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EPFO Vs Jaykumar Pesumal

The National Company Law Appellate Tribunal is hearing two appeals concerning the rejection of claims by the Employees’ Provident Fund Organization against two corporate debtors during their respective Corporate Insolvency Resolution Processes. The appeals challenge the decisions made by the National Company Law Tribunal, which ruled that claims submitted after the approval of resolution plans could not be accepted due to the moratorium imposed under the Insolvency and Bankruptcy Code. The key issues involve the legality of continuing assessment proceedings under the EPF Act during the moratorium and the admissibility of claims filed post-approval of the resolution plans.

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0% found this document useful (0 votes)
7 views25 pages

EPFO Vs Jaykumar Pesumal

The National Company Law Appellate Tribunal is hearing two appeals concerning the rejection of claims by the Employees’ Provident Fund Organization against two corporate debtors during their respective Corporate Insolvency Resolution Processes. The appeals challenge the decisions made by the National Company Law Tribunal, which ruled that claims submitted after the approval of resolution plans could not be accepted due to the moratorium imposed under the Insolvency and Bankruptcy Code. The key issues involve the legality of continuing assessment proceedings under the EPF Act during the moratorium and the admissibility of claims filed post-approval of the resolution plans.

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c00ldude0ne
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 25

NATIONAL COMPANY LAW APPELLATE TRIBUNAL,

PRINCIPAL BENCH, NEW DELHI


Company Appeal (AT) (Insolvency) No.1062 of 2024
(Arising out of Order dated 19.10.2023 passed by the Adjudicating Authority
(National Company Law Tribunal), Ahmedabad, Division Bench Court-1 in IA/
1111(AHM)/2023 in CP(IB) 387 of 2020)

IN THE MATTER OF:


Employees’ Provident Fund
Organization Regional Office, Vashi, Navi Mumbai
Through Regional PF Commissioner-II (Legal) …Appellant

Versus
Jaykumar Pesumal Arlani
Resolution Professional of
M/s. Decent Laminates Pvt. Ltd. …Respondent

Present:
For Appellant : Mr. Sandeep Vishnu, Advocate.
Appearance not marked.

For Respondents : Mr. Vashisht, Advocate for R-1.

With
Company Appeal (AT) (Insolvency) No.1065 of 2024
& I.A. No.3665 of 2024
(Arising out of Order dated 22.08.2023 passed by the Adjudicating Authority
(National Company Law Tribunal), Mumbai bench, Court-II in IA No.743 of 2023
in C.P.(IB)3484(MB) 2019)

IN THE MATTER OF:


Employees’ Provident Fund
Organization Regional Office, Vashi, Navi Mumbai
Through Regional PF Commissioner-II (Legal) …Appellant

Versus
Sanjay Kumar Lalit,
Resolution Professional of
Apollo Soyuz Electricals P. Ltd. & Anr …Respondents

Present:
For Appellants : Mr. Sandeep Vishnu, Advocate.
Appearance not marked.

For Respondents : Mr. Malak Bhatt, Ms. Neeha Nagpal, Mr.


Shreyansh Chopra, Advocates for R-2.

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 1


JUDGMENT

ASHOK BHUSHAN, J.

These two Appeal(s) raising common questions of facts and law,

have been heard together and are being decided by this common

judgment.

2. Company Appeal (AT) (Ins.) No.1062 of 2024 has been filed

challenging order dated 19.10.2023 passed by National Company Law

Tribunal, Ahmedabad, Division Bench, Court-1 in IA No.1111(AHM) 2023

filed by the Appellant in CP(IB) 387 of 2020. By the impugned order IA

filed by the Applicant/ Appellant has been rejected. Aggrieved by which

order this Appeal has been filed.

3. Company Appeal (AT) (Ins.) No.1065 of 2024 has been filed

challenging order dated 22.08.2023 passed by National Company Law

Tribunal, Mumbai Bench, Court-II in IA No.743/2023 in

C.P.(IB)/3484(MB) 2019. By the impugned order, Application – IA No.743

of 2023 filed by the Applicant/ Appellant has been rejected. Aggrieved by

which order this Appeal has been filed.

4. We need to notice brief background facts giving rise to these two

Appeal(s):

Company Appeal (AT) (Ins.) No.1062 of 2024

(i) The Corporate Insolvency Resolution Process (“CIRP”) against

the Corporate Debtor – Decent Laminate Pvt. Ltd.

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 2


Commenced after an order dated 03.05.2021 passed by

NCLT, Ahmedabad Bench. The Appellant vide email dated

11.06.2021 requested the Resolution Professional (“RP”) to

forward the copy of NCLT order along with other details. On

16.06.2021, the RP replied forwarding the copy of NCLT order

dated 03.05.2021.

