Gujarat High Court
Uco Bank vs Employees Provident Fund Organization on 30 September, 2022
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 754 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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UCO BANK
Versus
EMPLOYEES PROVIDENT FUND ORGANIZATION & 1 other(s)
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Appearance:
MR GAUTAM JOSHI SENIOR ADVOCATE WITH MR VYOM SHAH WITH
MR IG JOSHI(8726) for the Petitioner(s) No. 1
MR CHAITANYA S JOSHI(5927) for the Respondent(s) No. 1
SERVED BY AFFIX(N) for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 30/09/2022
CAV JUDGMENT
Heard learned Senior Advocate Mr.Gautam Joshi Page 1 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 with learned advocate Mr.Vyom Shah for learned advocate Mr.I.G.Joshi for the petitioner and learned advocate Mr.Chaitanya S. Joshi for the respondent No.1.
1. By this petition under Article 226 of the Constitution of India, the petitioner- Bank has challenged the show cause notices dated 19.07.2018 and 17.08.2018 issued by the respondent No.1-Assistant Provident Fund Commissioner & Recovery Officer of Regional Office, Employees Provident Fund Organization for the recovery of Rs.18,66,697/- and further prayed for refund of the said amount deposited by the petitioner without prejudice with interest.
2. The brief facts of the case are as under:
2.1. The respondent No.2-M/s. Janta Glass Limited approached the petitioner-Page 2 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 UCO Bank for the financial assistance in the year 1998. The petitioner-Bank sanctioned and disbursed various credit facilities to respondent No.2-Company and thereafter, renewed/enhanced the same from time to time. Respondent No.2 hypothecated the movable properties as a security by executing the deed of hypothecation in favour of the petitioner as secured asset i.e., all plant and machineries including its machines, batch house, cullet processing & handling plant and machineries, feeder machineries, lehr machine, thermocouples, lab and QC equipment etc. The land situated at Plot Nos.410 and 411, Post: Gavsad, Taluka: Padra, Dist. Vadodara belonging to M/s. Pure Glass Page 3 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Containers Private Limited was also mortgaged to the petitioner-Bank as the said company was a guarantor for the respondent No.2.
2.2. The respondent No.2 defaulted in repayment of the dues, therefore, petitioner declared the account of the respondent No.2 as Non Performing Asset (NPA) on 30th June, 2010 according to the prudent norms of the Reserved Bank of India. The petitioner-Bank also initiated actions under the provisions of Securitisation and Reconstructions of Financial Assets and Enforcement of Security Interest Act, 2002 ('the SARFAESI Act').
2.3. The petitioner issued notice dated 04.05.2011 under Section 13(2) of Page 4 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 the SARFAESI Act. As the respondent No.2 did not make any payment towards outstanding dues of the petitioner-Bank pursuant to the notice under Section 13(2) of the SARFAESI Act, the petitioner-Bank through authorized Officer had taken the possession of the secured assets of all plants and machineries which are hypothecated including the factory premises located at Plot Nos.410 and 411, Post: Gavsad, Taluka: Padra, Dist. Vadodara under Section 13(4) of the SARFAESI Act on 20th January, 2016.
2.4. The petitioner-Bank on failure of
the respondent No.2 to make the
payment of the outstanding dues
issued the notice dated 29.12.2017 for sale of the movable properties Page 5 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 belonging to respondent No.2 and fixed reserve price of Rs.450 lakh. The petitioner-Bank was able to sale the movable properties in public auction to the successful bidder for Rs.451 lakh.
2.5. The respondent No.1- Assistant
Provident Fund Commissioner &
Recovery Officer issued notices
dated 17.04.2017 and 03.05.2017
under Sections 14B and 7Q of the
Employees' Provident Fund Act and
Miscellaneous Provisions Act,
1952(for short 'EPF Act') to the
petitioner and issued summons to
appear on 02.05.2017. The authorized officer of the petitioner in compliance of such notices, appeared before respondent No.1 and submitted the reply dated 25.04.2017.
Page 6 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 2.6. The respondent No.1 passed an order dated 13th June, 2017 directing the respondent No.2 to pay an amount of Rs.12,20,702/- within fifteen days with interest amounting to Rs.6,46,095/- towards the outstanding provident fund dues calculated as per the provisions of the EPF Act.
