AI Structured Summary
Not yet generated for this judgment
Judgment
ORDER
The case is fixed for pronouncement of order. The order is pronounced in open Court, vide separate sheet.
The application has been filed by the Regional Director, ESIC, Ahmedabad, Gujarat under Rule 11 of NCLT rules, 2016 against the liquidator of M/s Shreem Spa & Resorts Ltd., Gandhinagar for settling the claim due to the ESI Fund. The application has prayed before the Tribunal to pass necessary orders mainly restraining the liquidator from:
a. including the ESI Fund in the liquidation estate under Sec 36 (4) of the IBC, 2016;
b. liquidator be directed to give priority of dues of ESI contribution and give pari passu charge with secured creditors on assets for the dues payable amounting to Rs.71,000/-;
c. pending hearing and final disposal of the present application, condone the delay in lodging claim to the tune of Rs.71,000/- as per Order passed u/s. 45A of ESI Act and further be pleased to direct the Liquidator to accept the claim of Applicant ESI Corporation.
The Corporate Debtor was brought under CIRP based on an application filed under Sec 7 of IBC which was admitted on 23.09.2019 and was taken to liquidation on 03.03.2021. The liquidator received a claim from the applicant under Sec45A of ESI Act, for Rs.71,000/- passed by an order dated 15.12.2020.
The applicant vide his email dated 25.08.2021 submitted a claim in Form B dated 18.08.2021 regarding all pending claims of the corporate debtor amounting to Rs.71,000/-from period from Dec 2015 to July 2020. Applicant states that as per the scheme of ESI Act, the Employer – Corporate Debtor has to act as a trustee as the corporate debtor had to deduct the amount of ESI Contribution upon payment made towards labour charges and the said ESI Contribution to be deposited with the Applicant Corporation as per Section 39 of ESI Act. Since the corporate debtor failed to deposit the ESI Contribution into the Applicant Corporation, the Applicant had to initiate appropriate proceedings including Recovery proceedings under the ESI Act. Applicant states that as per Section 45A of ESI Act, if any unscrupulous employer, while paying the labour wages to the workers failed to deposit the amount of ESI Contribution then in that eventuality the ESIC i.e. present Applicant Corporation carries out best judgment assessment on the basis of the record made available by Social Security Officers of the ESIC to the authorized officer to determine the omitted wages on which the ESI Contribution was deducted but not deposited with the Applicant Corporation.
It is submitted by the applicant that the authorized officer found that from Dec 2015 to July 2020, arrived at vide order dated 15.12.2020 under Sec.45A of ESI Act against the corporate debtor to the tune of Rs. 71,000/-. Stated orders were passed when the corporate debtor was under moratorium under Sec.14 of the Code and stated show cause notice to pay the amount due within 15 days from the date of the order failing which action would be initiated against the corporate debtor. A copy of the same was served on Shri Vijay Narayan R. Jaju (Ex-director).
Applicant states that the provisions of ESI Act and provisions of EPF act are pari-materia. The Hon’ble Supreme Court of India in its decision in Bharat Heavy Electricals Limited Vs. ESIC, reported in 2008(3) SCC 247 in para 20 it is held that “We, with respect to the learned Judges, fail to notice any significant difference in the purport and object of both the provisions. The purport and object of both the statutes, for all intent and purport, in our opinion, is the same……” Therefore, for all practical purpose the ESI Act and EPF Act are equal benevolent legislation for the interest of workers and therefore whatever interpretation in provisions of EPF Act would be applicable mutatis mutandis to the provisions of ESI Act. Applicant further stated that recently the Hon’ble NCLT and NCLAT in the matter of State Bank of India Vs. Moser Bear workers’ Union, in Company Appeal (AT) (Insolvency) No. 396 of 2019 arising from (IB) 378 (PB) /2017, interpreted the provisions of EPF Act vis-a-vis provisions of IBC and therefore applicant prays the Hon’ble Tribunal to follow the identical interpretation and same law as interpreted in favour of Provident Fund Department under EPF Act. Applicant states that the Hon’ble NCLAT vide order, dated 19-12-2019, in Appeal filed by EPF Department in Company Appeal (AT) Insolvency 1001 of 2019 held in favour the EPF Department.