(ii) The Appellant initiated proceedings under Section 7A of the

Employees’ Provident Fund & Misc. Provisions Act, 1952 (for

short “EPF & MP Act”). On 22.06.2022, summon was

issued under Section 7A with copy to Interim Resolution

Professional (“IRP”). The IRP appeared and informed that he

does not have relevant records. On 09.05.2023, summons

were again issued to the Establishment under Section 14B &

7Q of the EPF & MP Act to show cause as to why damages

under Section 14B and interest under Section 7Q of the Act

may not be levied and recovered.

(iii) On 11.05.2023, the claim of Rs.76,09,494/- was submitted

before the IRP. On 16.08.2023, order was passed under

Section 14B and 7Q. On 31.08.2023, a revised claim of

Rs.1,58,90,685/- was submitted. On 05.09.2023, RP replied

that claim cannot be considered as the Plan has been

approved by the Committee of Creditors (“CoC”)

(iv) An IA No.1111 of 2023 was filed by the Appellant praying for

direction to the IRP to admit the total claim of

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 3


Rs.2,35,00,179/-. The Adjudicating Authority heard the

Applicant/ Appellant as well as the RP and by the impugned

order rejected the Application. The Adjudicating Authority

noticed in the order that order under Section 7A, 14B and 7Q

was passed only on 11.08.2023 and the Resolution Plan has

been approved by the CoC long back. It was held that IBC

(Insolvency and Bankruptcy Code, 2016) is a time bound

process and the claim, which was submitted by the Applicant

at a belated stage, after the approval of Resolution Plan was

rightly rejected by the RP. With the above observation the

Adjudicating Authority rejected IA No.1111 of 2023.

Aggrieved by which order this Appeal has been filed.

Company Appeal (AT) (Ins.) No.1065 of 2024

(i) CIRP against the Corporate Debtor – Apollo Soyuz Electricals

P. Ltd. commenced on 12.07.2021. On 18.10.2021, IRP

wrote to the Appellant to submit their PF claim and other

related information with proof.

(ii) Inquiry under Section 7A was initiated against the

Establishment in the year 2019. An order dated 29.8.2022

was passed by the Appellant under Section 7A for an amount

of Rs.10,89,938/-. IRP sent a letter dated 12.07.2022 to the

Appellant informing that Resolution Plan of the CD has been

approved by the CoC on 23.06.2022 and RP is prohibited to

accept any claim from any creditor, including the Appellant.

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 4


(iii) The Appellant filed IA No.743 of 2023 on 30.01.2023seeking a

direction to the RP to accept and pay the claim of

Rs.10,89,938/- towards PF dues. During pendency of IA

No.743 of 2023, the NCLT Mumbai Bench passed order dated

13.04.2023 in IA No.1785 of 2022 approving the Resolution

Plan in the CIRP. The Appellant has also filed an Appeal,

challenging the order dated 13.04.2023 in this Tribunal. IA

No.743 of 2023 was heard and rejected by order dated

22.08.2023 passed by the Adjudicating Authority. The

Adjudicating Authority took the view that order under which

amount of Rs.10,89,938/- is claimed was passed by EPFO on

29.08.2022, i.e., during moratorium period. It was also

noticed that Resolution Plan has been approved by the CoC

on 01.06.2022 and prior to approval of Resolution Plan, no

claim by the EPFO was lodged with the RP. It was held that

order dated 29.8.2022 was hit by Section 14 of the IBC. The

Adjudicating Authority held that at this stage, no direction

can be issued to the RP to entertain or pay the claim of

Rs.10,89,938/-. Consequently, IA No.743 of 2023 was

rejected.

5. We have heard learned Counsel for the parties. The submissions,

which have been advanced by learned Counsel for the Appellant

challenging the impugned order being common submissions, we notice

the submissions, as submission of the Appellant.

