Regional Provident Fund Commissioner vs Shri Manish Kumar Bhagat & Anr

Regional Provident Fund Commissioner, Vatwa, Employees Provident Fund Organization, Regional Office Vatwa, 3rd & 4th Floor, Satyam Tower, Opposite Railway Station, Maninagar, Ahmedabad - 380008, Gujarat. ...Appellant

Versus

1. Shri Manish Kumar Bhagat, (Resolution Professional of M/s. Perfect Boring Pvt. Ltd.) 103-104, Panchdeep Complex, Mithakhali Six Road, Narangpura, Ahmedabad- 380009, Gujarat

2. M/s. N.A. Rota Machines & Moulds India (Resolution Applicant of M/s. Perfect Boring Pvt. Ltd.) 3725, Phase-IV, GIDC, Vatwa, Ahmedabad - 382445, Gujarat ...Respondents

Present: For Appellant: Mr. Subhash C. Gupta, Advocate. For Respondent: Mr. Arvind Kr. Gupta, Ms. Henna George, Advocates for R-2. Ms. Honey Satpal, Advocate for R-1.

JUDGMENT

ASHOK BHUSHAN, J:

1. This Appeal has been filed against the Order dated 16th March, 2021

passed by National Company Law Tribunal, Ahmedabad Bench in I.A. No.

926 of 2020 in CP(IB) No. 148/NCLT/AHM/2019. By the impugned order, -2-

the Adjudicating Authority has approved the Resolution Plan submitted by

Respondent No. 2-M/s N.A. Rota Machines & Moulds India.

2. Regional Provident Fund Commissioner aggrieved by the Order in so

far as treatment of its claim under the Resolution Plan, has come up in this

Appeal.

3. Brief facts of the case necessary to be noticed for deciding this Appeal

are:-

(i) The Adjudicating Authority vide order dated 30.09.2019 admitted

the Application under Section 9 of Insolvency and Bankruptcy

Code, 2016 (IBC in short) filed by Operational Creditor against the

Corporate Debtor-M/s. Perfect Boring Pvt. Ltd.

(ii) The IRP got the notice published on 07.10.2019 calling upon the

creditors of the Corporate Debtor to lodge their respective claims

on or before 18.10.2019.

(iii)The Appellant filed two claims in Form-F for Rs. 1,32,44,314/-

(payable under Section 7A and 7Q of Employees Provident Fund

Miscellaneous Provisions Act, 1952) (Hereinafter referred to as

1952 Act) and claim of Rs. 99,71,315/- (payable under Section

14B of 1952 Act).

(iv) The Resolution Professional collated the claims and prepared a list

of claims as on 10th August, 2020 in which list the claimed

amount of Appellant Rs. 1,32,44,314/- and Rs. 99,71,315 were

admitted with Nil security. The Resolution Plan was submitted by

Respondent No. 2 which Resolution Plan was approved by the

Company Appeal (AT) (Insolvency) No. 808/2022 -3-

Committee of Creditors with 96.37%. The Resolution Professional

filed an application I.A. No. 926 of 2020 for approval of the

Resolution Plan. By the Impugned Order, the Adjudicating

Authority approved the Resolution Plan. In the Resolution Plan,

claims admitted of workmen dues is Rs. 307.86 lacs and proposed

payment is of Rs. 218.89 lacs which is 71.10% of workmen dues.

The Appellant who was treated as an Operational Creditor was

proposed payment of 1.5% of its dues through the Resolution

Plan. The Appellant aggrieved by the approval of the Resolution

Plan has come up in this Appeal.

4. Learned Counsel for the Appellant in support of the Appeal submits

that dues of the Appellant were required to be paid in full. It is submitted

that dues of the Appellant were admitted and all their claims need to be

paid in full during CIRP period. Excluding/extinguishing 98.5% of the

admitted claims is contrary to law. It is submitted that Resolution

Professional has failed to act in accordance with sub-section (20) and (21)

of Section 5 of the Code examining the resolution plan in light of Section

36(4)(a)(iii) of the Code and under Section 11 of the 1952 Act. Learned

Counsel for the Appellant submits that in view of the law laid down by this

Tribunal in Jet Aircraft Maintenance Engineers Welfare Association Vs.

