BSEL Algo Ltd. Vs. Pankaj Bhattad (RP) - The claim in the present case has been filed on 24.1.2025 is well beyond the prescribed limitation period, hence we do not find any infirmity in the decision of the Resolution Professional in rejecting the claim of the applicant. It is clarified that this not prejudice the right of the applicant to enforce its mortgage, as and when permissible, as such right shall be enforceable in terms of Article 62 of the Limitation Act.

NCLT Mumbai (2025.01.07) in BSEL Algo Ltd. Vs. Pankaj Bhattad (RP)  [(2026) ibclaw.in 16 NCLT, I.A. No. 4789 of 2025 in C.P. (IB) No. 1180 (MB) 2022] held that; 

• The claim in the present case has been filed on 24.1.2025 is well beyond the prescribed limitation period, hence we do not find any infirmity in the decision of the Resolution Professional in rejecting the claim of the applicant. It is clarified that this not prejudice the right of the applicant to enforce its mortgage, as and when permissible, as such right shall be enforceable in terms of Article 62 of the Limitation Act.

Blogger’s Comments; IRP/RP while verifying/admitting the claims, does not have jurisdiction to look at the limitation aspect under section 3 of the Limitation Act. Section 238A specifically provide for jurisdiction of NCLT/NCLAT only to look into the limitation aspect in proceedings before them. 

• # Section 238A. Limitation. –

• The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals be fore the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

i). Hon’ble SCI (20.04.1992) Punjab National Bank And Ors vs Surendra Prasad Sinha (Criminal Appeal No. 254 of 1992.) held that;

• "The rules of limitation are not meant to destroy  the rights of the parties.  Section 3 of  the Limitation Act only bars the remedy, but does not destroy the right which the remedy relates to. The right to  the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes  barred  by limitation is the right is destroyed.  Though the right to enforce the debt by judicial process  is barred, the right to debt remains. The time barred debt does not cease to exist by reason of s.3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed.  What s.3. refers only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt."

ii). SCI (15.11.2019) in CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 OF 2019)

• # 27. . . . . . . .  Another very important function of the resolution professional is to collect, collate and finally admit claims of all creditors, which must then be examined for payment, in full or in part or not at all, by the resolution applicant and be finally negotiated and 3 Under Regulation 2(ha), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – (ha) - “evaluation matrix” means such parameters to be applied and the manner of applying such parameters, as approved by the committee, for consideration of resolution plans for its approval decided by the Committee of Creditors. In fact, in ArcelorMital India (supra), this Court referred to the role of the resolution professional under the Code and the aforesaid Regulations, making it clear that the said role is not adjudicatory but administrative,  . “

iii). Hon’ble SCI (2024.12.20) in China Development Bank Vs. Doha Bank Q.P.S.C. and Ors.  [(2024) ibclaw.in 340 SC, Civil Appeal No.7298 of 2022 with Civil Appeal No. 7407, 7615 and 7328 of 2022 and Civil Appeal No. 7434 of 2023] held that;

• # 48.  . . . . . .In terms of sub-section (11) of Section 3, debt is a liability or obligation in respect of a claim which is due from any person and includes a financial debt or operational debt. As noted earlier, a claim is a right to payment whether or not, such right is reduced to judgment and whether it is disputed or undisputed. The right to payment can be legal, equitable, secured or unsecured. Therefore, if there is a liability or obligation in respect of a payment which is disputed, it still becomes a claim. Once there is a liability or obligation in respect of a claim, it becomes a debt. Once there is a financial debt, the person to whom a debt is owed, becomes a Financial Creditor.

