IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 07.06.2011 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.NOs.11177 and 23748 of 2008 and M.P.NOS.1 AND 1 OF 2008 Indian Overseas Bank, Salem Main Branch, rep by its Chief Manager, 6/671,Car Street, Salem. .. Petitioner in both writ petitions Vs. 1.Employees' State Insurance Corporation, CIG Road, New Delhi-110 002. rep by its Director General. 2.The Recovery Officer, Employees State Insurance Corporation, Panchdeep Bhavan, 143, Sterling Road, Nungambakkam, Chennai-104. 3.V.Balakrishnan Recovery Officer, Employees State Insurance Corporation, Panchdeep Bhavan, 143,Sterling Road, Nungambakkam, Chennai-104. 4.V.S.Murugan, Proprietor, M/s.Haritex, No.63,Patel Road, Ram Nagar, Coimbatore-641 009. 5.Jawahar Mills Ltd., rep by its Managing Director No.64, Nehru Nagaram, Salem-5. 6.The Asst. General Manager, Deposit Accounts Department, Reserve Bank of India, Fort Glacis, 16,Rajaji Salai, Chennai-1. .. Respondents in
W.P.No.11177 of 2008
1.The Employees’ Provident Fund Organisation,
Sub Regional Office,
P.J.Plaza,
Swarnapuri,
Salem-4.
2.The Assistant Provident Fund Commissioner
and Recovery Officer,
The Office of the Employees’ Provident Fund
Organixation,
Sub Regional Office,
P.J.Plaza,
Swarnapuri, Salem-4.
3.V.S.Murugan,
Proprietor, M/s.Haritex,
No.63, Patel Road,
Ram Nagar, Coimbatore -641 009.
4.Jawahar Mills Ltd.,
rep by its Managing Director,
No.64,Nehru Nagaram,
Salem-5. .. Respondents in
W.P.No.23748 of 2008
W.P.No.11177 of 2008 is preferred under Article 226 of the Constitution of India praying for the issue of a writ of certiorari to call for the records relating to the order bearing No.TN/RECY/51-5613-11, dated 31.3.2008 on the file of the second respondent and to quash the same.
W.P.No.23748 of 2008 is preferred under Article 226 of the Constitution of India praying for the issue of a writ of certiorari to call for the records relating to the order bearing No.TN/SRO/SLM/131/Recovery/2008, dated 28.08.2008 on the file of the second respondent and to quash the same.
For Petitioner : Mr.F.B.Benjamin George
For Respondents : Mrs.S.Jayakumari for ESI
for RR1 to 3 in WP.No.11177 of 2008
Mr.M.Radhakrishnan for RR1 and 2
in W.P.No.23748 of 2008
Mr.Su.Srinivasan for R-4 in WP.11177 of 2008
and for R-3 in W.P.23748 of 2008
No appearance for R-6 in W.P.11177 of 2008
– – – –
COMMON ORDER
Both the writ petitions came to be posted before this Court on being specially ordered by the Hon’ble Chief Justice vide order dated 4.1.2011.
2.Heard the arguments of learned counsel for both sides. In both the writ petitions, the petitioner is the Indian Overseas Bank represented by its Chief Manager. The first writ petition is filed challenging the order dated 31.3.2008 on the file of the second respondent Recovery Officer, ESI Corporation. By the impugned order, the ESI Corporation by exercise of power under Section 45-G of the ESI Act had ordered that M/s.Jawahar Mills Ltd., Salem was having dues to the corporation. It was sought to be purchased by one M/s.Haritex, who also gave bank guarantee by depositing Rs.1 Crore with the petitioner Bank. The guarantee was given by the purchaser towards ESI and PF dues. When they failed to pay dues to the Corporation, the Indian Overseas Bank was directed to pay out of the bank guarantee of Rs.1 Crore, a sum of Rs.37,09,722/- towards ESI dues. The petitioner bank aggrieved by the said order has filed the first writ petition. The writ petition was admitted on 29.4.2008. Pending the writ petition, this court had granted stay. It was observed that since the bank guarantee has been handed over by the purchaser to the Bank, it was always open to the Recovery Officer to encash the bank guarantee. Hence the attachment of property of the mills was stayed. On notice from this court, on behalf of respondents 1 to 3, a counter affidavit, dated 20.8.2008 has been filed.
