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The Interest Act, 1978
The Companies Act, 1956
Section 530 in The Companies Act, 1956
Section 529A in The Companies Act, 1956
Section 529(1) in The Companies Act, 1956

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Madras High Court
Indian Overseas Bank vs The Employees Provident Fund ... on 12 December, 2011
       

  

  

 
 
 BEFORE THE MADURAI BENCH OF MADRAS HIGHCOURT

DATED: 12/12/2011

CORAM
THE HONOURABLE MR.JUSTICE K.CHANDRU

W.P.(MD)No.4937 of 2010
and
M.P.(MD)No.1 of 2010

Indian Overseas Bank
N.Paripatti Branch,
N.Paripatti,
Dindigul District,
Rep.by its Principal Officer/Manager		... Petitioner

Vs.

1.The Employees Provident Fund Organization,
    Regional Office,
   Chokkikulam,
   Madurai - 2.

2.The Recovery Officer,
   The Employees Provident Fund Organisation,
   Chokkikulam,
   Madurai - 2.

3.Tiruchendur Murugan Spinning Mills P.Ltd.,
   Karur Road,
   M.Paripatti Post,
   Dindigul 624 005. 				... Respondents

Prayer

Petition filed under Article 226 of the Constitution of India
praying for the issuance of a Writ of Mandamus, forbearing the respondents 1 and
2, particularly the 2nd respondent herein from proceeding to sell part of the
property measuring 24 .06 cents out of the property measuring 3.92 Acres
standing in the name of the 3rd respondent pursuant to the proclamation of sale
bearing No.M15/TN/MDU/20024/Recy/R.O.2009 dt.08.03.10 issued by the 2nd
respondent.

!For Petitioner	... Mr.F.B.Benjamin George
^For Respondents... Mr.G.R.Swaminathan
(R1 and R2)

:ORDER

The petitioner is the Indian Overseas Bank, represent by its Principal Officer/Manager, N.Paripatti Branch, Dindigul District. In this writ petition, they have challenged the order of the respondents 1 and 2, P.F.Department, in issuing a proclamation of sale by notice, dated 08.03.2010.

2. The Writ Petition, when it came up for admission on 13.04.2010, Notice of Motion was ordered. Pending the notice, an interim injunction was granted till 23.04.2010. Subsequently, there was no order extending the interim injunction. By the impugned proclamation of sale, the recovery officer of the P.F.Department brought the properties of M/s.Thiruchendur Murugan Spinning Mills (P) Ltd., N.Paraipatti, Dindigul, the 3rd respondent herein, towards satisfying the dues of the P.F.Department, to the extent of Rs.5,50,000/- approximately. It was reported that the recovery officer of the E.P.F Department will sell the properties by an auction on 16.04.2010, in the premises of the P.F.Organization at then Regional Office at Madurai.

3. There is no reference to the notification for the 3rd respondent and they have also not filed any counter affidavit.

4. It is the petitioner Bank, which is a Nationalized Bank, has come forward to challenge the auction on the ground that they have issued proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for short 'the SARFAESI Act'), and notice under Section 13(2) of the 'the SARFAESI Act' was issued on 08.01.2004. Since the provisions of the 'the SARFAESI Act', the possession of the secured assests vest with the secured creditor and therefore, being the secured creditor and having taken the possession, they have become the owner of the assets. Hence, the P.F. Department has no right to bring the property for sale.

5. The question raised by the petitioner Bank has no longer res integra. The Supreme Court answered the entire issue in a Judgment in Maharashtra State Cooperative Bank Limited Vs. Assistant Provident Fund Commissioner and others reported in (2009 (10) SCC 123). While dealing with the scope of right of a Bank vis a vis the right of the Provident Fund Department in recovering their dues in terms of Section 11, the Supreme Court held that Section 11(2) of the Provident Fund Act has an overriding effect over the other enactments including 'the SARFAESI Act'. In paragraphs 66 to 68, it has been observed as follows:-

66. Section 11 gives statutory priority to the amount due from the employer vis-.-vis all other debts. Clause (a) of sub-section (1) of Section 11 is applicable to cases where an employer is adjudicated insolvent or, being a company, an order of its winding up is made. In that situation, the amount due from the employer in relation to an establishment to which any scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under Section 14-B, accumulations required to be transferred under Section 15(2) or any other charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme. Clause (b) is applicable to cases where the amount is due from the employer in relation to exempted establishment in respect of any contribution to the provident fund or any insurance fund insofar it relates to exempted employees under the rules of provident fund or any insurance fund, any contribution payable by him towards the Pension Fund under Section 17(6), damages recoverable under Section 14-B or any charges payable by him to the appropriate Government under the Act or under any of the conditions specified in Section 17. This sub-section then lays down that such amount shall be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up. Sub-section (2) lays down that any amount due from the employer whether in respect of the employees' contribution deducted from the wages of the employee or the employer's contribution shall be deemed to be the first charge on the assets of the establishment, and shall be paid in priority to all other debts.

