Regional Provident Fund Commissioner – II vs M/s Antal Infotech Private Limited & Anr.

Per RADHAKRISHNA SREEPADA, Member(Technical):

The present Application is filed by the Regional Provident Fund Commissioner – II, Employees Provident Fund Organisation, Bengaluru, under Section 42 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016(“code/IBC”), on 08.01.2024 assailing the decision of the Liquidator dated 12.12.2023, whereby the claim of the Applicant was partly rejected. The applicant has filed the instant application with the following prayer:

Brief Facts of the case stated in support of the Application are as follows:

The Respondent has filed the objections inter-alia contending that:

The Applicant has filed a Rejoinder to the objections filed by Respondent No. 2, denying the contentions raised therein.

The Applicant submits that the objections regarding delay and negligence are unfounded. It is contended that delay in filing the claim and determination of dues occurred due to the COVID-19 pandemic and procedural requirements under the EPF Act, and that such delay was already condoned by this Tribunal in earlier proceedings.

The Applicant contends that determination of dues under Sections 7A, 7Q and 14B of the EPF Act involves quasi-judicial proceedings requiring compliance with principles of natural justice, and that quantification of damages and interest could be completed only after determination of principal dues.

It is further submitted that the liability towards damages and interest arose due to delayed remittance of statutory dues and cannot be disallowed on account of failure to remit contributions in time.

The Applicant disputes the Liquidator’s contention regarding limitation and asserts that the communication dated 12.12.2023 reiterating the rejection constitutes the effective rejection.

On merits, the Applicant disputes the Liquidator’s characterization of damages and interest as government dues. It is contended that contributions, interest and damages payable under Sections 7A, 7Q and 14B form part of statutory provident fund liabilities and are inseparable from provident fund dues.

In support of the above contention, reliance is placed on the judgment of the Hon’ble Supreme Court in Maharashtra State Co-operative Bank Ltd. vs EPFO (2009) 10 SCC 123 , wherein it was held that the expression “any amount due from an employer” includes interest and damages and is entitled to statutory priority.

Reliance is also placed on Sunil Kumar Jain & Ors. vs Sundaresh Bhatt(2022) 7 SCC 540 , wherein the Hon’ble Supreme Court held that provident fund dues are protected and do not form part of the liquidation estate.

The Applicant further relies upon Organo Chemical Industries vs Union of India (1979) 2 LLJ 416 (SC), to contend that damages under Section 14B are welfare-oriented and intended to augment provident fund reserves.

Reference is also made to Inderjit Singh Grewal vs State of Punjab (2011) 12 SCC 588, to contend that a party cannot take advantage of its own wrong.

The Applicant also relies upon the decision of the Hon’ble NCLAT in State Bank of India vs Moser Baer Karmachari Union 2023 SCC OnLine NCLAT 2363 and the judgment in Jet Aircraft Maintenance Engineers Association 2019 SCC OnLine NCLAT 447, to contend that provident fund dues are treated as workmen dues and excluded from the waterfall mechanism.

Further reliance is placed on decisions of the Adjudicating Authority, including Anuj Bajpai vs EPFO CA.(AT) (Ins) No.1141 of 2023 and I.A. No.3979 of 2023 , to contend that dues under Sections 7A, 7Q and 14B are to be treated as workmen dues and excluded from the liquidation estate.

The Applicant reiterates that the CD was a defaulter in statutory remittances and that the EPF authority was compelled to determine dues in accordance with law. On these grounds, the Applicant prays that the Application be allowed.

We have heard the Learned Counsel appearing for the parties and carefully perused the material available on record, including the pleadings and the judicial precedents relied upon.

The Liquidator has raised a preliminary objection that the rejection of the claim was communicated on 17.10.2023 and that the present Application, having been filed on 08.01.2024, is barred by limitation under Section 42 of the Code, 2016, which prescribes a period of fourteen days for challenging the decision of the Liquidator.

