefore, Section 53(l) of the code cannot be made applicable to such dues, which are to be treated outside the liquidation estate assets under the code. Section 36(4) of the code has clearly gives protection to workmen’s dues under provident fund, gratuity fund and pension fund which are not to be treated as liquidation estate assets and the Liquidator cannot claim over such dues,..,”


# 16. We find that this Appellate Tribunal had also delivered a judgement dated 21.10.2022 in the matters of Jet Aircraft Maintenance Engineers Welfare Association vs. Ashish Chhwachharia, RP of Jet Airways (India) Limited and others in which it had deliberated on the same issue in a substantial manner and came to the conclusion that the PF dues will also include within it the amount determined under Section 7Q and 14B. The relevant paragraphs are reproduced here under:

  • “118. Challenge to the Resolution Plan by the Appellant is on the ground that Section 11 of the 1952 Act requires priority over all other dues and further Section 36(4)(a)(iii) excludes provident fund dues from the liquidation estate of the Corporate Debtor. We have already dealt with provisions of Section 36(4)(a)(iii) in foregoing paras of this judgment. Now, we, need to look into Section 11 of 1952 Act. The Section 11 of the 1952 Act provides for priority of payment of contributions over other debts. Learned counsel for the Appellant has relied on judgment of the Hon’ble Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others, (2009) 10 SCC 123”. The Hon’ble Supreme Court dealing with Section 11 of 1952 Act laid down following in Para 67:

  • “67. The expression “any amount due from an employer” appearing in sub-Section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub-Section (1) of Section 11 and Sections 7A, 7Q, 14B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the mandate of Section 7Q. Likewise, default on the employer’s part to pay any contribution 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 has to be looked into 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 have occurred. We, thus, are inclined to issue direction to the Successful Resolution Applicant to make payment of the admitted claim of the Appellant towards provident fund dues to save the plan from invalidity.”


# 17. Similar views have also been expressed by other coordinate benches of this Appellate Tribunal in the matters of Truvisory insolvency professionals Private Limited (IPE) versus EPFO in CA(AT)(Ins) No. 580/2023; and also in the matter of SBI versus Moser Baer employees union in Company Appeal (AT) (Insolvency) No. 396 of 2019. All the judgments draw their inspiration from the findings recorded in the judgment of the Honourable Supreme Court in the matter of Maharashtra State Cooperative Bank versus Assistant Provident Fund Commissioner. In view of the above ratios, it has to be accepted that the issue is no more Res Integra and that all sums due from provident fund will include within it the amounts determined under Section 7Q and 14B as well.


# 18. Now we will proceed to answer the third issue framed by us, i.e., whether the sums due to workmen/employee from provident fund, pension fund, and the gratuity fund are to be held in a dedicated fund so as to qualify for being treated as a third party asset, to be kept outside the liquidation estate? The Respondent argues that, as per the ratio laid down in the matter of Sunil Kumar Jain (Supra), there has to be a dedicated fund for such sums, failing which, the said amounts will be included in the liquidation estate. The relevant paragraph which is cited by the Respondent. is extracted below:-

  • “25.2 considering Section 36(4) of IBC and when provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen’s dues shall be kept outside the liquidation process and the workmen/employees concerned 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.”


