{"id":102463,"date":"2009-10-08T00:00:00","date_gmt":"2009-10-07T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/maharashtra-state-co-op-bank-ltd-vs-assistant-p-f-commr-anr-on-8-october-2009"},"modified":"2016-12-05T11:23:02","modified_gmt":"2016-12-05T05:53:02","slug":"maharashtra-state-co-op-bank-ltd-vs-assistant-p-f-commr-anr-on-8-october-2009","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/maharashtra-state-co-op-bank-ltd-vs-assistant-p-f-commr-anr-on-8-october-2009","title":{"rendered":"Maharashtra State Co-Op.Bank Ltd vs Assistant P.F.Commr.& Anr on 8 October, 2009"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Maharashtra State Co-Op.Bank Ltd vs Assistant P.F.Commr.& Anr on 8 October, 2009<\/div>\n
Author: G Singhvi<\/div>\n
Bench: B.N. Agrawal, G.S. Singhvi, Aftab Alam<\/div>\n
                                                                                      REPORTABLE\n                      IN THE SUPREME COURT OF INDIA\n\n                      CIVIL APPELLATE JURISDICTION\n\n                    CIVIL APPEAL NO.6893 OF 2009\n            (Arising out of S.L.P. (C) No.15243 of 2007)\n\n\n Maharashtra State Co-operative Bank Ltd.                              ... Appellant\n\n\n                                         Versus\n\n The Assistant Provident Fund Commissioner                            ... Respondents\n and others\n\n\n                                WITH\n                    CIVIL APPEAL NO.6894 OF 2009\n            (Arising out of S.L.P. (C) No.20736 of 2007)\n\n Maharashtra State Co-operative Bank Ltd.                              ... Appellant\n\n                                         Versus\n\n The Employees' Provident Fund Organization                           ... Respondents\n and others\n\n\n\n\n                         J    U     D    G   M   E    N     T\n\nG.S. Singhvi,      J.\n<\/pre>\n
1.      Leave granted.\n<\/p>\n<\/p>\n
2.      Whether the sugar bags pledged by Kannad Sahakari<\/p>\n
Sakhar Karkhana Ltd. and Gangapur Sahakari Sakhar Karkhana<\/p>\n
Ltd.   in    favour      of   the       appellant-bank           as   security     for<\/p>\n
repayment     of   the    loan      together         with       interest   could    be<\/p>\n
attached and sold for realization of the dues of provident<\/p>\n
funds etc. payable by the employer i.e., the management of
\nthe Sugar Mills under the Employees’ Provident Funds and<\/p>\n
Miscellaneous Provisions Act, 1952 (for short `the Act’) is<\/p>\n
the   question      which     arises       for     determination         in    these<\/p>\n
appeals filed against order dated 29.6.2007 passed by the<\/p>\n
Division    Bench        of   the      Bombay      High     Court       in     Civil<\/p>\n
Application    Nos.1680       and     1681    of    2007   in    Writ     Petition<\/p>\n
No.6824\/2005       and    order     dated     19.7.2007     passed       in    Civil<\/p>\n
Application        No.245\/2007         in        Letters        Patent        Appeal<\/p>\n
No.28\/2004.\n<\/p>\n<\/p>\n
3.        We shall first notice the facts from the record of<\/p>\n
the appeal arising out of S.L.P.(C ) No.15243\/2007.<\/p>\n
4.        During    crushing         season      2000-2001,      the     appellant<\/p>\n
advanced loan of Rs.4000 lacs to Kannad Sahakari Sakhar<\/p>\n
Karkhana    Limited       (hereinafter         described        as   `the      Sugar<\/p>\n
Mill’).     For securing repayment of the loan and interest,<\/p>\n
the   management         of   the     Sugar      Mill     executed       necessary<\/p>\n
documents    including        deed    of     pledge     dated    5.3.2001,       the<\/p>\n
relevant portions of which are extracted below:-<\/p>\n
      “We, the undersigned, Kannad Sahakari Sakhar
\n      Karkhana Ltd., Tal. Kannad, Aurangabad, member of
\n      Maharashtra   State   Co-operative   Bank  Limited
\n      (Incorporating the Vidarbha Co-operative Bank
\n      Ltd.) hereinafter referred to as “the said Bank”
\n      agree to take a loan from the said Bank on the
\n      pledge   of    stocks\/goods\/commodities   on   the
\n      following terms and conditions. The credit limit
\n      will be Rs.400000000 and its period will be upto
\n      31.10.2001.<\/p>\n
      1.      The stocks\/goods\/commodities which we have
\n      at present placed in the custody of the said Bank
\n      as security or which we might so place from time
\n      to time will remain in the sole custody of the
\nsaid Bank and whatever action the said Bank will
\ntake for indicating its custody shall be agreeable
\nto us.\n<\/p>\n
3.      If it is necessary to hire a godown, we
\nundertake to hire the godown in the name of the
\nsaid Bank and to pay the rent from time to time.<\/p>\n
4.      We     undertake     to     insure     the
\nstocks\/goods\/commodities for their full value with
\nan Insurance Company approved by the said Bank and
\nwill get the policy issued in the name of the said
\nBank.\n<\/p>\n
5.      If for any reason the godown is required
\nto be changed or repaired, we undertake to bear
\nthe expenses in that connection.\n<\/p>\n
6.      We undertake to repay the principal of the
\nloan with interest and all expenses due by us by
\n_____ as stipulated in para (2) hereof if the
\nperiod, be extended by the said Bank before the
\nexpiry of the extended period.\n<\/p>\n
7.      The loan shall bear interest at ____
\npercent per annum. If the rent of the godown, the
\nexpenses in connection with insurance and other
\nexpenses if any not paid by us, the same shall be
\ndebited to our loan account and shall bear
\ninterest at the same rate. This interest shall be
\npayable with half yearly rests on 30th June and
\n31st December or earlier immediately when the
\nstocks\/goods\/commodities are relieved.<\/p>\n
8.      Over and above the aforesaid dues, if any
\nother amount is due to the said Bank by us
\nexclusively or in partnership with anybody else,
\nwe agree that the stocks\/goods\/commodities kept in
\nthe custody of the said Bank will also be treated
\nas security for such amount due by us.\n<\/p>\n
10.     We shall not in any way hold the said Bank
\nresponsible for the weight, quality, conditions or
\nsafety of the stocks\/goods\/commodities given into
\nits custody. We shall hold ourselves responsible
\nfor any shortage, damage or shrinkage that may
\narise by any cause whatsoever.\n<\/p>\n
13.       If and when there is insecurity due to
\nlocal riots or civil commotion, etc. we undertake
\nto insure the stocks\/goods\/commodities against any
\ndamage or loss by such riots or civil commotion.
