TaxTMI 
TaxTMI 
2018 (9) TMI 1532
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....ant (herein after referred as "liquidator") dispose of these properties alongside of other assets of the corporate debtor as being mandated by this Code. This MA has been filed in CP 1339/2017 admitted under the Code on November 7, 2017 by initiating CIRP against the corporate debtor. For no resolution plan has been approved by the CoC, this corporate debtor has gone into liquidation, wherein the RP of the corporate debtor has been appointed as liquidator. 2. The liquidator submits that he has been appointed as Liquidator of the Corporate Debtor by an order dated 12.03.2018, whereas these respondents are the organizations maintaining EPF and PF of the employees at three places i.e., Thane, Vapi and Vashi of Mumbat. For the Corporate Debtor having defaulted in depositing provident fund of the employees of the corporate debtor since long, PF dues of the workers/employees of the corporate debtor have been determined u/s 7A of EPF Act and then attached the above said assets as well as other assets mentioned in MA 752/2018 under EPF Act. 3. When this Liquidator was continuing as RP, wrote a letter on 05.03.2018 to APFC and Recovery Officer notifying to the respective authorities a....
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....ce Kalwa Unit, Silvassa unit and movables at Mahad unit have been attached by the respondents, attachments over the assets shall be forthwith lifted, or else these attachments will impair the rights of the secured creditors, 6. The counsel appearing on behalf of the Liquidator submits that section 35(b) (d) of the Code empowers the Liquidator "to take into his custody and control all the assets, property, effects and actionable claims of the Corporate Debtor and also to take such measures to protect and preserve the assets and properties of the Corporate Debtor as he considers necessary". 7. The counsel further submits that u/s 36 of the Code, the Liquidator shall form liquidation estate of the assets mentioned in sub-section 3, in pursuance of this power, as per sub-section 3 (b) of section 36, since the Liquidator is empowered to include encumbered assets as well in the liquidation estate, these respondents ought to be ordered to release the attachments over the assets of the Corporate Debtor. 8. The Counsel further submits as per section 36(4) (a) (iii) of the Code, it only says that all sums of the provident fund, pension fund and the gratuity fund of any workmen or em....
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....order dated 26.07.2018 passed by Hon'ble High Court of Hyderabad) to say that even if the order of attachments constitutes an encumbrance on the property, still it will not have the effect of taking it out of the purview of section 36(3)(b) of the Code. 13. The counsel has further relied upon Innoventive Industries Ltd. vs. ICICI Bank &Ors. (2017 SCC OnLine SC 1025) to say that one of the important objectives of the Code is to bring Insolvency law in India under a single unified umbrella with object of speeding up of the insolvency process. 14. The Liquidator Counsel relied upon the Order of Hon'ble NCLT, Allahabad Bench on Raman Ispat Pvt. Ltd. v. Executive Engineer, Paschimanchal Vidyut Vitran Nigam Ltd. & District Collector, Muzaffarnagar, U.P. & Tehsildar, Office of Tehsildar Sadar, Muzaffarnagar, U.P. [Com. Appl. No. 88/ALD/2018 in C.P.(IB)23/ALD/2017] and order of Hon'ble NCLT, Kolkata Bench on Surendra Kumar Joshi v. REI Agro Ltd. and Mr. Anil Goel, Liquidator v. Dy. Director, Directorate of Enforcement, Delhi [CA(IB) No. 453/KB/2018 in CP(IB) No. 73/KB/2017] to say that this Code having overriding effect upon other enactments, all assets of the Corporate Debtor shall ....
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....ambit of Liquidation Estate, it is necessary to read the text of section 36 of the Code, which is as follows: "Liquidation Estate: 36. (1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor. (2) The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors. (3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following: - (a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor; (b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets; (c) tangible assets, whether movable or ....
