ESI Amounts Are 'Trust Property', Not Part Of Corporate Debtor's Liquidation Estate: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Member-Judicial), Justice Mohammad Faiz Alam Khan (Member-Judicial), and Naresh Salecha (Member-Technical), has held that the ESI amounts are the “trust property” and not part of the corporate debtor's liquidation estate. The appeal was filed by the Regional Director, ESI Corporation, against the decision of the adjudicating authority. The adjudicating authority by the impugned order dismissed the appellant's application praying to keep the ESI dues of the corporate debtor out of the liquidation estate. The liquidator had admitted the ESI claim of Rs. 1.20 Cr. by categorizing it as an operational creditor. The appellant contended that the adjudicating authority has erred in ignoring the provision of Section 36(4)(a)(i) of the IBC. The said provision lays down that the assets in trust of any third party with the corporate debtor don't become part of the liquidation estate. The appellant relied on the ruling of Nurani Subramanian Suryanarayanan vs. Employees State Insurance Corporation, TA (AT) No. 212/2021 CA (AT) (Ins) No. 116/2020, wherein the appellate tribunal held that the amount of ESI lying with the corporate debtor in liquidation is in trust in view of Section 40(4) of the ESI Act, 1948, to which the provisions of Section 36(4)(a) (i) shall squarely apply. Per contra, the respondent argued that the amount of the claim was admitted by the liquidator as an operational creditor. The NCLAT observed that the scenario at hand is squarely covered under the Nurani Subramanian (Supra), wherein it was observed that the ESI amount, contributed both by the employer and employee, lying with the CD/Company in liquidation, is in trust in view of Section 40(4) of the ESI Act, 1948, to which the provisions of Section 36(4)(a) (i) shall squarely apply. Therefore, the ESI dues do not form part of the liquidation estate for distribution under section 53. Accordingly, the appeal was allowed. Case Name: Regional Director, ESI Corporation v. Manish Kumar, Bhagat Liquidator, Gupta Dyeing & Printing Mills Case No.: Comp. App. (AT) (Ins) No. 301 of 2024 & I.A. No. 1013, 4529 of 2024 For Appellant: Mr. Manav Goyal Mr. Vaibhav Manu Srivastava & Ms. Amrita Sony, Advocates For Respondents: Mr. Kritiman Singh, Sr. Advocate with Mr. Sahil Sood, Advocates for R-1. Ms. Shruti Shivkumar, Advocate for Bank/Intervenor. Coram: Justice Rakesh Kumar Jain (Member-Judicial), Justice Mohammad Faiz Alam Khan (Member-Judicial), and Naresh Salecha (Member-Technical) Order Date: 24.09.2025 Click Here To Read/Download The Order

ESI Amounts Are 'Trust Property', Not Part Of Corporate Debtor's Liquidation Estate: NCLAT New Delhi

Mohd.Rehan Ali

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