Kerala High Court
Employees Provident Fund Organisation vs The Deputy Collector (Rr) on 6 December, 2010
Author: Antony Dominic
Bench: Antony Dominic
IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 36175 of 2005(F)
1. EMPLOYEES PROVIDENT FUND ORGANISATION,
... Petitioner
Vs
1. THE DEPUTY COLLECTOR (RR),
... Respondent
2. THE MANAGING DIRECTOR,
3. THE KERALA FINANCIAL CORPORATION
4. KURIAN JOSE, MANAGING DIRECTOR,
5. STATE OF KERALA, REPRESENTED BY THE
For Petitioner :SRI.S.GOPAKUMARAN NAIR, SC, P.F.
For Respondent :SRI.M.M.SAYED MUHAMMED, SC, KFC
The Hon'ble MR. Justice ANTONY DOMINIC
Dated :06/12/2010
O R D E R
ANTONY DOMINIC, J.
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W.P.(C) Nos. 36175 OF 2005
& 21344 OF 2010
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Dated this the 6th day of December , 2010
J U D G M E N T
Issues raised in these writ petitions are connected and therefore, these cases were heard together and are disposed of by this common judgment.
2. M/s. Star Refineries Private Limited, was alloted 2 acres of land in Sy.No.67/2 Part and 89/1A of Kadungalloor Village situated in Edayar Industrial Estate for industrial purposes (hereinafter referred to as Company for short). The company availed of financial assistance from Kerala Financial Corporation (hereinafter referred to as KFC for short) mortgaging the property. The Company was an establishment to which the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 was applicable and was under the coverage of the said Act w.e.f. 31/8/95. According to the Employees Provident Fund Organisation, the Company defaulted payment of statutory contributions for the period from September, 1995. Thereafter enquiry as contemplated under Section 7A of the EPF Act was conducted WPC No. 36175/05 & 21344/10 :2 : and order dated 13/3/2000 was passed determining that an amount of Rs.3,27,743.25 was due from the Company. Despite demands of the EPF Department, company did not remit the amount and finally by order dated 20/12/01 issued under Section 8 of the EPF Act, the aforesaid properties were attached by the EPF Department.
3. While the attachment was thus remaining in force, the KFC initiated proceedings under the State Financial Corporations Act for realisation of its dues. Finally, in the proceedings initiated under the provisions of the Revenue Recovery Act, the property was auctioned. In the auction thus held, M/s.Meron Bio Products Pvt. Ltd, being the highest bidder, the petitioner in WP(C) No.21344/10 purchased the property, for a total amount of Rs.29,50,000/-. Accordingly, sale was confirmed in their favour by order dated 10/11/2003. Pursuant to the confirmation of sale, sale certificate dated 17/3/05 was executed under Section 56 of the Revenue Recovery Act and the same was registered in the office of the Sub Registrar of Alangad in accordance with the provisions of the Act.
4. M/s.Meron Bio Products Pvt. Ltd was later faced with WPC No. 36175/05 & 21344/10 :3 : several other demands in respect of the property and finally they filed WP(C) No.28379/05 before this Court. In that writ petition, apart from the revenue recovery authorities, KSEB, KFC, Assistant Provident Fund Commissioner, Sales Tax Officer, North Paravur, ESI Corporation and Secretary, Kadungallor Grama Panchayat were impleaded as respondents. By judgment dated 15th of October, 2005, that writ petition was disposed of. In so far as it is relevant, it was held in the judgment as follows:
The sale of property in favour of the petitioner which stands confirmed in accordance with law by Ext.P1 and the title deed executed in his favour cannot be altered on account of any claim by respondents 5 to 9 against the defaulter who was the previous owner of the property, purchased by the petitioner, in recovery proceedings. Therefore, what is left is the question of priority in the claim made by respondents 5 to 9 over the claim made by the KFC.
