Written By: Apoorv Agarwal
Regional Director, ESI Corporation v. Manish Kumar Bhagat, Liquidator, Gupta Dyeing & Printing Mills Pvt. Ltd.
Comp. App. (AT) (Ins) No. 301 of 2024 | Decided on 24.09.2025
The National Company Law Appellate Tribunal (“NCLAT”), in its judgment dated 24 September 2025 in Regional Director, ESIC v. Manish Kumar Bhagat, has reaffirmed that Employees’ State Insurance (“ESI”) contributions do not form part of the liquidation estate under the Insolvency and Bankruptcy Code, 2016 (“IBC”). The ruling reinforces the fiduciary character of statutory welfare dues.
BACKGROUND
The Corporate Debtor, Gupta Dyeing & Printing Mills Pvt. Ltd., entered liquidation proceedings, during which the Employees’ State Insurance Corporation (“ESIC”) filed claims for unpaid contributions for the period April 2011 to March 2014. The Liquidator classified ESIC as an unsecured operational creditor. An application seeking exclusion of these dues from the liquidation estate was dismissed by the NCLT, leading to the present appeal.
ARGUMENTS
On behalf of ESIC, it was argued that contributions deducted from employees’ wages are held in a fiduciary capacity under Section 40(4) of the ESI Act, 1948 and therefore constitute trust property. Such amounts, it was submitted, fall within Section 36(4)(a)(i) of the IBC, which excludes assets held in trust from the liquidation estate.
It was further contended that ESIC dues are not ordinary operational debts but statutory welfare contributions, and their classification as operational debt defeats the legislative intent. Reliance was placed on Nurani Subramanian Suryanarayanan v. ESIC[1], where the NCLAT had already recognised the trust character of such contributions.
NCLAT’S FINDINGS
The NCLAT accepted the submissions advanced on behalf of ESIC and held that the issue is squarely covered by its earlier decision in Nurani.
Drawing from Nurani, the Tribunal reiterated that the definition of “contribution” under the ESI Act shows that such amounts are intrinsically linked to employees’ earnings and are not the property of the employer. Once deducted from wages, these amounts are deemed to be “entrusted” to the employer, thereby creating a statutory trust. This entrustment, by legal fiction, brings the amounts within the scope of “assets held in trust” under Section 36(4)(a)(i) of the IBC.
The Tribunal thus clarified that the exclusion under Section 36(4) is not confined to specifically enumerated funds such as the provident fund or gratuity. Even in the absence of an express reference to ESI contributions, their substantive character as trust monies justifies exclusion from the liquidation estate. The Tribunal also implicitly disapproved the NCLT’s approach of treating ESIC merely as an operational creditor, holding that such classification cannot override the true legal character of the funds.
Accordingly, it was held that ESI contributions cannot be subjected to distribution under Section 53 of the IBC and must remain outside the liquidation estate.
CONCLUSION
This judgment reinforces that statutory employee welfare contributions are not assets of the corporate debtor. By affirming the trust character of ESI dues, the NCLAT has ensured that insolvency proceedings do not dilute social security protections, thereby aligning the IBC with the broader objective of safeguarding employee welfare.
[1] TA (AT) No.212/2021
