Undetermined EPFO interest, damages cannot derail insolvency resolution: Supreme Court

Mangalore Today News Network

New Delhi, Jul 31, 2026: The Supreme Court has said interest and damages claimed by the Employees’ Provident Fund Organisation (EPFO) constitute contingent liabilities, if not determined and finalised before the start of the corporate insolvency resolution process (CIRP) against a corporate debtor under the Insolvency and Bankruptcy Code. 

A bench of Justices Manoj Misra and Vijay Bishnoi pointed out that while provident fund dues themselves are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC, any liability for interest under Section 70 or damages under Section 14B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 that remains undetermined at the CIRP commencement date falls into the category of contingent claims.

The court underscored that the core objective of the CIRP is to adhere to fixed timelines and provide a “clean slate” to the successful resolution applicant. 

Allowing uncertain or unquantified claims to resurface later would create uncertainty and deter prospective applicants, defeating the purpose of the IBC, it emphasised.

“If the prospective resolution applicant is kept guessing as to what he would have to pay to take over and run the business of the Corporate Debtor, it may not enter the fray,” the bench emphasised.

It noted that the Committee of Creditors (CoC), in its commercial wisdom, may allocate a lump sum for such contingent liabilities. Where it chooses not to, that decision cannot be faulted.

The July 28, 2026 ruling came in an appeal filed by the EPFO argued by advocate Dushyant Parashar against the approval of a resolution plan for a corporate debtor.

The company was admitted into CIRP on May 1, 2023. The EPFO lodged a claim of Rs 22,49,956, comprising Rs 73,120 towards principal PF dues under Section 7A, Rs 9,32,805 as interest under Section 7Q, and Rs 12,44,031 as damages under Section 14B.

The resolution plan, approved by the CoC with 100 per cent voting share and later by the adjudicating authority on May 17, 2024, provided only for the principal PF dues of Rs 73,120. Proceedings for interest and damages had been initiated by the EPFO only after the CIRP began, on May 10, 2023, and thus remained uncrystallised.

Both the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court found no statutory violation. 

Relying on precedents including Essar Steel and the recent Tata Steel judgment, the bench reiterated that a successful resolution applicant cannot be confronted with undecided claims years later, as this would amount to a “hydra-headed” recurrence antithetical to the clean-slate principle.

The apex court accordingly dismissed the EPFO’s appeal, affirming the approval of the resolution plan.