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

-------------------------------------------


Tuesday, 2 September 2025

Regional P.F. Commissioner, EPFO Vs. Alok Kailash Saksena (Liquidator) and Anr. -Any claim which arises after liquidation commencement date cannot be entertained by the Liquidator as per the statutory scheme under Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Claim under 7Q and 14B arose only on 23.10.2023 i.e. subsequent to liquidation commencement date. The Adjudicating Authority did not commit any error in not accepting the said claim.

 NCLAT (2025.08.29) in Regional P.F. Commissioner, EPFO  Vs. Alok Kailash Saksena (Liquidator) and Anr. [(2025) ibclaw.in 689 NCLAT, Company Appeal (AT) (Insolvency) No. 807 of 2025] held that;

  • We have noted Regulation 16(2) of the IBBI (Liquidation Process) Regulations, 2016 which clearly provides that claim can be filed as on the liquidation commencement date.

  • Nonetheless it is trite law that the claims of the Creditor in existence as on the liquidation commencement date are only admissible and such claims has to be filed within the time period allowed by the Liquidator in terms of public announcement made after commencement of the Liquidation or such period as is extended thereafter.

  • Any claim which arises after liquidation commencement date cannot be entertained by the Liquidator as per the statutory scheme under Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Claim under 7Q and 14B arose only on 23.10.2023 i.e. subsequent to liquidation commencement date. The Adjudicating Authority did not commit any error in not accepting the said claim. We, thus, do not find any ground to interfere in the order rejecting claim filed by the Appellant.

  • We, however, make it clear that non-admission of the claim of the Appellant in liquidation proceeding shall not preclude it from taking such steps as available in law for realisation of its claim which arose after liquidation commencement date.

Excerpts of the Order;

This Appeal by the Regional P.F. Commissioner, Employees’ Provident Fund Organization has been filed challenging the order dated 21.03.2025 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad, Court-2 in IA No.114(AHM)2023 filed by the Appellant. Adjudicating Authority by the impugned order dated 21.03.2025 rejected IA No.114 of 2023 aggrieved by which order, this Appeal has been filed.


# 2. Brief facts of the case necessary to be noticed for deciding the Appeal are:- 

2.1. The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor- M/s. Gujarat Foils Limited commenced by the order dated 30.11.2017. Adjudicating Authority vide order dated 16.09.2019 directed for liquidation of the Corporate Debtor. The Appellant concluded the inquiry under Section 7A of the EPF Act, 1952 on 11.10.2021 determining the Provident Fund dues to the extent of Rs.1,68,76,185/-. On 25.10.2021, Appellant submitted claim in Form-G before the liquidator in total amount of Rs.4,57,13,010/- which included damages and interest under Section 14B and 7Q of the EPF Act. Liquidator vide letter dated 20.11.2021 did not accept the claim principally on the ground of violation of Moratorium. On instructions of the Liquidator, the Corporate Debtor has challenged the order dated 11.10.2021 passed under Section 7A of the EPF Act before CGIT Ahmedabad in appeal bearing EPF Appeal (CGIT) No.36 of 2021. The property of the Corporate Debtor was sold as a going concern and management of the Corporate Debtor was handed over on 11.01.2022 to Respondent No.2. Appellant filed an IA No.114 of 2023 before the Adjudicating Authority seeking a direction to release the payment of Provident Fund dues in light of Section 36(4)(a)(iii) of the IBC read with Section 11 and 17B of the EPF Act. Notice was issued on the application, both Resolution Professional and the Successful Bidder filed replies. On 03.11.2023, Appeal filed by Corporate Debtor before CGIT Ahmedabad was dismissed for non-prosecution. Adjudicating Authority vide order dated 21.03.2025 rejected IA No.114 of 2023, aggrieved by which order, this Appeal has been filed.


# 3. We have heard Learned Counsel for the Appellant and Learned Counsel appearing for the Respondent.


# 4. Counsel for the Appellant in support of the Appeal submits that dues which were determined on 11.10.2021 were dues prior to initiation of the CIRP. It is submitted that under Section 36(4) of the IBC, it is obligation of the Liquidator to pay dues of the Provident Fund, Gratuity, Pension. Counsel for the Appellant in support of his submission relied on various judgment of the Hon’ble Supreme Court and this Tribunal.


