IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
C.W.P. No. 4631 of 2007.
Date of Decision : February 16, 2009.
A.P. Enterprises Pvt. Ltd. ...... Petitioner.
Versus.
Regional Provident Fund Organisation, and another. ...... Respondents.
CORAM:HON'BLE MR. JUSTICE AUGUSTINE GEORGE MASIH.
Present: Mr. P.K. Mutneja, Advocate,
for the petitioner.
Mr. Kamal Sehgal, Advocate,
for the respondents.
AUGUSTINE GEORGE MASIH, J.
By this order, I propose to decide C.W.P. No. 4631 of 2007
and C.W.P. No. 5789 of 2007 wherein the common questions of facts and
law are involved.
Facts briefly leading to the filing of the present writ petition
are that one M/s Rana Mahindra Papers Limited, Village Fathepur (Sialba),
Kurali, District Ropar, Punjab, an establishment which has not been
depositing Employees’ Provident Fund dues of its workers, thus, forcing the
authorities under the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952, (hereinafter referred to as the E.P.F. Act) to make
assessment of the said establishment under Section 7-A of the E.P.F Act.
The assessment was made by the Provident Fund Commissioner and an
amount of Rs. 26,62,922/- was found payable as on 28.02.2007 by M/s
Rana Mohindra Papers Limited. In order to recover the abovementioned
amount, the bank accounts of M/s Rana Mohindra Papers limited were
C.W.P. No. 4631 of 2007. -2-
attached. Despite the attachment of the accounts in the State Bank of Patiala,
Canara Bank, I.C.I.C.I. Bank and Indian Overseas Bank, the respondent-
department could not recover any amount. Thereafter, the respondent-
department proceeded to take action against the employer Rana Hardeep
Singh and a complaint was filed with S.S.P. Ropar, for registration of an
F.I.R. under Sections 406/409 I.P.C. During this time, the respondent-
department came to know that M/s A.P. Enterprises Private Limited and M/s
Chanakaya Distributors are the business promoters of M/s Rana Mahindra
Papers Limited. The Recovery Officer exercising the powers conferred on
him under Section 8-G read with Rules 26 and 29 of the 2nd Schedule of
Income Tax Act, 1961, issued prohibitory orders C.P. 3 to M/s A.P.
Enterprises Private Limited in C.W.P. No. 4631 of 2007 on 10.04.2006 and
to M/s Chanakaya Distributors in C.W.P. No. 5789 of 2007 on 18.05.2006,
prohibiting the petitioners from making any payments to or on behalf of M/s
Rana Mohindra Papers Limited. The petitioners rather than complying with
the prohibitory orders dated 10.04.2006 and 18.05.2006 made payments on
behalf of M/s Rana Mahindra Papers Limited to number of persons and also
received payments on behalf of M/s Rana Mahindra Papers Limited, thus,
violating the prohibitory orders passed by the Recovery officer.
The Recovery Officer called upon the petitioners to explain
their position and during the proceedings, it transpired that the petitioners
have been carrying out the business activities of M/s Rana Mahindra Papers
Limited as the petitioners have been making the payments of raw materials
and purchasing finished goods and collecting payments on behalf of M/s
Rana Mahindra Papers Limited and crediting the same to M/s Rana
Mahindra’s ledger account.