2.7. The respondent No.1 also marked the copy of the order dated 13th June, 2017 to the petitioner-Bank with a direction to give first priority to remit the due amount as shown in the order immediately after the sale proceeds of the secured assets by the petitioner-Bank.
2.8. Thereafter, the respondent No.1 by Page 7 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 letter dated 29.11.2017 addressed to the petitioner-Bank claimed first priority of the sale proceeds of the property of the respondent No.2 which was replied by the petitioner- Bank on 23.03.2018 informing that in view of the amendment in the SARFAESI Act from 01.09.2016,as per section 26E, a secured creditor has priority over all other debts and requested the respondent No.1 to withdraw the notice and drop the recovery proceedings against the petitioner-Bank.
2.9. The respondent No.2 however, issued the notice dated 19.07.2018 under Section 8G of the EPF Act read with Rule 2 of the Second Schedule to the Income Tax Act, 1961 upon the General Manager of the petitioner- Page 8 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Bank directing to make the payment as mentioned in the same to the respondent No.1. The respondent No.1 thereafter again issued the show cause notice dated 17.08.2018 and thereby issued summons to appear in person on 10.09.2018 upon the respondent-Bank. The respondent-Bank by letter dated 05.09.2018 deposited an amount of Rs.18,66,697/- demanded by the respondent No.1 reserving its various rights and contentions to challenge the same.
2.10. The petitioner has therefore filed this petition with the following prayers:
"(i) to quash and set aside the show-cause notice dated 19.07.2018 and 17.08.2018 issued by the Respondent No.1.
(ii) to refund an amount of Page 9 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
Rs.18,66,697/- with interest as the same was deposited under protest on 05.09.2018 by Petitioner Bank.
(iii) to direct the Respondent No.1 Authority to drop all proceedings against Petitioner Bank and its Officials."
3. Learned Senior Advocate Mr.Gautam Joshi for the petitioner-Bank submitted that as per the provisions of Section 26E of the SARFAESI Act as amended with effect from 01.09.2006, the petitioner-Bank is entitled to receive the debts due in priority over all other debts and all revenues, taxes, cesses and all other rates payable to the Central Government or State Government or local authority.
3.1 It was therefore submitted that in view of the provisions of Section 26E of the SARFAESI Act, claim made by the respondent No.1 to recover the PF dues by way of Page 10 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 priority over the debt dues of the petitioner-Bank is against the provisions of the law and settled legal position as per the various decisions of the Hon'ble Apex Court and High Courts.
3.2 It was submitted by learned Senior Advocate Mr. Joshi that Section 35 of the SARFAESI Act provides for an overriding effect over other laws and hence also the debts due to the petitioner-Bank being a secured creditor is to be paid in priority over all other debts and all revenues including PF dues of the borrower company. 3.3 It was submitted that debts due to the petitioner-Bank are therefore required to be paid in priority over all other debts and therefore, the action initiated by the respondent No.1 against petitioner-Bank on account of failure of the respondent No.2 Page 11 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 to pay the provident fund contribution and other dues is detrimental in the eyes of law and requires to be set aside. 3.4 It was submitted that the respondent No.1 was not liable to be paid by the petitioner the amount of recovery to be made from the respondent No.2 out of the sale proceeds of the secured assets realized in the auction sale by the petitioner-Bank for recovery of its outstanding dues.
3.5 In support of his submissions, learned senior advocate Mr. Joshi relied upon the following decisions:
(i) Kalupur Commercial Co-operative Bank Limited versus State of Gujarat1.
(ii) Bank of Baroda Versus State of 1 2020 (1) GLR 625 Page 12 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Gujarat and Others(2014) 4 GLR 24982.
(iii) Punjab National Bank Versus Union of India & Others3.
3.6 It was submitted that this Court in case of Kalupur Commercial Co-operative Bank Limited (Supra) applied the provisions of Section 26E of the SARFAESI Act with regard to the attachment notice issued by the Commercial Tax Authorities under Section 48 of the Gujarat Value Added Tax Act, 2003. A Division Bench of this Court in the said decision held that first priority over the secured asset shall be of the petitioner-Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003. It was submitted that the Supreme Court in the recent decision in case of Punjab National Bank (Supra) also held that the provisions of Section 26E of the SARFAESI Act 2 (2020) 4 GLR 2498 3 2022 SCC Online SC 227 Page 13 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 would override the provisions of Central Excise Act, 1944 and having regard to the provisions contained in Section 2(zc) to (zf) read with Section 13 of the SARFAESI Act, the petitioner-Bank shall have the first charge on the secured assets coupled with the fact that Section 35 of the SARFAESI Act inter-alia provides that the provisions of the SARFAESI Act shall have over riding effect on all other laws.
