EPFO Can't Raise Undetermined Interest Claims After IBC Resolution Plan: Supreme Court

The Supreme Court has held that the Employees' Provident Fund Organisation's (EPFO) claims towards interest and damages, if not determined before the commencement of the Corporate Insolvency Resolution Process (CIRP), are contingent liabilities and cannot be raised after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC).

A Bench of Justices Manoj Misra and Vijay Bishnoi said that while provident fund (PF) dues are excluded from the liquidation estate under Section 36(4)(iii) of the IBC, the corporate debtor's liability towards interest under Section 7Q and damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 would be treated as contingent liabilities if they had not been determined and finalised before the commencement of CIRP.

Court said the Committee of Creditors (CoC), in its commercial wisdom, may provide a lump sum amount in the resolution plan to account for contingent liabilities arising from uncrystallised claims. However, if the CoC chooses not to make such a provision, that decision cannot be faulted because the objective of the CIRP is to adhere to fixed timelines.

"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 thereby defeating the underlying object of IBC. Besides, approval of a resolution plan duly approved by the COC can be declined by the Adjudicating Authority on limited grounds, inter alia, that it does not fulfill the mandate of sub-section (2) of Section 30 of IBC," the Bench observed.

Court was hearing an appeal filed by the EPFO against the approval of the resolution plan of a corporate debtor. It noted that although the resolution plan provided for payment of PF dues, it did not include uncrystallised claims towards interest and damages because proceedings for determining those liabilities had not been initiated before the commencement of the CIRP.

"Therefore, in our view, there is no blatant violation of the statutory mandate of IBC," the Bench said.

What was the dispute?

The corporate debtor was admitted into the CIRP by an order of the Adjudicating Authority on May 1, 2023. Following the public announcement inviting claims, the EPFO submitted a claim of Rs 22,49,956 comprising provident fund dues, interest and damages.

The Adjudicating Authority approved the resolution plan on May 17, 2024.

Under the approved plan, Rs 73,120 was proposed to be paid towards PF dues against the EPFO's total claim of Rs 22,49,956. The claim comprised Rs 73,120 towards PF dues under Section 7A, Rs 9,32,805 towards interest under Section 7Q, and Rs 12,44,031 towards damages under Section 14B of the 1952 Act.

The EPFO, represented by advocate Dushyant Parashar, argued that provident fund dues are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC and therefore could not be subjected to any reduction or haircut under the resolution plan.

On the other hand, it was contended that before the commencement of the CIRP, no order determining the dues under either Section 7A or Section 14B had been passed. Consequently, the liabilities towards interest and damages had not crystallised. It was also pointed out that the resolution plan had been approved by the CoC with 100% voting share and subsequently approved by the Adjudicating Authority, leaving no scope for interference in the absence of any statutory violation.

The National Company Law Appellate Tribunal (NCLAT) had also found that the claims towards interest and damages had neither crystallised nor could they be adjudicated because of the moratorium under the IBC. While the CIRP commenced on May 1, 2023, proceedings relating to interest and damages under the 1952 Act were initiated only on May 10, 2023.

Holding that the protection under Section 36(4)(a)(iii) of the IBC was not available to such claims, the NCLAT had refused to interfere with the approval of the resolution plan.

SC reiterates 'clean slate' principle under IBC

While upholding the NCLAT's decision, the Supreme Court relied on its recent judgment in Tata Steel Ltd. v. Varsha & Anr. (2026), where it held that no resolution plan can succeed if uncertain or unquantified claims are allowed to resurface years after its approval. Court had described such claims as a "hydra headed recurrence" that is contrary to the IBC's "clean slate" principle.

The Bench also referred to Committee of Creditors of Essar Steel (India) Ltd. v. Satish Kumar Gupta (2020), in which the Supreme Court held that a successful resolution applicant cannot be burdened with undecided claims after the resolution plan has been approved. All claims must be submitted to and decided by the resolution professional so that the resolution applicant knows exactly what liabilities it is taking over.

Finding no legal infirmity in the orders of the Adjudicating Authority and the NCLAT, the Supreme Court dismissed the EPFO's appeal.

Case Title: Employees Provident Fund Organisation Vs Rachna Jhunjhunwala & Anr

Bench: Justices Manoj Misra and Vijay Bishnoi

Date of Judgment: July 28, 2026