Ashish Chhawchharia Resolution Professional of Jet Airways (India)

Ltd. and Ors. 2022 SCC OnLine NCLAT 418, this Tribunal has held that PF

dues are to be paid in full. It is submitted that Resolution Professional

having admitted the entire claims submitted by the Appellant, it was

Company Appeal (AT) (Insolvency) No. 808/2022 -4-

entitled to receive the full claim and Resolution Plan is not in accordance

with the Code.

5. Learned counsel for Respondent No. 2 refuting the submissions of

Learned Counsel for the Appellant submits that show cause notice in the

claim statement clearly states that amounts are being claimed as an

estimate and no details of workmen or of their dues were referred to in the

claim. It is submitted that claims submitted by the Appellant are not

workmen dues. It is submitted that in the Resolution Plan, workmen dues

are being paid to the extent of 71.10%. It is submitted that the workmen

dues having been paid to the extent of 71.10% which also included dues

towards the provident fund clearly indicates that workmen dues towards PF

has been fulfilled since no workmen has filed any appeal claiming their

provident fund. It is submitted that copy of the Resolution Plan was shared

with the Appellant by Resolution Professional but no objection was raised

by Appellant to the Resolution Plan. It is submitted that PF Department is

claiming to have found due on the basis of estimate while the Resolution

Plan has already provided for the payment of actual workmen dues and as

such the claim of PF Department stand subsumed in which plan an

amount of Rs. 218.89 lacs made to the workmen. It is further submitted

that the Appellant is not entitled to claim any damages under Section 14B.

It is submitted that the claim of damages under Section 14B for amount of

Rs. 68,54,869/- has been imposed by an order under Section 14B dated

14.10.2019 that is much after declaration of moratorium. It is further

submitted that Corporate Debtor being in insolvency, other claim of

Company Appeal (AT) (Insolvency) No. 808/2022 -5-

damages under Section 14B amounting to Rs. 31,16,446/- ought to be

waived in view of Section 14B of the 1952 Act. It is submitted that thus

total claim of damages under Section 14B of Rs. 99,71,315/- are not

payable and no error can be found with regard to the aforesaid amount in

the Resolution Plan. Coming to the claim under Section 7A, it is submitted

that total claim under Section 7A is only Rs. 39,76,714/- and the other

amount of Rs. 38,78,263 and Rs. 53,89,337/- are amount towards interest

under Section 7Q which are not payable and liable to be waived. It is

submitted that under Section 11(2) of 1952 Act, first charge is only for the

amount of the employee's contribution deducted from his wages or the

employer's contribution and does not apply to interest under section 7Q.

6. We have considered the submissions of Learned Counsel for the

parties and have perused the record.

7. From the facts brought on record it is clear that Appellant has filed

its claim on 18.10.2019 which includes claims under Section 7A, 7Q and

14B of the 1952 Act. The Resolution Professional has admitted the claim

under two heads i.e. under one head, the claim of Rs. 1,32,44,314/- has

been admitted that is claim pertaining under Order under Section 7A and

7Q another head, claim of Rs. 99,71,315 has been admitted pertaining to

the Order under Section 14B. The law is well settled that Provident Fund

Dues ought to be paid in full. Judgment in the matter of Jet Airways where

this Tribunal relying on earlier Judgment of this Tribunal held that PF dues

is required to be paid in full. In Jet Airways, three Member Bench

Judgment of this Tribunal in Tourism Finance Corporation Vs. Rainbow

Company Appeal (AT) (Insolvency) No. 808/2022 -6-

Papers, 2019 SCC OnLine NCLAT 910 and State Bank of India Vs. Moser

Baer Karamchari Union & Anr., 2019 SCC OnLine NCLAT 447 were relied.

Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish

Chhawchharia Resolution Professional of Jet Airways (India) Ltd. and

Ors. 2022 SCC OnLine NCLAT 418 is relied for the above proposition. The

order indicates that Resolution Plan although makes payment of workmen

dues to the extent of 71.10% but PF dues which are treated as Operational

Creditor have not been paid in full and amount of 1.5% PF dues have been

paid. The Respondent No. 2 has stated that amount of Rs. 3,48,234/- have

been paid to the PF Department on 23rd April, 2021.

8. The treatment of the dues of the Appellant thus in the Resolution

Plan cannot be said to be in accordance with law.

