2026 (1) TMI 659 - AT - IBC

Provident fund/EPF and gratuity claims in CIRP: Regulation 12 time-bar rejection quashed, matter remitted for merits

Dominant issue: whether a provident fund claim could be rejected as time-barred under Regulation 12 of the CIRP Regulations. Court applied SC precedent in ... Rejection of claim of interest and damages on the ground of time limittaion - Resolution Plan had been approved by the CoC and was pending before the Adjudicating Authority - EPF dues stand outside the liquidation estate or not - HELD THAT:- The question of limitation under Regulation 12 was considered by the Supreme Court in State Tax Officer v. Rainbow Papers Ltd. [2022 (9) TMI 317 - SUPREME COURT], where the claim of the State had been rejected as belated. The Supreme Court held that Regulation 12 is directory, not mandatory, particularly for statutory dues. Whether the Resolution Plan contravenes Section 36(4)(iii) of the Code, since provident fund and gratuity fund cannot be treated as assets of the Corporate Debtor? - HELD THAT:- This was examined by the NCLAT in Tourism Finance Corporation of India Ltd. v. Rainbow Papers Ltd. [2019 (12) TMI 1490 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], where it was held that the EPF Act does not conflict with Section 36(4)(iii) and that PF and gratuity are not assets of the Corporate Debtor. In the impugned order, the findings in paras 9 and 10 concern the claim being raised beyond the prescribed time. It is already answered in light of the Supreme Court judgment in Rainbow Papers, which holds the Regulation 12 period to be directory. Therefore, the claim cannot be rejected solely on the ground of delay. Consideration of claim at belated stage - Resolution Plan had been approved by the CoC and was pending before the Adjudicating Authority - HELD THAT:- The Tribunal relied on RPS Infrastructure Ltd. v. Mukul Kumar [2023 (9) TMI 516 - SUPREME COURT], where the Supreme Court held that reopening claims at this stage would make CIRP an endless process. The Tribunal’s reasoning, based on the restriction against reopening a plan after CoC approval, cannot stand in view of the Supreme Court ruling in Rainbow Papers, which governs the field and was not considered by the Adjudicating Authority. The impugned order rejecting the claim on the ground of limitation is hereby quashed, and the matter is remitted to the Adjudicating Authority to reconsider the IA on its own merits, except on the question of limitation - Appeal allowed. Issues: (i) Whether the appellant's claims for interest under Section 7Q and damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, could be rejected as time-barred under Regulation 12 of the IBBI (IRP for Corporate Persons) Regulations, 2016; (ii) Whether provident fund dues including interest and damages have priority/first charge under Section 11(2) of the Act of 1952 and whether such dues fall outside the assets of the Corporate Debtor under Section 36(4)(a)(iii) of the IBC thereby affecting their treatment in the resolution/liquidation process.Issue (i): Whether the claim under Sections 7Q and 14B was barred by Regulation 12 and consequently liable to be rejected.Analysis: Regulation 12 provides timelines and a proviso permitting submission up to the date of request for resolution plans or 90 days from insolvency commencement date and a further proviso requiring reasons for delay beyond 90 days. The Supreme Court precedent in Rainbow Papers holds that the time stipulation in Regulation 12 is directory and not an absolute bar, particularly for statutory dues. The restriction on reopening claims because a plan has been approved by the CoC does not operate where the approved jurisprudence permits consideration of delayed statutory claims; the adjudicatory position must account for the directory nature of Regulation 12 and the admitted factual position regarding the stage of plan approval before the Adjudicating Authority.Conclusion: The rejection of the claims solely on the ground of delay under Regulation 12 was not sustainable; the claims cannot be summarily rejected as time-barred and must be reconsidered on merits.Issue (ii): Whether EPF dues (including interest and damages) have priority as a first charge under Section 11(2) of the Act of 1952 and are excluded from the assets of the Corporate Debtor under Section 36(4)(a)(iii) of the IBC, affecting their inclusion in resolution plans.Analysis: Section 11(2) treats amounts due from an employer as a first charge on the assets of the establishment and accords priority in distribution. Section 36(4)(a)(iii) and related decisions establish that provident fund and gratuity are not assets of the Corporate Debtor. A combined reading of these provisions and relevant authority requires that statutory EPF dues be given priority treatment and considered in the resolution process rather than being treated as ordinary claims extinguished by mere procedural delay. Conflicting precedents that refuse to consider such claims by reason of procedural timelines must be reconciled with the primacy of statutory dues and the directory nature of Regulation 12.Conclusion: EPF dues, including interest and damages where accrued, attract a priority/first charge under Section 11(2) and are not to be treated as ordinary assets of the Corporate Debtor; such claims require reconsideration in the resolution process consistent with statutory priority.Final Conclusion: The impugned orders rejecting the claims under Sections 7Q and 14B on the ground of limitation are quashed; the matters are remitted to the Adjudicating Authority for fresh consideration of the IAs on merits (except on limitation), and interlocutory applications are closed.Ratio Decidendi: Regulation 12 of the IBBI Regulations is directory and does not constitute an absolute bar to entertaining statutory claims; statutory EPF dues attract a first charge under Section 11(2) of the Act of 1952 and must be reconsidered in the resolution process rather than being rejected solely for delay.