Regional Provident Fund Commissioner II Legal v. Jasin Jose

ii. It is submitted that with respect to the penal damages for Rs.62,59,791/- assessed against the Corporate Debtor for the period from 3/2002 to 11/2012, an appeal was pending before the CGIT as appeal No.495/2019 which was disposed of by the CGIT vide Order dated 16-03-2022. The CGIT scaled down the damages to 70%. So, the damages to be collected based on this order is Rs.43,81,854/-. This matter was informed to the Respondent vide letter dated 11.08.2022. The respondent issued a communication regarding the details of the distribution of sale proceedings in the matter of M/s Churakulam Tea Estate Pvt. Ltd. vide his letter dated 17.08.2022, the respondent allowed the total claim of Rs.3,75,84,463/-. The 95% of the admitted claim is Rs.3,57,05,240/- was allowed and it was transferred to the bank account of the EPFO on 22.08.2022, stating that the balance of 5% will be distributed after setting up the Liquidators fee and another Liquidation cost if any.

iii. It is also submitted that thereafter the Respondent issued a communication dated 12.09.2022, stating that out of the remaining 5% to be paid to the EPFO, Rs.7,71,312/- was deducted from the liquidator fee and liquidation estate. After adjusting this amount Rs.11,07,911/- was transferred to the EPFO.

iv. The contention of the Applicant is that the amount due to the EPFO will not come under the purview of the liquidation estate. Hence the Liquidator/Respondent is not entitled to deduct any amount from the amount due to the EPFO and the entire amount claimed and admitted should have been credited to the account of the EPFO. The act of Respondent is against the statutory provisions of both EPF and MP Act,1952 as well as I & B Code 2016. Apart from that the penal damages and interest were restricted up to the date of commencement of the liquidation,

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30.06.2021 by the liquidator. As per the provisions of the EPF and MP Act, the petitioner is entitled to get the penal damages and interest for the period from 30.06.2021 to 22-08-2022, the date on which the EPF contribution was remitted. It is also submitted that the members of the establishments are paid interest from the corpus of the fund and restricting interest and damages upto 30.06.2021 would adversely affect the financial security of the workers for which the fund is created and ultimately it will affect the corpus of the fund.

v. The applicant issued a notice dated 10.10.2022 and a letter dated 11.10.2022 under section 14B & 7Q to the respondent to levy damages and interest up to the date of remittance. According to that letter the total interest under Section 7Q comes to Rs. 73,71,166/- and the total damages to be levied come to Rs. 1,24,70,838/-. However, the respondent allowed only Rs. 1,43,99,672/- as damages and interest restricting it up to 30.06.2021 and after deducting an amount of Rs. 7,71,312/- as liquidator's fee. The Central Government shall finalize the interest for EPF subscribers across India based on the size of the Interest Suspense Account. In this case, the dues for the period 07/2015 to 07/2021 were belatedly remitted by the employer, a major portion of which was remitted only on 22.08.2022. Section 7Q and Section 14B of the EPF Act mitigates this situation by statutorily empowering EPFO to charge interest from the employer till the date of actual remittance and to levy damages. By restricting the levy of interest and damages upto 30.06.2021, the interest payment to the EPF subscribers of the liquidator estate for the period from 01.07.2021 to 21.08.2022 will be out of the earnings of other EPF subscribers across the country who are in no way connected to the

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liquidator estate and negatively affect the social security corpus of other workers.

vi. It is also stated that as per Section 36(4)(a)(ii) of the Insolvency Bankruptcy Code,2016 due towards provident fund, pension are excluded from the purview of liquidation estate. All sum due to any workmen or employee from the provident fund, pension fund and gratuity fund shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation.

