EPFO Cannot Recover Uncrystallised Interest and Damages Once Resolution Plan Is Approved, Supreme Court Rules

A Division Bench of Justices Manoj Misra and Vijay Bishnoi held that Section 36(4) of the IBC does not protect EPFO interest and damages claims that had not been determined before CIRP commenced.

The Supreme Court on 28 July 2026 dismissed an appeal filed by the Employees Provident Fund Organisation (EPFO), holding that claims for interest under Section 7Q and damages under Section 14B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 — which had not been determined before the commencement of Corporate Insolvency Resolution Process (CIRP) — are contingent liabilities that do not enjoy the protection of Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Court held that an approved resolution plan that does not provide for such uncrystallised claims cannot be faulted on that ground alone. The decision reinforces the “clean slate” principle that underlies the IBC framework and closes a potential avenue through which statutory bodies could seek to revive unquantified dues against a successful resolution applicant after plan approval.

How the Dispute Reached the Supreme Court

The corporate debtor was admitted into CIRP by order of the Adjudicating Authority on 1 May 2023. Following a public announcement inviting claims, EPFO submitted a claim of Rs. 22,49,956/- comprising three components: Rs. 73,120/- as provident fund dues under Section 7A of the 1952 Act; Rs. 9,32,805/- as interest leviable under Section 7Q; and Rs. 12,44,031/- as damages under Section 14B.

The Committee of Creditors (COC) approved the resolution plan with a 100% voting share. The Adjudicating Authority approved the plan on 17 May 2024. Under the plan, only Rs. 73,120/- was provided towards PF dues — the precise amount attributable to Section 7A contributions. The interest and damages components, totalling Rs. 21,76,836/-, were not provided for.

EPFO challenged the plan before the National Company Law Appellate Tribunal (NCLAT), arguing that PF dues are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC and therefore could not be subjected to any haircut. The NCLAT dismissed the appeal, finding that proceedings to determine interest and damages had been initiated on 10 May 2023 — nine days after CIRP commenced on 1 May 2023. Because those claims had not crystallised before the moratorium, the NCLAT held the protection of Section 36(4)(a)(iii) was unavailable. EPFO then approached the Supreme Court.

EPFO’s Argument: Statutory Exclusion from Liquidation Estate

Before the Supreme Court, counsel for EPFO pressed the same arguments advanced before the NCLAT. The core contention was that the IBC expressly excludes PF dues from the liquidation estate under Section 36(4)(a)(iii), and that this exclusion should equally shield such dues from reduction under a resolution plan. The submission was that interest and damages under Sections 7Q and 14B are inseparable from the underlying PF obligation and must receive the same treatment.

The respondents, supporting the resolution plan, countered that no order of determination had been passed under either Section 7A or Section 14B of the 1952 Act before CIRP commenced, meaning the claims had not crystallised. They further submitted that a plan approved by 100% of the COC and sanctioned by the Adjudicating Authority should not be disturbed in the absence of a clear statutory violation.

The Court’s Reasoning: Contingent Liabilities and the Clean Slate

The Court agreed with the NCLAT’s core reasoning but elaborated on it with reference to settled precedent. It accepted that PF dues proper are excluded from the liquidation estate under Section 36(4)(iii) of the IBC. However, it distinguished between the principal PF contribution — which the resolution plan did provide for — and the interest and damages components that had not been assessed or ordered before CIRP commenced.

The Court held that where interest under Section 7Q and damages under Section 14B have not been determined and finalised before CIRP commencement, they fall in the category of a contingent liability. As a contingent liability, they do not attract the same statutory protection as crystallised PF dues.

The Court drew on Tata Steel Ltd. v. Varsha & Anr., 2026 SCC OnLine SC 1349, observing that no resolution plan can succeed if uncertain or unquantified claims are permitted to linger and resurface against the successful resolution applicant years after approval. It also relied on Essar Steel (India) Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531, where the Court had explained that “a successful resolution applicant cannot suddenly be faced with undecided claims after the resolution plan submitted by him has been accepted.”

The Court applied that logic directly. If a prospective resolution applicant is left uncertain about the quantum it would have to pay to take over and run the corporate debtor’s business, it may decline to participate, defeating the underlying object of the IBC. Fixed timelines and finality of the resolution plan are essential to the process.

On the COC’s Commercial Wisdom

The Court acknowledged that a COC, in its commercial wisdom, may choose to set aside a lump sum to meet contingent liabilities arising from uncrystallised claims. That is a permissible choice. But where the COC has not done so — as here, where it voted unanimously for a plan that did not provide for the interest and damages components — that decision cannot be faulted. The COC’s commercial judgment on uncrystallised liabilities is not subject to review merely because a statutory authority later seeks to assert a claim that had not been determined at the relevant time.

The Court also noted that the Adjudicating Authority can decline to approve a resolution plan only on limited grounds, including non-compliance with Section 30(2) of the IBC. Since the plan provided for actual PF dues under Section 7A and the interest and damages claims had not crystallised, the Court found no blatant statutory violation that would justify refusing approval or setting the plan aside.

The Role of the Moratorium

A significant factual element in the reasoning was the sequence of dates. CIRP commenced on 1 May 2023. Proceedings to determine interest and damages under the 1952 Act were initiated on 10 May 2023 — after commencement. Because those proceedings began post-commencement, they could not be adjudicated during CIRP owing to the moratorium. The NCLAT had used this finding to conclude that the claims were neither crystallised nor capable of adjudication, and the Supreme Court agreed that this placed them outside the protection available to established PF dues under Section 36(4)(a)(iii).

Outcome

The Supreme Court dismissed Civil Appeal No. 9768/2026. The impugned NCLAT order affirming the Adjudicating Authority’s approval of the resolution plan was upheld. The refiling delay was condoned at the outset. All pending applications were disposed of. The order was delivered on 28 July 2026 by Justice Manoj Misra and Justice Vijay Bishnoi at New Delhi.