# 19. The Respondent relies on a cursory reading of the paragraph as above to contend that workmen/employees will be paid out of the provident fund, gratuity fund, and the pension fund, if any, available and if such funds are not available, then the dues of the employees in form of PF, pension, and gratuity will have to be paid in accordance with the provisions of Section 53 of the code. This is not a correct interpretation which can be assigned to the issue. If the entire judgement is taken into consideration, it will be apparently clear that the provident fund, gratuity fund and the pension fund will have to be kept outside the liquidation estate by treating it as third party asset. It is not material whether this funds are maintained in a dedicated account as long as such amounts are held by the CD. Even if they are not classified in a dedicated account, then too it has to be presumed that, the CD is holding these amounts and will have to pay the said amount to the workmen/employee at an appropriate time. It needs to be mentioned here that certain enterprises have been given the latitude to open their own provident funds/pension funds/gratuity funds by giving exemption under EPF Act, and these enterprises maintain separate funds. The rest of the enterprises who come under EPF Act are mandated to remit the dues to EPFO promptly, failing which they have to pay the same with interest and damages computed under Section 7Q and 14B respectively. Thus, if an enterprise has not been permitted to maintain separate provident fund/pension fund/gratuity fund, it has to remit the dues to be paid into the respective funds maintained by EPFO by law and even if it has not done so, which is the case on hand, then the said amount will be deemed to be a part of the said funds and consequently, a part of ‘all sums due to the workmen/employee’ will be within the meaning of Section 36(4)(a)(iii) and accordingly will have to be treated as a third-party asset under Section 36(4)(a)(iii) to be kept outside the liquidation estate. The third issue is answered accordingly.


# 20. From the above, we come to the conclusion that the Liquidator has erroneously placed the claim of the Appellant EPFO under Section 53(1)(e) of the code instead of treating it as a third-party asset under Section 36(4)(a), that the amount Rs. 6,34,816/-ought to have paid to the Appellant before the distribution under Section 53 was resorted to by the Liquidator and therefore, the said amount should be recovered from the financial creditor City Union Bank Respondent-2 herein under Regulation 43 of IBBI liquidation process regulations 2016 and paid to the Appellant.


# 21. We find that NCLT has already passed the order of dissolution. The right course would have been to set aside the order of dissolution, and to direct the Liquidator. to rectify this error and then to apply for dissolution of the CD. However, in the interest of cutting short the litigation, we are of the view that the interest of justice will be served, in case the financial creditor, Respondent-2, is directed to remit the amount Rs. 6,34,816/-to the Appellant herein within 30 days and report the same to NCLT, which will then direct for making the necessary entries in the liquidation records to the effect.


# 22. The appeal will be closed accordingly. Interlocutory applications, if any, will stand closed.

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Wednesday, 8 October 2025

Regional Provident Fund Commissioner -II (Legal), Vs. Mr. Milind B. Kasodekar - we have no hesitation to hold that dues under Section 14B of EPF Act being damages, are Government dues and is to be paid as per the Section 53 of the Insolvency and Bankruptcy Code, 2016, and do not fall under section 36(4)(a)(iii) of the Code.

  NCLT Mumbai-II (2024.07.16) in Regional Provident Fund Commissioner -II (Legal), Vs. Mr. Milind B. Kasodekar [Company Appeal (IB)/ 35/MB/ C-III/2023 In C.P. (IB) No. 3806 of 2018] held that;

  • As the Applicant has failed to establish that the damages under Section 14B of the EPF Act are owned by workmen or the employees as their dues under Provident Fund Act, this Adjudicating Authority comes to an inevitable and inescapable conclusion that damages under section 14B of the EPF Act are not the “sums due to any workman or employee from the provident fund” and therefore are not covered under Section 36(4)(a)(iii) of the IBC, 2016.

  • The question is accordingly answered in negative holding that damages under section 14B of EPF Act are not covered under Section 36(4)(a)(iii) of the IBC, 2016 and are not required to be excluded from the liquidation estate of the Corporate Debtor in liquidation.

  • held that the damages levied by Respondent Organization under Section 14B of the EPF & MP Act 1952 which are dues of Government and will be paid in order of priority under Section 53 of IBC, 2016.

  • we have no hesitation to hold that dues under Section 14B of EPF Act being damages, are Government dues and is to be paid as per the Section 53 of the Insolvency and Bankruptcy Code, 2016, and do not fall under section 36(4)(a)(iii) of the Code.

