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2024 Supreme(Online)(NCLAT) 1365
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Indevar Pandey, MEMBER (TECHNICAL)
Truvisory Insolvency Professionals Pvt. Ltd. (IPE) – Appellant
Versus
Employees’ Provident Fund Organisation Regional office, Yelahanka – Respondent
C.P. (IB) No. 1443 of 2020
For the Appellants/Petitioners: Ms. Shivani Rawat, Jojongandha Ray, Tine Abraham
For the Respondents: Mr. Hitesh Sachar, Ms. Anju Jain, Rabi Karmokar, Amrendra Kumar, Ms. Sanidhya Kumar
Insolvency and Bankruptcy Code mandates that provident fund dues of employees are excluded from the liquidation estate and should be prioritized in payment irrespective of the maintenance of specific accounts.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 61(1) - Employee Provident Fund and Miscellaneous Provisions Act, 1952 - Attachment orders against Corporate Debtor's accounts for non-payment of provident fund contributions directed before CIRP initiation - Moratorium under Section 14 does not cover statutory dues like PF contributions - Directives for liquidator to set aside amounts for PF dues from the attached accounts and execute an undertaking to EPFO for payment upon lifting attachments. (Paras 1, 20, 45)
(B) Corporate Debtor's claims regarding differential treatment of similarly placed creditors criticized - Directions seen as contrary to statutory priorities established under Section 36(4) of the Code, leading to inequitable treatment amongst creditors. (Paras 5, 8, 30)
(C) The court emphasizes that workmen's dues such as provident fund contributions should always be prioritized outside the liquidation asset estate and satisfy obligations under Sections 36 and 53 of the Code. (Paras 71-75)
JUDGMENT
(11th September, 2024)
INDEVAR PANDEY, MEMBER (TECHNICAL)
This appeal has been filed under section 61(1) of the Insolvency and Bankruptcy Code, 2016 (in short Code) read with rule 11 of the National Company Law Appellate Tribunal Rules, 2016 challenging the impugned order of National Company Law Tribunal, Mumbai Bench, the Adjudicating Authority (in short AA) in I.A. No. 2152 of 2022 in C.P. (IB) No. 1443 of 2020 passed on 17th March, 2023. The AA vide the aforesaid order directed the Appellant/Resolution Professional to: (a) Set aside amounts corresponding to the provident fund contributions of the employees of the Corporate Debtor from the funds available in the attached bank accounts. (b) Furnish an undertaking to the Respondents (EPFO, Kannur, and EPFO-Yelahanka) that the Corporate Debtor shall remit the aforesaid dues upon the Respondents vacating the attachment over the bank accounts of the Corporate Debtor.
2. The brief facts of the case are as follows:
(i) Bombay Rayon Fashions Limited (Corporate Debtor) is a company registered under the Companies Act, 1956, which is engaged in the production of textiles, fabrics, and spinning of linen yarn. On 07 June 2022, the AA admitted an insolvency petition filed by an operational creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short, the Code) against the Corporate Debtor and initiated the Corporate Insolvency Resolution Process (CIRP). Mr. Santanu T. Ray was appointed as the Interim Resolution Professional (IRP). During the first meeting of Committee of Creditors (in short CoC) held on 26 July 2022, the CoC unanimously approved the replacement of the IRP with Mr. Satish Kumar Gupta. The AA confirmed the appointment of the IRP as RP on 04 August 2022, in I.A. No. 2127 of 2022 in CP (IB) 1443 of 2020.
(ii) On 03 February 2022, Employee Provident Fund Organisation (EPFO) Regional Office Kannur (RespondentNo.2) issued an attachment order on the Corporate Debtor’s bank accounts for failure to pay INR 10,15,484/- towards the employer’s contribution to the Provident Fund (PF). Subsequently, on 06 June 2022, EPFO Regional Office, Yelahanka, Bangalore (Respondent No.1) issued another attachment order on CD’s bank accounts for INR 7,34,37,074/-. A total of 17 bank accounts of the CD were attached by the Respondent No. 1 and Respondent No. 2 collectively. These accounts, were held with Axis Bank, Khar (W) Branch Mumbai (Respondent No. 3) and State Bank of India, Industrial Finance Branch Andheri, Mumbai (Respondent No. 4). As a result, Respondent Nos. 3 and 4 attached the bank accounts of the CD. The communication to the banks (Respondent Nos. 3 and 4) regarding these attachments happened on 13 June 2022, after the commencement of the CIRP and the imposition of the moratorium under Section 14 of the IBC.
(iii) The IRP, upon being unable to access the bank accounts to ensure the Corporate Debtor’s continued operation and to pay certain CIRP costs, issued a letter on 1 July 2022 to Respondent Nos. 1 and 2, requesting them to de-attach the bank accounts and withdraw the Attachment Orders. The IRP also advised Respondent Nos. 1 and 2 to submit any outstanding claims in the prescribed format. A similar request for detachment was made to Respondent Nos. 3 and 4 on 6 July 2022.
(iv) On 13 July 2022, Respondent No. 1 replied to IRP, stating that its attachment order was issued prior to the commencement of the CIRP, and in the absence of a specific order from the AA to withdraw the attachments, it was not inclined to vacate its order. On the same day, Respondent No. 2, in a separate letter to IRP, stated that the Provident Fund (PF) authorities are entitled to satisfy their full claim during CIRP, asserting that the attached accounts were not “establishment accounts” as per Section 16A of the EPF Act and that EPF dues do not fall under Section 53 of the Insolvency and Bankruptcy Code (IBC).
(v) Despite filing their claims before the IRP on 11 July 2022 and 14 July
