Madras High Court says ESIC cannot recover pre-insolvency dues from Karvy Data Management

The Madras High Court on 26 October 2026 held that an Employees' State Insurance Corporation (ESIC) demand of Rs 33,14,018 on Karvy Data Management Services for the period before its insolvency process cannot be recovered. The court said such pre-insolvency dues abate once a resolution plan is approved.

What Happened

Karvy Data Management Services challenged ESIC orders of 2 November 2025 and 4 November 2025, and an attachment order of 14 January 2026 issued by ESIC's recovery officer in Chennai. The orders sought ESI contributions, interest and damages for wage periods from February 2011 to September 2024.

According to the judgment, the company's corporate insolvency resolution process, the procedure under the Insolvency and Bankruptcy Code for rescuing a company that cannot pay its debts, began on 15 September 2023. The National Company Law Tribunal approved a resolution plan on 13 December 2024.

The court held that the demand of Rs 19,50,201 towards ESI contribution and Rs 13,63,817 towards interest, a total of Rs 33,14,018 for the period before the insolvency process, was unsustainable and had to abate in light of Section 53 of the Insolvency and Bankruptcy Code and the Supreme Court's ruling in Ghanashyam Mishra & Sons v. Edelweiss Asset Reconstruction Company. It held the same for the pre-insolvency part of the smaller amounts of damages, including Rs 2,989 imposed under Section 85-B of the ESI Act, and interest.

For the period after the insolvency process began, the court directed ESIC to work out the amount due before proceeding against the company, and said the company must pay when such a demand is made. The writ petitions were disposed of with no costs.

What It Means

The ruling applies the principle that once a resolution plan is approved, claims for the period before insolvency that are not part of the plan cannot be pursued against the company afterwards. ESIC can still recover contributions, interest and damages for the period after the insolvency process began, but only after quantifying them. The High Court's order may be challenged before a higher bench or the Supreme Court.

Source: High Court judgment