A Critical Analysis Of RPFC Telangana Vs. Vandana Garg And Ors. Of NCLAT, Chennai Bench

first_imgColumnsA Critical Analysis Of RPFC Telangana Vs. Vandana Garg And Ors. Of NCLAT, Chennai Bench Jinan K R20 May 2021 11:42 PMShare This – xA recent order dated 12th May 2021 by the NCLAT Chennai Bench in Regional Provident Fund Commissioner Vs. Vandana Garg and Ors. [CA (AT) (Ins.) No.50 of 2021] prompted me to have this write-up about the order. At the outset, I am of the humble view that this order requires reconsideration. The RPF Commissioner, Telangana filed the appeal before NCLAT Chennai Bench under the Insolvency and Bankruptcy Code, 2016 to obtain an order for inclusion of total claim of Provident fund dues from the Resolution Applicant to the Appellant. The NCLT Chennai Bench, approved the Resolution Plan wherein claim as per Form B (Rs. 1,95,01,301.00) submitted by the Commissioner was admitted and seems to have been allocated to it as per the Resolution Plan under S.31(1) of the Insolvency and Bankruptcy Code. The Commissioner seems to have committed an error in calculating the entire provident fund amount due to the employees of the Corporate Debtor and preferred the Appeal seeking to enhance its claim from the said amount to Rs.2,84,69,747.00. The NCLAT observed that the ratio laid down in The Committee of Creditors of Essar Steel India ltd, MR Savan Godiwala, Liquidator of Lanco Infratech Ltd; Moser Baer Karmachari Union and Anr and Ghanashyam Mishra and Sons Private ltd cases applies to the case in hand and dismissed the Appeal by holding that:Advertisement “Based on the above the law laid down by Hon’ble Supreme Court, it is clear that after approval of the Resolution Plan under Section 31, the claims as provided in the Resolution Plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors including the Central Government, any State Government or any Local Authority, Guarantors and other Stakeholders. On the approval of the Resolution Plan by the Adjudicating Authority, all such claims that are not a part of the Resolution Plan shall stand extinguished. No person will be entitled to initiate or continue any proceedings regarding a claim that is not part of the Resolution Plan. The Appellants claim about Provident Fund dues amounting to ₹1,95,01,301/-which was earlier raised at the time of initiation of CIRP and was later admitted, stood frozen and will be binding on all the Stakeholders, including the Central Government. After approval of the Resolution Plan by the Adjudicating Authority, all such claims that are not part of the Resolution Plan shall stand extinguished. No person is entitled to initiate or continue any proceeding regarding a claim that is not part of the Resolution Plan”.Advertisement The Bench seems to have shut out its mind as to the application of statutory protection that ensured to workmen and employees of a Corporate Debtor as per provisions under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and Payment of Gratuity Act, 1972. Whether or not the workmen/employees of the Corporate Debtor had submitted their claim for Provident Fund and Gratuity Fund or whether or not their respective claim has been admitted by the Resolution Professional is not clear from the order. However, the RPF Commissioner has submitted the organisation’s claim and their claim has been partially admitted and allocated in the Resolution Plan. It must be noted that the amount received has to be distributed to the workmen and employees of the Corporate Debtor. That means the claim of Commissioner represents the claim of the employees and workmen in respect of their claim for provident fund.Advertisement Advertisement Before I go into the findings of the NCLAT, let me deal with the public policy behind the relevant provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act. His Lordship Justice Mr. Krishna Iyer in Som Prakash Rekhi Vs Union Of India (1981 1SCC 449) laid down certain principles interpreting S.10 and 12 of Employees’ Provident Funds and Miscellaneous Provisions Act and S. 14 of the Payment of Gratuity Act. It is highly relevant to extract a paragraph from the said judgment. It is extracted below:Advertisement Advertisement Advertisement “The payment of statutory benefits is a part of the directive principles enshrined in the Constitution of India. At Paragraph No.66, it is stated that “The public policy behind the provisions of Sections .10, 12 and 14 of the respective statutes is clear. We live in a welfare state, in a socialist republic, under a Constitution with profound concern for the weaker classes including workers (Part IV) welfare benefits such as pensions, payment of provident fund and gratuity are in fulfilment of the Directive Principles. The payment of gratuity or provident fund should not occasion any deduction from the pension as a “set off”. Otherwise, the solemn statutory provisions ensuring provident fund and gratuity become illusory. Pensions are paid out of regard for past meritorious services. The root of gratuity and the foundation of provident fund are different. Each one is a salutary benefaction statutorily guaranteed independently of the other. Even assuming that by private treaty parties had otherwise agreed to deductions before the coming into force of these beneficial enactments they cannot now be deprivatory. It is precisely to