3. On 26.10.2022, the Respondent/Liquidator filed his reply statement and submitted that the Applicant submitted their revised claim for Rs. 4,13,83,848/- including interest up to 31.12.2021. The Liquidator had informed the Applicant that interest can be admitted only upto the liquidation commencement date in the Second Stakeholders Committee meeting held on 25.10.2021 and through E-mail communication dated 06.10.2021. It is further submitted that the Applicant revised their claim to Rs. 39,462,400/-, inclusive of interest up to 30.06.2021 and the liquidator admitted the same. This would show that the Applicant itself had revised the claim and submitted a claim after restricting interest up to the liquidation commencement date. The representative from EPF department had attended all the Stakeholders' Committee Meetings and the department had not taken up for any directions to admit the interest rate till the date of disbursal. Only in the final stage of accepting the amount distributed by the liquidator based on the admitted claim the Applicant approached this Tribunal demanding the admission of the interest up to the date of disbursal.

4. It is submitted that the liquidation was commenced on 30.06.2021 and thereafter Liquidator conducted Eight E-Auctions and on the last E-Auction conducted on 24.06.2022 the company was sold as a going concern to Sreedhanya Constructions for a price of Rs.35 Crores and Sreedhanya Constructions completed the payments on 08.08.2022. Thereafter, the

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Liquidator started the distribution of the liquidation sale proceeds and as of now he has completed all the distribution of sale proceeds to all claimants and is in the verge of filing the final report.

5. It is also submitted that Section 36(4)(a)(ii) of IBC, 2016 reveals that dues paid out of the provident fund, pension fund, and gratuity fund alone are exempted. This signifies that those "funds" are outside the liquidation estate. However, dues to the provident fund, pension fund, and gratuity fund paid by the liquidator out of the liquidation sale proceeds are not exempted. The crucial condition for exemption under Sec.36 (4) (a)(iii) is that the sum is due to the workmen or employees from the Provident Fund. In this case, the subject matter claim pertains to the sum payable to the Provident Fund. The liquidator has not dealt with any fund lying in the Provident Fund. The Applicant has misconstrued this clause to bring in their pending due as a due which comes under Section 36(4)(a)(ii) of IBC, 2016. As per Section 36(4) (a)(ii) of IBC, 2016 the amount to be excluded from the Liquidation estate is only those amounts that the company retains exclusively for Provident Fund under Section 16A of the Employees Provident Funds and Miscellaneous Provisions Act, l952.

6. The Respondent submitted that the Corporate Debtor is not maintaining any Provident Fund record under Section 16(A) and hence there is nothing to be excluded as contended by the Applicant. It is further submitted that the dues to the PF Department is very much a part of the Liquidation Estate when there is no Fund and the Department's dues will be governed by Section 53 of IBC, 2016. The PF dues arise only when the salary gets due. As per Section 53 of IBC, 2016 the salary/wages priority for workers and employees is given only for 24 months/ 12 months respectively. Hence, the contention of the department that the entire PF dues will get priority over other liquidation asset is absolutely baseless under IBC Rules and Regulations. The Respondent has distributed sale the proceeds to each claimant under Section 53(1) after deducting the proportionately the liquidators fee with no exceptions. Hence

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deduction of proportionate liquidator's fee from the claim submitted by the Applicant is legal and within the purview of Section 53(3) of IBC, 2016.

7. As per Regulation 16 of IBBI (Liquidation Process) Regulation, 2019 the interest is to be reckoned from the liquidation commencement date. In this case, the Liquidator has accepted/admitted the interest of the Applicant up to the liquidation commencement date i.e., 30.06.2021. Moreover, in compliance with the email dated 06.10.2021 of the Liquidator, the Applicant had also submitted a revised claim by restricting interest up to the liquidation commencement date. It is also submitted that now the Applicant has raised a claim for interest up to 20.08.2022 i.e., up to the date of distribution of liquidation sale proceeds, which is against the Rules & Regulations of IBC. It is also submitted that the financial institution which had to recover public funds has only claimed interest up to the liquidation commencement date and that all other creditors have also only claimed interest till the date of liquidation. The points for consideration are:

1. Whether the Applicant is entitled for reimbursement of Rs.7,71,312/- being the amount deducted by 1^strespondent towards Liquidation estate/cost?

2. Whether the Applicant is entitled for a sum of Rs.54,42,332/- towards penal damages and interest for the post liquidation period from 30.06.2021 to 22.08.2022?

