NCLAT held that claims under the EPF Act, encompassing contributions, interest, and damages, are not part of the liquidation estate under Section 36(4)(iii) of the IBC, affirming their priority under Section 11(2) of the EPF Act and consistent judicial interpretations.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Naresh Salecha & Indevar Pandey (Technical Members) was hearing an appeal and observed that claims under the Employees Provident Funds & Miscellaneous Provisions Act (EPF Act), including contributions, interest, and damages, do not constitute assets of the liquidation estate as per Section 36(4)(iii) of the IBC. The NCLAT Bench further noted that instead, these claims hold priority status under Section 11(2) of the EPF Act and are to be settled accordingly, aligning with established judicial interpretations.
The Corporate Debtor which entered Corporate Insolvency Resolution Process in February 2020 and subsequently faced liquidation, the National Company Law Tribunal (NCLT) Mumbai Bench, Court - IV, issued an order on June 30, 2023, which was appealed by Mr. Anuj Bajpai, the appointed Liquidator. The appeal contested the NCLT's decision regarding claims totalling Rs. 1,24,86,750 under the EPF Act and their treatment within the Insolvency and Bankruptcy Code, 2016 (IBC).
The issues primarily revolved around whether claims for provident fund and pension dues, including interest, damages, and other charges, should be subject to the waterfall mechanism outlined in Section 53 of the IBC. Mr. Bajpai argued that only direct contributions and statutory interest should be prioritized under Section 53, while the additional charges should not be considered in the liquidation process.
During the proceedings, disputes arose over the attachment and auction of corporate debtor assets, prompting interim applications and a directive from the NCLT to secure the claimed amount in a fixed deposit pending resolution. The final order partially allowed the interim application, releasing the attachment upon the deposit of the specified amount.
In the appeal before the National Company Law Appellate Tribunal (NCLAT), the Liquidator contended that the NCLT had erred in categorizing EPF Act claims, emphasizing a narrower interpretation of which dues should be included in the liquidation estate under the IBC. The respondents, representing the EPFO, argued for the inclusion of all statutory dues under the EPF Act, citing legal precedents that affirmed the broader interpretation encompassing interest and damages.
The NCLAT's judgment delved into the interpretation of Sections 36(4)(iii) and 53 of the IBC, highlighting the legislative intent behind Section 11 of the EPF Act, which prioritizes the payment of contributions and other dues over other debts in insolvency proceedings. It referenced judicial precedents such as the Maharashtra State Cooperative Bank case and the Sunil Kumar Jain case to support its finding that interest and damages under the EPF Act are integral components of the statutory dues owed by the employer.
Ultimately, the NCLAT dismissed the appeal, affirming the NCLT's decision and ruling that claims under the EPF Act, including interest and damages, do not form part of the liquidation estate under the IBC. This decision underscored the protection of employee welfare funds under the EPF Act, aligning with previous interpretations that shielded such funds from the distribution mechanism of Section 53 of the IBC.
In conclusion, the Appellate Tribunal's judgment provided clarity on the treatment of EPF Act claims within the IBC framework, emphasizing statutory obligations and employee welfare, and upholding the priority of these dues outside the liquidation estate.
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