In the circumstances, the writ petition is disposed of upholding title in favour of petitioner but leaving freedom to respondents 5 to 9 or any other creditor to file claim petition before the Land Revenue Commissioner, who will hear the KFC and claimants and order appropriation of sale proceeds in accordance with priority whether it be under any statute or under agreement. Respondents 5 to 9 are prohibited from interfering with petitioner's title, possession and enjoyment of the property.
5. It is stated that in pursuance to the directions in the judgment, the statutory authorities other than Assistant Provident WPC No. 36175/05 & 21344/10 :4 : Fund Commissioner, filed claim petitions before the Land Revenue Commissioner, who passed order dated 29/11/06 directing that the claimants will sent their claims to the KFC and that the KFC will identify other properties of the defaulters and follow up for recovery proceedings.
6. Meanwhile M/s.Meron Bio Products Pvt. Ltd made an application for encumbrance certificate in respect of the property and they were issued encumbrance certificate dated 14/5/2010, which is produced as Ext.P5 in WP(C) No.21344/10. The encumbrance certificate showed that there are five encumbrances on the property of which two related to attachments in two suits filed by individuals and two related to sales tax and PF arrears of the previous owner and the fifth one related to the purchase by M/s.Meron Bio Products in public auction. M/s.Meron Bio Products Pvt Ltd. filed representation for deleting the aforesaid encumbrances and finally Sub Registrar issued letter dated 14/6/2010, Ext.P7 in WP(C) NO.21344/10 informing that the encumbrances could be deleted only if there is an order from a court of law. It is in these circumstances, M/s.Meron Bio Products Pvt. Ltd has filed WP(C) No.21344/10 WPC No. 36175/05 & 21344/10 :5 : praying to quash Ext.P1 referred to above and for a declaration that the property purchased by them is free from all encumbrances in view of Section 60 of the Revenue Recovery Act and to direct the respondents to delete all encumbrances prior to 10/11/2003 when they purchased the property.
7. Employees' Provident Fund Organization has filed WP (C) No.36175/05. According to them, as per the order dated 13/3/2000, produced as Ext.P1 in the writ petition filed by them, an amount of Rs.3,27,743.25 was determined as outstanding from M/s.Star Refineries. It is stated that they had attached the property as early as on 20/12/01 and that in view of the provisions contained in Section 11 of the Employees Provident Fund and Miscellaneous Provisions Act, they are entitled to have first charge on the assets of the defaulting establishment and the dues are liable to be disbursed in preference to its other dues. It is stated that, therefore, the KFC should be directed to release their dues from out of the sale proceeds pertaining to the properties of the company.
8. At the outset, it should be stated that among the five encumbrances indicated in Ext.P5 non encumbrance certificate WPC No. 36175/05 & 21344/10 :6 : produced in WP(C) No.21344/10 two encumbrances are in relation to the proceedings in OS 243/99 and of the Sub Court, Irinjalakuda and OS 1313/90 on the file of Munsiff's Court, Chavakkad. The plaintiffs in those suits are not parties to these writ petitions, and therefore, no order can be passed by this Court to the prejudice of the plaintiff in those suits. Therefore, it is clarified that anything that is held in this judgment shall not be to the prejudice of those parties or those proceedings.
9. The contention of the learned Government Pleader was that the company was a defaulter to the General Sales Tax Act for the assessment years prior to the period when the sale in favour of the petitioner was held. According to the learned Government Pleader, under Section 26B of the Kerala General Sales Tax Act, notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, payable by a dealer or any other person under the Act, shall be the first charge on the property of the dealer, or such person. It was also pointed out that, under Section 26A, where, during the pendency of any proceedings under the Act or after the completion thereof, any assessee WPC No. 36175/05 & 21344/10 :7 : creates a charge on, or parts with the possession, of any of his assets in favour of a person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee under the Act.
10. Therefore, according to the learned Government Pleader, irrespective of whether the sale in question has been held under the provisions of the Revenue Recovery Act or not, in view of the provisions contained in Section 26A and B of the KGST Act, the charge in favour of the Government will continue to run with the line. Therefore, it is contended that the encumbrance as shown in Ext.P5 cannot be deleted as sought for by the petitioner.