\nIf we fail to do so, the said Bank shall so insure
\nthe stocks\/goods\/commodities for and on our behalf
\n      and shall be entitled to debit the cost thereof to
\n      our account.\n<\/p>\n
      15.     Though by this Agreement, the date of
\n      repayment of the loan has been fixed as aforesaid,
\n      the said Bank shall treat the loan as demand we
\n      undertake to repay the same as soon as the said
\n      Bank shall make a demand or the said Bank shall be
\n      at full liberty to recover all the dues payable by
\n      us.\n<\/p>\n
      16.     In the event of breach of the aforesaid
\n      conditions and or if we fail to repay the loan
\n      within 24 hours, if so required by the said Bank,
\n      it shall have the full right to recover its amount
\n      by sale of the stocks goods commodities by public
\n      auction or private treaty (though the said Bank is
\n      not       bound     so       to      sell      the
\n      stocks\/goods\/commodities).    On receipt of the
\n      Account of sale under the signature of the
\n      Manager, Accountant or other officer of the said
\n      Bank duly authorized we shall acknowledge its
\n      correctness. If the proceeds of the sale do not
\n      fully meet the loan due by us interest or other
\n      expenses, we undertake to pay the balance so
\n      remaining with interest.”\n<\/p>\n<\/p>\n
5.       On the same day i.e., 5.3.2001, the management of<\/p>\n
the Sugar Mill also executed promissory note for payment of<\/p>\n
Rs.40 crores with interest @ 15.50% with half yearly rests.<\/p>\n
6.       Though, the appellant has not given the details of<\/p>\n
the   dues   of   provident   fund   payable   by   the    employer,   a<\/p>\n
reading of the document marked Ex. A (pages 119-122 of the<\/p>\n
SLP paper book) shows that the Assistant Provident Fund<\/p>\n
Commissioner,      Aurangabad    (for       short   `the     Assistant<\/p>\n
Commissioner’) passed order dated 29.9.2003 under Section<\/p>\n
7A of the Act whereby he held the employer liable to pay<\/p>\n
Rs.1,75,10,477\/-       towards        EPF      contributions,      EPF<\/p>\n
administrative       charges,        EDLI    contributions,       EDLI
\nIns.\/administrative      charges       and    directed         it    to       pay   the<\/p>\n
amount   with    interest   @    12%    within       10   days.                As   the<\/p>\n
employer failed to comply with that order,                          the Assistant<\/p>\n
Provident       Fund    Commissioner          and      Recovery               Officer,<\/p>\n
Employees’ Provident Fund, Sub-Regional Office, Aurangabad<\/p>\n
(hereinafter referred to as `the Recovery Officer’) issued<\/p>\n
warrant of attachment dated 11.3.2004 under Section 8B of<\/p>\n
the Act for recovery of              Rs.3,85,21,734\/- which included<\/p>\n
12%   interest    payable   in   accordance          with      Rule       5    of   the<\/p>\n
Second Schedule (Part I) of the Income-tax Act, 1961 read<\/p>\n
with Section 8G of the Act.            The warrant of attachment was<\/p>\n
executed    by    the   Enforcement          Officer      on        26.3.2004       by<\/p>\n
preparing   an    inventory     of    the    sugar     bags     lying          in   the<\/p>\n
godowns of the Sugar Mill and affixing paper seals on the<\/p>\n
same.\n<\/p>\n<\/p>\n
7.       The appellant challenged the warrant of attachment<\/p>\n
and consequential action taken by the Enforcement Officer<\/p>\n
in Writ Petition No.6824\/2005, mainly on the ground that in<\/p>\n
view of the deed of pledge executed by the management of<\/p>\n
the Sugar Mill, the sugar bags which were lying under its<\/p>\n
lock and key, could not have been attached for realization<\/p>\n
of the dues of provident fund etc.               During the pendency of<\/p>\n
the writ petition, the Assistant Commissioner filed Civil<\/p>\n
Application No.2739\/2006 for sale of the sugar bags.                                 At<\/p>\n
the hearing of that application, learned counsel appearing<\/p>\n
for the appellant-bank referred to the orders passed in
\nWrit     Petition        No.3413\/2005           and     connected        cases    for<\/p>\n
conducting joint auction of the attached goods i.e., sugar<\/p>\n
bags.     After taking note of his submission, the Division<\/p>\n
Bench of the High Court passed order dated 1.12.2006, the<\/p>\n
relevant portions of which are as under:-<\/p>\n
        “We accordingly allow this application and direct
\n        that the sugar bags attached by the petitioner as
\n        well as the Assistant Provident Fund Commissioner
\n        shall be jointly auctioned and the sale proceeds
\n        shall be deposited with the Registrar of this
\n        Court. The successful bidder will draw a Demand
\n        Draft or a Banker’s Cheque in the name of the
\n        Registrar General of this Court.\n<\/p><\/blockquote>\n
        It is further ordered that the auction sale
\n        undertaken jointly, shall be completed within a
\n        period of three months by floating public tenders
\n        calling for bids and by accepting tender of the
\n        highest bidder.\n<\/p><\/blockquote>\n
        Once the amount is deposited with the Registrar
\n        of this Court, liberty to apply for withdrawal of
\n        the said amount.”\n<\/p><\/blockquote>\n
8.        In   compliance            of   the       aforementioned      order,    the<\/p>\n
sugar bags lying in the godowns of the Sugar Mill were<\/p>\n
auctioned for a sum of Rs.9,24,08,254\/-.                            Thereafter, the<\/p>\n
Assistant Commissioner filed Civil Application No.1680\/2007<\/p>\n
for     permission       to     withdraw        a    sum     of    Rs.7,77,46,511\/-<\/p>\n
towards the dues of provident fund etc. by asserting that<\/p>\n
in addition to Rs.1,75,10,477\/- payable under Section 7A<\/p>\n
with    interest     @        12%,    the   employer         is     liable   to   pay<\/p>\n
Rs.6,02,36,034\/- in terms of order dated 27.3.2007 passed<\/p>\n
under Section 14B read with Section 7Q of the Act.<\/p>\n
9.        It   appears          that      during       the        pendency   of   the
\nlitigation, the Assistant Commissioner passed another order<\/p>\n
whereby    he    attached   the    bank   account   and    movable   and<\/p>\n
immovable properties of the Sugar Mill along with 69,000<\/p>\n
sugar bags.       Therefore, the management of the Sugar Mill<\/p>\n
filed Civil Application No.1681\/2007 with the prayer that<\/p>\n
attachment effected by the Assistant Commissioner may be<\/p>\n
vacated.\n<\/p>\n<\/p>\n
10.       By the impugned order, the High Court disposed of<\/p>\n
both    the     applications      and   issued   various    directions<\/p>\n
including the following:-\n<\/p>\n
       “(a)    Out of the amount of Rs.9,24,08,254\/-, the
\n       amount   of  Rs.4,20,67,446\/-   (Principal   amount
\n       Rs.1,75,10,477\/- plus interest Rs.2,45,56,969\/-)
\n       be   paid   to   the  Assistant    Provident   Fund
\n       Commissioner so as to appropriate towards the
\n       provident fund dues of the workers of the sugar
\n       factory.\n<\/p><\/blockquote>\n
       (b)     Out of the remaining amount, the amount of
\n       Rs.1,46,61,743\/- shall be paid to the MSC Bank
\n       which MSC Bank shall appropriate towards the dues
\n       of the Sugar Factory.\n<\/p><\/blockquote>\n
       (c)     The remaining amount of Rs.3,56,79,065\/-
\n       be deposited initially for a period of 1 year with
\n       the MSC Bank in the name of the Registrar General,
\n       High Court, Bombay for a period of 1 year.      If
\n       within the period of 1 year, the appeal filed by
\n       the Petitioner with the Appellate Tribunal under
\n       the Provident Fund Act is not disposed of, then
\n       the Registrar General will re-deposit and\/or renew
\n       the said amount on yearly basis with MSC Bank till
\n       final disposal of the said appeal.\n<\/p><\/blockquote>\n
       (d)     The information in respect of the number,
\n       pendency or disposal of the Appeal shall be given
\n       by the Sugar Factory to the Registrar General when
\n       the said Appeal is disposed of.<\/p><\/blockquote>\n
       (e)     In case the said appeal filed by the Sugar
\n       Factory is dismissed by the Appellate authority,
\n       then the amount of Rs.3,56,79,065\/- will have to
\n       be transferred to the Assistant Provident Fund
\n       Commissioner and the Registrar General is hereby
\n       directed, accordingly, to transfer it.<\/p>\n
       (f)     In case the appeal is allowed and thereby
\n       the sugar factory becomes entitled to the amount
\n       of Rs.3,56,79,065\/-, then the MSC Bank is at
\n       liberty to appropriate the said amount towards the
\n       dues of the Sugar Factory.\n<\/p>\n
       (g)     In view of the above directions and the
\n       disbursement of the amount, the order passed by
\n       the   Assistant    Provident   Fund   Commissioner
\n       attaching the assets, Bank Accounts and sugar bags
\n       etc. of the Sugar Factory is hereby quashed and
\n       set aside and the Sugar Factory is at liberty to
\n       deal with the said assets in accordance with their
\n       own Resolution and decisions keeping in mind the
\n       directions.”\n<\/p>\n<\/p>\n
11.         We may now notice some facts from the record of the<\/p>\n
other appeal.\n<\/p>\n<\/p>\n
12.         The   appellant      advanced   Rs.2000    lacs    to    Gangapur<\/p>\n
Sahakari Sakhar Karkhana Ltd. during crushing season 2002-<\/p>\n
03.    For securing the payment of the loan, the management<\/p>\n
of    the    Sugar      Mill    executed    three    deeds    on    2.1.2003,<\/p>\n
6.2.2003 and 4.4.2003 and pledged the sugar bags lying in<\/p>\n
the godowns.           Simultaneously, three promissory notes were<\/p>\n
executed for payment of the amounts specified therein with<\/p>\n
interest at the rate of 13.5 per cent per annum with half<\/p>\n
yearly rests.          The terms and conditions of these deeds are<\/p>\n
similar to deed of pledge dated 5.3.2001 executed by the<\/p>\n
