Karnataka High Court
Manager, Vijaya Bank vs Regional Provident Fund Commissioner ... on 19 March, 2003
Equivalent citations: I(2004)BC268, [2003]116COMPCAS613(KAR), ILR2003KAR3381, 2003(6)KARLJ413, (2003)IIILLJ419KANT
Author: K. Ramanna
Bench: K. Ramanna
JUDGMENT S.R. Nayak, J.
1. The Manager, Vijaya Bank, Padubidri Branch, Padubidri, D. K. District, who is the petitioner in W.P. No. 18335 of 1996 (since reported in Manager, Vijaya Bank v. Regional Provident Fund Commissioner [1999] 95 FJR 790 (Karn)) feeling aggrieved by the order of the learned single judge of this court dated February 1, 1999, has preferred this writ appeal.
The learned single judge, by the order under appeal has dismissed the writ petition filed by the appellant.
The events leading to the filing of the writ petition be noted briefly in the first instance and they are as follows : The appellant at the request of the third respondent had sanctioned an open loan cash credit of Rs. 3,00,000 and key loan cash credit of Rs. 6,00,000 to meet the working capital requirements. The third respondent had secured four loans by hypothecation of goods/stocks, etc., and also by the personal guarantee given by the husband of the managing partner of the third respondent. The hypothecated goods/stocks had been insured for a sum of Rs. 12,00,000 with United India Insurance Co. Ltd., Udupi, by the appellant-bank, through the third respondent. It is stated that the premia were paid by the appellant-bank and debited to the cash credit account of the third respondent. It appears the hypothecated goods/stocks stored in the factory premises of the third respondent were destroyed by fire on September 9, 1990. The appellant-bank lodged an insurance claim with United India Insurance Co. Ltd. the third respondent. Since the parties did not agree for any acceptable terms, the dispute was carried on by the third respondent to the Karnataka State Commission for Consumer Redressal under the Consumer Protection Act. The Commission by its order dated January 23, 1995, held that the third respondent is entitled to a sum of Rs. 9,49,168.60 towards principal and interest till the date of payment to it. Having declared so and taking into account the hypothecation agreement between the appellant and the third respondent, the Commission disposed of Complaint No. 23 of 1993 in the following terms :
"In the result, therefore, this complaint is allowed. The opposite party No. 1, United India Insurance Co. is directed to pay a sum of Rs. 9,49,168.60 to opposite party No. 2, Vijaya Bank, Padubidri Branch, Padubidri, to the account of the complainant in the said bank with interest at 15 per cent. per annum from March 19, 1992, till the date of its payment."
In pursuance of the above order of the Commission, the United India Insurance Co. transmitted a sum of Rs. 13,77,624.25 by way of two cheques bearing Nos. 013909 dated March 13, 1995 for Rs. 10,00,000 and 013910 dated March 13, 1995 for Rs. 3,77,624 vide its forwarding letter dated March 15, 1995. The said letter reads as follows :
"Ref : 71200/FCL 120/90 Date : 15-3-1995
The Manager,
Vijaya Bank,
Padubidri,
Udupi Taluk.
Dear Sir,
Re : Complaint No. 23/93 before State Consumer Disputes Redressal
Commission, Bangalore, A/C M/S Akshaya Cashew Industries,
Padubidri Claim No. 120/90.
We are satisfying the award passed by the State Consumer Disputes Redressal Commission. Our cheque bearing No. 013909 dated 13-3-1995 for Rs. 10,00,000 and 013910 dated 13-3-1995 for Rs. 3,77,624 drawn in your favour A/c Akshaya Cashew Industries are enclosed herein.
Please get the enclosed voucher for Rs. 13,77,624 duly discharged by the complainant and counter-signed by you before passing on the credit to their account. Computation of the aggregate amount is as under :
(Rs.) Award 9,49,168.00 Interest at 15 per cent. from 19-3-92 to 15-3-95 4,25,955.65 Costs 2,500.00 13,77,624.25 Rounded off to Rs. 13,77,624"
As could be seen, the interest was calculated by the United Insurance Co., at 15 per cent. for the period from March 19, 1992, to March 15, 1995. Of course, the total sum of Rs. 13,77,624.25 includes costs of Rs. 2,500 also.
When the matter stood thus, the first respondent herein, in the purported exercise of the power conferred under Sub-section (3) of Section 8F of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short the "Act") directed the appellant to pay forthwith a sum of Rs. 30,217.75 by way of demand draft drawn in favour of Regional Provident Fund Commissioner, Mangalore, from out of money being held by the appellant on account of and on behalf of the third respondent. The direction of the first respondent reads as follows :
"Now, therefore, in exercise of the powers conferred on me under Sub-section (3) of Section 8F of the Act, you are hereby directed to pay forthwith Rs. 30,217.75 (rupees thirty thousand two hundred and seventeen and paise seventy-five only) by way of demand draft drawn in favour of the Regional Provident Fund Commissioner, Mangalore, from out of the money being held by you on account of and on behalf of the above said defaulting establishment/employer."
