After Initiation Of Moratorium U/S 14 Of IBC, No Assessment Proceedings Can Be Continued By EPFO: NCLAT

Brief Facts

In Appeal No 1062 of 2024, the corporate debtor was admitted into insolvency on May 3, 2021. Proceedings under section 7A of the EPF and MP Act, 1952 were initiated. Thereafter, summons were also issued claiming damages under section 14B and interest under section 7Q. The RP rejected the claim submitted by the Authority on the ground that the plan had already been approved by the CoC. The decision of the RP was challenged before the Adjudicating Authority which while upholding the same held that IRP was justified in rejecting the belated claim as resolution of a corporate debtor is a time bound process. Similarly in the second appeal filed against an order passed by the NCLT, orders under the Act were passed after the corporate debtor was admitted into insolvency and moratorium under section 14 kicked in. Both the orders have been impugned in the present appeal.

Contentions:

The appellant submitted that despite imposition of moratorium under Section 14 of the IBC, proceeding under Section 7A of the EPF & MP Act can still continue and that moratorium under Section 14 and 33(5) of the IBC, do not bar for determination of quantum of dues or taxes or other levies and the embargo is only against its enforcement.

It was further submitted that PF dues, inclusive of damages and interest, are excluded from the liquidation estate in light of Section 36(4)(a)(iii) of the IBC. The order rejecting the claim is in contravention of the law laid down by NCLAT and Hon'ble Supreme Court of India in Tourism Finance Corporation of India & Ors. vs. Rainbow Papers Ltd. & Ors., where it was held that no provisions of the EPF & MP Act is not in conflict of IBC.

On the other hand it is the case of the respondent that no claim was filed by the Appellant before the Plan was approved by the CoC and the assessment proceedings were carried out and final order under Section 7A of the EPF & MP Act was passed during the CIRP is in violation of the moratorium and that post approval of Resolution Plan by the CoC, no claim can be considered by the RP.

Observations:

The tribunal noted that the Supreme Court in Rejendra K. Bhutta vs. Maharashtra Housing and Area Development and Anr. (2020) held that after the imposition of moratorium, a statutory freeze takes place.

While referring to section 14 of the code, it observed that the plain reading of Section 14, sub-section (1) indicates that expression 'suits or proceedings against the corporate debtor' has been used. The word 'proceeding' is not qualified, so as to confine it to proceedings before the Civil Court. The proceedings, which have the effect on the assets of the CD are all covered in the expression 'proceeding'.

The tribunal opined that “there is marked difference in the expression used in Section 14, sub-section (1) of the IBC. Section 446, sub-section (1) uses expression “other legal proceeding”, while Section 14, sub-section (1) uses the expression “proceedings”. In view of the law laid down by the Hon'ble Supreme Court in Rejendra K. Bhutta (supra), it is clear that no proceeding can continue after imposition of moratorium, which has effect of depleting the assets of the CD or creating new liabilities on the CD, since the object or purpose of IBC is to resolve the CD.”

In Sundresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, (2023) while examining the fate of demand notices issued under Customs Acts after initiation of the CIRP, the Supreme Court held that “the demand notices to seek enforcement of custom dues during the moratorium period would clearly violate the provisions of Sections 14 or 33(5) of the IBC, as the case may be. This is because the demand notices are an initiation of legal proceedings against the Corporate Debtor.”

In the above case, the court further observed that the Respondent could only initiate assessment or re-assessment of the duties and other levies. They cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or 33(5) of the IBC.

Based on the above, the tribunal added that it is well settled law that a judgment of the Court has to be read in the context of the facts and ratio of judgment has to be read in reference to the facts, which have come for consideration before the Court. It is well settled that ratio of a judgment cannot be read as statute and above judgment of the Supreme Court, does not support the submission of the Appellant that after imposition of moratorium under Section 14, sub-section (1), it was open for the EPFO Authority to proceed with the assessment and conclude the assessment.

The tribunal further noting the difference between moratorium under section 14 which comes into play after admission of insolvency application and section 33 which kicks in when liquidation order is passed, observed that once order of liquidation is passed, moratorium under Section 14 comes to an end and moratorium under Section 33(5), which is differently worded, comes into play. Under Section 33(5), the expression used are “suit or other legal proceeding”, which occurs in Section 446 of sub-section (1) noticed above.

It also said that “thus, bar is only against suit or legal proceeding and there is no bar against assessment proceeding to be conducted by statutory Authorities, including the EPFO. Thus, after the liquidation, it is open for EPFO to carry on the assessment. Section 33(5), cannot be held to apply on assessment proceedings. However, while looking to the expression used in Section 14(1), assessment proceedings before the EPFO, cannot be continued after initiation of CIRP.”

The tribunal concluded that when the claim on the basis of assessment, which has been made subsequent to initiation of moratorium is hit by Section 14, sub-section (1) of the IBC, we are of the view that no such claim can be admitted in the CIRP.

Accordingly, the present appeals were dismissed.

Case Title: Employees Provident Fund Organization Regional Office Versus Jaykumar Pesumal Arlani and Anr.

Case Number: Company Appeal (AT) (Insolvency) No.1062 and 1065 of 2024

Judgment Date: 03/1/2025

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