  • As far as damages amounting to Rs. 31,16,446/- which was imposed by order dated 25.07.2017, prior to the commencement of the CIRP moratorium, the Hon’ble NCLAT directed the Successful Resolution Applicant (SRA) to pray to the Central Board to waive 100% damages of Rs. 31,16,446/- imposed by order dated 25.07.2017 under Section 14B within a period of one month.

Excerpts of the Orders

# 1. REGIONAL PROVIDENT FUND COMMISSIONER-II (LEGAL), REGIONAL OFFICE, PUNE-II (‘Appellant’ /‘Employees Provident Fund Organisation’/ ‘EPFO’) has filed this Appeal under Section 42 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’/ ‘Code’) against the decision of Liquidator (‘Respondent’) of M/s. ASMI METAL PRODUCTS PVT LTD (‘Corporate Debtor’), seeking the following reliefs:

  1. “Allow the present Appeal;

  2. Condone the delay of approximately 210 days in filing this appeal against rejection of claim of EPF dues by the Respondent;

  3. Direct the Respondent to withdraw his letter dated October 17, 2022 and release the full amount of Rs. 5,96,946/- (Indian Rupees Five Lakhs Ninety-Six Thousand Nine Hundred and Forty-Six only) outstanding and payable towards the EPF dues of the Corporate Debtor to the Applicant forthwith;”


# 2.Relevant Facts of the Case:

2.1. It is the case of the Appellant that the EPFO office had passed an order dated 10.09.2015 in the matter of delayed payment of EPF dues by Corporate Debtor imposing damages under Section 14B of the EPF Act of an amount of Rs. 11,83,997/- and interest under Section 7Q of the EPF Act of an amount of Rs. 6,28,974/-, cumulatively amounting to Rs. 18,12,971/-, out of which Rs. 12,20,976/- has already been recovered from the Corporate Debtor.

2.2. The Particulars of amounts recovered and outstanding under order dated 10.09.2015 passed by RPFC-II, Regional Office, Pune as follows:

  1. Amounts Recovered till date


S.N.

Section of EPF Act

Date of Recovery

Amount (Rs.)


7Q

16.10.2015

50,000


14B

03.04.2016

5,90,550


14B

03.11.2018

1,452


7Q

03.11.2018

5,78,974



TOTAL

12,20,976


  1. Amounts Outstanding and yet to be recovered from the Corporate Debtor.


S.N.

Section of EPF Act

Amount (Rs.)


14B

5,91,996


Recovery Cost

4,950


TOTAL

5,96,946


2.3. This Tribunal vide order dated 14.10.2019 admitted the M/S. ASMI METAL PRODUCTS PVT LTD (Corporate Debtor) into CIRP and the Respondent was appointed as the Interim Resolution Professional (IRP) of the Corporate Debtor.

2.4. This Tribunal passed a Liquidation order dated 21.09.2020 under Section 33 (2) of the Code and appointed the Respondent as the Liquidator.

2.5. The Liquidator has considered the above dues of Rs. 5,96,946/- as statutory dues to Government during liquidation.

2.6. The contention of the Appellant is that EPF dues are third-party assets i.e. assets of workers lying with the Corporate Debtor and hence are to be kept out of the liquidation estate as prescribed under Section 36(4)(a)(ii) of the Code. Further, it was stated by the EPFO that the liquidator cannot categorise EPF dues as amounts payable to an Operational Creditor or towards government dues since these are social security dues of workers maintained and disbursed by a specialized statutory institution established under special legislation framed by the Parliament.

2.7. However, the Respondent sent a letter dated 17.10.2022 stating that a sum of Rs. 1,00,00,000/- (Rupees One Crore) has been received from the sale of the liquidation asset and as the claim of the secured financial creditor is more than the realized value, therefore no priority can be given to the EPF dues claimed by the EPFO under Section 53 of the Code.


# 3. Submissions of Appellant

3.1. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is welfare legislation and provides for social security benefits of employees and workmen. Section 11 (2) of the EPF Act states that dues under the EPF Act shall be deemed to have first charge on the assets of the Corporate Debtor and shall be paid in priority to all other debts.