3.7 It was submitted that the recovery made by the respondent No.1 is contrary to the settled legal position and the petitioner- Bank is entitled to get back the amount paid by it pursuant to the recovery notice issued by the respondent No.1 as all rights and contentions were kept open by the petitioner Bank while depositing the amount claimed by the respondent No.1 towards the outstanding PF dues of the respondent No.2-Company. Page 14 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 4 On the other hand, learned advocate Mr. Chaitanya Joshi for the respondent No.1 submitted that EPF Act is a statute enacted keeping in mind Directive Principles of State Policy enshrined in Articles 39 and 41 of the Constitution of India for social security to the employees working in any establishment engaging more than 19 persons on any day. It was submitted that the EPF Act and the EPF Scheme, 1952 framed thereunder casts the responsibility, in the first instance of paying both the contribution payable by the employers as well as on behalf of the members employed by the employers directly or by or through a Contractor as per paragraph 30(1) of the EPF Scheme.
4.1 It was submitted that paragraph No.30(3) of the EPF Scheme further casts the responsibility on the employer to pay both Page 15 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 the contributions payable under the EPF Act and the Scheme.
4.2 It was submitted by learned advocate Mr. Joshi that the EPF Act provides for social security in terms of pensionary benefits (Employees' Pension Scheme, 1995) and insurance benefit in the event of death of a member while in service (Employees' Deposit Linked Scheme, 1976) and thus, the EPF Act is a comprehensive and special legislation. 4.3 It was submitted that the provisions of the EPF Act provides for assessment of dues under Section 7-A which is a quasi-judicial inquiry in nature and gives power of a Judicial Magistrate First Class for the purpose of compelling the attendance of the employer as also to deposit legitimate dues of the workers.
Page 16 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 4.4 Learned advocate Mr. Chaitanya Joshi referred to and relied upon the provisions of Sections 7Q for levy of interest and 14B for levy of penal damages upon the employer. It was submitted that in the facts of the case, respondent No.2 -Company was allotted PF code and was duty bound to comply with all the provisions of the EPF Act and the Scheme. It was therefore submitted that provisions of the EPF Scheme shall over ride all the other laws as per Section 11(2) of the EPF Act. 4.5 Learned advocate Mr. Joshi submitted that in view of the provisions of Section 11(2) which contains an non-obstante clause of giving priority to the respondent No.1 over all other debts, the recovery made by the respondent No.1 is just and proper and the petitioner-Bank cannot rely upon Section 26E of the SARFAESI Act keeping in mind the fact that the EPF Act is a social welfare Page 17 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 legislation intended to protect the interest of employer-worker employed in the factories and other establishments.
4.6 Learned advocate Mr.Joshi in support of his submissions relied upon the decision of the Hon'ble Supreme Court in case of Organo Chemical Industries Versus Union of India4 wherein, Justice Krishna Iyer in his concurring judgment observed as under :
"The measure was enacted for the support of a Weaker sector viz. the working class during the Superannuated winter of their life. The financial reservoir for the distribution of benefits filled by the employer collecting, by deducting from the workers' wages, completing it with his own equal share and duly making over the gross sums to the Fund. If the employer neglects to remit or diverts the moneys for alien purposes the Fund gets dry and the retirees are denied the meagre support when they most need it. This prospect of destitution demoralises the working class and frustrates the hopes of the community itself. The whole project gets stultified if employers thwart contributory responsibility and 4 (1979) 4 SCC 573 Page 18 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 this wider fallout must colour the concept of 'damages' when the court seeks to define its content in the special setting of the Act. For, judicial interpretation must further the purpose of a statute. In a different context and considering a fundamental treaty, the European Court of Human Rights, in the Sunday Times Case, observed:
"The Court must interpret them in a way that reconciles them as far as possible and is most appropriate in order to realise the aim and achieve the object of the treaty."
"A policy-oriented interpretation, when a welfare legislation falls for determination, especially in the context of a developing country, is sanctioned by principle and precedent and is implicit in Article 37 of the Constitution since the judicial branch is, in a sense, part of the State. So, it is reasonable to assign to 'damages' a larger, fulfilling meaning."
