Orissa High Court
Suburban Ply And Panels (P) Ltd. vs Regional Provident Fund Commissioner ... on 18 December, 2003
Equivalent citations: 97(2004)CLT346, [2004(101)FLR797], (2004)IILLJ1069ORI, 2004(I)OLR284
Author: B. P. Das
Bench: B.P. Das
JUDGMENT B. P. Das, J.
1. The petitioner is a private limited company within the meaning of the Companies Act, 1956 having its registered office at Industrial Estate, Khurda. It is stated that the petitioner company was incorporated and registered in the name and style "M/s. Suburban Ply & Panels (P) Ltd." with the Registrar of Companies, Orissa, under the Companies Act in the year 1998-99, the date of incorporation being 18.12.1998.
2. The case of the petitioner is that O.P. No. 4, another company running its business in the name and style "M/s. Orissa Ply & Panels (P) Ltd." was manufacturing timber products in the district of Khurda. When O.P. No. 4-Company could not repay the loan incurred by it from the O.P. No. 3, Orissa State Financial Corporation ('OSFC' in short), the latter seized the unit of O.P. No. 4 under Section 29 of the State Financial Corporations Act, 1951 ("SFC Act"). Pursuant to an agreement-cum-undertaking dated 4.1.1999 (Annexure-4), OSFC transferred the fixed assets of O.P. No. 4 and delivered the same to the petitioner and after taking delivery of possession of the fixed assets of O.P. No. 4-Company, the petitioner by letter dated 24.6.1999 (Annexure-5) requested O.P. No. 1-Regional Provident Fund Commissioner, Orissa, for allotment of establishment code number under Section 1(3) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter "EPF Act" and also applied for the same in the statutory form. Thereafter O.P. No. 1 by his letter dated 23.9.1999 (Annexure-9) directed the Enforcement Officer, O.P. No. 2, to visit the establishment of the petitioner-company and make an inspection of the same and submit proposal/report to him. O.P. No. 2 accordingly visited the establishment and inspected the records of the petitioner-company and submitted his report to O.P. No. 1, whereafter O.P. No. 1 required the petitioner-company to give further clarification regarding purchase of the assets of O.P. No. 4-Company from OSFC. Ultimately O.P. No. 1 issued the letter dated 23.3.2000 as per Annexure-1 in which the petitioner was advised to comply with the provisions of the EPF Act in respect of the employees of the petitioner-company in Code No. OR/4215 with effect from 1.4.1999, which was previously allotted to M/s. Orissa Ply & Panels, i.e., O.P. No. 4. The petitioner was also intimated by the said Annexure-1 that no separate code number was required to be allotted to the establishment of the petitioner for its taking over the assets of the erstwhile Orissa Ply & Panels through the OSFC. The petitioner in this writ petition has challenged the aforesaid letter Annexure-1.
The submission of the learned counsel for the petitioner is that if the code number of O.P. No. 4 is carried on with the petitioner-company, the petitioner would be forced to pay the past liabilities of O.P. No. 4 towards the provident fund and miscellaneous charges as well as damages and penal interest, if any. He further submits that as the petitioner has taken over the unit from the OSFC, O.P. No. 1 should have allotted a fresh code number to the petitioner instead of advising it to carry on with the code number of O.P. No. 4 thereby indirectly forcing the petitioner to take over the liabilities of O.P. No. 4.
3. A counter affidavit has been filed on behalf of O.P. Nos. 1 and 2 wherein the claim of the petitioner for allotment of a new code number has been refuted mainly on the ground that Section 17B of the EPF Act fixes the liability of payment of the unpaid provident fund dues of the employees of the transferor company on the transferee. It is further stated that as the petitioner company started its commercial production at the same place and premises and with the same machinery as were being used by the transferor company, it cannot be said that the petitioner's establishment is a new establishment as there is mere change of the name and style of the management.
The argument of Shri S. K. Das, teamed counsel appearing for O.P. Nos. 1 and 2, is that the provisions of Section 17B are applicable to the case of the petitioner cm account of its acquisition of the assets of O.P. No. 4-Company.
4. At this stage, it would be profitable to go through the provisions in Section 17B of the EPF Act, which are as follows :
"17B. Liability in case of transfer of establishment: Where an employer, in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or license or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or the Pension Scheme, as the case may be, in respect of the period up to the date of such transfer.
PROVIDED that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer."
