Critiquing the NCLT Ruling on EPFO Assessment Proceedings Amidst CIRP Moratorium – By Chidambaram Ramesh

Critiquing the NCLT Ruling on EPFO Assessment Proceedings Amidst CIRP Moratorium

-By Chidambaram Ramesh
[Author of The Law of Employees’ Provident Funds – A Case-law Perspective]

In a recent ruling related to M/s Excel Glass Limited1, the Kochi Bench of the National Company Law Tribunal has decided that the invocation of measures outlined in Section 14-B and Section 7-Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, after the commencement of the Corporate Insolvency Resolution Process (CIRP), would be a violation of the moratorium. The NCLT has gone further by directing the Liquidator to seek necessary approval from the IBBI in order to institute legal proceedings against the EPFO officials who conducted the assessment proceedings during the moratorium period.  This decision has raised an important legal question as to whether assessment processes conducted under various statutes, including the EPF Act, can be classified as “suits or proceedings” under Section 14(1)(a) of the Insolvency & Bankruptcy Code.

The EPF Act serves as a social welfare measure designed to safeguard the interests of the vulnerable segments of society in alignment with the guiding principles outlined in the Constitution of India’s directive principles.  The entitlement of all other creditors to assert their claims over the company’s assets constitutes a property right, whereas the dues owed to workers, particularly their provident fund (PF) dues, are intricately linked with the fundamental Right to Life.  This is because workers diligently set aside a portion of their hard-earned income throughout their careers, aiming to secure their post-retirement life.  Perhaps precisely due to this rationale, the PF, pension, and gratuity fund dues have been expressly excluded from the scope of liquidation estate assets.  This exclusion is accompanied by the stipulation that these dues owed to the workers and employees are to be considered as assets of the respective workers held within the possession of the corporate debtor.  Consequently, these dues are not regarded as claims on equal footing with other creditors; instead, they are rightfully acknowledged as assets possessed by the workers and held by the corporate debtor.

Given that the Insolvency & Bankruptcy Code of 2016 is a relatively recent enactment, there is a scarcity of authoritative judicial rulings from higher courts that establish precedents concerning matters pertaining to the moratorium. Nonetheless, it’s worth noting that Section 14 of the I & B Code shares similarities (pari materia) with Section 446 of the 1956 Companies Act.  Consequently, it is viable and suitable to draw upon pertinent legal precedents established under the Companies Act to inform our understanding of this issue.

The text of Section 446 of the Companies Act, 1956 is as follows:

Section 446. —Suits Stayed on Winding-up Order

(1) When a winding-up order has been made, or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose.

(2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain or dispose of

(a) any suit or proceeding by or against the company;

(b) any claim made by or against the company (including claims by or against any of its branches in India);

(c) any application made under section 391 by or in respect of the company;

(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company;”

Whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises, or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960.] (65 of 1960)

In the case of S.V. Kandeakar vs V.M. Deshpande and another,[1] the Supreme Court ruled that the processes of assessment aimed at determining the tax liability should be categorized as legal proceedings of a nature that can be initiated or pursued without necessitating prior permission from the Liquidation Court, as outlined under Section 446 of the Companies Act.  The Supreme Court aimed to elucidate the rationale behind not classifying the income tax procedure as falling within the purview of Section 446(2) of the Companies Act.  In the view of the Supreme Court, the winding-up court should handle all issues that the Company Court can promptly resolve, thus avoiding the company’s exposure to resource-intensive litigation in alternative judicial bodies.  In essence, if the Company Court lacks authority over a particular subject matter, it cannot be encompassed within Section 446(2) of the Companies Act.  Notably, the Income Tax Act operates as an autonomous legal framework, with statutory bodies and assessing officers holding the mandate to impose taxes.  The Company Court does not possess jurisdiction over assessment matters.  Given this reasoning, the Supreme Court concluded that Section 446(2) of the Companies Act does not impede the progression of assessment proceedings pursuant to the Income Tax Act.  The Supreme Court observed,

The liquidation court, in our opinion, cannot perform the functions of Income-tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the court.  The orders made by the Income-tax Officer in the course of assessment or re-assessment proceedings are subject to appeal to the higher hierarchy under the Income-tax Act.  There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income-tax.  It would lead to anomalous consequences if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax.  The argument on behalf of the appellant by Shri Desai is that the winding up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of Section 446 of the Act must be held to vest in that court to be exercised only if considered expedient.  We are not impressed by this argument.  The language of Section 446 must be so construed as to eliminate such startling consequences as investing the winding up court with the powers of an Income-tax Officer conferred on him by the Income-tax Act, because in our view the legislature could not have intended such a result.