4.7 Reliance was also placed upon the decision of the Hon'ble Supreme Court in case of Employees Provident Fund Commissioner Versus Official Liquidator of M/s.Esskay Pharmaceuticals Limited5 wherein, in similar 5 (2011) 10 SCC 727 Page 19 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 situation, issue of priority of Section 11 of the EPF Act vis-a-vis Section 529A(1) of the Companies Act, 1956 was considered. It was submitted that in paragraph Nos.42 and 43 of the said judgment, the Apex Court has held as under:
"[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 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) Page 20 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 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 fora 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 Page 21 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 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." 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 929(1) read with Section 529(3), 529A and 530 of the Companies Act."
4.8 Reliance was also placed on the decision of the Hon'ble Supreme Court in case of Maharashtra State Co-operative Bank Limited Versus APFC in Civil Appeal No.6893 of 2009 wherein it is observed as under: Page 22 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 "As mentioned earlier, sub-section (2) was inserted in Section 11 by Amendment Act No.40 of 1973 with a view to ensure that payment of PF 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 aware that in case of delay the employer is statutorily responsible to pay interest in terms of Section 7Q. 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. If interest payable by the employer under Section 7Q and damages leviable under Section 14 are excluded from the ambit of expression 'any amount due from an employer', every employer will conveniently refrain from paying PF contribution and other dues and resist the efforts of the concerned authorities to recover the dues as arrears of land revenue by contending that the movable or immovable property of the establishment is subject to other debts. Any such interpretation would frustrate the object of introducing the deeming provision and non obstante clause in Section 11(2). Therefore, contention of the Petitioner Page 23 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Bank cannot be accepted that the amount of interest payable under Section 7Q and damages leviable under Section 14B do not form part of the amount due from an employer for the purpose of Section 11(2) of the EPF Act.
4.9 It was therefore submitted that the Apex Court has made it abundantly clear that any amount due from the employer should not be given a constricted meaning so as to suffocate the very purpose of the statute and must invariably also mean to include interest under Section 7Q and damages under Section 14B of the EPF Act.
4.10 Learned advocate Mr.Joshi invited the attention of the Court to the provisions of Section 36(4)(a)(iii) of the Insolvency & Bankruptcy Code, 2016 to submit that the said provision excludes the Provident Fund from the liquidation estate and the same cannot be recovered in the process of liquidation.Page 24 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 4.11 It was therefore submitted that by virtue of statutory provision of Section 11(2) of the EPF Act, any amount due from the establishment shall have priority over all other debts and therefore the consideration received by the petitioner-Bank from the auction sale cannot be permitted to be adjusted in priority of EPF dues against its own debt applying provisions of Section 26E of the Act.
4.12 Learned advocate Mr.Joshi in support of his submission referred to and relied upon the decision of the Allahabad High Court in case of Kotak Mahindra Bank Limited & Another Versus Union of India and Others6, wherein, the Allahabad High Court has held that the recovery of debts do not get primacy over dues payable by the employer as under :
"26. The Supreme Court in Employees 6 AIR 2016 ALLAHABAD 29 Page 25 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Provident Fund Commissioner v. Official Liquidator of; Esskay Pharmaceuticals Limited, 2011 (10) SCC 727 : (AIR 2012 SC
11) dealt with the question as to whether " priority given to the dues payable by an employer under Section 11 of E.P.F Act is subject to section 529-A of the Companies Act, 1956", the court observed that " 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. bye 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 Page 26 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 to an inference that Parliament intended to create first charge in favour of the cured creditors and give priority to the debts due to secured creditors over the amount due from the employer under the EPF Act."
4.13 Reliance was also placed on the decision of the Madras High Court in case of Authorised Officer, Indian Oversus Bank Versus Employees Provision Fund Organisation7, wherein it is held as under :
"44. In the present case, the question is regarding priority. Thus, the priority must be given to the labourers in respect of their Provident Fund and other dues to be settled for the services rendered by these labourers in the company in liquidation."
