ESI contribution deductions held outside the liquidation estate as trust assets, protecting the Corporation's attachment.

Amounts deducted from employees' wages towards ESI contributions are treated as funds entrusted to the employer for remittance, not as the employer's own asset. On that basis, such deductions fall within assets held in trust for a third party and are excluded from the liquidation estate under section 36(4)(a)(i) of the Insolvency and Bankruptcy Code, 2016. The Employees State Insurance Act, 1948 also supports this protected status by recognising priority for ESI dues in company winding-up distributions. Accordingly, the attachment raised by the ESI Corporation was held to lie outside the liquidation estate and was not legally infirm.

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Issues: Whether deductions and contributions towards Employees State Insurance dues are excluded from the liquidation estate as assets held in trust under section 36(4)(a)(i) of the Insolvency and Bankruptcy Code, 2016, and therefore cannot be brought within the liquidator's estate.

Analysis: The amount deducted from wages towards ESI contribution is not treated as the employer's own asset. By the definition of contribution under section 2(4) of the Employees State Insurance Act, 1948, and the deeming provision in section 40(4) of that Act, the deducted sum is entrusted to the employer for remittance to the Corporation. That entrustment answers the description of assets held in trust for a third party within section 36(4)(a)(i) of the Insolvency and Bankruptcy Code, 2016. Section 94 of the Employees State Insurance Act, 1948 also recognises priority for ESI dues in distribution of the assets of a company being wound up, reinforcing the protective scheme for such dues. The attachment raised by the Corporation, therefore, stood outside the liquidation estate and did not suffer from legal infirmity.

Conclusion: ESI contribution deductions are excluded from the liquidation estate and the challenge to the attachment was rejected.

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