management        of   Kannad   Sahakari    Sakhar    Karkhana      Ltd.   On<\/p>\n
account of failure of the employer to pay the dues of<\/p>\n
provident fund etc., the competent authority passed orders<\/p>\n
under Sections 7A, 7Q and 14B of the Act and held it liable
\nto pay total sum of Rs.9,11,72,892\/- towards the dues of<\/p>\n
provident fund, interest and damages.                 After some time, the<\/p>\n
Assistant Commissioner issued warrant of attachment dated<\/p>\n
15.9.2003      which     was    duly     executed     by    the    Enforcement<\/p>\n
Officer on 22.9.2003.\n<\/p>\n<\/p>\n
13.       The appellant challenged the warrant of attachment<\/p>\n
in Writ Petition No. 3656\/2003, which was dismissed by the<\/p>\n
learned Single Judge of the High Court (Aurangabad Bench)<\/p>\n
vide   his     order      dated     3.10.2003    by     relying      upon        the<\/p>\n
judgments of the Kerala High Court in Recovery Officer and<\/p>\n
Assistant Provident Fund Commissioner v. Kerala Financial<\/p>\n
Corporation (2002) 3 LLJ 643 Kerala and of this Court in<\/p>\n
A.P.   State      Financial     Corporation     v.    Official      Liquidator<\/a><\/p>\n
(2000) 7 SCC 291.             The letters patent appeal preferred by<\/p>\n
the appellant-bank was transferred to the Principal Seat of<\/p>\n
the High Court at Mumbai.                  During the pendency of the<\/p>\n
letters    patent       appeal,    the   Assistant      Commissioner           filed<\/p>\n
Civil Application No.21\/2006 for sale of the sugar bags<\/p>\n
lying in the godown of the employer.                    By an order dated<\/p>\n
18.7.2006,      the     High    Court    granted      the   prayer        of    the<\/p>\n
Assistant Commissioner and directed that the sale amount be<\/p>\n
deposited      with     the    Registrar     General.       Thereafter,          the<\/p>\n
Assistant Commissioner filed Civil Application No.245\/2007<\/p>\n
for permission to withdraw the amount lying deposited with<\/p>\n
the Registrar General of the High Court.                       The same was<\/p>\n
disposed     of    by     the     Division    Bench     vide      order        dated
\n19.7.2007, the operative portion of which reads as under:-<\/p>\n
      “In view of the fact that this Court has taken a
\n      consistent view that the amounts recovered from
\n      sugar factories by disposing of sugar against
\n      recovery made by co-operative banks for the secured
\n      creditors can be appropriated towards payment of
\n      Provident Fund dues, we find no reason to take a
\n      different stand, and allow the application in terms
\n      of prayer clause (a), with no order as to costs.”\n<\/p><\/blockquote>\n
14.       Shri    Ashok      H.   Desai,      learned       senior    counsel<\/p>\n
appearing for the appellant assailed the impugned orders<\/p>\n
and argued that the sugar bags lying in the godowns of the<\/p>\n
Sugar Mills could not have been attached and sold at the<\/p>\n
instance of the Assistant Commissioner for realization of<\/p>\n
the   dues   of    provident      fund    etc.    because    the     same   had<\/p>\n
already    been    pledged    with   the      appellant-bank.         Learned<\/p>\n
senior counsel relied upon the judgments of this Court in<\/p>\n
Karnataka Pawnbrokers’ Association v. State of Karanataka<\/p>\n
(1998) 7 SCC 707, Central Bank of India v. Siriguppa Sugars<\/p>\n
& Chemicals Ltd.<\/a> (2007) 8 SCC 353, and argued that even<\/p>\n
though under Section 11(2) of the Act, the amount due from<\/p>\n
an employer is treated as first charge on the assets of the<\/p>\n
establishment, the same cannot have priority or precedence<\/p>\n
over the dues of the appellant-bank, the payment of which<\/p>\n
is    secured     by   the   deeds       of   pledge    executed      by    the<\/p>\n
management of the Sugar Mills.                   Shri Desai referred to<\/p>\n
various clauses of the deeds of pledge and submitted that<\/p>\n
for all practical purposes, the appellant-bank had become<\/p>\n
owner of the sugar bags and the Recovery Officer did not<\/p>\n
have the jurisdiction, power or authority to attach the
\nsame.        Learned       senior    counsel    emphasized       that   the    term<\/p>\n
“assets”         used      in    Section      11(2)    of     the     Act     means<\/p>\n
unencumbered property of the establishment and argued that<\/p>\n
as    the    sugar      bags     pledged    with   the   appellant-bank         had<\/p>\n
become its property, the Recovery Officer was not entitled<\/p>\n
to attach the same for realizing the dues of provident fund<\/p>\n
etc.        In   support        of   this   argument,     Shri      Desai   placed<\/p>\n
reliance on paragraphs 67 and 73 of the judgment of this<\/p>\n
Court in Transcore v. Union of India<\/a> (2008) 1 SCC 125.<\/p>\n
Another argument of the learned senior counsel is that, at<\/p>\n
best, the amount determined under Section 7A can be treated<\/p>\n
as first charge on the assets of the establishment but the<\/p>\n
interest payable under Section 7Q and damages levied under<\/p>\n
Section 14B cannot be recovered by invoking Section 11(2)<\/p>\n
of the Act.\n<\/p>\n<\/p>\n
15.         Shri R.C. Kalra and Ms. Malvika Trivedi, learned<\/p>\n
counsel      for    the     respondents       argued   that    notwithstanding<\/p>\n
execution of the deeds of pledge by the management of Sugar<\/p>\n
Mills       in   favour     of    the   appellant-bank,       the     sugar    bags<\/p>\n
continued to be the property of the Sugar Mills and the<\/p>\n
same could be sold for realization of the dues of provident<\/p>\n
fund.       Learned counsel submitted that the expression `any<\/p>\n
amount due’ appearing in Section 11(2) includes the amount<\/p>\n
determined         under    Section     7A,    interest     payable     on    such<\/p>\n
amount in terms of Section 7Q and damages levied under<\/p>\n
Section 14B.         Learned counsel then argued that by virtue of
\nthe deeming provision and non obstante clause contained in<\/p>\n
Section 11(2), any amount due from an employer in respect<\/p>\n
of the employees’ contribution or employer’s contribution<\/p>\n
is the first charge on the assets of the establishment and<\/p>\n
the same is required to be paid in priority qua all other<\/p>\n
debts.      Ms. Malvika Trivedi pointed out that notice in the<\/p>\n
SLPs filed by the appellant was issued primarily in view of<\/p>\n
the   assertions    contained      therein    that    similar    issue   is<\/p>\n
under consideration in S.L.P.(C) No.95 of 2005 – Central<\/p>\n
Bank of India v. State of Kerala and others and<\/a> submitted<\/p>\n
that the appeals are liable to be dismissed in view of the<\/p>\n
judgment titled Central Bank of India v. State of Kerala<\/a><\/p>\n
(2009) 4 SCC 94.\n<\/p>\n<\/p>\n
16.       We have considered the respective submissions.                 In<\/p>\n
pre-independence era, some of the big industrial employers<\/p>\n
introduced schemes of provident funds for welfare of their<\/p>\n
workers.       However,      the    workers    of     small     industrial<\/p>\n
establishments      did     not    get   similar      benefits     because<\/p>\n
employers     of    those    establishments        did   not     introduce<\/p>\n
voluntary schemes of provident funds.                The framers of the<\/p>\n
Constitution were very much alive to the plight of the<\/p>\n
working     class   and     particularly     the     unorganized    labour<\/p>\n
employed in factories and other establishments.                  They were<\/p>\n
also conscious of the fact that the goals of justice –<\/p>\n
social, economic and political and equality of status and<\/p>\n
of opportunity proposed to be incorporated in the preamble
\nto     the    Constitution                will        remain       illusory           for     weaker<\/p>\n
sections       of    society          unless          the       State     takes       affirmative<\/p>\n
legislative         and    administrative                   measures       for    ameliorating<\/p>\n
the    conditions          of    those          sections          including       the        workers<\/p>\n
employed in factories etc.                           Therefore, specific provisions<\/p>\n
were incorporated in Part IV of the Constitution with the<\/p>\n
title “Directive Principles of State Policy” casting an<\/p>\n
obligation         upon    the        State          to    apply       these     principles         in<\/p>\n
making       laws.        Article          38        which       has    been    renumbered         as<\/p>\n
clause       (1)     thereof          by        the        Constitution          (Forty-fourth<\/p>\n
Amendment) Act, 1978 declares that the State shall strive<\/p>\n
to    promote       the    welfare              of    the       people     by    securing          and<\/p>\n
protecting, as effectively as it may, a social order in<\/p>\n
which justice, social, economic and political, shall inform<\/p>\n
all    the    institutions                of    national          life.         Clause       (2)   of<\/p>\n
Article 38 mandates the State to strive to minimize the<\/p>\n
inequalities          in        income,              and     endeavour           to     eliminate<\/p>\n
inequalities in status, facilities and opportunities, not<\/p>\n
only amongst individuals but also amongst groups of people<\/p>\n
residing       in     different                areas       or     engaged        in     different<\/p>\n
avocations.          Article 43 casts a duty on the State to make<\/p>\n
efforts       to     secure          by    suitable          legislation          or        economic<\/p>\n
organization          or        in        any    other           way,     to     all        workers,<\/p>\n
agricultural, industrial or otherwise, work, a living wage,<\/p>\n
conditions of work ensuring a decent standard of life and<\/p>\n
full     enjoyment          of        leisure              and     social        and        cultural<\/p>\n
opportunities,            and,       in     particular,            social       opportunities.