C.W.P. No. 4631 of 2007. -3-
The petitioners were called upon to appear before the Recovery
Officer to remain present on 17.07.2006 at 11:00 A.M. alongwith balance
sheet for the year 2005-2006. Both the petitioners put in appearance through
Shri Kamal Dhami, duly authorised by the establishments on 17.07.2006,
21.07.2006 and 07.08.2006. The submissions as put forth was considered by
the Recovery Officer. The petitioners failed to submit the balance sheet for
the year 2005-2006 in respect of their establishments, however, Mr. Kamal
Dhami, authorised representative, made his submission to the effect that the
Commissioner has powers and must proceed to recover money from the
employer of the establishments M/s Rana Mahindra Papers Limited which is
running unit rather than from the establishments represented by him. He
further submitted that a huge amount of money of the petitioners is locked up
in/with M/s Rana Mahindra Papers Limited and in the hope of recouping the
same, they were carrying their business with M/s Rana Mahindra Papers
Limited. He during the proceeding admitted that M/s A.P. Enterprises
Private Limited and M/s Chanakaya Distributors had made payments and
received payments for and on behalf of M/s Rana Mahindra Papers Limited
to the parties dealing with them even after receipt of notice in Employees’
Provident Fund (C.P.3). He submitted that if they obeyed the orders of the
Recovery Officer, their businesses would have come to a standstill and they
may not be in a position to recover their money running in lakhs of rupees
which they are to receive from M/s Rana Mahindra Papers Limited. After
considering the submissions as put forth by the authorised representative of
the petitioners and on going through the records and the documents which
have been submitted by the authorised representative, the Recovery Officer
came to a conclusion that both the petitioners are virtually running the
C.W.P. No. 4631 of 2007. -4-
business of M/s Rana Mahindra Papers Limited as they were not only
receiving money from parties on behalf of M/s Rana Mahindra Papers
Limited but also making payments on behalf of M/s Rana Mahindra Papers
Limited. That being so both the petitioners have violated the prohibitory
orders issued by the Recovery Officer under Section 8 of the E.P.F. Act and
accordingly ordered the petitioners to remit the amount of Rs. 26,62,922/-
within seven days of receipt of the orders failing which the same shall be
recovered as per provisions of E.P.F. Act, treating them as defaulters instead
of M/s Rana Mahindra Papers Limited. This was common order passed
against both the petitioners by the Recovery Officer on 16.03.2007 which
has been challenged by the petitioners in the present writ petitions. In
pursuance to the said orders, the petitioners having failed to remit the amount
ordered to be recovered, the Recovery Officer issued a letter dated
23.03.2007 to the Bankers of the petitioners requesting the Manager of Bank
under Section 8-F of the E.P.F. Act to pay the amount due from the
petitioners as per provisions of the E.P.F. Act. The petitioners have in these
writ petitions therefore challenged the initial prohibition order dated
18.05.2006 (in C.W.P. No. 4631 of 2007) and prohibition order dated
10.04.2006 (in C.W.P. No. 5789 of 2007) and subsequent order dated
16.03.2007 and letter dated 23.03.2007.
Counsel for the petitioner contends that Section 8-F of the
E.P.F. Act provides for other modes of recovery according to which the
recovery could be effected under this provision by the Central Provident
Fund Commissioner or any other Officer authorised by the Central Board in
this behalf. He contends that the Regional Provident Fund Commissioner,
Punjab, is not the competent authority as it has not been authorised by the
C.W.P. No. 4631 of 2007. -5-
Central Board and therefore, the prohibitory orders and impugned order
dated 16.03.2007 as well as letter dated 23.03.2007 deserve to be quashed.
This contention of counsel for the petitioner only deserves
reference but does not hold good as counsel for the respondent has produced
a notification No. R.R.Cell./8(9)92/R.M./2350, dated 27.07.1992 issued by
the office of Central Provident Fund Commissioner, New Delhi, issued in
exercise of the powers conferred by Sub-section 1 of Section 8-F of the
E.P.F. Act, whereby Central Board has authorised the Regional Provident
Fund Commissioner, Punjab, to exercise the powers conferred under Sub-
section (2), (3) and (4) of Section 8-F of the E.P.F. Act in relation to all
establishments covered under the provisions of E.P.F. Act in respect of areas
mentioned therein.
Now counsel for the petitioner contends that the prohibitory
orders could not have been resorted to by the Recovery Officer without
exhausting the remedy available to the Recovery Officer against the defaulter
M/s Rana Mahindra Papers Limited. He contends that the first step should
have been to recover the said amount from the defaulter and only when the
same had not been exhausted and still some recovery was due resort to
Sections 8-F and 8-G of the Act could have been made by the Recovery
Officer. He submits that the establishments of M/s Rana Mahindra Papers
Limited are still working and the Recovery Officer should have proceeded
against them by locking up and taking further steps against the said
establishment which has been provided under the E.P.F. Act.
