Non-Admissibility of Post-Liquidation EPFO Claims in Liquidation Proceedings: An NCLAT Ruling

Non-Admissibility of Post-Liquidation EPFO Claims in Liquidation Proceedings: An NCLAT Ruling

“Understanding the Limits of EPFO Claims During Corporate Liquidation”

The National Company Law Appellate Tribunal, New Delhi, has recently delivered a significant judgment clarifying the admissibility of claims arising after the commencement of liquidation proceedings. The ruling pertains to the Employees’ Provident Fund Organization’s dues assessed post-liquidation commencement, under Section 7A of the EPF Act, 1952, and their status in liquidation proceedings under the Insolvency and Bankruptcy Code.

Background and Facts of the Case

The Corporate Insolvency Resolution Process of M/s. Gujarat Foils Limited was initiated by an order dated 30 November 2017. Subsequently, the National Company Law Tribunal, Ahmedabad, ordered the liquidation of the Corporate Debtor on 16 September 2019. The EPFO, acting as the appellant, concluded its inquiry under Section 7A of the EPF Act on 11 October 2021, determining Provident Fund dues amounting to Rs. 1,68,76,185. Later, on 25 October 2021, the EPFO submitted a comprehensive claim totalling Rs. 4,57,13,010, inclusive of damages and interest under Sections 14B and 7Q of the EPF Act, to the liquidator.

However, the liquidator rejected this claim through a letter dated 20 November 2021, citing violation of the moratorium imposed during liquidation. Following this, the Corporate Debtor, under the liquidator’s instructions, challenged the Section 7A assessment before the Central Government Industrial Tribunal, Ahmedabad. The Corporate Debtor’s property was eventually sold as a going concern on 11 January 2022, transferring management to the successful bidder. The EPFO then filed an interlocutory application (IA No.114 of 2023) before the NCLT, seeking directions for the release of Provident Fund dues, invoking Section 36(4)(a)(iii) of the IBC read with Sections 11 and 17B of the EPF Act. The NCLT rejected this application on 21 March 2025, prompting the EPFO to appeal before the NCLAT.

Legal Issues Examined

The primary legal question revolved around the admissibility of claims determined post-liquidation commencement. The appellant contended that the dues assessed on 11 October 2021 related to liabilities incurred prior to the initiation of CIRP and that under Section 36(4) of the IBC, the liquidator is obliged to pay statutory dues including Provident Fund dues. Conversely, the adjudicating authority and subsequently the NCLAT emphasized the distinction between claims existing on the liquidation commencement date and those arising thereafter. The Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016, particularly Regulation 16(2), mandates that claims must be established as of the liquidation commencement date to be admitted in the liquidation process.

Findings and Reasoning of the NCLAT

The NCLAT bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), upheld the adjudicating authority’s decision. The Tribunal held that:

• The EPFO’s claim was based on assessments under Section 7A conducted on 11 October 2021, after the liquidation commencement date of 30 November 2017.
• Claims filed post-liquidation that were not existing as of the liquidation commencement date are inadmissible in liquidation proceedings.
• The liquidator’s rejection of the EPFO’s claim complied with Regulation 16(2) of the IBBI Regulations, 2016.
• The non-admission of the claim within the liquidation process does not bar the EPFO from pursuing other legal remedies for recovery of dues arising after the liquidation commencement.

The Tribunal noted that the liquidation process had effectively closed the window for claims related to pre-liquidation liabilities, and the subsequent EPFO dues were therefore outside the ambit of liquidation claims.

Implications

This ruling offers crucial clarity on the treatment of statutory dues, specifically EPFO claims, during liquidation under the IBC framework. It firmly establishes that:

• Only claims existing as on the liquidation commencement date are admissible within liquidation proceedings.
• Claims arising post-liquidation must be pursued through alternative legal mechanisms and cannot be admitted or realized from liquidation assets.
• Liquidators are under no obligation to accept claims based on post-liquidation assessments.

The judgment underscores the importance of timely claim submissions during liquidation and delineates the scope and limits of statutory dues recovery within insolvency resolution and liquidation frameworks. For statutory authorities like EPFO, this necessitates vigilance in filing claims within stipulated timeframes and exploring other legal avenues for dues arising thereafter.