Madras High Court
Essorpe Mills Ltd. vs Central Provident Fund Commissioner on 10 February, 2000
Equivalent citations: [2001]104COMPCAS588(MAD), (2001)IILLJ24MAD
JUDGMENT E. Padmanabhan, J.
1. In this writ petition the petitioner-company prays for the issue of a writ of certiorari calling for the records in respect of the order dated 15-11-1999, passed by the third respondent in C5/TN/CB/3924/Enf/ CBE.V.99 and quash the same.
2. Heard Mr. C.S. Dhanasekaran, the learned counsel appearing for the writ petitioner and of Mr. V. Vibishanan, the learned standing counsel appearing for the respondents. On behalf of the respondents a counter has been filed. With the consent of counsel for either side the writ petition itself is taken up for final disposal.
3. The order impugned is an order of adjudication dated 15-11-1999, passed by the second respondent, who is the competent authority under section 7A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The impugned proceeding is an adjudication proceeding passed by the third respondent in exercise of powers conferred under Section 7A and the dues payable by the writ petitioner for the period from March 1998 to February 1999, in respect of the petitioner's establishment determined on the basis of materials collected by the second respondent and its subordinate.
In fact before the second respondent sufficient opportunity had been afforded to the writ petitioner and on 20-9-1999, the counsel who had appeared for the writ petitioner in the enquiry, accepted the dues arrived at by the second respondent, based upon the enforcement officer's report dated 29-7-1999. The content of the said report has also been accepted by the writ petitioner. In terms of the impugned proceedings a sum of Rs. 17,97,576 is the total contribution due and payable by the petitioner. It is also made clear that the employer would be liable for damages under Section 14B of the Act, for belated remittance of contributions.
4. Mr. Dhanasekaran, the learned counsel for the writ petitioner, contended that the writ petitioner had sustained loss during the last two years and it has approached the BIFR and the said BIFR had just registered the reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 ('the SICA') on 6-9-1999, as Case No. 300 of 1999, and hence when proceedings are pending before the BIFR, no action can be taken by the respondent, or an order of adjudication or order could be passed by the respondents.
5. According to the learned counsel, the proceedings of adjudication passed by the third respondent are illegal, without jurisdiction, as Section 22 of the SICA bars the respondents from taking any action including passing an order of adjudication under section 7A as well as enforcement of the same. It was mainly contended by the learned counsel for the petitioner that Section 22 bars the respondent from taking an action or taking up adjudication or passing an order of adjudication as proceedings are pending before the BIFR.
6. Per contra, Mr. V. Vibishanan, the learned counsel for the respondent contends that Section 22 will not bar the respondent from passing an order of adjudication and what is provided for by the section is taking coercive action against the petitioner or its establishment.
7. In the counter filed on behalf of the respondents, it has been stated that the petitioner has defaulted in payment of provident fund and other contributions for the period from August, 1997 to February, 1998, and an inquiry under section 7A was conducted and the dues were assessed at Rs. 13,27, 209.40 and appropriate adjudication proceedings were passed on 17-3-1999, and a recovery certificate was also issued to the recovery officer on 21-4-1999. An order under section 8F of the Act was also served on the petitioner's bankers on 6-5-1999. When the petitioner was called upon to express its consent for payment of the arrears in instalments, the petitioner had not chosen to avail of the same, nor had it furnished the required bank guarantee.
8. The petitioner defaulted in payment of provident fund and other dues from March, 1998, onwards. Hence, after following the procedures prescribed, the impugned order of assessment has been passed after serving notice on the petitioner. The petitioner was represented by its managing director and a member of the board. At their request, hearing was adjourned on four occasions.
9. After affording sufficient opportunity, the order of adjudication has been passed after considering the entire facts and there had been no dispute about the quantum of contributions payable by the petitioner. The petitioner had produced a letter from the BIFR to the effect that the petitioner's application has been registered in reference as Case No. 300 of 1999 on 9-9-1999. Excepting registration, there was nothing to indicate that any further proceedings had been proceeded with by the said BIFR, or a proceeding is pending consideration, nor any direction has been issued so far.
10. According to the respondent, passing an order of adjudication under Section 7A is not a distress action, which is barred by or prohibited by Section 22 of the SICA, as the said provision merely restricts distress action or proceedings for recovery of the amount. The impugned proceeding is only an adjudication proceeding and not a distress action nor an enforcement of the adjudication proceedings.
11. In respect of an earlier recovery order, the petitioner filed W.P. No. 12078 of 1999 and after hearing either side, this Court ordered payment of the amount outstanding in instalments, which instalment the petitioner had paid up to 30-11-1999. The request for modification of the earlier order passed in W.P, No. 12078 of 1999, was dismissed. It is pointed out by the respondent that the petitioner's attempt is to delay the statutory payment and liability. It is further contended that proceedings passed under Section 7A could be challenged by preferring an appeal under Section 7A of the Act. Section 22 is not a bar to pass the impugned proceedings and the petitioner cannot also invoke the provisions of Section 22. The respondent prays for dismissal of the writ petition.
