Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLT) 3989

NATIONAL COMPANY LAW TRIBUNAL
Mr. Praveen Gupta, Member (Judicial), Mr. Ashish Verma, Member (Technical)
SAURABH CHAWLA – Appellant
Versus
EMPLOYEE STATE INSURANCE CORPORATION – Respondent
Application under Section 60(5) r/w Section 14 of the Insolvency and Bankruptcy Code, 2016 | CP (IB) No. 81/ALD/2019

Advocates:
For the RP: Sh. Abhishek Anand, Mr. Karan Kohli
For the Respondent: Vinod Kumar Nagpal

The court ruled that recovery actions by the ESI Corporation are void as they contravene the IBC's moratorium during the Corporate Insolvency Resolution Process.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 14 and 238 - Employees' State Insurance Act, 1948 - Sections 38 to 44 and 45-A - Moratorium against recovery actions during Corporate Insolvency Resolution Process (CIRP) - ESI Corporation’s recovery order issued post moratorium prohibited under IBC - The court held that actions contravening moratorium are non-est in law and must be quashed. (Paras 34, 36)

(B) Moratorium - Purpose and effect - The moratorium imposed by Section 14 provides a standstill period, prohibiting all recovery actions to facilitate orderly completion of the insolvency resolution process without disruption. (Paras 27, 28)

Facts of the case:
Applicant, the RP of Harig Crankshaft Limited, seeks to quash an order from ESI Corporation for the recovery of contributions while CIRP is ongoing, asserting it violates the enacted moratorium under IBC. The Respondent’s claims were submitted long after CIRP commencement and the Applicant contended the recovery actions are therefore void.

Findings of Court:
The Court found that the ESI Corporation's recovery order was issued in contravention of the moratorium established by the IBC, invalidating its effectiveness. The established legal principles during CIRP confirm all claims must be effectively and precisely handled within the resolution framework.

Issues: Whether the recovery order aligns with the moratorium imposed under Section 14 of the IBC and whether the Respondent’s claims can be adjudicated outside of the CIRP framework.

Ratio Decidendi: The Court ruled that the IBC takes precedence, preventing recovery actions by the ESI Corporation during the CIRP, reinforcing the intent of the Code to maintain the corporate debtor's viability.

Result: The application was allowed and the ESI Corporation's order quashed.

Table of Content
1. application under ibc seeks relief against esi recovery order. (Para 1 , 2)
2. esi initiated claims during cirp; applicant seeks documentation. (Para 4 , 6 , 7)
3. applicant argues that esi actions contravene ibc. (Para 10 , 12 , 19 , 21)
4. judicial reliance on ibc provisions against prior debt recovery. (Para 25 , 26 , 27 , 28)
5. court rules recovery order is non-est due to moratorium. (Para 34 , 36)

ORDER

1. This application has been filed by Mr. Saurabh Chawala the Resolution Professional of M/s Harig Crankshaft Limited (hereinafter referred to as Applicant) under section 60(5) r/w section 14 of the Insolvency & Bankruptcy Code, 2016, against the order dated 07.08.2023 passed by the Employee State Insurance Corporation (hereinafter referred as ‘Respondent’) under section 45-A of the Employees’ State Insurance Act, 1948 . The Applicant is seeking the following relief in the instant matter: -

a. Allow the present Application

b. Issue appropriate directions against the Respondent including declaring order dated 07.08.2023 passed by the Respondent for recovery is in contravention to Section 14 of the Code and the same is non-est in law;

c. During the pendency of the present Application grant an ex-parte ad-interim stay on the operation of Order dated 07.08.2023 passed by the Respondent Authority;

d. Pass such other further order/order(s) as may be deemed fit and proper in the facts and circumstances of the case.

2. This Tribunal vide order dated 31.03.2023, admitted the Company Petition i.e., CP (IB) No. 81/ALD/2019, filed against the Corporate Debtor for initiating Corporate Insolvency Resolution Process (hereinafter referred to as "CIRP") under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "Code"). Mr. Saurabh Chawala was appointed as Interim Resolution Professional (IRP) of the Corporate Debtor. Subsequently, the IRP was confirmed to be appointed as RP in the first meeting of the Committee of Creditors (hereinafter referred to as “COC”) held on 27.04.2023 and confirmed as RP by the order dated 23.05.2023 of this Tribunal.

3. Following the admission of the petition, the IRP issued a Public Announcement on 03.04.2023 in ’Form A,’ published in two newspapers, namely Business Standard (English) and Rashtriya Sahara (Hindi), inviting claims under Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The last date for submission of claims was 14.04.2023.

4. The Applicant submits that during the CIRP of the Corporate Debtor, the Respondent initiated proceedings under the ESI Act, 1948, regarding the payment of contributions and submission of contribution returns under Sections 39 and 40 of the ESI Act, 1948, read with Regulations 29 and 31 of the Employees’ State Insurance (General) Regulations, 1950, for the period from April 2018 to March 2023. Additionally, the Respondent issued a notice dated 21.04.2023, demanding a total contribution of Rs. 49,16,835/-, and directed the Applicant to appear before the Respondent Authority on 18.05.2023.

5. Subsequently, the Applicant issued a detailed reply dated 02.05.2023, informing the Respondent that upon the admission and initiation of the CIRP of the Corporate Debtor, a moratorium had been declared under Section 14 vide an order dated 31.03.2023. The Applicant requested the Respondent to submit its claim in the prescribed form. Accordingly, the Respondent submitted its claim for Rs. 68,26,910/- in Form-B on 24.05.2023. The claim filed by the Respondent is reproduced herein below:

Sr. No.	Details	Amount (In Rs.)
1	C-19 (April 2011- October 2011)	4,94,699/-
2	C-19 (November 2011- March 2012)	10,38,628/-
3	D-18 (May 2011- August 2011)	2,214/-
4	D-18 Interest (May 2011- August 2011)	2,912/-
5	C-18 Adhoc (April 2018- March 2023)	52,88,457/-
	Total	68,26,910/-

6. It is further stated that after the submission of the claim, the Applicant requested the Respondent, through email dated 30.05.2023, to provide supporting documents to substan

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