Telangana High Court
The Recovery Officer vs M/S. Shivam Smelters P Limited on 30 March, 2022
Author: Satish Chandra Sharma
Bench: Satish Chandra Sharma, Abhinand Kumar Shavili
THE HON'BLE THE CHIEF JUSTICE SATISH CHANDRA SHARMA
AND
THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI
WRIT APPEAL No.238 of 2022
JUDGMENT:(Per the Hon'ble the Chief Justice Satish Chandra Sharma) The present writ appeal is arising out of an order dated 06.12.2016 passed by the learned Single Judge in W.P.No.3156 of 2011.
The facts of the case reveal that a writ petition was preferred by the respondent No.1 in the writ appeal (writ petitioner) being aggrieved by the action of the Recovery Officer, Employees Provident Fund Organization, in issuing the warrant of attachment of movable property, dated 03.02.2011. The undisputed facts of the case reveal that M/s. Shree Jagannath Strips Limited has availed financial assistance from the Andhra Pradesh State Financial Corporation (APSFC) and as the said Company was declared as a sick company under Section 85 of the Sick Industrial Companies Act and the Board for Industrial and Financial Reconstruction (BIFR) has recommended winding up of the company, thereafter an order was passed in 2 Company Petition No.62 of 1994 dated 17.12.1998 in respect of winding up of the company. The APSFC has submitted an application i.e., Company Application No.518 of 1999. The learned Company Judge has permitted the Official Liquidator to dispose of the property of the company on the following terms and conditions:-
"1. The Official Liquidator shall be allowed to inspect the respondent - company's properties and assets and take inventory as and when required;
2. The applicant - Corporation shall not dispose of the assets of the respondent - company or realize the amounts pursuant to any right exercised by it without prior permission of this court and the applicant - Corporation shall file a valuer's report in this court before the properties covered under the mortgage deeds are put to sale;
3. The applicant - Corporation shall undertake to deposit the workmen dues with the Official Liquidator as per the provisions of Section 529 (A) of the Companies Act;
4. Permission of this court shall be obtained before the sale of the movable or immovable properties is either confirmed or finalized;
5. Whatever surplus remains after the sale and realization of the dues of the secured creditors and the workmen as per law, the balance sale proceeds shall be made available to the Official Liquidator for being dealt 3 with in accordance with the provisions of the Companies Act and the Rules."
Condition No.3 of the aforesaid conditions makes it very clear that the APSFC was required to deposit the workmen dues with the Official Liquidator as per the provisions of Section 529(A) of the Companies Act. Pursuant to the order passed by the Company Court, the APSFC has conducted auction in respect of the land admeasuring Acs.5.02 guntas in Survey No.358/1 (Part) with buildings thereon for a sum of Rs.86.00 lakhs. Thereafter, a sale deed was executed in favour of the writ petitioner. It is an undisputed fact that there were some provident fund dues and in order to recover the provident fund dues, a warrant of attachment was issued on 03.02.2011 against the writ petitioner, who was the subsequent purchaser of land and buildings. The learned Single Judge taking into account Sections 11 and 17B of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (for short, "the Act"), has allowed the writ petition.
4
Learned counsel for the appellants has vehemently argued before this Court that the warrant of attachment has rightly been issued by the Recovery Officer keeping in view Section 17B of the Act, as there was a transfer of establishment by way of sale. He has also stated that the APSFC was required to pay the workers' dues and the provident fund dues include the dues of workers and therefore, they have got every right to recover the dues from the successful purchaser. Reliance has also been placed upon the judgments delivered in the cases of Isha Marbles v. Bihar Electricity Board1, Union of India v. SICOM Ltd.,2 and Rana Girders Ltd., v. Union of India3.
This Court has heard the learned counsel for the parties at length and perused the record.