The Applicant, however, contends that subsequent communications dated 15.11.2023 and 17.11.2023 seeking reconsideration of the claim, followed by the communication dated 12.12.2023, constitute a continuing process of adjudication and that the latter communication should be treated as the effective rejection for the purpose of limitation.

We have carefully considered the rival submissions on the issue of limitation. The material on record demonstrates that the Liquidator had already taken a substantive decision on 17.10.2023 admitting the claim only to a limited extent and rejecting the remaining amount. The subsequent communications relied upon by the Applicant merely sought reconsideration of the earlier decision and did not result in any fresh adjudication or independent determination of the claim by the Liquidator. The communication dated 12.12.2023 only reiterated the earlier decision and cannot, in the facts of the present case, be construed as giving rise to a fresh cause of action under Section 42 of the Code.

The scheme of the Code places paramount emphasis on certainty and strict adherence to timelines. Section 42 does not contain any express provision for condonation of delay, and the Hon’ble Supreme Court has repeatedly emphasised that timelines under the Code are not merely procedural but are intrinsic to the insolvency framework itself. Reference in this regard may be made to the observations of the Hon’ble Supreme Court in EPFO vs Fanendra Harkchand Munot (supra) emphasising strict compliance with statutory timelines under the Code. In the absence of any material establishing that the rejection itself was first communicated only on 12.12.2023, we are unable to accept the contention of the Applicant that limitation must run from the said date.

Accordingly, the present Application is liable to be held as barred by limitation under Section 42 of the Code. Consequently is not maintainable.

Since extensive submissions have been advanced on merits and in view of the evolving jurisprudence concerning the treatment of provident fund dues during liquidation, we deem it appropriate to examine the controversy on merits as well.

The principal issue which arises for consideration is Whether interest under Section 7Q and damages under Section 14B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 are to be treated on par with provident fund contributions and consequently excluded from the liquidation estate under Section 36(4)(a)(iii) of the Code.

The Applicant has relied upon the judgments of

a. The Hon’ble Supreme Court in Maharashtra State Co-operative Bank Ltd. vs Assistant Provident Fund Commissioner (supra) and Sunil Kumar Jain vs Sundaresh Bhatt (supra) to contend that provident fund dues enjoy statutory protection and stand excluded from the liquidation estate.

b. Reliance has also been placed upon Organo Chemical Industries vs Union of India (supra) to contend that damages under Section 14B are welfare-oriented in nature and intended to augment provident fund reserves.

c. Judgments of the Hon’ble NCLAT, including Regional Provident Fund Commissioner-II vs Harshavardhan Cotton and Synthetic Mills Pvt. Ltd. and Anuj Bajpai vs EPFO (2026) ibclaw.in 41 NCLAT , wherein it has been held that the expression “all sums due” from provident fund would include not merely the principal contribution but also interest under Section 7Q and damages under Section 14B, and that such dues are liable to be excluded from the liquidation estate prior to application of the waterfall mechanism under Section 53 of the Code.

d. In support of the above contention, reliance is placed on the judgment of the Hon’ble Supreme Court in Maharashtra State Co-operative Bank Ltd. vs EPFO (2009) 10 SCC 123, wherein it has been held that the expression “any amount due from an employer” includes interest and damages and is entitled to statutory priority.

e. Reliance is also placed on Sunil Kumar Jain & Ors. vs Sundaresh Bhatt(2022) 7 SCC 540 , where the Hon’ble Supreme Court has held that provident fund dues are protected and do not form part of the liquidation estate.

f. Reference is further made to Inderjit Singh Grewal vs State of Punjab (2011) 12 SCC 588, to contend that a party cannot take advantage of its own wrong.

h. The decisions of the Hon’ble NCLAT in State Bank of India vs Moser Baer Karmachari Union 2023 SCC OnLine NCLAT 2363 and the judgment in Jet Aircraft Maintenance Engineers Association 2019 SCC OnLine NCLAT 447, have been cited to contend that provident fund dues are treated as workmen dues and excluded from the waterfall mechanism.

j. The Applicant reiterates that the CD was a defaulter in statutory remittances and that the EPF authority was compelled to determine dues in accordance with law. On these grounds, the Applicant prays that the Application be allowed.