3.Even while that writ petition is pending, the petitioner Bank came up with the second writ petition with W.P.No.23748 of 2008, seeking to challenge an another order dated 28.08.2008 passed by the PF department. In that order, the PF department had informed the bank that M/s.Haritex, Coimbatore was permitted to be the purchaser only on paying statutory dues and the dues towards workmen. Further, a division bench in W.A.No.50 of 2007 had directed the purchaser Haritex to give a bank guarantee to an extent of Rs.1 Crore towards PF and ESI claims. Already the purchaser had furnished the bank guarantee issued by M/s.South Indian Bank, Coimbatore to the Bank in lieu of the statutory dues. The PF department had already issued notice of attachment of properties to an extent of Rs.2,38,40,386/- and including damages and interest, it worked out to Rs.3,00,53,850/-. The purchaser has paid only Rs.98,69,032/- and still there was balance of Rs.1,64,70,124/- as arrears. The purchaser even after confirmation of sale did not remit the dues. Hence the PF department had requested to invoke the bank guarantee and to honour the claim. In that writ petition, on 26.09.2008 notice was directed to be served on the respondents and status quo was directed to be maintained. Subsequently, on 29.4.2009, the status quo order was directed to be continued until further orders.
4.The contention of the bank in both the writ petitions was that the Indian Overseas Bank is holding the bank guarantee of Rs.1 Crore issued by M/s.South Indian Bank, Coimbatore on account of purchaser of M/s.Jawahar Mills. The said bank guarantee is given as per the orders of this court and in trust for the benefit of various claimants. The said bank guarantee can be invoked only by the order of this court. The order of attachment made against the bank account was clearly illegal.
5.However, both PF and ESI Departments had clearly informed that they have prior charge over the properties of M/s.Jawahar Mills and the purchaser of the said mill is bound to honour the past dues in terms of the provisions of both enactments. The bank is possessing the bank guarantee given by the purchaser, which is for lawful dues payable to both departments. They have also got prior charge over the amount. If the petitioner bank is not willing to pay the amount, there is no other option than to proceed against the bank. The departments both PF and ESI are entitled to invoke the executive machineries provided under the Act.
6.In both the cases, it has to be seen that whether the notices issued by the PF and ESI authorities can be challenged in a writ petition under Article 226 of the Constitution?
7.Even though the bank is a third party to the claims, but since they are in possession of the bank guarantee furnished towards dues payable to the departments, the bank is entitled to be proceeded with for the amounts due to the PF and ESI departments. The petitioner cannot invoke the writ jurisdiction of this court under Article 226 of the Constitution to forestall the recovery of the amount from the mills. Already attachments have been made against the properties of the mill. It can be sold in the auction for the purpose of realising the dues to PF and ESI departments. If the purchaser, by duping every one, attempted to enter into the mill using the court order as a shield and in these circumstances, the bank guarantees given towards payment of dues are held by the petitioner bank, the bank can also be proceeded with by the authorities. If the petitioner bank has any claim over the property, that claim is only subordinate to the claims payable to the PF and ESI departments.
8.The question of superior claim of PF and ESI departments over the contractual claim of the bank came to be considered by the Supreme Court vide its judgment in Maharashtra State Cooperative Bank Ltd. v. Provident Fund Commissioner reported in (2009) 10 SCC 123. The Supreme Court in paragraphs 62 to 69 of its judgment had observed as follows:
“62. In the light of the above dictionary and legal meanings of the word assets and jurisprudential concept of the word property, it has to be seen whether the sugar bags pledged with the appellant Bank constituted assets of the establishment for the purpose of Section 11(2) of the Act. We have already held that even though symbolic custody of the sugar bags was given to the appellant Bank as security for repayment of loan, etc., the Sugar Mills continued to be owner thereof. In other words, the sugar bags pledged with the appellant Bank continued to be movable property i.e. assets of the establishment, which could be attached and sold by the Recovery Officer in terms of Section 8-B or by adopting alternative modes of recovery enumerated in Section 8-F.
63.At the cost of repetition, it is apposite to mention that Section 11 is declaratory in nature. Sub-section (2) thereof declares that any amount due from an employer shall be deemed to be first charge on the assets of the establishment and shall be paid in priority to all other debts. For recovery of the amount due from an employer which is treated as arrear of land revenue, the Recovery Officer or any other authorised officer has to take recourse to the provisions contained in Section 8 read with Sections 8-B and 8-F. The recovery can be effected by attachment or sale of the movable or immovable property of the establishment or, as the case may be, the employer, or by arrest of the employer and his detention in prison or by appointing a Receiver for the management of the movable or immovable properties of the establishment or, as the case may be, the employer or by taking action in the manner laid down in the Third Schedule to the Income Tax Act, 1961.