The Hon’ble NCLAT also observed as under:
while applying Section 53 of the I&B Code, Section 326 of the Companies Act, 2013 is relevant for the limited purpose of understanding 'workmen's dues which can be more than provident fund, pension fund and the gratuity fund kept aside and protected under Section 36(4)(iii). On the other hand, the workmen's dues as mentioned in Section 326(1)(a) is not confined to a period like twenty-four months preceding the liquidation commencement date and, therefore, the Appellant for the purpose of determining the workmen's dues as mentioned in Section 53(1)(b), cannot derive any advantage of Explanation (iv) of Section 326 of the Companies Act, 2013. It has further observed that this apart, as the provisions of the ‘I&B Code' have overriding effect in case of consistency in any other law for the time being enforced, we hold that Section 53(1)(b) read with Section 36(4) will have overriding effect on Section 326(1)(a), including the Explanation (iv) mentioned below Section 326 of the Companies Act, 2013. Once the liquidation estate/ assets of the 'Corporate Debtor' under Section 36(1) read with Section 36(3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included.
Applicant Corporation further states that as per Section 94 of ESI Act, the applicant corporation has got priority over all the dues. For ready reference, the said section is reproduced herein below:
“94.Contributions, etc., due to Corporation to have priority over other debts. There shall be deemed to be included among the debts which, under section 49 of the Presidency-towns Insolvency Act, 1909 (3 of 1909), or under section 61 of the Provincial Insolvency Act, 1920 (5 of 1920) 1[or under any law relating to insolvency in force 2[in the territories which, immediately before the 1st November, 1956, were comprised in a Part B State]], 3[or under section 530 of the Companies Act, 1956 (1 of 1956)], in the distribution of the property of the insolvent or in the distribution of the assets of a company being wound up, to be paid in priority to all other debts, the amount due in respect of any contribution or any other amount payable under this Act the liability wherefor accrued before the date of the order of adjudication of the insolvent or the date of the winding up, as the case may be.”
Applicant corporation states that the Hon’ble Supreme Court in the matter between Regional Provident Fund Vs. OL of Esskay limited in liquidation, reported in (2011) 10 SCC 727 interpreted the Section 11 of EPF Act and gave the priority over all other debts to be disbursed under Section 529 and 530 of Companies Act 195.
The applicant has stated that in view of the settled legal proposition by the Hon’ble Apex Court as well as Hon’ble NCLAT with regard to the priority of the dues of the EPF Act and not to include the dues of EPF Contribution into Liquidation Estate/Assets as per Section 36 of IBC, applicant pray to give identical treatment to the ESI Contribution as the contribution was held by the CD as trustee as the CD ought to have deposited with the ESI Corporation for the various benefits of the workers/employees of the CD.
Learned Counsel for the respondent submitted in his reply that the corporate debtor is not functioning since 2016 and no workers /employments reflecting in the books of the corporate debtor and no claims were received by any workmen/employees. The liquidator vide his email dated 04.01.2021 informed applicant of the moratorium of the corporate debtor under CIRP and not to pass any order and on 19.03.2021 informed ESIC that he has been appointed as Liquidator. The Liquidator appraised the applicant his inability to consider the claim as the last date of submission of appropriate Form was 02.04.2021 and he has prepared the list of creditors and submitted it to the Adjudicator on 14.05.2021. Additionally, he pointed out that the applicant has wrongly submitted the Form B which should have been submitted in Form C (Liquidation). The applicant submitted the claim in Form C on 08.02.2022 after delay of 8 months.
The Liquidator further stated that it is admitted fact (admitted by applicant) that applicant corporation is a statutory corporation hence, the dues of applicant corporation falls under the category of statutory dues and applicant is entitled to get their dues as per priority mentioned under Section 53 of the Code not as per Section 39(5) of ESI Act because as per Section 238 of the Code it is obvious that the Code will override anything inconsistent contained in any other enactment, including the ESI Act.