# 5. Refuting the submissions of the Counsel for the Appellant, Counsel appearing for the Respondent No.1 submits that the assessment under Section 7A was made subsequent to liquidation commencement date. The claim which can be entertained under the liquidation proceedings are claim which are existing on the date of liquidation commencement. Adjudicating Authority on 04.10.2021 and 25.10.2021 allowed the liquidator to sell the Corporate Debtor as a going concern. E-auction was conducted on 10.12.2021 and Respondent No.2 was declared Successful Bidder on “as is where is basis”, “as is what is basis”, whatever there is basis” and “no recourse” basis. After conclusion of the liquidation, Liquidator has filed an application for closure of the liquidation which is pending. It is submitted that the last date for filing the claim was 23.10.2019 and claim was filed two years thereafter on 25.10.2021 which was rejected by the liquidator. Appeal under Section 42 of the IBC was also not filed within time. It is submitted that issues raised in the Appeal are fully covered by judgment of this Tribunal in “Employees’ Provident Fund Organisation, Nashik v. Girish Siriram Juneja & Anr. (CA (AT) INS No. 693 of 2025 & I.A. No. 2676 of 2025)”. Judgments relied by Counsel for the Appellant are not applicable.


# 6. We have considered the submissions of the Counsel for the parties and perused the record.


# 7. There is no dispute between the parties that liquidation process of the Corporate Debtor commenced by order dated 30.11.2017 and last date for submitting claims to the liquidator was 23.10.2019. The claim which was filed by the Appellant was on 25.10.2021 i.e. after more than two years. By detailed letter dated 20.11.2021, liquidator communicated to the EPFO Regional Office that claim is inadmissible. Regulation 16 of the IBBI (Liquidation Process) Regulations, 2016 provides for submission of claim. Sub-regulation (2) of Regulation 16 provides that a person shall prove its claim for debt or dues to him, including interest, if any, as on the liquidation commencement date. Sub-regulation (2) of Regulation 16 is as follows:- 

  • 16. Submission of claim. (2) A person shall prove its claim for debt or dues to him, including interest, if any, as on the liquidation commencement date.”


# 8. Thus, the claim which is required to be filed before the Liquidator is as on the liquidation commencement date. In the present case, there was no claim. The claim filed by the Appellant before the Liquidator was on the basis of assessment made under Section 7A of the EPF Act on 11.10.2021 and orders under Section 7Q and Section 14B thereafter. Thus, the claim which was filed by the Appellant was a claim subsequent to liquidation commencement date along with the Form G filed by the Appellant dated 25.10.2021. Order passed under Section 7A dated 11.10.2021 and the order passed under Section 7Q and Section 14B thereafter have been relied.


# 9. We have already noted above that the Corporate Debtor had filed an Appeal against the order passed under Section 7A and Section 14B and Section 7Q dated 11.10.2021 and 20.10.2021 respectively being appeal bearing EPF Appeal (CGIT) No.36 of 2021. After the Liquidator did not admit the claim of the Appellant, Appellant filed IA No.114 of 2023 in which IA following prayers were made:- 

  • “(A) This Hon’ble Adjudicating Authority may be pleased to admit and allow the present application;

  • (B) This Hon’ble Adjudicating Authority may be pleased to set-aside the communication/decision dated 20/11/2021 issued by the Liquidator Respondent no. 2 herein, rejecting the claim of Provident Fund dues amounting to Rs. 4,57, 13,010/-, as submitted by the applicant (at Annexure A), and direct the Respondents no. 1- Liquidator and no. 2- Successful Auction Bidder to make the payment of the entire claim of Provident Fund dues to the extent of Rs. 4,57,13,010;

  • (C) This Hon’ble Adjudicating Authority may be pleased to direct the Respondent no. 1- Liquidator of M/s. Gujarat Foils Limited to supply the details of distribution made to the creditors of the proceeds received from the sale of the Corporate-debtor as a going concern, and direct the re-distribution of assets of the Corporate-debtor, in accordance with law;

  • (D) This Hon’ble Adjudicating Authority may be pleased to direct the respondent to pay costs to the applicant as may be determined by this Hon’ble Tribunal;

  • (E) This Hon’ble Adjudicating Authority may be pleased to pass any further order as may be deemed fit and proper in the interest of justice.”


