Telangana High Court
M/S. Aishu Castings Ltd., Hyd. vs Employees State Insurance Corp. And 3 ... on 5 June, 2023
Author: K. Lakshman
Bench: K. Lakshman
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT: HYDERABAD
CORAM:
*HON'BLE SRI JUSTICE K. LAKSHMAN
+ WRIT PETITION No.12348 OF 2011
% Delivered on:05-06-2023
Between:
# M/s. Aishu Castings Limited, Hyderabad,
rep. by its Managing Director, Mr. P.G.P. Vittal .. Petitioner
Vs.
$ Employees' State Insurance Corporation,
Hyderabad & others. .. Respondents
! For Petitioner : Mr. R.V. Nagabhushanam Rao
^ For Respondent Nos.1 & 2 : Mr. G. Venkateshwarlu,
Ld. Standing Counsel
For Respondent No.3 : Mr. M. Hamsa Raj
Ld. Standing Counsel
< Gist :
> Head Note :
? Cases Referred :
1. (2014) 15 SCC 263
2. (2013) 10 SCC 746
3. 2006 (5) Mh.L.J. 136
4. (2009) 10 SCC 123
5. (2011) 10 SCC 727
6. 2017 (3) ALD 6
7. Order in W.P. No.16347 of 2008, decided on 28.06.2011
8. Order in CMA No.1201 of 2018 & CMP Nos.9841 & 21435 of 2018, decided on 09.03.2021.
9. (1995) 2 SCC 648
10. Civil Appeal Nos.2109-2110 of 2004, decided on 19.05.2023
2
KL,J
W.P. No.12348 of 2011
HON'BLE SRI JUSTICE K. LAKSHMAN
WRIT PETITION No.12348 OF 2011
ORDER:
Heard Mr. R.V. Nagabhushanam Rao, learned counsel for the petitioner and Mr. G. Venkateshwarlu, learned Standing Counsel for respondent Nos.1 and 2 and also Mr. M. Hamsa Raj, learned Standing Counsel for respondent No.3. This writ petition was dismissed against respondent No.4 vide order dated 19.03.2014.
2. This writ petition is filed to declare the proceedings No.52.Q/6068-57, dated 22.04.2009; No.AP/Ins-1/52-6068-57, dated 11.02.2010; No.52Q6058, dated 12.08.2010 and No.AP/Ins.1/52- 6068-57/241/2010, dated 24.03.20211 of respondent Nos.1 and 2 as illegal and to set aside the same and for a consequential direction to the respondents to refund the amount of Rs.3,36,400/- together with interest to the petitioner.
3. The petitioner herein is a Company and had purchased assets offered for sale by respondent No.3 in exercise of powers conferred upon it under Section - 29 of the State Financial Corporations Act, 1951 (for short 'Act, 1951') belongs to respondent No.4. A Sale deed 3 KL,J W.P. No.12348 of 2011 was executed by respondent No.3 in favour of the petitioner on 23.11.2004.
i) According to respondent Nos.1 and 2, respondent No.4 is due and liable to pay Rs.3,36,400/- towards ESI contributions. The petitioner being Transferee Company is liable to pay the same.
According to the petitioner herein, it being an Auction Purchaser, it is not due and liable to pay dues of respondent Nos.1 and 2 Corporation in respect of respondent No.4. Even then, respondent Nos.1 and 2 are claiming that the petitioner has to pay dues by way of issuing proceedings dated 22.04.2009; 11.02.2010; 12.08.2010 and 24.03.2011 demanding an amount of Rs.3,36,400/-.
ii) Since respondent Nos.1 and 2 have issued proceedings to the petitioner's banker - Andhra Bank, in exercise of powers conferred under Section - 45G of the Employees' State Insurance Act, 1948 (for short 'Act, 1948'), it has paid the said amount of Rs.3,36,400/- to respondent No.1 'under protest' by way of addressing letter dated 26.08.2010. Therefore, the petitioner is entitled for refund of the said amount. Thus, the petitioner sought to set aside the aforesaid proceedings and refund of the aforesaid amount from respondent Nos.1 and 2.
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KL,J W.P. No.12348 of 2011
4. Whereas, respondent Nos.1 and 2 are claiming that the petitioner had purchased the Unit of respondent No.4 which includes assets, plant and machinery and respondent No.4 being transferee Company, it is liable to pay the dues to respondent Nos.1 and 2 Corporation in view of Section - 93A of the Act, 1948. Thus, respondent Nos.1 and 2 have rightly issued the aforesaid proceedings and the petitioner paid the said amount. The petitioner is not entitled for any refund.