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....ot only included some assets under this head, it has classified those assets into a, b, c, d, e detailing about each of the asset so that there would not be any ambiguity in understanding the kind of asset that has been excluded from the list of liquidation estate assets. If we run through this sub section clause wise, we can know what heads have not been included in the liquidation estate assets and how those assets have been further classified depending on the nature of the asset. 20. If we come to clause (a) of this sub section - 4, it includes five kinds of assets as (i) (ii)(iii) (iv) (v) sub-clauses under the head of assets owned by a third party which are in possession of the Corporate Debtor, let us examine clause by clause to know the implications of each of the clauses and find out the commonality in bringing these five clauses under the head of assets possessed by the debtor without title over it. 21. On examination of sub section 4 (a) (i), it is evident that if any asset is lying in trust with corporate debtor for the benefit of third party, that asset shall be excluded from the liquidation estate, likewise regarding subsection - 4 (a) (ii), in bailment contracts....
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.... in view of this deeming fiction, the workmen/employees need not prove that whether any sum (interest) has been explicitly vested with them or not. So is the case when an asset of the corporate debtor is notified by the Central Government in consultation with any financial sector regulator. By including sub-clauses (iii) and (v) along with sub clauses (i), (ii) and (iv) of clause (a) of sub-section 4, an overarching interest and title has been created in favour of the workmen in respect to provident fund, etc. and in favour of the government in respect to the asset notified treating these two assets under sub-clauses (iii) & (v) as not included in the liquidation estate. 26. On perusal of the historical background of the legislations, it has been elaborately discussed over the interplay in between section 529(A) of Companies Act, 1956 and section 11 of EPF Act, in a judgment in between Employees Provident Fund Commissioner v. O.L. of Esskay Pharmaceuticals Ltd. (2011) 10 SCC 727, by finally holding that section 11(2) of the EPF Act will have first charge on the assets of the establishment (here in this case the corporate debtor) and will become payable in priority to all other d....
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....ment to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund damages recoverable under section 14B, accumulations required to be transferred under sub section (2) of section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme; or (b) from the employer in relation to an exempted establishment in respect of any contribution to the provident fund or any insurance fund (in so far it relates to exempted employees), under the rules of the provident fund or any insurance fund, any contribution payable by him towards the Pension Fund under sub-section (6) of section 17, damages recoverable under section 14B or any charges payable by him to the appropriate Government under any provision of this Act, or under any of the conditions specified under section 17, shall, where the liability therefore has accrued before the order of adjudication or winding up is made, be deemed to be included among the debts which under section 49of the Presidency Towns Insolvency Act, 1909 (3 of 1909), or under section 61 of the Provincial I....
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....mployer towards contribution payable under the EPF Act shall be treated as the first charge on the assets of the establishment, but also lays down that notwithstanding anything contained in any other law, such dues shall be paid in priority to all other debts." 27. While saying that EPF dues from an employer shall be treated as the first charge on the assets of the corporate debtor, the same judgement has further elaborated that EPF Act is a social welfare legislation intended to protect against the weaker section of the society as enshrined in the directive principles of the Constitution of India, which is in para 22 and 23 of the case supra, see below: "22. The EPF Act is a social welfare legislation intended to protect the interest of a weaker section of the society, i.e. the workers employed in factories and other establishments, who have made significant contribution in economic growth of the country. The workers and other employees provide services of different kinds and ensure continuous production of goods, which are made available to the society at large. Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation keeping....
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.... is, in a sense, part of the State. So it is reasonable to assign to "damages' a larger, fulfilling meaning." 23. Section 11(2) of the EPF Act was interpreted by the Division Bench of the Kerala High Court in Recovery Officer and Asstt. Provident Fund Commissioner v. Kerala Financial Corporation, ILR(2002) 3 Kerala 4. Speaking for the Bench, B.N. Srikrishna,}. (as he then was) observed: "The F.P.F. and M.P. Act, 1952 is an Act to provide for the institution of Provident Fund, Pension Fund, Deposit Linked Insurance Fund etc. in factories and other establishments, to carry forward the Constitutional mandate of rendering social justice to the working class. It is intended to give social security to industrial workers at the end of their careers. The E.P.F. and M.P. Act requires every employer to deduct certain prescribed amounts from the wages payable to employees along with prescribed contribution by the employer and deposit such contributions in the Provident Fund. The Provident lis administered by the Central and Regional Provident Fund Commissioners, who are statutory authorities. What is of importance to us is that section 11 of E.P.F. and M.P. Act, declares the....