4.14 Learned advocate Mr.Joshi has also referred to the decision of the Rajasthan High Court in case of GMG Engineers & Contractor Private Limited Versus State of Rajasthan through Principal Secretary, Commissioner, Sales Tax 7 2020(1) LLJ 107 Page 27 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Department8 to submit that the different legislations providing for the first charge against the dues were considered by the Apex Court in case of Central Bank of India which was in reference to Workmen's Compensation Act, Employees' Provident Fund Act, Excise Duty Act and Companies Act, etc. and the charge created by the EPF was considered in priority. In the said decision, the Rajasthan High Court has held as under:
"27. The different legislations providing for first charge against the dues were also considered by the Apex Court in the case of Central Bank of India (supra). It was in reference to Workmens' Compensation Act, Employees' Provident Fund Act, Excise Duty Act and Companies Act, etc. Therein also, statutory first charge is provided against the dues. The reference of those enactments were given to make distinction between priority rights of the secured creditor vis a vis statutory first charge on the property.
28. Learned Senior Counsel appearing for the petitioner- company submits that Section 26E of the amended Act gives priority to the secured creditor against 8 2017 LawSuit (Raj) 1996 Page 28 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 all other debts and Government dues. In view of the above, effect of first charge gets nullified. I have considered the aforesaid argument also and find that Section 26E of the Act of 2002 gives priority to the secured creditor. It cannot be construed to nullify the statutory first charge. If the intention of Parliament would have been to nullify statutory first charge then language of the amended provision would have been as provided in Workmens' Compensation Act, Employees' Provident Fund Act, etc.
29. The State dues may be without a provision of first charge and in that situation, the secured creditors would have priority over the State dues and, accordingly, amended provision is to be given interpretation. It cannot, however, nullify a provision for first charge on the property. The first charge on the property creates (20 of 20) [CW-6872/2017] right even as per the Act of 1882. It has already been observed that if intention of the Central Government was to nullify first charge, the language of amended provision would have been in the manner indicated by the Apex Court in the case of Central Bank of India (supra). It is otherwise a case where attachment of the property in pursuance of first charge of the State Government is much prior to the amended Act of 2002 and 1993 thus those amendments would not apply even if subsequently auction of the property was made. It is nothing but auction of the property already attached by the Government, that too, after initiation of proceedings under the Act of 1956."Page 29 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
5. Having heard the learned advocates for the respective parties and having gone through the material on record as well as the decisions cited by both the sides, only question which arises for consideration is whether the respondent No.1-EPF Department has a priority over the secured debts of the petitioner Bank in view of the provisions of Section 11(2) of the EPF Act vis-a-vis Section 26E read with Section 35 of the SARFAESI Act
6. It would therefore be germane to refer to both the provisions which reads as under :
"Section 11 of the EPF Act :- Priority of payment of contributions over other debts.
--(1)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 10[an establishment] to which any 11[Scheme or the Insurance Scheme] applies in respect of any contribution payable to the Fund 12[or, as the case may be, the Insurance Fund], damages recoverable under section Page 30 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 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 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 (3 of 1909), or under section 61 of the Provincial Insolvency Act, 1920 (5 of 1920), or under [section 530 of the Companies Act, 1956 (1 of 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. (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 Page 31 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 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. Section 26E of the SARFAESI Act: -
Priority to secured creditors. -- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
Section 35 of the SARFAESI Act: - The provisions of this Act to override other laws.--The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."
7. The question raised in this petition is therefore required to be answered considering the decision of the Division Bench of this court in case of Kalupur Commercial Co- Page 32 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 operative Bank Limited (Supra) as well as the recent decision of the Apex Court in case of Punjab National Bank (Supra) wherein, the Courts have taken into consideration the earlier decisions of Apex Court in cases of Central Bank of India Versus State of Kerala and Others9 and Employees Provident Fund Commissioner Versus Official Liquidator of M/ s.Esskay Pharmaceuticals Limited (Supra) which has bearing on the issues arising in this petition.
8. The Division Bench of this Court in case of Kalupur Commercial Co-operative Bank Limited (Supra) with regard to non-obstante clause appearing in the provision of Section 26E of the SARFAESI Act after analysis of the various decisions of the Apex Court has held as under :
9
(2009) 4 SCC 94 Page 33 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 "21. A non-obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provision in the same or other Act mentioned in the non-obstante clause. It is equivalent to saying that inspite of the provisions or Act mentioned in the non-obstante clause, the provision following it will have its full operation or the provisions embraced in the non-
obstante clause will not be an impediment for the operation of the enactment or the provision in which the non- obstante clause occurs. [See 'Principles of Statutory Interpretation', 9th Edition by Justice G.P. Singh Chapter V, Synopsis IV at pages 318 & 319].