guard against such mischief that the non-obstante and overriding provisions are engrafted on these statutes.” Article 141 of the Constitution makes the law declared by the Supreme Court binding on all courts in India which takes within its sweep all tribunals and other judicial and quasi-judicial authorities. It appears to me that the NCLAT has not considered the overriding effect of S.238 of the Insolvency and Bankruptcy Code in the right perspective in case of any inconsistency in other laws while placing in juxtaposition with the apposite provision under the very same enactment, namely, S. 30(2)(e) of the Insolvency and Bankruptcy Code. If the approved Resolution Plan contravenes any provisions of law for the time being in existence as per Section 30(2)(e), on examination by the Resolution Professional, he cannot present the said Resolution Plan before the Committee of Creditors for its approval under Section 30(3). The Committee of Creditors cannot go into the legality or otherwise of the Resolution Plan. The Resolution Professional has to satisfy himself that the Resolution Plans received by him confirm the conditions under Section 30(2)(a) to (f). He has to examine and confirm each Resolution Plan received by him and his role is not that of a Post Office to receive the Resolution Plans and to pass them on to the Committee of Creditors. The Adjudicating Authority has also a supervisory role under Section31(1) to satisfy itself that the Resolution Plan approved by the Committee of Creditors under section 30(4) meets the requirements referred to in Sub-Section(2) of S.30 before it passes an order of Approval. This is the second scrutiny of a Resolution Plan under the Insolvency and Bankruptcy Code after the first scrutiny by the Resolution Professional under Section 30(2). The Adjudicating Authority cannot act as a mere rubber stamp or act in a mechanical manner on the ground that everything in the Resolution Plan is a piece of commercial wisdom while granting the approval of a Resolution Plan by the Committee of Creditors who are not competent to examine the Resolution Plan from the legal angle, and which they are not expected to do, once legally scrutinised by the Resolution Professional. The Committee of Creditors is supposed to view the Resolution Plan from the business angle only to breathe life into the ailing Corporate Debtor which requires the supply of oxygen and ventilator, if necessary. No doubt the approval of the Resolution Plan by the Adjudicating Authority is bad in law in the instant case. The Employees’ Provident Funds and Miscellaneous Provisions Act and the Payment of Gratuity Act contain certain protective provisions to the employees and workmen which seems to have been ignored by the NCLAT. The provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act are not applied in their true spirit in the instant order. The crucial question to be answered in the case in hand to my respectful view is to find out which provisions of the Insolvency and Bankruptcy Code are not consistent with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act. The NCLAT, in my humble opinion, has not addressed itself to any specific case of inconsistency. If there is no inconsistency with any of the provisions of the Insolvency and Bankruptcy Code, the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act stand in the instant case and are decisive of the point in dispute. The said omission according to me is liable to be corrected by the better wisdom of the Supreme Court in the event of any challenge of the decision of the NCLAT. It also appears to me that the NCLAT has not considered the effect of S.238 of the Insolvency and Bankruptcy Code and the non-obstante and overriding provisions in the Employees’ Provident Funds and Miscellaneous Provisions Act, although brought to the notice by the appellant before the Tribunal. The Insolvency and Bankruptcy Code and Employees’ Provident Funds and Miscellaneous Provisions Act contain non-obstante and overriding provisions. S. 238 gives it an overriding effect over other laws. To facilitate the overriding effect of various other statutes, the code added Section 245 to 255 by amending provisions of statutes so that inconsistency has been taken away by way of the said amendment. S.255 relates to the amendment of The Companies Act, 2013. The 11th schedule deals with the relevant amendments to the Companies Act, 2013. By way of this amendment, S.326 and S.327 to be read along with provisions of the Code for understanding the meaning of workmen and workmen’s dues. Explanation to S.327 (iv) includes ‘all sums due to any workmen form the provident fund, the gratuity fund or any other fund for the welfare of the workmen, maintained by the company’. That means workmen’s dues have the same meaning as assigned in section 326 of the Companies Act, 2013, which includes provident fund, pension and gratuity fund. The above-said amendment in the above said Acts were intentionally added by the legislature so as to harmonise with the provisions of the Insolvency and Bankruptcy Code. The Code will override anything inconsistent contained in other enactments. The legislature has not touched the Employees’ Provident Funds and Miscellaneous Provisions Act and Payment of Gratuity Act. Why? Because the legislature deliberately left non-obstante and overriding provisions in the Employees’ Provident Funds and Miscellaneous Provisions Act for protecting the rights of workmen and employees to be considered under any other Act or Code. In the given set of facts of the instant case S.10(1), S.11(2) and S.14B of the Employees’ Provident Funds and Miscellaneous Provisions Act are relevant for construction. S. 10(1) of the Act relates to provident fund, superannuation, welfare fund and the like. S.11 relates to contribution payable by the Employer, damages recoverable from the employer, priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be and S.11(2) relates to non-obstante and overriding provision. 