CoC-approved Plan Violating Sec 30(2) by Admitting only 35.13% of PF and Gratuity Claims of Workmen

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violation of section 30(2)

Case Details: Mrs. C.G. Vijyalakshmi v. Kumar Rajan, Resolution Professional - [2023] 149 taxmann.com 234 (NCLAT-Chennai)

Judiciary and Counsel Details

    • Justice M. Venugopal, Judicial Member & Ms Shreesha Merla, Technical Member
    • K.R. Jinan, Adv. & Abhilash Nediyalil Abraham, PCS for the Appellant.
    • P.V. Dinesh, Adv. P.V. Vinod, Adv., P.H. Arvindh Pandian, Sr. Adv., Shivshankar R. Panicker & Ms Sirshti Thukral for the Respondent. , Advs. for the Respondent.

Facts of the Case

In the instant case, the financial creditor bank filed an application u/s 7 of the IBC against the corporate debtor, which was admitted by the Adjudicating Authority (NCLT).

The respondent was appointed as a resolution professional (RP). The RP made a public announcement and a resolution plan submitted by the successful resolution applicant (SRA) was approved by the Committee of Creditors (CoC). The RP then filed an application before the NCLT seeking approval of the said resolution plan.

The National Company Law Tribunal (NCLT) by the impugned order approved the said resolution plan. Thereafter, an appeal was filed before the National Company Law Appellate Tribunal (NCLAT).

The appellants (i.e. employees/workmen of the corporate debtor) contended that the approved resolution plan was in contravention of section 30(2)(e) of the IBC as the RP and the CoC had ignored the applicability of the EPF and MP Act, 1952 and the Payment of Gratuity Act 1972, by allocating only a partial amount towards PF and GF and were not including the interest component.

The appellants, further contended that the Provident Fund, Gratuity Fund and interest were to be allocated to the appellants in full without any deduction. However, only 35.13% of their provident fund and gratuity claims were admitted in the said resolution plan, having treated them as secured creditors.

NCLAT Held

The NCLAT observed that PF and gratuity were to be paid in full as per the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and the Payment of Gratuity Act, 1972.

The NCLAT, further observed that since the amount paid to the appellant was only 35.13%, having treated them as a secured creditor, there was a violation of the provisions of section 30(2) of the IBC with respect to the payment of PF and gratuity.

The NCLAT held that the provident fund dues are not subject to distribution u/s 53(1) of the IBC and cannot be treated as secured debt. Therefore, any part payment of dues by the successful resolution applicant (SRA) was unjustified as per section 14B of the EPF Act.

The NCLAT, further held that SRA was obliged to make payment of unpaid provident and gratuity fund and pending dues to workmen/employees till the date of commencement of the CIRP.

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