BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Dated: 08/09/2011
Coram
THE HONOURABLE MR. JUSTICE VINOD K. SHARMA
Writ Petition No.6725 of 2007
and
Writ Petition No.6726 of 2007
Manipal Sowbhagya Nidhi Limited,
represented by its Manager,
Manipal House, Manipal - 576104. ...... Petitioner in
both W.Ps
Vs
1. The Regional Provident Fund Commissioner,
Employees Provident Fund Organization,
Regional Office, Madurai - 625 002.
2. Recovery Officer,
Employees Provident Fund Organization,
Regional Office,
No.1, Lady Doak College Road,
Chokkikulam, Madurai. ..... Respondent Nos.1 and 2
in both W.Ps
P.K.S.Sambandhan,
S/o. Mr. A. Samburaj,
No.128/1, Police Station Street,
Srivilliputhur Road,
Sivakasi, Virudhunagar District. ...... Third Respondent in
W.P.(MD)No.6725 of 2007
A. Brahmraj,
S/o. P.K.S.A.Arumuga Nadar,
Police Station Road,
Sivakasi. ..... Third Respondent in
W.P.(MD)No.6726 of 2007
Writ Petitions filed under Article 226 of the Constitution of India,
praying for issuance of Writ of Certiorari to call for the records on the file
of the second respondent in Ref.No.TN/MD/6357/Recy/R.O./2006 dated 05.01.2006
and Ref.No.TN/MD/6357/Recy/R.O./2005 dated 03.11.2005 pertaining to the
attachment of immovable properties of the third respondent and to quash the same
as illegal, incompetent and without jurisdiction.
!For Petitioner ... Mr. K. Ramamoorthy
^For Respondents... Mr. G. R. Swaminathan
- - - - - - - -
:ORDER
1. This order shall dispose of W.P.(MD)Nos.6725 and 6726 of 2007, as
common questions of law, and facts are involved in these matters.
2. For the sake of brevity, the facts are being taken from
W.P.(MD)No.6725 of 2007.
3. The petitioner / Manipal Sowbhagya Nidhi Limited, is a Company
registered under the Companies Act, and petitioner in both the writ petitions
prays for issuance of Writ, in the nature of Certiorari, for quashing the order,
passed by the Recovery Officer, in attaching the immovable properties of the
third respondent in both the writ petitions, for recovery of the amount under
Section 14-B of The Employees’ Provident Funds and Miscellaneous Provisions Act,
1952 (hereinafter referred to as “the Act”), from M/s. Swamiji Mills Ltd.,
Anaikottam, Sivakasi.
4. The Respondent No.3 in both the writ petitions are said to be
Directors of M/s.Swamiji Mills Ltd., Anaikottai, Sivakasi.
5. The petitioner lent money to its registered members, who were
individual persons. The petitioner does not deal with Company or Firm. In the
ordinary course of business, the registered members of the petitioner company
avail financial assistance from the Company and provide personal guarantee and
security of immovable property by creating mortgage. The details of the Members
are under:-
i.Mr. A. Dhanapalan,
S/o. Mr. P.K.S.A.Arumuga Nadar,
No.128, Police Station Street, Sivakasi.
ii.Mr. A. Brahmoraj,
S/o. Mr. P.K.S.A.Arumuga Nadar,
6-H/2, Periakulam Society Colony,
Sivakasi.
iii.Mr. P.K.S.Sambandan,
S/o. Mr. A. Samburaj,
128/1, Police Station Street, Sivakasi.
iv.Mr. R. Balachandran,
S/o. Mr. A. Ranjitham,
129, Police Station Street,
Sivakasi.
v.Mr. G. Sudhankaran,
S/o. Mr. A. Gurusilonmani,
26, Chairman A.R.Arunachalam Road,
Sivakasi.
6. The property attached by the second respondent is the property
mortgaged, by the third respondent in both the writ petitions, to the
petitioner, to secure the financial assistance availed by them. The loan
advanced is to the tune of Rs.1,00,00,000/- (Rupees One Crore only).
7. The case of the petitioner is, that how the financial assistance
was used, by its member was not its concern, as the loan advanced was duly
secured, after due verification of the mortgaged properties. The Respondent No.3
in both the writ petitions were Directors of M/s. Swamiji Mills Ltd.,
Anaikottam, Sivakasi, which defaulted in payment of huge sum of employees
provident fund.
8. The proceedings under Section 7-A/14-B of the Act, was initiated
against M/s. Swamiji Mills Ltd., Anaikottam, Sivakasi, and an order was passed
against the said Company. The certificate for recovery, was thereafter, issued
to the Recovery Officer.
9. The Recovery Officer, in order to recover the amount, has ordered
the attachment of individual property of Respondent No.3 in both the writ
petitions, being the Directors of the Company.
10. The case of the petitioner is, that Respondent No.3 are not
“Employers” as defined under Section 2(e) of the Act, being distinct and
different from that of the Company, and therefore, their property could not be
attached, for recovery of amount from M/s. Swamiji Mills Limited, Anaikottam,
Sivakasi. The petitioner, on coming to know about the attachment of the property
mortgaged to the petitioner, wrote to the Enforcement Office on 05.01.2006, and
to Respondent No.2 on 31.01.2006, requesting them to withdraw the attachment.