Further Hon’ble NCLAT in Savan Godiwala Vs Mr. Apalla Siva Kumar (Company Appeal (AT) (Insolvency) No. 1229 of 2019 dated 11.02.2020 held that “In a case, where no fund is created by a company, in violation of the Statutory provision of the Sec 4 of the Payment of Gratuity Act, 1972, then in that situation also, the Liquidator cannot be directed to make the payment of gratuity to the employees because the Liquidator has no domain to deal with the properties of the Corporate Debtor, which are not part of the liquidation estate.”
The respondent further submitted in his affidavit dated 07.03.2022 that if the Adjudicating Authority directs to accept the claim of the applicant, then the verification of the same has to be carried out and the claim amount of the applicant will be admitted only after the verification of the same.
Section 36(4) says not to include all sums due to any workmen or employee from the provident fund, the pension fund and the gratuity fund. It talks about only three kind of fund i.e, provident fund, pension fund and gratuity fund it does not include any Insurance Corporation fund and applicant i.e, Employees State Insurance Corporation as mentioned in para 1 of application provides sickness benefits, Bima Yojna, accidental benefits etc. therefore, applicant did not get covered under Section 36(4) of the Code. Statutory dues falls under operational debt and should be distributed as per waterfall mechanism provided under Section 53 of the Code.
It is further submitted that Honble NCLAT in State Bank of India v Moser Baer Karamchari Union observed that the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53. Firstly, it does not talk about Insurance Corporation fund and secondly, it talks about non-inclusion of Provident Fund, the Pension Fund and the Gratuity Fund in liquidation estate as per Section 36(4) of the Code. Though the applicant relied upon this judgement it was pertaining only to Provident Fund, the Pension Fund and the Gratuity Fund and not with respect to any other dues.
The consequences of non-payment of employees contribution from wages deducted in terms of Sec 40(4) of the ESI Act, 1948 and when not paid would be the responsibility of the principal employer which amounts to "breach of trust" and is punishable under IPC 406, 409 and also an offence u/s 85 of ESI Act. In this case, the liquidator has not done the breach of trust, and has admitted the claims as per provision of the IBC 2016. The applicant has not proceeded in any manner against the corporate debtor individually for which a provision is available in the ESI Act, while seeking special status as secured creditor in the claims admitted and proposed to be disbursed by the liquidator. The claim has been adjudicated by the Applicant during the moratorium period there has been no appeal especially when the liquidator has stated in his application that there were no employees as per records since 2016. Section 36(4)(iii) of the IBC does not define the ESIC dues as workmen dues except for PF, Pension Fund and the Gratuity Fund. Secured Creditor is defined in Sec 52 of liquidation proceedings in which the ESIC cannot make a claim or status to be included.
According to respondent, record of corporate debtor does not show any employee working since 2016. Moreover CIRP of corporate debtor was also admitted on 23.09.2019 and no workers have lodged any claim with the liquidator. In such circumstances the liquidator has rightly rejected claim of the respondent filed at belated stage.
Insurance is a coverage on the premium paid whether run by private or government and offers a service when there is an event which is triggered and cannot be equated with other benefits which are protected under IBC. This applies for both state run and private, but there are imbibed provisions in the State Insurance which gives it a statutory status for compliance and is on par with the other authorities who are treated as operational creditors. Even though ESIC has been providing the service and enrolment mandatory and is a benefit made available by employers, when the same is not paid or discontinued does not give a benefit to the employee/insured and the onus of compliance is with the corporate debtor who has not continued or paid the insurance or defaulted. There is no provision in the IBC to give a preferential treatment and pari passu charge for such state debt. There is no provision in the statute of ESIC for any charge or special status other than those provided in Sec 45A of the ESIC or in IBC which overrides any other laws. The applicant could have proceeded individually against the defaulter who was responsible for delay/wrong filing.
The applicant also prayed for condonation of delay in lodging claim with the Liquidator. Except praying for condonation of delay the applicant has not given any reason for delay in filing the claim. Without giving satisfactory reason, delay cannot be condoned. The claim of the applicant is not in time as well as not in proper format. Hence the Tribunal does not deem fit to direct the Liquidator to condone the delay.
Hence the Tribunal is passing the following order:
ORDERS
The IA 8 of 2022 in CP(IB) 550 of 2018 is dismissed.