2025 (6) TMI 125 - HC - IBC

Writ petition dismissed for challenging EPF recovery notice under Sections 7Q and 14B during insolvency proceedings

M/s. Bafna Pharmaceuticals Limited Versus The Assistant Commissioner of Provident Fund, Chennai

M/s. Bafna Pharmaceuticals Limited Versus The Assistant Commissioner of Provident Fund, Chennai - TMI Issues Presented and ConsideredThe core legal questions considered by the Court are:1. Whether the writ petition challenging the recovery notice issued under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is maintainable in view of the comprehensive adjudicatory mechanism provided under the Insolvency and Bankruptcy Code, 2016 (IBC)Rs.2. Whether claims for interest under Section 7Q and damages under Section 14B of the EPF Act, which were not part of the claims admitted or provided for in the Approved Resolution Plan (ARP) under the IBC, survive and are enforceable against the corporate debtor post approval of the resolution planRs.3. Whether the EPFO (Employees' Provident Fund Organisation) is bound by the ARP approved by the NCLT and NCLAT, and whether statutory liabilities under the EPF Act are extinguished or frozen upon approval of the resolution planRs.4. Whether the petitioner has locus standi to challenge the recovery notice issued by the EPFO after the conclusion of insolvency resolution proceedingsRs.5. What is the scope of writ jurisdiction under Article 226 of the Constitution in matters governed by the IBC, especially when alternative statutory remedies are available under the IBCRs.Issue-wise Detailed Analysis1. Maintainability of the Writ Petition in Light of the IBC's Adjudicatory MechanismLegal Framework and Precedents: The IBC, 2016 is a comprehensive and self-contained code designed to facilitate time-bound insolvency resolution through a three-tier adjudicatory mechanism comprising the NCLT (Adjudicating Authority), NCLAT (Appellate Authority), and the Supreme Court. Section 60(5) of the IBC provides a statutory remedy for aggrieved parties to challenge orders passed by the Adjudicating Authority. The Supreme Court in Embassy Property Developments Pvt. Ltd. v. State of Karnataka (2020) held that High Courts should refrain from exercising writ jurisdiction under Article 226 in matters falling within the IBC regime, except in exceptional circumstances such as lack of jurisdiction, violation of natural justice, or arbitrariness.Court's Interpretation and Reasoning: The Court emphasized that the IBC is a complete code and that the petitioner's writ petition bypasses the specialized adjudicatory mechanism provided under the IBC. The Court referred to authoritative precedents including the Supreme Court's recent judgment in PHR Invent Educational Society v. UCO Bank (2024), which reiterated that writ petitions under Article 226 should not be entertained when effective alternative remedies exist under the statute, except in narrowly defined exceptions.Key Findings and Application: The Court found no exceptional circumstances warranting interference under Article 226. The petitioner had an efficacious remedy under Section 60(5) of the IBC to challenge the recovery notice and related orders. The writ petition was therefore held to be not maintainable on grounds of forum shopping and bypassing the statutory mechanism.Treatment of Competing Arguments: The petitioner argued that the existence of an alternative remedy does not oust the writ jurisdiction of the High Court. However, the Court relied on binding Supreme Court precedents to hold that the availability of an effective statutory remedy under the IBC precludes writ jurisdiction except in exceptional cases, which were absent here.Conclusion: The writ petition is dismissed on maintainability grounds, with liberty reserved to the petitioner to pursue remedies before the NCLT.2. Enforceability of Claims Under EPF Act Post Approval of Resolution PlanLegal Framework and Precedents: Section 31(1) of the IBC provides that once a resolution plan is approved by the Adjudicating Authority, it binds the corporate debtor and its creditors, including government authorities, and the liabilities provided for in the plan are to be discharged accordingly. The Supreme Court in Ruchi Soya Industries Limited v. Union of India (2022) held that claims not forming part of the approved resolution plan stand frozen and cannot be enforced against the corporate debtor.Court's Interpretation and Reasoning: The Court acknowledged the petitioner's reliance on this principle. However, it was noted that the EPFO was not a party to the insolvency proceedings and that the statutory liabilities under the EPF Act, being welfare legislation, impose a continuing obligation on the authorities to recover dues. The respondent contended that dues for the period