Karnataka High Court
M/S Bajaj Finance Ltd vs The Recovery Officer on 28 October, 2022
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WP NO. 5259 OF 2018
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF OCTOBER, 2022
BEFORE
THE HON'BLE MR. JUSTICE E.S.INDIRESH
WRIT PETITION NO.5259 OF 2018 (GM-RES)
BETWEEN:
M/S BAJAJ FINANCE LTD
REGISTERED OFFICE AT MUMBAI-PUNE ROAD
AKURDI, PUNE-411035
BRANCH OFFICE AT 801 TO 808
8TH FLOOR PRESTIGE TOWERS
RESIDENCY ROAD
BENGALURU-560025
REP. ITS OFFICER AND POWER OF ATTORNEY
HOLDER MS VEENA Y M
...PETITIONER
(BY SRI. MAHABALESHWAR G C., ADVOCATE)
AND:
1. THE RECOVERY OFFICER
OFFICE OF THE RECOVERY OFFICE
Digitally signed by
LAKSHMINARAYAN N
EMPLOYEES PROVIDENT FUND ORGANISATION
Location: High Court BHAVISHYA NIDHI BHAVAN
of Karnataka
ANNAPOORNESHWARI COMPLEX
SY NO.37/1, 6TH MAIN
SINGASANDRA
BENGALURU -560068
REP BY PF COMMISSIONER AND RECOVERY OFFICER
MR MOHIT BANSAL
2. MR D RAVI KUMAR
CHAIRMAN AND MANAGING DIRECTOR
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WP NO. 5259 OF 2018
M/S ACROPETAL TECHNOLOGIES LTD
MANTRI ELEGANCE, FLAT NO.E 1201
N PALYA, BANNERGHATTA RAOD
BENGALURU -560076
...RESPONDENTS
(BY SRI. SHWETHA ANAND, ADVOCATE FOR R1;
R2 SERVED AND UNREPRESENTED)
THIS WRIT PETITION IS FILED ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
SALE NOTICE DATED 04.01.2018 ISSUED BY R-1 AS PER
ANNEXURE-E; DIRECT THE R-1 TO STOP FROM CONDUCTING
THE SALE IN PURSUANCE NOTICE DATED 04.01.2018
PRODUCED AS PER ANNEXURE-E; AND ETC.
THIS PETITION COMING ON FOR ORDERS THIS DAY THE
COURT MADE THE FOLLOWING:
ORDER
In this writ petition, the petitioner has questioned the sale notice dated 04th January, 2018 issued by the respondent No.1 produced as Annexure-E to the writ petition, inter alia seeking direction to the first respondent-Organization to stall the sale in pursuance of notice dated 04th January, 2018.
2. The case of the petitioner is that the petitioner is a non-banking Financial Institution registered under the provisions of the Banking Regulation Act and also under the provisions of Companies Act, 1956. The petitioner-Institution is working under the name and style as Bajaj Auto Finance -3- WP NO. 5259 OF 2018 Limited and thereafter, renamed as Bajaj Finance Limited. The petitioner-Institution is licensed by the Reserve Bank of India to engage in the business of advancing various loans to its customers. The respondent No.2 herein and one Mrs. Malini Reddy had availed financial assistance from the petitioner- Institution and thereby the petitioner-Institution has released Rs.1.73 crore by creating simple mortgage by Deposit of title deeds in respect of the schedule property as per Annexure-B and C to the writ petition. The respondent No.2 had executed Loan Agreement, On-demand Promissory Note and Power of Attorney in favour of the petitioner-Institution towards the loan transaction. It is further stated that the respondent No.2 has committed default in repayment of loan and accordingly, the loan account was declared as Non-performing Asset (NPA) by the petitioner-Institution. The petitioner-Institution, surprisingly, came to know about the publication of notice of sale of the schedule property which has been mortgaged in lieu of availing loan by the respondent No.2 herein and as such, has presented this writ petition challenging the said public notice dated 04th January, 2018.
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WP NO. 5259 OF 2018
3. On service of notice, the respondent-Organization entered appearance and filed detailed statement of objection contending that the respondent No.1-Organisaion is having first charge over the schedule property and therefore, contended that public notice came to be issued auctioning the property in question, pursuant to default in making payment towards the statutory provident fund and therefore, contended that the petition deserves to be dismissed in limine.
4. Heard Sri Mahabaleshwar G.C., learned counsely appearing for the petitioner and Smt. Shwetha Anand, learned counsel appearing for respondent No.1. Respondent No.2 served, remained absent.