\nThe State is also required to make special endeavour to<\/p>\n
promote cottage industries on an individual or cooperative<\/p>\n
basis in rural areas.\n<\/p>\n<\/p>\n
17.          Soon    after      enforcement         of   the    Constitution,       the<\/p>\n
Government          of   India     promulgated        the   Employees        Provident<\/p>\n
Funds Ordinance on 15.11.1951, which was replaced by the<\/p>\n
Act, which belongs to the family of legislations enacted by<\/p>\n
the Parliament in furtherance of the mandate of Articles 38<\/p>\n
and 43 of the Constitution and is intended to give social<\/p>\n
security to the workers employed in the factories and other<\/p>\n
establishments.              The    Act       provides      for       institution    of<\/p>\n
provident funds, pension fund and deposit-linked insurance<\/p>\n
fund in factories and other establishments.                              It requires<\/p>\n
the employers of the factories and specified establishments<\/p>\n
to deduct certain amount from the wages payable to the<\/p>\n
employees          and   also    make    contribution          to     various   funds,<\/p>\n
which        are    administered         by     the      Central       and   Regional<\/p>\n
Provident Fund Commissioners.                       Section 2(aa) of the Act<\/p>\n
defines the term “authorized officer” to mean the Central<\/p>\n
Provident Fund Commissioner, Additional Central Provident<\/p>\n
Fund    Commissioner,            Deputy       Provident        Fund     Commissioner,<\/p>\n
Regional Provident Fund Commissioner or such other officer<\/p>\n
as     may     be    authorised         by    the     Central       Government,      by<\/p>\n
notification in the Official Gazette.                          The term “Fund” has<\/p>\n
been defined in Section 2(h) to mean the provident fund<\/p>\n
established under a Scheme.                    The term “Recovery Officer”<\/p>\n
has been defined in Section 2(kd) to mean any officer of
\nthe Central Government, State Government or the Board of<\/p>\n
Trustees      constituted      under         Section     5A,     who        may    be<\/p>\n
authorised by the Central Government, by notification in<\/p>\n
the Official Gazette, to exercise the powers of a Recovery<\/p>\n
Officer under the Act.               Section 5(1) lays down that the<\/p>\n
Central Government may, by notification in the Official<\/p>\n
Gazette,     frame   a      Scheme     to     be    called     the    Employees’<\/p>\n
Provident Funds Scheme for the establishment of provident<\/p>\n
funds under this Act for employees or for any class of<\/p>\n
employees      and   specify     the        establishments      or     class        of<\/p>\n
establishments to which the said Scheme shall apply.                              This<\/p>\n
section further lays down that soon after framing of the<\/p>\n
Scheme, a Fund shall be established in accordance with the<\/p>\n
provisions of the Act and the Scheme. Section 6 speaks of<\/p>\n
the contribution required to be made by the employer and<\/p>\n
employees to the Fund.          Section 6A(1) postulates framing of<\/p>\n
Employees’     Pension      Scheme     for    the     purpose    of    providing<\/p>\n
superannuation pension, retiring pension or permanent total<\/p>\n
disablement pension to the employees of any establishment<\/p>\n
or class of establishments to which this Act applies and<\/p>\n
widow   or    widower’s      pension,       children     pension       or    orphan<\/p>\n
pension payable to the beneficiaries of such employees.<\/p>\n
Section      6A(2)   lays     down     that        notwithstanding      anything<\/p>\n
contained in Section 6, there shall be established, as soon<\/p>\n
as may be after framing of the Pension Scheme, a pension<\/p>\n
fund to which a specified sum should be paid from the<\/p>\n
employer’s contribution under Section 6.                        Section 6C(1)
\npostulates framing of Employees’ Deposit-linked Insurance<\/p>\n
Scheme for the purpose of providing life insurance benefits<\/p>\n
to    the   employees   of   any    establishment   or    class   of<\/p>\n
establishments to which the Act applies.            Section 6C(2)<\/p>\n
provides for establishment of a Deposit-linked Insurance<\/p>\n
Fund into which the employer is required to pay a specified<\/p>\n
amount in respect of every employee.           Section 7A empowers<\/p>\n
the    competent   authority   to     decide    dispute    regarding<\/p>\n
applicability of the Act to an establishment as also the<\/p>\n
amount due from any employer under the provisions of the<\/p>\n
Act, the Scheme or the Pension Scheme or the Insurance<\/p>\n
Scheme, as the case may be.         Section 7Q declares that the<\/p>\n
employer shall be liable to pay simple interest at the rate<\/p>\n
of twelve per cent per annum or at such higher rate as may<\/p>\n
be specified in the Scheme on any amount due from him under<\/p>\n
the Act from the date on which the amount has become so due<\/p>\n
till the date of its actual payment.              Proviso to this<\/p>\n
Section lays down that higher rate of interest specified in<\/p>\n
the Scheme shall not exceed the lending rate of interest<\/p>\n
charged by any scheduled bank.          Section 8 specifies the<\/p>\n
mode of recovery of moneys due from employers.            Section 8B<\/p>\n
lays down that where any amount is in arrear under Section<\/p>\n
8, the authorized officer may issue a certificate to the<\/p>\n
Recovery Officer specifying therein the amount of arrears<\/p>\n
and on receipt of the certificate, the Recovery Officer<\/p>\n
shall proceed to recover the particular amount from the<\/p>\n
establishment or the employer by adopting one or more of
\nthe modes specified in that section.   Section 8F specifies<\/p>\n
other modes of recovery.   Section 11 speaks of priority of<\/p>\n
payment of contributions over other debts.      Section 14B<\/p>\n
provides for recovery of damages.   Some of these provisions<\/p>\n
which have direct bearing on the decision of these appeals<\/p>\n
are reproduced below:\n<\/p>\n
8. Mode of recovery of moneys due from employer – Any
\namount due–\n<\/p>\n
     (a) from the employer in relation to an
\n     establishment   to  which  any  Scheme   or  the
\n     Insurance Scheme applies in respect of any
\n     contribution payable to the Fund or, as the case
\n     may be, the Insurance Fund damages recoverable
\n     under section 14B, accumulations required to be
\n     transferred under sub-section (2) of section 15
\n     or under sub-section (5) of section 17 or any
\n     charges payable by him under any other provision
\n     of this Act or of any provision of the Scheme or
\n     the Insurance Scheme; or\n<\/p><\/blockquote>\n
     (b) from the employer in relation to an exempted
\n     establishment   in   respect   of   any   damages
\n     recoverable under section 14B or any charges
\n     payable by him to the appropriate Government
\n     under any provision of this Act or under any of
\n     the conditions specified under section 17 or in
\n     respect of the contribution payable by him
\n     towards the Pension Scheme under the said section\n<\/p><\/blockquote>\n
     17.
\n     may, if the amount is in arrear, be recovered in
\n     the manner specified in sections 8B to 8G.\n<\/p><\/blockquote>\n
     8B. Issue of certificate to the Recovery Officer.
\n     (1) Where any amount is in arrear under section
\n     8, the authorised officer may issue, to the
\n     Recovery   Officer,  a   certificate   under  his
\n     signature specifying the amount of arrears and
\n     the   Recovery  Officer,    on receipt   of  such
\n     certificate, shall proceed to recover the amount
\n     specified therein from the establishment or, as
\n     the case may be, the employer by one or more of
\n     the modes mentioned below:–<\/p><\/blockquote>\n
     (a) attachment and sale of the movable or
\n     immovable property of the establishment or, as
\nthe case may be, the employer;\n<\/p>\n<\/p>\n
(b) arrest of the employer and his detention in
\nprison;\n<\/p>\n<\/p>\n
(c) appointing a receiver for the management of
\nthe movable or immovable properties of the
\nestablishment or, as the case may be, the
\nemployer:\n<\/p>\n
\nProvided that the attachment and sale of any
\nproperty under this section shall first be
\neffected   against    the   properties    of  the
\nestablishment and where such attachment and sale
\nis insufficient for recovering the whole of the
\namount of arrears specified in the certificate,
\nthe Recovery Officer may take such proceedings
\nagainst the property of the employer for recovery
\nof the whole or any part of such arrears.<\/p>\n
(2)   The   authorised   officer   may   issue   a
\ncertificate      under       sub-section      (1),
\nnotwithstanding that proceedings for recovery of
\nthe arrears by any other mode have been taken.<\/p>\n
8F. Other modes of recovery.\n<\/p>\n
(1) Notwithstanding the issue of a certificate to
\nthe Recovery Officer under section 8B, the
\nCentral Provident Fund Commissioner or any other
\nofficer authorised by the Central Board may
\nrecover the amount by any one or more of the
\nmodes provided in this section.\n<\/p>\n<\/p>\n
(2)    xxx     xxx     xxx             xxx\n\n\n(3)(i) to (ix) xxx     xxx             xxx\n\n\n<\/pre>\n
(x) If the person to whom a notice under this
\nsub-section is sent fails to make payment in
\npursuance thereof to the Central Provident Fund
\nCommissioner or the officer so authorized he
\nshall be deemed to be an employer in default in
\nrespect of the amount specified in the notice and
\nfurther proceedings may be taken against him for
\nthe realization of the amount as if it were an
\narrear due from him, in the manner provided in
\nsections 8B to 8E and the notice shall have the
\nsame effect as an attachment of a debt by the
\nRecovery Officer in exercise of his powers under
\nsection 8B.\n<\/p>\n<\/p>\n
(4)    xxx       xxx    xxx                xxx<\/p>\n
(5) The Central Provident Fund Commissioner or
\nany officer not below the rank of Assistant
\nProvident Fund Commissioner may, if so authorised
\nby the Central Government by general or special
\norder, recover any arrears of amount due from an
\nemployer or, as the case may be, from the
\nestablishment by distraint and sale of his or its
\nmovable property in the manner laid down in the
\nThird Schedule to the Income-tax Act, 1961 (43 of
\n1961).\n<\/p>\n
\n8G. Application of certain provisions of Income-
\ntax Act – The provisions of the Second and Third
\nSchedules to the Income-tax Act, 1961 (43 of
\n1961)    and    the    Income-tax    (Certificate
\nProceedings) Rules, 1962, as in force from time
\nto time, shall apply with necessary modifications
\nas if the said provisions and the rules referred
\nto the arrears of the amount mentioned in section
\n8 of this Act instead of to the Income-tax;
\nProvided   that  any   reference  in  the   said
\nprovisions and the rules to the “assessee” shall
\nbe construed as a reference to an employer as
\ndefined in this Act.\n<\/p>\n<\/p>\n
11.Priority of    payment     of   contributions   over
\nother debts.\n<\/p>\n
(l) Where any employer is adjudicated insolvent
\nor, being a company, an order for winding up is
\nmade, the amount due–\n<\/p>\n
(a) from the employer in relation to an
\nestablishment   to  which   any  Scheme  or  the
\nInsurance Scheme applies in respect of any
\ncontribution payable to the Fund or, as the case
\nmay be, the Insurance Fund, damages recoverable
\nunder section 14B, accumulations required to be
\ntransferred under sub-section (2) of section 15
\nor any charges payable by him under any other
\nprovision of this Act or of any provision of the
\nScheme or the Insurance Scheme; or\n<\/p>\n
(b) from the employer in relation to an exempted
\nestablishment in respect of any contribution to
\nthe provident fund or any insurance fund (in so
\nfar it relates to exempted employees), under the
\nrules of the provident fund or any insurance
\nfund, any contribution payable by him towards the
\nPension Fund under sub-section (6) of section 17,
\ndamages recoverable under section 14B or any
\ncharges payable by him to the appropriate
\nGovernment under any provision of this Act or
\nunder any of the conditions specified under
\nsection 17,
\nshall, where the liability therefor has accrued
\nbefore the order of adjudication or winding up is
\nmade, be deemed to be included among the debts
\nwhich under section 49 of the Presidency-towns
\nInsolvency Act, 1909 (3 of 1909), or under
\nsection 61 of the Provincial Insolvency Act, 1920
\n(5 of 1920) or under section 530 of the Companies
\nAct, 1956 (1 of 1956) are to be paid in priority
\nto all other debts in the distribution of the
\nproperty of the insolvent or the assets of the
\ncompany being wound up, as the case may be.
