Can EPF assessment continue during CIRP? NCLAT explains ‘Suits or proceedings against the corporate debtor’ under IBC, Read Judgment

In a recent judgment, the NCLAT examined whether assessment proceedings under the Employees' Provident Funds & Miscellaneous Provisions Act (hereinafter referred to as "EPF & MP Act") can continue during the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”).

The Tribunal highlighted that “suits or proceedings against the corporate debtor” under Section 14 of the Insolvency and Bankruptcy Code (referred to as “IBC”) cover actions impacting the debtor’s assets. This ruling addresses the admissibility of Provident Fund claims during the moratorium and post-Resolution Plan approval.

The Appellant argued that despite the moratorium under Section 14 of the IBC, proceedings under Section 7A of the EPF & MP Act can continue. They cited Supreme Court judgments to support the view that the moratorium only prevents enforcement, not the determination of dues. The Appellant claimed delays in the proceedings were caused by the Corporate Debtor (CD), not the EPF authorities. Since the assessment relates to a period before the CIRP, the rejection of the claim caused prejudice. The Appellant also emphasized that Provident Fund dues, including damages and interest, are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC, with priority over other debts as per the Tourism Finance Corporation case.

Contentions of the Respondent:

The Respondent’s Counsel argued that no claim was filed before the CoC approved the Resolution Plan. The assessment under Section 7A of the EPF & MP Act was passed during the CIRP, violating the moratorium, and thus, the claim based on it cannot be accepted. Citing the Supreme Court judgment in Sundresh Bhatt, Liquidator of ABG Shipyard, the Respondent argued that after the Resolution Plan approval, no claims can be considered by the RP. Therefore, the claims filed post-approval and during the moratorium are inadmissible.

The Tribunal considered the following issues:

1. Whether EPFO can continue assessment proceedings under Sections 7A, 14B, and 7Q of the EPF & MP Act, 1952 after the imposition of a moratorium under Section 14 of the IBC.
2. Whether claims based on assessments made after the imposition of a moratorium can be admitted in the CIRP.
3. Whether claims filed after the approval of the Resolution Plan can be admitted in the CIRP.

The NCLAT referred to the Supreme Court’s judgment in Rejendra K. Bhutta vs. Maharashtra Housing (2020), highlighting that after the moratorium is imposed, there is a “statutory freeze” to protect the debtor’s assets. The Court explained that the purpose of the moratorium is to prevent asset depletion during the insolvency process to allow for the corporate debtor's revival.

The NCLAT noted that “suits or proceedings against the corporate debtor” under Section 14 of the IBC includes any legal actions affecting the debtor’s assets. It emphasized that while recovery proceedings are prohibited during the moratorium, orders of assessment issued during the moratorium were permissible in the CIRP.

The NCLAT distinguished between the terms “legal proceeding” in Section 446 of the Companies Act and “proceeding” in Section 14(1) of the IBC. Referring to S.V. Kindaskar v. V.M. Deshpande, it pointed out that while “legal proceeding” in the Companies Act does not allow the continuation of assessment proceedings, the IBC’s broader definition does not bar assessment proceedings during the moratorium.

The NCLAT also referred to Sundresh Bhatt, Liquidator of ABG Shipyard (supra), noting that the IBC prevails over other laws, including the Customs Act. It ruled that demand notices issued during the moratorium period violated the provisions of Sections 14 and 33(5) of the IBC as they initiated legal proceedings against the corporate debtor.

The NCLAT concluded that EPFO cannot continue assessment proceedings during the moratorium under Section 14, but after the order of liquidation, Section 33(5) does not bar such proceedings. It further ruled that claims based on assessments conducted during the moratorium cannot be admitted in the CIRP.

The NCLAT, after considering the discussions, found no error in the impugned order passed by the Adjudicating Authority. Consequently, both Appeals were dismissed, and any pending IAs were also disposed of. No order was made regarding costs.

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