64.The judgment in Transcore v. Union of India5 on which reliance has been placed by Shri Desai, does not have any bearing on any of the facets of the question raised in these appeals. In para 62 of that judgment, the Court merely referred to Snells Principles of Equity. In para 73, the Court explained the distinction between symbolic and physical possession and observed that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 basically deals with the securities by which the creditor obtains ownership of or interest in the property concerned i.e. mortgages and the securities under which the secured creditor, namely, the bank/financial institution obtains interest in the property concerned.
65.We shall now deal with the last argument of the learned Senior Counsel for the appellant Bank that the interest payable in terms of Section 7-Q and damages imposed under Section 14-B of the Act cannot be treated as first charge on the assets of the establishment payable in priority to all other debts within the meaning of Section 11(2).
66.Section 11 gives statutory priority to the amount due from the employer vis-`-vis all other debts. Clause (a) of sub-section (1) of Section 11 is applicable to cases where an employer is adjudicated insolvent or, being a company, an order of its winding up is made. In that situation, the amount due 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 14-B, accumulations required to be transferred under Section 15(2) or any other charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme. Clause (b) is applicable to cases where the amount is due from the employer in relation to exempted establishment in respect of any contribution to the provident fund or any insurance fund insofar it relates to exempted employees under the rules of provident fund or any insurance fund, any contribution payable by him towards the Pension Fund under Section 17(6), damages recoverable under Section 14-B or any charges payable by him to the appropriate Government under the Act or under any of the conditions specified in Section 17. This sub-section then lays down that such amount shall 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. Sub-section (2) lays down that any amount due from the employer whether in respect of the employees contribution deducted from the wages of the employee or the employers contribution shall be deemed to be the first charge on the assets of the establishment, and shall be paid in priority to all other debts.
67.The expression any amount due from an employer appearing in sub-section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub-section (1) of Section 11 and Sections 7-A, 7-Q, 14-B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the mandate of Section 7-Q. Likewise, default on the employers part to pay any contribution to the Fund can visit him with the consequence of levy of damages.
68.As mentioned earlier, sub-section (2) was inserted in Section 11 by Amendment Act 40 of 1973 with a view to ensure that payment of provident fund dues of the workers are not defeated by the prior claims of the secured and/or of the unsecured creditors. While enacting sub-section (2), the legislature was conscious of the fact that in terms of existing Section 11 priority has been given to the amount due from an employer in relation to an establishment to which any scheme or fund is applicable including damages recoverable under Section 14-B and accumulations required to be transferred under Section 15(2). The legislature was also aware that in case of delay the employer is statutorily responsible to pay interest in terms of Section 17. Therefore, there is no plausible reason to give a restricted meaning to the expression any amount due from the employer and confine it to the amount determined under Section 7-A or the contribution payable under Section 8.
69.If interest payable by the employer under Section 7-Q and damages leviable under Section 14 (sic Section 14-B) are excluded from the ambit of expression any amount due from an employer, every employer will conveniently refrain from paying contribution to the Fund and other dues and resist the efforts of the authorities concerned to recover the dues as arrears of land revenue by contending that the movable or immovable property of the establishment is subject to other debts. Any such interpretation would frustrate the object of introducing the deeming provision and non obstante clause in Section 11(2). Therefore, it is not possible to agree with the learned Senior Counsel for the appellant Bank that the amount of interest payable under Section 7-Q and damages leviable under Section 14-B do not form part of the amount due from an employer for the purpose of Section 11(2) of the Act.”
9.In view of the authoritative pronouncement of the Supreme Court on the very same issue, the attempt by the bank to forestall the recovery by the PF and ESI departments is misconceived. The long arm of the court cannot go to the rescue of the bank, who do not have any legal or statutory right to thwart the impugned proceedings. Hence both the writ petitions will stand dismissed. However, there will be no order as to costs. Consequently, connected miscellaneous petitions stand closed.
07.06.2011
Index : Yes
Internet : Yes
vvk
To
1.The Director General.
Employees’ State Insurance Corporation,
CIG Road,
New Delhi-110 002.
2.The Recovery Officer,
Employees State Insurance Corporation,
Panchdeep Bhavan,
143, Sterling Road,
Nungambakkam, Chennai-104.
3.The Employees’ Provident Fund Organisation,
Sub Regional Office,
P.J.Plaza,
Swarnapuri,
Salem-4.
4.The Assistant Provident Fund Commissioner
and Recovery Officer,
The Office of the Employees’ Provident Fund
Organixation,
Sub Regional Office,
P.J.Plaza,
Swarnapuri, Salem-4.
K.CHANDRU, J.
vvk
PRE DELIVERY ORDER IN
W.P.NOs.11177 and
23748 of 2008
07.06.2011