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....nnuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent: Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security, -- (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A. 529(3). For the purposes of this section, section 529A and section 530,- ....
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....the liquidation estate, it has not only extended the earlier law that was in existence but also strengthened the right of workmen regarding PF/Pension/Gratuity fund dues, by altogether excluding this asset from the liquidation estate leaving it to open to the workmen or to the PF authority to realize their provident fund/pension fund/gratuity fund dues without standing in the line of water fall mechanism. In view thereof, if we go by the provisions of law and the judge made law, it is evident that duty is conferred upon the liquidator and this Tribunal to ensure that provident fund dues are excluded from the liquidation estate so as to enable the workmen realize their savings as well as the matching contribution comes from the employer giving priority even above the costs of liquidator because the liquidator is also entitled to realize the costs from the liquidation estate only, whereas the workmen for Provident Fund dues need not remain in the line to realize their PF dues from the liquidation estate. This right in fact emanated from the fundamental right of Right to Life. Directive principles are nothing but supplementation to uphold the fundamental rights of the people of the co....
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....ustain in their old age, they can't do anything in life, life becomes by that time already vestigial, can they rally around courts to realise these sums, I believe it can't be so and law cannot be so, and the law is also not so. May be for this reason alone, EPF Act has been strengthened from time to time, in addition to it, now under IBC, PF/Pension/Gratuity fund dues have been taken out from the spectrum of liquidation estate asset by giving a mandate that the PF/Pension/Gratuity fund dues to the workman/employee shall be treated as an asset of the workman lying in the possession of corporate debtor. So, it is not treated as a claim on par with other creditors, it is in fact treated as an asset of the workmen lying with corporate debtor. 31. As to the argument of the Liquidator counsel saying that the sums due mentioned in sub-clause (iii) of clause (a) of sub-section 4 of section 36 should be regarding the provident fund already credited to the account of EPFO, the answer is, if at all this deduction from the wages of the workmen as well as contribution from the Corporate Debtor as stated under the respective statute has gone into the account of EPFO, it will not be called as....
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....e distribution of the property of the insolvent or the assets of the company being wound up, as the case may be. 33. Now in alignment with the provisions of EPFAct, in section 36(4)(1)(3), the Code has gone ahead saying that the dues in respect to Provident Fund/Pension Fund/Gratuity Fund shall not be treated as part of the liquidation estate, as long as such dues are not treated as part of liquidation estate, the provisions of IBC will not be applicable for realisation of such dues from the asset of the Corporate Debtor. The intriguing aspect lying in this scenario is that though it is a due payable by the Corporate Debtor, as to Provident Fund/Pension Fund/Gratuity Fund dues are considered, the Code has treated it as an asset of the workmen lying with the Corporate Debtor. 34. In view thereof, the overriding effect of section 238 of this Code will not have any bearing over the asset of the workmen lying in the possession of the Corporate Debtor because that asset is not considered as the part of the liquidation estate, moreover, to apply section 238 over any other law for the time being in force, the other law must be inconsistent with the provisions of the Code, since sect....
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....ll have the same meaning as assigned to it in section 326 of the Companies Act, 2013 will not having any bearing over section 36 (4) (a) (iii) of the Code. Why I have mentioned this aspect is, general meaning of "workmen's dues" has been bodily lifted from section 529 of the Companies Act 1956 to section 326 of the Companies Act 2013, wherein provident fund dues have also been cited as part of the workmen dues. But since the Code in section 36 (4) (a)(iii) of the Code having specifically excluded provident fund from the liquidation estate assets, it is obvious in respect to provident fund dues, they will not become part of workmen dues specified in section 53 (1) (b) (i) of the Code. The term "workmen dues" used in the above sub clause shall not be construed as provident fund dues become part of distribution of assets on pari passu basis along with secured creditors. The reason is comprise of assets by the liquidator is governed by the definition of liquidation estate under section 36 of the Code; therefore the distribution of assets u/s 53 of the Code will be in respect to the assets comprised under section 36, not beyond it. 38. However, since liquidation process should not ge....