EPFO can initiate assessment proceedings during liquidation: NCLAT on companies under IBC

The insolvency appellate tribunal has held that there is no bar against assessment proceedings by statutory authorities, including the EPFO, once the liquidation process starts against any debt-ridden company under the IBC. However, it also clarified that once a debt-ridden company is protected under moratorium after the initiation of insolvency proceedings against it, the Employees’ Provident Fund Organisation (EPFO) cannot continue such proceedings. While dismissing the two petitions filed by the EPFO, National Company Law Appellate Tribunal (NCLAT) said once a company is protected under moratorium as per the provisions of Section 14 (1) of the Insolvency & Bankruptcy Code (IBC), assessment proceedings for determination of quantum of dues cannot be continued.

“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,” said NCLAT.

It said no claim on the basis of assessment carried during the moratorium period, which is prohibited under Section 14(1), can be pressed in the Corporate Insolvency Resolution Process (CIRP).

However, it said once the order of liquidation is passed, the moratorium under Section 14 comes to an end and the moratorium under Section 33(5), which is differently worded, comes into play.

“Under Section 33(5), the expression used is ‘suit or other legal proceeding’, which occurs in Section 446 of sub-section (1) noticed above. Thus, the bar is only against a suit or legal proceeding and there is no bar against assessment proceeding to be conducted by statutory authorities, including the EPFO,” it said. Thus, during the liquidation, it is open for EPFO to carry on the assessment, it said. After insolvency if a company fails to attract any buyer, it will face liquidation, NCLAT said.

The three-member NCLAT bench, which also comprised Chairperson Justice Ashok Bhushan, upheld the previous orders passed by the Ahmedabad and Mumbai bench of the National Company Law Tribunal (NCLT).

While deciding on the two petitions filed by EPFO collectively having common questions of facts and law, NCLAT said it does not find any error in the order impugned in the present appeals passed by the two different benches of NCLT.

“In the result, both the appeal(s) are dismissed,” it said.