Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S Cheema, Member (Judicial) and Kanthi Narahari, Member (Technical) decided an appeal including the following question for consideration:

“Whether the Provident Fund, Pension Fund and Gratuity Fund come within the meaning of assets of ‘Corporate Debtor’ for distribution under Section 53 of the Insolvency and Bankruptcy Code, 2016?”

Following is the timeline in order to understand the issues pertaining to sections of Companies Act and Insolvency and Bankruptcy Code:

14th November, 2017-

Pursuant to an Application under Section 7 of Insolvency and Bankruptcy Code, 2016, the ‘Corporate Insolvency Resolution Process’ was initiated against ‘Corporate Debtor’.

20th September, 2018 –

National Company Law Tribunal, New Delhi passed a liquidation order stating that the workmen stood discharged under Section 33(7) of the Insolvency and Bankruptcy Code, 2016.

5th December, 2018 –

Liquidator, by email, denied payment of:

Gratuity Fund, Provident Fund and Pension Fund preferentially and included the same for the payments under ‘waterfall mechanism’ under Section 53 of the Insolvency and Bankruptcy Code, 2016.

January, 2019 –
‘Moser Baer Karamchari Union’ prayed that –

Directions be issued to the liquidator to exclude amount due to them towards:

  • Provident Fund, Pension Fund and Gratuity Fund from ‘Waterfall Mechanism’ under Section 53 of I&B Code, 2016 as these will not constitute part of liquidation estate.

19th March, 2019 –

National Company Law Tribunal, New Delhi held that provident fund dues, pension fund dues and gratuity dues cannot be a part of Section 53 of the I&B Code. State Bank of India, a secured creditor, challenged the order in this present appeal.

Contentions as placed by the parties:

The counsel on behalf of the appellant stated that, for the purpose of ‘distribution of assets’ of ‘Corporate Debtor’ under Section 52 of I&B Code, 2016 – dues of employees as mentioned in sub-clause (c) of sub-section (1) includes the contribution of ‘Provident Fund’.

To suggest the view that, ‘workmen’s dues’ shall bear the same meaning as given under Section 326 of Companies Act, 2013, appellant placed reliance on the same. Further, it also stated that explanation (iv) below Section 326 of Companies Act, 2013 relating to ‘Overriding Preferential Payments’ and it is mentioned that sums due to any workman from any of the above-stated funds maintained by the company are covered under the term ‘Workmen’s dues’.

Reliance was also placed on Section 327 of the Companies Act, 2013 related to ‘Preferential Payments’.

Resolution Professional’s counsel submitted that Section 36(3) of I&B Code, 2016 defines the components of liquidation estate and lays down what forms the liquidation estate.

Therefore, it was submitted that, workmen have the first charge on the aforesaid funds.

Thus, while concluding in consideration of the issue as was stated earlier in this appeal, Section 36 (Liquidation Estate) and Section 53 (Distribution of Assets) were mentioned for understanding the relevance with the present case.

Tribunal stated that, Appellant cannot derive the meaning as assigned to it in Section 326 of the Companies Act, 2013 including the explanation below it.

It further added that, Section 326 of the Companies Act, 2013 provides ‘Overriding Preferential Payments’.

Explaining the difference between the distribution of assets and preference/ priority of workmen’s dues under Section 53(1)(b) of I&B Code, 2016 and Section 326(1)(a) of the Companies Act, 2013. Applying Section 53 of the I&B Code, Section 326 of the Companies Act, 2013 is relevant for the limited purpose of understanding ‘workmen’s dues’ which can be more than the provident fund, pension fund and gratuity fund kept aside and protected under Section 36(4)(iii).

Another point stated by the Tribunal was that, appellant for the purpose of determining workmen’s dues under Section 53(1)(b), cannot derive any advantage of Explanation (iv) of Section 326 of Companies Act, 2013.

Provisions of I&B Code have overriding effect in case of inconsistency in any other law for the time being enforced. Therefore, it is held that Section 53(1) (b) read with Section 36 (4) will have an overriding effect on Section 326(1) (a), including the Explanation (iv) mentioned below Section 326 of Companies Act, 2013.

The finding of the adjudicating authority, that the aforesaid funds do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, Tribunal found no ground for interference with the impugned order of 19th March, 2019. [State Bank of India v. Moser Baer Karamchari Union, Company Appeal (AT) (Insolvency) No. 396 of 2019, decided on 19-08-2019]

Legislation UpdatesNotifications

S.O. 877(E)—Whereas, the use of Aadhaar as identity document for delivery of services or benefits or subsidies simplifies the Government delivery processes, brings in transparency and efficiency, and enables beneficiaries to get their entitlements directly to them in a convenient and seamless manner and Aadhaar obviates the need for producing multiple documents to prove one’s identity;

And whereas, the Ministry of Labour and Employment (hereinafter referred to as the Ministry) in the Government of India is administering the Central Sector Scheme of Pradhan Mantri Shram Yogi Maan-dhan (hereinafter referred to as the Scheme) which is implemented through the Life Insurance Corporation of India and Common Service Centres (hereinafter referred to as the implementing agency).

