Regional Director Vs Manish Kumar (NCLAT Delhi)
The appeal in Regional Director Vs Manish Kumar (NCLAT Delhi) was filed by the Regional Director of the Employees’ State Insurance (ESI) Corporation, challenging an order by the National Company Law Tribunal (NCLT), Ahmedabad Bench. The NCLT had dismissed the Corporation’s application seeking to keep the ESI dues lying with the Corporate Debtor (M/s Gupta Dyeing & Printing Mills Pvt. Ltd.) outside the liquidation estate. The Liquidator had treated the ESI claim of as that of an operational (unsecured) creditor and allotted a proportionate amount for disbursement according to the priority of payments under Section 53 of the Insolvency and Bankruptcy Code (IBC), 2016. The NCLT’s reasoning for dismissal included that ESI dues are not explicitly defined as workmen’s dues under Section 36(4)(iii) of the IBC, and there is no provision in the ESI Act granting it a charge or special status over other operational creditors.
The ESI Corporation argued before the National Company Law Appellate Tribunal (NCLAT) that the NCLT failed to consider Section 36(4)(a)(i) of the IBC. This section stipulates that any assets held by the Corporate Debtor (CD) in trust for any third party do not form part of the liquidation estate. The core of their argument was that ESI contributions, which include amounts deducted from employees’ wages and the employer’s share, are held by the CD in trust by virtue of Section 40(4) of the ESI Act, 1948. The NCLAT concurred with the appellant, relying on its prior coordinate bench decision in Nurani Subramanian Suryanarayanan vs. ESI Corporation, which had categorically held that the ESI amount, contributed by both the employer and employee, is held in trust, making Section 36(4)(a)(i) applicable. The Appellate Tribunal found that the Supreme Court judgments cited by the Respondent-Liquidator were not relevant as they did not address the specific issue of ESI dues held in trust. Consequently, the NCLAT allowed the appeal, setting aside the NCLT’s order and effectively ruling that the ESI amount does not belong to the liquidation estate and must be kept out of the general pool of assets available to creditors.
