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Judgment
[Per: Justice Sharad Kumar Sharma, Member (Judicial)]
The legislature of our country, for the purpose of providing the benefit of Provident Funds and Deposit-Linked Insurance to its employees who have been working in factories and establishments, had, by virtue of a Presidential Notification dated 04.03.1952, envisaged securing the future of employees working in such establishments and factories by extending provident fund and insurance benefits to them, so as to protect their future. This is why its object was later modified from time to time, having regard to the changed circumstances of industrial development in the country and to the law as per its needs due to industrial growth.
It provides that every establishment which is in the form of a factory or engaged in an industrial activity as specified in Schedule 1 of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, or in any industry where more than 20 persons are employed, or any other establishment not engaged in an industrial activity but where 20 or more persons are working, shall also be notified by the Official Gazette to receive the benefits which are to be extended to workmen under the provisions of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Act of 1952). If we examine the Act in its entirety and the SOR of the Act of 1952, the provisions of the Act have been given an overriding effect, being a beneficial legislation intended to ensure that employers and the majority of employees working in such establishments or factories are made liable to contribute their share, which is to be paid to employees/workmen as and when the necessity arises or as it becomes due under the covenants of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
The definition under Section 2(f) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, clearly describes what the term “employee” means in the context of the extension of benefits under the Act of 1952. An employee means any person who is employed for wages in any kind of work and who receives wages directly or indirectly from the employer. The term “employee” also includes workmen employed through a contractor in or in connection with the work of the establishment, or those engaged as apprentices. The term “employee” as defined under Section 2(f) of the Act of 1952 is extracted hereunder:
“(f)“employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of 7[an establishment], and who gets his wages directly or indirectly from the employer, 8[and includes any person—
(i)employed by or through a contractor in or in connection with the work of the establishment;
(ii)engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the standing orders of the establishment;]
9[(ff) “exempted employee” means an employee to whom a Scheme 10[or the Insurance Scheme, as the case may be] would, but for the exemption granted under 11[* * *] Section 17, have applied;
(fff)“exempted 12[establishment]” means 13[an establishment] in respect of which an exemption has been granted under Section 17 from the operation of all or any of the provisions of any Scheme, 14[or the Insurance Scheme, as the case may be] whether such exemption has been granted to the 15[establishment] as such or to any person or class of persons employed therein;]”
The Employees' Provident Funds and Miscellaneous Provisions Act, 1952, also independently defines the insurance fund, pension fund, pension scheme, and insurance scheme, by virtue of the definitions contained under Sections 2(i-a), 2(i-b), 2(k-a), and 2(k-b), respectively. Besides this, it also defines who would be treated as the ‘occupier of the factory’ under Section 2(k). However, for the purposes of the issue involved in the present company appeals, a detailed discussion is unnecessary regarding how the insurance scheme or pension funds would affect employees of the Corporate Debtor. In this case, since the Corporate Debtor was admittedly covered under the scheme framed under the Act of 1952, the employer was responsible for contributing its share towards the aforesaid benefits to the workmen and ought to have remitted the amount within the time frame contemplated under the Act and the schemes framed thereunder. Failing this, actions were contemplated under the Act, particularly under Section 7 onwards. The issue specifically relates to the benefits payable and liabilities arising from default under Section 7A, namely interest payable under Section 7Q and damages under Section 14B. Although Section 8 provides the mode of recovery, we need not discuss it in detail. The controversy in this appeal concerns whether the Corporate Debtor was liable for interest under Section 7Q and damages under Section 14B, which the Appellant claims but which have been rejected by the impugned order now under challenge.
In Company Appeal (AT) (CH) (Ins) No. 145/2024, Employees’ Provident Fund Organization versus M/s. SDU Travels Private Limited, the Appellant challenges the impugned order dated 28.03.2024, passed in IA (IBC) No. 276/2023 in CP (IB)/12/BB/2021. As a consequence of the impugned order, the Resolution Professional rejected the claim relating to interest and damages, against which an appeal under Section 42 read with Section 60(5)(c) of the I & B Code, 2016 was preferred before the Adjudicating Authority, which also rejected it.
The Tribunal observed that since the claim agitated by the Appellant was barred by limitation, it was not sustainable. Consequently, the claim raised by the Appellant regarding amounts payable under Sections 7Q and 14B of the Act of 1952 was rejected, holding that the Appellant’s attempt to recover these amounts from the assets of the Corporate Debtor was barred by limitation.