\nExplanation: In this sub-section and in section
\n17, “insurance fund” means any fund established
\nby an employer under any scheme for providing
\nbenefits in the nature of life insurance to
\nemployees, whether linked to their deposits in
\nprovident fund or not, without payment by the
\nemployees of any separate contribution or premium
\nin that behalf.\n<\/p>\n
\n(2) Without prejudice to the provisions of sub-
\nsection (1), if any amount is due from an
\nemployer whether in respect of the employees’
\ncontribution (deducted from the wages of the
\nemployee) or the employer’s contribution, the
\namount so due shall be deemed to be the first
\ncharge on the assets of the establishment, and
\nshall, notwithstanding anything contained in any
\nother law for the time being in force, be paid in
\npriority to all other debts.\n<\/p>\n
\n14B. Power to recover damages.\n<\/p>\n
Where an employer makes default in the payment of
\nany contribution to the Fund, the Pension Fund or
\nthe Insurance Fund or in the transfer of
\naccumulations required to be transferred by him
\nunder sub-section (2) of section 15 or sub-
\nsection (5) of section 17 or in the payment of
\nany charges payable under any other provision of
\n       this Act or of any Scheme or Insurance Scheme or
\n       under any of the conditions specified under
\n       section    17,   the   Central  Provident    Fund
\n       Commissioner or such other officer as may be
\n       authorised    by  the   Central  Government,   by
\n       notification in the Official Gazette, in this
\n       behalf may recover from the employer such
\n       damages, not exceeding the amount of arrears, as
\n       may be specified in the scheme:\n<\/p>\n
\n       Provided that before levying and recovering such
\n       damages, the employer shall be given a reasonable
\n       opportunity of being heard:\n<\/p>\n
\n       Provided further that the Central Board may
\n       reduce or waive the damages levied under this
\n       section in relation to an establishment which is
\n       a sick industrial company and in respect of which
\n       a scheme for rehabilitation has been sanctioned
\n       by the Board for Industrial and Financial
\n       Reconstruction established under section 4 of the
\n       Sick Industrial Companies (Special Provisions)
\n       Act, 1985 (1 of 1986), subject to such terms and
\n       conditions as may be specified in the Scheme.<\/p>\n
18.       An analysis of the above provisions shows that for<\/p>\n
providing financial benefits to the workers who contribute<\/p>\n
to the growth of the industries and industrialization of<\/p>\n
the country, the legislature has made provision for framing<\/p>\n
of various schemes under Sections 5(1), 6A(1) and 6C(1) and<\/p>\n
establishment         of   Funds   under    Sections      5(1),   6A(2)   and<\/p>\n
6C(2).         With    a    view     to   ensure    that    the    employers<\/p>\n
religiously comply with the mandate of provisions enacted<\/p>\n
for benefit of the workers, the legislature has not only<\/p>\n
provided for imposition of penalty under Sections 14, 14A,<\/p>\n
14AA     and    damages      under    Section      14B,    but    also    made<\/p>\n
comprehensive provisions for recovery of the dues by way of<\/p>\n
attachment and sale of movable or immovable property of the
\nestablishment or the employer, as the case may be.               Section<\/p>\n
8 lays down that if the amount is in arrear, the same can<\/p>\n
be recovered in the manner specified in Sections 8B to G.<\/p>\n
Section     8B    provides    for   issue   of    certificate    by     the<\/p>\n
authorised officer in respect of the amount due to the<\/p>\n
Recovery Officer so as to enable him to recover the amount<\/p>\n
specified    therein    by    attachment    and   sale   of   movable    or<\/p>\n
immovable property of the establishment or the employer or<\/p>\n
by arrest of the employer and his detention in prison or by<\/p>\n
appointing a receiver for the management of the movable or<\/p>\n
immovable properties of the establishment or the employer,<\/p>\n
as the case may be.           Section 8F specifies other modes of<\/p>\n
recovery of any amount due from the establishment or the<\/p>\n
employer.        By Section 8G some of the provisions contained<\/p>\n
in Income-tax Act, 1961 and the Income-tax (Certificate<\/p>\n
Proceedings) Rules, 1962 have been made applicable to the<\/p>\n
arrears of the amount mentioned in Section 8.                 Section 11<\/p>\n
gives statutory priority to the payment of contributions<\/p>\n
over other debts.        The original Section 11 was renumbered<\/p>\n
as sub-section (1) by an amendment made vide Act No.40 of<\/p>\n
1973.     This sub-section relates to priority qua an employer<\/p>\n
who is adjudged insolvent or being a company an order of<\/p>\n
winding up is made.          It lays down that the amount due from<\/p>\n
the employer in respect of any contribution payable to the<\/p>\n
Fund or, as the case may be, the Insurance Fund, damages<\/p>\n
recoverable under Section 14B, accumulations required to be<\/p>\n
transferred under Section 15(2) or any charges payable by
\nhim under any other provision of the Act or the Scheme or<\/p>\n
the Insurance Scheme shall be paid in priority to all other<\/p>\n
debts in the distribution of the property of the insolvent<\/p>\n
or the assets of the company being wound up, as the case<\/p>\n
may be.       Sub-section (2), which was added to Section 11 by<\/p>\n
Act No.40 of 1973 contains a non obstante clause and lays<\/p>\n
down that if any amount is due from the employer whether in<\/p>\n
respect of the employees’ contribution deducted from the<\/p>\n
wages of the employee or the employer’s contribution, the<\/p>\n
same shall be deemed to be the first charge on the assets<\/p>\n
of the establishment and shall, notwithstanding anything<\/p>\n
contained in any other law for the time being in force, be<\/p>\n
paid     in    priority      to   all    other      debts.       To    put    it<\/p>\n
differently,         sub-section      (2)    of     Section    11     not    only<\/p>\n
declares      that    the    amount   due    from    the   employer     towards<\/p>\n
contribution under the Act shall be treated as the first<\/p>\n
charge on the assets of the establishment, but also lays<\/p>\n
down that notwithstanding anything contained in any other<\/p>\n
law, such dues shall be paid in priority to all other<\/p>\n
debts.    Section      14B    empowers      the   Central     Provident      Fund<\/p>\n
Commissioner or such other officer as may be authorized by<\/p>\n
the Central Government, by notification in the Official<\/p>\n
Gazette to recover from the defaulting employer damages<\/p>\n
which shall not exceed the arrears.                  First proviso to this<\/p>\n
section casts a duty on the concerned officer to give the<\/p>\n
employer reasonable opportunity of hearing before imposing<\/p>\n
and recovering damages.               Second proviso thereto empowers
\nthe Central Board to reduce or waive damages levied in<\/p>\n
relation      to   establishment      which      is   a     sick    industrial<\/p>\n
company and in respect of which a scheme for rehabilitation<\/p>\n
has    been     sanctioned     by    the     Board     of    Financial     and<\/p>\n
Industrial Reconstruction.\n<\/p>\n<\/p>\n
19.      Since     the   Act    is   a     social     welfare      legislation<\/p>\n
intended to protect the interest of a weaker section of the<\/p>\n
society, i.e., the workers employed in factories and other<\/p>\n
establishments, it is imperative for the courts to give a<\/p>\n
purposive      interpretation        to    the      provisions       contained<\/p>\n
therein keeping in view the Directive Principles of State<\/p>\n
Policy embodied in Articles 38 and 43 of the Constitution.<\/p>\n
In    this    context,   we    may   usefully       notice    the    following<\/p>\n
observations made by Krishna Iyer, J. in Organo Chemical<\/p>\n
Industries v. Union of India<\/a> (1979) 4 SCC 573:<\/p>\n
       “The pragmatics of the situation is that if the
\n       stream of contributions were frozen by employers’
\n       defaults after due deduction from the wages and
\n       diversion for their own purposes, the scheme
\n       would be damnified by traumatic starvation of the
\n       Fund, public frustration from the failure of the
\n       project   and  psychic   demoralisation  of   the
\n       miserable beneficiaries whey they find their
\n       wages deducted and the employer get away with it
\n       even after default in his own contribution and
\n       malversation of the workers’ share. “Damages”
\n       have a wider socially semantic connotation than
\n       pecuniary loss of interest on non-payment when a
\n       social welfare scheme suffers mayhem on account
\n       of the injury. Law expands concepts to embrace
\n       social needs so as to become functionally
\n       effectual.<\/p><\/blockquote>\n
       The measure was enacted for the support of a
\n       weaker sector viz. the working class during the
\n       superannuated winter of their life. The financial
\n       reservoir for the distribution of benefits is
\n       filled by the employer collecting, by deducting
\n       from the workers’ wages, completing it with his
\n       own equal share and duly making over the gross
\n       sums to the Fund. If the employer neglects to
\n       remit or diverts the moneys for alien purposes
\n       the Fund gets dry and the retirees are denied the
\n       meagre support when they most need it. This
