In its ruling dated March 11, 2022 ("Judgement") in the case of Sikander Singh Jamuwal v. Vinay Talwar Resolution Professional and Others [Company Appeal (AT) (Ins)No. 483 of 2019], the National Company Law Appellate Tribunal ("NCLAT") held that there was no conflict between Section 17B (Liability in case of transfer of establishment) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 ("EPF Act") Therefore, whether or not to pay provident fund ("PF") dues is not a question of business judgement, and legal compliance is required.
In the instant case titled Sikander Singh Jamuwal v. Vinay Talwar Resolution Professional and Others, the issue raised for clarification before the NCLAT was:
Whether Respondent No. 2's failure to pay PF Dues under the Plan is legal?
With regard to this issue, the NCLAT noted that the Plan did not take into account the PF Dues payment as calculated in the APFC Order. On April 2, 2019, the NCLT approved the Plan. The amount as calculated is INR 1,35,06,391/-, however, only INR 78 lacs were included in the provisions. The NCLAT found that operational creditors received payments of 12.67 per cent while financial creditors received payments of 21.6%. The NCLAT explained that under Section 30(2)(e) of the IBC, the Plan itself did not violate any laws currently in effect; however, the NCLAT further noted that the RP/NCLT had to consider whether the laws were being followed. According to the EPF Act's requirements, Respondent No. 2 was also responsible for paying the contribution and any other sums owed by the employer under the EPF Act, if applicable, for the time leading up to the date of the transfer. The NCLAT noted that the EPF Act's clear requirements must be followed.
It is abundantly evident from reading Section 17B of the EPF Act that Respondent No. 2 was required to pay the contribution and other amounts owed by the employer in accordance with the EPF Act's rules. According to the NCLAT, it is the responsibility of the RP/NCLT/NCLAT to ensure that the law is being followed; it is not a matter of the CoC's business judgement. The NCLAT made it clear that it was not investigating the issue of parity for payments to operational creditors and financial creditors because that fell outside the CoC's purview of commercial wisdom.
The NCLAT determined that since no sections of the EPF Act conflict with any provisions of the IBC, the applicability of even Section 238 of the IBC did not arise in Tourism Finance Corporation of India Limited v. Rainbow Papers Limited and Others [2019 SCC Online NCLAT 910]. The requirements of Section 36(4)(a)(iii) of the IBC make it abundantly obvious that the PF Dues were not Corporate Debtor assets that could be recovered in a liquidation. The NCLAT ordered Respondent No. 2 to release the remaining balance of the PF Dues promptly in accordance with the provisions of the EPF Act, thereby changing the impugned Order.
The NCLAT categorically stated that,
"We direct Respondent No.2/Successful Resolution Applicant to release full provident fund dues in terms of the provisions of the Employees Provident Funds and Miscellaneous Provident Fund Act, 1952 immediately by releasing the balance amount of (Rs. 1,35,06,391 full dues – (minus) considered in the Resolution Plan Rs.78,00,000). The impugned order dated 02nd April 2019 approving the ‘Resolution Plan’ stands modified to the extent above.”