In Company Appeal (AT) (CH) (Ins) No. 146/2024, Employees’ Provident Fund Organization versus M/s. SDU Travels Private Limited, the Appellant challenges the impugned order dated 28.03.2024 passed in IA (IBC) No. 275/2023. The Adjudicating Authority again rejected the appeal under Section 42 read with Section 60(5)(c) of the I & B Code, 2016, holding that the claim under Sections 7Q and 14B was barred by limitation and therefore not maintainable.
The Appellant submits that in Company Appeal No. 145/2024, they filed IA (IBC) No. 276/2023 seeking to set aside the communication dated 03.01.2023 issued by the Resolution Professional of the Corporate Debtor, M/s. SDU Travels Private Limited, whereby the claim for interest of Rs. 2,10,063/- for the period June 2019 to July 2022 was rejected on the following grounds:(i) Delay of 388 days in preferring the claim; and(ii) The amount claimed under Sections 7Q and 14B did not fall within the ambit of Section 36(4)(a)(iii) of the I & B Code, 2016, since it related to interest and damages arising from the Corporate Debtor’s default and, being Government dues, was not payable to the Appellant.
To substantiate their argument, the Appellant contended that the rejection was bad in law because the Resolution Plan had already been approved by the CoC and was pending before the NCLT; hence the plan cannot be sent back for reconsideration of claims, as per the principle laid down by the Supreme Court in M/s RPS Infrastructure Ltd. v. Mukul Kumar. It was further argued that the Tribunal had relied on another judgment (Regional Provident Fund Commissioner v. Adept Technology Pvt. Ltd.) which did not apply to the present facts. The Appellant argued that they were unaware of the CIRP proceedings due to the COVID period and shortage of staff, which continued until 2022, and therefore could not file the claim in time.
The Appellant further submitted that the impugned order denied acceptance of the claim under Sections 7Q and 14B because the Resolution Plan had been approved by the CoC and was pending before the Adjudicating Authority, and considering the claim would delay the CIRP. However, during the hearing of the present appeal, it was admitted by the Resolution Professional that the plan has not yet been approved by the Adjudicating Authority, thereby negating the basis adopted in the earlier decisions relied upon.
The Appellant further argued that the rejection of the claim on the ground of limitation, being delayed by 388 days, is erroneous because limitation is not an absolute bar in entertaining claims. Under Regulation 12 of the IBBI (IRP for Corporate Persons) Regulations, 2016, the first proviso requires submission within the time mentioned in the public announcement, i.e., up to the date of issue of the ‘Request for Resolution Plan’ or 90 days from the insolvency commencement date, whichever is later. However, this is not rigid, as shown in the second proviso allowing claims beyond 90 days with reasons. 12. The Appellant submits that Regulation 12 does not create an absolute bar on filing claims beyond 90 days because the second proviso (inserted by notification dated 15.03.2021) permits delayed filing with reasons. Regulation 12 is extracted as follows:
“Regulation 12: Submission of proof of claims.
12.1[(1) A creditor shall submit claim with proof on or before the last date mentioned in the public announcement. Provided that a creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit his claim with proof to the interim resolution professional or the resolution professional, as the case may be, up to the date of issue of request for resolution plans under regulation 36B or ninety days from the insolvency commencement date, whichever is later: Provided further that the creditor shall provide reasons for delay in submitting the claim beyond the period of ninety days from the insolvency commencement date.]
2[(2) 3[***]]
(3)Where the creditor in 4[sub-regulation (1)] is 5[a financial creditor under regulation 8], it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.”
The Appellant argues that the alleged embargo of a 388-day delay in filing the claim under Sections 7Q and 14B is not an absolute prohibition, because the limitation period in Regulation 12 is directory, not mandatory, as reinforced by the insertion of the second proviso.
The Appellant’s counsel argued that Regulation 12, taken in its entirety, does not absolutely prohibit entertaining claims after the prescribed period, particularly due to the amendment of 15.03.2021.
The Appellant further submitted that EPFO is neither an Operational Creditor nor a Financial Creditor, and therefore, under Section 36(4)(a)(iii) of the I & B Code, EPF dues stand outside the liquidation estate. Thus, all EPF dues, including interest and damages, must be included in the Resolution Plan, otherwise it would contravene Section 30(2)(e) of the Code.
