2025 (9) TMI 337 - AT - IBC

Post-moratorium EPFO assessments following inspection under Sections 7A, 7Q and 14B declared unenforceable against corporate debtor

NCLAT held that assessments and demands raised by EPFO under Sections 7A, 7Q and 14B pursuant to an inspection conducted after commencement of CIRP and ... Initiation of proceedings by EPFO u/s 7A for determination of the amount payable by the Corporate Debtor, when CIRP against the Corporate Debtor is commenced - HELD THAT:- Initially the EPFO filed its claim on the basis of inspection report dated 10.05.2023 demanding an amount of Rs. 33,99,135/- as due from the Corporate Debtor for the period April 2015 to March 2021. Subsequently, an order under Section 7A was passed on 25.09.2023 determining amount of Rs. 50,90,793/- and an order under Section 14B demanding an amount of damages and interest of Rs. 35,60,358/- under Section 7Q. The demand made by the EPFO on the basis of inspection dated 10.05.2023 is clearly demand from the Corporate Debtor after commencement of the Moratorium. Similarly, revised claim submitted on 26.09.2023 on the basis of orders passed on 25.09.2023 where demand in pursuance of subsequent to Moratorium. This Tribunal has occasion to examine the consequences of Moratorium on assessment made by EPFO in Employees’ Provident Fund Organisation Regional Office vs. Jaykumar Persumal Arlani, Resolution Professional of Ms/. Decent Laminates Pvt. Ltd. and Employees’ Provident Fund Organisation Regional Office vs. Sanjay Kumar Lalit, Resolution Professional of Apollo Soyuz Electricals P. Ltd. & Anr. [2025 (1) TMI 352 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI - LB]. In the above case also, after commencement of the CIRP, EPFO initiated proceeding under Section 7A and passed an order under Section 7A, 7Q & 14B. Application was filed by EPFO before the Adjudicating Authority seeking a direction to the Resolution Professional to admit the claim which claim to be rejected. This Tribunal in the above case, examined the consequence of Moratorium and held that the assessment proceeding cannot be continued after initiation of CIRP. Insofar as the application filed by the Resolution Professional being IA No.5 of 2024, the prayer was to seek a declaration that demand made under Section 7A, 7Q & 14B are not enforceable against the Corporate Debtor. In view of the law as laid down by this Tribunal, Resolution Professional has made out a case for issuing a direction that the said demand was unenforceable which arose on the basis of assessment made during the Moratorium. Having taken the view that the demand made by the EPFO on the basis of inspection report dated 10.05.2023 and assessment dated 25.05.2023 was not enforceable and the prayer made by the EPFO in IA No.409 of 2024 was not acceptable. The Appeal filed by Resolution Professional is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether, after commencement of the Corporate Insolvency Resolution Process (CIRP) and imposition of moratorium under Section 14 of the Insolvency and Bankruptcy Code, statutory assessment proceedings by a statutory authority under Sections 7A, 7Q and 14B of the Employees' Provident Fund & Miscellaneous Provisions Act, 1952 can be initiated or continued against the corporate debtor. 2. Whether a claim in the CIRP can be admitted or pressed on the basis of an assessment/determination made by the statutory authority during the moratorium period. 3. Whether the Adjudicating Authority could direct the statutory authority to furnish employee-wise details and detailed computations of its assessment/demand made during the moratorium, and whether such direction amounted to an impermissible adjudication of the statutory authority's determination. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of assessment proceedings by statutory authority during moratorium Legal framework: Section 14(1) of the Insolvency and Bankruptcy Code imposes a moratorium on 'suits or proceedings against the corporate debtor' from the date of admission of an insolvency petition, to preserve assets and enable resolution. Sections 7A, 7Q and 14B of the EPF Act empower the statutory authority to conduct inquiries/assessments and determine dues, penal damages and interest; Section 36(4) of the Code concerns third-party assets (PF, gratuity) excluded from liquidation estate. Precedent Treatment: The Tribunal relied on authoritative Supreme Court pronouncements establishing that the moratorium operates as a statutory freeze to protect the corporate debtor's assets and that the term 'proceedings' in Section 14 is wide enough to include proceedings which affect the assets of the corporate debtor. An earlier Tribunal decision addressing analogous post-commencement EPFO assessments was followed and applied. Interpretation and reasoning: The Tribunal held that assessment proceedings conducted by the statutory authority after initiation of CIRP (i.e., during the Section 14 moratorium) amount to proceedings against the corporate debtor that can create pecuniary liabilities and thereby deplete or affect the debtor's estate and the process of resolution. The moratorium's object - to prevent depletion of assets and facilitate an unhindered resolution - prohibits initiation or continuation of such assessment proceedings during CIRP. The Tribunal distinguished that post-liquidation (after liquidation order) the