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 5


6. Learned Counsel for the Appellant submitted that despite

imposition of moratorium under Section 14 of the IBC, proceeding under

Section 7A of the EPF & MP Act can still continue. It is submitted that

moratorium under Section 14 of the IBC, does not prevent proceedings

under Section 7A of the EPF & MP Act. Learned Counsel for the

Appellant has relied on judgments of the Hon’ble Supreme Court of India

in S.V. Kindaskar v. V.M. Deshpande – AIR (1972) SC 878 and

Sundresh Bhatt, Liquidator of ABG Shipyard v. Central Board of

Indirect Taxes and Customs, (2023) 1 SCC 472 to support his

submission that moratorium under Section 14 and 33(5) of the IBC, do

not bar for determination of quantum of dues or taxes or other levies and

the embargo is only against its enforcement. It is submitted that in the

proceedings under Section 7A, the Establishment delayed to give its reply

and it was the CD, who is to blame for delay in passing order under

Section 7A. The CD at no point of time in proceedings under Section 7A

has raised objection to inquiry proceedings and always took time to

produce the relevant records. The assessment under Section 7A related

to period prior to CIRP initiation. By rejection of the Application filed by

the Appellant, prejudice has been caused to the Appellant, since its claim

has not been accepted. PF dues, inclusive of damages and interest, are

excluded from the liquidation estate in light of Section 36(4)(a)(iii) of the

IBC. The order rejecting the claim is in contravention of the law laid

down by NCLAT and Hon’ble Supreme Court of India in Tourism

Finance Corporation of India & Ors. vs. Rainbow Papers Ltd. &

Ors., where it was held that no provisions of the EPF & MP Act is not in

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 6


conflict of IBC. The priority of PF dues operates against all other debts

including secured and unsecured creditors.

7. Learned Counsel appearing for the Respondent refuting the

submissions of learned Counsel for the Appellant(s) submits that no

claim was filed by the Appellant before the Plan was approved by the CoC

and the assessment proceedings were carried out and final order under

Section 7A of the EPF & MP Act was passed during the CIRP is in

violation of the moratorium. When assessment order has been passed

post moratorium, it is bad in law and on the basis of said assessment, no

claim can be admitted in the CIRP. Learned Counsel for the Respondent

has also placed reliance on the judgment of the Hon’ble Supreme Court of

India in Sundresh Bhatt, Liquidator of ABG Shipyard (supra). It is

submitted that post approval of Resolution Plan by the CoC, no claim can

be considered by the RP. In both the Appeal(s), the claims were filed by

the Appellant(s) subsequent to the approval of Plan by the CoC and

further assessment orders were made subsequent to imposition of

moratorium. Hence, the said claims cannot be accepted.

8. We have considered the submissions of learned Counsel for the

parties and have perused the records.

9. From the submissions of learned Counsel for the parties, following

issues arise for consideration:

(1) Whether after imposition of moratorium under Section 14 of

the IBC, assessment proceedings can be carried on by the

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 7


EPFO under Section 7A, 14B and 7Q of the EPF & MP Act,

1952.

(2) Whether any claim on the basis of assessment, subsequent to

imposition of moratorium, can be admitted in the CIRP.

(3) Whether claims, which were filed by the Appellant(s),

subsequent to the approval of Resolution Plan by the CoC,

could have been admitted in the CIRP.

Question Nos.(1) & (2)

Question Nos.(1) & (2) being interrelated, are being taken together.

10. In Company Appeal (AT) (Ins.) No.1062 of 2024, CIRP was initiated

vide order dated 03.05.2021 and the assessment order under Section 7A

was passed on 11.08.2023 and order under Section 14B and 7Q was

issued on 16.08.2023. In Company Appeal (AT) (Ins.) No.1065 of 2024,

the CIRP against the CD commenced on 12.07.2021 and assessment

order under Section 7A was passed on 29.08.2022. It is an admitted

position that in both the cases, assessment orders under Section 7A, 14B

and 7Q were passed subsequent to initiation of CIRP against the CD.

Moratorium under Section 14 was imposed by the Adjudicating Authority,

initiation CIRP. Section 14(1) of the IBC provides as follows:

“14. Moratorium. -
(1) Subject to provisions of sub-sections (2) and (3), on the
insolvency commencement date, the Adjudicating Authority shall
by order declare moratorium for prohibiting all of the following,
namely:-
(a) the institution of suits or continuation of pending
suits or proceedings against the corporate debtor including

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 8


execution of any judgement, decree or order in any court of
law, tribunal, arbitration panel or other authority;
(b)transferring, encumbering, alienating or disposing
off by the corporate debtor any of its assets or any legal right
or beneficial interest therein;
(c) any action to foreclose, recover or enforce any
security interest created by the corporate debtor in respect
of its property including any action under the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession of
the corporate debtor.
Explanation.-For the purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained in
any other law for the time being in force, a licence, permit,
registration, quota, concession, clearance or a similar grant
or right given by the Central Government, State
Government, local authority, sectoral regulator or any other
authority constituted under any other law for the time being
in force, shall not be suspended or terminated on the
grounds of insolvency, subject to the condition that there is
no default in payment of current dues arising for the use or
continuation of the license or a similar grant or right during
moratorium period.”

