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SCA/3046/2007 7/ 9 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 3046 of 2007
For
Approval and Signature:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
HONOURABLE
MR.JUSTICE AKIL KURESHI
=========================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To be
referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
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PROVIDENT
FUND COMISSIONER - Petitioner(s)
Versus
DENA
BANK THRO.ITS MANAGER & 2 - Respondent(s)
=========================================================
Appearance
:
MR
NK MAJMUDAR for
Petitioner(s) : 1,
MR SS PANESAR for Respondent(s) : 1,
MR
ZUBIN F BHARDA for Respondent(s) :
2,
=========================================================
CORAM
:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
and
HONOURABLE
MR.JUSTICE AKIL KURESHI
Date
: 22/04/2010
CAV
JUDGMENT
(Per
: HONOURABLE MR.JUSTICE AKIL KURESHI)
This
petition is filed by the Provident Fund Commissioner challenging
orders dated 22.11.2006 and 8.12.2006 passed by the learned Recovery
Officer, Debts Recovery Tribunal, Ahmedabad in Recovery Proceedings
No.1329 in O.A. No. 268/2001. The said orders are questioned on the
ground that same are contrary to provisions of Section 11(2) of the
Employees’ Provident Fund Act( the Act for short). The
petitioner has further prayed for a direction to respondent no.3
i.e. the Recovery Officer, Debts Recovery Tribunal, Ahmedabad to
reconsider the objections lodged by the petitioner and to pass
further orders after taking into account such objections.
Shortly
stated, facts leading to the petition are that there are unpaid
Provident Fund dues of respondent no.2 company. According to the
petitioner, such unpaid provident fund dues form first charge over
the movable and immovable properties of the respondent company.
2.1 Respondent
no.1 Dena Bank claims to be a secured creditor of respondent no.2
company. The respondent no.1 bank had given loans to respondent no.2
by hypothecating its movable assets as well as by mortgaging its
immovable properties. In view of such hypothecation as well as
mortgage created by respondent no.2 in favour of respondent no.1
bank, as per the bank, it is the bank which has the first charge
over the properties.
2.2 The
bank had approached the Debts Recovery Tribunal seeking recovery of
its unpaid dues in the said proceedings by filing O.A. No. 26/2001.
In the said proceedings, Recovery Certificate came to be issued in
favour of respondent No.1 bank to the tune of Rs. 3,62,56,297. On an
application filed by respondent no.1 bank, the Recovery Officer
permitted the bank to sale the properties of respondent no.2
company through auction. Provident Fund Department raised its
objections contending inter-alia that as on 3.1.2005, the
outstanding recovery of Rs.21,99,728/- plus cost and interest
towards the Provident fund dues remained unpaid. The Recovery
Officer of the Debts Recovery Tribunal rejected said objections by
an order dated 22.11.2006 in following terms :
The
Employees Provident Fund Organization vide Exh. T/29 and Exh. T/30
had also raised objection and submitted that they have attached the
property in question on 3.1.2005 to recover its dues of Rs.
21,88,728/- plus cost and interest. The Employees Provident Fund
Organization submitted that his dues having priority over other
debts under Section 11(2) o the Employees Provident Fund
Organization Act and claimed the amount out of the sale proceeds of
the property sold in auction by this Tribunal. The Employees
Provident Fund Organization cited before me a judgement of the Debts
Recovery Tribunal, Mumbai wherein the Hon’ble Presiding Officer has
relied upon the judgement of the Hon’ble Kerala High Court passed in
Appeal No. 906/1994 and observed that the Employees Provident Fund
Organization shall have first and permanent charge over the above
the charge of even secured creditors.
The
Certificate Holder bank cited before me the judgement of the Hon’ble
Supreme Court in a matter of Dena Bank v/s. Bhikabhau Prabhudas
Parekh & co. (2000) 5 SCC. 694 wherein the Hon’ble Apex Court
held that the crown’s preferential right to recovery of debts over
other creditors is confined to ordinary or unsecured creditors and
such right does not exists over the mortgage or pledged property of
a secured creditors.
I
relied upon the aforesaid judgement of the Hon’ble Apex court and
found that Employees Provident Fund Organization is under a category
of unsecured creditor, hence cannot precedence over the dues of the
Certificate Holder Bank who is a secured creditor. Moreover, the
judgment of the Hon’ble Supreme Court is prevailing over the
judgment of Hon’ble High Court and the Recovery of Debts due to
banks and Financial Institutions Act 1993 is subsequent to Employees
Provident Fund Organization and M.P. Act. Hence the provision of
later Act will prevail over the previous Act.
