TaxTMI 
TaxTMI 
2023 (3) TMI 18
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....& I.A. Nos.148 & 258/2021, 79/2021 & I.A. No.270/2021, 80/2021 & I.A. Nos.149 & 269/2021, 81/2021 & I.A. No.261/2021, 82/2021 & I.A. No.262/2021, 83/2021 & I.A. No.244/2021, 84/2021 & I.A. Nos.150 & 271/2021, 85/2021 & I.A. Nos.151 & 263/2021 with 86/2021 & I.A. Nos.152 & 259/2021. [ Justice M. Venugopal ] Member ( Judicial ) And [ Ms. Shreesha Merla ] Member ( Technical ) For the Appellant : Mr. K.R. Jinan, Advocate & Mr. Abhilash Nediyalil Abraham, PCS. For the Respondents Nos. 1 & 3 : Mr. P.V. Dinesh, Advocate & Resolution Professional Mr. P.V. Vinod, Advocate For the Respondent No. 4 : Mr. P.H. Arvindh Pandian, Successful Resolution Senior Advocate Applicant For Mr. Shivshankar R. Panicker & Ms. Sirshti Thukral, Advocates. JUDGMENT ( Virtual Mode ) [Per; Ms. Shreesha Merla, Member (Technical)]: 1. Challenge in these 'Appeals' is to the `Impugned Order' dated 29.01.2021 in IA(IBC)/21/KOB/2021 in TIBA/03/KOB/2019, passed by the 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench, Kerala), by which 'Order', the 'Application' filed by the Resolution Professional ('RP') seeking approval of the 'Resolution Plan' under Section 30(1) of the Insolvency and Bank....
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....toring Committee shall supervise the implementation of the 'Resolution Plan' and the Applicant shall file status of its implementation before this Tribunal. ix. Certified copy of this Order be issued on demand to the concerned parties, upon due compliance. Liberty is hereby granted for moving any Miscellaneous Application, if required, in connection with implementation of this 'Resolution Plan'. x. The Applicant shall forthwith send a copy of this Order to the CoC and the Resolution Applicant for necessary compliance." 2. Since all these 'Appeals' challenged the 'Resolution Plan' whereby and whereunder 35.13% of their 'Provident Fund' and 'Gratuity Claims' were admitted, they are being disposed of by way of this 'Common Order'. 3. Succinctly put, the facts in brief are that 'HNL' is a wholly owned subsidiary of 'Hindustan Paper Corporation Limited' ('HPCL'), a 'Public Sector Undertaking' governed by the 'Ministry of Heavy Industries and Heavy Public Enterprises', 'Department of Heavy Industries', 'Government of India'. 'HNL' was established pursuant to an 'Agreement' between Government of Kerala and 'HPCL' on 07.10.1974 for establishment of 'Kerala News Print Project Limited'....
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.... or order of any Court as per Section 10 of the EPF Act, 1952. * Learned Counsel placed reliance on a 'Judgement' of this Tribunal in 'State Bank of India' Vs. 'Moser Baer Karamchari Union & Anr.' Comp. App. (AT) (Ins.) No. 369/2019, by which order, this Tribunal affirmed the findings of the 'Adjudicating Authority' in the Liquidation Proceedings and held that 'claim of 'Provident Fund', 'Gratuity Fund' and 'Pension Fund' is exempted from the waterfall mechanism envisaged under Section 53 of the Code and directed to pay the dues preferentially as these do not constitute a part of liquidation estate'. * Learned Counsel for the Appellant placed reliance on 'Regional Provident Fund Commission -I, Ahm.' Vs. 'Ramachandran D. Choudhary' Comp. App. (AT) (Ins.) No. 1001/2019, by which Order, this Tribunal had rejected the contention of the 'Resolution Professional' and the 'Resolution Applicant' observing that "as no provisions of Employees' Provident Funds and Miscellaneous Provision Act, 1952, is in conflict with any of the provisions of the I&B Code, and on the other hand in terms of section 36(4) (ii) the provident funds and the gratuity funds are not the assets of the Corporate de....