5. Sri Mahabaleshwar, learned counsel appearing for the petitioner contended that property in question is the personal property of the respondent No.2 and the petitioner is having first charge over the schedule property as the respondent No.2 has created first charge over the said property in favour of the petitioner-Institution by availing loan to an extent of Rs.1.73 crore and therefore, he contended that the respondent No.1 herein cannot proceed with the personal -5- WP NO. 5259 OF 2018 property of the respondent No.2 herein whereby the petitioner- Institution is having the first charge over the same. In this regard, he relied upon the judgment of the Hon'ble Apex Court in the case of PUNJAB NATIONAL BANK v. UNION OF INDIA AND OTHERS reported in (2022)7 SCC 260.
6. Per contra, Smt. Shwetha Anand, learned counsel appearing for the respondent No.1 contended that the statutory dues prevail over the charge created by the respondent No.2 in favour of the petitioner is concerned. She further contended that the respondent No.2 is an entity covered by Employees Provident Fund and Miscellaneous Provisions Act, 1952 (for brevity hereinafter referred to as "Act") and as the respondent No.2 had failed to comply with provision 11(2) of the Act, the respondent No.1 is having first charge over the schedule property and therefore, sought to sustain the impugned public notice. In this regard, learned counsel appearing for the respondent No.1 relied upon the judgment of the Hon'ble Apex Court in the case of MAHARAHTRA STATE CO-OPERATIVE BANK LIMITED v. ASSISTANT PROVIDENT FUND COMNMISSIONR AND OTHERS reported in (2009)10 SCC 123; and in the case of -6- WP NO. 5259 OF 2018 EMPLOYEES PROVIDENT FUND COMMISSIONER v. OFFICIAL LIQUUDATOR OF ESSKAY PHARMACEUTICALS LIMITED reported in (2011)10 SCC 727.
7. In the light of the submissions made by the learned counsel appearing for the parties, it is not in dispute that the second respondent is a Chairman and Managing Director of M/s. Acropetal Technologies Limited, which is an entity covered under the provisions of Employees Provident Fund Organisation. The respondent No.2, availed loan from the petitioner-Institution herein by mortgaging the schedule property and further executed depositing of title deeds in favour of the petitioner-Institution. On the other hand, upon default of repayment of loan in favour of respondent No.1- organization, the respondent No.1 has initiated recovery proceedings against the respondent No.2 herein culminating in issuance of sale notice dated 04th January, 2018. The petitioner-Institution sought to challenge the said sale notice dated 04th January, 2018.
8. In the backdrop of these facts on record, the core question to be answered in this writ petition is "Whether the -7- WP NO. 5259 OF 2018 dues recoverable by the first respondent will have priority over the charge created in favour of the petitioner-Institution?"
9. In this regard the relevant provision to be considered is Section 11(2) of the Act. The same reads thus:
"11. Priority of payment of contributions over other debts.-
(1) xxx xxx xxx (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 o0n 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."
(underlining by me)
10. Section 11(2) of the Act is a substantial provision to declare that provident fund dues shall have first charge on the assets of the establishment and shall be paid in priority over other debts. The object of Section 11(2) of the Act is to protect the terminal social security dues of workmen and is a social legislation, which needs to be given higher priority in terms of -8- WP NO. 5259 OF 2018 the language employed in Section 11 of the Act. The intention of the Parliament is to safeguard the interest of the workmen taking into consideration the provisions contained under Articles 38 and 43 of the Constitution of India. The intention of the Act is to protect the interest of the workers employed in factories and other establishments who had made significant contribution in economic growth of the country and therefore, a legislation is made for their benefit must receive a liberal and purposive interpretation keeping in view the Directive Principles of State Policy contained under Part IV of the Constitution of India. In this aspect, it is relevant to cite the judgment of the Hon'ble Apex Court in the case of MAHARASHTRA STATE CO- OPERATIVE BANK LIMITTED (supra). The Hon'ble Apex Court, in the said case, taking into consideration the provisions contained under Employees Provident Fund Act, at paragraphs 31 and 32 of the judgment, has observed thus:
"31. We shall now consider the question whether the provision contained in Section 11(2) of the Act operates against other debts like mortgage, pledge, etc. Answer to this question is clearly discernible from the plain language of Section 11. The priority given to the dues of provident fund etc. in Section 11 is not hedged with any limitation or -9- WP NO. 5259 OF 2018 condition. Rather, a bare reading of the section makes it clear that the amount due is required to be paid in priority to all other debts. Any doubt on the width and scope of Section 11 qua other debts is removed by the use of expression `all other debts' in both the sub- sections. This would mean that the priority clause enshrined in Section 11 will operate against statutory as well as non-statutory and secured as well as unsecured debts including a mortgage or pledge. Sub-section (2) was designedly inserted in the Act for ensuring that the provident fund dues of the workers are not defeated by prior claims of secured or unsecured creditors. This is the reason why the legislature took care to declare that irrespective of time when a debt is created in respect of the assets of the establishment, the dues payable under the Act would always remain first charge and shall be paid first out of the assets of the establishment notwithstanding anything contained in any other law for the time being in force. It is, therefore, reasonable to take the view that the statutory first charge created on the assets of the establishment by sub-section (2) of Section 11 and priority given to the payment of any amount due from an employer will operate against all types of debts.
