PF Dues Cannot Be Quantified During Moratorium: NCLT Jaipur Rejects EPFO Claim In NDA Metaoxides CIRP

The National Company Law Tribunal at Jaipur has held that Section 36(4) of the Insolvency and Bankruptcy Code, 2016, which excludes provident fund dues from the liquidation estate, does not permit the creation or quantification of liabilities during the moratorium.

The tribunal further held that provident fund claims cannot be admitted when they are based on post-moratorium assessment proceedings or are unsupported by proof of employment and identifiable beneficiaries.

A bench of Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar observed:

“The Applicant has relied upon Section 36(4)(a)(iii) of the Code, which excludes provident fund dues from the liquidation estate. While the statutory protection accorded to legitimate provident fund dues is not in dispute, the said provision does not sanction creation or quantification of liabilities during moratorium, nor does it mandate admission of claims unsupported by proof of employment and identifiable beneficiaries.”

The application was filed by the Employee Provident Fund Organisation (EPFO), challenging the rejection of its claim by the Resolution Professional of NDA Metaoxides Pvt. Ltd. during the corporate insolvency resolution process.

The EPFO sought admission of Rs 12,12,027 towards provident fund contributions, interest, and damages, contending that such dues are statutory in nature and excluded from the liquidation estate.

The Resolution Professional rejected the claim on the ground that it was based on an assessment order passed under Section 7A of the EPF Act during the moratorium under Section 14 of the Code and was not supported by primary records such as wage registers, salary slips, or employee-wise details.

Agreeing with the Resolution Professional, the tribunal observed that the moratorium under Section 14 has a wide ambit and extends to proceedings that would result in fastening or crystallizing liability against the corporate debtor during the insolvency resolution process.

The tribunal held that proceedings under Section 7A of the EPF Act are quasi-judicial in nature and that any assessment undertaken during the moratorium cannot be relied upon for the purpose of admitting a claim in CIRP.

Clarifying the scope of Section 36(4), the tribunal held that while provident fund dues are protected and excluded from the liquidation estate, such protection applies only to legitimate dues supported by records and referable to identifiable employees, and the provision does not sanction creation or quantification of liabilities during the moratorium.

Finding that the claim was based on post-moratorium assessment proceedings and lacked supporting employment records, the tribunal upheld the decision of the Resolution Professional and dismissed the application.