11. The Hon’ble Supreme Court had occasion to consider effect and

consequence of imposition of moratorium. The Hon’ble Supreme Court in

(2020) 13 SCC 208 – Rejendra K. Bhutta vs. Maharashtra Housing and

Area Development and Anr. held that after the imposition of moratorium, a

statutory freeze takes place. In paragraph 25 of the judgment, following was

held:

“25. There is no doubt whatsoever that important functions


relating to repairs and reconstruction of dilapidated buildings are
given to MHADA. Equally, there is no doubt that in a given set of
circumstances, the Board may, on such terms and conditions as
may be agreed upon, and with the previous approval of the
Authority, hand over execution of any housing scheme under its

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 9


own supervision. However, when it comes to any clash between
MHADA Act and the Insolvency Code, on the plain terms of Section
238 of the Insolvency Code, the Code must prevail. This is for the
very good reason that when a moratorium is spoken of by Section
14 of the Code, the idea is that, to alleviate corporate sickness, a
statutory status quo is pronounced under Section 14 the moment a
petition is admitted under Section 7 of the Code, so that the
insolvency resolution process may proceed unhindered by any of
the obstacles that would otherwise be caused and that are dealt
with by Section 14. The statutory freeze that has thus been made
is, unlike its predecessor in the SICA, 1985 only a limited one,
which is expressly limited by Section 31(3) of the Code, to the date
of admission of an insolvency petition up to the date that the
adjudicating authority either allows a resolution plan to come into
effect or states that the corporate debtor must go into the
liquidation. For this temporary period, at least, all the things
referred to under Section 14 must be strictly observed so that the
corporate debtor may finally be put back on its feet albeit with a
new management.”

12. In (2021) 6 SCC 258 – P. Mohanraj and Ors. Vs. Shah Brothers ISPAT

Pvt. Ltd., the Hon’ble Supreme Court had occasion to interpret the expression

“proceeding” in Section 14. The object and purpose of moratorium has been

captured in paragraph 30 of the judgment, which is as follows:

“30. It can be seen that Para 8.11 refers to the very judgment
under appeal before us, and cannot therefore be said to throw any
light on the correct position in law which has only to be finally
settled by this Court. However, Para 8.2 is important in that the
object of a moratorium provision such as Section 14 is to see that
there is no depletion of a corporate debtor's assets during the
insolvency resolution process so that it can be kept running as a
going concern during this time, thus maximising value for all
stakeholders. The idea is that it facilitates the continued operation
of the business of the corporate debtor to allow it breathing space

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 10


to organise its affairs so that a new management may ultimately
take over and bring the corporate debtor out of financial sickness,
thus benefitting all stakeholders, which would include workmen of
the corporate debtor. Also, the judgment of this Court in Swiss
Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of
India, (2019) 4 SCC 17] states the raison d'être for Section 14 in
para 28 as follows : (SCC p. 55)

“28. It can thus be seen that the primary focus of the


legislation is to ensure revival and continuation of the
corporate debtor by protecting the corporate debtor from its
own management and from a corporate death by liquidation.
The Code is thus a beneficial legislation which puts the
corporate debtor back on its feet, not being a mere recovery
legislation for creditors. The interests of the corporate debtor
have, therefore, been bifurcated and separated from that of
its promoters/those who are in management. Thus, the
resolution process is not adversarial to the corporate debtor
but, in fact, protective of its interests. The moratorium
imposed by Section 14 is in the interest of the corporate
debtor itself, thereby preserving the assets of the corporate
debtor during the resolution process. The timelines within
which the resolution process is to take place again protect
the corporate debtor's assets from further dilution, and also
protects all its creditors and workers by seeing that the
resolution process goes through as fast as possible so that
another management can, through its entrepreneurial skills,
resuscitate the corporate debtor to achieve all these ends.”

13. The plain reading of Section 14, sub-section (1) indicates that expression

‘suits or proceedings against the corporate debtor’ has been used. The word

‘proceeding’ is not qualified, so as to confine it to proceedings before the Civil

Court. The proceedings, which have the effect on the assets of the CD are all

covered in the expression ‘proceeding’. The question to be answered is as to

whether after moratorium has been imposed, it was open for EPFO to proceed

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 11


with the assessment proceeding. Learned Counsel for the parties state that

during moratorium proceeding, no recovery proceeding can be initiated against

the CD. However, submissions of the learned Counsel for the Appellant is that

assessment proceedings against the CD may continue. Hence, the orders of

assessment passed during moratorium period, were fully permissible and the

claim on the basis of the said proceedings had to be admitted in CIRP.

14. Learned Counsel for the Appellant placed reliance on the judgment of the

Hon’ble Supreme Court in S.V. Kindaskar v. V.M. Deshpande – AIR

(1972) SC 878. In the above case, the Hon’ble Supreme Court had

occasion to consider provisions of Section 446 of the Companies

Act, 1956 in context of re-assessment proceedings under Section

148 of the Income Tax Act, 1961. Section 446, which came for

consideration before the Hon’ble Supreme Court has been extracted

in paragraph 4 of the judgment, which is as follows:

“4. Section 446 of the Act reads:


“(1) When a winding up order has been made or the Official
Liquidator has been appointed as provisional liquidator, no suit or
other legal proceeding 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 before against the company (including
claims by or against any of its branches in India);

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 12


(c) any application made under Section 391 by or in respect
of the Company; (sic)
(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.
(3) Any suit or proceeding by or against the company which
is pending in any Court other than that in which the winding up of
the company is proceeding may, notwithstanding anything
contained in any other law for the time being in force, be
transferred to and disposed of by that Court.
(4) Nothing in sub-section (1) or sub-section (3) shall apply
to any proceeding pending in appeal before the Supreme Court or
High Court.”

