When in public life, you are morally accountable for what your close kith and kin do. Railway minister Piyush Goyal has put out a statement saying that he has had nothing to do with the Mumbai-based loan defaulting company Shirdi Industries since 2010, which is when he quit as its chairman.But the fact remains, as The Wire recently reported, that the promoters of Shirdi Industries and its holding company, Asis Industries, have given an unsecured loan of Rs 1.5 crore to another company called Intercon which is run by Seema Goyal, wife of Piyush Goyal. This loan remained outstanding in the books of Intercon even in 2016-17, when Piyush Goyal was an influential member of the NDA cabinet.Goyal has asserted none of his ministries has had any dealings with either Shirdi Industries or Asis Industries. This, Mr Goyal, is not the concerning issue at hand.The point is Seema Goyal owed these companies Rs 1.5 crore at a time when these companies had not only defaulted on their Rs 650 crore debt to a consortium of banks but also defaulted on payment of Rs 4 crore of provident fund money to the company’s workers. Theoretically, if Seema Goel’s company had repaid Rs 1.5 crore to the promoters of the bankrupt Shirdi Industries, at least part of the provident fund money owed to the workers could have been deposited.Failure to deposit provident fund money is a criminal offence. Also, when a bankrupt company goes into insolvency proceedings, the first claim on the residual assets of the company – even before secured creditors come in – belongs to workers’ statutory dues, especially provident fund. The law is universally clear and unambiguous on this. There are other statutory dues too, like taxed such as income tax, sales tax etc owed by the company to the government. But in law, both in letter and spirit, provident fund dues have the highest claim on a company which goes into insolvency.However, last December, Shirdi Industries managed to get an order from the National Company Law Tribunal which allowed it to postpone the provident fund dues of workers to 2022-2024. This is unprecedented and it seems the NCLT may have committed a grave error in postponing payment of PF dues by five to seven years. After all, someone who retires today from Shirdi Industries cannot be expected to wait five years to receive his or her PF dues.Quite apart from the involvement of the Goyal family, several larger questions of law are posed by the NCLT order on the Shirdi Industries’ revival package, which 99% of the creditors agreed on. Is the Insolvency and Bankruptcy Code (IBC), touted as a big reform by the Modi government, silent on the primacy of statutory dues such as provident fund money owed to employees or taxes owed to the government? It is well worth examining how Shirdi Industries managed to get such an order from the NCLT.According to Sumant Batra, a senior lawyer who advises the newly created Insolvency and Bankruptcy Board of India, the regulator for insolvency proceedings, “the National Company Law Tribunal’s jurisdiction on giving an order on statutory dues owed by companies is not very clear”. Other senior advocates I spoke to echoed similar sentiments. So, it is not certain whether the NCLT had the powers to postpone provident fund dues while settling a revival package for Shirdi Industries.There are other issues with the IBC code. It was brought in a hurry and was amended in November 2017 to ensure that erring promoters or their close relatives and associates are not buying off their own companies in insolvency proceedings after banks take a substantial loan write-off.The idea was to not give the same promoters another chance as they had defaulted on loan repayments. But with Shirdi Industries, an exception was made and the same promoters were allowed to buy their insolvent company after a 65% loan write off by banks. The reason given was 99% of the banks had agreed on a revival package before the November 2017 amendment disallowing the original promoters to bid for their company under auction by NCLT.Here again, lawyers say an agreement among bankers cannot overrule a law which came into being in November 2017. Furthermore, the insolvency proceedings concluded in December 2017, well after the new amendment was in place. These are some of the troubling questions that the Shirdi revival package pose.