21. The view we have taken on the interpretation of Section 11(2) is in tune with a series of decisions of this Court in which the provisions contained in different statutes giving priority to the dues of the State and workers have been interpreted. In the first place, we may refer to some decisions relating to dues of the State."
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WP NO. 5259 OF 2018
11. In the case of ESKAY PHARMACEUTICALS LTD (supra), the Hon'ble Apex Court at paragraph 29 of the judgment, observed thus:
"29. The question whether first charge created by taxing statutes enacted by State legislatures will prevail over the debts due to secured creditors was considered by a three Judge Bench in Central Bank of India v. State of Kerala (supra) and answered in affirmative. In that case, this Court was called upon to consider whether the first charge created on the property of the dealer by the legislations enacted by State legislatures for levy and collection of sales tax would prevail over the debts due to banks, financial institutions and other secured creditors, which could be recovered under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and/or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Court referred to the relevant provisions contained in the DRT Act, the Securitisation Act and Sales Tax legislations of different States as also Section 14A of the Workmen's Compensation Act, 1923, Section 11 of the EPF Act, Section 74 of the Estate Duty Act, 1953, Section 25 of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, 1958, Section 529A of the Companies Act, 1956, Section 46B of the State Financial Corporations Act, 1951 and observed:
"112. Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a
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WP NO. 5259 OF 2018 secured creditor to enforce security interest vis-à-vis Section 69 or Section 69-A of the Transfer of Property Act. In terms of that sub-section, a secured creditor can enforce security interest without intervention of the court or tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a Receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of the Narasimham Committee's Second Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act.
113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis- à-vis other mortgagees who could exercise rights under Section 69 or 69-A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38-C of the Bombay Act and Section 26-B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Sub-section (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor.
114. By enacting various provisos to sub-section (9) of Section 13, the legislature has ensured that priority given to the claim of workers of a company in liquidation under Section 529-A of the Companies Act, 1956 vis-`-vis the secured creditors like banks is duly respected. This is the reason why first of the five unnumbered provisos to Section 13(9) lays down that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be
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WP NO. 5259 OF 2018 distributed in accordance with the provisions of Section 529-A of the Companies Act, 1956. This and other provisos do not create first charge in favour of the worker of a company in liquidation for the first time but merely recognise the existing priority of their claim under the Companies Act. It is interesting to note that the provisos to sub- section (9) of Section 13 do not deal with the companies which fall in the category of borrower but which are not in liquidation or are not being wound up.
115. It is thus clear that provisos referred to above are only part of the distribution mechanism evolved by the legislature and are intended to protect and preserve the right of the workers of a company in liquidation whose assets are subjected to the provisions of the Securitisation Act and are disposed of by the secured creditor in accordance with Section 13 thereof.""
12. In that view of the matter, I my considered opinion, the claim made by the respondent No.1-oganisation, is having priority/first charge over the schedule properties as against the charge claimed by the petitioner-Institution. Though the learned Counsel for the petitioner-Institution has relied upon the judgment in the case of PUNJAB NATIONAL BANK (supra), however, the proceedings in the said case is relating to the provisions contained under SARFAESI Act, 2002 with that of Section 11(e) of Central Excise Act and the social legislation like Employees Provident Fund Organisation is not a party to the said proceedings. In that view of the matter, the
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WP NO. 5259 OF 2018 respondent No.1 is having a first charge over the schedule property to sell the schedule property in public auction in terms of sale notice dated 04th January, 2018. In the result, petition fails and accordingly dismissed.
SD/-
JUDGE LNN List No.: 1 Sl No.: 27