\n       prospect of destitution demoralises the working
\n       class and frustrates the hopes of the community
\n       itself. The whole project gets stultified if
\n       employers thwart contributory responsibility and
\n       this wider fall-out must colour, the concept of
\n       `damages’ when the court seeks to define its
\n       content in the special setting of the Act. For,
\n       judicial interpretation must further the purpose
\n       of a statute. In a different context and
\n       considering a fundamental treaty, the European
\n       Court of Human Rights, in the Sunday Times Case,
\n       observed:\n<\/p>\n
       The Court must interpret them in a way that
\n       reconciles them as far as possible and is most
\n       appropriate in order to realise the aim and
\n       achieve the object of the treaty.\n<\/p>\n
       A policy-oriented interpretation, when a welfare
\n       legislation falls for determination, especially
\n       in the context of a developing country, is
\n       sanctioned by principle and precedent and is
\n       implicit in Article 37 of the Constitution since
\n       the judicial branch is, in a sense, part of the
\n       State. So it is reasonable to assign to “damages”
\n       a larger, fulfilling meaning.”\n<\/p>\n<\/p>\n
20.      We   shall   now   consider   the   question    whether   the<\/p>\n
provision contained in Section 11(2) of the Act operates<\/p>\n
against other debts like mortgage, pledge, etc.            Answer to<\/p>\n
this   question   is    clearly    discernible    from    the   plain<\/p>\n
language of Section 11.       The priority given to the dues of<\/p>\n
provident fund etc. in Section 11 is not hedged with any<\/p>\n
limitation or condition.          Rather, a bare reading of the<\/p>\n
section makes it clear that the amount due is required to<\/p>\n
be paid in priority to all other debts.           Any doubt on the<\/p>\n
width and scope of Section 11 qua other debts is removed by
\nthe use of expression `all other debts’ in both the sub-<\/p>\n
sections.        This    would       mean      that       the    priority      clause<\/p>\n
enshrined in Section 11 will operate against statutory as<\/p>\n
well as      non-statutory          and    secured        as    well   as   unsecured<\/p>\n
debts including a mortgage or pledge.                          Sub-section (2) was<\/p>\n
designedly       inserted      in    the       Act    for      ensuring     that    the<\/p>\n
provident fund dues of the workers are not defeated by<\/p>\n
prior claims of secured or unsecured creditors.                               This is<\/p>\n
the reason why the legislature took care to declare that<\/p>\n
irrespective of time when a debt is created in respect of<\/p>\n
the assets of the establishment, the dues payable under the<\/p>\n
Act would always remain first charge and shall be paid<\/p>\n
first      out      of     the       assets          of        the     establishment<\/p>\n
notwithstanding anything contained in any other law for the<\/p>\n
time being in force.             It is, therefore, reasonable to take<\/p>\n
the view that the statutory first charge created on the<\/p>\n
assets of the establishment by sub-section (2) of Section<\/p>\n
11 and priority given to the payment of any amount due from<\/p>\n
an employer will operate against all types of debts.<\/p>\n
21.       The view we have taken on the interpretation of<\/p>\n
Section 11(2) is in tune with a series of decisions of this<\/p>\n
Court   in    which      the     provisions          contained         in   different<\/p>\n
statutes     giving      priority         to   the    dues      of   the    State   and<\/p>\n
workers have been interpreted.                   In the first place, we may<\/p>\n
refer to some decisions relating to dues of the State.                              In<\/p>\n
Builders Supply Corporation v. Union of India 1965(2) SCR<\/p>\n
289, the Constitution Bench considered the question whether
\ntax payable to the Union of India has priority over other<\/p>\n
debts.       After making reference to some judgments of the<\/p>\n
Bombay and Madras High Courts, the Constitution Bench laid<\/p>\n
down the following propositions:\n<\/p>\n
       1. There is a consensus of judicial opinion that
\n       the arrears of tax due to the State can claim
\n       priority over private debts.\n<\/p><\/blockquote>\n
       2. The common law doctrine about priority of Crown
\n       debts which was recognised by Indian High Courts
\n       prior to 1950 constitutes “law in force” within
\n       the meaning of Article 372(1) and continues to be
\n       in force.\n<\/p><\/blockquote>\n
       3. The basic justification for the claim for
\n       priority of State debts is the rule of necessity
\n       and the wisdom of conceding to the State the right
\n       to claim priority in respect of its tax dues.\n<\/p><\/blockquote>\n
       4. The doctrine may not apply in respect of debts
\n       due to the State if they are contracted by
\n       citizens in relation to commercial activities
\n       which may be undertaken by the State for achieving
\n       socio-economic good. In other words, where the
\n       welfare State enters into commercial fields which
\n       cannot be regarded as an essential and integral
\n       part of the basic government functions of the
\n       State and seeks to recover debts from its debtors
\n       arising out of such commercial activities the
\n       applicability of the doctrine of priority shall be
\n       open for consideration.\n<\/p><\/blockquote>\n
22.      In State Bank of Bikaner and Jaipur v. National<\/p>\n
Iron   and    Steel   Rolling   Corporation<\/a>   (1995)   2   SCC   19,   a<\/p>\n
three-Judge Bench considered whether statutory first charge<\/p>\n
created by Section 11-AAAA of the Rajasthan Sales Tax Act,<\/p>\n
1954 in favour of the State will have priority over the<\/p>\n
debts of the bank which had been secured by the borrower by<\/p>\n
creating mortgage of its factory and answered the same in<\/p>\n
affirmative by making the following observations:
\n“Section 100 of the Transfer of Property Act
\ndeals with charges on an immoveable property
\nwhich can be created either by an act of parties
\nor by operation of law. It provides that where
\nimmoveable property of one person is made
\nsecurity for the payment of money to another, and
\nthe transaction does not amount to a mortgage, a
\ncharge is created on the property and all the
\nprovisions in the Transfer of Property Act which
\napply to a simple mortgage shall, so far as may
\nbe, apply to such charge. A mortgage on the other
\nhand, is defined under Section 58 of the Transfer
\nof Property Act as a transfer of an interest in
\nspecific immoveable property for the purpose of
\nsecuring the payment of money advanced or to be
\nadvanced as set out therein. The distinction
\nbetween a mortgage and a charge was considered by
\nthis Court in the case of Dattatreya Shanker Mote
\nv. Anand Chintaman Datar<\/a> (1974) 2 SCC 799. The
\nCourt has observed (at pages 806-807) that a
\ncharge is a wider term as it includes also a
\nmortgage, in that, every mortgage is a charge,
\nbut every charge is not a mortgage. The Court has
\nthen considered the application of the second
\npart of Section 100 of the Transfer of Property
\nAct which inter alia deals with a charge not
\nbeing enforceable against a bona fide transferee
\nof the property for value without notice of the
\ncharge. It has held that the phrase “transferee
\nof property” refers to the transferee of entire
\ninterest in the property and it does not cover
\nthe transfer of only an interest in the property
\nby way of a mortgage.\n<\/p>\n
\nIn the present case we have to consider whether
\nthe statutory first charge which is created under
\nSection 11-AAAA of the Rajasthan Sales Tax Act
\nover the property of the dealer or a person
\nliable to pay sales tax and\/or other dues under
\nthe Rajasthan Sales Tax Act, is created in
\nrespect of the entire interest in the property or
\nonly the mortgagor’s interest in the property
\nwhen the dealer has created a mortgage on the
\nproperty. In other words, will the statutory
\nfirst charge have priority over an earlier
\nmortgage. It was urged by Mr. Tarkunde, learned
\ncounsel for the appellant-bank that at the time
\nwhen the statutory first charge came into
\nexistence, there was already a mortgage in
\nrespect of the same property. Therefore, the only
\nproperty which was possessed by the dealer and\/or
\nperson liable to pay tax or other dues under the
\nRajasthan Sales Tax Act, was equity of redemption
\n      in respect of that property. The first charge
\n      would operate, therefore, only on the equity of
\n      redemption. The argument though ingenious, will
\n      have to be rejected. Where a mortgage is created
\n      in respect of any property, undoubtedly, an
\n      interest in the property is carved out in favour
\n      of the mortgagee. The mortgagor is entitled to
\n      redeem his property on payment of the mortgage
\n      dues. This does not, however, mean that the
\n      property ceases to be the property of the
\n      mortgagor. The title to the property remains with
\n      the mortgagor. Therefore, when a statutory first
\n      charge is created on the property of the dealer,
\n      the property subjected to the first charge is the
\n      entire property of the dealer. The interest of
\n      the mortgagee is not excluded from the first
\n      charge. The first charge, therefore, which is
