NCLAT Sets Aside Adjudicating Authority Order: EPFO Claims During CIRP Moratorium Unenforceable
- REEDLAW
- 4 hours ago
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REEDLAW Legal News Network reports:Â In a landmark ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, held that any assessment or demand made by statutory authorities, including the Employee Provident Fund Organisation (EPFO), after the initiation of the Corporate Insolvency Resolution Process (CIRP) and during the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, is unenforceable. The Tribunal further clarified that no claim arising from such proceedings can be admitted against the Corporate Debtor, thereby reinforcing the sanctity of the moratorium provisions under the IBC.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson)Â and Mr. Barun Mitra (Technical Member), while adjudicating a batch of three Company Appeals and connected Interlocutory Applications, held that after the initiation of CIRP, any assessment or demand made by statutory authorities, including EPFO, during the moratorium under Section 14 of the IBC is unenforceable, and no claim arising from such proceedings can be admitted against the Corporate Debtor.
The Appellate Tribunal heard three interconnected appeals challenging the order dated 13.11.2024 passed by the Adjudicating Authority in IA No. 5 of 2024 and IA No. 409 of 2024. The appeals were filed by the Resolution Professional and the Employees’ Provident Fund Organisation (EPFO) against the disposal of their respective applications concerning claims and assessment of dues under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act). The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor had commenced on 17.02.2023, with the Resolution Professional appointed to manage all affairs under Section 17 of the Insolvency and Bankruptcy Code, 2016 (IBC). EPFO had initiated inquiry and assessment under Section 7A, 14B, and 7Q after the commencement of CIRP and submitted claims, including a revised claim dated 26.09.2023, amounting to Rs. 1,37,17,837/-. The Resolution Professional had filed IA No. 5 of 2024 challenging these demands as unenforceable during the moratorium period under Section 14 of the IBC, while EPFO sought directions for admission and priority of their claim in IA No. 409 of 2024.
The Adjudicating Authority had allowed assessment of EPF dues to be carried out and directed EPFO to provide detailed computation and employee-wise particulars for verification by the Resolution Professional, permitting the Resolution Professional to raise objections, while clarifying that assessment could be included in a resolution plan. The Tribunal examined the law relating to moratorium under Section 14 of the IBC, noting that the imposition of moratorium prohibits initiation or continuation of any proceedings that may fasten liability on the Corporate Debtor during CIRP. It was observed that the assessment and demand by EPFO in the present case occurred after initiation of CIRP and therefore could not form the basis of any enforceable claim. Reliance was placed on prior NCLAT judgments and Supreme Court rulings, including Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority and Another, REEDLAW 2020 SC 02501 and P. Mohanraj and Others v. Shah Brothers Ispat Private Limited, REEDLAW 2021 SC 03526, which established that while the moratorium does not bar assessment per se after liquidation, any assessment or claim initiated or completed during the CIRP moratorium period is unenforceable against the Corporate Debtor.
Applying this principle, the Tribunal held that the EPFO’s demand based on the inspection dated 10.05.2023 and the assessment dated 25.09.2023 arose during the moratorium period and was therefore unenforceable. The appeal by the Resolution Professional succeeded in declaring that the demands under Sections 7A, 14B, and 7Q of the EPF & MP Act were not admissible against the Corporate Debtor. Conversely, the appeals filed by EPFO challenging the Adjudicating Authority’s direction regarding employee-wise computation and the Resolution Professional’s objection were dismissed as unsustainable. The Appellate Tribunal set aside the orders in both IA No. 5 of 2024 and IA No. 409 of 2024, allowed the appeal of the Resolution Professional, and disposed of EPFO’s appeals, with all parties directed to bear their own costs.
In conclusion, the Tribunal reaffirmed that after the initiation of CIRP and imposition of moratorium under Section 14, statutory authorities cannot proceed with assessments or enforce claims against the Corporate Debtor, and any claims arising during the moratorium are unenforceable in the CIRP, thereby safeguarding the assets of the Corporate Debtor and the integrity of the resolution process.
Mr. Pratik Tripathi, Advocate, represented the Appellant in Company Appeal (AT) (Insolvency) No. 17 of 2025 & I.A. No. 77 of 2025.
Gaurav Varma, Advocate, represented the Appellant in Company Appeal (AT) (Insolvency) No. 102 of 2025 & I.A. No. 426 of 2025 and Company Appeal (AT) (Insolvency) No. 103 of 2025 & I.A. No. 430 of 2025.
Mr. Gaurav Varma, Advocate, appeared for the Respondents in Company Appeal (AT) (Insolvency) No. 17 of 2025 & I.A. No. 77 of 2025.
Mr. Pratik Tripathi, Advocate, appeared for the Respondents in Company Appeal (AT) (Insolvency) No. 102 of 2025 & I.A. No. 426 of 2025 and Company Appeal (AT) (Insolvency) No. 103 of 2025 & I.A. No. 430 of 2025.
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