5. Respondent No.3 has contended that it has extended the loan to respondent No.4 for purchase of land, building, plant and machinery and thereafter it has committed default. Therefore, respondent No.3 has conducted auction in terms of Section - 29 of the Act, 1951.
6. There is no dispute that the petitioner herein is in the business of castings and respondent No.4 is also in the same business. Respondent No.4 has obtained loan from respondent No.3 for purchase of land, construction of building, plant and machinery. It has constructed the building. Thereafter, it committed default in repayment of loan to respondent No.3 and, therefore, respondent No.3 5 KL,J W.P. No.12348 of 2011 had conducted auction in exercise of its powers under Section - 29 of the Act, 1951. The petitioner participated in the said auction and stood as highest bidder. On receipt of entire sale consideration amount and after following due procedure, respondent No.3 had executed a registered sale deed bearing document No.4277 of 2004, dated 23.11.2004 in favour of the petitioner.
7. It is relevant to note that in the recitals of the said sale deed, it is specifically mentioned that respondent No.3 had advanced term loan to respondent No.4 for acquiring land, buildings, plant and machinery as per the terms and conditions of the Corporation. Respondent No.4 committed default in repayment of the same as a result, the Corporation in exercise of its power under Section - 29 of the Act, 1951, seized the Unit, land, plant and machinery and advertised for sale of all assets in Eenadu and Deccan Chronicle News Papers on 21.02.1997. The tender of the petitioner for purchase of land and building for sale consideration of Rs.36,68,000/- has been accepted by the Corporation. In the schedule of the said sale deed, it is specifically mentioned that land admeasuring Acs.1-50 cents or 0.60 hectares or 6070.27 square meters covered by Survey No.296/7/5 (Part), situated at Bollaram Village, G.P. Bollaram, Jinnaram Mandal, 6 KL,J W.P. No.12348 of 2011 Medak District, together with the building existing in the aforesaid piece of land. Description of the building is also specifically mentioned. Therefore, the petitioner herein had purchased the land, building, plant and machinery of respondent No.4. It is also in the same business. Therefore, according to respondent Nos.1 and 2, the petitioner being transferee company is liable to pay ESI dues as per Section 93A of the Act, 1951.
8. It is apt to extract the relevant provisions of Sections - 93-A and 94 of the Employees' State Insurance Act, 1948 (which are similar to Sections 17B and 11 (2) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, respectively) and Section - 29 of the Act, 1951, which are as under:
"93A. Liability in case of transfer of establishment.--Where an employer, in relation to a factory or establishment, transfers that factory or establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the factory or establishment is so transferred shall jointly and severally be liable to pay the amount due in respect of any contribution or any other amount payable under this Act in respect of the periods 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."7
KL,J W.P. No.12348 of 2011 "94. Contributions, etc., due to Corporation to have priority over other debts.--There shall be deemed to be included among the debts which, under section 49 of the Presidency-towns Insolvency Act, 1909, or under section 61 of the Provincial Insolvency Act, 1920 or under any law relating to insolvency in force in the territories which, immediately before the 1st November, 1956, were comprised in a Part B State, or under section 530 of the Companies Act, 1956, in the distribution of the property of the insolvent or in the distribution of the assets of a company being wound up, to be paid in priority to all other debts, the amount due in respect of any contribution or any other amount payable under this Act the liability wherefor accrued before the date of the order of adjudication of the insolvent or the date of the winding up, as the case may be."
"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 realise 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 8 KL,J W.P. No.12348 of 2011 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 ap-
plied 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."
9. In McLeod Russel v. Regional Provident Fund Commissioner, Jalpaiguri1 question emerged for consideration was as to whether the damages which has been charged under Section - 14B of the Act 1952 would be recoverable jointly or severally from the erstwhile as well as the current managements fell for consideration before the Hon'ble Supreme Court. The relevant paragraphs of the said decision are as under: 1
. (2014) 15 SCC 263 9 KL,J W.P. No.12348 of 2011 "11. It has also been argued that damages as postulated in Section 14B would not be transferable under Section 17B. This argument has to be stated only to be rejected for the reason that Section 17B specifically speaks of "the contributions and other sums due from the employer under any provision of this Act or the Scheme" (emphasis added). The proviso to Section 17B indeed clarifies the position inasmuch as it restricts and/or limits the liability of the transferee up to the date of the transfer to the value of the assets obtained by him through such transfer.
12 We are also not impressed by the argument addressed by Mr. Bhushan to the effect that damages under Section 14B are not jointly and separately recoverable from the erstwhile and the present managements under Section 17B as Section 14B moves in its own and independent orbit. Several amendments have been made to the EPF Act so far as the fasciculus of Sections 7A to Section 7Q is concerned.
