The Bombay High Court has ruled that Employees’ Provident Fund Organisation (EPFO) cannot continue inquiry under Section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act), during CIRP moratorium and that pre-resolution approval claims stand extinguished under Section 31(6) of the IBC, introduced with retrospective effect from 26 May 2026.
Essentially, the Court held that once moratorium is imposed under Section 14 of the IBC, no proceedings, including assessment proceedings under Section 7A of the EPF Act, can be continued against the Corporate Debtor that have the effect of creating new liabilities or seeking recovery. Where a resolution plan is approved by the Adjudicating Authority, pre-resolution approval claims stand extinguished under Section 31(6) of the IBC, and no proceedings, including proceedings for assessment, can be continued or instituted against the Corporate Debtor or its assets on the basis of such claims.
The High Court explained that “clean slate” principle enunciated in Ghanashyam Mishra vs Edelweiss Asset Reconstruction [Civil Appeal No.8129/2019] has been given legislative effect through the introduction of Section 31(6), which applies retrospectively from the date of commencement of the IBC. Further, Section 32A of the IBC grants immunity to the Corporate Debtor and its assets in relation to offences committed prior to CIRP upon change in management through approval of the resolution plan.
A Single Judge Bench of Justice Sharmila U. Deshmukh noted that the impugned order was assailed on three grounds: first, that the Section 7A inquiry continued during the moratorium period and was therefore non est; second, that the EPFO’s claim received treatment in the resolution plan and stood frozen upon its approval; and third, that the claim stood extinguished by reason of Section 31(6) of the IBC. On the moratorium issue, the Court observed that once Section 14 of the IBC is triggered, no proceedings can continue which have the effect of creating new liabilities on the Corporate Debtor.
The Court noted that the EPFO was fully aware of the initiation of CIRP and the approval of the resolution plan, yet proceeded with the Section 7A inquiry and passed the impugned order after the plan’s approval. The Court considered the Supreme Court’s decision in Sundresh Bhatt vs Central Board of Indirect Taxes and Customs [(2023) 1 SCC 472], which held that once moratorium is imposed, the authority has only limited jurisdiction to assess the quantum of dues but cannot initiate recovery, and that the IBC prevails over other statutes during the moratorium period.
The Court observed that the impugned order was not merely an assessment but a recovery proceeding, as it directed the Corporate Debtor to pay the assessed amount within 15 days failing which coercive action would be initiated. The Court further noted that Sub-section (6) to Section 31 of the IBC was introduced on 26 May 2026 with retrospective effect, extinguishing all pre-resolution approval claims unless provided for in the resolution plan, and specifically prohibiting proceedings for assessment of such claims. The Court also observed that Section 32A of the IBC grants immunity to the Corporate Debtor and its assets from prosecution or liability for offences committed prior to CIRP once the resolution plan results in a change of management.
Briefly, the Petitioner, M/s Dolphin Offshore Enterprises (India) Limited had challenged an order dated 24 February 2023 passed by the Employees’ Provident Fund Organization (EPFO) under Section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.
A Section 9 petition under the Insolvency and Bankruptcy Code, 2016 (IBC) was filed against the Petitioner on 22 October 2018, and the Corporate Insolvency Resolution Process (CIRP) was initiated by the NCLT on 16 July 2020, with an Interim Resolution Professional being appointed and a public announcement inviting claims issued on 22 July 2020. The EPFO submitted its claim of Rs. 2.24 crores on 7 May 2021, which was verified and admitted by the Resolution Professional in full. The Committee of Creditors (CoC) approved the resolution plan submitted by M/s Deep Industries Limited on 7 February 2022, and the NCLT approved the plan on 29 September 2022, transferring management to the Resolution Applicant and settling the EPFO’s claim at Rs. 2,250/- in full and final settlement.
Prior to the CIRP, the EPFO had initiated a Section 7A inquiry for the period April 2018 to September 2019, issuing summons on 24 October 2019. Despite intimation of the moratorium by the IRP/RP through letters dated 8 October 2020, 11 December 2020 and 27 April 2021, the EPFO continued the inquiry during the moratorium period. After the resolution plan was approved, the RP informed the EPFO on 4 January 2023 that the claim stood settled at Rs. 2,250/-, which was paid. The EPFO nonetheless passed the impugned order on 24 February 2023, assessing PF dues at Rs. 1.22 crores and directing recovery under Sections 8B to 8G, damages under Section 14B, interest under Section 7Q, and prosecution under Section 14 of the EPF Act.