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....(4), 38(1A) and (1B) of CIRP Regulations. The statement as to how the ''Resolution Plan'' dealt with the interests of workmen and employees other than the financial proposals set forth in Chapter VIII is absent in the approved plan. The rejection of the claim unilaterally by the 'RP' is in violation of Section 18 read with Section 25(e) of the Code and Regulations 13 and 14 of the CIRP Regulations, 2016. The rejection of part of the claim has not been communicated to the employees and therefore non-filing of an Application under Section 60(5) is not fatal. * It is submitted that the 'CoC' had failed to maximize the value of the distressed assets of the 'Corporate Debtor' and failed to protect the employment of existing employees. It is submitted that the said valuation of the property is undervalued and is detrimental to all the stakeholders especially workmen and employees. The 'Resolution Plan' is not interested in resuming the Company but only in utilizing the land for the business purpose. * Learned Counsel for the Appellant-Mr. K.R. Jinan filed a detail chart with the claim amounts, admitted amounts and the allocated amounts in all these Appeals which has been taken on rec....
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....gratuity of Rs. 10 Lakhs and interest of Rs. 1.99.452/- in respect of Appellant-C.G. Vijaya Lakshmi, till the date of commencement of the CIRP. All the claims raised by the PF Authority on behalf of Employees were fully admitted and since the employees have also raised the same claim, the claims of PF Authority were only admitted in order to avoid duplication. RP has also given an undertaking before the 'Adjudicating Authority' that the entire gratuity and interest on gratuity of all employees is admitted till the date of commencement of CIRP, prior to approval of the plan. * Under Section 31(1) of the Code, once the 'Resolution Plan' is approved, it is binding on all the stakeholders including the employees and the same has been reiterated by the Hon'ble Supreme Court in several judgements namely 'Ghanashyam Mishra and Sons Private Limited' Vs. 'Edelweiss Asset Reconstruction Company Limited' 2021 SCC OnLine SC 313 and in the matter of 'Essar Steel India Limited' Vs. 'Satish Kumar Gupta' 2019 SCC OnLine SC 1478. * Learned Counsel drew our attention to paragraph 67 of 'Essar Steel India Limited' (Supra) and para 86 of 'Ghanshyam Mishra' (Supra) which are reproduced as hereunder....
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....s participated in the Resolution Process of HNL and submitted the 'Resolution Plan' therefore any proposal made by Kerala prior to CIRP of HNL with the Liquidator of HPCL has no relevance with respect to the CIRP of the CD. 6. Submissions of Learned Counsel on behalf of R-3:- * It is reiterated by Learned Counsel that the 'Resolution Plan' is approved in accordance with law and for the sake of brevity submissions which have been made on behalf of RP and have been repeated for and on behalf of COC, is not being reproduced here. 7. Submissions of Learned Sr. Counsel -Mr. P.H. Arvindh Pandian appearing on behalf of R-4 (SRA): * It is submitted by Learned Sr. Counsel that the 'Resolution Plan' was approved after proper application of mind by the 'Adjudicating Authority' and that it was in compliance with all the legal provisions; that the decision of Labour Court which was granted in favour of the ''Appellants'' was duly taken into consideration by the 'Adjudicating Authority' in its order dated 03.12.2020; that claims for provident fund and gratuity had arisen after the initiation of moratorium under Section 14 of the Code which is not justifiable ; that payment of Gratuity and ....
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....n 36(4) (iii). 22. On the other hand, the workmen's dues as mentioned in Section 326(1) (a) is not confined to a period like twenty-four months preceding the liquidation commencement date and, therefore, the Appellant for the purpose of determining the workmen's dues as mentioned in Section 53(1) (b), cannot derive any advantage of Explanation (iv) of Section 326 of the Companies Act, 2013. 23. This apart, as the provisions of the 'I&B Code' have overriding effect in case of consistency in any other law for the time being enforced, we hold that Section 53(1) (b) read with Section 36(4) will have overriding effect on Section 326(1) (a), including the Explanation (iv) mentioned below Section 326 of the Companies Act, 2013. 24. Once the liquidation estate/ assets of the 'Corporate Debtor' under Section 36(1) read with Section 36 (3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included. 25. The 'Adjudicating Authority' having come to such finding that the aforesaid funds i.e....