\n      created under Section 11-AAAA of the Rajasthan
\n      Sales Tax Act will operate on the property as a
\n      whole and not only on the equity of redemption as
\n      urged by Mr. Tarkunde.\n<\/p>\n
\n      In the present case, the section creates a first
\n      charge on the property, thus clearly giving
\n      priority to the statutory charge over all other
\n      charges on the property including a mortgage. The
\n      submission, therefore, that the statutory first
\n      charge   created  by   Section  11-AAAA  of   the
\n      Rajasthan Sales Tax Act can operate only over the
\n      equity of redemption, cannot be accepted. The
\n      charge operates on the entire property of the
\n      dealer including the interest of the mortgagee
\n      therein.\n<\/p>\n
\n      Looked at a little differently, the statute has
\n      created a first charge on the property of the
\n      dealer. What is meant by a “first charge”? Does
\n      it have precedence over an earlier mortgage? Now,
\n      as set out in Dattatreya Shanker Mote case (1974)
\n      2 SCC 799 a charge is a wider term than a
\n      mortgage. It would cover within its ambit a
\n      mortgage also. Therefore, when a first charge is
\n      created by operation of law over any property,
\n      that charge will have precedence over an existing
\n      mortgage.”\n<\/p>\n
                                          (emphasis supplied)<\/p>\n
23.      In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.<\/a><\/p>\n
(2000)   5   SCC   694,   a   two-Judge   Bench   reiterated    the
\nprinciples     enunciated        in    Builders       Supply       Corporation     v.<\/p>\n
Union    of    India    (supra)       and     proceeded       to      observe    that<\/p>\n
Section 158(1) of the Karnataka Land Revenue Act not only<\/p>\n
gives a statutory recognition to the doctrine of State’s<\/p>\n
priority      for    recovery     of    debts,        but   also       extends    its<\/p>\n
applicability over private debts forming the subject matter<\/p>\n
of mortgage, judgment, decree, execution or attachment of<\/p>\n
the like.\n<\/p>\n<\/p>\n
24.      In State of M.P. v. State Bank of Indore (2002) 10<\/p>\n
SCC   441,    this     Court    considered       whether         statutory      first<\/p>\n
charge created under Section                    33-C of the M.P. General<\/p>\n
Sales Tax Act, 1958 would prevail over the bank’s charge.<\/p>\n
The facts of that case were that for securing repayment of<\/p>\n
the   loan    obtained     from       the    State     Bank      of    Indore,    the<\/p>\n
borrower executed a promissory note and pledged certain<\/p>\n
machinery.      The bank sued the borrower for recovery of its<\/p>\n
dues.    During the pendency of the case instituted by the<\/p>\n
bank,    Section       33-C     was     inserted       in     the      State     Act.<\/p>\n
Thereafter, the State claimed priority in the matter of<\/p>\n
recovery of dues of sales tax vis-`-vis the dues of the<\/p>\n
bank.    The trial Court and the High Court rejected the plea<\/p>\n
of the State.           The High Court observed that the bank’s<\/p>\n
charge   on    the     machinery       was    prior    to     the     insertion    of<\/p>\n
Section 33-C in the State Act and the subsequent loans<\/p>\n
taken in 1979 do not alter the position in favour of the<\/p>\n
State.   The    High     Court    then       proceeded      to     hold   that    the
\ncharge created in favour of the Bank remains valid and<\/p>\n
operative till repayment of the loan. This Court reversed<\/p>\n
the judgments of the trial Court and the High Court and<\/p>\n
held:\n<\/p>\n
        “Section 33-C creates a statutory first charge
\n        that prevails over any charge that may be in
\n        existence. Therefore, the charge thereby created
\n        in favour of the State in respect of the sales
\n        tax dues of the second respondent prevail over
\n        the charge created in favour of the Bank in
\n        respect   of  the   loan    taken  by   the   second
\n        respondent.    There     is     no    question    of
\n        retrospectivity here, as, on the date when it was
\n        introduced, Section 33-C operated in respect of
\n        all charges that were then in force and gave
\n        sales tax dues precedence over them.”\n<\/p><\/blockquote>\n
25.       Recently,     in    Central      Bank    of   India      v.    State      of<\/p>\n
Kerala<\/a>    2009(4)     SCC    94,    the    issue    was     considered         in    a<\/p>\n
slightly    different        perspective.         The     appellant-bank         had<\/p>\n
challenged the vires of Section 26-B of the Kerala General<\/p>\n
Sales Tax Act, 1963, whereby first charge was created on<\/p>\n
the property of the dealer or the person liable to pay tax<\/p>\n
by contending        that    the    same   was    beyond     the    legislative<\/p>\n
competence of the State and was also inconsistent with the<\/p>\n
provisions contained in the Recovery of Debts Due to Banks<\/p>\n
and Financial Institutions Act, 1963 and the Securitization<\/p>\n
and Reconstruction of Financial Assets and Enforcement of<\/p>\n
Security Interest Act, 2002.                  In the connected appeals,<\/p>\n
vires of Section 38C of the Bombay Sales Tax Act, 1959 was<\/p>\n
challenged    on     similar       grounds.        This    Court        considered<\/p>\n
various     facets     of     the    challenge      and      held       that     the<\/p>\n
provisions contained in the Sales Tax Act were not beyond
\nthe legislative competence of the State.               The Court further<\/p>\n
held that there is no inconsistency between the provisions<\/p>\n
of the State and Central Acts and the non obstante clauses<\/p>\n
contained in the Central legislations will not override the<\/p>\n
provisions of the State legislations by which first charge<\/p>\n
was   created    in     favour    of   the    State   in   the   matter   of<\/p>\n
recovery of the dues of sales tax.\n<\/p>\n<\/p>\n
26.       We    shall    now     notice      some   decisions    in   which<\/p>\n
statutes giving parity or priority to the workers claim<\/p>\n
have been interpreted.           In UCO Bank v. Official Liquidator,<\/p>\n
High Court Bombay and<\/a> another (1994) 5 SCC 1, this Court<\/p>\n
considered the scope of proviso to Section 529(1) of the<\/p>\n
Companies Act as inserted by the Companies (Amendment) Act,<\/p>\n
1985.    The Court noted that the object of the amendment was<\/p>\n
to protect the interest of the workers and to place them at<\/p>\n
par with secured creditors and held:\n<\/p>\n
        “The proviso to sub-section (1) of Section 529
\n        inserted by the Amending Act clearly provides that
\n        “the security of every secured creditor shall be
\n        deemed to be subject to a pari passu charge in
\n        favour of the workmen”. The effect of the proviso
\n        is to create, by statute, a charge pari passu in
\n        favour of the workmen on every security available
\n        to the secured creditors of the employer company
\n        for recovery of their debts at the time when the
\n        amendment came into force. This expression is wide
\n        enough to apply to the security of every secured
\n        creditor which remained unrealised on the date of
\n        the amendment. The clear object of the amendment
\n        is that the legitimate dues of workers must rank
\n        pari passu with those of secured creditors and
\n        above even the dues of the Government. This
\n        literal   construction  of   the  proviso   is  in
\n        consonance with, and promotes, the avowed object
\n        of the amendment made. On the contrary, the
\n      construction of the proviso suggested by the
\n      learned counsel for the appellant, apart from
\n      being in conflict with the plain language of the
\n      proviso   also   defeats  the   object  of   the
\n      legislation.\n<\/p><\/blockquote>\n
      A debt due to a secured creditor, when recovered
\n      by realisation of the security after commencement
\n      of   the  winding    up   proceedings,   results  in
\n      depletion of the assets in the hands of the
\n      Official Liquidator. This provision is intended to
\n      protect   the    interests    of   the   workmen  in
\n      proceedings for winding up. In view of the nature
\n      of workmen’s dues being similar to those of
\n      secured creditors, the purpose of this provision
\n      is to place the workmen on a par with the secured
\n      creditors and create a statutory charge in their
\n      favour on all available securities forming part of
\n      the assets of the company in liquidation so that
\n      the workmen also share the securities pari passu
\n      with the secured creditors. The workmen contribute
\n      to the growth of the capital and must get their
\n      legitimate share in the assets of the company when
\n      the   situation    arises   for   its   closure  and
\n      distribution of its assets first among the secured
\n      creditors due to winding up of the company. The
\n      aforesaid amendment made in the Act is a statutory
\n      recognition   of    this   principle   equating  the
\n      legitimate dues of the workmen with the debts of
\n      the secured creditors of the company. To achieve
\n      this purpose, it is necessary that the amended
\n      provision must apply to all available securities
\n      which form part of the assets of the company in
\n      liquidation on the date of the amendment. The
