Telangana High Court
Krs Pharmaceuticals Private Limited vs The Employees Provident Fund ... on 5 June, 2023
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
WRIT PETITION No.28787 OF 2010
ORDER:
Heard Mr. K.V. Bhanu Prasad, learned counsel for the petitioner and Mr. G. Venkateshwarlu, learned Standing Counsel for respondent Nos.1 and 2 and also Mr. Sudarshan Malugari, learned Standing Counsel for respondent No.6. None appears on behalf of respondent Nos.3 to 5.
2. This writ petition is filed to declare the proceedings No.AP/28197/SRO/PTC/ENF (Recy)/2009/7365, dated 07.12.2009 and AP/28197/SFO/PTC/ENF (Recy)/2009/575, dated 21.07.2010 of respondent No.2 and the consequential prohibitory orders dated 06.10.2010 against respondent No.3 and another prohibitory order dated 22.10.2010 against respondent No.4 as illegal and to set aside the same and for a consequential direction to respondent No.2 not to recover the dues payable by respondent No.5 under the EPF Act from the petitioner.
3. FACTS:
i) The petitioner herein is a Company and it deals with manufacture and sale of Bulk Drugs and Drug Intermediates. 2
KL,J W.P. No.28787 of 2010 Respondent No.5 is also a Company deals with manufacture and sale of pharmaceutical products. It has obtained loan from respondent No.6. It fell sick and unable to clear the loan to respondent No.6.
ii) Therefore, respondent No.6 conducted auction of respondent No.5 business including plant and machinery in an open auction. The petitioner herein participated in the said open auction and stood as highest bidder. Respondent No.6 had executed a registered sale deed bearing document No.2895 of 2002, dated 06.11.2002 in favour of the petitioner.
iii) Respondent Nos.1 and 2 started demanding provident fund dues payable by respondent No.5. Therefore, the petitioner had informed respondent Nos.1 and 2 that it is not due and liable to pay since the assets were sold by respondent No.6 under Section - 29 of the State Financial Corporations Act, 1951 (for short 'Act, 1951') and, therefore, Section - 17B of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (for short 'Act, 1952') has no application.
iv) Even then, vide notice dated 07.12.2009, respondent No.2 demanded to pay statutory dues of Rs.7,06,916/- for the period from June, 1996 to June, 2000. Respondent No.2 also stated that in view of 3 KL,J W.P. No.28787 of 2010 Section - 11 (2) of the Act, 1952, it is having first charge over the assets of respondent No.5 Company. Therefore, the petitioner has to pay the said amount. Respondent No.2 - Recovery Officer had issued proceedings dated 07.12.2009 and 21.07.2010 advising the petitioner to remit the amount of Rs.7,06,916/-.
v) Respondent No.2 had issued prohibitory order dated 06/14.10.2010 and another prohibitory order dated 22.10.2010. Challenging the said orders, the petitioner has filed the present writ petition.
4. CONTENTIONS OF RESPONDENT Nos.1 & 2:
Respondent Nos.1 and 2 have filed counter affidavit contending that the writ petition is not maintainable, and if the petitioner is aggrieved by the orders including the order passed under Section - 7A of the Act, 1952, it has to prefer an appeal in terms of Section - 7I of the Act, 1952. Instead of filing appeal, the petitioner has filed the present writ petition which is not maintainable. The petitioner is not disputing the liability. Therefore, the writ petition is liable to be dismissed.4
KL,J W.P. No.28787 of 2010
5. ANALYSIS AND FINDING OF THE COURT:
i) It is not in dispute that respondent No.5 is in pharmaceutical business and the petitioner is also in the very same business. It deals with manufacture and sale of Bulk Drugs and Drug Intermediates.
Respondent No.5 Company had obtained loan from respondent No.6 for purchase of land, construction of building, plant and machinery. Accordingly, it has purchased the land, constructed buildings and also procured machinery with the loan obtained from respondent No.6. Thereafter, it defaulted in payment of dues to respondent No.6 and, therefore, respondent No.6 had sold the land, buildings, plant and machinery in terms of Section - 29 of the Act, 1951 by way of conducting open auction. The petitioner herein participated in the said open auction and it stood as highest bidder. On receipt of the entire sale consideration and after following due procedure laid down under law, respondent No.6 had executed the aforesaid registered sale deed in favour of the petitioner. Thus, the petitioner herein is an auction purchaser and transferee.
ii) In paragraph No.2 of the writ affidavit, the petitioner has categorically admitted that the petitioner and respondent No.5 are in the same business and respondent No.6 put the properties of 5 KL,J W.P. No.28787 of 2010 respondent No.5 including plant and machinery in open auction and the petitioner has purchased the same. According to respondent Nos.1 and 2, the petitioner being transferee company is liable to pay dues to the respondents as per Section - 17B of the Act, 1952.
iii) In view of the above, the only question that falls for consideration before this Court is:
Whether the petitioner being the auction purchaser of the property of respondent No.5 is liable to pay the dues of respondent No.5 to respondent Nos.1 and 2 Organization?
iv) Before dealing with the aforesaid question, it is apt to extract the relevant provisions of Sections - 93-A and 94 of the Employees' State Insurance Act, 1948 (for short 'Act, 1948') and Sections - 17B and 11 (2) of the Act, 1952, which are similar to Sections 93-A and 94 of the Act, 1948, and also 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 6 KL,J W.P. No.28787 of 2010 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."