The next submission which has been put forth by counsel for the
petitioner is that as per Section 8-F of the E.P.F. Act, the relevant date is to
be seen is the date on which notice is served upon the petitioners. If on that
C.W.P. No. 4631 of 2007. -6-
date any money is owed by the petitioners to M/s Rana Mahindra Papers
Limited, the said amount can be deducted and credited to the Provident
Fund. The said amount cannot in any case exceed the amount due. If the
amount due on the said date when the notice is served falls short of the
amount due by M/s Rana Mahindra Papers Limited, the same cannot be
deducted from the transactions after the said date from the amount which
would fall due thereafter. He further contends that if the provisions of
Section 8-F(3)(i)(ii) are interpreted in the manner as the Recovery Officer
has interpreted in the impugned order, the same would amount to violation of
Article 19-G of the Constitution of India. What has been asserted in the
impugned order by the Recovery Officer is that of subsequent transactions
after the date of service of notice of prohibition, no transaction can take
effect with M/s Rana Mahindra Papers Limited. What can be recovered is
only the amount due from the employer and not what would be amount of
transaction. He further contends that the amount which would fall due to the
petitioners from M/s Rana Mahindra Papers Limited has not been determined
and an order for recovery has been ordered without taking into consideration
the amount due. He on this basis contends that the impugned orders/letters
deserve to be set aside.
On the other hand, counsel for the respondents submits that the
petitioners have not approached this Court with clean hands. They have
deliberately omitted 16 credit entries in the balance sheet which has been
produced before this Court. The petitioners have, therefore, tried to mislead
this Court and given benefit by such omission as these credit entries account
for is Rs. 23,50,600/- and if these credit entries are taken into consideration
M/s Rana Mahindra Papers Limited would become debtor to tune of Rs.
C.W.P. No. 4631 of 2007. -7-
21,50,600/-. He further contends that petitioner M/s A.P. Enterprises Private
Limited had vide its letter, copy whereof has been placed as Annexure-R-1,
admitted with reference to letter of recovery dated 10.04.2006 that there is a
debit balance amounting to Rs. 16,40,828-24 in its books of account in
respect of M/s Rana Mahindra Papers Limited. He submits this document
has not been contradicted by the petitioners. This clearly shows the
admission on the part of petitioners and therefore, they cannot now turn
around and say that there is no due which the petitioners owe to M/s Rana
Mahindra Papers Limited. He further submits that the act does not restrict
the authority of the Recovery Officer under Section 8 of the E.P.F. Act to a
particular mode to be adopted by the Recovery Officer to make good the
recovery which has been found to be due against employer. The modes of
recovery has been provided for under the various provisions contained in the
E.P.F. Act and it is at the discretion of the Recovery Officer who would
exercise the powers within those parameters to recover the amount due. He
further contends that Section 8-F of the Act itself is a reply to the contention
raised by counsel for the petitioner that the recovery can be effected from the
dues as calculated on the date of receipt of notice from the petitioners. He
has referred to various provisions of Section 8-F of the E.P.F. Act to
substantiate his contentions.
I have heard counsel for the parties and with their able
assistance have gone through the records of the case.
Before proceeding further in the matter, Section 8-F of the
E.P.F. Act, which is the bone of contention needs to be referred to and
therefore, the same is reproduced herein below :-
“8F. Other modes of recovery.-
C.W.P. No. 4631 of 2007. -8-
(1) Notwithstanding the issue of a certificate to the Recovery
Officer under Section 8B, the Central Provident Fund
Commissioner or any other officer authorised by the Central
Board may recover the amount by any one or more of the modes
provided in this section.