9. We however need to consider rival submissions of the parties as to

what extent the Appellant's claim is entitled to be accepted in so far as its

payments is concerned. Learned Counsel for the Appellant has raised

various submissions challenging the assessment made by the Appellant

with regard to section 7A and 7Q as well as section 14B. The challenge to

assessment orders, made by Appellant in exercise of jurisdiction under

1952 Act cannot be subject matter of challenge in the proceedings under

IBC. We have to proceed on the basis of assessment made by statutory

authority under 1952 Act and challenge to the said proceedings cannot be

entertained in this proceeding. However, the submission of Respondent No.

2 with regard to damages as imposed on the Corporate Debtor needs

consideration. From the claim forms which was submitted by the Appellant

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on 18.10.2019 annexed as Annexure C to the Appeal indicates that one of

the assessment pertaining under Section 14B for amount of Rs. 68,54,869

was imposed by Order dated 14.10.2019 which is clear from Form-F which

was submitted by the Appellant itself. The Copy of Order dated 14.10.2019

by which amount of Rs. 68,54,869/- has been imposed is clearly after

initiation of CIRP against the Corporate Debtor vide Order dated

30.09.2019.

10. We thus are of the view that it is not necessary in this proceeding to

issue any direction for payment of the damages as imposed by the Order

dated 18.10.2019 which was subsequent to CIRP imposition of moratorium.

We thus are of the view that no direction need to be issued for payment of

damages under Section 14B of Rs. 68,54,869/-.

11. Now coming to another part of damages amounting to Rs. 31,16,446

which was imposed by order dated 25th July, 2017. Learned Counsel for

Respondent No. 2 has referred to Section 14B as well as paragraph 32B of

Employees Provident Fund Scheme 1952 Act. Section 14B of the 1952 Act

provides as under:

"14B. Power to recover damages.--Where an employer makes default in the payment of any contribution to the Fund [, the [Pension] Fund or the Insurance Fund] or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 [or sub-section (5) of section 17] or in the payment of any charges payable under any other provision of this Act or of [any Scheme or Insurance Scheme] or under any of the conditions specified under section 17, [the Central

Company Appeal (AT) (Insolvency) No. 808/2022 -8-

Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf] may recover [from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:

[Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard]:

[Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, subject to such terms and conditions as may be specified in the Scheme.]

12. Paragraph 32 B of the Scheme is as follows:

"32B. Terms and conditions for reduction or waiver of damages. - The Central Board may reduce or waive the damages levied under section 14B of the Act in relation to an establishment specified in the second proviso to section 14B, subject to the following terms and conditions, namely: --

(a) in case of a change of management including transfer of the undertaking to workers' co-operative and in case of merger or amalgamation of the sick industrial company with any other industrial company, complete waiver of damages may be allowed;

Company Appeal (AT) (Insolvency) No. 808/2022 -9-

(b) in cases where the Board for Industrial and Financial Reconstruction, for reasons to be recorded in its schemes, in this behalf recommends, waiver of damages up to 100 per cent may be allowed;

(c) in other cases, depending on merits, reduction of damages up to 50 per cent may be allowed."

13. The above provision indicates that the Central Board is empowered to

waive the damages under Section 14B of the Act. The Para 32B of the

Scheme provides that Board for Industrial and Financial Reconstruction for

reasons to be recorded in its schemes, in this behalf recommends, waiver of

damages up to 100 per cent may be allowed. After enforcement of IBC, the

provisions of Board for Industrial and Financial Reconstruction and Sick

Industrial Companies (Special Provisions) Act, 1985 were repealed and

earlier statutory regime for rehabilitation is now substituted by Insolvency

Regime as contained in IBC. Thus when Insolvency Resolution Process has

been initiated against a Corporate Debtor and Resolution plan has been

approved under IBC, power of Central Board to reduce or waive the

damages can be exercised with regard to the damages imposed under

Section 14B. Paragraph 32 of the 1952 Scheme as extracted above also

contemplate recommendation by Board for Industrial and Financial

Reconstruction, 1985 Act being not in force and substituted by Insolvency

Regime there can be now no recommendation for waiver of the damages

under Section 14B of Board for Industrial and Financial Reconstruction.

The power of recommendation as contemplated in paragraph 32B scheme

can very well be exercised by the NCLT. We while hearing the Appeal

Company Appeal (AT) (Insolvency) No. 808/2022 -10-

against order of NCLT in an appropriate case can make a recommendation

to the Central Board to waive the damages.