• # 65. Another argument was canvassed based on the definition of ‘claim’ under Section 3(6) of the IBC. If the right to payment exists or if a breach of contract gives rise to a right to payment, the definition of ‘claim’ is attracted. Even if that right cannot be enforced by reason of the applicability of the moratorium, the claim will still exist. Therefore, whether the cause of action for invoking the guarantee has arisen or not is not relevant for considering the definition of ‘claim’.

iv). SCI (2024.12.13) in Municipal Corpn. of Greater Mumbai Vs. Vivek V. Gawde [2024 INSC 985, Arising out of SLP (Civil) Nos. 19602-19619 of 2022] held that;

• # 25. The third and fourth points touch upon the aspect as to whether the proceedings initiated under section 105B of the Act are barred by limitation. Reference has been made by the High Court to section 3 of the Limitation Act, 19639 We are at a loss to comprehend as to how section 3, scope whereof is relatable to proceedings like suits, appeals and applications before judicial fora, could have been attracted to eviction proceedings before the Inquiry Officer which, though obliging the Inquiry Officer to discharge quasi-judicial functions in course thereof, yet, are basically administrative in character. Additionally, in referring to Article 137 , the High Court ignored and/or overlooked the Preamble of the Limitation Act and the heading of the Third Division under the Schedule read with sections 2(j) and section 3. 

v). NCLT Mumbai-V (2024.04.24) in Gokul Anilkumar Aggarwal Vs. Shailesh Bhalchandra Desai (IRP) and Anr. [ (2024) ibclaw.in 468 NCLT, I.A. 3272 of 2023 in C.P. No. (IB) 115 of 2021 ] held that; 

• "The rules of limitation are not meant to destroy the rights of the parties. Section 3 of the Limitation Act only bars the remedy, but does not destroy the right which the remedy relates to. The right to the debt continues to exist notwithstanding the remedy is barred by the limitation.

• Though the right to enforce the debt by judicial process is barred, the right to debt remains. The time barred debt does not cease to exist by reason of s.3. That right can be exercised in any other manner than by means of a suit. 

• The debt is not extinguished, but the remedy to enforce the liability is destroyed. What SC.3. refers only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt. 

• Therefore, the Claim under CIRP, cannot be rejected on the grounds that it is time barred.

Excerpts of the Order;

# 1. This Interlocutory Application being I.A. No. 4789 of 2025 has been filed by BSEL Algo Limited, formerly known as BSEL Infrastructure Private Limited (hereinafter referred to as “the Applicant”) in the Corporate Insolvency Resolution Process (‘CIRP’) of Gigeo Construction Company Private Limited (hereinafter referred to as “the Corporate Debtor”) against Mr. Pankaj Bhattad (hereinafter referred to as “the resolution professional of the Corporate Debtor”), which was admitted by this Adjudicating Authority vide order dated 04.06.2024 in C.P. (IB)-1180 (MB)/2022 on an application filed by Omkara Asset Reconstruction Private Limited, a Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”).

# 2. Pursuant to the admission of the Corporate Debtor into CIRP, Mr. Ritesh R. Mahajan was initially appointed as the Interim Resolution Professional, and Mr. Pankaj Bhattad, the Respondent herein, as the Resolution Professional of the Corporate Debtor in the 1st Meeting of the Committee of Creditors held on 01.07.2024, and confirmed by this Tribunal vide order dated 02.08.2024. The applicant has sought the following reliefs:

• a. Quash and set aside impugned decision dated 21/05/2025 of Resolution Professional declining the Applicant’s claim dated 24/01/2025.

• b. Direct the Resolution Professional of Corporate Debtor to accept the Applicant’s claim dated 24/01/2025 and act accordingly.

• c. Pending the hearing and final disposal of the above Interlocutory Application, effect, operation and execution of the impugned decision dated 21/05/2025 be stayed.

• d. Pending the hearing and final disposal of the above Interlocutory Application further proceeding in CIRP may kindly be kept in abeyance and or made subject to the outcome of present Interlocutory Application.

• e. For ad interim and interim relief in terms of prayers (c) to (d) above.

• f. For costs.