(2) If any amount is due from any person to any employer
who is in arrears, the Central Provident Fund Commissioner or
any other officer authorised by the Central Board in this behalf
may require such person to deduct from the said amount the
arrears due from such employer under this Act and such person
shall comply with any such requisition and shall pay the sum so
deducted to the credit of the Central Provident Fund
Commissioner or the officer so authorised, as the case may be:
Provided that nothing in this sub-section shall apply to
any part of the amount exempt from attachment in execution of
a decree of a civil under Section 60 of the Code of Civil
Procedure, 1908 (5 of 1908).
(3)(i) The Central Provident Fund Commissioner or any other
officer authorised by the Central Board in this behalf may, at
any time or from time to time, by notice in writing, require any
person from whom money is due or may become due to the
employer or, as the case may be, the establishment or any
person who holds or may subsequently hold money for or on
account of the employer or as the case may be, the
establishment, to pay to the the Central Provident Fund
Commissioner either forthwith upon the money becoming due
C.W.P. No. 4631 of 2007. -9-or being held or at or within the time specified in the notice (not
being before the money becomes due or is held) so much of the
money as is sufficient to pay the amount due from the employer
in respect of arrears or the whole of the money when it is equal
to or less than that amount.
(ii) A notice under this sub-section may be issued to any
person who holds or may subsequently hold any money for or
on account of the employer jointly with any other person and
for the purposes of this sub-section, the shares of the joint-
holders in such account shall be presumed, until the contrary is
proved, to be equal.
(iii) A copy of the notice shall be forwarded to the employer
at his last address known to the Central Provident Fund
Commissioner or, as the case may be, the officer so authorised
and in the case of a joint account to all the joint-holders at their
last addresses known to the Central Provident Fund
Commissioner or the officer so authorised.
(iv) Save as otherwise provided in this sub-section, every
person to whom a notice is issued under this sub-section shall
be bound to comply with such notice, and, in particular, where
any such notice is issued to a post office, bank or an insurer, it
shall not be necessary for any pass book, deposit receipt, policy
or any other document to be produced for the purpose of any
entry, endorsement or the like being made before payment is
made notwithstanding any rule, practice or requirement to the
contrary.
C.W.P. No. 4631 of 2007. -10-
(v) Any claim respecting any property in relation to which a
notice under this sub-section has been issued arising after the
date of the notice shall be void as against any demand
contained in the notice.
(vi) Where a person to whom a notice under this sub-section
is sent objects to it by a statement on oath that the sum
demanded or any part thereof is not due to the employer or that
he does not hold any money for or on account of the employer,
then, nothing contained in this sub-section shall be deemed to
require such person to pay any such sum or part thereof, as the
case may be, but if it is discovered that such statement was false
in any material particular, such persons shall be personally
liable to the Central Provident Fund Commissioner or the
officer so authoised to the extent of his own liability to the
employer on the date of the notice, or to the extent of the
employer’s liability for any sum due under this Act, whichever is
less.
(vii) The Central Provident Fund Commissioner or the officer
so authorised may, at any time or from time to time, amend or
revoke any notice issued under this sub-section or extend the
time for making any payment in pursuance of such notice.
(viii) The Central Provident Fund Commissioner or the officer
so authorised shall grant a receipt for any amount paid in
compliance with a notice issued under this sub-section, and the
person so paying shall be fully discharged from his liability to
the employer to the extent of the amount so paid.
C.W.P. No. 4631 of 2007. -11-
(ix) Any person discharging any liability to the employer
after the receipt of a notice under this sub-section shall be
personally liable to the Central Provident Fund Commissioner
or the officer so authorised to the extent of his own liability to
the employer so discharged or to the extent of the employer’s
liability for any sum due under this Act, whichever is less.
(x) If the person to whom a notice under this sub-section is
sent fails to make payment in pursuance thereof to the Central
Provident Fund Commissioner or the officer so authorised he
shall be deemed to be an employer in default in respect of the
amount specified in the notice and further proceedings may be
taken against him for the realisation of the amount as if it were
an arrear due from him, in the manner provided in sections 8B
to 8E and the notice shall have the same effect as an attachment
of a debt by the Recovery Officer in exercise of his powers
under section 8B.
