Karnataka High Court
The Recovery Officer vs M/S Karnataka State Financila ... on 6 September, 2011
Bench: V.G.Sabhahit, B.Manohar
called as 'KSFC' for short) filed W.P. seeking for quashing of the order; .o.f._prol1il5itior_i. K" to the petitioner by the 16.08.2005 as per AnneXure'«._7A' togthep V»?'rit'..;.l:3.etiti:onV, wherein, the order prohibitlinglv/ the writ petitioner from fromil sale of hypothecated property, H V__l A jfeuid the first respondent exe:'A;:i.sed:i._ Sec.7Q of
Employees" and Miscellaneous Plrlovisions" l'§l'52l"'(herein'after called as 'Act' for s ort.?_ _ _ ' ':31 It is further contention of the petitioner -- respondent herein that it is a statutory body the State Financial Corporations Act, 1951, (hvereinafter called as 'SFC Act' for short) with the 3"~'««___V'-»0bject reasons for enacting this statute is in order "'-t"o.'p'r'oVide medium and long term credit to industrial xag?» undertakings, which fall outside the normal if the banks. A substantial sum was-. advanced_VAasyviQanj' the second respondent--deft'in'ct companyfi: I.11l3vvVVS.§ii(iV1f advance was in the year 1998.Vd4f'T,he.second:respondent- company did not repa'y..4the .Aa'rn_ount and wherefore, KSFC took over possessionof pr"o.pe:r_t.i'es and assets of the second respondent'ur1d.er._'Sec.29h of the SFC Act as second res1j:on;{1egnt_v--.zas;_ duejjto pay--Rs.23,00,000 / -- to the first fcontribution of provident fund The restraint order was issued as against the petitioner. lcearnedffiingle Judge after hearing the appearing~~*for the parties by order (it. perused the provisions of Sec.11(2) of the A¢t'7'.'ahdfa1so SFC Act, held that KSFC which is . finauricial: company has priority over the amount due to ,paid"' "towards employees' provident fund by the respondent. Wherefore, prohibitory order could we';
5 not have been issued. He has relied upon"'thefdec.ision__ rm§G%Ri%>?51A§§iaM £9€Bt%riit:a it PROVIDENT FUND COMMISSIONER, OTHERS reported in ILR rg...jij2oo3 and accordingly having regard tO'VAt1' "provisionds of 1 1(2) of the PF Act and the facts-- of provisions of the said Act learried fiquashed the prohibitory to release the amount iiavouiifixogiu KSFC and further observed the employees to receive other contributiontpaid employees provident fund under the sch.e1ne5of.'EInp1oyee's Provident Fund and it 't it "is o'peni_to the firstrespondent to proceed to recover the ..i:f,"_'v..any other asset is left behind by the Being aggrieved by the said order the respondent in the Writ Petition -- The Recovery was Officer, Employees' Provident Fund Ministry of Labour, GOI, has prefe.rred:A'tliis«appeal-'V 'V:
4. We have heard'V'Vi'ygthe_ learned 'counsel appearing for the app"e.llant.vAi'arid;'jthe learned "counsel appearing for the respondent;
5. for the appellant submitted'i'thAajt'unfder'Sec;1l(2}~~--of the Act contribution to be rriade byVtl'le:'enip4lCy'e'r towards the Provident Fund of the emplolyeves' claim notwithstanding the provisions of "the other Act. Wherefore, the priority of the SFC Act should yield to the I of the Act and learned Single Judge not justified in holding that the writ P7-'«.___V'-»petitionei* -- KSFC has priority over the priority of the appellant herein -- first respondent in the Writ Petition feggarding contribution of thefignd respondent in the Writ Petition towards provident fund_ of _-its"
and the learned counsel in support;"of'his._ c~or'1ter1tiof17:_: has relied upon the decision'llo'f-the in the case of SICOM LTD. vs. ORS.
in W.P. No. 156 of 2OOé§:4_'ciecic'red:_ovrr. y1itc§fi'.no2.2ooé3,Qvherein it is held that the Funds and Misclenous -- S.1l(2) provides __charge on assets of employer----cornpariy{ all other creditors, secured,cr'editlorsfi2inder'state "Financial Corporation Act cannot claimlihigher Aprioiity irrespective of provisions of Statég FinancialV._.lCorporation Act and irrespective of ofxrnortgage under Transfer of Property Act. d's:a-fig. Fir'1'a,ncial'" Corporation cannot exercise priority over» the 'contribution under the Employees Provident Financial Corporation and the non--obstanteV._clajuse in the said section shall not only pr:Vai1*«oVe~.r but also other laws.
7. We have given the contention of the co1insc.l_'».lap.pearingHvfor the parties and scrtitinised record in the light of the principhles laid th:is'Court and the Hon'ble decisions cited by the learnedivl'co'uns:(:l ap for parties. 8, d'4l'h.eVsCI%'.1ti11y"olf the material on record would show that 'admittedly KSFC had financed second the Writ Petition and the second respolndelrlrtjjfailed to repay the amount and a sum of Rs.2'3,00,G-00/-- became due to the KSFC. Wherefore, ll""'-mprovisions of Sec.29 of the SFC Act invoked and the came into possession of the property belonging to \92?
the second respondent. S%9.48B of the SFC Act as follows :
"Section 46B--Effect of Act on other " . provision of this Act and of made thereunder shall 1__ have . effect ' ~ notwithstanding anything V__i11consi's_tent therewith contained in afiy..,:other la&vf_:for the time being in forcewor :«n1ernorandi1In or articles of associationlof Concern or in any other effect by virtue of but save as afor:e--sVaidV;ythe this Act shall be in derogation of, any other law applicable to an indu stiiial .conce'1in". '7.
Act'provides priority to the (provident due to be paid by the employer. The said" provisions have been considered by the Division 3"~'««___V'~».Bench this Court in the case of THE MANAGER, f TFVIJATYA BANK, PADUBIDRI vs. THE REGIONAL PROVIDENT __P_'_'%JND COMMISSIONER, MANGALORE AND OTHERS W ll reported in ILR 2003 KAR 3381 and it is held: H provisions of See. 1 1(2) that bank'iyill'i1ay--e the employer's contribution as the'.Cornmissioner'could C' raise the demand under sub--v.,eg.¢7'vTée.tion Va£3rd party only when he finds of thlelemployer in the hands of such 3rd 'notice is sent or in course of become due to the Speel;18B SFC Act has been in.terprpeted::'bvy_the v:HAon'ble_.gSupreme Court in the ease stated supra wherein after culling ou-tléthve provisions of See.48B as C1J.11'e".$:1 V('JL1t above] 'theV'Hon'ble Supreme Court has held ._ that" the'.C:11on:_obstante clause shall not only prevail over the" oon.t_rae't. but also other laws. It has also been held Court in the decision Cited by the _ 1earnedv'--.':.e'oiinsel appearing for the respondent in BANK's case that the claim of the State have priority only over the unsecured debts and we