15. The words used in Section 446, sub-section (1) is “no suit or other

legal proceeding shall be commenced ..., except by leave of the Court”. The

Hon’ble Supreme Court dwell upon the expression “legal proceeding” in

sub-section (1). The Hon’ble Supreme Court in the above case was

considering the assessment proceeding qua winding up proceeding under

the Companies Act. In paragraph 9 of the judgment, the Hon’ble

Supreme Court made following observations:

“9. In this case the observations already reproduced from the


judgment of the Federal Court in Shakuntla case were approved. It
may also be pointed out that in this decision this Court observed
that the winding up Court assures pro rata distribution of the
assets of the company in the same way in which the Court under
the Presidency Towns Insolvency Act or the Provincial Insolvency

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 13


Act ensures such distribution of assets. Section 232(1) of the Act of
1913 which was held supplemental to Section 171 was also stated
to have reference to legal proceedings in the same way as such
proceedings were envisaged by Section 171. These two decisions in
our opinion do not lay down the assessment proceedings under the
Income Tax Act should be held to be within the contemplation of
Section 171 of the Indian Companies Act, 1913. The next decision
to which reference has been made by Shri Desai is Union of India v.
India Fisheries (P) Ltd. [AIR 1966 SC 35 : (1965) 3 SCR 679] In that
case the respondents, Fisheries (P) Ltd., had been directed to be
wound up by the winding up court and an Official Liquidator had
been appointed by an order of the High Court in October 1950. The
headnote in that cases gives a clear idea of the facts and the
decision. It reads:
“The respondent company was directed to be wound up and an
official liquidator appointed by an order of the High Court in
October 1950. In December 1950, the respondent was assessed to
tax amounting to Rs 8737 for the year 1948-49. A claim made for
this tax on the official liquidator was adjudged and allowed as an
ordinary claim and certified as such in April 1952. The Liquidator
declared a dividend of 9½ annas in the Rupee in August 1954, and
paid a sum of Rs 5188 to the Department, leaving a balance of Rs
3549.
In June 1954, the Department made a demand from the
respondent and was paid Rs 2565 as advance tax for the year
1955-56. On a regular assessment being made for that year, only
Rs 1126 was assessed as payable so that a sum of Rs 1460,
inclusive of interest, became refundable to the respondent.
However, the Income Tax Officer, purporting to exercise the power
available to him under Section 49-E of the Income Tax Act, 1922,
set off this amount against the balance of Rs 3549 due for the year
1948-49. A revision petition filed by respondent in respect of this
set off was rejected by the Commissioner of Income Tax.
Thereafter, petition under Article 226 filed by the respondent to
set aside the orders of the Income Tax Officer and Commissioner

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 14


was allowed by the High Court, mainly on the ground that the
demand for Rs 8737 in respect of 1948-49, being adjudged and
certified came to have all the incidents and character of an
unsecured debt payable by the liquidator to the Department; it was
therefore governed by the provisions of Company Law and no other
remedy or method to obtain satisfaction of the claim was available
to the creditor.
In the appeal to this Court it was contended on behalf of the
appellant that Section 49-E gave statutory power to Income Tax
Officer to set off a refundable amount against any tax remaining
payable and that this power was not subject to any provision of any
other law.
Held :
The Income Tax Officer was in error in applying Section 49-E
and setting off the refund due to the respondent.
The effect of Sections 228 and 229 of the Companies Act, 1913,
is inter alia, that an unsecured creditor must prove his debts and
all unsecured debts are to be paid pari passu. Once the claim of
the Department has to be proved and is proved in liquidation
proceedings, it cannot, by exercising the right under Section 49-E
get priority over other unsecured creditors and thus defeat the very
object of Sections 228 and 229 of the Companies Act. Furthermore,
if there is an apparent conflict between two independent provisions
of law, the special provision must prevail. Section 49-E is a general
provision applicable to all assessees in all circumstances; Sections
228 and 229 deal with proof of debts and their payment in
liquidation. Section 49-E can be reconciled with Sections 228 and
229 by holding that Section 49-E applies when insolvency rules do
not apply.””

16. The Hon’ble Supreme Court held that the Company Court, cannot

be invested with the powers of an Income Tax Officer conferred on him.

