Bank Of Baroda & Anr. vs The Regional Provident Fund Commissioner & Anr.

The Respondent No. 2 during the proceeding conducted by Learned Adjudicating Authority under Section 42 to be read with Section 60(5) in IA(IBC)/1020(CHE)/2023, contended that, in the absence of the details of employees being supplied by Respondent No. 1, coupled with the fact that part of claim was determined during moratorium period, the entire claim as raised by the Respondent No. 1 on 1^st March 2023, cannot be considered to be granted in its totality. After hearing both sides, Learned Adjudicating Authority, by the impugned order of 12^th January 2024, directed the Respondent No. 2 to accept the full claim of Respondent No. 1 and set aside the partial rejection, which is under challenge in the instant Appeal, by the Appellant.

The partial rejection by the Impugned Order of 12^th January 2024 has been challenged on the ground that:

There is an incorrect reasoning assigned to while determining the claim,

The Impugned Order suffers from the vices of being in subversion of the Liquidation Process.

There was a procedural unfairness undue priority was accorded to Respondent No.1 while granting of the claim in its totality.

The Appellants are part of the Consortium of Financial Creditors. They have raised their grievances upon being aggrieved, as against the Impugned Order dated 12^th January 2024, as it was rendered on an interlocutory application bearing No. IA(IBC)/1020/CHE/2023, preferred in CP/1021/IB/2018.

The grievance as raised by the Appellants in the instant Company Appeal is that the claim filed by the Respondent No. 1 i.e., Regional Provident Fund Commissioner, on 01.03.2023 for an amount of Rs.3,98,92,397/-, inclusive of the Provident Fund contribution, administrative charges, damages and interest, was partially rejected by the Liquidator by an order of 14^th March 2023 admitting only Rs. 82,13,064/-, on the grounds that, there was no basis of determination of the said claim and no documentary proof was supplied, no reasons were given for imposition of damages or interest, and therefore the Liquidator’s decision of admitting only a part of the claim was correct, which was set aside by Learned Adjudicating Authority without correctly appreciating the facts.

In support of their stand, Respondent No.1 has contended that, on 5^th April 2023, he had offered a detailed clarification, to all the observations made by the Liquidator is her letter dated 14^th March 2023 including the basis of quantification of the claim, which have been, made under the provisions of Employees Provident Fund Miscellaneous Provident Act 1952 by the Consequential Assessment order, and therefore the claim admitted does not made under Section 7A, suffer from any discrepancies and thus the partial rejection of claim was not sustainable.

They have further contended that the Learned Adjudicating Authority, failed to see that there was procedural impropriety in determination of claim during the period of moratorium, that a claim of Rs.1.44 Crores, was determined to be payable by the Corporate Debtor, two years after the initiation of the CIRP which violates Section 14 and 33(5) of the Code. Further, details sought for by the Liquidator, particularly those pertaining to the basis of determination of wages, which were computed based on ESI data and not PF data, was not satisfactorily provided by Respondent No.1.

The Appellant contends that the Learned Adjudicating Authority failed to appreciate that the moratorium under Section 33(5) of the IBC, 2016 was in effect at the time the impugned order was passed, that it ought to have observed that Respondent No. 1 did not obtain prior permission under Section 33(5) of the Code before initiating proceedings against the Corporate Debtor during the liquidation period, and that if overlooked the fact that Respondent No. 1 failed to substantiate its claim, including interest, as on the liquidation commencement date, in accordance with Regulation 16(2) of the IBBI (Liquidation Process) Regulations, 2016, and therefore the direction to the Liquidator to accept the entire claim of Rs.3,98,92,397/-, was erroneous and unjustified and the correct order would have been to uphold the action of Respondent No. 2 admitting the claim to the extent of Rs. 82,13,064/-, as per Form C, in compliance with Regulation 17 of the Liquidation Regulations.

They have further submitted that the Adjudicating Authority failed to recognize that Respondent No. 2, had clearly stated that there were no PF records available, and the computation was made using ESI data, that PF wages and ESI wages differ in their components and structure, t hat PF wages exclude components such as HRA and other allowances, while ESI wages include HRA, bonus and other such benefits and the statutory wage ceilings for PF and ESI are different Rs. 15,000/-, for PF and Rs. 21,000/o for ESI, and therefore, calculating PF dues based on ESI wage data leads to inflated and inaccurate claims, which the Liquidator rightly pointed out.