11. In my view, the issues raised by the petitioner are already decided against them in the judgment in Kurian Jose v. Kerala State Financial Corporation (2009(4) KLT 511). That writ petition was filed by the Managing Director of the petitioner Company when the Panchayat demanded property tax for the period prior to the purchase in the revenue sale. Petitioner resisted the demand on the ground that in view of Section 60 of the Revenue Recovery Act, sale being without encumbrances, they were not liable to pay the amount. However, in view of the WPC No. 36175/05 & 21344/10 :8 : provisions contained in Section 203 of the Kerala Panchayat Raj Act which states that the property tax shall be the first charge upon the building and upon the movable property, if any, found within or upon the same and belonging to the person liable to such tax, this Court rejected the contentions from the petitioner. It was also held that Section 60 of the Revenue Recovery Act does not exclude the operation of the provisions of other statutes, and therefore, the property sold will be subject to all statutory charges. It was further held that the encumbrance referred to in Section 60 of the Revenue Recovery Act should take in liabilities other than charges created by separate statute. This judgment has become final and binding and for that reason, it is not open to the petitioner to again contend that in view of Section 60 of the Revenue Recovery Act, they are not liable to discharge the sales tax liability that was remaining outstanding from the previous owner of the property. As far as Ext.P3 judgment in WP(C) No.28379/05 is concerned, in this judgment, this Court has already recognised and upheld petitioner's title to the land, but has not spoken about the impact of statutory first charge created by Section 26 B vis-a-vis Section 60 of the Revenue Recovery Act. WPC No. 36175/05 & 21344/10 :9 : Therefore, this judgment is of no assistance to the petitioners.
12. Then what remains is the claim of the PF Department, which has filed WP(C) No.36175/05. The claim raised by the EPF has to be considered with reference to Section 11(2) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Section 11 of the Act provides for priority of payment of contributions over other debts. Section 11(2) reads as under;
(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 force, be paid in priority to all other debts
13. A reading of this provision shows that if any amount is due from an employer, the amount so due shall be deemed to be first charge over the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being force, be paid in priority to all other debts. The conflicting claims between the KFC and the PF Department was reconciled by this Court in the judgment in Recovery Officer & Asst.Provident Fund Commr. v. Kerala Financial WPC No. 36175/05 & 21344/10 :10 : Corporation (2002 (2) KLT 723), the relevant portion of which reads as under:
10. The contention of the first respondent based on the overriding effect of S. 46-B of the S.F.C. Act has no substance in our judgment. Undoubtedly, the intention of Parliament in enacting S. 46-B in the year, 1956 was to ensure that a State Financial Corporation could quickly and effectively recover the amounts due by taking possession of the property of the defaulter instead of having resort to the cumbersome method of recovery through a court of law. While this was the law, Parliament amended S. 11 of the E.P.F. & M.P. Act by specifically enacting sub-s. (2) thereof, declaring that the amount due as contribution to the Employees Provident Fund has first charge on the assets of the establishment and that, notwithstanding anything contained in any other law for the time being in force, it shall be paid in priority against all other debts. In fact, the second facet of S. 11(2) of the E.P.F. & M.P. Act goes one step further than what is provided in S. 46-B of S.F.C. Act. The reason for this is obvious. While the State Financial Corporation would have to be helped to recover the debts due to it from a defaulting debtor, the Provident Fund payable to workers is of greater moment, since it is a matter of terminal social security benefit made available by statute to the working class. Taking into consideration that E.P.F. & M.P. Act is a social benefit legislation, and the evil consequences of Provident Fund dues being defeated by prior claims of secured or unsecured creditors, the Legislature took care to declare that irrespective of when a debt is created, the dues under the E.P.F. & M.P. Act would always remain first charge and shall be paid first out of the assets of the establishment. We are also not impressed by the contention of the first respondent that upon usage of non obstante clause in S. 46-B of the S.F.C. Act. Sub-s. (2) of S. 11 of the E.P.F. Act is of subsequent date. No doubt, both S. 46-B of the S.F.C. Act and S. 11 (2) of the E.P.F. & M.P. Act declare their intent by usage of the non obstante clause. But, since S. 11(2) of the E.P.F. & M.P. Act has been enacted later, we must ascribe to the Parliament the intention to override the earlier legislation also. It is, therefore, clear that S. 11(2) of the E.P.F. & WPC No. 36175/05 & 21344/10 :11 : M.P. Act overrides all provisions of other enactments including S. 46-B of the S.F.C. Act.