On the other hand, the Liquidator has relied upon decisions of coordinate Benches, including Shri Addanki Haresh, Liquidator vs Recovery Officer, EPFO (supra) and Regional Provident Fund Commissioner vs Excel Glass Ltd.(supra), wherein a distinction has been drawn between provident fund contributions payable for the benefit of employees and statutory interest and damages payable to the EPFO authorities. The Liquidator has contended that while actual provident fund contributions constitute workmen dues protected under Section 36(4)(a)(iii), damages under Section 14B are essentially penal in nature and interest under Section 7Q, though compensatory, is payable to the statutory authority and not directly credited to employees. It has further been contended that such liabilities fall within the ambit of statutory/government dues and are therefore subject to the waterfall mechanism under Section 53 of the Code.

The principles laid down in the decisions relied on by both the parties are discussed below.

Applicant has relied upon the judgments of the Hon’ble Supreme Court in Maharashtra State Co-operative Bank Ltd. vs. Assistant Provident Fund Commissioner and Sunil Kumar Jain vs. Sundaresh Bhatt to support that provident fund dues enjoy a special statutory protection and are excluded from the liquidation estate. Reliance has also been placed upon Organo Chemical Industries vs. Union of India to contend that damages under Section 14B are not merely penal in nature but are intended to secure compliance with the beneficial object of the EPF legislation and to protect the interests of employees. The Applicant has further relied upon the recent judgments of the Hon’ble NCLAT in Regional Provident Fund Commissioner-II vs. Harshavardhan Cotton and Synthetic Mills Pvt. Ltd. and Anuj Bajpai vs. Employees Provident Fund Organisation.

After examining the judgments of the Hon’ble Supreme Court in Moser Baer Karamchari Union, Maharashtra State Co-operative Bank Ltd., Sunil Kumar Jain and earlier decisions of the Appellate Tribunal, the Hon’ble NCLAT held that Section 36(4)(a)(iii) takes precedence over the waterfall mechanism contained in Section 53. The Appellate Tribunal further held that the expression “all sums due” from provident fund is of wide amplitude and includes not only amounts determined under Section 7A of the EPF Act but also statutory interest under Section 7Q and damages under Section 14B. The Tribunal further rejected the contention that such protection is available only where a dedicated provident fund account exists and held that even where the employer has failed to maintain or segregate a separate fund, the amounts due towards provident fund, interest and damages would nonetheless be deemed to form part of provident fund dues and remain excluded from the liquidation estate. On that basis, the NCLAT directed that the amount due to EPFO be recovered and paid in priority before distribution under Section 53 of the Code.

Similarly, in Anuj Bajpai vs. Employees Provident Fund Organisation, the Hon’ble NCLAT, relying upon Maharashtra State Co-operative Bank Ltd., reiterated that the expression “any amount due from an employer” occurring in the EPF Act is not confined merely to contributions assessed under Section 7A but also extends to liabilities arising under Sections 7Q and 14B. The Appellate Tribunal observed that once provident fund dues are excluded from the liquidation estate under Section 36(4)(a)(iii), the waterfall mechanism under Section 53 cannot be invoked to dilute or subordinate such claims.

On the other hand, the Liquidator has relied upon decisions of coordinate Benches including Shri Adanki Haresh, Liquidator vs. Recovery Officer, EPFO and Regional Provident Fund Commissioner vs. Excel Glass Ltd., wherein a distinction was drawn between provident fund contributions payable for the benefit of employees and statutory interest and damages payable to the EPFO authorities. The Liquidator has contended that while provident fund contributions are protected under Section 36(4)(a)(iii), damages under Section 14B are essentially penal and deterrent in character and interest under Section 7Q, though compensatory, is not directly payable to employees. It is therefore contended that such liabilities partake the character of statutory dues and are liable to be dealt with under the waterfall mechanism prescribed by Section 53 of the Code.