The request of the petitioner was refused, by stating that the Recovery Officer
had the jurisdiction under Section 8-B of the Act, to attach the personal
properties of the Directors / Establishment, and that under Section 11(2) of the
Act, the provident fund dues have priority over the other dues. Aggrieved over
by the action of the respondents, the petitioners have approached this Court, by
filing these two writ petitions.
11. These writ petitions are opposed by the respondents, on the
ground that the Respondent No.3 in both the writ petitions are the Directors of
M/s. Swamiji Mills Limited, Anaikottam, Sivakasi, and therefore, are liable to
pay the contribution of Provident Fund and Damages imposed under section 8-B of
the Act, which reads as under:-
“8-B. Issue of Certificate to the Recovery Officer:-
(1) Where any amount is in arrear under Section 8, the authorised officer
may issue, to the Recovery Officer, a certificate under his signature specifying
the amount of arrears and the Recovery Officer, on receipt of such certificate,
shall proceed to recover the amount specified therein from the establishment or,
as the case may be, the employer by one or more of the modes mentioned below :-
(a) attachment and sale of the movable or immovable property of the
establishment or, as the case may be, the employer;
(b)arrest of the employer and his detention in prison;
(c)appointing a receiver for the management of the movable or immovable
properties of the establishment or, as the case may be, the employer;
Provided that the attachment and sale of any property under this section
shall first be effected against the properties of the establishment and where
such attachment and sale is insufficient for recovering the whole of the amount
of arrears specified in the certificate, the Recovery Officer may take such
proceedings against the property of the employer for recovery of the whole or
any part of such arrears.
(2) The authorised officer may issue a certificate under sub-section (1),
notwithstanding that proceedings for recovery of the arrears by any other mode
have been taken.”
12. It is also the stand of the respondents, that in view of the
Judgment of the Calcutta High Court in BINOD KUMAR BIYALA ..VS.. REGIMAL
PROVIDENT FUND ORGANISATION, WEST BENGAL (2001 (I) L.L.J. 305), the Director of
a Company is liable to pay the contribution, and therefore, the attachment of a
property of the Director cannot be questioned.
13. In support of this contention, reliance is placed by the learned
counsel for respondents on the Judgment of the Hon’ble Supreme Court, in the
case of MAHARASHTRA STATE CO-OPERATIVE BANK LIMITED ..VS.. ASSISTANT PROVIDENT
FUND COMMISSIONER (2009 (10) S.C.C. 123), wherein the Hon’ble Supreme Court has
been pleased to lay down as under:-
“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 employer’s
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 employer’s 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.”
14. It is also the contention of the learned counsel for the
respondents, that “Occupier”, as disclosed in Form 5A, would also be liable, to
pay the contribution, and therefore, the property of the petitioner could be
attracted and sold for recovery, as the charge of Department will be the first
charge.
15. On consideration, I find force in the contentions raised by the
learned counsel for the petitioner.
16. In W.P.(MD)No.11546 of 2010 (R. BALACHANDRAN AND ANOTHER ..VS..
REGIONAL PROVIDENT FUND COMMISSIONER AND THREE OTHERS) decided on 07.09.2011,
this Court has been pleased to lay down, that the attachment of a property in
exercise of powers under Section 8-B of the Act, is outside the scope of powers
available with the Recovery Officer, for attachment of properties of the
Directors, as the Company has a distinct, and separate identity from that of the
Directors, and shareholders, and is deemed to be employer, and responsible for
the payment of dues under the Act. The liability, therefore, cannot be fastened.
17. It is also pertinent, to notice here, that the Respondent No.3
was not shown to be the “Occupier”, under Form 5A of the Act, and therefore,
will not fall within the definition of “Employer”, who can be held responsible,
for the dues under the Act. Even otherwise, there cannot be two employers i.e.,
the Company and its Director.
18. The Judgments relied upon by the learned counsel for the
respondents has no relevance, as the question involved in the writ petitions is
not with regard to the priority of the charges on the property of the
establishment, but as to whether there is any jurisdiction with the respondents,
to recover the amount from the property of the Director in exercise of powers
under Section 8-B of the Act.
19. As already observed above, at the sake of repetition, it may be
stated herein, that in view of the Judgment of this Court in W.P.(MD)No.11546
of 2010 (R. BALACHANDRAN AND ANOTHER ..VS.. REGIONAL PROVIDENT FUND COMMISSIONER
AND THREE OTHERS) decided on 07.09.2011, the impugned order cannot be sustained.
20. In this case, there is additional ground for setting aside the
order of attachment, for the reason, that even if, for the sake of argument, it
is taken, that the respondent had any right to recover, or initiate proceedings
qua the property of the Director by treating him to be the employer, in that
event also, the property of the Director is being subject to charge, can be
taken as charged property and not free from encumbrances, as provisions of
Section 11(2) of the Act, would not be applicable, as it deals with property of
the employer, which is admittedly a Company, that too for the purposes of
satisfaction of debts in distribution of properties of insolvent or assets of
the Company being wound up, which certainly would not include the property of a
Director.
21. The respondents also cannot take any advantage from the Judgment
of this Court in W.P.No.43577 of 2006 (CENTRAL BANK OF INDIA ..VS.. THE
AUTHORISED OFFICER AND TWO OTHERS) decided on 08.04.2011, as it has no
application to the issue raised in this writ petition.
22. For the reasons stated above, these writ petitions are allowed,
the impugned orders are set aside.
No costs.
Dpn/-