11. We are supported in our conclusion by the judgment of the Supreme Court in A.P. State Financial Corporation v. Official Liquidator, (2000) 7 SCC 291. This was also a case arising under the S.F.C. Act, 1951. The Corporation therein had exercised its powers under S. 29 of the Act in respect of a debtor company which was under liquidation.
The Corporation claiming to be a secured creditor filed two applications under S. 446(1) of the Companies Act read with S. 29 and 46 of the S.F.C. Act for staying outside the liquidation proceedings. The learned Company Judge allowed these applications on the specific condition that the Corporation should undertake to discharge its liability due to the workers under S. 529-A of the Companies Act and also inform the Official Liquidator by advance notice about the proposed sale of the Company's properties and further obtain the Company Court's permission before finalising the tender. This order of the Company Judge was upheld by the Division Bench of the Andhra Pradesh High Court. An appeal was carried thereagainst by the State Financial Corporation to the Supreme Court. The Supreme Court considered the reason for enactment of the S.F.C. Act as against the reason for amendment of S. 529-A of the Companies Act. The Supreme Court pointed out that, though the S.F.C. Act of 1951 was a special Act for grant of financial assistance to industrial concerns with a view to boost industrialisation and to enable recovery of amounts advanced and the Companies Act was also an Act dealing with Companies including winding up such companies, the proviso to sub-s. (1) of the S. 529 and S. 529-A being a subsequent enactment, the non obstante clause in S. 529-A prevails over S. 29 of the S.F.C. Act. Hence, the Supreme Court held that statutory right to sell the property under S. 29 of the S.F.C. Act had to be exercised with the rights of pari passu charge to the workmen specifically created by the proviso to S. 529 of the Companies Act. Under the proviso to sub-s. (1) of the S. 529, the liquidator shall be entitled to represent the workmen to enforce the above pari passu charge. The judgment of the Company Court was upheld. While WPC No. 36175/05 & 21344/10 :12 : upholding the judgment of the Company Court, it was pointed out by the Supreme Court that State Financial Corporation could not stay outside the winding up proceedings. It was also held that S. 529 A of the Companies Act imposes upon the Company Court the duty to ensure that the workmen's dues are paid in priority to all other debts in accordance with the provisions of the above section. The Legislature amended the Companies Act in 1985 with a social purpose, viz., to protect the dues of the workmen. If conditions are not imposed to protect the right of the workmen, there is every possibility that a secured creditor may frustrate the pari passu right of the workmen under the said provision of law.
14. Therefore, in view of the aforesaid statutory provision and the judgment of this Court, which was relied on by the Apex Court in Central Bank of India v. State of Kerala and others [(2009) 4 SCC 94], not only that the PF dues are a charge on the property but also the priority of claim of the PF Department over the dues to KFC has to be upheld and I do so. Therefore, KFC should pay the amount due to the PF department from out of the sale proceeds.
15. In the result, WP(C) No.21344/2010 is liable to be dismissed and I do so.
16. It is directed that from out of the sale proceeds now available, the Kerala Financial Corporation shall disburse the amount due to the EPF Department by virtue of order dated WPC No. 36175/05 & 21344/10 :13 : 13/3/2010 passed by it under Section 7A of the EPF Act. WP(C) No.36175/2005 will stand disposed of with this direction.
ANTONY DOMINIC, JUDGE Rp