The Company Court, which is winding the Company cannot carry on

assessment under the Companies Act. Hence, it was held that

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 15


assessment proceedings are not covered by Section 446 and under both

sub-section (1) and (2), winding up Court cannot deal with the Income

Tax proceedings. There can be no two opinions about the law laid down

by the Hon’ble Supreme Court in the above case in context of Section 446

of the Companies Act. Section 446, sub-section (1) uses the expression

“suit or other legal proceeding”. There is marked difference in the

expression used in Section 14, sub-section (1) of the IBC. Section 446,

sub-section (1) uses expression “other legal proceeding”, while Section 14,

sub-section (1) uses the expression “proceedings”. In view of the law laid

down by the Hon’ble Supreme Court in Rejendra K. Bhutta (supra), it is

clear that no proceeding can continue after imposition of moratorium, which has

effect of depleting the assets of the CD or creating new liabilities on the CD,

since the object or purpose of IBC is to resolve the CD.

17. Now we come to the judgment of the Hon’ble Supreme Court relied

by learned Counsel for the Appellant in Sundresh Bhatt, Liquidator of

ABG Shipyard (supra). In the above case, the Hon’ble Supreme Court

had occasion to consider Section 14, 25 and 33(5) of the IBC in reference

to the provisions of Customs Act. In the above case, CIRP against the CD

commenced on 01.08.2017. Notice for payment of custom dues was

issued by the Customs Authorities on 29.03.2019 and thereafter on

02.04.2019 and 07.04.2019. Five different notices were issued. Order of

liquidation was passed on 25.04.2019. The claim was filed by the

Custom Authorities before the Liquidator. The question, which

essentially came for consideration before the Hon’ble Supreme Court is as

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 16


to whether any demand notice can be issued demanding customs’ due

from the Corporate Debtor, after initiation of CIRP. Sections 14 and 33(5)

was considered by the Hon’ble Supreme Court and in paragraphs 36, 37,

38, 39, 40 and 41, following was observed:

“36. Section 14 of the IBC prescribes a moratorium on the


initiation of CIRP proceedings and its effects. One of the purposes
of the moratorium is to keep the assets of the corporate debtor
together during the insolvency resolution process and to facilitate
orderly completion of the processes envisaged under the statute.
Such measures ensure the curtailing of parallel proceedings and
reduce the possibility of conflicting outcomes in the process. In this
context, it is relevant to quote the February 2020 Report of the
Insolvency Law Committee, which notes as under:

“8.2. The moratorium under Section 14 is intended to keep


‘the corporate debtor's assets together during the insolvency
resolution process and facilitating orderly completion of the
processes envisaged during the insolvency resolution
process and ensuring that the company may continue as a
going concern while the creditors take a view on resolution
of default’. Keeping the corporate debtor running as a going
concern during the CIRP helps in achieving resolution as a
going concern as well, which is likely to maximise value for
all stakeholders. In other jurisdictions too, a moratorium
may be put in place on the advent of formal insolvency
proceedings, including liquidation and reorganisation
proceedings. Uncitral Guide notes that a moratorium is
critical during reorganisation proceedings since it ‘facilitates
the continued operation of the business and allows the
debtor a breathing space to organise its affairs, time for
preparation and approval of a reorganisation plan and for
other steps such as shedding unprofitable activities and
onerous contracts, where appropriate’.”

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 17


From the above, it can be seen that one of the motivations of
imposing a moratorium is for Sections 14(1)(a), (b) and (c) of the
IBC to form a shield that protects pecuniary attacks against the
corporate debtor. This is done in order to provide the corporate
debtor with breathing space, to allow it to continue as a going
concern and rehabilitate itself. Any contrary interpretation would
crack this shield and would have adverse consequences on the
objective sought to be achieved.

37. Even if a company goes into liquidation, a moratorium


continues in terms of Section 33(5) of the IBC which reads as
under:

“33. (5) — Subject to Section 52, when a liquidation order


has been passed, no suit or other legal proceeding shall be
instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be


instituted by the liquidator, on behalf of the corporate
debtor, with the prior approval of the adjudicating
authority.”

38. We may note that the IBC, being the more recent statute,
clearly overrides the Customs Act. This is clearly made out by a
reading of Section 142-A of the Customs Act. The aforesaid
provision notes that the Customs Authorities would have first
charge on the assets of an assessee under the Customs Act, except
with respect to cases under Section 529-A of the Companies Act,
1956; Recovery of Debts and Bankruptcy Act, 1993; Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 and the IBC, 2016. Accordingly, such
an exception created under the Customs Act is duly acknowledged
under Section 238 of the IBC as well. Additionally, we may note
that Section 238 of the IBC clearly overrides any provision of law
which is inconsistent with the IBC. Section 238 of the IBC provides
as under:

“238. Provisions of this Code to override other laws.—

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 18


The provisions of this Code shall have effect,
notwithstanding anything inconsistent therewith
contained in any other law for the time being in force
or any instrument having effect by virtue of any such
law.”

