Bombay High Court quashes ₹1.22-crore PF demand, holds post-CIRP assessment barred by IBC moratorium and Section 31(6) retroactive protection

A petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against the Petitioner was admitted, and the Corporate Insolvency Resolution Process (“CIRP”) commenced on 16 July 2020.

The Employees’ Provident Fund Organisation (“EPFO”) had already initiated proceedings under Section 7A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”) concerning provident-fund remittances for April 2018 to September 2019.

During the CIRP, EPFO submitted a claim of Rs.2,24,98,772, which was verified and admitted by the Resolution Professional.

The Committee of Creditors approved the resolution plan of Deep Industries Ltd., which was sanctioned by the NCLT on 29 September 2022. Under the approved plan, EPFO’s claim was settled for Rs.2,250, which was paid to it.

Despite being informed of the CIRP, the moratorium, and the approved resolution plan, EPFO continued the Section 7A inquiry and, on 24 February 2023, assessed provident-fund dues at Rs.1,22,48,716, directing payment and threatening recovery, damages, interest and prosecution.

The Petitioner challenged that order under Article 227 of the Constitution.

1. Whether EPFO could continue the inquiry and assessment under Section 7A of the EPF Act after commencement of the CIRP and imposition of moratorium under Section 14 of the IBC?

2. Whether the Section 7A proceedings and the demand raised after approval of the resolution plan were barred or extinguished under Section 31(6) of the IBC?

3. Whether EPFO could recover pre-CIRP provident-fund dues from the Corporate Debtor and its assets after the resolution plan had been approved and implemented, particularly where EPFO’s claim had been admitted and settled under the plan?

The Court applied Section 14 of the IBC, which imposes a moratorium and prohibits continuation of proceedings against the Corporate Debtor that create or enforce liabilities during the CIRP.

It relied on Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority, holding that the moratorium operates as a statutory freeze against proceedings affecting the Corporate Debtor’s assets or liabilities.

Section 31(6) of the IBC, introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, provides that, unless otherwise provided in the resolution plan, pre-approval claims against the Corporate Debtor and its assets are extinguished and no proceedings, including assessment proceedings, may be continued or instituted on their basis; Explanation III gives the provision retrospective operation, subject to matters attaining finality.

The Court also applied Section 32A of the IBC, which protects the Corporate Debtor and its assets from liability and prosecution for offences committed before the CIRP where the approved resolution plan results in a change of management or control.

It relied on Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. for the “clean slate” principle, and on Employees’ Provident Fund Organisation v. Jaykumar Pesumal Arlani and Employees’ Provident Fund Organisation v. Subhlaxmi Investment Advisory Pvt. Ltd. for the proposition that EPFO assessment proceedings cannot continue during the moratorium.

The Court further followed Sundresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, which limits statutory authorities during the moratorium to assessment or determination of dues in accordance with the IBC and prohibits recovery against the Corporate Debtor.

The Court held that EPFO had actual notice of the CIRP and moratorium but nevertheless continued the Section 7A inquiry by calling for documents and recording evidence during the moratorium.

Although assessment proceedings may, in an appropriate case, be distinguished from recovery proceedings, the impugned order did more than quantify dues: it demanded payment within 15 days and threatened recovery under Sections 8B–8G of the EPF Act, damages, interest and prosecution.

It was therefore, in substance, a recovery proceeding impermissible during the moratorium.

The subsequent approval of the resolution plan did not cure the defect.

By virtue of Section 31(6), retrospectively applied, the pre-approval claim stood extinguished except to the extent provided in the approved plan, and further proceedings for assessment were expressly prohibited.

The Court also noted that EPFO had submitted its claim, received Rs.2,250 under the plan, and did not challenge the plan before the NCLAT despite having an opportunity to do so.

The Court distinguished Dalmia Cement, since that case involved non-filing of an EPFO claim and did not decide the legality of continuing a Section 7A inquiry during the moratorium.

Recovery against the Corporate Debtor’s assets was additionally inconsistent with the protection under Section 32A.

It held that continuation of the Section 7A inquiry during the moratorium violated Section 14 of the IBC; the resulting post-resolution assessment and demand were extinguished and barred under Section 31(6); and recovery could not be pursued against the Corporate Debtor or its assets after approval and implementation of the resolution plan.

The order dated 24 February 2023 assessing dues of Rs.1,22,48,716 and directing payment was quashed and set aside.

The writ petition was allowed, and the rule was made absolute.