The points that arise for consideration are :
"(i) When a case has been registered under the Sick Industrial Companies (Special Provisions) Act, 1985, whether the respondent could pass an order of adjudication under Section 7A of the Employees' Provident Funds and Miscellaneous Provisions Act ? and
(ii) Whether the writ petition is maintainable without exhausting the remedy of statutory appeal ?"
Taking up the second point for consideration, it has been rightly pointed out that an order of adjudication passed under Section 7A is appealable under Section 7-A, which is a statutory remedy of appeal and it is an efficacious remedy. When the remedy of appeal is available and when it is efficacious, this Court will not normally interfere with the impugned adjudication proceedings.
It is not the contention of the learned counsel for the petitioner that the adjudication proceeding was behind the back of the petitioner nor is it the contention that no opportunity was afforded to the petitioner. The very impugned proceedings would show that sufficient opportunity had been afforded to the petitioner and the quantum of contribution payable was arrived at on the materials collected and admitted by the writ petitioner. That being so, the petitioner, even assuming that the impugned proceedings are liable to be challenged has to move the appellate forum constituted under Section 7-I. Hence on this point this Court holds that the writ petition is liable to be rejected and the petitioner is directed to move appeal under Section 7-I.
12. Mr. Dhanasekaran, the learned counsel for the petitioner relied upon Section 22 in support of his contention that no action, nor an order of adjudication could be passed by the respondents when once a reference has been registered in respect of the petitioner's industrial undertaking and all proceedings including adjudication are barred.
13. Per contra, it is contended by Mr. V. Vibishanan, the learned counsel appearing for the respondents that Section 22 of the SICA is not a bar to passing orders of adjudication nor does Section 22 suspend the operation of the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, or the liability to contribute, and what is disabled or prohibited under Section 22 being enforcement or recovery of money due from the petitioner by coercive action alone shall not be resorted to by way of execution, distress or the like. What is relied upon is sub-section (1) of Section 22. Section 22 reads thus :
"22. Suspension of legal proceedings, contracts, etc.--(I) Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money for the enforcement of security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority."
This point is no longer res integra and Section 22 was the subject matter of consideration before the Apex Court in a number of cases.
14. In Maharashtra Tubes Ltd v. State Industrial & Investment Corporation of Maharashtra Ltd [1993] 78 Comp. Cas. 803 the scope of Section 22(1) was considered by Their Lordships of the Supreme Court, A.M. Ahmadi, J., as he then was, speaking for the Bench after analysing the entire statutory provisions, scheme and the object of the enactment held that the expression 'proceedings' in Section 22(1) must be widely considered and held thus :
"...The basic idea is to revive the sick units, if necessary, by extending further financial assistance after a thorough examination of the units by experts and it is only when the unit is found to be no more capable of rehabilitation, that the option of winding up may be resorted to. It is for that reason that Section 22(1) provides that during the pendency of (i) an inquiry under Section 16, or (ii) preparation or consideration of a scheme under Section 17, or (iii) an appeal under Section 25, no proceedings for winding up of the concerned industrial company or for execution, distress or the like shall lie or be proceeded with in relation to the properties of that concern unless the BIFR/Appellate Authority has consented thereto...."
15. In Deputy CTOv. Corromandal Pharmaceuticals [1997] 89 Comp. Cas. 1 14 SCL 154 (SC), while considering the language of Section 22 as well as the object behind the section. Their Lordships held thus :
"...In order to see that the scheme is successfully implemented and no impediment is caused to the successful carrying out of the scheme, the Board is enabled to have a say when the steps for recovery of the amounts or other coercive proceedings are taken against the Sick Industrial Company which, during the relevant time, acts under the guidance/ control or supervision of the Board (BIFR). Any step for execution, distress or the like against the properties of the industrial company or other similar steps should not be pursued, which will cause delay or impediment in the implementation of the sanctioned scheme. In order to safeguard such state of affairs, an embargo or bar is placed under Section 22 of the Act against any step for execution, distress or the like or other similar proceedings against the company without the consent of the Board or, as the case may be, the Appellate Authority. The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme...." (p. 10)
16. In Gram Panchayat v. Shree Vallabh Glass Works Ltd [1991]71. Comp. Cas. 169 (SC) it has been held thus :
"Section 22(1) provides that, in case the enquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration by the Board or any appeal under Section 25 is pending, then certain proceedings against the Sick Industrial Company are to be suspended or presumed to be suspended. The nature of the proceedings which are automatically suspended are : (1) winding up of the industrial company, (2) proceedings for execution, distress or the like against the properties of the Sick Industrial Company, and (3) proceedings for the appointment of a receiver. The proceedings in respect of these matters could, however, be continued against the Sick Industrial Company with the consent or approval of the Board or of the Appellate Authority, as the case may be." (p. 172)
17. In Tata Davy Ltd. v. State of Orissa [1998] 93 Comp. Cas., [1997] 14 SCL 81 the Apex Court held thus :
'Vallabh Glass Works Ltd. [1991]71 Comp. Cas. 169 (SC) judgment covers these appeals. Arrears of taxes and the like due from sick industrial companies that satisfy the conditions set out in Section 22(1) of the Central Act cannot be recovered by coercive process unless the said Board gives its consent thereto.
