NCLAT held that provident fund dues under Sections 7Q and 14B of the EPF Act were excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC and directed that they must be paid in full.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Technical Member Mr. Jatindranath Swain reviewed an appeal and held that dues payable under Sections 7Q and 14B of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, fall within the ambit of Section 36(4)(a)(iii) of the IBC and are excluded from the liquidation estate, making them immune from the waterfall mechanism under Section 53 of the Code. Consequently, the impugned order was set aside, and the appellant’s claim was allowed, ensuring full payment of provident fund dues in accordance with established legal precedents.
The appellant, in the present appeal, challenged the validity of the impugned judgment dated 21.03.2024. The appeal, being Company Appeal (AT) (CH) (INS) No. 351/2024, was filed along with an application for condonation of delay, IA No. 960/2024, wherein the appellant sought condonation of an 11-day delay in filing the appeal. The Tribunal noted that the delay fell within the permissible scope of the proviso to Sub-Section (2) of Section 61 of the Insolvency and Bankruptcy Code, 2016. The reason for the delay, attributed to the time taken in procuring the certified copy of the judgment, was found to be reasonable, leading to the condonation of the delay. Consequently, IA No. 960/2024 was disposed of.
The Tribunal, having consent from the counsels, proceeded to hear the appeal on merits, rendering the urgent listing application, IA No. 961/2024, and the interim relief application, IA No. 962/2024, redundant. The appellant, the Regional Provident Fund Commissioner – II, Legal (EPFO), had initially approached the NCLT, Kochi Bench, in IBA/38/KOB/2019, invoking Section 42 of the IBC, 2016. The NCLT dismissed the appeal, denying the appellant’s claim of Rs. 3,00,972/- towards dues under Sections 7Q and 14B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
The core issue for determination before the NCLAT was whether, in liquidation proceedings, the dues under Sections 7Q and 14B of the 1952 Act should be treated as dues payable to the Central Government under Section 53 of the IBC, or whether these dues, being for the benefit of employees, would fall under Section 36(4)(a)(iii) of the Code. The appellant contended that the NCLT failed to consider the precedent set in Central Board of Trustees v. Shri Kumar Rajan, Resolution Professional and Another, REEDLAW 2023 NCLAT Chn 06535, decided by the NCLAT. The said judgment had clarified that provident funds, gratuity, and pension funds were to be kept outside the liquidation estate and not subjected to the waterfall mechanism under Section 53 of the IBC.
The Tribunal also referred to Jet Aircraft Maintenance Engineers Welfare Association and Another v. Ashish Chhawchharia, Resolution Professional of Jet Airways (India) Limited and Others, REEDLAW 2022 NCLAT Del 10550, which reiterated that amounts due under Sections 7Q and 14B of the 1952 Act must be paid in full and could not be subjected to distribution under Section 53. The Tribunal relied on the principles established by the Supreme Court in Maharashtra State Co-operative Bank Limited v. The Assistant Provident Fund Commissioner & Ors., which had emphasized the priority of provident fund dues.
Based on the established jurisprudence, the NCLAT held that the dues payable under Sections 7Q and 14B fell within the ambit of Section 36(4)(a)(iii) of the IBC and were to be excluded from the liquidation estate. The Tribunal, therefore, quashed the impugned order dated 21.03.2024 and allowed the appeal, directing that the provident fund dues be paid in full in accordance with the legal precedents cited. The appeal was thus allowed, ensuring that the workmen’s dues remained protected outside the liquidation process.
Mr. R. Vishnu, Advocate represented the Appellant.
Mr. Sivavarthanan, Advocate appeared for the Respondent.
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