10(1). The amount standing to the credit of any member in the Fund [1][or of any exempted employee in a provident fund] shall not in any way be capable of being assigned or charged and shall not be liable to attachment under any decree or order of any court in respect of any debt or liability incurred by the member or the exempted employee, and neither the official assignee appointed under the Presidency-towns Insolvency Act, 1909 (3 of 1909), nor any receiver appointed under the Provincial Insolvency Act, 1920 (5 of 1920), shall be entitled to, or have any claim on, any such amount. 11(2). Without prejudice to the provisions of sub-section (1), if any amount is due from an employer [2][whether in respect of the employee’s contribution (deducted from the wages of the employee) or the employer’s contribution], the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts.]14B. Power to recover damages.– Where an employer makes default in the payment of any contribution to the Fund the [3][Pension] Fund or the Insurance Fund] or in the transfer of accumulations accumulations required to be transferred by him under sub-section (2) of section 15 [4][or sub-section (5) of of section 17] or in the payment of any charges payable under any other provision of this Act or of 5[any Scheme or Insurance Scheme] or under any of the conditions specified under section 17, [5][the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf] may recover [6][from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:] [7][PROVIDED that before levying and recovering such damages, the employer shall be given a reasonable reasonable opportunity of being heard]: [8][PROVIDED further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, subject to such terms and conditions as may be specified in the Scheme.] Referring to S. 10(1) of the Employees’ Provident Funds and Miscellaneous Provisions Act, the Supreme Court in Som Prakash Rekhi has said that “S.10(1) puts this matter beyond doubt. This obligation of the second respondent is a statutory one and having regard to the provisions of S.11, it cannot be affected by any instrument or decree or order. The statutory continuation of a pre-existing liability to pay pension, provident fund or gratuity, cannot be avoided having regard to S.10”. A similar case has been considered by the Appellate Tribunal in Regional Provident Fund Commissioner-I Ahmedabad Vs. Ramchandra D. Choudhary. The Appellate Tribunal referring to S.7Q and 14B of the Employees’ Provident Funds and Miscellaneous Provisions Act, S.36(4) (iii) and S.238 of IBC has held that: “However, as no provisions of the Employees Provident Funds and Miscellaneous Provision Act, 1952 is in conflict with any of the provisions of the I&B Code and, on the other hand, in terms of S.36(4) (iii), the provident fund and gratuity fund are not the assets of the Corporate Debtor, there being specific provisions, the application of Section 238 of the I&B Code does not arise”. In the said case the principal amount of provident fund has been allocated to the appellant but post-CIRP interest has not been allocated. Overruling the objections of the resolution applicant ‘Kushal Limited’ against post CIRP interest, the Appellate Tribunal directed the resolution applicant to release full provident fund and interest thereof in terms of the Provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act. The Resolution applicant filed an appeal (Civil appeal No. 1920 of 2020) before the Supreme Court. However, the Supreme Court dismissed the appeal confirming the order of the NCLAT. In the instant case, the Corporate Debtor has deducted employees’ share of contribution from their wages but defaulted to credit the amount to the respective fund. Therefore, at no fault of employees, they were denied their valuable right protected under the Employees’ Provident Funds and Miscellaneous Provisions Act. The debt owed to the Provident Fund Commissioner is the debt owned by the employees. Only because no separate corpus was created by the Corporate Debtor for the provident fund, S. 36(4) (a) (iii) of the Insolvency and Bankruptcy Code cannot be ignored as per the proposition laid down in Kushal Ltd and Som Prakash Rekhi’s case referred above. Kushal Ltd case is a three-member decision of the NCLAT, which seems to be binding on two Member Bench. However, it appears to me that this decision was not placed before the Bench for its reference. The Appellate Tribunal mainly relied on Ghanashyam Mishra & Sons for rejecting the claim of the appellant. It appears to me that the ratio laid down in the said case is quite inapplicable to the case in hand. The claim of appellant is not a new claim. This claim was included in the