# 3. BSEL Algo Limited (formerly known as BSEL Infrastructure Realty [L99999MH1995PLC094498], a company incorporated under the Companies Act, 1956 ) having Registered Office at 737, 7th Floor, The Bombay Oil Seeds & Oils Exchange Premises Co-operative Society Limited, the Commodity Exchange, Plot Nos.2, 3 & 4, Sector 19, Vashi, Navi Mumbai-400 705. The Applicant is a Secured Creditor of Corporate Debtor under a registered mortgage deed dated 25.04.2014.

# 4. The Applicant had filed a claim for Rs. 22,94,33,060/-, consisting of principal amount of Rs. 11,65,00,000/- and interest thereon up to 24.06.2024 amounting to Rs. 11,29,33,060/-, in claim Form C dated 24.01.2025. The claim of the applicant was rejected by the Respondent Resolution Professional vide email dated 21.05.2025 on ground of limitation in terms of Article 137 of the Limitation Act stating that the period of limitation cannot be extended beyond 06.06.2018 by way of the said balance confirmation dated 06.06.2015.

# 5. Brief facts leading to the claim of the applicant are as follows :

a. The Corporate Debtor had undertaken redevelopment of land bearing CTS Nos.3110 and 3111 (part), 3112, Khasra No.317, village: Sitabuldi, Taluka and District: Nagpur admeasuring about 2587.25 sq. mts. owned by Mr. Sudhir Jaiwant son of Ganpatrao Buty (“the owner”). The owner had granted development rights to Gigeo Construction Company Private Limited (“Corporate Debtor”) to redevelop the above property pursuant to development agreement dated 23rd November 1998 (modified by Supplementary Agreement dated 17′” December 2004).

b. The Applicant had agreed to advance financial assistance to the Corporate Debtor pursuant to a Tripartite Agreement dated 23.06.2006, entered into between (i) the Corporate Debtor as Developer, (ii) the owners of the land situated at Sitabuldi, Nagpur, and (iii) the Applicant. The applicant had paid Rs. 5,00,00,000/- on signing of said agreement, and further sums of Rs. 13,00,00,000/- were required to be paid on construction milestones and the remaining Rs. 2,00,00,000/- was to be paid on completion of the Applicant’s Area and execution of title documents in its or its nominee’s favor. Clause 13 of the said agreement contemplates allocation of constructed 28,000 sq.ft saleable area (i.e. sq.ft carpet area) each on ground floor & first floor (i.e. 2/3rd Area each of Ground Floor & First Floor) and 35 car parking spaces in the Lower basement in the said project to the Applicant. The amounts were paid by the Applicant from time to time on achievement of milestones against specific unit no. as evidenced by the receipts issued by the Corporate Debtor against payments received from the applicant.

c. The Tripartite agreement requires the Corporate Debtor to carry out entire development work. Clause 14 of said agreement further provides that “the Corporate Debtor has the right to buy back the BSEL Area within nine months (Time being the essence) from the date hereof, by making full payment to BSEL at the average rate of Rs.8,000/- ( Rupees Eight Thousand only) per square feet for total 28000 sq.ft. saleable area on the ground floor and the average rate of Rs.6,375/- (Rupees Six Thousand Three Hundred & Seventy-Five only) per square feet for total 28000 sft. Saleable area on the first floor. If the Developer fails to buy back and/or make full payment as per the rates mentioned herein, within nine months from the date hereof, BSEL will be free to sell or assign the said BSEL Area to any third party.”