In
my opinion the Recovery Officer is not suppose to work for recovery
of dues of other depts like Central Excise Dept. and Employees
Provident Fund Organization. The Recovery Officer is bound to
recover the bank dues as per Recovery Certificate under the
provisions of Section 25 to 28 of the Recovery of Debts due to bank
and Financial Institute Act 1993. This debt is supposed to do
separate action for recovery of the dues as per respective rules.
Therefore,
the objections of Central Excise Debt. and Employees Provident Fund
Organization are not maintainable hence hereby rejected and the sale
proceeds of Rs. 48. lacs towards the sale of hypothecated movable
being Plant and Machinery shall be released to the Certificate
Holder bank for appropriation against the loan A/c. of the
Certificate debtors and file an affidavit appropriately on the next
date.
Let
the matter be adjourned till 08-12-2006 for further orders due.
On
8.12.2006, the said officer permitted the bank to sale the property
and authorised the above officer to make proclamation of the sale.
These orders dated 22.11.2006 and 8.12.2006 passed by the Recovery
Officer, Debts Recovery Tribunal, Ahmedabad in Recovery Proceedings
No.1329 in O.A. No. 268/2001 are under challenge in the present
petition.
Appearing
for the petitioner, learned counsel Shri Majmudar submitted that the
provident fund dues of respondent no.2 would have priority over all
other dues being crown debt. He contended that in view of Section
11(2) of the Act, Provident Fund department had the first charge
over the properties. Recovery Officer therefore, erred in rejecting
the objections of the petitioner and both the impugned orders are
therefore, required to be set aside. He relied on decision of the
Apex Court in case of Central Bank of India v. State of Kerala
and others reported in (2009) 4 Supreme Court Cases 94.
On
the other hand, learned advocate Shri Panesar for the respondent
bank contested the petition contending inter-alia that bank had
released the loans in favour of respondent no.2 company. Large
amounts had remained unpaid. The Bank had created charge over the
properties. In view of hypothecation and mortgage, bank would have
the charge first over the property of the company. He further
contended that the petitioner has not given any account of the
outstanding provident fund dues of the respondent no.2 company. The
petitioner has in addition to principal sum added exorbitant
interest and penalties and thus inflated initial figure of Rs.
21,88,728/-.
Having
thus heard learned advocates for the parties, we find that Section
11(2) of the Act reads as follows :
11(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 force, be paid in priority to all other debts.
In
view of the above clear statutory provision, the ratio laid down in
decision of the Apex Court Central Bank of India v. State of
Kerala and others (supra) would squarely apply in the present
case. In the said decision, the Apex Court had examined at length
various provisions contained in Legislature such as Bombay Sales Tax
Act, Kerala General Sales Tax Act, Workmen’s Compensation Act and
Employees’ Provident Fund and Miscellaneous Provisions Act, etc.
providing for the priority of the State dues. These provisions were
examine in juxtaposition of the provisions contained in Recovery of
Debts Due Banks and Financial Institutions Act. The Apex Court in
the said decision held that neither in the Recovery of Debts Due
Banks and Financial Institutions Act nor in the Secularization and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act , there is any provision by which first charge has
been created in favor of banks, financial institutions or secured
creditors qua the property of the borrower. It was held that :
116. The
non obstante clauses contained in Section 34(1) of the DRT Act and
Section 35 of the Securitisation Act give overriding effect to the
provisions of those Acts only if there is anything inconsistent
contained in any other law or instrument having effect by virtue of
any other law. In other words, if there is no provision in the other
enactments which are inconsistent with the DRT Act or Securitisation
Act, the provisions contained in those Acts cannot override other
legislations. Section 38C of the Bombay Act and Section 26B of the
Kerala Act also contain non obstante clauses and give statutory
recognition to the priority of State’s charge over other debts, which
was recognized by Indian High Courts even before 1950. In other
words, these sections and similar provisions contained in other State
legislations not only create first charge on the property of the
dealer or any other person liable to pay sales tax, etc. but also
give them overriding effect over other laws
In
the said decision, particularly, with respect to Section 11(2) of the
Employees’ Provident Fund and Miscellaneous Provisions Act, it was
observed as under :
126. While
enacting the DRT Act and Securitisation Act, Parliament was aware of
the law laid down by this Court wherein priority of the State dues
was recognized. If Parliament intended to create first charge in
favour of banks, financial institutions or other secured creditors on
the property of the borrower, then it would have incorporated a
provision like Section 529A of the Companies Act or Section 11(2) of
the EPF Act and ensured that notwithstanding series of judicial
pronouncements, dues of banks, financial institutions and other
secured creditors should have priority over the State’s statutory
first charge in the matter of recovery of the dues of sales tax, etc.
