Provident Fund Claims Raised During Moratorium Unsustainable: NCLAT Rejects EPFO’s Appeal [Read Order]

The National Company Law Appellate Tribunal ( NCLAT ) has dismissed the appeal filed by the Employees’ Provident Fund Organisation (EPFO), as it held that the provident fund claims based on the assessment proceedings that took place after the CIRP are not legally sustainable.

The issue arises out of the Corporate Insolvency Resolution Process (CIRP) of Metistech Fabrication Private Limited. EPFO had made a nominal claim which was reflected in the Information Memorandum.

However, during the pendency of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 EPFO initiated assessment proceedings under the EPF Act and later made a higher claim of ₹18.33 lakh. However the approved resolution plan allowed only ₹5,000 towards EPFO dues.

EPFO argued that the provident fund dues are statutory in nature, are employees’ money, and are outside the liquidation estate. EPFO argued that the dues are to be paid in full and cannot be extinguished by a resolution plan.

The Resolution Professional and the resolution applicant argued that the higher PF claim was made after the initiation of CIRP which is in clear violation of the moratorium.

Further, It was argued that the assessment proceedings under Sections 7A, 7Q, and 14B of the EPF Act cannot be initiated or continued during the moratorium and cannot bind the resolution applicant.

The NCLAT bench consisting Justice N. Seshasayee[Judicial Member] and Arun Baroka [Technical Member] affirmed the resolution plan and overruled EPFO’s appeal noting that no PF liability existed in the balance sheet of the corporate debtor prior to the CIRP.

The Tribunal held that claims based on post-CIRP assessments are unenforceable, as they are impacted by the statutory moratorium.

Applying the “clean slate” doctrine laid by the Supreme Court the NCLAT held that after the approval of the resolution plan all pending and undecided claims cannot be imposed on the resolution applicant.

The Appellate Tribunal held that the resolution plan had attained finality and found no legal infirmity in the resolution plan and therefore, dismissed EPFO’sappeal entirely.

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