# 10. The said IA was opposed both by the Resolution Professional as well as the Successful Bidder. Counsel for the Appellant submits that the proceedings were initiated for assessment under Section 7A with due information to the Liquidator and order passed under Section 7A was required to be admitted in liquidation proceeding. Counsel for the Appellant has relied on the judgment of the Hon’ble Supreme Court in “Employees Provident Fund Commissioner vs. Official Liquidator of Esskay Pharmaceuticals Limited- (2011) 10 SCC 727” where Hon’ble Supreme court in paragraphs 48, 49, 50, 51 and 52 has held that all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund established for the welfare of the employees were payable in priority to all other debts in a winding-up proceedings. In paragraphs 48, 49, 50, 51 & 52, following was laid down:-

  • “48. It is also important to bear in mind that even before the insertion of Section 529(1) proviso, Sections 529(3) and 529-A [ Vide Act 35 of 1985, proviso to Section 529(1), sub-section (3) of Section 529 and Section 529-A were inserted and amendment of Section 530(1) was carried out.] and amendment of Section 530(1), all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund established for the welfare of the employees were payable in priority to all other debts in a winding-up proceedings [Section 530(1)(f)]. Even the wages, salary and other dues payable to the workers and employees were payable in priority to all other debts. What Parliament has done by these amendments is to define the term “workmen’s dues” and to place them on a par with debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to Section 529(1). However, these amendments, though subsequent in point of time, cannot be interpreted in a manner which would result in diluting the mandate of Section 11 of the EPF Act, sub-section (2) whereof declares that the amount due from an employer shall be the first charge on the assets of the establishment and shall be paid in priority to all other debts. The words “all other debts” used in Section 11(2) would necessarily include the debts due to secured creditors like banks, financial institutions, etc. The mere ranking of the dues of workers on a par with debts due to secured creditors cannot lead to an inference that Parliament intended to create first charge in favour of the secured creditors and give priority to the debts due to secured creditors over the amount due from the employer under the EPF Act.

  • 49. At the cost of repetition, we would emphasise that in terms of Section 530(1), all revenues, taxes, cesses and rates due from the company to the Central or State Government or to a local authority, all wages or salary of any employee, in respect of the services rendered to the company and due for a period not exceeding 4 months, all accrued holiday remuneration, etc. and all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees maintained by the company are payable in priority to all other debts. This provision existed when Section 11(2) was inserted in the EPF Act by Act 40 of 1973 and any amount due from an employer in respect of the employees’ contribution was declared first charge on the assets of the establishment and became payable in priority to all other debts. However, while inserting Section 529-A in the Companies Act by Act 35 of 1985 Parliament, in its wisdom, did not declare the workmen’s dues (this expression includes various dues including provident fund) as first charge.

  • 50. The effect of the amendment made in the Companies Act in 1985 is only to expand the scope of the dues of workmen and place them on a par with the debts due to secured creditors and there is no reason to interpret this amendment as giving priority to the debts due to secured creditor over the dues of provident fund payable by an employer. Of course, after the amount due from an employer under the EPF Act is paid, the other dues of the workers will be treated on a par with the debts due to secured creditors and payment thereof will be regulated by the provisions contained in Section 529(1) read with Sections 529(3), 529-A and 530 of the Companies Act.

  • 51. In view of what we have observed above on the interpretation of Section 11 of the EPF Act and Sections 529, 529-A and 530 of the Companies Act, the judgment of the Division Bench of the Gujarat High Court, which turned on the interpretation of Section 94 of the Employees’ State Insurance Act and Sections 529-A and 530 of the Companies Act and on which reliance has been placed by the learned Company Judge and the Division Bench of the High Court while dismissing the applications filed by the appellant, cannot be treated as laying down the correct law.

  • 52. In the result, the appeals are allowed. The impugned judgment as also the order of the learned Company Judge are set aside and the applications filed by the appellant are allowed in terms of the prayer made. The Official Liquidator appointed by the High Court shall deposit the dues of provident fund payable by the employer within a period of 3 months. The parties are left to bear their own costs.”