39. The NCLAT, while playing down the effect of Section 142A of
the Customs Act and Section 238 of the IBC, has held that the
Customs Act is a complete code in itself and no person can seek
removal of goods from the warehouse without paying customs duty.
The NCLAT relies on the judgment in Collector of Customs v.
Dytron (India) Ltd., MANU/WB/0334/1998 : 1999 ELT 342 Cal.,
by the High Court of Calcutta, which laid down that customs duty
carry first charge even during the insolvency process Under Section
529 and 530 of Companies Act, 1956. However, reliance on the
said precedent is not appropriate as the NCLAT has failed to notice
that such interpretation has been legislatively overruled by the
inclusion of Section 142A under the Customs Act, through Section
51 of the Finance Act of 2011.

40. From the above, it is to be noted that the Customs Act and
the IBC act in their own spheres. In case of any conflict, the IBC
overrides the Customs Act. In present context, this Court has to
ascertain as to whether there is a conflict in the operation of two
different statutes in the given circumstances. As the first effort, this
Court is mandated to harmoniously read the two legislations,
unless this Court finds a clear conflict in its operation.

41. At the cost of repetition, we may note that the demand notices
issued by the Respondent are plainly in the teeth of Section 14 of
the IBC as they were issued after the initiation of the CIRP
proceedings. Moratorium Under Section 14 of the IBC was imposed
when insolvency proceedings were initiated on 01.08.2017. The
first notice sent by the Respondent authority was on 29.03.2019.
Further, when insolvency resolution failed and the liquidation
process began, the NCLT passed an order on 25.04.2019 imposing
moratorium Under Section 33(5) of the IBC. It is only after this
order that the Respondent issued a notice Under Section 72 of the

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 19


Customs Act against the Corporate Debtor. The various demand
notices have therefore clearly been issued by the Respondent after
the initiation of the insolvency proceedings, with some notices
issued even after the liquidation moratorium was imposed.”

18. The Hon’ble Supreme Court in paragraph 42 held that demand

notice to seek enforcement of the customs dues during the moratorium

period, clearly violate the provisions of Section 14 or 33(5) of the IBC. In

paragraph 42, following was held:

“42. We are of the clear opinion that the demand notices to seek
enforcement of custom dues during the moratorium period would
clearly violate the provisions of Sections 14 or 33(5) of the IBC, as
the case may be. This is because the demand notices are an
initiation of legal proceedings against the Corporate Debtor.
However, the above analysis would not be complete unless this
Court examines the extent of powers which the Respondent
authority can exercise during the moratorium period under the
IBC.”

19. Ultimately the Hon’ble Supreme Court relied on the its judgment in

S.V. Kandoakar v. V.M. Deshpande (supra) and held following in

paragraphs 44 and 45:

“44. Therefore, this Court held that the authorities can only take
steps to determine the tax, interest, fines or any penalty which is
due. However, the authority cannot enforce a claim for recovery or
levy of interest on the tax due during the period of moratorium. We
are of the opinion that the above ratio squarely applies to the
interplay between the IBC and the Customs Act in this context.

45. From the above discussion, we hold that the Respondent could
only initiate assessment or re-assessment of the duties and other
levies. They cannot transgress such boundary and proceed to
initiate recovery in violation of Sections 14 or 33(5) of the IBC. The

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 20


interim resolution professional, resolution professional or the
liquidator, as the case may be, has an obligation to ensure that
assessment is legal and he has been provided with sufficient power
to question any assessment, if he finds the same to be excessive.”

20. In paragraph 46, the Hon’ble Supreme Court noticed that demand

notice dated 11.07.2019 was issued under Section 72 of the Customs Act,

which was in clear breach of the moratorium imposed under Section

33(5) of the IBC. In paragraph 46, following was held:

“46. There is another aspect of this case that needs to be


highlighted to portray the inconsistency of the Customs Act vis-à-
vis the IBC during the moratorium period. In the present case, the
demand notice dated 11.07.2019 was issued by the Respondent
Under Section 72 of the Customs Act, in clear breach of the
moratorium imposed Under Section 33(5) of the IBC. Issuing a
notice Under Section 72 of the Customs Act for nonpayment of
customs duty falls squarely within the ambit of initiating legal
proceedings against a Corporate Debtor. Even under the liquidation
process, the liquidator is given the responsibility to secure assets
and goods of the Corporate Debtor Under Section 35(1)(b) of IBC.”

21. Ultimately, the Hon’ble Supreme Court answered the question in

paragraphs 53 and 54 in following manner:

“53. For the sake of clarity following questions, may be answered


as under:

a) Whether the provisions of the IBC would prevail over the


Customs Act, and if so, to what extent?