22. When two or more laws or provisions operate in the same field and each contains a non-obstante clause stating that its provision will override those of any other provisions or law, stimulating and intricate problems of interpretation arise. In resolving such problems of interpretation, no settled principles can be applied except to refer to the object and purpose of each of the two provisions, containing a non-obstante clause. Two provisions in same Act each containing a non-obstante clause, requires a harmonious interpretation of the two seemingly conflicting provisions in the same Act. In this difficult exercise, there are involved proper consideration of giving effect to the object and purpose of two provisions and the language employed in each. [See for relevant discussion in para 20 in Shri Swaran Singh & Anr. v. Shri Kasturi Lal; (1977) 1 SCC 750].
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23. Normally the use of the phrase by the Legislature in a statutory provision like 'notwithstanding anything to the contrary contained in this Act' is equivalent to saying that the Act shall be no impediment to the measure [See Law Lexicon words 'notwithstanding anything in this Act to the contrary']. Use of such expression is another way of saying that the provision in which the non-obstante clause occurs usually would prevail over the other provisions in the Act. Thus, the non- obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provision of the law, but merely as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principle enacting provision to which the non-obstante clause is attached. [See Bipathumma & Ors. v. Mariam Bibi; 1966(1) Mysore Law Journal page 162, at page 165].
27. The principles discernible from the decision of the Supreme Court in the case of Kumaon Motor Owners' Union Ltd. (supra) are that, if there is a conflict between the provisions of the two Acts and if there is nothing repugnant, the provisions in the later Act would prevail. The second principle discernible is that, while resolving the conflict, the court must look into the object behind the two statutes. To put it in other words, what necessitated the legislature to enact a particular provision, later in point of time, which may be in conflict with the Page 35 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 provisions of the other Acts. The third principle discernible is that the court must look into the language of the provisions. If the language of a particular provision is found to be more emphatic, the same would be indicative of the intention of the legislature that the Act shall prevail over the other statutes.
29. The principles of law discernible from the decision of the Supreme Court in the case of Solidaire India Ltd. (supra) are that, if there is a conflict between the two special Acts, the later Act must prevail. To put it in other words, when there are two special statutes which contain the non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the legislature could be said to be aware of the earlier legislation and its non-obstante clause. If the legislature still confers the later enactment with a non- obstante clause, it means that the legislature wanted that enactment to prevail.
30. We are conscious of the fact that in the case on hand there is no conflict between two special statutes enacted by the Parliament. The conflict is with the State Act and the Central Act. We are trying to understand the true purport and effect of Section 26E of the SARFAESI Act which came to be enacted later in point of time and also the effect of Section 31B of the RDB Act which came to be enacted later in point of time. In other words, what necessitated the introduction of the two Page 36 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 provisions in the two enactments and what object the two provisions would subserve."
9. The Apex Court in case of Punjab National Bank (Supra) considering the issue of priority of the excise dues under the Central Excise Act, 1944 and the applicability of provisions of Section 26E read with Section 35 of the SARFAESI Act has held as under:
"43. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is Page 37 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002."
10. The Apex Court in case of Central Bank of India (Supra) took the view that if the State Act creates first charge over the property then secured creditor cannot have the claim against the statutory provisions by observing as under :
"111. However, what is most significant to be noted is that there is no provision in either of these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower.
xxxx
116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38C of the Page 38 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Bombay Act and Section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of State's charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws.
Xxxx
126. While enacting the DRT Act and the Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State 9 dues was recognised. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529-A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial 127 126. While enacting the DRT Act and the Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State 9 dues was recognised. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529-A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of Page 39 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies.
127. The definition of "secured creditor"
includes securitisation/ reconstruction company and any other trustee holding securities on behalf of bank/financial institution. The definition of "securitisation company" and "reconstruction company" in Sections 2(1) (za) and (v) shows that these companies may be private companies registered under the Companies Act, 1956 and having a certificate of registration from Reserve Bank under section 3 of the Securitisation Act. Evidently, Parliament did not intend to give priority to the dues of private creditors over sovereign debt of the State.
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130. Undisputedly, the two enactments do not contain provision similar to the Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency _or overlapping Page 40 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 between the provisions of the DRT Act and the Securitisation Act on the one hand and Section 38-C of the Bombay Act and Section 26-B -Of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be.