However, the fact of the matter is that no such provision has been
incorporated in either of these enactments despite conferment of
extraordinary power upon the secured creditors to take possession and
dispose of the secured assets without the intervention of the Court
or Tribunal. The reason for this omission appears to be that the new
legal regime envisages transfer of secured assets to private
companies.
129
If Parliament intended to give priority to the dues of banks,
financial institutions and other secured creditors over the first
charge created under State legislations then provisions similar to
those contained in Section 14A of the Workmen’s Compensation Act,
1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty
Act, 1953, Section 25(2) of the Mines and Minerals (Development and
Regulation) Act, 1957, Section 30 of the Gift- Tax Act, and Section
529A of the Companies Act, 1956 would have been incorporated in the
DRT Act and Securitisation Act.
130
Undisputedly, the two enactments do not contain provision similar to
Workmen’s Compensation Act, etc. In the absence of any
specific
provision to that effect, it is not possible to read any conflict or
inconsistency or overlapping between the provisions of the DRT Act
and Securitisation Act on the one hand and Section 38C of the Bombay
Act and Section 26B of the Kerala Act on the other and the non
obstante clauses contained in Section 34(1) of the DRT Act and
Section 35 of the Securitisation Act cannot be invoked for declaring
that the first charge created under the State legislation will not
operate qua or affect the proceedings initiated by banks, financial
institutions and other secured creditors for recovery of their dues
or enforcement of security interest, as the case may be.
Above
ratio laid down in Central Bank of India v. State of Kerala and
others (supra), squarely covers the present case.
We
are not oblivious to the other line of decisions wherein in absence
of any statutory provisions, Courts have held that the crown debt
would not have any priority over other secured creditor’s debts.
This view was reiterated and expressed by the Apex Court in case of
Union of India and others v. SICOM Limited and another reported
in (2009) 2 Supreme Court Cases 121, the Apex Court held that a debt
which is secured or which by reason of the provisions of statue
becomes the first charge over the property having regard to the
plain meaning of Article 372 of the Constitution of India must be
held to prevail over the crown debt which is an unsecured one. Said
decision was however, rendered in the background of statutory
provisions contained in the State Financial Corporations Act by
which the borrower had executed mortgage in favor of such
Corporation. Later on it was found that borrower also owed a certain
sum of money to Central Government in the form of Central Excise
dues. It was in this background that the Apex Court noticing the
statutory provisions contained in the State Financial Corporations
Act as well as under the Central Excise Act came to the above
conclusion. This decision in case of Union of India and others
v. SICOM Limited and another(supra)has
been noticed by the Apex Court in earlier decision in case of
Central Bank of India v. State of Kerala and others
(supra) and distinguished on
account of difference in statutory provisions with which the Court
was concerned in the former decision.
In
the present case, when we find that statute in clear terms provides
for priority of unpaid dues of provident fund of the employees, in
view of the decision in case of Central Bank of India v. State of
Kerala and others (supra),
bank cannot claim first charge despite having created a mortgage
over the immovable property.
In
the result, we find that recovery officer of Debts Recovery
Tribunal, Ahmedabad committed a serious error in overruling the
objections of the petitioner PF Department. Orders dated 22.11.2006
and 8.12.2006 are quashed. Petition is allowed. It is further
declared that provident fund dues would have first charge over the
properties in question. In facts of the present case, it is
directed that provident fund department shall before effecting
recovery of its dues, serve a statement of account of the unpaid
provident fund dues with interest and penalty, if any, of the
Company on respondent no.1 bank.
Petition
is disposed of. Rule made absolute to the above extent.
(S.J.Mukhopadhaya,C.J.)
(Akil
Kureshi,J.)
(raghu)
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