They have further contended that Learned Adjudicating Authority did not take into account that Respondent No. 1, proceeded with Section 7A proceedings during the moratorium, even while Respondent No. 2 was actively seeking clarification on the PF calculations. This action blatantly disregards the Guidelines for initiating inquiries under Section 7A, issued by the EPFO via Circular No. C-II/20/76/Misc./2020/CBE/TN/1027 dated 14.02.2020, that Respondent No. 1, failed to furnish employee-wise data to support the alleged accrual of PF dues, and that Respondent No. 1, passed a recovery order of Rs. 1,44,77,852/-, on 31.03.2023, well after the liquidation order and claim submission, without offering any explanation to queries raised by Respondent No. 2, and that the finding that Respondent No. 2’s participation before Respondent No. 1’s proceedings bars her from disputing the wage calculation methodology is entirely without foundation and that, legal principles, including estoppel, cannot override statutory protections and therefore basing the order on Respondent No. 2’s appearance during the moratorium is contrary to law and hence liable to be reversed and that, in view of the above, the Impugned Order dated 12.01.2024 is legally flawed procedurally infirm, and contrary to the provisions of IBC and related regulations. It is, therefore, deserving of being set aside in its entirety.

He has further stated that the contention of the liquidator while passing the order dated14^th March 2023, alleging that, the assessment order of PF Authority determining the due of Rs. 1.44 Crore pertained to the period, which falls after the commencement of the CIRP proceedings is not correct, that the claim submitted before the Liquidator was Rs. 3,98,92,397/- various head as under:-

Towards Contribution under Section 6, 6A and 6C as Rs.1,44,77,852/-

Damages payable under Section14B of Rs.1,44,77,852/-

the interest payable on the same under Section 7Q amounting to Rs.1,09,36,693/-

And that, this amount was determined by the competent Authority, that is, the Assistant Provident Fund Commissioner, Madurai, in the proceedings, held on 30^th March 2023, to be payable by the Corporate Debtor on account of its failure to remit the PF amount to the tune of Rs. 1,44,77,852/-, for the period from October 2014 to October 2018, and the consequential interest and damages levied thereon.

He has further stated that the Liquidator had participated in the proceedings before the Assistant Provident Fund Commissioner and made her submissions in relation to PF dues payable by the Corporate Debtor, that the said dues payable as per the records available with her, is only Rs.84 lakhs, whereas claimed to be payable as per the report of the Enforcement Officer, happens to be Rs.1.44 Crores and that, this is because pf dues have been calculated on basis of ESIC Wages Register, and after hearing her the competent Authority had passed the Assessment Order on 30.03.2023 and she has not filed any appeal against the same before the Appellate Forum.

Therefore, the same ground cannot be permitted to be re-agitated by the Liquidator which had already been considered and answered before the Assistant Provident Fund Commissioner and which has not been appealed against in the competent Appellate Forum. He has further contended that owing to the aforesaid reasons, the Learned Adjudicating Authority has come to the conclusion that, in the light of the ratio of the Judgment reported in (2009) 10 SCC Page 123 in the case of Maharashtra State Cooperative Bank Ltd. Vs. Provident Fund Commissioner & others as it has been observed in Paras 66, 67, 68 and 69, the damages and interest, if any, levied by the Provident Fund Authority under Section 14B and 7Q of the EPF and Miscellaneous Provisions Act of 1952, would that, the Provident Fund Authority were entitled to full satisfaction of their claim in relation to the Provident Fund due including the damages and interest, holding thereof, that the order of Liquidator (R2) dated 14^th March 2023, partially rejecting the claim of the Respondent-1 was bad and consequentially set aside the same, by the Impugned order of 12.01.2024, thereby awarding the full claim.