"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."
"11. Priority of payment of contributions over other debts.-- Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the 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 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 contribution to the Provident Fund or any Insurance Fund in so far it relates to exempted employees, under the rules of the Provident Fund or any Insurance Fund, any contribution payable 7 KL,J W.P. No.28787 of 2010 by him towards the Family Pension Fund under sub-section (6) of section 17, 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, shall, where the liability thereof has accrued before the order of adjudication or winding up is made, 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 section 530 of the Companies Act, 1956, are to 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, as the case may be.
Explanation.--In this sub-section and in section 17, "insurance fund" means any fund established by an employer under any scheme for providing benefits in the nature of life insurance to employees, whether linked to their deposits in provident fund or not, without payment by the employees of any separate contribution or premium in that behalf.
(2) Without prejudice to the provisions of sub-section (1), if any amount is due from an employer whether in respect of the employee's contribution deducted from the wages of the employee or the employer's contribution, the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts."
"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 licence 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 8 KL,J W.P. No.28787 of 2010 pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or the Pension Scheme or the Insurance 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."
"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 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 9 KL,J W.P. No.28787 of 2010 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."
v) In McLeod Russel v. Regional Provident Fund Commissioner, Jalpaiguri 1 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:
"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.
1
. (2014) 15 SCC 263 10 KL,J W.P. No.28787 of 2010 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 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 11 KL,J W.P. No.28787 of 2010 Code, 1908 to proceedings under Section 14B has not specifically been barred by the statute."
vi) In Rana Girders Limited v. Union of India 2, 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 Central Excise Act is concerned, there was no such specific provision as noticed in SICOM as well.
vii) In Indus Agro Products v. Union of India 3, 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 2 . (2013) 10 SCC 746 3 . 2006 (5) Mh.L.J. 136 12 KL,J W.P. No.28787 of 2010 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
- 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.
viii) A Three-Judge Bench of the Apex Court in Maharashtra State Cooperative Bank Limited v. Assistant Provident Fund 13 KL,J W.P. No.28787 of 2010 Commissioner 4 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.
ix) The very same principle was also reiterated by the Apex Court in Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited 5.
x) The Hon'ble 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 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 4 . (2009) 10 SCC 123 5 . (2011) 10 SCC 727 14 KL,J W.P. No.28787 of 2010 interpretation keeping in view the Directive Principles of State Policy contained in Articles - 38 and 43 of the Constitution of India.
xi) 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.
xii) 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 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 15 KL,J W.P. No.28787 of 2010 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.
xiii) The aforesaid aspects were not considered in Shivam Smelters (P) Ltd., Medak District v. Recovery Officer, Employees Provident Fund Organization, Siddipet6.
xiv) In view of the aforesaid provisions, law laid down in the aforesaid decisions, as discussed above, the petitioner had purchased the Unit of respondent No.5 in open auction conducted by respondent No.6 under Section - 29 of the Act, 1951. In the recitals of the said sale deed bearing document No.2895 of 2002, dated 06.11.2002, it is specifically mentioned with regard to obtaining of loan by respondent No.5 for purchase of land, construction of buildings, plant and machinery and committing default in repayment of such loan amount, conducting of auction of the said land, building, plan and machinery of respondent No.5 in an open auction in terms of Section - 29 of the Act, 1951. Even in the schedule of property, it is mentioned as "land 6 . 2017 (3) ALD 6 16 KL,J W.P. No.28787 of 2010 admeasuring Ac.2-00 guntas or 0.61 Hectores in Sy.No.10, situated at Gaddapotharam village, Jinnaram Mandal, Medak District, together with the building existing in the aforesaid piece of land.
xv) It is relevant to note that before participation in open auction, opportunity was given to the petitioner to visit the Unit of respondent No.5. Therefore, before participating in the open auction, the petitioner should have conducted due diligence including statutory dues, such as EPF dues etc. Having inspected the unit of respondent No.5 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 Organization. Thus, the petitioner herein had purchased the entire unit of respondent No.5 in an open auction. Both the petitioner and respondent No.5 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 Organization. Being the transferee the petitioner is due and liable to pay the P.F. dues of respondent No.5 to respondent Nos.1 and 2 Organization.
6. CONCLUSION:
i) Respondent No.2 had issued the aforesaid two (02) prohibitory orders dated 06/14.10.2010 and 22.10.2010 under Section 17 KL,J W.P. No.28787 of 2010
- 8B/8F (3) of the Act, 1952 in the process of recovery of dues.
Therefore, the said prohibitory orders are consequent to the orders passed under Section - 7A of the Act, 1952. If the petitioner is aggrieved by the said orders, it has to prefer an appeal under Section - 7I of the Act, 1952.
ii) In view of the aforesaid discussion, this writ petition is devoid of merits and the same is liable to be dismissed.
iii) The present writ petition is accordingly dismissed. The interim order dated 19.11.2010 granted earlier 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, 2022 Mgr