5. Before deciding the dispute whether Section 17B of the EPF Act has any application to the facts and circumstances of the present case, it is appropriate to mention here the undisputed facts. The unit initially belonged to O.P. No. 4 and the same was seized by the OSFC under Section 29 of the SFC Act on failure of O.P. No. 4 to clear the dues of the OSFC. Ultimately the unit was transferred to the petitioner. I may now extract hereunder Section 29 of the SFC Act :
"29. Rights of Financial Corporation in case of default : (1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concerns, as well as the right to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under Sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) Where any action has been taken against an industrial concern under the provisions of Sub-section (1), all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.
(5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of Sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern."
The provisions mentioned above clearly indicate that in case of default in payment of any loan or advance or any instalment thereof or failure to comply with the terms of the agreement by an industrial concern, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concerns, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. From the aforesaid provisions, it is construed that the Financial Corporation has the right to realise its dues by sale of the property pledged, mortgaged, hypothecated or assigned by the defaulting industrial concern with it. The facts narrated and the documents annexed to the writ petition clearly indicate that due to default in repayment of the loan on the part of O.P. No. 4, the properties of O.P. No. 4 pledged with OSFC were taken over by the Financial Corporation under Section 29 of the SFC Act and were subsequently transferred to the petitioner. Section 17B of the EPF Act speaks of the liability in case of transfer of establishment.
Section 2(e) of the EPF Act defines the word 'employer' to mean :
"(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under Clause (f) of Sub-section (1) of Section 7 of the Factories Act, 1948, the person so named; and
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;"
Section 2(k) of the EPF Act defines the expression "occupier of a factory" as follows :
"... the person who has ultimate control over the affairs of the factory, and, where the said affairs are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory;"
Section 8 of the EPF Act provides the mode of recovery of moneys due from employers which is as follows :
"Any amount due :
(a) 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 14B, accumulations required to be transferred under Sub-section (2) of Section 15 or under Sub-section (5) of Section 17 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme; or
(b) from the employer in relation to an exempted establishment in respect of any damages recoverable under Section 14B or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under Section 17 or in respect of the contribution payable by him towards the Pension Scheme or the Insurance Scheme under the said Section 17, may, if the amount is in arrears, be recovered in the manner specified in Sections 8B to 8G."
6. A conjoint reading of the provisions of Sections 2, 8 and 17B of the EPF Act as quoted above gives a clear picture that the liability to pay contribution and other sums due from the employer on transfer of an establishment is specifically provided in Section 17B of the EPF Act. The principle behind it is that the employer, who is liable to pay under Section 6 of the Act the contribution and other sums, cannot by reason of its owning or occupying the establishment on transfer be permitted to avoid such liability and, therefore, provision is made under Section 17B of the Act, that the employer as well as the transferee shall be jointly and severally liable to pay the contribution and other sums up to the date of transfer. This speaks that by reason of the transfer, the liability on the employer would not cease, but would continue to exist and would also be fastened upon the transferee, though limited to the value of the assets obtained by the transferee by such transfer. The transfer by the employer of the establishment contemplated under Section 17B is an act by the employer. Here is a case where the transfer has not been made by the employer but after seizure of the unit/establishment, the same was transferred by the OSFC to the present petitioner. There is no indication that Section 17B contemplates transfers otherwise than by an employer as defined in the EPF Act in relation to an establishment. By a Court sale or otherwise a transfer takes place by operation of law and not by any transaction inter vivos. In that sense, it is an involuntary sale against the wishes of the person whose property is sold. That can hardly be called a transfer, as ordinarily understood, which connotes a voluntary transaction entered into between two parties. In this connection it has also to be remembered that the provisions of the Transfer of Property Act generally dealing kinds of transfers do not affect transfer by operation of law, or by or in execution of a decree or order of a Court of competent jurisdiction under Section 2(d) of the Transfer of Property Act. [See Shri Angappa Spinning Mills, Madurai v. Regional Commissioner, Employees' Provident Fund, Madras :1986 LAB. I. C. 458 (Madras)].
7. In the case at hand, this cannot be construed to be a transfer by the employer as the petitioner took delivery of possession of the establishment of O.P. No. 4 by entering into an agreement with the OSFC for which the provisions of Section 17B of the EPF Act cannot be applied. Accordingly, refusal to allot a new code number and the order passed in Annexure-1 cannot be sustained in the eye of law. This being the position, O.P. Nos. 1 and 2 cannot fasten the liability on the petitioner to pay the contribution and other charges, which have remained unpaid as against O.P. No. 4.
8. For the reasons stated above, I allow this writ petition and quash the order dated 23.3.2000 passed by O.P. No. 1 (Annexure-1). There shall be no order as to cost.