Point No.1:

8. The applicant filed a claim with respondent for a sum of Rs.4,13,83.848/- towards the arrears of amount payable by the corporate debtor towards provident fund subscription along with interest and penal damages. The Respondent admitted the claim for a sum of Rs.3,75,84,463/- and paid 95% of amount Rs.3,75,05,240/- on 22.08.2022. Then the respondent paid a sum of Rs.11,07,911/- after deducting a sum of Rs.7,73,312/- towards the liquidation estate.

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9. The contention of the applicant is that the entire amount due to EPFO will not come under the purview of the liquidation estate hence the respondent has no right to deduct any amount towards liquidation estate, instead entire admitted amount should be disbursed. Section 36(4)(a)(iii) of IBC 2016 exempt the provident fund dues from the liquidation estate assets. When the statue specifically excluded the provident fund due and other dues such as pension, gratuity etc from the ambit of liquidation estate, the 1 ^strespondent ought to have not deducted a sum of Rs.7,71,312/- towards the liquidation estate. The respondent has no right over the provident fund due amount. In view of specific exemption in the Act the applicant is entitled to receive entire amount with interest and penal damages. This position of law is reiterated by NCLAT in Jet Aircraft, Maintenance Engineers welfare association case. In the circumstances it is answered that the applicant is entitled for return of Rs.7,71,312/- from the respondent thus this point is answered. Point No.2

10. The respondent admitted the penal damages and interest till 30.06.2021 the day on which liquidation order was passed. After the receipt of claim the respondent sold the properties of corporate debtor, out of the sale proceed the amount was disbursed on 22.08.2022. The applicant claims the penal damages and default interest till the date of payment. As per the Provident Fund Act the employer is liable to pay penal damages and default interests till, he makes the payment. The liquidator cannot be equated with the employer, during the liquidation period the corporate debtor was not functioned, hence claiming interest and damages during the liquidation period is not acceptable.

11. It is also worthwhile to mention here that initially the applicant filed a claim for a sum of Rs.4,13,83,848/- including interest up to 31.12.2021. After the receipt of communication of the respondent dated 6.10.2021, the applicant had filed a revised claim, restricting interest up to liquidation commencement date 30.06.2021. The representatives of the applicant also attended the meetings of stake holders committee, there they have not raised the issue for payment of

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interest after the commencement date of liquidation. Now, the applicant claims interest after the commencement date of liquidation. This amounts to estoppel, it is true that there is no estoppel against the statue, but on the applicant, side failed to prove that claiming interest for the period after the liquidation commencement date is backed by any law.

13. Regulation 16(2) of IBBI (Liquidation Process) Regulation 2016 states that the claim shall be filed for debt or dues with interest as on the liquidation commencement date. In the supra citation Jet Airways (India)Ltd and others in paragraph 129 it is observed that workmen and employees were entitled for payment of unpaid provident fund till the insolvency commencement date which was statutory obligation of the corporate debtor to deposit with EPFO. In para 131 it is held that workmen and employees were not entitled for payment of the salary and other dues during CIRP Period, further in Para 133 conclusion it is observed that non-payment of full provident fund amount to workmen and employees and the gratuity Payment till the insolvency commencement date amounts to non-compliance of provision of Section 30 (2)

(e) of the Code. There is no reference about the payment of interest and penal damages after the date of commencement of liquidation. Therefore, the claim of applicant for interest and penal damages post liquidation commencement date is not sustainable. Thus, this point is answered. For the reasons stated above and answered arrived to the points it is concluded that the applicant is entitled only to recover a sum of Rs.7,71,312/- and the applicant is not entitled for any amount towards the interest for the period from 30.06.2021 to 22.08.2022.

In the result the respondent/liquidator is directed to reimburse a sum Rs.7,71,312/- (Rupees Seven lakhs, seventy-one thousand three hundred and twelve only) to the applicant. The Application is allowed in respect of prayer No.1 and dismissed in all other aspects. No cost.

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14. The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps,

15. Certified Copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

Sd/- Sd/-

Satya Ranjan Prasad P. Mohan Raj.

Member (Technical) Member (Judicial)

Supriya ps

Signed on this 2^ndday of December, 2022.

Supriya-P. s_

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