When CD Didn’t Open Separate Account For PF, Even IRP/RP/Liquidator Cannot Provide For IT Except Under Sec. 53 Of IBC: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench, comprising of Shri. Kuldip Kumar Kareer (Judicial Member) and Smt. Anuradha Sanjay Bhatia (Technical Member), while adjudicating a petition filed in the matter of Rani Agro Private Limited v S & H Gears Private Limited, has held that if the Corporate Debtor had not opened a separate Bank Account for the `Provident Fund', then even IRP/RP/Liquidator cannot provide for it except under Section 53 of IBC. “However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016.” Background Facts The Employees Provident Fund and Miscellaneous Provisions Act, 1952 (“EPF Act”) was applicable to S & H Gears Private Limited (“Corporate Debtor”). An inquiry was initiated under Section 7A of the EPF Act and Regional Provident Fund Commissioner found Rs. 3,10,68,057/- to be outstanding from the Corporate Debtor. Alleging the Corporate Debtor to be a defaulter, the Regional Provident Fund Commissioner (“EPFO”) attached the current account of Corporate Debtor in HDFC bank on 24.08.2018 and created its lien on the said account. Subsequently, on 24.01.2020 the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. EPFO also filed its claim in the CIRP, which was admitted by the Resolution Professional. In a meeting of Committee of Creditors (“CoC”) dated 14.12.2020, permission was granted to the Resolution Professional to operate the current account in HDFC Bank for receipt and payment for the CIRP period. In the meanwhile, a Resolution Plan was approved for the Corporate Debtor and it proposed to pay the EPFO dues. When the Resolution Professional became aware of the attachment of bank account by EPFO, it filed an application before NCLT seeking de-freezing of the account. NCLT Verdict When no separate PF account is maintained by CD, even IRP/RP/Liquidator cannot provide for it except under Section 53 of IBC The Bench placed reliance on Section 36(4) of IBC, which states that sums due to workman or employees from provident fund does not form part of liquidation estate assets. “36(4). The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation- xxx (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;” The Bench opined that the amount deducted for `Provident Fund’ entirely belongs to Employees and cannot be treated as an ‘Asset’ of the Corporate Debtor; and can’t be touched by an Interim Resolution Professional/Resolution Professional/Liquidator. Nonetheless, Provident Fund has to be kept separately by a company to attract application of Section 36(4) of IBC. “However, it is important to note that such `Provident Fund’, has to be an `Establishment Fund’, kept separately by the company and only then this proviso will be applicable. If even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund’, in that event `Interim Resolution Professional/Resolution Professional/Liquidator’ is not expected to provide for same, except under Section 53 of the I & B Code, 2016.” The Bench held that since the Corporate Debtor did not maintain a separate Provident Fund account, the current account in HDFC would have to be treated as per Section 53 of IBC. Further, since the claims of the EPFO have already been taken care of in the approved resolution plan, the lien on bank account would not serve any purpose. “Therefore, the Bench is of the considered view that since the Corporate Debtor had not opened a separate Bank Account for the `Provident Fund', the aforesaid account has to be treated as per Section 53 of the I & B Code, 2016. It would be pertinent to mention here that so far as the EPF claims are concerned, the Resolution Professional had admitted the said claims to the tune of Rs. 1,26,12,838/-, based on the records available with the Corporate Debtor and the admitted amount of EPF is proposed to be paid in the Resolution Plan approved by the CoC in its 21st meeting held on 13.12.2021 and 14.12.2021. Therefore, the continuation of the lien on the bank account would not serve any purpose.” Further, the lien created on the Corporate Debtor’s account prior to initiation of CIRP cannot sustain after moratorium is imposed under Section 14 of IBC post CIRP commencement, as it will hinder the entire resolution process. The Bench has set aside the lien created by EPFO on...

When CD Didn’t Open Separate Account For PF, Even IRP/RP/Liquidator Cannot Provide For IT Except Under Sec. 53 Of IBC: NCLT Mumbai

Pallavi Mishra

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