d. Clause 9 of the said agreement provides that “The Owners & the Developer shall, simultaneously with the execution of this Agreement, execute Irrevocable General Power of Attorney and mortgage deed in favor of BSEL or nominee/s of BSEL in respect of the said property…” Pursuant thereto, a NoC was issued by the owners and deed of mortgage was executed on 23.06.2006 for Rs. 14,50,00,000/- in respect of 55% of total undivided, Ownership rights in the property together with the building to be constructed using the FSI of CTS 3111 (Part), 3112 and Khasra 317, and on 28.06.2006 for Rs. 5,50,00,000/- in respect of 55% of total undivided, Ownership rights in the property together with the building to be constructed using the FSI of CTS 3110, 3111 (Part)and Khasra 317. The said mortgage deed(s) were executed by the owner of the plot of land and Corporate Debtor as confirming party as developer granting, conveying, assigning, assuring and transferring unto the Applicant the rights as aforesaid. In terms of clause 3 of these deed(s), the owner of land as well Corporate Debtor covenanted to comply with the terms and conditions of the Agreement and to pay the amounts due and payable in accordance with terms of the Agreement dated 23.6.2006. Both these mortgage deed(s) were released vide Deed Of Release dated 25.04.2014 executed in relation to each of mortgage deed, pursuant to the settlement arrived at amongst the parties here to with respect to the outstanding dues and creating fresh mortgage on shops thereon.

e. Accordingly, the Corporate Debtor executed fresh mortgage deed dated 25.04.2014 in favour of applicant to secure the outstanding of Rs. 18,60,00,000/- whereby 51 shops in Fortune Mall, Sitabuldi. Clause 2 of said deed provides that the mortgagor (Corporate Debtor) shall repay, release or pay the Secured Debt within one year from the date of execution and registration of this Deed. Further, the applicant was handed over the possession of these shops as well as provided in clause 7.2.2, however, the Corporate Debtor remained the owner thereof as provided in clause 7.2.1.

f. The Corporate Debtor repaid aggregate sum of Rs. 6,95,00,000/- from 14.6.2014 till 5.11.2018. On occurrence of default, the applicant had right to enforce its security interest, however, no such action was taken till the commencement of CIRP.

g. The last financial statements drawn by the Corporate Debtor pertains to the year 2017-18.

# 6. Heard the learned counsel and perused the material on record.

# 7. The Applicant has sought quashing of decision dated 21.05.2025 whereby the Resolution Professional rejected the Applicant’s claim on ground of limitation stating that the acknowledgment of the Corporate Debtor by way of its letter dated 06.06.2015 extends the period of limitation till 06.06.2018, and the payments made by the Corporate Debtor on 05.11.2018 lies beyond the period of limitation, hence it is of no relevance to the present claim. Per contra, the Applicant has claimed that the period of limitation is 12 years in case of mortgage debt in terms of Article 62 of the Limitation Act, hence its claim is well within the period of limitation.

# 8. Indubitably, there is no acknowledgement of debt by the Corporate Debtor, except in terms of letter dated 06.06.2015, and the Corporate Debtor has not drawn its financial statements after the year 2017-18. It is noted that a sum of Rs. 11,78,00,000/- is shown payable to the applicant as on 31.3.2018 and an aggregate amount of Rs. 67,00,000/- was paid by the Corporate Debtor to the applicant during financial year 2017-18. This amount matches with the amount stated as repayment of unsecured borrowings in the audited cash flow statement for the year ended on 31.3.2018 placed on record by the Resolution Professional. Accordingly, it can be concluded that the amount owed to the Applicant is acknowledged as unsecured loan in the books of the corporate debtor as on 31.3.2018 and is reflecting under the total amount of unsecured loans due to other parties as stated in Note 4 of said financial statements. Further, the applicant has claimed that it received further sums of Rs. 10,00,000/- and Rs. 3,00,000/- on 18.4.2018 and 5.11.2018. We do not find any merit in the contention of the Resolution Professional that the ledger of the Corporate Debtor does not reflect the reason behind such payment and whether the same was for repayment of the assistance so rendered, as the payments made by the Corporate Debtor were debited to the loan account of the applicant and stood appropriated therefrom. Further, the repayment of said amount as loan is corroborated from the cash flow as well. Accordingly, we are of considered view that the limitation shall run from 6.11.2018 in relation to the debt claimed to be owed from the Corporate Debtor in the present case.