# 11. There can be no dispute to the proposition as laid down by the Hon’ble Supreme Court in the above case. The above case, however, considered the winding up proceeding and entitlement of payments of employees of Provident Funds, Gratuity Funds and Pension Funds. The present is a case where the claim filed by the Appellant in liquidation proceeding has not been admitted. We have noted Regulation 16(2) of the IBBI (Liquidation Process) Regulations, 2016 which clearly provides that claim can be filed as on the liquidation commencement date. According to the own case of the Appellant, the claim was filed on the basis of assessment order passed on 11.10.2021 and 20.10.2021. Thus, the said claim was not in existence on the liquidation commencement date. Counsel for the liquidator has rightly placed reliance on judgment of this Tribunal in “Employees Provident Fund Organisation, Nashik vs. Girish Siriram Juneja & Anr.- Company Appeal (AT) (Insolvency) No.693 of 2025 & IA No.2676 of 2025” which was also a case where application filed by the EPFO before the Adjudicating Authority for accepting the claim was rejected. In the above case, a revised claim was filed on the basis of an order passed under Section 7Q and Section 14B dated 23.10.2023 which claim was subsequent to the liquidation commencement date. This Tribunal in its judgment dated 30.06.2025 upheld the order of the Adjudicating Authority rejecting the application of the Appellant. This Tribunal in the above case has noted that the claim which was filed on the basis of Section 7A order was admitted in liquidation and subsequent claim which was filed on the basis of order dated 23.10.2023 was not admitted since liquidation has commenced by order dated 28.04.2023. It is useful to notice paragraphs 5 and 6 of the judgment which is as follows:-

  • “5. There is no dispute to the proposition that claim under 7Q and 14B arises after 7A is determined. In the present case, claim under 7A was filed within the time on 28.04.2023, which was admitted. Subsequently, claim under 7Q and 14B arose out of two orders dated 23.10.2023, which claims were subsequent to the liquidation commencement date. In paragraph 9 of the order the Adjudicating Authority has noticed the above fact, which is as follows:

  • “9. These communications clearly evidence that the revised claim of the Applicant EPFO was rejected on 02.01.2024 in clear terms as being inadmissible on account of it having been filed beyond the last date for filing of the claim; the original claim of the Applicant was admitted; and the revised claim is arising from two orders passed on 23.10.2023 which is after the liquidation commencement date. The Applicant had a remedy in the form of Appeal in terms of Section 42 of the Code specifically providing foran Appeal within 14 days of the receipt of the decision of the Liquidator rejecting or admitting the claim of the Creditor. Undisputedly, this remedy was not availed by the Liquidator herein. Since there is a specific provision providing for appeal, this Tribunal cannot have jurisdiction in terms of Section 60(5) of the Code. Nonetheless it is trite law that the claims of the Creditor in existence as on the liquidation commencement date are only admissible and such claims has to be filed within the time period allowed by the Liquidator in terms of public announcement made after commencement of the Liquidation or such period as is extended thereafter. In the present case even, the revised claim has not been filed within the time prescribed by the Liquidator for filing of claim.”

  • 6. Any claim which arises after liquidation commencement date cannot be entertained by the Liquidator as per the statutory scheme under Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Claim under 7Q and 14B arose only on 23.10.2023 i.e. subsequent to liquidation commencement date. The Adjudicating Authority did not commit any error in not accepting the said claim. We, thus, do not find any ground to interfere in the order rejecting claim filed by the Appellant. There is no merit in the appeal. Appeal is dismissed.”


# 12. Counsel for the Appellant has also placed reliance on the judgment of the Hon’ble High Court of Judicature at Bombay in Writ Petition No.693 of 2022- “Dalmia Cement (Bharat) Limited & Anr. Vs. The Central Board of Trustees, Employees Provident Fund Organization”. The above was a case where question was as to whether by approval of the Resolution Plan the claim of Appellant shall stand wiped out. The question which has arisen in the present case i.e. regarding admission of claim in liquidation process was not subject matter of consideration in the above case. Hence, above case does not help the Appellant in the present matter. The Adjudicating Authority however, in the impugned order has observed that the Resolution Professional has to keep track of the Appeal filed by the Corporate Debtor and make necessary arrangements contingent upon the decision of the Appeal. In the application which was filed by the Appellant being IA No.114 of 2023 was an application praying for admission of the claim of the Appellant which was not accepted by the liquidator. We, however, make it clear that non-admission of the claim of the Appellant in liquidation proceeding shall not preclude it from taking such steps as available in law for realisation of its claim which arose after liquidation commencement date.


# 13. In view of the foregoing discussions and conclusions, subject to what has been said above, the Appeal is dismissed.

--------------------------------------------------------