Employees’ State Insurance Amount Lying with Corporate Debtor Not Part of Liquidation Estate: NCLAT [Read Order]S
The Bench observed that assets in trust of any third party which lies with the corporate debtor does not become part of the liquidation estate as such.
NCLAT - Liquidation - Taxscan
NCLAT - Liquidation - Taxscan
The Principal Bench of the National Company Law Appellate Tribunal (NCLAT) at New Delhi recently clarified that the Employees' State Insurance (ESI) amount lying with a corporate debtor during liquidation proceedings is not part of the liquidation estate as per the Insolvency and Bankruptcy Code, 2016 (IBC).
The ruling was rendered by the appellate tribunal against an appeal by the Regional Director of the ESI Corporation challenging an order passed by the National Company Law Tribunal (NCLT), Ahmedabad, which had dismissed an application filed by the appellant seeking segregation of ESI dues from the estate of Gupta Dyeing Printing Mills Pvt. Ltd., the corporate debtor herein that was undergoing liquidation.
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The present case was filed by the Regional Director of the ESI Corporation against Manish Kumar Bhagat Liquidator, Gupta Dyeing & Printing Mills Pvt Ltd.
The ESI Corporation, represented by Manav Goyal, Vaibhav Manu Srivastava and Amrita Sony. The counsel further submitted that the NCLT had committed an error in not appreciating the provision of Section 36(4) (a) (i) as per which the assets in trust of any third party with the corporate debtor does not become part of the liquidation estate as such.
In this regard, the appellant relied on the decision of a coordinate Bench in Nurani Subramanian Suryanarayanan, Liquidator of M/s Care IT Solutions Pvt. Ltd. v. Employees State Insurance Corporation (2020), where the NCLAT held that ESI contributions deducted from employees’ wages, but retained by the corporate debtor in liquidation are deemed to be held in trust under Section 40(4) of the Employees’ State Insurance Act, 1948.
The appellant contended that this principle squarely applied to the present case.and such amounts are excluded from the liquidation estate under Section 36(4)(a)(i) of the IBC.
On the other hand, the liquidator, Manish Kumar Bhagat, represented by Kritiman Singh along with Sahil Sood, argued against the applicability of Nurani Subramanian (supra) in light of the Supreme Court decisions in Moser Baer Karamchari Union vs. Union of India & Ors., (2023) ; Sunil Kumar Jain & Ors. vs. Sundaresh Bhatt & Ors. (2022) and K. Kishan vs. Vijay Nirman Company Pvt. Ltd. (2018).
The NCLAT Bench of Justice Rakesh Kumar Jain (Judicial Member), Justice Mohammad Faiz Alam Khan (Judicial Member) and Naresh Salecha (Technical Member), examined the case in light of statutory provisions and precedents presented.
NCLAT allowed the appeal observing that the present case was squarely covered by the decision of this court in the case of Nurani Subramanian (Supra) and that the judgments relied upon by the respondents were not applicable as the said judgments are not on the issue of ESI.
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