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2024 (7) TMI 762 - AT - Insolvency and BankruptcyDistribution of provident fund dues - waterfall mechansim - distribution of provident fund dues in accordance with Section 36(4)(iii) of the Code or in accordance with Section 53 of the Code? - treatment of the various components of claims of the EPFO (the Respondent herein) i.e. contribution under Section 7A interest under Section 7Q and damages under Section 14 of the EPF Act - PF dues in terms of EPF Act or not - costitution of liquidation estate - HELD THAT - The sum due to any workmen or employee from provident fund pension fund and gratuity fund are not to form the assets of liquidation estate - the EPFO Authorities have been given powers to determine the amount due from the employer under the provisions of the EPF Act or the pension scheme or insurance scheme as the case may be under Section 7A of the EPF Act. From section 14B of the EPF Act it is noted that the EPFO Authorities hae been given powers to recover damages in case of employer s defaults in payment of any contribution to the fund. There is no pre-conceived formula regarding what damages should be fixed under Section 14B of the EPF Act and the same has been left to the discretion of the EPFO Authority to determine the damages in facts of each case - it becomes clear that the EPFO Authorities have powers to levy damages. It is also significant to note that damages is in relation to non- payment or delayed payment of contribution under Section 7A of the EPF Act by the employer (the Corporate Debtor herein) therefore the damages in a sense is to be treated as extended part of the contribution. The Hon ble Supreme Court of India in Sunil Kumar Jain v. Sundaresh Bhatt 2022 (4) TMI 888 - SUPREME COURT held that the dues of the gratuity and pension shall be governed by Section 36(4) of the Code. It is reiterated that Section 36(4)(ii) of the Code specifically excludes all sums due to any workman or employee from the provident fund the pension fund and the gratuity fund from the ambit of liquidation estate assets. Therefore Section 53(1) of the Code cannot be made applicable to such dues which are to be treated outside the liquidation estate assets under the Code. Section 36(4) of the Code has clearly gives protection to workmen s dues under provident fund gratuity fund and pension fund which are not to be treated as liquidation estate assets and the liquidator cannot claim over such dues. This Appellate Tribunal in the case of State Bank of India v. Moser Baer Karamchari Union 2019 (8) TMI 915 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI also examined the question of whether gratuity fund provident fund and pension fund should be included as part of liquidation estate by including the same for payments under the waterfall mechanism under Section 53 of the Code. In this case the Liquidator denied payment of the said funds in a preferential manner and had included the same for payment under the waterfall mechanism prescribed under Section 53 of the Code whereas the workers union claimed dues cannot be part of the waterfall mechanism under Section 53 of the Code - It was decided that the dues are to be paid to the workmen/employees on priority without reference to or waiting for distribution of liquidation assets as per the waterfall mechanism under Section 53 of the Code. There are no merit in the appeal. The appeal deserved to be dismissed and stand dismissed.
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