Resolution Plan. The dispute is only related to the quantum and not a fresh claim upsetting the resolution fund offered by the resolution applicant. To view this from another angle, the employees’ claim for provident fund and gratuity fund would have been mentioned in the Information Memorandum as per S. 29 read with Regulation 36(2) (i) of CIRP Regulation, 2016. A Resolution Professional is duty bound to update each one of the claims received by him as per S.25 of the Code till the date of approval of the Plan. The number of workers and employees and liabilities of the Corporate Debtor towards them to be mentioned in the Information Memorandum. So, it cannot be assumed that the Resolution Applicant is ignorant of the claim for provident fund unless the RPF Commissioner gives the correct figure in Form-B. Poor workmen should not be penalised due to inadvertent mistakes on the part of the Commissioner. On the other hand, the resolution professional is bound to provide the exact amount of provident fund and gratuity fund claim of the workmen in conformity with the applicable provisions under Employees’ Provident Funds and Miscellaneous Provisions Act as per S.30(2) (e) of Insolvency and Bankruptcy Code. Form – D submitted by the workmen/employees would have given the data. So according to me the entire amount would be frozen due to the workmen/employees towards provident fund and not the part claim amounting to Rs. 1,95,01.301/-. Ends of justice can be met only by awarding the entire claim of provident fund due to employees/workmen. Moreover, as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, the workmen/employees’ right to claim full provident fund with interest and damages will never ever be extinguished as per the principle laid down in Som Prakash Rekhi. For the aforesaid reasons, it appears to me that the decision of NCLAT is capable of great mischief by tending to deny the statutory payments to the workmen. The legislative intent and ratio laid down in the above referred cases were misread and got twisted out of shape. To keep it out of the liquidation asset is meant only to give greater protection to the amounts due to the workmen and employees under Employees’ Provident Funds and Miscellaneous Provisions Act and Payment of Gratuity Act. It is to be made part of the Resolution Plan. If not, the plan requires rejection for contravening Section 30(2)(e). Hence, according to my understanding about the cases cited by the NCLAT in the instant case, and having regard to the provisions of S.7Q, 10(1), 11 and 14 B no authorities, Committee of Creditors, Resolution Applicant or the Resolution Professionals are empowered to deduct, reduce or alter the claim for provident fund due to the employees of the Corporate Debtor under resolution. The non-inclusion of the entire claim for Provident fund in the resolution plan is inconsistent with section 30(2) (e) of IBC. Before parting, I want to share a quote from the Som Prakash Rekhi case- “Jawaharlal Nehru warned the Constituent Assembly about the problem of poverty and social change: ‘The service of India means the service of the millions who suffer. It means the ending of poverty and ignorance and disease and inequality of opportunity. The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and sufferings, so long our work will not be over’. Law cannot stand aside from the social changes around it”. With these thoughts about the case in hand let me wind up my discussion on the topic with the hope that it will ignite further debate. Views are personal. The Author is an Advocate practising in Kerala and Former Member Judicial NCLT and District Judge (Retd.). References: 1. Committee of Creditors of Essar Steel India ltd Vs. Satish Kumar Gupta & Ors, Civil appeal No. 8766-67 of 2019. Supreme Court of India 2. MR Savan Godiwala, Liquidator of Lanco Infratech Ltd Vs. Apalla Siva Kumar, CA(AT)(Ins.) No.1229 of 2019.NCLAT State bank of India Vs. Moser Baer Karmachari Union and Anr, CA(AT) (Ins.) No. 396 of 2019.NCLATGhanashyam Mishra and Sons Private ltd. Civil Appeal No.1554 of 2021. Judgments | SUPREME COURT OF INDIASom Prakash Rekhi Vs Union of India (1981 1SCC 449)SCC Online 6. Regional Provident Fund Commissioner-I Ahmedabad Vs. Ramchandra D. Choudhary. CA(AT) (Ins.) No.1001 of 2019. [1] Inserted by Amendment Act 37 of 1953, w.e.f 12.12.1953. [2] Substituted for the words and and brackets ” in respect of the employee’s contribution (deducted from the wages of the employee) for a period of more than six months ” by amendment act 33 of 1988. [3] Substituted for ‘family pension’ by Act 25 of 1996,w.r.e.f.16.11.1995 [4] Inserted by Amendment Act 28 of 1963, w.e.f 30.11.1963. [5] Substituted for ‘the appropriate government’ by Amendment Act 40 of 1973,w.e.f.1.11.1973. [6] substituted for ‘from the employer such damages, not exceeding the amount of arrears as it may think fit to impose’ by Amendment Act of 1988, w.e.f, 1.9.1991. [7] Inserted by Amendment Act 40 of 1973, w.e.f 1.11.1973. [8] Inserted by Amendment Act 33 of 1988, w.e.f. 1.9.1991. TagsNational Company Law Appellate Tribunal (NCLAT) Regional Provident Fund (RPF) Subscribe to LiveLaw, enjoy Ad free version and other unlimited features, just INR 599 Click here to Subscribe. All payment options available.loading….Next Storylast_img

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