Provident fund dues do not have priority over other debts during liquidation under IBC; they are subject to waterfall mechanism provisions.

ORDER

1. This is an application filed by the Applicant/Employees Provident Fund Organisation Under Regulation 12(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 read with Section 60(5), 87(1) (a) & (c), 88 of IB Code, 2016 seeking following reliefs:

a) To set aside the Rejection Order/ Letter Dated: 29/07/2022 passed by the Liquidator Sri Rajesh Chillale, wherein the Liquidator has rejected the claim made by the Applicant herein in recovering the Provident Fund dues of the bread and butter of the workers of the Corporate Debtor, in the above said CP (IB) No. 745/7/HDB/2018, viz., Kanakadhara Ventures Private Limited, Hyderabad holding that the PF dues need not be paid in priority to all other debts and that the waterfall mechanism, envisaged under section 53 of IBC 2016 shall only be applicable and complied with for the purpose of distribution of sale proceeds from the liquidation assets, as illegal, arbitrary and contrary to the social security enactment of Provident Fund Act.

b) To allow the claim made by the Applicant before the Liquidator Sri. Rajesh Chillale in respect of the recovery of provident fund dues of the Workers of the Corporate Debtor U/Sec.7A, 14B and 7Q of the EPF & MP Act, 1952.

c) To issue a direction to the Liquidator for releasing the EPF dues submitted vide claim dated 09.09.2021 which is as per Section 36 (4) of IBC in which it clearly declares that all dues towards Provident Fund, Pension Fund and Gratuity as Third-Party assets and excludes them from the Liquidation estate of Corporate Debtor. (4) makes a further declaration that such sums cannot be utilised for recovery of debts of the Corporate Debtor.

The position of the Law that dues under EPF Act are not debts and do not form a part of the waterfall mechanism under Section 53 of IBC is judiciously settled after the judgment of Hon’ble NCLAT Judgment dated 11.03.2022 in CA (AT) 483/2019 in Sikander Singh Jamwal Vs. Vinay Talwar .

2. Gist of the application:

2.1 It is averred that the Corporate Debtor M/s. Kanakadhara Ventures Private Limited (which is presently undergoing Liquidation process under the supervision of Liquidator Sri. Rajesh Chillale appointed by this Tribunal) is registered under the EPF Act vide PF Code No. AP/HYD/61895 w.e.f. dated 01.08.2008. It is stated that the Applicant was seeking the detail of Employees’ Provident Fund (EPF) compliance from the Corporate Debtor since 09.09.2021 itself. It means before initiation of CIRP proceedings, EPFO authority has raised the question on the Provident Fund compliance status of Corporate Debtor. As per EPF Act, for determining the pending provident funds dues, quasi- judicial inquiry under section 7A of the Act was being conducted since 08.07.2014 during the assessment inquiry under section 7A, as per the financials of Corporate Debtor, default of EPF dues of Rs.1,45,29,011/- for the period from 01.04.2011 to 31.05.2014 was found and recorded.

2.2 It is further stated that as per Section 14B and 7Q of EPF Act, EPF dues liability were also computed for Rs.3,25,90,217/-. Accordingly, Appellant had informed the Corporate Debtor and Resolution Professional about the pending provident fund dues and filed claims vide letter dated 09.09.2021. It is stated that the liquidator vide letter and Email dated 29.07.2022 rejected all the claims filed by Applicant, EPFO, Hyderabad authority holding that, the Provident Fund dues need not be paid in priority to all other debts and that the waterfall mechanism envisaged under Se