On receipt of the above notice, the appellant by his letter dated February 13, 1995 addressed to the first respondent informed the first respondent that there is no credit balance outstanding in the account of the third respondent. While informing so, the appellant also informed the first respondent that the third respondent had to pay a sum of Rs. 15,00,000 to the appellant-bank towards its liability. This was followed by an affidavit duly sworn to by the manager of the appellant-bank dated June 18, 1996 as required under Section 8F(3)(vi) of the Act which reads as follows :
"AFFIDAVIT I, Sri Krishna M. Shetty, S/o Mynda Shetty, aged about 47 years, resident of Padubidri, do hereby solemnly affirm and state on oath as follows :
That I am the Branch Manager, of Vijaya Bank, Padubidri Branch, Padubidri, D. K. That M/s. Akshaya Cashew Industries, Padubidri, is a constituent and an esteemed customer of Vijaya Bank, Padubidri Branch, to whom various credit facilities were granted by the bank by way of OLCC for Rs. 3,00,000 (rupees three lakhs only) and KLCC for Rs. 6,00,000 (rupees six lakhs only) for its day-to-day operation which it has been making use of.
That the said credit facilities are allowed to the aforesaid cashew industry against the hypothecation/pledge of its raw materials, semi-finished and finished goods strictly in terms of the conditions laid down while granting the said credit facilities.
That, by an order contained in Reference No. KN/MN/ENB/12807/95/559 dated October 30, 1995 of the Regional Provident Fund Commissioner, Mangalore, followed by yet another order in Reference No. KN/MNG/Recovery Cell/277/10-96-97 dated June 5, 1996 of the Recovery Officer, Employees Provident Funds, Sub-Regional Provident Fund Office, P. B. No. 572, Balmatta, Mangalore, purported to have been issued under Section 8F of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, a demand is raised by the authorities on the bank to remit a sum of Rs. 30,217.75 to them by debiting the bank account of M/s. Akshaya Cashew Industry maintained in the bank. This amount is said to be the arrears of provident fund contribution and other charges statutorily due and payable by the aforesaid Akshaya Cashew Industry under the provisions of the Employees' Provident Funds and the Miscellaneous Provisions Act, 1952.
That, by letter No. ROU : AKR/20755/95 dated December 29, 1995, issued by our Regional Office, Udupi, addressed to Mr. S. Raghuram, Regional Provident Fund Commissioner, Sub-Regional Office, Mangalore, that the bank has informed the authorities that on a request from the said cashew industry for certain financial assistance, the bank has sanctioned Rs. 9,00,000 (rupees nine lakhs only) by way of OLCC/KLCC towards its working capital against hypothecation/pledge of goods and as much the said cashew industry is indebted to the bank, under all these loan accounts.
That, on the date of receipt of order dated October 30, 1995 of the Regional Provident Fund Commissioner, Mangalore, and thereafter, the aforesaid cashew industry remained a debtor to the bank and that at no time, the bank is or has due any amount to the cashew industry, nor does it hold any money for or on behalf of the said Akshaya Cashew Industry. Nor does the bank hold any assets of the aforesaid cashew industry as to attract the provisions of the Section 11(2) of the said Employees' Provident Funds and Miscellaneous Provisions Act, 1952. On the other hand, the said cashew industry is due and has been due to the bank to an extent of Rs. 5,94,000 (rupees five lakhs ninety-four thousand only) with interest from April 1, 1995, in all its loan accounts.
That this affidavit is made and executed in accordance with the provision contained in Clause (vi) of Sub-section (3) of Section 8F of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
Sworn at Padubidri, D. K. on this 8th day of June, 1996.
(Krishna Shetty)."
The demand raised by the first respondent was not complied with by the appellant. Since the first respondent has passed the prohibitory order under Section 8F(3) of the Act the appellant-bank being aggrieved by the said action of the first respondent, approached this court by way of Writ Petition No. 18335 of 1996.
The learned single judge having opined that a sum of Rs. 4,25,965.65 awarded by the Commission towards interest and a sum of Rs. 2,500 awarded by the Commission towards cost could not form part of the hypothecated property and, therefore, the first respondent was justified in raising the demand as envisaged under Sub-section (3) of Section 8F of the Act, dismissed the writ petition.