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.... the conditions laid down under the payment of Gratuity Act, 1972 and also on the availability of the fund in this regard. 17. Based on the judgment of this Appellate Tribunal in case of the State Bank of India v. Moser Baer Karamchari Union, 2019 SCC OnLine NCLAT 447, it is clear that in terms of sub-Section (4)(a)(iii) of Section 36 all sums due to any workman or employees from the Provident Fund, Pension Fund and the Gratuity Fund, do not form part of the liquidation estate/liquidation assets of the 'Corporate Debtor'. Therefore, the question of distribution of Provident Fund or the Pension Fund or the Gratuity Fund in order to priority, and within such period as prescribed under Section 53(1), does not arise. It is further held in the above case that 53(1)(b)(i) of the I&B Code, regarding distribution of assets, relating to workmen's dues is confined to a period of 24 months, preceding the liquidation commencement date. This question has already been decided that Gratuity Fund does not form the part of the liquidation asset. 18. Therefore, the question of distribution of the Gratuity Fund in order of priority, provided under Section 53(1) of the Code does not arise. H....
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....mation memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The 'Resolution Plan's undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure, that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the Corporate Debtor is revived and is made an ongoing concern. After CoC approves the plan, the 'Adjudicating Authority' is required to arrive at a subjective satisfaction, that the plan conforms to the requirements as are provided in subsection (2) of Section 30 of the I&B Code. Only thereafter, the 'Adjudicating Authority' can grant its approval to the plan. It is at this stage, that the plan becomes binding on Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the 'Resolution Plan'. The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the b....
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.... the Learned Sr. Counsel that no point of law was discussed on 'merits' in the 'dismissal Order' and therefore, the question of the availability of 'fund' was not adjudicated even in the Assam Tea Employees Provident Fund Organization' (Supra). * The 'Resolution Plan' already includes provisions for payment of Provident Fund and Gratuity Fund of the employees and the Learned Sr. Counsel has drawn our attention to the internal pages of the 'Resolution Plan' which deals with this issue. * It is vehemently denied that the SRA is not interested in the Company but is merely forming the Board for the purpose of maintaining a rubber industry. It is argued that the allegations made by the 'Appellants' with respect to the conduct of the Resolution Applicant is completely baseless. It is also submitted that the Resolution Applicant was not bound to repay any of the employees and that after the approval of the 'Resolution Plan' and having infused Rs. 145 Crores in the Corporate Debtor Company and any modification at this stage would be detrimental to the Resolution Applicant. Assessment : 8. The main point for consideration which arises in these Appeals is whether the 'Resolution Plan'....
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....nt benefits in full. The submission is supported by provisions of Section 36 Sub-section (4) of the Code. Section 36 deals with 'Liquidation Estate'. Section 36(1) reads as follows: "36. Liquidation Estate. - (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." 13. Section 36(4) provides that the 'Assets' which shall not include in the 'Liquidation Estate'. Section 36(4)(a) reads as hereunder: "36(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation:- (a) assets owned by a third party which are in possession of the corporate debtor, including- (i) assets held in trust for any third party; (ii) bailment contracts; (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;" 14. Section 36(4) provides that 'the following shall not be included in the 'Liquidation Estate Assets' and shall not be used for recovery in the Liquidation'. In the instant case, clause (iii) of sub-section 4(a) is relevant which is....
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....ved by the employee is frowned upon. We, accordingly, hold that it is not open to the second respondent to deduct from the full pension any sum based upon Regulation 16 read with Regulation 13. If Regulation 16 which now has acquired statutory flavour, having been adapted and continued by statutory rules, operates contrary to the provisions of the PF Act and the Gratuity Act, it must fail as invalid. We uphold the contention of the petitioner." 18. The principle laid down in the aforenoted Judgement is that 'Social Justice' is the conscience of our Constitution and the State is the Promoter of 'Economic Justice' and the founding faith which sustains the Constitution and is bound by the 'provisions' engrafted in the statutes governing 'Gratuity' and 'Provident Fund'. The root of 'Gratuity' and the foundation of 'Provident Fund' are different but each one is a salutary benefaction statutorily guaranteed independently on the other and hence are having these overriding provisions engrafted in the statutes. The Public Sector, being a modal employer with a social conscience is bound by these welfare and beneficial provisions. 19. At the outset, we address to the submissions of Learned ....
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....yard Limited Mumbai was dismissed by this Tribunal. The facts of the above case need to be noticed in some details. The 'Adjudicating Authority' admitted an application under Section 7 on 01.08.2017 against the Corporate Debtor. An order of liquidation was passed. An application was filed by the workmen and employees for claim of salary for the period involving CIRP and the prior period, which was rejected. Before the Hon'ble Supreme Court submission was made that employees and workmen were entitled to wages/salary during the CIRP period and were also entitled for their dues of provident fund, gratuity and pension fund. The said submission has been noted in Para 13 of the judgment:- "13. Learned counsel appearing on behalf of the ''Appellants'' has taken us to the relevant provisions of the IB Code in support of her submission that the workmen/employees of the Dahej Yard and Mumbai Head Office are at least entitled to the wages/salaries during the period of CIRP and are also entitled to the amount due and payable towards provident fund, gratuity and pension. Learned counsel appearing on behalf of the ''Appellants'' has taken us to Section 3(36); Section 5(13); Section 5(14); Sect....