# 9. The Applicant has submitted that limitation period is 12 years in terms of Article 62 of Limitation Act, which provides limitation period “To enforce payment of money secured by a mortgage or otherwise charged immovable property” as 12 years when the money sued for becomes due. Article 62 is placed under Part V. Suits Relating To Immovable Property. It is noted further that Article 19 under Part II Suits Relating To Contracts provides limitation period as 3 years when the loan is made For money payable for money lent. Indubitably, the Applicant has the right to enforce mortgage within 12 years, however, the filing of claims by the creditors in CIRP is not an act enforcing mortgage, but to claim the amounts due from the corporate debtor under CIRP for the money payable which were lent earlier. This is further reinforced from the specific bar under Section 14 of the IBC restricting the enforcement of security enforcement on proclamation of moratorium. Accordingly, we are of considered view that the limitation period under Article 62 is not applicable to the claims filed in CIRP of a Corporate Debtor even if such claim is secured by mortgage, as filing of the claims is not in nature of the enforcement of mortgage.

# 10. It is also pertinent to note the decision of Hon’ble NCLAT in case of Ome Prakash Verma vs. Amit Jain & Ors Company Appeal (AT) (Insolvency) No. 827 of 2020, wherein it was held that 

• “17. When an Application under Section 7 cannot be entertained for a debt, which is barred by time and is liable to be rejected, any addition in the claim which may fall into the category of time barred debt, also cannot be entertained…….” 

Though the said decision has not considered the effect of Article 19, but the views expressed by Hon’ble NCLAT fortifies the interpretation that period of limitation prescribed under Article 62 of the Limitation Act is not applicable to the filing of claims in CIRP by mortgagee and such mortgagee is liable to file its claim within 3 years in terms of Article 19 of Limitation Act.

# 11. Accordingly, the limitation period shall expire on 5.11.2021. The Hon’ble Supreme Court, in Suo Motu Writ Petition (Civil) No. 3 of 2020, read with M/s Arif Azim Co. Ltd. v. M/s Aptech Ltd., (2004) 3 SCR 73 : 2004 INSC 155, has categorically held that the period from 15.03.2020 to 28.02.2022 shall stand excluded for the purpose of computation of limitation, in view of the disruption caused by the COVID-19 pandemic. Further, it was clarified that the balance limitation available as on 15.03.2020 would recommence from 01.03.2022, thereby extending the limitation period accordingly. Hence, the period from 15.3.2020 to 5.11.2021 shall be available from 1.3.2022, accordingly, limitation in the present case would expire on 22.10.2023. The claim in the present case has been filed on 24.1.2025 is well beyond the prescribed limitation period, hence we do not find any infirmity in the decision of the Resolution Professional in rejecting the claim of the applicant. It is clarified that this not prejudice the right of the applicant to enforce its mortgage, as and when permissible, as such right shall be enforceable in terms of Article 62 of the Limitation Act.

# 12. Though the other contention as regards interest, security interest and nature of debt becomes redundant in view of the applicant’s claim found beyond the limitation period. Nonetheless, it would be appropriate for us to deal with these contentions as well.

# 13. The Applicant has sought directions for admission of its claim as secured financial debt. The claim of the applicant as secured debt is supported by the registered mortgage deed, even though the same is disclosed as unsecured debt by the corporate debtor as well as by the applicant in their audited financial statements. Simply because, the same has been disclosed as unsecured by applicant as well as corporate debtor, a registered mortgage deed cannot be given go by unless said registered deed is set aside by a competent court. The incorrect disclosure of the transaction in the financial statements cannot take away the substantive rights of the parties vested in them in terms of legally enforceable registered documents.

# 14. The applicant has also claimed interest on the debt due as per books of corporate debtor, however, neither the applicant has referred any clause in the Tripartite Agreement or the Mortgage Deed stipulating payment of interest, nor could we find any clause obligating the corporate debtor to pay the interest. Hence, we do not find any merit in claim of the interest on the principal amounts due, which are held to be barred on ground of limitation.

# 15. In terms of the above, IA 4789 of 2025 in C.P. (IB) NO. 1180 (MB) 2022 is dismissed and disposed of accordingly..

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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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