Provident Fund Payments Have Priority in Company Liquidations Over Secured Creditors and Other Payments Due to Employees
Stuti Galiya, Khaitan & Co, Mumbai, India
As regards a company in liquidation, after amounts payable by a company for provident funds for its employees (EPF Dues) under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) are paid, the other dues of the workers will be treated on an equal footing (pari passu) with the debts due to secured creditors, and the payment thereof will be regulated by the provisions contained in Sections 529, 529A and 530 of the Companies Act, 1956 (Companies Act), the Supreme Court has ruled in a recent case in November 2011.1
The Supreme Court's reasoning was based on principles of statutory interpretation, and the court was also persuaded by the fact that the EPF Act, being welfare legislation, needs to be given importance.
Under Section 11 (1) of the EPF Act, statutory priority is given to EPF Dues payable to employees over other debts of such company. Section 529A of the Companies Act lays down that workmen's dues and debts due to secured creditors are to be treated pari passu and are required to be paid in priority to all other debts.
The issue before the Supreme Court was whether priority given to the dues payable by an employer under Section 11 of the EPF Act was subject to Section 529A of the Companies Act, which provides priority both for other payments due to employees and for secured creditors over all other debts.
The Supreme Court held that mere ranking of dues to workers at par with debts due to secured creditors could not affect the priority of EPF Dues. Once the EPF Dues are paid, other payments due to employees and to secured creditors are to be satisfied as being on an equal footing (pari passu) with each other. The Court rejected the argument that because the amendment to the Companies Act was subsequent legislation, the non obstante clause in Section 529A of the Companies Act should take precedence over the non obstante clause contained in Section 11 of the EPF Act. The Court held that Section 529A of the Companies Act was enacted with a view to bring the workmen's dues pari passu with the secured creditors, not to supersede the priority of EPF Dues, and that there was no conflict between the two statutes.
The order of Supreme Court has been circulated to all the field offices of Employees' Provident Fund Organisation for compliance.
1Employees Provident Fund Commissioner versus Official Liquidator of Esskay Pharmaceuticals Limited, Civil Appeal Nos 9630, 9631, 9632 and 9633/2011, November 8, 2011.
Expatriates in India Contributing to Social Security Plan in Another Country and Covered by Bilateral Economic Agreement with India Now Recognized as Exempt from Social Security Contributions in India
Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi
By way of a notification dated May 24, 2012, the Indian Ministry of Labour and Employment has amended the definition of 'excluded employee' under the Employees' Provident Fund Scheme, 1952 (EPF Scheme). As a result of the amendment, an additional clause has been inserted to cover exclusions and exemptions under comprehensive economic partnership agreements that India has with certain countries such as Singapore. It appears that this amendment has been made to remedy an oversight in the prior wording of the statute that exempted some expatriate employees under certain social security agreements with India but not others.
Pursuant to the Notification, the statutory definition of 'excluded employee' now includes two parts. The new part of the exemption covers:
An international worker who is contributing to a social security programme of his or her country of origin or residence, with which India has entered into a bilateral comprehensive economic agreement containing a clause on social security prior to October 1, 2008, which specifically exempts natural persons of either country to contribute to the social security fund of the host country.
The earlier exemption covered only:
An international worker who is contributing to a social security programme of his or her country of origin, either as a citizen or resident, with which India has entered into a social security agreement on reciprocity basis and enjoying the status of detached worker for the period and terms as specified in such agreement.
The Government of India had in October 2008 amended the schemes under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, India's key social security enactment, to bring international workers (expatriates) within the ambit of the social security statute and thereby require them to make provident fund and pension contributions in India, with the exception of the exclusions under social security agreements as noted above and the now supplemented exclusions under the economic partnership agreement.