NCLT Kochi Slams Liquidator for Failing to Decide on EPFO Claim, Terms Conduct a Procedural Lapse Under Section 40 of IBC
Pranav B Prem
The Kochi Bench of the National Company Law Tribunal (NCLT), comprising Shri Vinay Goel (Judicial Member) and Smt. Madhu Sinha (Technical Member), has held that a Liquidator is statutorily required to either accept or reject a claim under Section 40 of the Insolvency and Bankruptcy Code, 2016 (IBC), and cannot direct the claimant to approach the Adjudicating Authority without first applying their mind. The Tribunal noted that such conduct amounts to a serious procedural lapse and is contrary to the statutory scheme laid down under the Code.
The present application was filed by the Regional Provident Fund Commissioner-II (EPFO) under Section 60(5) of the IBC seeking modification of the stakeholders’ list and inclusion of additional claims amounting to ₹16,84,306 against the Corporate Debtor, M/s. Vectra Gammamed India Pvt. Ltd. The Applicant also prayed for exclusion of Provident Fund dues from the liquidation estate under Section 36(4)(a)(iii) of the Code, considering them third-party assets not subject to distribution under Section 53.
The Liquidator had initially admitted the claim of ₹1,06,29,688 towards pre-CIRP provident fund dues. However, the revised claim submitted on 04.05.2023 for an additional amount was not either accepted or rejected. Instead, the Liquidator directed the EPFO to approach the Adjudicating Authority for inclusion of the revised claim in the stakeholders’ list.
According to the Applicant, the delay in submitting the revised claim arose due to an inspection conducted by the Enforcement Officer of EPFO in November 2022. The inspection covered PF dues for the period from March 2019 to December 2019. The Applicant argued that PF dues, gratuity, and related statutory payments are entitlements of the workers and are excluded from the liquidation estate. As such, they cannot be subjected to distribution under Section 53 of the Code.
Opposing the application, the Liquidator argued that the additional claim was based on assessment orders passed during the liquidation period, and as such, they were not maintainable in light of the moratorium imposed under Sections 14 and 33(5) of the IBC. It was also submitted that proceedings initiated under the EPF Act during the moratorium period were legally barred.
At the outset, the Tribunal referred to the NCLAT ruling in Assistance Provident Fund Commissioner (Legal), EPFO Vs. Chandra Prakash Jain [Company Appeal (AT) (Insolvency) No. 1743 of 2024], where it was held that any claim based on assessment orders issued after the commencement of liquidation cannot be entertained. The NCLAT had upheld the decision of the Liquidator in that case to reject such claims.
The Tribunal took serious note of the conduct of the Liquidator in the present case, observing that once a revised claim was filed, the Liquidator was bound under Section 40 of the IBC to pass a reasoned or speaking order either accepting or rejecting the claim. Instead, the Liquidator failed to apply his mind and merely redirected the Applicant to seek relief from the Tribunal. This, the Tribunal held, amounted to a serious procedural lapse.
It further noted that the revised claim included both CIRP period dues and additional pre-CIRP dues. The pre-CIRP component had already been admitted, while the additional claim pertained to provisional damages and interest under Section 7Q of the EPF Act, calculated based on assessments made after the commencement of liquidation. The Tribunal held that such quasi-judicial proceedings under the EPF Act, initiated post-liquidation, are prohibited by Sections 14 and 33(5) of the Code, and any dues assessed thereafter are legally unsustainable.
Concluding the matter, the Tribunal observed: “...the remaining additional claim for Provisional Damages and Provisional Interest under Section 7Q pertaining to the period from March 2019 to December 2019 are otherwise not admissible and the same pertains to period after initiation of Corporate Insolvency Resolution Process.” Accordingly, the Tribunal dismissed the application, while strongly censuring the Liquidator’s failure to discharge statutory duties under Section 40 of the Code.
Appearance
For the Petitioner: Ms. Aswathy Babu, Advocate
For the Respondent: Mr. A G Sathyanarayana, Advocate
Cause Title: Regional Commissioner, Provident Fund V. Ca Mahalingam Suresh Kumar
Case No: IA (IBC)/57/KOB/2024 In IBA/240/KOB/2019
Coram: Shri Vinay Goel [Judicial Member], Smt. Madhu Sinha [Technical Member]
