2022 (7) TMI 831 - Tri - Insolvency and Bankruptcy

Tribunal overturns recovery orders violating moratorium, emphasizes Corporate Debtors' protection under IBC

The Tribunal set aside the orders and recovery notices issued by the Respondent, ruling them in violation of the moratorium imposed under Section 14 and ... CIRP - recovery of Provident Fund with interest - Tenability of the orders and the recovery notices which have been passed by the Respondent, admittedly, after the moratorium was imposed by this Learned Adjudicating Authority - whether the Orders and Notices issued by the Respondent are in breach of the moratorium imposed by the Adjudicating Authority and whether the same could be passed during the Liquidation period? - HELD THAT:- The purpose of imposition of a moratorium has been expounded by the Hon’ble Supreme Court in the case of P. Mohanraj and Others vs. Shah Borthers Ispat Pvt. Ltd, [2021 (3) TMI 94 - SUPREME COURT] wherein the Hon’ble Supreme Court has held that the moratorium is imposed to shield the Corporate Debtor from pecuniary attacks to enable it to get a breathing space so that it can continue as a going concern to ultimately rehabilitate itself. A plain reading of section 14 of the Code shows that there is a complete prohibition imposed by the legislature on the institution of suits or continuation of proceedings against the Corporate Debtor including execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel or other authority. Section 14 of the Code does not differentiate between any proceedings, whether they are assessment, quasi-judicial or judicial in nature. In fact, a moratorium is imposed on all proceedings irrespective of the nature. The object as succinctly put by the Hon’ble Supreme Court is clearly to shield the Corporate Debtor from all pecuniary attacks - In the instance case, the Respondent, despite being aware of the initiation of moratorium has proceeded to initiate proceedings under Section 7 A of the EPF & MP Act. The said proceedings, as per the contention of the Respondent are assessment proceedings. In this regard, we may refer to Section 7 A of the EPF & MP Act to note the nature of eh proceedings. The Respondent has also contended that the dues being claimed by the Respondent are social welfare dues and the actions have been taken for the benefit of the employees and workmen. However, as rightly pointed out by the Applicant, the orders do not provide the details of the employees their P.F numbers, name of workers to whom these dues will be paid and workmen against whom such dues are being claimed. The dues are required to be relatable to employees and workmen. This is also clear from section 36 of the Code, which protects the social welfare dues of the employees and workmen of the Corporate Debtor and places any amount which is due to any workmen, employee from the provident fund, pension fund and gratuity fund outside the liquidation estate. The said amounts are therefore required to be relatable to employees and workmen, which is also clearly absent in the present case. The benefits such as provident fund, pension fund and gratuity fund are required to be protected and prioritised which is also the intent of the Code. It therefore goes without saying that the setting aside of the orders passed by the Respondent will not come in the way of the respective employees or workmen to file their respective claims, if any, with the Applicant under the provisions of the Code in respect of provident fund, pension fund and gratuity fund - In the present case, the Applicant (Liquidator) has contended that he has admitted certain claims in relation to the dues relating to the provident fund. The Applicant is required to make payments of the admitted dues in priority as has already been held in various cases by the Adjudicating Authority and the Appellate Tribunal. The Applicant (Liquidator) is duty bound, as per the Law laid down to ascertain and prioritise the payments of the social welfare dues. Without expressing any opinion on the merits of the Orders passed by the Respondent, the orders being in violation of the moratorium imposed are liable to be set aside. Consequently, the recovery notices are also set aside - Application disposed off. Issues Involved:1. Legality of orders passed under Sections 7A, 7Q, and 14B of the EPF & MP Act during the moratorium and liquidation period.2. Validity of recovery notices issued by the Respondent.3. Compliance with the moratorium imposed under Section 14 and Section 33(5) of the Insolvency and Bankruptcy Code (IBC).4. Identification and admission of Provident Fund dues for employees/workmen.5. Priority of social welfare dues in liquidation.Detailed Analysis:Legality of Orders Passed Under Sections 7A, 7Q, and 14B of the EPF & MP Act:The Liquidator challenged the legality of orders dated 06.03.2020, 04.03.2020, and 04.03.2020, demanding payments under Sections 7A, 7Q, and 14B of the EPF & MP Act, respectively, during the moratorium and liquidation period. The Tribunal highlighted that the initiation of proceedings under Section 7A of the EPF & MP Act during the moratorium was impermissible. The Respondent argued that these were merely assessment proceedings, not barred by Section 14 of the IBC. However, the Tribunal noted that Section 7A proceedings are judicial in nature and, thus, fall under the prohibition of Section 14, which bars all proceedings, irrespective of their nature, during the moratorium period.Validity of Recovery Notices:The recovery notices dated 25.06.2020 were issued in pursuance of the orders under Sections 7A, 7Q, and 14B of the EPF & MP Act. The Liquidator contended these notices violated the moratorium imposed by the Tribunal. The Tribunal agreed, stating that any proceedings initiated during the moratorium are void and the resultant recovery notices are also invalid.Compliance with the Moratorium Imposed Under Section 14 and Section 33(5) of the IBC:The Tribunal emphasized that Section 14 of the IBC imposes a complete prohibition on the institution or continuation of proceedings against the Corporate Debtor during the moratorium. Similarly, Section 33(5) bars the initiation of any suit or legal proceedings during the liquidation period. The Tribunal cited the Supreme Court's ruling in P. Mohanraj and Others vs. Shah Brothers Ispat Pvt. Ltd., which underscores the purpose of the moratorium to shield the Corporate Debtor from pecuniary attacks to enable its rehabilitation.Identification and Admission of Provident Fund Dues for Employees/Workmen:The Liquidator admitted an amount of Rs. 4,15,53,115/- towards Provident Fund dues for the pre-CIRP period. The Tribunal noted that the Respondent failed to provide details of employees/workmen for whom the dues were claimed. The absence of such details undermines the legitimacy of the dues claimed by the Respondent. The Tribunal reiterated that only dues from the Provident Fund, Gratuity Fund, and Pension Fund are protected under Section 36(4) of the IBC, not dues payable to these funds.Priority of Social Welfare Dues in Liquidation:The Tribunal acknowledged the importance of protecting and prioritizing social welfare dues such as Provident Fund, Pension Fund, and Gratuity Fund. It directed the Liquidator to make payments of admitted dues in priority, as mandated by law. The Tribunal clarified that the setting aside of the orders does not preclude employees or workmen from filing their respective claims with the Liquidator under the provisions of the IBC.Conclusion:The Tribunal set aside the orders and recovery notices issued by the Respondent, ruling them in violation of the moratorium imposed under Section 14 and Section 33(5) of the IBC. The Liquidator was directed to prioritize the payment of admitted Provident Fund dues in accordance with the law. The judgment underscores the comprehensive protection afforded to Corporate Debtors during the moratorium and liquidation periods, ensuring their rehabilitation and fair treatment of employees' social welfare claims.