December 2015 to March 2016 were separately assessed and quantified under Section 7Q of the EPF Act and were not part of the claims admitted in the CIRP or provided for in the ARP.Key Evidence and Findings: The respondent produced a recovery notice demanding Rs. 33,67,817/- comprising interest and damages under the EPF Act. The petitioner had acknowledged pendency of insolvency proceedings and advised EPFO to file claims before the NCLT, but the dues in question were not included in the claims admitted or the resolution plan.Application of Law to Facts: The Court observed that while the ARP binds the corporate debtor and creditors, statutory authorities like EPFO are not bound by the plan insofar as statutory liabilities are concerned. The Court noted the distinction between claims admitted in insolvency proceedings and statutory dues recoverable independently.Treatment of Competing Arguments: The petitioner argued for extinguishment of such claims post ARP approval, relying on the freezing principle under the IBC. The respondent denied applicability of the Ghanshyam Mishra judgment, emphasizing the welfare nature of the EPF Act and the continuing statutory obligation to recover dues.Conclusion: The Court did not conclusively decide on the merits of the statutory claim but indicated that statutory dues under the EPF Act survive the insolvency resolution process and are recoverable notwithstanding the ARP, subject to appropriate adjudication by the NCLT.3. Locus Standi of the Petitioner to Challenge the Recovery NoticeLegal Framework and Precedents: The petitioner, being the corporate debtor, has the locus to challenge actions affecting its rights. However, the IBC provides a specialized forum for such disputes. The Court referred to the petitioner's letter acknowledging insolvency proceedings and advising EPFO to raise claims before the NCLT.Court's Interpretation and Reasoning: The Court noted the preliminary objection raised by the respondent that the petitioner lacked locus to challenge the EPFO's recovery notice after conclusion of Section 7A proceedings. However, the Court did not find this objection determinative, focusing instead on the maintainability of the writ petition in the context of the IBC's adjudicatory framework.Conclusion: Locus standi was not the primary ground for dismissal; rather, the availability of an alternative remedy under the IBC was decisive.4. Scope of Writ Jurisdiction Under Article 226 in IBC MattersLegal Framework and Precedents: The Supreme Court has consistently held that writ jurisdiction under Article 226 is to be exercised sparingly in matters governed by special statutes like the IBC, which provide their own adjudicatory and appellate mechanisms. Exceptions permitting writ jurisdiction include actions taken without jurisdiction, violation of natural justice, or manifest arbitrariness.Court's Interpretation and Reasoning: The Court extensively relied on Supreme Court precedents including Embassy Property Developments, PHR Invent Educational Society, and Satyawati Tondon, emphasizing that the IBC is a complete code and that High Courts must exercise caution in entertaining writ petitions that circumvent the statutory framework.Key Findings: The Court found no exceptional circumstances warranting writ jurisdiction in the present case and underscored the importance of preserving the integrity of the IBC's adjudicatory process.Conclusion: The writ petition is not maintainable under Article 226 given the availability of efficacious alternative remedies under the IBC.Significant Holdings'The Insolvency and Bankruptcy Code, 2016 being a complete code providing for a specialised adjudicatory mechanism, the writ petition filed by the petitioner bypassing such framework is held to be not maintainable.''High Courts ought to refrain from exercising jurisdiction under Article 226 in matters falling within the purview of the NCLT/NCLAT, except in exceptional circumstances, namely: (i) where the liquidator or authority acts wholly without jurisdiction; (ii) where there is a blatant violation of the principles of natural justice; or (iii) where the action is manifestly arbitrary or actuated by mala fides.''The Approved Resolution Plan does not bind statutory authorities or extinguish statutory liabilities under welfare legislation such as the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.''Where any claim arising from the pre-CIRP period or a liability not forming part of the approved resolution plan is questioned, the proper forum is the NCLT, and the High Court should not entertain writ petitions circumventing this remedy.''The existence of an effective alternative remedy under the statute precludes the exercise of writ jurisdiction under Article 226, except in narrowly defined exceptional cases.'