And whereas, the Scheme aims at providing pension support for Unorganized Workers (hereinafter referred to as the beneficiaries), as defined in the extant scheme guidelines. This made under clause (c) of Sub-section (1) of Section 3(1)(c) of the Unorganised Workers Social Security Act, 2008 (33 of 2008), the Central Government is mandated to formulate suitable welfare schemes for Unorganised workers on old age protection. The beneficiaries are basically engaged as home-based workers, street vendors, mid-day meal workers, head loaders, brick kiln workers, cobblers, rag pickers, domestic workers, washer men, rickshaw pullers, landless labourers, own account workers, agricultural workers, construction workers, beedi workers, handloom workers, leather workers, audio-visual workers and similar other occupations. The Central Government shall for the purposes of this Scheme, establish a Pension Fund to be administered in consultation, wherever required, with the National Board. The Central Government shall also contribute to the Pension Fund the equal amount as contributed by an eligible subscriber (hereinafter referred to as the benefits);

And whereas, the aforesaid Scheme involves recurring expenditure incurred from the Consolidated Fund of India;

Now, therefore, in pursuance of the provisions of Section 7 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016) (hereinafter referred to as the said Act), the Central Government hereby notifies the following, namely,-

1. (1) An individual desirous of availing the benefits under the Scheme shall be required to furnish proof of possession of Aadhaar number or undergo Aadhaar authentication.

(2) Any individual desirous of availing the benefits under the Scheme, who does not possess the Aadhaar number or has not yet enrolled for an Aadhaar, shall have to apply for Aadhaar enrolment provided he or she is entitled to obtain Aadhaar as per the provisions of Section 3 of the said Act and such individuals may visit any Aadhaar enrolment centre (list available at Unique
Identification Authority of India website www.uidai.gov.in) for Aadhaar enrolment.

(3) Any individual who has given his or her Aadhaar number or Aadhaar Enrolment ID or has undergone Aadhaar authentication for availing the benefits under the Scheme,

(a) shall be deemed to have given his or her consent to the Ministry or through its implementing agency to use his or her Aadhaar number and other information provided from time to time to verify his eligibility for scheme with income tax or employee State insurance corporation scheme or employee provident fund scheme or National Pension Scheme contributed by central government and other concerned departments or agencies as per the extant scheme guidelines.

(b) shall be deemed to have given his or her consent to Unique Identification Authority of India to share his or her information except core biometrics available with UIDAI to the Ministry or through its implementing agency from time to time for verification of the veracity of the information provided by him.

(4) The benefit shall be transferred by Government of India through the pension fund created for the purpose to the beneficiaries pension account maintained by the implementing agency.

(5) As per Regulation 12 of Aadhaar (Enrolment and Update) Regulations, 2016, the Ministry through its implementing agency, is required to offer Aadhaar enrolment facilities for the beneficiaries who are not yet enrolled for Aadhaar, and in case there is no Aadhaar enrolment centre located in the respective Block or Taluka or Tehsil, the Ministry through its implementing agency shall provide Aadhaar enrolment facilities at convenient locations in coordination with the existing Registrars of UIDAI or by becoming UIDAI Registrars themselves.

Provided that till the time Aadhaar is assigned to the individual, benefits under the Scheme shall be given to such individuals, subject to the production of the following documents, namely:–

(a) if he or she or has enrolled, his Aadhaar Enrolment identity Document slip; and

(b)   (i) Any one of the following documents: Bank Passbook or Post office Passbook with photo; or (ii) Electoral Photo Identity Card (EPIC) issued by the Election Commission of India; or (iii) Permanent Account Number (PAN) Card; or (iv) Passport; or (v) Driving licence issued by Licencing Authority under the Motor Vehicles Act, 1988 (59 of 1988); or (vi) Ration Card; or (vii) Mahatma Gandhi National Rural Employment Guarantee Act Card; or (viii) Kisan Photo Passbook; or (ix) Certificate of identity having photo of such person issued by a Gazetted Officer or a Tehsildar on an official letter head; or (x) any other document as specified by the Ministry:

Provided further that the above documents shall be checked by an officer designated by the Ministry for that purpose.

2. In order to provide convenient and hassle free benefits to the beneficiaries under the Scheme, the Ministry through its implementing agency shall make all the required arrangements to ensure wide publicity through media is given to the beneficiaries to make them aware of the requirement.

3. In all cases, where Aadhaar authentication fails due to poor biometrics of the beneficiaries or due to any other reason, the following exception handling mechanisms shall be adopted, namely:-

(a) in case of poor fingerprint quality, Integrated Risk Information System scan or face authentication facility shall be adopted for authentication, thereby the Ministry through its implementing agency shall make provisions for Integrated Risk Information System scanners or face authentication along with finger-print authentication for delivery of benefits in seamless manner;

(b) in case of biometric authentication through fingerprints or Integrated Risk Information System or face authentication is not successful, wherever feasible and admissible authentication by Aadhaar One Time Password or Time-based One-Time Password with limited time validity, as the case may be, shall be offered;

(c) in all other cases where biometric or One Time Password or Time-based One-Time Password authentication is not possible, benefit may be given on the basis of physical Aadhaar letter whose authenticity can be verified through the Quick Response code printed on the Aadhaar letter. The necessary arrangement of Quick Response code reader shall be provided at the convenient locations by the Ministry through its implementing agency;

4. This notification shall come into Force from the date of its publication in the Official Gazette in all the States and Union Territories Administrations, except the State of Assam, Meghalaya and the State of Jammu and Kashmir.

Ministry of Labour and Employment