NCLAT orders full release of provident fund for former employees

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The National Company Law Appellate Tribunal (NCLAT) ruled that the PF contributions are not the assets of the debtor company and ordered that the entire provident fund be released to former employees.

The appellant is a former employee of Applied Electromagnetics Pvt. ltd. (R3/CD), who worked as a “supervisor” (R&D) and whose total unpaid dues amount to Rs. 12,49,702/-. Pursuant to the issuance of a formal notice delivered to CD by one of the Company’s employees, the contracting authority initiated the CIRP of CD/Respondent No. 3. The appeal was brought by the Appellant under Section 61 of the “Insolvency and Bankruptcy Code, 2016” against the contested order made by the National Company Law Tribunal.

The appellant argued that the employee and worker are the backbone of Applied Electromagnetics Pvt. ltd. [Company/Corporate Debtor (CD)] to CIRP who supported R3 by not resigning even when their legitimate dues and salaries were not paid / irregularly paid from the year 2012 which is long before CIRP. It is also their grievance that the “Resolution Plan” did not take into account the full Provident Fund (PF) contributions of the “Provident Fund” (PF) contributions of the employees that CIRP R3/CD was supposed to hand over to the PF authority under the employee scheme. Provident Fund and Miscellaneous Provisions Act 1952 for the default period of 1st October 2012 to 31st March 2018 as viewed and communicated by Regional Officer of Deputy Commissioner of Provident Fund Noida, Ministry of Labor and employment, government. from India. In addition to the fact that the Resolution Plan is discriminatory insofar as it concerns employees. It was also argued that “financial creditors” (21.6%) were paid much more than “operational creditors” (12.67%).

He argued through the Appellant that the PF dues are not the assets of the CD, as the provisions of Section 36(4)(a)(iii) of the I&B Code, 2016 amply indicate.

The Division Bench presided over by Judge Ashok Bhushan, President, and Dr. Ashok Kumar Mishra, (Technical) Member ruled that “In this context, the following judgments are also referred to the judgment of this Tribunal (3 Bench Members – comprising the Honorable Chairman and two members) Tourism Finance Corporation of India Ltd. Vs. Rainbow Papers Ltd. & Ors. 2019 CSC Online NCLAT 910 given below:

However, since no provision of the “Employees ProvidentFunds and Miscellaneous Provision Act, 1952” conflicts with any of the provisions of the “I&B Code” and, on the other hand, with the terms of Article 36 ( 4) (iii), the ‘provident fund’ and the ‘benefit fund’ are not the assets of the ‘Debtor Company’, special provisions being provided for, the application of article 238 of the ‘I&B Code’ does not arise. Therefore, we order the “Successful Claimant” – 2nd Respondent (“Kushal Limited”) to immediately release the entire provident fund and its interest in accordance with the provisions of the “Employees Provident Funds and Miscellaneous Provisions Act , 1952″, as it does not include as an asset of the “debtor company””.

Accordingly, we order Respondent No. 2/Successful Resolution Applicant to immediately release all provident fund contributions in accordance with the provisions of the Employees Provident Funds and Miscellaneous Provident Funds Act 1952 in releasing the balance. The impugned order of April 2, 2019 approving the “resolution plan” is amended to the extent above.

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