bar under Section 33(5) is worded differently and does not prohibit assessment proceedings in the same manner; thus assessments may be carried out in liquidation but not during CIRP moratorium. Ratio vs. Obiter: The holding that assessment proceedings under the EPF Act cannot be initiated or continued after commencement of CIRP (Section 14 moratorium) is ratio decidendi. Conclusion: Assessment proceedings by the statutory authority under Sections 7A/7Q/14B initiated or completed after commencement of CIRP are impermissible and unlawful during the moratorium; such proceedings are barred by Section 14(1) of the Code (subject to the separate position that assessments may be permissible after a liquidation order under Section 33(5)). Issue 2 - Admissibility in CIRP of claims based on assessments made during moratorium Legal framework: Insolvency Code and Regulations govern filing and admission of claims in CIRP; moratorium under Section 14 bars proceedings that would create or enforce liabilities during CIRP. Claims admitted in CIRP must be based on valid antecedent liabilities or otherwise permissible bases. Precedent Treatment: The Tribunal relied on its prior determination that claims founded on assessments made during the moratorium cannot be pressed in the CIRP, consistent with the Supreme Court's exposition of the moratorium's 'statutory freeze'. Interpretation and reasoning: If assessment proceedings are barred during moratorium, any determination rendered pursuant to such barred proceedings cannot form the basis for admission of a claim in the CIRP. The Tribunal reasoned that admitting claims based on assessments made during moratorium would undermine Section 14's protective purpose by allowing liabilities to be created/enforced mid-process. The Tribunal examined the timeline and found the inspection and subsequent assessment/determination all post-dated CIRP commencement; therefore the revised claim based on that assessment was not admissible. Ratio vs. Obiter: The conclusion that claims in CIRP cannot be founded on assessments/determinations made during the moratorium is ratio. Conclusion: No claim in the CIRP can be admitted on the basis of an assessment/determination made by the statutory authority during the Section 14 moratorium; such claims are not maintainable in CIRP. Issue 3 - Jurisdiction of Adjudicating Authority to direct production of employee-wise details and computations Legal framework: The Adjudicating Authority under the Code has supervisory jurisdiction over matters in CIRP, including the process of claim collation and scrutiny by the Resolution Professional; statutory authorities have powers under their own statute to make assessments and determinations. Precedent Treatment: The impugned order directed the statutory authority to furnish employee-wise details and computations and permitted the Resolution Professional/Successful Resolution Applicant to object to computations and seek revisions. The Tribunal observed that it was unnecessary to examine all submissions about the Adjudicating Authority's competence to issue such directions because the principal view on moratorium-linked unenforceability rendered the EPFO's claim and the direction moot. Interpretation and reasoning: While an adjudicatory forum may regulate the CIRP process and the admission of claims, it must respect the statutory competence of a statutory authority to adjudicate claims under its own enactment. However, since assessments made during moratorium were held impermissible, the need to compel production or to adjudicate adequacy of computations based on such assessments did not survive. The Tribunal therefore set aside the directions of the Adjudicating Authority insofar as they resulted in treating the assessment-based demand as capable of forming a claim in CIRP. Ratio vs. Obiter: The Tribunal's core ratio is limited to the effect that directions premised on or enabling admission of claims based on moratorium-era assessments are not sustainable. The question whether the Adjudicating Authority generally may direct production of details from a statutory authority in other circumstances was not finally decided (obiter). Conclusion: The Adjudicating Authority's directions to the statutory authority to furnish details and computations (given in the context of an assessment/demand made during moratorium) are rendered unsustainable because the underlying assessment was impermissible; the Tribunal set aside the impugned orders disposing of the applications and held the demands made pursuant to those assessments to be unenforceable against the corporate debtor in the CIRP. Disposition and Consequences 1. Orders based on assessments and demands made by the statutory authority after commencement of CIRP (and during the Section 14 moratorium) are set aside as unenforceable for the purposes of admission and realization within the CIRP. 2. Claims presented or revised on the basis of such moratorium-era assessments cannot be pressed in the CIRP; the Resolution Professional's appeal succeeds on that ground. 3. The Tribunal did not need to decide ancillary contentions regarding the Adjudicating Authority's power to direct production of employee-wise details where the substantive assessment itself was barred; such ancillary issues remain undetermined for purposes other than the present facts. 4. Parties are directed to bear their own costs.