We have heard Sri S. R. Goutham, learned counsel for the appellant-bank and Sri Harikrishna Holla, learned standing counsel for the Provident Fund Commissioner. Having heard learned counsel for the parties, the only question that arises for decision is, whether sums of Rs. 4,25,965.65 and Rs. 2,500 awarded by the Commission towards interest and costs respectively could form part of hypothecated property or not. If answer to this question is in the positive, it cannot be said that the first respondent could not have raised a demand for a sum of Rs. 30,217.75 under Section 8F(3)(i) read with Section 11(2) of the Act. Before proceeding further, it will be beneficial to notice the relevant provisions of the Act which will have bearing in the decision-making. Sub-section (2) of Section 11 of the Act read as follows :
"(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."
Clause (i) of Sub-section (3) of Section 8F undoubtedly makes it very clear that the Commissioner could take steps under the said clause to recover the arrears of the provident fund contribution due from the employer only in the event of he finding that the money in the hands of the person to whom the notice is sent is the money due to the employer or it may, in the course of time, become due to the employer. In other words, the money in respect of which the demand is raised under Clause (i) of Sub-section (3) of Section 8F should be the money due to the employer or it may become due to the employer later. Therefore, in order to apply the provisions of Clause (i) of Sub-section (1) of Section 8F and to sustain the impugned action of the Commissioner, it has to be established that on the date the appellant-bank received the impugned notice issued by the Commissioner, it held the money to an extent of Rs. 30,217.75 due to the employer.
The facts are not in dispute. It is seen from the records that a sum of Rs. 15,00,000 or more was due from the employer to the appellant-bank on the day the appellant-bank received the impugned notice from the Commissioner. This position is very much reflected in the reply of the appellant-bank dated February 13, 1995, and also from the sworn affidavit filed under Clause (vi) of Sub-section (3) of Section 8F of the Act. However, it is the contention of learned counsel for the first respondent that the interest and the costs awarded by the Commission could not be regarded as a part of the hypothecated property and, therefore, the appellant-bank is entitled to lay its claim over the interest and costs awarded by the Commission in terms of the hypothecation agreement. This submission is not acceptable to us. The relevant question is, by the time the appellant-bank received a sum of Rs. 13,77,624.25 from the insurance company, what was the liability of the employer. The liability of the employer in terms of the hypothecation agreement was more than Rs. 15,00,000. If this fact is not in dispute, it is trite, when the appellant-bank received a sum of Rs. 13,77,624.25, it could legitimately and in terms of the right reserved to it under the contract, adjust the sum of Rs. 13,77,624.25 towards the liability of the employer. Therefore, we are at a loss to understand how it could be said that a sum of Rs. 13,77,624.25 received from the insurance company could be regarded as the money due to the employer or may become due to the employer later. In our considered opinion, the stand taken by the appellant-bank by its letter dated February 13, 1995, and the affidavit dated June 18, 1996, is well justified and is in accordance with law. This follows that the impugned action taken by the Commissioner in the purported exercise of power conferred under Section 8F of the Act is without authority of law and cannot be sustained.
Perhaps, realising the difficulty to sustain the contention that the interest and costs could not form part of the hypothecated property, learned counsel drew our attention to the provisions of Sub-section (2) of Section 11 of the Act and would maintain that in the light of the provisions of Sub-section (2), the claim of the first respondent-Department has priority over any claim of the appellant-bank. This submission is not acceptable to us. The provisions of Sub-section (3)(i) of Section 8F and the provisions of Sub-section (2) of Section 11 should be read harmoniously and reasonably. The contribution which the employer is obligated to make under the provisions of the Act could not be fastened on anyone else except as directed by the Act itself. In other words, in enforcing the liability of the employer to pay provident fund contributions, against third parties, it becomes imperative for the court to interpret the statute strictly. If it is so interpreted, it will not leave any doubt in anybody's mind that the Commissioner could raise the demand under Sub-section (3)(i) against a third party only when he finds the money of the employer in the hands of such third party to whom the notice is sent or in the course of time, required money will become due to the employer. It is an established fact that on the date the appellant-bank received the money from the insurance company or the date on which it received the notice issued by the Commissioner under Section 8F(3)(i) of the Act, there was no money in the hands of the bank which was due to the employer. Therefore, in issuing the impugned notice dated March 2, 1995, the Commissioner acted ultra vires the Act.
The Commissioner being a statutory authority, the power to be exercised by him should be traceable to one or the other provisions of the Act, and if the court finds that the particular power exercised by him is ultra vires the Act, the court would be justified in stepping in and nullifying such action. We do not think, we should burden this judgment with case law in that regard.
In conclusion, with great respect, we cannot fall in line with the opinion of the learned single judge. In the result and for the foregoing reasons, the writ appeal is allowed. The order of the learned single judge dated February 1, 1999, passed in W. P. No. 18335 of 1996 is set aside and the proceedings of the Commissioner impugned in the writ petition are quashed, with no order as to costs.