Bombay High Court Quashes ₹1.22 Crore EPFO Demand Against Corporate Debtor; PF Assessment During IBC Moratorium Held Impermissible

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 10.09.2026

Bombay High Court Quashes ₹1.22 Crore EPFO Demand Against Corporate Debtor; PF Assessment During IBC Moratorium Held Impermissible

The Bombay High Court has quashed an Employees’ Provident Fund Organisation (EPFO) demand of ₹1,22,48,716 raised against Dolphin Offshore Enterprises (India) Limited, holding that continuation of proceedings under Section 7A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 during the moratorium imposed under the Insolvency and Bankruptcy Code, 2016 (IBC) was impermissible.

Justice Sharmila U. Deshmukh held that the subsequent demand and recovery proceedings could not survive after approval of the resolution plan, particularly in light of Sections 14, 31(6) and 32A of the IBC.

Background of the Case

• Corporate Insolvency Resolution Process (CIRP) against Dolphin Offshore Enterprises was initiated by the NCLT on 16 July 2020. Following a public announcement inviting claims, EPFO submitted a claim of ₹2,24,98,772, which was verified and admitted in full by the Resolution Professional.
• The Committee of Creditors subsequently approved the resolution plan submitted by Deep Industries Limited, and the NCLT approved the plan on 29 September 2022. Under the approved resolution plan, EPFO was paid ₹2,250 in full and final settlement of its claim.
• However, EPFO had separately initiated an inquiry under Section 7A of the PF Act concerning provident fund contributions for the period April 2018 to September 2019. Despite being informed about the CIRP and moratorium, the inquiry continued.
• Eventually, on 24 February 2023, after approval of the resolution plan, EPFO passed an order assessing PF dues at ₹1,22,48,716 and directed the corporate debtor to make payment.

Can EPFO Continue Section 7A Proceedings During IBC Moratorium?

• The principal issue before the High Court was whether EPFO could continue assessment proceedings under Section 7A of the PF Act after a moratorium had come into operation under Section 14 of the IBC.
• The Court observed that commencement of CIRP triggers the statutory moratorium. Once the moratorium is imposed, proceedings which have the effect of creating new liabilities against the corporate debtor cannot continue.
• In the present case, EPFO was aware that CIRP had commenced. Despite such knowledge, it continued with the Section 7A inquiry and ultimately passed the impugned order after the resolution plan had already been approved.

EPFO Order Was Not Merely an Assessment—It Was in the Nature of Recovery

• A significant aspect of the judgment is the Court’s distinction between mere assessment of dues and proceedings that effectively seek recovery.
• The EPFO order not only assessed ₹1.22 crore as outstanding dues but directed payment within 15 days, failing which recovery proceedings under Sections 8B to 8G of the PF Act were to follow. It also contemplated damages, interest and prosecution.
• The High Court therefore held that the order was “not merely an assessment proceeding” but a proceeding in the nature of recovery, which was impermissible during the moratorium.

Section 31(6) of IBC Extinguishes Pre-Resolution Claims

• The Court placed substantial reliance upon the newly introduced Section 31(6) of the IBC, inserted through the Insolvency and Bankruptcy Code (Amendment) Act, 2026, notified on 26 May 2026.
• The provision stipulates, inter alia, that unless otherwise provided in the resolution plan, claims against the corporate debtor and its assets arising prior to approval of the plan stand extinguished, and proceedings—including assessment proceedings—cannot be continued or instituted on the basis of such claims.
• Importantly, the Court noted that Explanation III gives retrospective operation to Section 31(6) in respect of resolution plans approved from the commencement of the IBC, except matters that have already attained finality.
• Accordingly, the Court held that the amount recognised in the approved resolution plan was protected, but the separate amount subsequently determined through the impugned Section 7A order was not.
• The post-resolution quantification therefore stood extinguished and could not be recovered.

EPFO Had Filed Its Claim but Did Not Challenge the Resolution Plan

• Another important consideration was that EPFO had actually participated in the insolvency process by lodging its claim with the Resolution Professional.
• The resolution plan ultimately recognised EPFO’s claim at ₹2,250, and EPFO was informed about approval of the plan and forwarded the amount. The Court observed that EPFO had the opportunity to challenge the resolution plan before the NCLAT and seek full payment of its provident fund dues.
• Instead, EPFO did not challenge the approved resolution plan and continued with its Section 7A inquiry.

Court Says 2026 IBC Amendment Reinforces “Clean Slate” Principle

• The High Court also considered the earlier Bombay High Court decision in Dalmia Cement (Bharat) Limited v. Central Board of Trustees, EPFO.
• The Court distinguished that decision on the facts and observed that, following the 2026 legislative amendment to the IBC, the effect of Dalmia Cement had been “considerably watered down.” The issue in the present case—continuation of a Section 7A inquiry during the moratorium—had also not arisen for consideration in Dalmia Cement.
• More importantly, the Court observed that the “clean slate” principle laid down by the Supreme Court in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. has now received legislative effect through the introduction of Section 31(6) of the IBC.

Protection Under Section 32A of IBC

• The High Court further relied upon Section 32A of the IBC, which grants immunity in respect of offences committed prior to commencement of CIRP once the resolution plan is approved and results in the prescribed change in management or control.
• Since the EPFO order contemplated recovery against the corporate debtor’s assets as well as prosecution, the Court found that such action was also inconsistent with the protection afforded by Section 32A.

Four Reasons Why the EPFO Order Was Unsustainable

The Bombay High Court crystallised its findings into four grounds: the Section 7A inquiry was impermissibly continued during the Section 14 moratorium; the resultant recovery claim stood extinguished under Section 31(6) after approval of the resolution plan; EPFO had itself lodged a claim which was dealt with under the resolution plan but never challenged that plan; and Section 32A protected the corporate debtor and its assets following the qualifying change in ownership and control.

High Court Quashes ₹1.22 Crore Demand

On these findings, the Bombay High Court held that the EPFO order dated 24 February 2023 was clearly unsustainable and consequently quashed and set it aside, allowing Dolphin Offshore Enterprises’ writ petition.

Key Takeaway

The ruling is significant for companies undergoing or emerging from CIRP because it reinforces the clean-slate principle under the IBC. Statutory authorities cannot disregard an IBC moratorium, participate in the resolution process, accept treatment of their claim under an approved resolution plan, and thereafter seek to impose a separate pre-resolution liability against the revived corporate debtor.

The judgment is particularly important after the 2026 amendment introducing Section 31(6), which the Bombay High Court has treated as giving legislative effect to the principle that pre-resolution claims, unless preserved under the approved plan, stand extinguished and cannot subsequently form the basis of fresh assessment or recovery proceedings.

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Source: Bombay High Court

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