The National Company Law Appellate Tribunal (NCLAT) has held that assessment proceedings cannot be continued by Employees’ Provident Fund Organisation (EPFO) after the initiation of the moratorium under section 14 of the Insolvency Bankruptcy Code ( IBC) , 2016.
The corporate debtor was admitted into insolvency on May 3, 2021. Proceedings under section 7A of the EPF and MP Act, 1952 were initiated. Thereafter, summons were also issued claiming damages under section 14B and interest under section 7Q. The RP rejected the claim submitted by the Authority on the ground that the plan had already been approved by the CoC. The decision of the RP was challenged before the Adjudicating Authority which while upholding the same held that IRP was justified in rejecting the belated claim as resolution of a corporate debtor is a time bound process. Similarly in the second appeal filed against an order passed by the NCLT, orders under the Act were passed after the corporate debtor was admitted into insolvency and moratorium under section 14 kicked in. Both the orders have been impugned in the present appeal.
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EPFO , the appellant submitted that despite imposition of moratorium under Section 14 of the IBC, proceeding under Section 7A of the EPF & MP Act can still continue and that moratorium under Section 14 and 33(5) of the IBC, do not bar for determination of quantum of dues or taxes or other levies and the embargo is only against its enforcement.
It was further submitted that PF dues, inclusive of damages and interest, are excluded from the liquidation estate in light of Section 36(4)(a)(iii) of the IBC. On the other hand it is the case of the respondent that no claim was filed by the Appellant before the Plan was approved by the CoC and the assessment proceedings were carried out and final order under Section 7A of the EPF & MP Act was passed during the CIRP is in violation of the moratorium and that post approval of Resolution Plan by the CoC, no claim can be considered by the RP.
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Section 14, sub-section (1) indicates that expression ‘suits or proceedings against the corporate debtor’ has been used. The word ‘proceeding’ is not qualified, so as to confine it to proceedings before the Civil Court. The proceedings, which have the effect on the assets of the CD are all covered in the expression ‘proceeding’. The tribunal viewed that “there is marked difference in the expression used in Section 14, sub-section (1) of the IBC. Section 446, sub-section (1) uses expression “other legal proceeding”, while Section 14, sub-section (1) uses the expression “proceedings”.
Noting the difference between moratorium under section 14 which comes into play after admission of insolvency application and section 33 which kicks in when liquidation order is passed, the bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical member) observed that once order of liquidation is passed, moratorium under Section 14 comes to an end and moratorium under Section 33(5), which is differently worded, comes into play. Under Section 33(5), the expression used are “suit or other legal proceeding”, which occurs in Section 446 of sub-section (1) noticed above.
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The Tribunal held that bar is only against suit or legal proceeding and there is no bar against assessment proceeding to be conducted by statutory Authorities, including the EPFO. Thus, after the liquidation, it is open for EPFO to carry on the assessment. Section 33(5), cannot be held to apply on assessment proceedings. However, while looking to the expression used in Section 14(1), assessment proceedings before the EPFO, cannot be continued after initiation of CIRP.
While dismissing the appeal, the Tribunal held that when the claim on the basis of assessment, which has been made subsequent to initiation of moratorium is hit by Section 14, sub-section (1) of the IBC.
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