Subsequent judgment of the Hon’ble NCLAT in Employees Provident Fund Organisation vs. Rachna Jhunjhunwala, Chairperson of the Monitoring Committee of Power Max (India) Pvt. Ltd. (2026) ibclaw.in 69 NCLAT has emphasised a further distinction. In that case, the Corporate Debtor entered CIRP on 01.05.2023, whereas proceedings under Sections 7Q and 14B were initiated only thereafter by issuance of summons dated 10.05.2023. The Hon’ble NCLAT held that since no final determination of liability under Sections 7Q and 14B existed as on the insolvency commencement date, the liabilities remained uncrystallised and could not be introduced or adjudicated during the subsistence of the moratorium. The Appellate Tribunal observed that the insolvency framework proceeds on the basis of liabilities which have crystallised as on the insolvency commencement date and that continuation of assessment proceedings resulting in determination or enhancement of liabilities during the moratorium would be inconsistent with the scheme of the Code.

Thus, the recent appellate jurisprudence establishes two distinct principles.

a. First, where liability under Sections 7Q and 14B has already arisen and forms part of the provident fund dues, such amounts are liable to receive the protection contemplated under Section 36(4)(a)(iii) and are not to be subjected to the waterfall mechanism under Section 53. The entitlement to such protection presupposes the existence of a legally enforceable and crystallised liability.

Where proceedings for determination of liability under Sections 7Q and 14B had not attained finality as on the insolvency commencement date, the claim may fail on the ground that it remained uncrystallised.

At this Juncture, it is necessary to analyse the Chronology of events in this case.

As can be seen from above, in the present case, the impugned claim comprises of interest under Section 7Q and damages under Section 14B of the EPF Act. The Liquidator has specifically contended that the rejected amount of Rs.38,85,792/- represents interest and damages computed for the period 12.12.2020 to 12.10.2021, namely during the subsistence of the moratorium and after commencement of liquidation.

We are unable to accept the submission that every liability arising under Sections 7Q and 14B necessarily relates back to the date of the original provident fund default irrespective of the period for which such liability is computed. The Applicant has contended that the liabilities under Sections 7Q and 14B are consequential to the underlying provident fund defaults. However, no material has been placed before this Tribunal to demonstrate that the specific amount of Rs.38,85,792/-, which forms the subject matter of the present dispute, had crystallised as a liability payable on the insolvency commencement date. On the contrary, the Liquidator has consistently maintained that the rejected amount pertains to interest and damages computed for the CIRP and post-liquidation period. Consequently, the claim cannot be equated with the pre-insolvency provident fund liabilities considered in Harshavardhan Cotton and Anuj Bajpai.

The claim pertaining to interest and damages computed for the CIRP and post-liquidation period stands on a materially different footing and attracts the principles explained by the Hon'ble NCLAT in Employees Provident Fund Organisation vs. Rachna Jhunjhunwala, Chairperson of the Monitoring Committee of Power Max (India) Pvt. Ltd. (2026) ibclaw.in 69 NCLAT .

In these circumstances, we are satisfied that the Applicant has failed to establish any legal infirmity or jurisdictional error in the decision of the Liquidator in rejecting the claim of Applicant to the extent of Rs.38,85,792/-.

After due appreciation of the Issues as above, We hold that

a. The Application is not maintainable as it is beyond Limitation period.

b. On merits, the 7Q and 14B demands created during the Moratorium period cannot considered as Section 33(5) creates an embargo.

Hence, I.A. No.253 of 2024 in C.P. (IB) No. 198/BB/2020 stands dismissed.