14. In the facts of the present case as noted above, we are of the view

that Successful Resolution Applicant along with the Order of this Tribunal

may pray to the Central Board to waive 100 percent damages of Rs.

31,16,446 imposed by Order dated 25th July, 2017 under Section 14B

which step to be taken by SRA within a period of one month from today. We

grant liberty to both the parties to make an appropriate application in this

Appeal, if any, occasion arises for any further order with regard to wavier as

recommended herein. We thus are of the view that no direction need to be

issued for payment of damages of Rs. 99,71,315/- which was imposed

under Section 14B for reasons indicated above.

15. Now coming to the another part of the admitted claim i.e. claim for

Rs. 1,32,44,314 along with Form F. The Appellant has brought details of an

order under Section 7A. Copy of Order dated 25th February, 2019 with

regard to 7A wherein total outstanding as per Order dated 25th February,

2019 is Rs. 44,40,119 (at page 76 of the Appeal). Other part of the amount

of Rs. 1,32,44,314/- obviously relates to the interest imposed under

Section 7Q. We are conscious that the amount as determined under

Section 7Q is also part of amount to which the Appellant is entitled.

However, looking to the fact that in the Resolution Plan to the extent of

71.10% workmen dues have been paid, the workmen dues obviously

included payments towards PF and Gratuity. Workmen thus have received

substantial amount of their dues. The workmen dues not only included the

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PF and Gratuity but unpaid salary. In the records of this Appeal, there are

no details as regards the payments made to the workmen towards PF dues

under Resolution Plan. The Resolution Plan makes the payment of the

workmen dues to the extent of Rs. 218.89 Lacs out of total admitted dues of

Rs. 307.86 Lacs. What is the bifurcation of PF dues under the payment of

218.89 Lacs which have directly been given to the workmen? We have

noticed above that total claim admitted of the Appellant for dues under

Section 7A and 7Q was Rs. 1,32,44,314/-, we are of the view that in the

amount which is claimed by the Appellant towards 7A and 7Q, the amount

which has already been paid to the workmen need to be deducted.

Resolution Professional needs to compute the amount paid to the workmen

under Resolution Plan towards PF dues. Resolution Professional being ex-

Resolution Professional i.e. Respondent No. 1 we direct the Respondent No.

1 to compute the amount of PF dues paid to the workmen under Resolution

Plan and thereafter arrive at the amount which is required to be paid to the

Appellant as against the admitted claim towards Section 7A and 7Q.

16. Let the aforesaid exercise be completed by the Respondent No. 1

within two months from today and communicate the amount payable to

Appellant under 7A and 7Q. The amount to be determined for payment to

Appellant has to be the amount after deducting from total claim of Rs.

1,32,44,314 by deducting the amount paid towards PF to the workmen and

amount already paid to the Appellant under Resolution Plan. The

Respondent No. 1 shall communicate the said computation to Successful

Resolution Applicant (SRA in short) as well as to the Appellant and SRA

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shall make the aforesaid payment within 60 days thereafter to the

Appellant.

17. We have issued the above direction to make payment by the SRA to

the Appellant to save the Resolution Plan from invalidity as noticed above.

18. In result, we dispose of this Appeal by following directions:

i. The Order passed by the Adjudicating Authority approving the

Resolution Plan is upheld subject to following;

(a) SRA shall make the payment of dues of Appellant

under Section 7A and 7Q on the basis of computation

communicated by the Respondent No. 1 after deducting

the amount paid to the workmen under Resolution Plan

towards PF and the amount paid to the Appellant under

Resolution Plan. SRA shall make the said payment

within 30 days from computation as communicated by

Respondent No. 1.

(b) No direction is issued to the SRA to make payment

of amount of damages under Section 14B for amount of

Rs. 68,54,869/- which was imposed by Order dated

14.10.2019 after enforcement of the moratorium.

(c) With regard to amount of Rs. 31,16,446/- under

Section 14B we permit the SRA to make an application to

Central Board for waiver of 100 per cent damages along

with copy of this order within 30 days from today.

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ii. That in event of non-compliance of any of the directions as

indicated above, both the parties are at liberty to file an appropriate

application in this Appeal for further orders, if required.

The Appeal is disposed of with the aforesaid directions.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

New Delhi 11th October, 2023

Basant B.

Company Appeal (AT) (Insolvency) No. 808/2022