(4) The Central Provident Fund Commissioner or the officer
authorised by the Central Board in this behalf may apply to the
court in whose custody there is money belonging to the
employer for payment to him of the entire amount of such
money, or it if is more than the amount due, an amount
sufficient to discharge the amount due.
(5) The Central Provident Fund Commissioner or any officer
not below the rank of Assistant Provident Fund Commissioner
may, if so authorised by the Central Government by general or
special order, recover any arrears of amount due from an
C.W.P. No. 4631 of 2007. -12-
employer or, as the case may be, from the establishment by
distraint and sale of his or its movable property in the manner
laid down in the Third Schedule to the Income-tax Act, 1961 (43
to 1961).” (emphasis supplied)
A perusal of the above section would show that the Recovery
Officer who has been so authorised by the Central Board can proceed against
the employer or against any person, if any amount is due to any employer
from him, who is in arrears. Clause (ii) enjoins upon such persons to comply
with any requisition made by the officer so authorised and is duty bound to
pay the sum so deducted to the credit of the officer so authorised. Under
clause 3(i), the authorised officer at any time or from time to time, by notice
in writing, require any person from whom money is due or may become due
to the employer or any person who holds or may subsequently holds money
for and on account of employer or the establishment to pay the authorised
officer either forthwith upon the money becoming due or being held or at or
within the time specified in the notice (not being before the money becomes
due or is held) so much of the money as is sufficient to pay the amount due
from the employer in respect of arrears or the whole of the money when it is
equal to or less than that amount and thereafter, clause 3(ii) gives powers to
the authorised officer to issue notice to any person who holds or may
subsequently hold any money for or on account of the employer jointly with
any other person and shares joint holdership in such account shall have to
pay the amount due until the contrary is proved, to be equal.
A perusal of these provisions clearly establishes that relevant
date as tried to be put forth by the petitioner stating it to be the date of
C.W.P. No. 4631 of 2007. -13-
receipt of notice and only dues which were present on that date to the
employer is to be seen, cannot be accepted.
These provisions clearly spell out that not only on the date when
the notice is served but subsequently also if any money becomes due to the
employer or he subsequently holds money for or on account of the employer
jointly, the same has to pay such amount to the authorised officer forthwith if
it is available on the date the notice is received or on the date the same
becomes due. This however is limited to the amount which has to be
recovered. Once the said amount as has been specified in the certificate of
recovery issued against the employer is satisfied, no further remittance has to
be made to the authorised officer. That being the position as per the
provisions referred to above, the contention of counsel for the petitioner
cannot be accepted that it is only on the date when the notice is issued and
the amount which is due to the employer on such date only is to be paid to
the authorised officer.
The next submission which has been put forth that the
transaction can be after the said date with the defaulter employer but only the
amount due is to be recovered otherwise it would violate Article 19-G of the
Constitution of India. In this regard, Section 8-G of the E.P.F. Act, needs to
be looked into. As per this section certain provisions of 2nd and 3rd
Schedules of Income-tax Act,1961 and the Income-tax (certified
proceedings) Rules, 1962, as enforced from time to time shall apply with
necessary modifications as if the said provisions and rules referred to the
arrears of amount mentioned in Section 8 of the E.P.F. Act would be
applicable. This means the recovery of the provident fund due by virtue of
Section 8-G of the E.P.F. Act, can be effected as per the provisions of the
C.W.P. No. 4631 of 2007. -14-
Income-tax Act and Rules which have been made applicable under the E.P.F.