3.2. As per Section 36(4)(a)(iii) of the Code, the EPF dues are not the assets of the Corporate Debtor but the earned benefits of the employees as a result of their long, continuous and faithful services rendered to the Corporate Debtor. Therefore, EPF dues should be paid in priority to all other debts. Section 36(4)(a)(iii) of the Code specifically provides that the sums due to any employees from the provident fund, the pension fund, gratuity fund are not assets of the Corporate Debtor and must be paid prior to making any payment to any entity falling under the waterfall mechanism under section 53 of the Code.

3.3. The Respondent while rejecting the claim of the Appellant has placed reliance on a judgment dated 23.09.2022 of the National Company Law Tribunal (‘NCLAT’), Chennai bench in the matter of Easun Reyrolle Limited v. Assistant Commissioner, Employees Provident Fund Organisation which relied on the judgement dated 11.02.2020 of Hon’ble NCLAT, New Delhi passed in the matter of Mr. Savan Godiwala, Liquidator of Lanco Infratech Ltd. V. Mr. Apalla Siva Kumar wherein it was held that if no provident fund is created by the Corporate Debtor, the Liquidator cannot be directed to make payments towards outstanding provident fund dues from the liquidation proceeds. It is pertinent to note that the judgment of the Hon’ble NCLAT, New Delhi bench dated 11.02.2020 passed in the matter of Mr. Savan Godiwala, Liquidator of Lanco Infratech Ltd v. Mr. Apalla Siva Kumar has been set aside by the division bench of the Hon’ble Supreme Court in Civil Appeal no. 2520 of 2020 vide its order dated 07.02.2023. Therefore, now it is trite law that the Liquidator cannot avoid making payments towards outstanding EPF dues in the event of liquidation of the Corporate Debtor on the ground that no specific provision towards dues of provident fund of workmen/ employees was made by the Corporate Debtor.

3.4. In the letter dated 13.01.2021, the Appellant has stated that, the priority of PF dues operates against all other debts including secured and unsecured creditors as has been affirmed by the case of Hon’ble Supreme Court in Maharashtra State Cooperative Bank Limited V. Assistant Provident Fund Commissioner and another, 2009

3.5. The Appellant states that EPFO manages the disbursement of pension, gratuity and other benefits payable to employees. The dues claimed by EPFO serve as a security for their retirement. The Appellant faced difficulty in finding an advocate in Mumbai and coordinating with the regional office to facilitate the filing of this Appeal. The claim of the EPFO is interwoven with the Right to Life of the Employees of the Corporate Debtor. Therefore, the Appellant prays for condonation of the delay of approximately 210 days in filing this Appeal under Section 42 of the Code against rejection of its claim by the Respondent dues.


# 4. This Tribunal vide order dated 01.02.2024 directed the Appellant to submit details of the amount due under Section 14B and Section 7Q of the EPF Act. In compliance with the order 01.02.2024, the Appellant undertook and has filed an Additional Affidavit dated 12.03.2024, wherein the Appellant stated that the EPFO’s Claim was filed on 13.01.2021 of Rs. 5,96,946/- is pertaining to the dues claimed under Section 14B of the EPF Act for the delayed remittances made by the Corporate Debtor for the period from March 2004 to March 2010.


# 5. During the course of the hearing dated 22.04.2024, the counsel for the EPFO/ Appellant has relied on the judgement of Regional Provident Fund Commissioner, Vatwa, Employees Provident Fund Organization Vs. Shri Manish Kumar Bhagat Company Appeal (AT) (Insolvency) No. 808 of 2022, decided on 11.10.2023.


# 6. The Liquidator had not filed reply but during the hearing, the Liquidator relied on the judgment in the case of Shri Addanki Haresh Vs. Recovery Officer, Employees Provident Fund Organisation in IA No. 232/2022 in C.P. (IB) No. 320/BB/2019 dated 20.07.2023.