The statutory provisions which are necessary to decide the present writ appeal are contained in Sections 11 and 17B of the Act and they are reproduced as under:-
"11. Priority of payment of contributions over other debts. (1) Where any employer is adjudicated insolvent 1 1995 (2) SCC 648 2 (2009) 2 SCC 121 3 (2013) 10 SCC 746 5 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 as it relates to exempted employees, under the rules of the Provident Fund or any Insurance Fund, any contribution payable by him towards the 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 therefore 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.6
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 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."7
Section 11 certainly provides for priority of payment of contributions over the debts and Section 17B deals with liability in case of transfer of establishment. The learned Single Judge, after dealing with both the Sections, has allowed the writ petition. The relevant portion of the order passed in the writ petition is reproduced as under:-
"8. A reading of Section 11 of the Act, extracted above, it is clear it gives priority for payment of contributions over other debts. The real question, in controversy, in the present facts of the case is that whether the petitioner is liable for the dues of M/s.Shree Jagannath Strips Limited, which is not a party before this court and which is represented by the Official Liquidator. In that context it has to be seen whether there is any transfer of the establishment as envisaged under the provisions of Section 17B. It is not in dispute that the petitioner came to purchase the property of a company in liquidation. In other words, what all has been acquired by the petitioner is property of the Company in liquidation by way of a transfer through sale. It is not even the case of the respondent Department that the petitioner Company acquired the property as a Corporate entity either through merger or amalgamation or by buying the entire equity shares of the company in liquidation. In the case on hand, the petitioner had not purchased the entire unit as a business and thereby, as per the statutory framework petitioner was not liable for discharging the dues of the Company in Liquidation. There is a clear 8 distinction recognized in law with respect to transfer of establishment vis à vis transfer of the property through sale. The stress placed by the learned counsel in Section 17B on the expression '... in any other manner whatsoever ...' would have to be read in conjunction with the preceding words in the Section by applying the well settled principles of interpretation, particularly, the doctrine of 'noscitor e sociis'. In this context, the words preceding the expression '...or in any other manner...' are '... transfers that establishment in whole or in part, by sale, gift, lease, or license...'. In the present case, petitioner has purchased the property and there is no transfer of establishment as envisaged under Section 17B. In that view of the matter, Section 17B has no application to the present set of facts.
8. In Rana Girders Ltd., v. Union of India ((2013) 10 SCC 746), it is well settled that in the case of auction purchases, the statutory liabilities of the erstwhile vendor, would not get attached to the property simplicitor. In the case on hand, petitioner being the auction purchaser, would not be liable for the dues payable by the Company in liquidation and, as such, the distressed action initiated against the petitioner under the impugned notice of attachment of the movable property is unsustainable and is accordingly set aside.
Accordingly, the Writ Petition is allowed. As a sequel, the miscellaneous applications, if any, shall stand closed. There shall be no order as to costs."
This Court has carefully gone through Section 17B of 9 the Act and the aforesaid section starts with the words "where an employer". Meaning thereby, Section 17B of the Act comes into play where the employer transfers an establishment by way of sale, gift, lease or licence or in any other manner, and in those circumstances only, in case of such transfer, the dues can be recovered from the subsequent purchaser.
In the present case, dues were in respect of M/s. Shree Jagannath Strips Limited, which was declared as a sick company and M/s. Shree Jagannath Strips Limited has not at all transferred the establishment to M/s. Shivam Smelters (P) Limited and therefore, the aforesaid provision does not help the appellants.
Another important aspect of the case is that the Company Court while granting permission in respect of the auction of assets of the company in liquidation has categorically held that the financial corporation shall be responsible for payment of workmen dues. Nothing prevented the appellants to file an appropriate application before the Official Liquidator and therefore, because of the lapse on the part of the Recovery Officer/Assistant 10 Provident Fund Commissioner, the writ petitioner cannot be penalised in the manner and method it is being done in the present case. This Court does not find any reason to interfere with the order passed by the learned Single Judge.
The writ appeal is accordingly dismissed. The miscellaneous applications pending, if any, shall stand closed. There shall be no order as to costs.
______________________________________ SATISH CHANDRA SHARMA, CJ ______________________________________ ABHINAND KUMAR SHAVILI, J 30.03.2022 vs