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.... IB Code; ii) considering Section 36(4) of the IB code and when the provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen dues shall be kept outside the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available and the Liquidator shall not have any claim over such funds."" 66. The conclusions and directions of Hon'ble Supreme Court are contained in Para 54(ii) in reference to provident fund, gratuity fund and pension fund. The Hon'ble Supreme Court has directed that the share of workmen dues shall be kept outside the liquidation process and the concerned workmen/employees shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available. 67. Thus, from the above preposition it is clear that share of workmen dues have to be kept out of liquidation process and same shall have to be paid to the employees and workmen out of such provident fund, gratuity fund and pension fund, if any, available. Thus, it is clear that if any provident fund, gratuity fund and pension fun....
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....egard to the ratio laid down by this Tribunal in 'Jet Aricraft' (Supra) and the Order having been upheld by the Hon'ble Supreme Court in Civil Appeal No. 407 of 2023 the question whether there was 'fund' maintained by the Corporate Debtor or not pales into insignificance. 23. This Tribunal in the matter of 'Assam Tea Employees PF' (Supra) had occasion to deal with similar issue of whether the claim of Provident Fund can be treated as 'Secured Debt' and if the claimant is entitled to receive amount as a 'Secured Creditor'. This Tribunal placed reliance on Question XI, Paragraphs 117 to 119 of the 'Jet Aircraft Maintenance Engineers Welfare Association' (Supra) dated 21.10.2022 and observed as follows: "8. The answer to the Question No. XI is in paragraphs 117, 118 and 119 of Judgement dated 21st October, 2022, which is to the following effect: "QUESTION - XI 117. In the appeal filed by the Regional Provident Fund Commissioner, it has been pleaded that the claim was filed by the Appellant for an amount of Rs.24,40,65,594/- towards damages under Section 14B of Employees' Provident Funds & Miscellaneous Provisions Act 1952, as per the order dated 17.10.2018. It is further me....
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....ove judgment lays down that any amount due from employer appearing in sub-section (2) of Section 11 also covers the amount determined under Section 14B and there cannot be any quarrel to the preposition as laid down by the Hon'ble Supreme Court in the above case. The priority for payment of debt under Section 11 of the 1952 Act has to be looked into in view of the mechanism which is specifically provided under Section 53(1) of the Code. We have already dealt the provision of Section 36(4)(a)(iii) of the Code and held that provident fund dues are not subject to distribution under Section 53(1) of the Code. The issue is fully covered by three member bench judgment of this Tribunal in "Tourism Finance Corporation of India Ltd. vs. Rainbow Papers Ltd. & Ors." (Supra). In view of foregoing discussion, we hold that provident fund dues were entitled to be paid in full. In view of the judgment of Supreme Court in "Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others" (Supra), the claim of Appellant was to be satisfied in full, otherwise breach of provision of Section 30(2)(e) would have occurred. We, thus, are inclined to issue direction to the Succ....
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....ctually worked during the CIRP period (when it was managed as a going concern), shall be paid and treated as part of the CIRP cost. The present case is not of liquidation but where the Resolution Plan has been approved and therefore under the provisions of 1952 Act, the Corporate Debtor is statutorily obliged to deposit the 'PF' of the workmen/employees with the EPFO. 26. It is the contention of the Learned Counsel for the Respondent that the Commercial Wisdom of the 'CoC' is not justiciable and the same has been laid down in 'K. Sashidhar' Vs. 'Indian Overseas Bank' 2019 SCC OnLine SC 257 and 'Maharashtra Seamless Limited' Vs. 'Padmanabhan Venkatesh and Anr.' and in the matter of 'Kalpraj Dharmshi & Anr.' Vs. 'Kotak Investment Advisors Limited & Anr.'. At this juncture, we find it relevant to reproduce paragraph 147 of the above Judgement which is as hereunder: "147. It has been held, that in an enquiry under Section 31, the limited enquiry that the 'Adjudicating Authority' is permitted is, as to whether the 'Resolution Plan' provides: (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the Corporate debt....