The IBC would prevail over The Customs Act, to the extent
that once moratorium is imposed in terms of Sections 14 or
33(5) of the IBC as the case may be, the Respondent
authority only has a limited jurisdiction to assess/determine
the quantum of customs duty and other levies. The

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 21


Respondent authority does not have the power to initiate
recovery of dues by means of sale/confiscation, as provided
under the Customs Act.

b) Whether the Respondent could claim title over the goods


and issue notice to sell the goods in terms of the Customs
Act when the liquidation process has been initiated?

answered in negative.

54. On the basis of the above discussions, following are our


conclusions:

i) Once moratorium is imposed in terms of Sections 14 or


33(5) of the IBC as the case may be, the Respondent
authority only has a limited jurisdiction to assess/determine
the quantum of customs duty and other levies. The
Respondent authority does not have the power to initiate
recovery of dues by means of sale/confiscation, as provided
under the Customs Act.

ii) After such assessment, the Respondent authority has to


submit its claims (concerning customs dues/operational
debt) in terms of the procedure laid down, in strict
compliance of the time periods prescribed under the IBC,
before the adjudicating authority.

iii) In any case, the IRP/RP/liquidator can immediately


secure goods from the Respondent authority to be dealt with
appropriately, in terms of the IBC.

22. In the case before the Hon’ble Supreme Court in Sundresh Bhatt,

Liquidator of ABG Shipyard, demand notice was issued subsequent to

initiation of CIRP and that was not the case of any assessment carried

out by Customs Authorities and the liquidation order was passed on

25.04.1999 and notice under Section 72 was issued on 11.07.2019, i.e.

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 22


after the liquidation. Hence, applicability under Section 33, sub-section

(5) found to be there as held in paragraph 46 of the judgment as noted

above. It is well settled law that a judgment of the Court has to be read

in the context of the facts and ratio of judgment has to be read in

reference to the facts, which have come for consideration before the

Court. It is well settled that ratio of a judgment cannot be read as statute

and above judgment of the Hon’ble Supreme Court, does not support the

submission of the Appellant that after imposition of moratorium under

Section 14, sub-section (1), it was open for the EPFO Authority to proceed

with the assessment and conclude the assessment.

23. In the present case, admittedly assessment has been completed

after initiation of the moratorium. We, thus, are of the view that once

order of liquidation is passed, moratorium under Section 14 comes to an

end and moratorium under Section 33(5), which is differently worded,

comes into play. Under Section 33(5), the expression used are “suit or

other legal proceeding”, which occurs in Section 446 of sub-section (1)

noticed above. Thus, bar is only against suit or legal proceeding and

there is no bar against assessment proceeding to be conducted by

statutory Authorities, including the EPFO. Thus, after the liquidation, it

is open for EPFO to carry on the assessment. Section 33(5), cannot be

held to apply on assessment proceedings. However, while looking to the

expression used in Section 14(1), assessment proceedings before the

EPFO, cannot be continued after initiation of CIRP.

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 23


24. In view of the aforesaid, we answer Question Nos.(1) and (2) in

following manner:

(1) We hold that after initiation of moratorium under Section 14,

sub-section (1), no assessment proceedings can be continued

by the EPFO. If after an order of liquidation is passed,

Section 33, sub-section(5), does not prohibit initiation or

continuation of assessment proceedings.

(2) No claim on the basis of assessment carried during the

moratorium period, which is prohibited under Section 14(1)

can be pressed in the CIRP.

Question No.(3)

25. It is an admitted fact that claims were filed by the Appellant

subsequent to approval of Resolution Plan by the CoC. The Adjudicating

Authority has relied on the judgment of the Hon’ble Supreme Court in

RPS Infrastructure Ltd. Vs. Mukul Kumar & Anr. – Civil Appeal

No.5590 of 2021 decided on 11.09.2023, which judgment squarely

applies to the facts of the present case. More so, when the claim on the

basis of assessment, which has been made subsequent to initiation of

moratorium is hit by Section 14, sub-section (1) of the IBC, we are of the

view that no such claim can be admitted in the CIRP.

Question No.(3) is answered accordingly.

26. In view of the foregoing discussions, we do not find any error in the

order impugned in the present Appeal(s) passed by Adjudicating

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 24


Authority. In the result, both the Appeal(s) are dismissed. Pending IAs, if

any, are also disposed of. There shall be no order as to costs.

[Justice Ashok Bhushan]


Chairperson

[Barun Mitra]
Member (Technical)

[Arun Baroka]
Member (Technical)

NEW DELHI

3rd January, 2025

Ashwani

Company Appeal (AT) (Ins.) Nos. 1062 & 1065 of 2024 25

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