The Appellant also argued that EPF dues constitute statutory dues and, under Section 11(2) of the Act of 1952, have priority over all other debts. Section 11(2) is extracted hereunder:
“11. Priority of payment of contributions over other
debts.—1[(1)] 2[Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due—
(a)from the employer in relation to 3[an establishment] to which any 4[Scheme or the Insurance Scheme] applies in respect of any contribution payable to the Fund 5[or, as the case may be, the Insurance Fund], damages recoverable under Section 14-B, accumulations required to be transferred under sub-section (2) of Section 15 or any charges payable by him under any other provision of this Act or of any provision of the 6[Scheme or the Insurance Scheme]; or
(b)from the employer in relation to an exempted 7[establishment] in respect of any contribution to 8[the Provident Fund or any Insurance Fund] (in so far as it relates to exempted employees), under the rules of 9[the Provident Fund or any Insurance Fund] 10[any contribution payable by him towards the [Pension]11 Fund under sub-section (6) of Section 17,] damages recoverable under Section 14-B or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under Section 17, shall, where the liability therefor has accrued before the order of adjudication or winding up is made, be deemed to be included] among the debts which under Section 49 of the Presidency Towns Insolvency Act, 1909, or under Section 61 of the Provincial Insolvency Act, 1920 or under 12[Section 530 of the Companies Act, 1956], are to be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be.
[Explanation.—In this sub-section and in Section 17, ‘insurance fund’ means any fund established by an employer under any scheme for providing benefits in the nature of life insurance to employees, whether linked to their deposits in provident fund or not, without payment by the employees of any separate contribution or premium in that behalf.]
[(2) Without prejudice to the provisions of sub-section (1), if any amount is due from an employer 15[, whether in respect of the employee's contribution (deducted from the wages of the employee) or the employer's contribution], the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts.]”
Thus, the Appellant submits that Section 11(2) of the Act of 1952 has an overriding effect over the I & B Code and its Regulations, and any amount due from the employer is the first charge over the assets of the Corporate Debtor and must be paid in priority.
The Appellant argues that because contributions under Section 11(2) are payable under a welfare legislation and are given a first charge over the assets of the establishment (i.e., the Corporate Debtor), they must be treated as priority dues.
Thus, the Appellant submits that the dues claimed in IA Nos. 275/2023 and 276/2023 ought to have been prioritised by the Liquidator and the Tribunal under Section 42 of the I & B Code, 2016, and should not have been rejected merely on the ground of delay. The Appellant relied on the judgment in State Tax Officer v. Rainbow Papers Ltd., wherein it was held that the time period under Regulation 12 is directory, not mandatory.
The Appellant also submitted that since the Resolution Plan had only been approved by the CoC and was yet to be approved by the Adjudicating Authority, it was not too late to consider EPF claims under Sections 7Q and 14B. A combined reading of Regulation 12, Section 30(2) of the Code, and Section 11(2) of the Act of 1952 would show that the claim ought not to have been rejected.
The question of limitation under Regulation 12 was considered by the Supreme Court in State Tax Officer v. Rainbow Papers Ltd., where the claim of the State had been rejected as belated. The Supreme Court held that Regulation 12 is directory, not mandatory, particularly for statutory dues. Relevant paragraphs 39 and 40 are extracted:
“39.The adjudicating authority (NCLT) and the appellate authority (Nclat) have held that the claim of the State is belated. Regulation 12 of the 2016 Regulations deals with the time period for submission of a claim along with proof, as stipulated in the public announcement under Section 15 IBC. The time period is, however, not mandatory but only directory.
40.In Vishal Saxena v. Swami Deen Gupta [Vishal Saxena v. Swami Deen Gupta, 2020 SCC OnLine NCLT 2734] , NCLT took the view that the time stipulation in Regulation 12 for submission of a claim is directory and not mandatory. Similar view was also taken by NCLT in its judgment and order dated 10-6-2021 in Commr. of Customs v. Mathur Sabhapathy Viswanathan [Commr. of Customs v. Mathur Sabhapathy Viswanathan, 2021 SCC OnLine NCLT 12289]. The rejection of the claim of the State is unsustainable in law.”
The judgment still holds the field.