131. The Court could have given effect to the non obstante clauses Contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis-a-vis Section 38-C of the Bombay Act and Section 26-B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured creditors but as Parliament has g not made any such provision in either of the enactments, the first charge created by the State legislations on the property of the dealer or any other person, liable to pay sales tax, etc., cannot be destroyed by implication or inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors."
11. It is true that the aforesaid decision of the Central Bank of India (Supra) is prior to the Page 41 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 amendment in the SARFAESI Act in 2016,however, while enacting the SARFAESI Act, the Parliament was aware of the law laid down by the Apex Court wherein priority of the State dues was recognised. If Parliament intended to create first charge in favour of banks, financial institutions, or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529-A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax, etc. The Apex Court thereafter, proceeded to observe that the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment Page 42 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the court or Tribunal.
12. In view of such observation, it appears that the parliament has enacted Section 26E of the SARFAESI Act which also start with a non- obstante clause and in such circumstances, the Division Bench of this court in case of Kalupur Commercial Co-operative Bank Limited (Supra) after analysing the various decisions of the Apex Court on non-obstante clause, has held that when there is a conflict between the two legislations, if there is nothing repugnant through provision, the later Act prevails as held by the Supreme Court in case of Kumaon Motor Owners' Union Limited and another Versus State of Uttar Pradesh10 and in case of Solidaire India Limited Versus 10 AIR 1966 SC 785 Page 43 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Fairgrowth Financial Services Limited and Others11 and while resolving the conflict, it is held by the Apex Court that the Court must look into the object behind the two statutes meaning thereby, the legislator to enact a particular provision, later in point of time, which may be in conflict with the provisions of the other Acts and thirdly, the Court must look into the language of the provisions and if language of a particular provision is found to be more emphatic, the same would be indicative of the intention of the legislature that the Act shall prevail over the other statutes.
13. In the cases of Kalupur Commercial Co-
operative Bank Limited (Supra) and Bank of Baroda (Supra), this Court has considered the priority of the State to recover the dues of under Section 48 of the Gujarat Value Added 11 (2001) 3 SCC 71 Page 44 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Tax Act,2003 ('VAT Act') vis-a-vis Section 26E of the of the SARFAESI Act and as the provisions of Section 26E of the SARFAESI Act was brought on statute later in point of time in the year 2016 and that being a Central Act, this Court held that the priority be given to the provisions of Section 26E of the Act as observed in paragraph No.34 of the said decision as under:
"34. We are sure of one thing that there exists no repugnancy in the two legislations. The intention of the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra)"Page 45 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022
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14. The Division Bench after considering the decisions of the Rajasthan High Court in case of GMG Engineers & Contractor Private Limited (Supra) as well as the decision of the Apex Court vis-a-vis Section 31B of the RDB Act, 1993 in case of Centra Bank of India (Supra), the decision of the Madhya Pradesh High Court in case of Bank of Baroda Versus Commissioner of Sales Tax, M.P., Indore12 and Full Bench decision of the Madras High Court in case of The Assistant Commissioner (CT) Versus Indian Overseas Bank13 held as under:
"47. Thus, the dictum of law as laid by the Supreme Court in the aforesaid decision is that the State's preferential right to the recovery of debts over other creditors is confined to ordinary or unsecured creditors. The Supreme Court took the view that the Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for the recovery of its debts over a mortgagee or pledgee of the goods or a secured creditor. It is true that ultimately the bank was not granted any 12 (2018) 55 GSTR 210 (MP) 13 AIR 2017 Madras 67 Page 46 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 relief, but the same was not granted in the peculiar facts of the case. Otherwise, the principle of law as explained is very clear. In no uncertain terms, the Supreme Court held that the appellant, i.e. the bank, was right in submitting that on the date on which the State of Karnataka proceeded to attach and sell the property of the partners of the firm mortgaged with the bank, it could not have appropriated the sale proceeds to the sales-tax arrears payable by the firm, thereby defeating the bank's security. In taking such view, the Supreme Court relied on its earlier decision in the case of CST vs. Radhakishan, (1979) 43 STC 4 : AIR 1979 SC 1588."