Furthermore, in the case of Central Bank of India vs. Elmot Engineering Co.,[2] the Supreme Court restated the identical legal principle.  The intent behind Section 446(2) is to shield a company’s assets during winding-up proceedings from unnecessary and financially burdensome legal disputes, specifically in matters that the Company Court could promptly and economically adjudicate.  To put it differently, the moratorium is not designed to halt legal proceedings that fall outside the jurisdiction of the Liquidation Court.

In the case of M/s Embassy Property Developments Pvt. Ltd. vs. The State of Karnataka and others,[3] the Supreme Court highlighted the obligation of the interim resolution professional or the resolution professional, depending on the circumstance, to legally represent and act on behalf of the Corporate Debtor in interactions with external parties.  This duty encompasses the utilization of rights to further the interests of the Corporate Debtor within both judicial and quasi-judicial proceedings.  This responsibility arises from the time of assuming control and possession over assets owned by the corporate debtor, as well as subsequently.  This legal principle signifies that the investigating body possesses the authority to summon the IRP/RP for quasi-judicial inquiries under various regulations, with the intent of representing the position of the employer (corporate debtor).

Additionally, the Supreme Court clarified that whenever the corporate debtor is required to exercise its rights in a judicial or quasi-judicial context, it should duly do so.  It is impermissible to circumvent this process and directly present a claim before the NCLT, exploiting the provisions of Section 60(5) of the I & B Code.  Numerous statutes incorporate comprehensive procedures for evaluating statutory liabilities; a prime example includes Section 7-A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, Section 45-A of the Employees’ State Insurance Act, 1948, Sections 144 to 148 of the Income Tax Act, 1961, and others of similar nature.  The Supreme Court’s ruling implies that the moratorium established under Section 14(1)(a) of the I & B Code does not preclude quasi-judicial proceedings.

In the matter of Sunil Kumar Jain vs Sundaresh Bhatt,[4] a case reviewed on April 19, 2022, the Supreme Court deliberated on a scenario where an appeal raised by employees of M/s ABG Shipyard Limited, Mumbai was dismissed by the NCLT.  The factual context revolves around the NCLAT acknowledging an application under Section 7 against the Corporate Debtor, resulting in a subsequent order for liquidation.  Subsequently, the workmen submitted an application for the retrieval of salary covering the CIRP period and the preceding duration, yet this claim was denied.  During the proceedings before the Supreme Court, the argument was presented that employees and workmen had the entitlement to remuneration throughout the CIRP phase and were also eligible for their dues concerning provident fund, gratuity, and pension fund.

The Supreme Court determined that the wages/salaries of the workmen/employees linked to the Corporate Debtor during the CIRP period may be encompassed within the scope of CIRP costs, provided that it can be substantiated and verified that the Interim Resolution Professional/Resolution Professional administered the affairs of the corporate debtor as a continuing enterprise during CIRP.  Moreover, it should be demonstrated that the respective workmen/employees of the corporate debtor actively participated in activities during the CIRP duration.  In such a scenario, the wages/salaries pertaining to those workmen/employees who indeed worked during the CIRP timeframe, when the resolution professional oversaw the corporate debtor’s operations as a going concern, must be remunerated.  These payments should be regarded as integral to CIRP costs, and they should take precedence in full, primarily in accordance with Section 53(1)(a) of the IB Code.

Another significant legal precedent worth acknowledging in this context is a recent ruling issued by the NCLAT in the case of Arun Kumar vs. Spripirya Kumar.[5] The Appellate Tribunal, in its judgment, affirmed that the moratorium as stipulated under Section 14 of the Insolvency & Bankruptcy Code (I & B Code) does not impose limitations on the assessment of interest or penal interest throughout the CIRP duration.  Furthermore, the Tribunal emphasized that the I & B Code lacks jurisdiction to arbitrate on contractual interest liabilities or make determinations in that domain.

Considering the aforementioned facts and legal precedents, the verdict issued by the Kochi NCLT Bench in the Excel Glass Limited (supra) case directly contradicts the guiding principles set forth by the Supreme Court, both in terms of explicit content and underlying essence. The choice to halt the assessment process during the moratorium period would essentially lead to a deferment of the assessment, potentially leading to operational creditors facing difficulties in recuperating their rightful dues.  This contravenes the principles of both the law and natural justice at their core.  In light of the Supreme Court’s established rulings, it is prudent to re-evaluate the judgment in question.


[1] AIR 1972 SC 878, 1972 42 CompCas 168 SC, 1972 83 ITR 685 SC, (1972) 1 SCC 438, 1972 2 SCR 965

[2] (1994) 4 SCC 159

[3] [2020] 12 SC

[4] (2022) 23 SC

[5] (2023) 503 NCLAT

Disclaimer: The Opinions expressed in this article are that of the author(s). The facts and opinions expressed here do not reflect the views of IBC Laws ( The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author(s) and IBC Laws ( do not take responsibility of the same. Postings on this blog are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.


1 Regional Provident Fund Commissioner Vs. Excel Glass Ltd. (2023) 421 NCLT