Act. Under these provisions of the Income-tax Act, 1961, one of the modes
of recovery is by way of attachment and sale of immovable property which
includes debts, shares etc. The term debts means actual money claim that
has already become due though it may be payable on a future date, and also
include a share of debts. Life Insurance Policy is ‘debt’ though payable on the
death of the insured. A debt in order to be attachable, however, need not
become payable at once. Under Rule 26(1)(i) a debt not secured by a
Negotiable Instrument is attached by a written order of attachment
prohibiting the creditor from recovering the debt and the debtor from making
payment thereof until the further order of the Tax Recovery Officer. Any
such payment (the amount of his debt) made by the debtor prohibited under
26(1)(i) to the Tax Recovery Officer shall discharge him as effectually as
payment to the party entitled to receive the same by virtue of Rule 26(3). By
virtue of Rule 36(3)(b) of the Income Tax (Certificate Proceedings Rules,
1962), the tax Recovery Officer may take further proceedings to recover the
amount from the debtor as if the debtor where a defaulter in respect of whom
the Tax Recovery Officer had drawn up a certificate under Section 2(2)(ii)
for the Recovery of Arrear of Tax equal to the amount of debt where the
debtor fails to make such payment within the time stipulated by the Tax
Recovery Officer.
In the light of the above, the contention as raised by counsel for
the petitioner cannot be accepted as this would be reasonable restriction
falling within the ambit of Article 19-G of the Constitution of India and
therefore, cannot be termed as violating the provisions of the E.P.F. Act as
sought to be contended by counsel for the petitioner.
C.W.P. No. 4631 of 2007. -15-
A further perusal of Section 8-F of the E.P.F. Act would show
that except for the exceptions provided under clause (iv) of sub section (3) of
this section, every person to whom notice is issued under sub section (3)
shall be bound to comply with such notice. Under clause(v) of sub section
(3) any claim in relation to which a notice under sub section (3) has been
issued arising after the date of notice shall be void as against any demand
contained in the notice. This further shows that restrictions are reasonable
and the noticee is bound to comply with the notice issued to him.
It is an admitted position by the petitioners that after issuance of
C.P. 3 prohibitory orders, the petitioners have received money from other
parties on behalf of M/s Rana Mahindra Papers Limited, have made
payments to M/s Rana Mahindra Papers Limited and also have made
payments on behalf of M/s Rana Mahindra Papers Limited as is clear from
the impugned order dated 16.03.2007. Only three credit entries in the
balance sheet of M/s Rana Mahindra Papers Limited have been disputed by
the petitioner in this Court. Rest of the credit entries have been admitted by
them. Therefore, there can be no dispute with regard to the fact that in the
light what has been held above, the prohibitory orders have been violated by
the petitioners. Section 8-F(3)(vi) of the E.P.F. Act would cover this
situation, where a person to whom notice has been issued, objects to the
notice by a statement on oath that the sum demanded or any part thereof is
not due to the employer or that he does not hold any money for or on account
of the employer and if it is found that the said statement was false in any
material particular such person shall be personally liable to the officer
authorised to that extent of his own liability to the employer on the date of
notice, or to the extent of the employers liability for any sum due under this
C.W.P. No. 4631 of 2007. -16-
Act, whichever is less. Section 8-F(3)(x) of the E.P.F. Act states that if the
person to whom notice has been sent fails to make payment in pursuance
thereof he shall be deemed to be an employer in default in respect of the
amount specified in the notice and further proceedings may be taken against
him for the realisation of the amount as if it were arrears due from him in the
manner provided in Sections 8-B to 8-E of the E.P.F. Act and the notice shall
have the same effect as an attachment of a debt by the Recovery Officer in
exercise of his powers under Section 8-B of the E.P.F. Act. The petitioners
having violated the prohibitory orders are, therefore, liable as an employer in
default in respect of the amount specified in the notice. That being so, no
fault can be found in the orders dated 16.03.2007, passed by the Recovery
Officer, As the petitioners have not complied with the prohibitory orders
dated 16.03.2007 within the period of seven days, the Recovery Officer has
thereafter proceeded against the petitioners in accordance with law by
addressing a letter dated 23.03.2007 to the Banker of the petitioners.
Therefore, no illegality can be said to have been committed by the Recovery
Officer.
Finding no merit in the present writ petitions, the same stand
dismissed.
(AUGUSTINE GEORGE MASIH)
JUDGE
February 16, 2009.
sjks.