Whether the Provident Fund Dues should be paid in full? Synopsis of Assam Tea Employees Provident Fund Organization v. Mr. Madhur Agarwal RP of Hail Tea Limited

The National Company Law Appellate Tribunal (NCLAT) in its recent judgement of Synopsis of Assam Tea Employees Provident Fund Organization v. Mr. Madhur Agarwal RP of Hail Tea Limited on 02/11/2022 has held that “Provident fund dues are not the assets of the Corporate Debtor and they have to be paid in full.” An appeal was filed by the Assam Tea Employees Provident Fund Organisation against HAIL Tea Limited before the NCLAT challenging its judgement dated 03/01/2022. This paper aims to provide a detailed synopsis of this landmark judgement passed by the Hon’ble NCLAT under the Insolvency and Bankruptcy Code (IBC). 

Terminology

Provident Fund – A provident fund is an investment fund that is voluntarily established by the Employer and Employees to serve as long-term savings to support an employee’s retirement. In simple words, it is the savings of any person out of his or her income.

Creditor – A Creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor, and a decree holder.[i]

Corporate Debtor – Section 3(8) of the Insolvency and Bankruptcy Code defines a corporate debtor. A corporate debtor means a corporate person who owes a debt to any person.[ii]

Background of the parties

Assam tea employees provident fund organization (ATEPFO)

It is an organization which is administered by a board of trustees consisting of the representatives of the employees, employers, and the state government. The main objective of this organization is to provide social security to all the workers and employees working in the Tea gardens of Assam.[iii]

Mr. Madhur Agarwal, HAIL Tea Limited

Mr. Madhur Agarwal is the Resolution Professional (RP) of Hail Tea Limited. Hail Tea Ltd. is a non-government, unlisted public Company, registered in Kolkata. The company provides agricultural services and offers tea planting services to customers in India. Its authorized share capital is Rs. 100,000,000 and its paid-up capital is Rs. 93,199,504.[iv] 

Details of the case

Case Title: Assam Tea Employees Provident Fund Organization v. Mr. Madhur Agarwal & Anr.

Case No.: Company Appeal (AT) (Insolvency) No. 262/2022

Court: National Company Law Appellate Tribunal (NCLAT), New Delhi

Bench: Justice Ashok Bhushan (Chairperson), and Mr. Barun Mitra (Technical Member)

Counsel for Appellant: Advocate Mr. Karan Mehta

Counsel for Respondent: Advocate Mr. Dhruv Surana, Mr. Madhav Bhatia, and Mr. Aditya Pandey (Respondent No. 1) Advocate Mr. Mohit Yadav, and Mr. R. Pratap Singh (Respondent No. 2)

Facts of Assam Tea Employees Provident Fund Organization v. Mr. Madhur Agarwal RP of Hail Tea Limited

The corporate debtor, Mr. Madhur Agarwal RP of Hail Tea Ltd., was in default to deposit its Provident fund contribution, provident fund administrative cost, interest for the delay in deposit of provident fund dues, etc. to the Appellant. The interest for delay in deposit of Deposit Linked Insurance Dues and Provident Fund Contribution due were calculated from 28/03/2019 till 26/09/2019. In pursuance to this, the Appellant claimed ₹ 2,10,13,797.92/- from the other party and it was admitted by the RP, Mr. Madhur Agarwal.

The Resolution Plan approved by the Adjudicating Authority proposed and settled the dispute for the total amount of ₹ 1,07,21,592/- for the Appellant dated 03/01/2022 which is almost half of the amount claimed. Subsequently, the appellant was not satisfied with the resolution and filled an Appeal before the National Company Law Appellate Tribunal (NCLAT).

Legal issues raised

1. Whether the Provident Fund Dues can be treated as a Secured Debt under IBC, 2016?
2. Whether the Provident Fund Dues can be paid in full?

Appellant submission

The counsel for the Appellant contended before the NCLAT,

• That the provident fund dues were entitled to be paid in full.
• That claim of a total amount Rs. 2,10,13,797.92 only was duly admitted by the Resolution Professional and must be paid at once.
• That the non-payment of the total amount would lead the Respondent towards the violation of the provision of Section 30(2)(e) of the Insolvency and Bankruptcy Code, 2016.
• That according to Section 11(2) of the Employees’ Provident Funds and Miscellaneous Provisions Act 1956, the Provident Fund Dues are not the dues of any other Operational Creditor.

Section 30(2)(e) of IBC, 2016: 30. Submission of Resolution Plan – (2)(e) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan does not contravene any of the provisions of the law for the time being in force.[v]

Section 11(2) of EPF Act, 1956: 11. Priority of payment of contributions over other debts – (2) Without prejudice to the provisions of sub-section (1), if any amount is due from an employer, whether, in respect of the employee’s contribution deducted from the wages of the employees 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.[vi]

Respondent submission

The counsel for the Respondent submitted before the bench,

• That the approval of the Resolution Plan is in the domain of the commercial wisdom of the committee of Creditors.
• That the Appellant was an Operational Creditor
• That the haircut was given to all the Financial Creditors as well as the Operational Creditors.

Judgement by NCLAT in Assam Tea Employees Provident Fund Organization v. Mr. Madhur Agarwal RP of Hail Tea Limited

In the instant case, The NCLAT did not standby by the Supreme Court’s landmark judgement in the Rainbow paper case.[vii] The reliance was established on the case of Regional P.F. Commissioner v. Ashish Chhawcharia, Resolution Professional for Jet Airways (India) Ltd. & Anr.[viii] The Hon’ble bench held that:

1. The Provident Fund Dues have to be paid in full.
2. The Provident Fund Dues are not the assets of the Corporate Debtor and they must be paid in full.
3. The provident fund dues are subject to distribution under section 53(1)[ix] of the Insolvency and Bankruptcy Code.

Further, the bench said that “The expression ‘any amount due from an employer’ appearing in sub-section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub-section (1) of section 11 and Sections 7A, 7Q, 14B and 15(2) which provide for the determination of the dues payable by the employer, the liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages if there is the default in making a contribution to the fund.”

End Notes

[i] The Insolvency and Bankruptcy Code, 2016, No. 31, § 3 cl. 10, Acts of Parliament, 2016 (India).

[ii] The Insolvency and Bankruptcy Code, 2016, No. 31, § 3 cl. 8, Acts of Parliament, 2016 (India).

[iii] Editor, Assam Tea Employees Provident Fund Organization (A.T.E.P.F.O),  https://web.umang.gov.in/landing/
department/assam-tea-board.html

[iv] Editor, Hail Tea Limited, Zaubacorp, 23 July 2022 19:08, https://www.zaubacorp.com/company/HAIL-TEA-LIMITED/U17111WB1992PLC055566.

[v] The Insolvency and Bankruptcy Code, 2016, No. 31, § 30 cl. 2(e), Acts of Parliament, 2016 (India).

[vi] The Employees Provident Funds and Miscellaneous Provisions Act, 1952, No. 19, § 11 cl. 2, Acts of Parliament, 1952 (India).

[vii] State Tax Officer (1) vs Rainbow Papers Limited (2020) 107 SC.

[viii] Regional P.F. Commissioner v. Ashish Chhawcharia, Resolution Professional for Jet Airways (India) Ltd. & Anr. (2022) ibclaw.in 861 NCLAT.

[ix] The Insolvency and Bankruptcy Code, 2016, No. 31, § 53 cl. 1, Acts of Parliament, 2016 (India).

This article has been authored by Priyanshi Parmar, a student at Amity university Madhya Pradesh, Gwalior.