FINDINGS


# 7. We have heard the ld. Counsel on both sides and perused the record.


# 8. The Appellant prayed for condonation of the delay of approximately 210 days in filing the present Appeal as EPFO faced difficulty finding an advocate in Mumbai and coordinating with the regional office to facilitate the filing of this Appeal. Keeping in view that, concerned EPFO office is located in Pune and there cannot be any reason for deliberate or intentional delay on the part of Government department, we hereby condone the delay in filing the Appeal.


# 9. The issue involved in this application is whether the damages of Rs. 5,91,996/- under Section 14B and Rs. 4,950/- as recovery cost can be directed to be released to EPFO in priority to the Secured Financial Creditors.


# 10. According to the Appellant the balance dues of Rs. Rs. 5,96,946/- under section 14B of the EPF Act are to be kept out of Liquidation Estate as provided under Section 36(4)(a)(iii) of IBC and should have been released to the Appellant before distribution of the assets of the Corporate Debtor.


# 11. All the issues raised by the Appellant in this appeal were earlier also raised in Elecon Engineering Company Limited Vs. Enviiro Bulkk Handling Systems Pvt. Ltd. in I.A. no. 2428 of 2024 . All these issues have been dealt with in detail including the judgments relied upon by the Appellant. While rejecting the contentions of the appellant, this Tribunal has taken a view that damages under section 14B of the EPF Act are not covered under section 36(4)(a)(iii) of the IBC in following terms:

  • 39. “As the Applicant has failed to establish that the damages under Section 14B of the EPF Act are owned by workmen or the employees as their dues under Provident Fund Act, this Adjudicating Authority comes to an inevitable and inescapable conclusion that damages under section 14B of the EPF Act are not the “sums due to any workman or employee from the provident fund” and therefore are not covered under Section 36(4)(a)(iii) of the IBC, 2016. The question is accordingly answered in negative holding that damages under section 14B of EPF Act are not covered under Section 36(4)(a)(iii) of the IBC, 2016 and are not required to be excluded from the liquidation estate of the Corporate Debtor in liquidation.


The order in the aforesaid case has been upheld by the Hon’ble NCLAT in Comp. App. (AT) (ins) No. 804 of 2024.


# 12. Further, the Coordinate NCLT Kochi Bench in IA (IBC)/127/KOB/2023 in IBA/258/CB/2019 had decided on 02.08.2023, In re M/s. Regional Provident Fund Commissioner (Compliance), Employee Provident Fund Vs. M/s. Excel Glass Limited (Under Liquidation) and another, held that 

  • “17. The amount payable to the workmen or employee has protection under section 36(4)(a)(iii) of IBC 2016, but the same cannot be extended to the interest and damages covered under sections 7Q and 14B of the Employees Provident Funds and Miscellaneous Provisions Act 1952, The applicant here claims a sum of Rs.19,05,030/- towards penalty and damages under sections 7Q and 14B of EPF Act 1952 these are the amount payable to the applicant department/organization, will not be paid to the workmen or employees hence this interest and damages comes under Government dues as defined under section 53 (1) (e) (i) of IBC 2016. The NCLT-Bengaluru in Shri Addanki Haresh Liquidator vs Recovery Officer, Employees Provident Fund organization, I.A.No.232 of 2022 in C.P.(IB) No.320/BB/2019 dated 20.07.2023, (2023) ibclaw.in 385 held that the damages levied by Respondent Organization under Section 14B of the EPF & MP Act 1952 which are dues of Government and will be paid in order of priority under Section 53 of IBC, 2016. In our case entire claim amount of Rs.19,05,030/- is covered under sections 7Q & 14B of the Employees Provident Funds and Miscellaneous Provisions Act 1952, payable to the organization hence section 36(4)(a)(iii) of IBC 2016 is not applicable, the same cannot be excluded from the liquidation estate.”