This is also true of the pandect containing Sections 14A, 14AA, 14AB, 14AC, 14B and 14C; and for that matter Sections 17A, 17AA and 17B. Where such widespread amendments and changes are incorporated in a statute, it is always salutary and advisable to reposition the provisions and number them sequentially and logically. The argument that the phrase "determination of amounts due from any employer" is found in Section 7A as well as in Section 17B is not factually correct. Section 17B speaks of "contributions and other sums dues from the employer under any provision of this Act ......."; the latter Section is, therefore, wider in ambit than the previous one. In our opinion, Section 14B is complete in itself so far as the computation of damages is concerned. It is conceivable that the money due from an employer would have to be calculated under Section 7A, and in the event the default or neglect of the employer is contumacious and contains the requisite mens rea and actus reus yet another exercise of computation has to be undertaken under Section 14B. Where the Authority is of the opinion that damages 10 KL,J W.P. No.12348 of 2011 under Section 14B need to be imposed, the computations would come within the purview of Section 14B and it would be recoverable jointly and severally from the erstwhile as well as the current managements. A perusal of the Appeals Section, namely, 7I is illustrative of the fact that these exercises are distinct from each other as per the enumerations found in the first sub-Section of Section 7I. It also appears logical to us, in the wake of the numerous and different dates of amendments, that Section 7A (2) would also be available to proceedings under Section 14B of the Act. The applicability of Civil Procedure Code, 1908 to proceedings under Section 14B has not specifically been barred by the statute."
10. In Rana Girders Limited v. Union of India2, the Apex Court referring to its earlier judgments in M/s. Macson Marbles (P) Ltd. v. Union of India [(2008) 15 SCC 481] and Union of India v. SICOM Ltd.[ (2009) 2 SCC 121] and also considering the facts of the said cases wherein purchaser company purchased entire Unit held that it is only in those cases where the buyer had purchased the entire unit i.e. the entire business itself, that it would be responsible to discharge the liability of Central Excise as well. Otherwise, the subsequent purchaser cannot be fastened with the liability relating to the dues of the Government unless there is a specific provision in the Statute, claiming "first charge for the purchaser". As far as the 2 . (2013) 10 SCC 746 11 KL,J W.P. No.12348 of 2011 Central Excise Act is concerned, there was no such specific provision as noticed in SICOM as well.
11. In Indus Agro Products v. Union of India3, a Division Bench of Bombay High Court referring to Sections - 17B and 11 (2) of the Act, 1952 and also on examination of the facts of the case therein that the petitioner therein has purchased the property conducted in an auction under the provisions of the Act, 1951, held that Section 17-B of the Act, 1952 comes into operation 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. In such a case, both the employer and the person to whom the establishment is transferred are jointly and severally liable to pay the contribution and other sum due from the employer under the provisions of the Act or of any scheme framed thereunder. The liability of the transferee shall be limited to the value of the assets obtained by him by such transfer. The submission was that Section - 17B applies to a situation where a transfer of establishment has taken place by the employer meaning thereby that there is a voluntary transfer of assets. Even if the submission were to be accepted, Section 3 . 2006 (5) Mh.L.J. 136 12 KL,J W.P. No.12348 of 2011
- 17B is an additional provision which deals with a specific eventuality viz., the transfer of an establishment in whole or in part by an employer to a transferee. It further held that Section - 11 of the Act, 1952 is declaratory in nature.
12. A Three-Judge Bench of the Apex Court in Maharashtra State Cooperative Bank Limited v. Assistant Provident Fund Commissioner4 held that by virtue of the non obstante clause contained in Section - 11 (2) of the Act, 1952, any amount due from an employer shall be deemed to be first charge on the assets of the establishment and is payable in priority to all other debts including the debts due to a bank, which falls in the category of secured creditor. It also held that Section - 11 of the Act, 1952 is declaratory in nature.
13. The very same principle was also reiterated by the Apex Court in Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited5.
14. The Apex Court further held that the EPF Act is a social welfare legislation intended to protect the interest of a weaker section of the society, i.e. the workers employed in factories and other 4 . (2009) 10 SCC 123 5 . (2011) 10 SCC 727 13 KL,J W.P. No.12348 of 2011 establishments, who have made significant contribution in economic growth of the country. The workers and other employees provide services of different kinds and ensure continuous production of goods, which are made available to the society at large. Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation keeping in view the Directive Principles of State Policy contained in Articles - 38 and 43 of the Constitution of India.
15. It further held that Section - 11 of the Act, 1952 is declaratory in nature. Sub-section 2 thereof declares that any amount due from an employer in respect of the employees' 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. For recovery of the amount due from an employer which is treated as arrear of land revenue, the Recovery Officer or any other authorized officer has to take recourse to the provisions contained in Section - 8 read with 8B and 8F.