The Appellant while putting a challenge to the Impugned Judgment dated 12^th January 2024, has precisely confined his grounds for challenge to the Impugned Judgment, from the perspective that the learned Adjudicating Authority, has failed to consider the effect of moratorium contemplated under Section 33(5) of Insolvency and Bankruptcy Code, 2016, which was in subsistence at the time of passing the Assessment Order of the Assistant Provident Fund Commissioner, which would be rendered to be bad in the eye of law. Especially when the Respondent No.1, failed to obtain leave under Section 33(5) of the code for the purposes of initiation of the said proceedings against the Corporate Debtor, which would vitiate the entire proceeding.

The Appellant has further contended, and rather had pressed his argument from the perspective that, in the light of the Provisions contained under Regulation 16(2) of IBBI Regulations 2016, since there was failure on the part of the Respondents to establish the claim or debt or dues, and since the same was not established, the same ought not to have been granted by the Ld. Adjudicating Authority, while passing the Impugned Order, and that, the action of the Liquidator, the Respondent No.2 is admitting the claim raised in Form-C, to the extent of Rs.82,13,064/- is correct and in accordance with the Regulation 17 of IBBI Regulations 2018 and that the directions contained in the impugned order to accept the entire claim raised by the Respondent No.1 to the tune of Rs.3,98,92,397/- was bad in the eyes of law.

Learned Adjudicating Authority after hearing both the sides and going through the documents, has observed that, as far as Respondent No. 1 is concerned, he has filed his claim for an amount of Rs. 3,98,397/-, before the Liquidator, by classifying the same into the Heads as follows:-

The amount payable under Section 6, 6A and 6C of Employees Provident Fund and Miscellaneous Provisions Act of 1952, to the tune of Rs. 1,44,77,852/-.

Damages which will be payable under Section 14B of the Act of 1952, to the tune of Rs. 1,44,77,852/-.

Interest too which would be payable under Section 7Q to the tune of Rs. 1,09,36,693/-.

The Learned Adjudicating Authority has further observed that the Assistant Provident Fund Commissioner in his Proceeding dated 30.03.2023 fixed the PF due to be paid by the ‘Corporate Debtor’ to be Rs.1,44,77,852/-, being an amount due to be paid because of failure to remit the Employees Provident Fund and the Insurance Fund Contribution and Employees Deposit Linked Insurance Administrative Charges, for the period from October 2014 to October 2018 and this was tested by recording the statement of the Liquidator during the said proceedings to the effect that, since all the questions were already answered and the enquiry has been concluded too confirming the findings of the arrears payable to Respondent No.1, by the Corporate Debtor to a tune of Rs.1,44,77,852/-.

The Learned Adjudicating Authority has recorded his specific finding that, it is absolutely a mis-normer for the Appellant to contend that, the amount thus claimed and stated to be due by the Respondent No. 1, pertains to the period subsequent to the initiation of the CIRP or the Liquidation Proceedings, and thus runs foul of the provision of Section 14 of the I & B Code and has specifically recorded that all the claims which were determined by the Assistant Provident Fund Commissioner, Madurai, in the enquiry conducted by him, in which the Liquidator too has recorded the statement, pertain to a period prior to the initiation of the CIRP Proceedings.

Further, with regard to the propriety of claim under the provisions of the I&B Code, for the purposes of which the examination of the claim has had to be made in accordance with Regulation 12, to be read with Regulation 16, the said implication of the aforesaid Regulation stood satisfied in the finding which has been recorded in Para 12 of the Impugned Judgment which has been an issue recently settled by the Principal Bench of the National Company Law Appellate Tribunal, New Delhi in Comp. App. (AT) (Ins) No.1048/2022 in the matters of DBS Bank India Ltd. vs. Kuldeep Verma, where following observations have been made, Relevant Para 14 is extracted hereunder:-

Further, when the Liquidator has appeared before the Assistant Provident Fund Commissioner, Madurai, participated in the proceedings in which claim of the Appellant was affirmed and she has chosen not to appeal against it, she cannot be permitted to take a summer and allow the claim in part. The same has been considered and aptly decided by the Ld. Adjudicating Authority, in the light of the ratio dealt with by the Hon’ble Apex Court in the matters of Maharashtra State Co-operative Bank Ltd. Vs. Provident Fund Commissioner as reported in 2009 Volume X SCC Page 123, particularly the reference has been made Para 67 and 69 of the said Judgment by the Learned Adjudicating Authority extracted hereunder :-