The Central Act is enacted under entry 52 of List 1 of the Seventh Schedule. The said entry 52 empowers Parliament to legislate in respect of 'Industries' the control of which by the Union is declared by Parliament by law to be in the 'public interest'. The Central Act declares that it is 'for giving effect to the policy of the State towards securing the principles specified in Clauses (b) and (c) of Article 39 of the Constitution' namely 'that the ownership and control of the material resources of the community are so distributed as best to subserve the common good' and 'that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment'. The Central Act does not impair or interfere with the rights of the States to legislate with respect to sales tax under entry 54 of List II of the Seventh Schedule. In the larger interest of the industrial health of the nation, Section 22 of the Central Act requires all creditors seeking to recover their dues from the sick industrial companies in respect of whom an inquiry under Section 16 is pending or a scheme is under preparation or consideration or has been sanctioned, to obtain the consent of the said Board to such recovery. If such consent is not secured and the recovery is deferred, the creditors' remedy is protected for the period of deferment is, by reason of subsection (5) of Section 22, excluded in the computation of the period of limitation. The words 'any other law' in Section 22 cannot, therefore, be read in the manner suggested by learned counsel for the respondents.
The Deputy CTO v. Corromandal Pharmaceutical [1997] 89 Comp. Cas. 1, 11 (SC), judgment dealt With a sick industrial company which was enabled to collect amounts like sales tax after the date of the sanctioned scheme. This Court said, 'such amounts like sales tax, etc. which the sick industrial company is enabled to collect after the date of the sanctioned scheme, legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act'. It added that the issue that had arisen before it had not arisen in the case of Vallabh Glass Works Ltd. [1991] 71 Comp, Cas. 169 (SC). It did not appear therefrom or from any other decision of this Court or of the High Courts 'that in any one of them, the liability of the sick company dealt with therein itself arose, for the first time after the date of the sanctioned scheme. At any rate, in none of those cases a situation arose whereby the sick industrial unit was enabled to collect tax due to the revenue from the customers after the sanctioned scheme but the sick unit simply folded its hands and declined to pay it over to the revenue, for which proceedings for recovery had to be taken'. Clearly, the facts in Deputy CTO v. Corromandal Pharmaceuticals [1997] 89 Comp. Cas. 1(SC) differ from the facts of Vallabh Glass Works Ltd. 's case [1991] 71 Comp. Cas. 169 (SC) and those before us. The reference to Corromandal Pharmaceutical [1997] 89 Comp. Cas. 1 (SC) is, therefore, inapposite.
We hold, in the premises, that the respondents cannot recover the aforementioned arrears of sales tax from the appellants without first seeking the consent of the said Board in this behalf." (p. 5)
18. In the light of the said catena of pronouncements, the contention advanced by Mr. Dhanasekaran, the learned counsel for the petitioner cannot be sustained and the contentions advanced by Mr. V. Vibishanan, the learned counsel, appearing for the respondents have to be sustained. What is prohibited under Section 22(1) is the enforcement and not the passing of an order of adjudication under Section 7A of the Act? The adjudication proceedings under Section 7A have not been barred or prohibited, nor the contributions to be paid under the Employees' Provident Funds and Miscellaneous Provisions Act is suspended, and what is provided for in Section 22(1) being, resorting to coercive or distress proceedings to implement the adjudication proceedings. On this ground the impugned proceedings are not liable to be invalidated.
19. It is fairly admitted that so far no distress action or coercive proceedings or the like had been taken to enforce the adjudication proceedings. It is fairly stated by Mr. V. Vibishanan, the learned counsel for the respondents that when the matter is pending before the BIFR, the respondent will not take coercive steps or distress action against the assets of the company for the enforcement of law arrears except by following the procedure prescribed by the said Section 22.
20. The section makes it clear that no proceedings for execution, distress or the like against any of the properties of the petitioner-company shall be taken or be proceeded with except with the consent of the Board. Thus merely because the petitioner had moved the BIFR, it cannot be said that no order of adjudication could be passed against the petitioner under Section 7A. Hence the first contention raised by the petitioner also fails.
21. It is needless to add that as fairly stated by the learned counsel for the respondent, the respondent will not take any distress or coercive proceedings to recover the amount, with respect to which an order of adjudication has been passed under Section 7A. But, it will be open to the respondents to take any other action as may be open to the respondents in terms of the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, as the liability to contribute has not been suspended under the SICA.
22. Hence the writ petition is dismissed. The parties shall bear their respective costs. Consequently, connected W.M.P. is also dismissed.