PF Dept.Attachment Of CD's Bank Account Before CIRP, Can't Continue During Moratorium: NCLAT Chennai

Background Facts

The Adjudicating Authority vide an Order dated 05.05.2020 had initiated the Corporate Insolvency Resolution Process ("CIRP") against M/s. Easun Reyrolle Limited ("Corporate Debtor"). Mr. B. Parameshwara Udpa was appointed as the Interim Resolution Professional ("IRP") and later confirmed as Resolution Professional ("RP").

The IRP came across the `Orders of Attachment' issued by Employees' Provident Fund Organization ("EPFO/Respondents") in 2018-19, attaching the Bank Account of the Corporate Debtor maintained with the State Bank of India. The State Bank of India responded to EPFO, stating that in terms of Section 18(f) of Insolvency and Bankruptcy Code, 2016 ("IBC"), the RP has ownership over all the Assets of the Corporate Debtor till the conclusion of CIRP. Hence, Bank is bound to allow operations/withdrawals done by the RP in the concerned bank account.

The RP filed an Application before the Adjudicating Authority, seeking removal of Attachment Orders. The Adjudicating Authority vide Order dated 20.04.2021 directed the RP to make adequate provisions in relation to the amount stated in the `Orders of attachments', as due towards PF dues. Further, subject to making adequate provisions to their satisfaction, EPFO can remove the Orders of Attachment. The RP filed an appeal against the order dated 20.04.2021, for the same being contrary to the Section 14 of IBC.

Issue

(i) Whether an `Attachment Order' on Corporate Debtor's bank account that was imposed before the initiation of CIRP, can continue during Moratorium under Section 14 of IBC?

(ii) Whether, the Resolution Professional is duty bound to make adequate provisions for 'Provident Fund' to make adequate provisions for `Provident Fund' even though the 'Corporate Debtor' did not have separate `Provident Fund Account'.

Decision Of NCLAT

The Bench opined that Section 14(1)(a) imposes complete embargo on any proceeding against the Corporate Debtor by any Authority till CIRP completion. Moratorium covers attachment of Bank accounts by any Authority including `EPFO' and it is required to be lifted to grant Corporate Debtor a fair chance of revival and to ensure that Resolution Plans are received.

It was held that attachment of Bank Account of Corporate Debtor by `EPFO' cannot be continued during Moratorium and proceedings are required to be kept in abeyance till lifting of moratorium. Liberty can, however, be given to the EPFO to continue/ initiate proceedings against the Corporate Debtor after lifting of the Moratorium and completion of CIRP.

It was further observed that amount deducted for Provident Fund, purely belongs to an Employee and is not an Asset of the Corporate Debtor. The PF amount cannot be touched by IRP, RP or Liquidator. "However, it is important to note that the `Provident Fund', is to be of `Establishment Fund' kept separately by the company and then only this proviso will be applicable. If, even wrongly and in violation of the laws of the land, the company fails to establish such `Provident Fund', then `Interim Resolution Professional/Resolution Professional/Liquidator' is not expected to provide for same, except under Section 53 of the I & B Code, 2016."

The Bench observed that the Corporate Debtor did not have any specific fund towards `Provident Fund'. Therefore, RP had rightly sought lifting of Attachment Orders on Bank Account of Corporate Debtor and the Adjudicating Authority should have done accordingly. It was further held that RP is not duty bound to make adequate provisions for Provident Fund when Corporate Debtor did not have separate Provident Fund Account.

The order dated 20.04.2021 was set aside.

Case Title: Mr. B. Parameshwara Udpa v Assistant PF Commissioner & Anr.

Case No.: Company Appeal (AT) (CH) (Ins) No. 231 of 2021

Counsel For Appellant: Mr. B. Dhanaraj, Advocate

Counsel For Respondent: Mr. M.S. Viswanathan, Advocate

Click Here To Read/Download Order