# 13. The Liquidator/ Respondent has relied upon the judgment of Hon’ble National Company Law Tribunal, Bengaluru Bench, in the case of Shri Addanki Haresh vs Recovery Officer, Employees Provident Fund organization, I.A.No.232 of 2022 in C.P.(IB) No.320/BB/2019 dated 20.07.2023, which held that-

  • “the damages levied by Respondent Organization under Section 14B of the EPF & MP Act 1952 which are dues of Government and will be paid in order of priority under Section 53 of IBC, 2016. In our case entire claim amount of Rs.19,05,030/- is covered under sections 7Q & 14B of the Employees Provident Funds and Miscellaneous Provisions Act 1952, payable to the organization hence section 36(4)(a)(iii) of IBC 2016 is not applicable, the same cannot be excluded from the liquidation estate.”


# 14. In view of discussion above and cases decided by this bench and other coordinate benches, we have no hesitation to hold that dues under Section 14B of EPF Act being damages, are Government dues and is to be paid as per the Section 53 of the Insolvency and Bankruptcy Code, 2016, and do not fall under section 36(4)(a)(iii) of the Code.


# 15. The Liquidator has sent a letter dated 17.10.2022 to EPFO stating that the only asset in the Liquidation Estate of the Corporate Debtor has been sold and Rs. 1,00,00,000/- (Rupees One Crore) has been realised from such sale. It is further stated in the said letter that 

  • “considering the claim amount of Secured Financial Creditor is much more than the realised value of asset, no other claim would be eligible for payment as per the waterfall mechanism provided in Section 53 of the Insolvency and Bankruptcy Code, 2016. Hence, nil amount is payable towards your claim.” 

In view of the above letter of the Respondent, no other claim can be considered for payment.


The Appellant has further relied upon the judgement of Hon’ble NCLAT in Regional Provident Fund Commissioner, Vatwa, Employees Provident Fund Organization Vs. Shri Manish Kumar Bhagat Company Appeal (AT) (Insolvency) No. 808 of 2022, decided on 11.10.2023, the issue with the Hon’ble NCLAT was whether or not to direct the Successful Resolution Applicant for payment of inter alia damages under Section 14 B of EPF Act. Damages u/s 14B arose on account of assessment on 14.10.2019 for an amount of Rs. 68,54,869/- and 25.07.2017 for an amount of Rs. 31,16,446/-. The Hon’ble NCLAT held that the damages imposed by order dated 18.10.2019 was subsequent to CIRP imposition of moratorium and held that no direction need to be issued for payment of damages under Section 14B. As far as damages amounting to Rs. 31,16,446/- which was imposed by order dated 25.07.2017, prior to the commencement of the CIRP moratorium, the Hon’ble NCLAT directed the Successful Resolution Applicant (SRA) to pray to the Central Board to waive 100% damages of Rs. 31,16,446/- imposed by order dated 25.07.2017 under Section 14B within a period of one month.


# 16. In the above case, as regards the damages under Section 14B imposed prior to initiation of CIRP, Hon’ble NCLAT directed the SRA to apply to the Central Board for waiver the said damages. However, in the present case, the Liquidation order was passed under Section 33 (2) of IBC and therefore, there is no Successful Resolution Applicant in this case. Accordingly, any direction to pray to Central Board to waive portion of unrecovered damages of Rs. 5,91,996/- cannot be given. It is however, note-worthy that the Hon’ble NCLAT has not given any direction to SRA to pay for the outstanding damages. Accordingly, no such direction can be given in this case too.


# 17. In the light of the facts and circumstances of the cases and discussion herein above, damages of Rs. 5,91,996/- imposed by order 10.09.2015 and Section 14B and Rs. 4,950/- as recovery cost cannot be directed to be released towards EPFO.


# 18. Accordingly, Company Appeal/ 35/ MB-III/ 2023 is partly allowed and disposed of.

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