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

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.

List of Cases Reviewed

• • RBL Bank Ltd. v. Hindustan Newsprint Ltd. [2013] 149 taxmann.com 233 (NCLT – Kochi) partly reversed [See Annex].
  • Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia, Resolution Professional of Jet Airways (India) Ltd. [2023] 146 taxmann.com 31 (NCLAT- New Delhi) (para 29)
  • Tourism Finance Corporation of India Ltd. v. Rainbow Papers Ltd. [2020] 120 taxmann.com 265 (NCL-AT)
  • Sunil Kumar Jain v. Sundaresh Bhatt [2022] 137 taxmann.com 303/172 SCL 140 (para 24) followed.

List of Cases Referred to

• • State Bank of India v. Moser Baer Karamchari Union [2019] 108 taxmann.com 251 (NCLAT – New Delhi) (para 4)
  • Regional Provident Fund Commission-I v. Ramachandran D. Choudhary [Comp. App. (AT) (Ins.) No. 1001 of 2019] (para 4)
  • K. Sashidhar v. Indian Overseas Bank [2019] 102 taxmann.com 139/152 SCL 312 (SC)/2019 SCC Online SC 257 (para 5)
  • Kalpraj Dharamshi v. Kotak Investment Advisors Ltd. [2021] 125 taxmann.com 194/166 SCL 583 (SC) (para 5)
  • Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [2021] 126 taxmann.com 132/166 SCL 237 (SC)/2021 SCC Online SC 313 (para 5)
  • Committee of Creditors Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 (SC)/2019 SCC Online SC 1478 (para 5)
  • Savan Godiwala v. Apalla Siva Kumar [2020] 116 taxmann.com 750 (NCLAT)/2020 SCC Online NCLAT 191 (para 7)
  • Regional Provident Fund Commissioner Employees Provident Fund Organisation v. Vandana Garg [2021] 127 taxmann.com 341/168 SCL 64 (NCLAT – Chennai) (para 7)
  • Sikander Singh Jamuwal & v. Vinay Talwar, RP [2022] 137 taxmann.com 238 (NCLAT – New Delhi) (para 7)
  • Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia Resolution Professional of Jet Airways (India) Ltd. [2023] 146 taxmann.com 31 (NCLAT- New Delhi) (para 7)
  • Assam Tea Employees Provident Fund Organization v. Madhur Agarwal [Comp. App. (AT) (Ins.) No. 262 of 2022, dated 6-1-2023] (para 7)
  • Hail Tea Ltd. v. Assam Tea Employees Provident Fund Organization [Civil Appeal No. 9383 of 2022, dated 6-1-2023] (para 7)
  • Som Prakash Rekhi v. Union of India [1981] 1 SCC 449 (para 16)
  • Jalan Fritsch Consortium v. Regional Provident fund Commissioner [Civil Appeal No. 407 of 2023, dated 30-1-2023] (para 21)
  • Tourism Finance Corporation of India Ltd. v. Rainbow Papers Ltd. [2020] 120 taxmann.com 265 (NCLAT – New Delhi) (para 24)
  • Sunil Kumar Jain v. Sundaresh Bhatt [2022] 137 taxmann.com 303/172 SCL 140 (SC)/7 SCC 540 (para 24)
  • Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh [2020] 113 taxmann.com 421/158 SCL 567 (SC) (para 26)
  • Ebix Singapore (P.) Ltd. v. Committee of Creditors of Educomp Solutions Ltd. [2021] 130 taxmann.com 208 (SC)/2021 SCC Online SC 707 (para 27).