Employees' Provident Fund Organization, Indore vs Chaya Gupta, Liquidator of M/s Rajpal Autolink Pvt Ltd

The Applicant submits that Shri Amit Jain, Regional Provident Fund Commissioner- II, Regional Office, Indore was duly authorised to file the present application vide authority letter dated 03.05.2024. (Copy of the letter of authority is annexed and marked as ANNEXURE A1 to the Application.)

The Applicant submits that in IA No. 7 (IND) of 2021 in CP (IB) 43 of 2020, the Hon'ble NCLT, Ahmadabad Bench, passed a liquidation order dated 23.04.2021 under Section 33 (2) of the IB Code, 2016 and appointed the Respondent as the Liquidator.

The Applicant submits that the claim for provident fund dues was filed on 26.02.2024, with reminders and is within limitation as no period is prescribed under Section 60(5) of the IB Code, 2016.

The Applicant submits that the EPFO is a social security organization governed by its own Act, the EPF & MP Act, 1952. The Corporate Debtor/CD is covered under the EPF & MP Act, 1952 and allotted EPF Code No. MP/IND/1356546. The CD was legally obligated to comply with the EPF & MP Act, 1952 and its Schemes by timely remitting dues and submitting returns since the date of inception.

The Applicant submits that the CD committed default in remitting Provident Fund and allied dues from August 1996 to January 2024. Consequently, proceedings under Sections 7-A, 14-B, and 7-Q of the EPF & MP Act, 1952, were initiated to determine and recover the dues. (Copy of the orders dated 22/12/23, 15/01/2024 and 19/02/24 passed u/s 7-A, 14-B and 7-Q separately determining the Provident Fund and allied dues to the tune of Rs.46,873/- and RRC’s issued in their regard are annexed and marked as ANNEXURE A2 (Collectively) and ANNEXURE A3 (Collectively) to the Application.)

The particulars of amounts outstanding are as follows:

The Applicant/EPFO submits that the claim for Rs. 46,873/- was filed on 26.02.2024 with the Respondent/Liquidator. The Respondent/Liquidator, via email dated 07.03.2024, disputed the claim, stating the company M/s Rajpal Autolink Pvt. Ltd. is under liquidation and as per Supreme Court judgments the IB Code, 2016 will prevails and any pay must be made in accordance with the IB Code, 2016 provisions. (Copy of the claim letter dated 26.02.2024 and email response dated 07.03.2024 are annexed and marked as ANNEXURE A5 and ANNEXURE A6 to the Application.)

The Applicant further submits that immediately upon receiving the Liquidator's communication, a detailed reply was sent on 18.03.2024, citing law and judicial decisions affirming Provident Fund dues as first charge labour dues. The Applicant sought liquidation of the dues, however despite the lapse of considerable time, the Liquidator has failed to respond or act, disregarding the legitimate claim and compelling the filling of this application. (Copy of the letter dated 18.03.2024 issued by the applicant to the Respondent/Liquidator is annexed and marked as ANNEXURE A7 to the Application.)

The Applicant relies on the following grounds:

Section 11(2) of the EPF & MP Act, 1952 contains a non-obstante clause making any amount due from the employer, whether employee or employer contributions, the first charge on the establishment's assets, payable in priority to all other debts. This provision provides a double safeguard, ensuring provident fund arrears enjoy priority over all other debts, facilitating more effective recovery than other acts.

Provident Fund dues differ from government dues. They enjoy a first charge, unlike banks or secured creditors who lack such statutory charges over borrower property.

For the payment of dues, the Appellant has relied on the following rulings:

Sunil Kumar Jain & others vs Sundresh Bhatt & others (Civil Appeal No. 5910/2019), the Hon’ble Apex Court on 19.04.2022 observed that the Provident Fund, gratuity, and pension dues are excluded from the liquidation estate under Section 36(4) of the IB Code, 2016 and are to be paid directly to employees outside the liquidation asset distribution.

The Applicant submitted and prayed that, the claim of Rs. 46,873/- be acknowledged as a first charge over all other dues of the Financial Creditor/Corporate Debtor, directing the Respondent to prioritise this claim as per the IBC, 2016 and EPF & MP Act, 1952. Pending final disposal of this application, the Respondent directed to retain assets of equivalent value without distribution to ensure payment of the claim.

In response to the notice issued to the Respondent/Liquidator, a reply affidavit filed on 13.09.2024.

The Respondent submits that, pursuant to an email dated 17.05.2023, in which the Applicant had sought inspection of records under the EPF & MP Act, 1952. In response, the Respondent, via email dated 10.06.2023, informed the Applicant that no such documents had been received from the suspended management of the Corporate Debtor. Consequently, the Respondent filed an application under Section 19(2) of the IB Code, 2016 for non-cooperation in the said matter. (Copy of the email dated 10.06.2023 is annexed and marked as ANNEXURE B Colly to the Reply Affidavit.)