16. The Apex Court further held that sub-section (2) was inserted in Section - 11 by Amendment Act No.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 14 KL,J W.P. No.12348 of 2011 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 - 14B 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 7A or the contribution payable under Section - 8.
17. Mr. R.V. Nagabhushanam Rao, learned counsel for the petitioner relied upon certain decisions viz., Shivam Smelters (P) Ltd., Medak District v. Recovery Officer, Employees Provident Fund Organization, Siddipet6 rendered by the High Court of Judicature for the States of Telangana and Andhra Pradesh at Hyderabad; M/s. Doshi Industries, Hyderabad v. Employees' State Insurance Corporation7 rendered by the erstwhile High Court of Andhra Pradesh at Hyderabad and M/s. Vijayalakshmi Palanisamy 6 . 2017 (3) ALD 6 7 . Order in W.P. No.16347 of 2008, decided on 28.06.2011 15 KL,J W.P. No.12348 of 2011 Charitable Trust Kalaignarkarunanidhi College of Engineering Kannampalayam, Coimbatore, rep.by its Managing Trustee v. The Sub-Regional Director, Employees State Insurance Corporation8 rendered by the Madras High Court in support of his claim. But, in the said judgments, the aforesaid aspects were not considered and, therefore, the principle laid down in the said judgments is inapplicable to the facts of the present case.
18. He has also placed reliance on the decision in Isha Marbles v. Bihar State Electricity Board9, which is with regard to recovery of electricity dues, and on examination of facts of the case therein, the Apex Court held that the Electricity Department cannot claim consumption charges of previous consumer from the auction purchaser of the premises. In the said case, auction purchaser has not consumed the power and the auction purchaser came to purchase the property after disconnection. Therefore, facts of the said case are different to the facts of the present case. However, in a recent judgment, the Apex Court in K.C. Ninan v. Kerala State electricity Board10 referring to its earlier judgment in Isha Marbles9 held that 8 . Order in CMA No.1201 of 2018 & CMP Nos.9841 & 21435 of 2018, decided on 09.03.2021. 9 . (1995) 2 SCC 648 10 . Civil Appeal Nos.2109-2110 of 2004, decided on 19.05.2023 16 KL,J W.P. No.12348 of 2011 electricity dues can be recovered from the present owner of the premises.
19. It is relevant to note that the provisions of Sections - 93A and 94 of the Act, 1948 are akin to the provisions of Sections - 17B and 11 (2) of the Act Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
20. In view of the aforesaid provisions, law laid down in the aforesaid decisions, as discussed above, the petitioner had purchased the entire unit of respondent No.4 in open auction conducted by respondent No.3 under Section - 29 of the Act, 1951. In the recitals of the said sale deed, it is specifically mentioned with regard to obtaining of loan by respondent No.4 for acquiring land, buildings, plant and machinery and committing default in repayment of such loan amount, conducting of auction of the said land and buildings, plant and machinery of respondent No.4 in an open auction in terms of Section - 29 of the Act, 1951. Even in the schedule of property, it is mentioned that the land together with building in existence.
21. It is relevant to note that before participation in open auction, opportunity was given to the petitioner to visit the Unit of 17 KL,J W.P. No.12348 of 2011 respondent No.4. Therefore, before participating in the open auction, the petitioner should have conducted due diligence including statutory payments, such as ESI and EPF dues etc. Having inspected the unit of respondent No.4 and having participated in the open auction, the petitioner now cannot contend that it is not due and liable to pay the dues to respondent Nos.1 and 2 Corporation. Thus, the petitioner herein had purchased the entire unit of respondent No.4 in an open auction. Both the petitioner and respondent No.4 are in the very same business. Therefore, the petitioner herein cannot say that it is not due and liable to pay the aforesaid amount to respondent Nos.1 and 2 Corporation. The petitioner being purchaser of respondent No.4 unit entirely, transferee is due and liable to pay the dues to respondent No.1 and 2 Corporation. Moreover, the petitioner herein has already paid the entire amount of Rs.3,36,400/- to respondent Nos.1 and 2 Corporation under protest and, therefore, it is not entitled even for refund of the said amount.
22. In view of the aforesaid discussion, this writ petition is devoid of merits and the same is liable to be dismissed.
23. The present writ petition is accordingly dismissed. The interim order dated 27.04.2011 granted earlier and the same was 18 KL,J W.P. No.12348 of 2011 extended on 13.06.2011 stands vacated. In the circumstances of the case, there shall be no order as to costs.
As a sequel, the miscellaneous petitions, if any, pending in the writ petition shall stand closed.
_________________ K. LAKSHMAN, J 5th June, 2023 Note:
L.R. copy be marked (B/O.) Mgr