15. Therefore, the Division Bench as well as the Apex Court were dealing with the situation where the provisions of the respective State Act or Central Act were in conflict with the provisions of the Section 26E of the SARFAESI Act. However, in the facts of the case, Section 11(2) of the EPF Act provides that if any amount is due from an employer in respect of the PF dues, the due shall be deemed to be the first charge on the assets of the establishment and notwithstanding anything contained in any other law, for the time Page 47 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 being in force, be paid in priority to all other debts meaning thereby that the dues of the PF shall have the first charge on the property and therefore, as observed by the Apex Court in case of Centra Bank of India (Supra), the purpose and intend of the legislature is required to be looked into. The first charge on the property vis-a-vis the PF dues would be created moment there would be a failure on the part of the employer to deposit the PF dues. Therefore, in the facts of the case, the decision relied upon on behalf of the petitioner would not apply so far as the outstanding dues of the PF is concerned as in the facts of the case, there is conflict between two Central Acts namely EPF Act and the SARFAESI Act. In such situation, the Hon'ble Supreme Court has laid down in no uncertain terms that later Act must prevail if there is nothing repugnant in the later Act. The Apex Court in case of Page 48 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 Kumaon Motor Owners' Union Limited (Supra) as well as in case of Solidaire India Limited (Supra) has laid down the principle that while resolving conflict, the Court must look into the object behind the two statutes. It is therefore necessary to find out what necessitated the legislature to enact a particular provision, later in point of time, which may be in conflict with the provisions of other Acts. Considering the language of the provision of Section 26E of the SARFAESI Act, which has been brought on statute in the year 2016, the object behind the same appears to be to secure the debts due to any secured creditor in priority over all other debts including the revenues, taxes, cesses and all other rates payable to the Central Government or State Government or local authority subject to provisions of Insolvency & Bankruptcy Code, 2016. Similarly, Section 35 of the SARFAESI Act provides that the Page 49 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 provisions of the SAEFAESI Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
16. Considering provisions of section 26E of the SARFAESI Act brought on statute later in point of time, the language of Section 11(2) of EPF Act is found to be more emphatic and the same would be indicative of the intention of the legislature to the effect that the EPF Acts shall prevail over the other statutes to secure the outstanding dues of the workers. In this context, the observations made by the Apex Court in case of Employees Provident Fund Commissioner Versus Official Liquidator of M/s.Esskay Pharmaceuticals Limited (Supra) in paragraph no. 48 thereof are very clear to the effect that the words "all other debts"
used in Section 11(2) of the EPF Act would Page 50 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 necessarily include the debts due to secured creditors like Banks, Financial Institutions, etc. It is further observed by the Apex Court that the mere ranking of the dues of workers on par with debts due to secured creditors cannot lead to an inference that parliament intended to create first charge in favour of the secured creditor over the amount due from the employer under the EPF Act. In this context the Apex Court has observed as under:
"49. At the cost of repetition, we would emphasise 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 of 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 a 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 40 of 1973 and any amount due from Page 51 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 an employer in respect of the employees' contribution was declared first charge on the assets of the establishment and became payable f in priority to all other debts. However, while inserting Section 529-A in the Companies Act by Act 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.
50. 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 on a par with the debts due to secured creditors and there is no reason to interpret this J 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 on a par with the debts due to secured creditors and payment thereof will be regulated by the provisions contained in Section . 529(1) read with Sections 529(3), 529-A and 530 of the Companies Act.
51. In view of what we have observed above on the interpretation of Section 11 of the EPF Act and Sections 529, 529-A and 530 .of the Companies Act, the judgment of the Division Bench of Page 52 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022 C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022 the Gujarat High Court, which turned on the interpretation of Section 94 of the Employees' State Insurance Act and Sections 529-A 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."
17. In view of above dictum of law and considering the language of Section 11(2) of the EPF Act and the object behind the same for the benefit of the workers and considering the intention of the legislature, the provisions of Section 11(2) shall prevail over Section 26E of the SARFAESI Act. The action of the respondent no.1 to recover the outstanding dues with interest payable by the respondent no.2 establishment from the petitioner Bank was legal and justified as per provision of section 11(2) of the EPF Act.
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18. In view of the foregoing reasons, the petition fails and is accordingly dismissed. Rule is discharged. No orders as to cost.
(BHARGAV D. KARIA, J) PALAK Page 54 of 54 Downloaded on : Sat Oct 01 20:22:20 IST 2022