The Respondent submits that the Applicant’s claim was neither in the prescribed format under the Code nor filed within the time limit mandated by Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which requires claims to be submitted with proof to the Liquidator within 30 days from the commencement of liquidation. The Respondent further stated that, as Liquidator, she informed the Applicant by email dated 07.03.2024 that the Hon’ble Supreme Court has clarified through various judgments that the IBC, 2016 prevails over other laws, and payments must be made strictly according to its provisions. (Copy of the letter dated 26.02.2024, the email dated 27.02.2024, and the email dated 07.03.2024 are annexed herewith and marked as ANNEXURE C (Colly) to the Reply Affidavit.)

The Respondent submits that by the time the claim was lodged, the Respondent/Liquidator had already filed the dissolution application of the Corporate Debtor with the approval of the SCC members. The dissolution application, filed by the Respondent/Liquidator as Interlocutory Application No. 236/MP/2023, before this Adjudicating Authority.

The Respondent submits that present application is devoid of merit and legally unsustainable as it ignores the primacy of the IBC, 2016. Section 53 of the IBC mandates a strict order of priority for asset distribution during liquidation, which overrides EPFO's statutory dues under the EPF & MP Act, 1952. The liquidation estate must be distributed according to the prescribed waterfall mechanism. And refer judgement of the Hon'ble Supreme Court in Sunil Kumar Jain v. Sundaresh Bhatt, Liquidator of ABG Shipyard [(2022) 8 SCC 243], upheld the primacy of the IB Code, 2016 over other statutory claims during liquidation, emphasizing that the process must be conducted strictly in accordance with the hierarchy established under Section 53 of the IB Code, 2016 and that belated claims cannot override the structured distribution mechanism established by the IB Code, 2016.

The Respondent submits that the Applicant's failure to comply with the prescribed timeline under Section 38 of the IB Code 2016, warrants rejection of their claim. Additionally, at the time of claim submission, the CD assets were valued at only Rs. 2,300/- (Rupees Two Thousand Three Hundred Only). Even if the belated claim were considered, it would have no likelihood of recovery given the negligible remaining assets, which were already insufficient to cover the basic costs of liquidation.

The Respondent submitted and prayed that the Adjudicating Authority may be pleased to dismiss the Applicant’s application in its entirety for failing to submit the claim in accordance with the provisions of the IB Code, 2016 and the IBBI (Liquidation Process) Regulations, 2016.

In response to the reply, the Applicant filed a rejoinder on 25.09.2024 and submits that the Respondent's contention that EPF claims were not submitted within the prescribed timeframe is untenable because of following reasons:

The EPF dues do not fall under the IBBI (Liquidation Process) Regulations, 2016 as they are statutory liabilities, not contractual debts.

The Applicant submits that in the case of EPF dues, the Liquidation process does not apply since the debt is not payable from the estate of the Liquidator as per section 36(4)(iii) of the IB Code, 2016. The Regulations apply only when the claimant has a case/claim under section 53 of the IB Code, 2016 from the pool of the Liquidation estate and not otherwise.

The Applicant again relies on the case of Sunil Kumar Jain v. Sundaresh Bhatt, [(2022) 17 SCR 318].

The Applicant submits that despite repeated notices, the Respondent failed to process EPF dues, ignored her prior acknowledgement of liability, and violated social security principles upheld by the Hon’ble Supreme Court.

The Applicant submits that the interest under section 7Q of the EPF & MP Act, 1952 should continue to be levied even after the commencement of the Liquidation process. The Applicant submits that the damages under Section 14B are to be treated in the same manner as the interest under Section 7Q of the EPF & MP Act, 1952 as per the Judgement of the Hon'ble Supreme Court of India in the case of Maharashtra State Co-operative Bank Ltd. v. Asst. Provident Fund Commissioner 2009 15 (ADDL.) SCR 1.

The Applicant submits that the Hon’ble National Company Law Appellate Tribunal (NCLAT), in Satish Kumar Gupta vs. The Employees Provident Fund Organisation, Company Appeal (AT) (Ins.) No. 580 of 2023, has categorically held that the claims of all EPFO offices are to be treated on par, and that the entire amount of dues determined under Sections 7A, 7Q, and 14B of the EPF & MP Act, 1952, shall be paid to the respective PF Authorities from the funds available in the attached bank accounts of the CD. In the event such available funds are insufficient, the said claims shall be satisfied from the proceeds arising out of the disposal of other assets of the Corporate Debtor. Only the balance remaining after liquidation of such provident fund dues shall form part of the liquidation estate.

The Applicant submits that the Respondent's attempt to subordinate EPF dues under Section 53 of the IB Code, 2016 is legally wrong, violating statutory provisions, and prays for a direction to settle the outstanding EPF dues immediately.

Whether the claim for dues in the present application has been filed within the prescribed timelines as mandated under the provisions of the Insolvency and Bankruptcy Code, 2016 and the Employees Provident Funds and Miscellaneous Provisions Act, 1952?