An issue also arises regarding whether the Resolution Plan contravenes Section 36(4)(iii) of the Code, since provident fund and gratuity fund cannot be treated as assets of the Corporate Debtor. This was examined by the NCLAT in Tourism Finance Corporation of India Ltd. v. Rainbow Papers Ltd., where at para 44 it held that the EPF Act does not conflict with Section 36(4)(iii) and that PF and gratuity are not assets of the Corporate Debtor.
“44.However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section 36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise.”
This judgment was challenged before the Supreme Court in Civil Appeal No. 1920/2020, Kushal Ltd. v. RPFC-I, Ahmedabad, and the appeal was dismissed on 20.05.2020.
In the impugned order, the findings in paras 9 and 10 concern the claim being raised beyond the prescribed time. We have already answered this in light of the Supreme Court judgment in Rainbow Papers, which holds the Regulation 12 period to be directory. Therefore, the claim cannot be rejected solely on the ground of delay.
The second contention before the Tribunal was that since the Resolution Plan had been approved by the CoC and was pending before the Adjudicating Authority, the claim cannot be considered at a belated stage. The Tribunal relied on RPS Infrastructure Ltd. v. Mukul Kumar, where the Supreme Court held that reopening claims at this stage would make CIRP an endless process.
“21.The mere fact that the Adjudicating Authority has yet not approved the plan does not imply that the plan can go back and forth, thereby making the CIRP an endless process. This would result in the reopening of the whole issue, particularly as there may be other similar persons who may jump on to the bandwagon. The described above, in Essar Steel, 8 the court cautioned against allowing claims after the resolution plan has been accepted by the CoC. 22. We have thus come to the conclusion that the NCLAT’s impugned judgment cannot be faulted to reopen the chapter at the behest of the appellant. We find it difficult to unleash the hydra-headed monster of undecided claims on the resolution applicant.”
The Tribunal further relied on M/s Adept Technology Pvt. Ltd., stating that condoning extraordinary delay would defeat the purpose of the IBC. However, this judgment did not consider the Supreme Court’s ruling in Rainbow Papers, which expressly held that Regulation 12 is directory, and the Supreme Court even set aside the approved Resolution Plan.
“59.The appeals are allowed. The impugned orders [Tourism Finance Corpn. of India Ltd. v. Rainbow Papers Ltd., 2019 SCC OnLine NCLAT 910] , [STO v. Chandra Prakash Jain, 2020 SCC OnLine NCLAT 536] are set aside. The resolution plan approved by the CoC is also set aside. The resolution professional may consider a fresh resolution plan in the light of the observations made above. However, this judgment and order will not prevent the resolution applicant from submitting a plan in the light of the observations made above, making provisions for the dues of the statutory creditors like the appellant.”
The Tribunal’s reasoning, based on the restriction against reopening a plan after CoC approval, cannot stand in view of the Supreme Court ruling in Rainbow Papers, which governs the field and was not considered by the Adjudicating Authority.
The Appellant submitted that they specifically relied on Rainbow Papers before the Tribunal, but the Tribunal failed to consider it, rendering the impugned order perverse. The Supreme Court has also dismissed the review of Rainbow Papers on 31.10.2023.
Recently, the Principal Bench in Sanjay Kumar Agarwal v. State Tax Officer (Company Appeal (AT) (Ins) No. 720/2021) considered a similar issue and, relying on Rainbow Papers, allowed the appeal and remitted the matter for reconsideration.
For the reasons stated above, these 'company' appeals are 'allowed'. The impugned order rejecting the claim on the ground of limitation is hereby quashed, and the matter is remitted to the Adjudicating Authority to reconsider the IA on its own merits, except on the question of limitation.
Owing to the order passed by this Tribunal in Company Appeal (AT) (CH) (Ins) No.145/2024, which relates to the orders passed on IA (IBC) No. 276/2023, which related to the question of delay which has been condoned by this Appellate Tribunal as a consequence of today's judgment rendered by this Appellate Tribunal. The natural consequences, which will follow is that, Company Appeal (AT) (CH) (Ins) No.146/2024, which pertains to the orders passed on IA (IBC) No. 275/2023, in relation to the demand of the amount as referred to therein, that has been dismissed on the ground of the rejection of the claim being barred by limitation. The same would also be reconsidered afresh on its own merits.
All pending ‘interlocutory applications’ in the two company appeals would be ‘closed’.