Liquidator Cannot Admit Unadjudicated PF Dues Based On Departmental Estimates: NCLT Ahmedabad

A Bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma held that a statutory authority cannot require a Liquidator to admit a claim merely because the amount has been asserted, without sufficient material to establish and verify the liability. It observed:

“Conversely, the Liquidator cannot be directed to admit an amount communicated by the PF authorities merely because it is asserted by a statutory authority where the supporting material is insufficient for verification.”

Torque Automotives Pvt. Ltd. was ordered into liquidation on 29 January 2026, with Pankaj Prabhudayal Goenka appointed as the Liquidator. The Employees' Provident Fund Organisation (EPFO) lodged its initial claim on 24 February 2026 for Rs. 95.41 lakh, covering short payments and tentative dues for the financial years 2018 to 2020.

On 14 May 2026, the EPFO submitted a revised claim of Rs. 1.79 crore, including damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (which permits levy of damages for default in payment of provident fund contributions) and interest under Section 7Q (which provides for interest on delayed payments), based on reports prepared by Area Enforcement Officers.

The Liquidator admitted only the verified short payment of Rs. 1.68 lakh and rejected the remaining amount as unsubstantiated. The EPFO challenged the decision under Section 42 of the Insolvency and Bankruptcy Code, 2016 (which provides a right of appeal against a Liquidator's decision to accept or reject a claim).

The EPFO contended that describing the dues as “provisional/tentative” was illegal, as provident fund liabilities constitute a first charge on the assets of an establishment under Section 11(2) of the Employees' Provident Funds and Miscellaneous Provisions Act. It further submitted that insisting on filing claims in prescribed Form C was contrary to law, as the prescribed format was directory and not mandatory.

The EPFO also contended that the Liquidator's failure to produce salary registers during inspection could not subsequently be relied upon to describe its assessment as provisional or tentative. It submitted that provident fund legislation is social welfare legislation and must be liberally construed in favour of employees.

The Liquidator opposed the application, submitting that the bulk of the claim was based on internal inspection reports and not on any crystallised statutory assessment order under Sections 7A, 7Q or 14B of the Employees' Provident Funds and Miscellaneous Provisions Act.

It was argued that a substantial portion of the demand relied upon an arbitrary 40% wage formula for “unidentified employees”, which was impermissible in law. The Liquidator submitted that his role was confined to verification and collation of claims based on legally enforceable material and that he had no power to admit estimated, provisional or unadjudicated demands.

The Liquidator further submitted that damages and interest require quasi judicial adjudication after notice and hearing. It was also argued that the first charge priority under Section 11(2) of the Employees' Provident Funds and Miscellaneous Provisions Act attaches only to legally enforceable, crystallised and adjudicated dues.

The Bench noted that provident fund dues enjoy statutory protection, but held that such protection applies only to legally enforceable and established liabilities. It also noted that Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code excludes provident fund dues from the liquidation estate, but held that claimants must still establish the existence and quantum of the liability. It held:

“The existence of such protection does not by itself relieve the claimant of establishing the factual and legal basis of the amount asserted for the purpose of verification under the Code.”

The Tribunal further noted that Sections 38 to 40 of the Insolvency and Bankruptcy Code require the Liquidator to receive, verify and admit or reject claims, wholly or partly, after examining the material furnished by the claimant.

On the facts, it noted that the principal contribution claim of Rs. 61.79 lakh was unsupported by any statutory determination and relied on estimates concerning unidentified employees. It further held that damages under Section 14B are not automatic and require statutory adjudication. In the absence of such orders, the departmental calculations were insufficient to establish the liability.

The Bench also relied on the National Company Law Appellate Tribunal's decision in EPFO v. Chandra Prakash Jain, which held that claims assessed after commencement of liquidation cannot be admitted. It further observed:

“The Liquidator is required to examine the material placed before him and is neither required to undertake an independent statutory assessment nor entitled to disregard a duly established statutory determination.”

It concluded that the disputed claim of Rs. 1.77 crore was founded on estimated computations, internal enforcement material, and calculations of damages and interest unsupported by sufficient material to establish the amounts as crystallised liabilities.

Accordingly, the NCLT upheld the Liquidator's decision and dismissed the EPFO's application.

For Applicants: Advocate A. V. Nair

For Respondents: Advocate Harshil Patel