67. The expression "any amount due from an employer" appearing in sub- section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub-section (1) of Section 11 and Sections 7-A, 7-Q, 14-B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the mandate of Section 7-Q. Likewise, default on the employer's part to pay any contribution to the Fund can visit him with the consequence of levy of damages.

68. As mentioned earlier, sub-section (2) was inserted in Section 11 by Amendment Act 40 of 1973 with a view to ensure that payment of provident fund dues of the workers are not defeated by the prior claims of the secured and/or of the unsecured creditors. While enacting sub-section (2), the legislature was conscious of the fact that in terms of existing Section 11 priority has been given to the amount due from an employer in relation to an establishment to which any scheme or fund is applicable including damages recoverable under Section 14-B and accumulations required to be transferred under Section 15(2). The legislature was also aware that in case of delay the employer is statutorily responsible to pay interest in terms of Section 17. Therefore, there is no plausible reason to give a restricted meaning to the expression "any amount due from the employer" and confine it to the amount determined under Section 7-A or the contribution payable under Section 8."

6.The Supreme Court very recently (08.11.2011) in Employees Provident Fund Commissioner Vs. O.L. of Esskay Pharmaceuticals Limited in Civil Appeal Nos.9630, 9633, 9632 and 9631 of 2011, once again went into the same issue and after reaffirming the Maharashtra State Cooperative Bank case (cited supra), in paragraphs 42 to 44 had observed as follows:

"42.It is also important to bear in mind that even before the insertion of proviso to Sections 529(1), 529(3) and Section 529A and amendment of Section 530(1), all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund established for welfare of the employees were payable in priority to all other debts in a winding up proceedings [Section 530(1)(f)]. Even the wages, salary and other dues payable to the workers and employees were payable in priority to all other debts. What Parliament has done by these amendments is to define the term "workmen s dues" and to place them at par with debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to Section 529(1). However, these amendments, though subsequent in point of time, cannot be interpreted in a manner which would result in diluting the mandate of Section 11 of the EPF Act, sub-section (2) whereof declares that the amount due from an employer shall be the first charge on the assets of the establishment and shall be paid in priority to all other debts. The words "all other debts" used in Section 11(2) would necessarily include the debts due to secured creditors like banks, financial institutions etc. The mere ranking of the dues of workers at par with debts due to secured creditors cannot lead to an inference that Parliament intended to create first charge in favour of the secured creditors and give priority to the debts due to secured creditors over the amount due from the employer under the EPF Act.

43.At the cost of repetition, we would emphasize that in terms of Section 530(1), all revenues, taxes, cesses and rates due from the company to the Central or State Government or to a local authority, all wages or salary or any employee, in respect of the services rendered to the company and due for a period not exceeding 4 months all accrued holiday remuneration etc. and all sums due to any employee from provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees maintained by the company are payable in priority to all other debts. This provision existed when Section 11(2) was inserted in the EPF Act by Act No. 40 of 1973 and any amount due from an employer in respect of the employees contribution was declared first charge on the assets of the establishment and became payable in priority to all other debts. However, while inserting Section 529A in the Companies Act by Act No. 35 of 1985 Parliament, in its wisdom, did not declare the workmen s dues (this expression includes various dues including provident fund) as first charge. The effect of the amendment made in the Companies Act in 1985 is only to expand the scope of the dues of workmen and place them at par with the debts due to secured creditors and there is no reason to interpret this amendment as giving priority to the debts due to secured creditor over the dues of provident fund payable by an employer. Of course, after the amount due from an employer under the EPF Act is paid, the other dues of the workers will be treated at par with the debts due to secured creditors and payment thereof will be regulated by the provisions contained in Section 529(1) read with Section 529(3), 529A and 530 of the Companies Act.

44.In view of what we have observed above on the interpretation of Section 11 of the EPF Act and Sections 529, 529A and 530 of the Companies Act, the judgment of the Division Bench of the Gujarat High Court, which turned on the interpretation of Section 94 of the Employees State Insurance Act and Sections 529A and 530 of the Companies Act and on which reliance has been placed by the learned Company Judge and the Division Bench of the High Court while dismissing the applications filed by the appellant, cannot be treated as laying down the correct law. "

7. In the light of the above, there is no case made out. Hence, the writ petition stands dismissed. No costs. Consequently, connected miscellaneous petition is also dismissed.

MPK To

1.The Employees Provident Fund Organization, Regional Office, Chokkikulam, Madurai - 2.

2.The Recovery Officer, The Employees Provident Fund Organisation, Chokkikulam, Madurai - 2.