\n      conclusion reached by the Division Bench of the
\n      High Court is supported by this reason.”\n<\/p><\/blockquote>\n
                                       (emphasis supplied)<\/p>\n<\/blockquote>\n
27.     In   A.P.   State   Financial   Corporation   v.   Official<\/p>\n
Liquidator<\/a> (supra), this Court considered the inter-play of<\/p>\n
Section 29(1) of the State Financial Corporations Act, 1951<\/p>\n
and Section 529A of the Companies Act, 1956, which is pari<\/p>\n
materia to Section 11(2) of the Act, and held:\n<\/p><\/blockquote>\n
      “The Act of 1951 is a special Act for grant of
\n      financial assistance to industrial concerns with a
\n      view to boost up industrialisation and also
\n      recovery of such financial assistance if it
\n      becomes bad and similarly the Companies Act deals
\n      with companies including winding up of such
\n      companies. The proviso to sub-section (1) of
\n      Section 529 and Section 529-A being a subsequent
\n      enactment, the non obstante clause in Section 529-
\n      A prevails over Section 29 of the Act of 1951 in
\n      view of the settled position of law. We are,
\n      therefore, of the opinion that the above proviso
\n      to sub-section (1) of Section 529 and Section 529-
\n      A will control Section 29 of the Act of 1951. In
\n      other words the statutory right to sell the
\n      property under Section 29 of the Act of 1951 has
\n      to be exercised with the rights of pari passu
\n      charge to the workmen created by the proviso to
\n      Section 529 of the Companies Act. Under the
\n      proviso to sub-section (1) of Section 529, the
\n      liquidator shall be entitled to represent the
\n      workmen and force (sic enforce) the above pari
\n      passu charge. Therefore, the Company Court was
\n      fully justified in imposing the above conditions
\n      to enable the Official Liquidator to discharge his
\n      function properly under the supervision of the
\n      Company Court as the new Section 529-A of the
\n      Companies Act confers upon a Company Court the
\n      duty to ensure that the workmen’s dues are paid in
\n      priority to all other debts in accordance with the
\n      provisions of the above section. The legislature
\n      has amended the Companies Act in 1985 with a
\n      social purpose viz. to protect dues of the
\n      workmen. If conditions are not imposed to protect
\n      the   right  of   the   workmen  there  is   every
\n      possibility   that   the   secured  creditor   may
\n      frustrate the above pari passu right of the
\n      workmen.”\n<\/p><\/blockquote>\n
                                         (emphasis supplied)<\/p>\n<\/blockquote>\n
28.     In   Textile    Labour   Association     and       another    v.\n<\/p><\/blockquote>\n
Official   Liquidator   and   another   (2004)   9   SCC    741,     this<\/p>\n
Court again interpreted the scope of Section 529-A of the<\/p>\n
Companies Act, 1956 and held:\n<\/p>\n
      “The effect of Sections 529 and 529-A is that the
\n      workmen of the company become secured creditors by
\n      operation of law to the extent of the workmen’s
\n      dues provided there exists secured creditor by
\n      contract. If there is no secured creditor then the
\n      workmen   of   the    company   become   unsecured
\n      preferential creditors under Section 529-A to the
\n      extent of the workmen’s dues. The purpose of
\n       Section 529-A is to ensure that the workmen should
\n       not be deprived of their legitimate claims in the
\n       event of the liquidation of the company and the
\n       assets of the company would remain charged for the
\n       payment of the workers’ dues and such charge will
\n       be pari passu with the charge of the secured
\n       creditors. There is no other statutory provision
\n       overriding the claim of the secured creditors
\n       except Section 529-A. This section overrides
\n       preferential claims under Section 530 also. Under
\n       Section 529-A the dues of the workers and debts
\n       due to the secured creditors are to be treated
\n       pari passu and have to be treated as prior to all
\n       other dues.”\n<\/p><\/blockquote>\n
29.      The primacy of first charge created under Section<\/p>\n
11(2) of the Act was considered by a Division Bench of the<\/p>\n
Kerala       High    Court      in    Recovery     Officer    and   Assistant<\/p>\n
Provident Fund Commissioner v. Kerala Financial Corporation<\/p>\n
(2002) 2 KLT 723, in the backdrop of the argument that the<\/p>\n
provision contained in Section 46-B of the State Financial<\/p>\n
Corporations Act, 1951 which also contains a non obstante<\/p>\n
clause, will override the provisions of the Act.                      In that<\/p>\n
case, the Recovery Officer appointed under the Act made an<\/p>\n
application         for   recovery     of   the   dues   of   provident    fund<\/p>\n
payable by the employer-company. He also attached 37 cents<\/p>\n
of    land    which       the   company     had   mortgaged    to   the   State<\/p>\n
Financial Corporation.               The latter challenged the action of<\/p>\n
the Recovery Officer by filing writ petition under Article<\/p>\n
226 of the Constitution.                 A learned Single Judge of the<\/p>\n
High Court allowed the writ petition and declared that the<\/p>\n
company’s land could not have been attached for recovery of<\/p>\n
dues payable under the Act because the same stood mortgaged<\/p>\n
in favour of the State Financial Corporation.                   The Division
\nBench reversed the order of the learned Single Judge and<\/p>\n
held:\n<\/p>\n
        “… Sub-section (2) of Section 11 of the EPF and
\n        MP Act has two facets. First, it declares that
\n        the    amount   due  from  the    employer   towards
\n        contribution under the EPF and MP Act shall be
\n        deemed to be the first charge on the assets of
\n        the establishment. Second, it also declares that
\n        notwithstanding anything contained in any other
\n        law for the time being in force, such debt shall
\n        be paid in priority to all other debts. Both
\n        these provisions bring out the intention of
\n        Parliament to ensure the social benefit as
\n        contained in the legislation. There are other
\n        provisions in the Act rendering the amounts of
\n        provident fund immune from attachment of civil
\n        court’s     decree,  which   also    indicate   such
\n        intention of Parliament.”\n<\/p><\/blockquote>\n
The Division Bench of the High Court then considered the<\/p>\n
argument that the non obstante clause contained in Section<\/p>\n
46-B of the State Financial Corporations Act has overriding<\/p>\n
effect qua Section 11(2) of the Act and negatived the same<\/p>\n
by making the following observations:\n<\/p>\n
         “The contention of the first respondent based on
\n        the overriding effect of Section 46-B of the SFC
\n        Act   has    no   substance   in  our   judgment.<\/p><\/blockquote>\n
        Undoubtedly, the intention of Parliament in
\n        enacting Section 46-B in the year 1956 was to
\n        ensure that a State Financial Corporation could
\n        quickly and effectively recover the amounts due
\n        by taking possession of the property of the
\n        defaulter instead of having resort to the
\n        cumbersome method of recovery through a court of
\n        law. While this was the law, Parliament amended
\n        Section 11 of the EPF and MP Act by specifically
\n        enacting sub-section (2) thereof, declaring that
\n        the amount due as contribution to the employees
\n        provident fund has first charge on the assets of
\n        the   establishment   and   that, notwithstanding
\n        anything contained in any other law for the time
\n        being in force, it shall be paid in priority
\n        against all other debts. In fact, the second
\n        facet of Section 11(2) of the EPF and MP Act goes
\n        one step further than what is provided in Section
\n      46-B of the SFC Act. The reason for this is
\n      obvious. While the State Financial Corporation
\n      would have to be helped to recover the debts due
\n      to it from a defaulting debtor, the provident
\n      fund payable to workers is of greater moment,
\n      since it is a matter of terminal social security
\n      benefit made available by statute to the working
\n      class. Taking into consideration that the EPF and
\n      MP Act is a social benefit legislation, and the
\n      evil consequences of provident fund dues being
\n      defeated by prior claims of secured or unsecured
\n      creditors, the legislature took care to declare
\n      that irrespective of when a debt is created, the
\n      dues under the EPF and MP Act would always remain
\n      first charge and shall be paid first out of the
\n      assets of the establishment. We are also not
\n      impressed   by  the   contention  of   the  first
\n      respondent that upon usage of non obstante clause
\n      in Section 46-B of the SFC Act. Sub-section (2)
\n      of Section 11 of the EPF Act is of subsequent
\n      date. No doubt, both Section 46-B of the SFC Act
\n      and Section 11(2) of the EPF and MP Act declare
\n      their intent by usage of the non obstante clause.
\n      But, since Section 11(2) of the EPF and MP Act
\n      has been enacted later, we must ascribe to
\n      Parliament the intention to override the earlier
\n      legislation also. It is, therefore, clear that
\n      Section 11(2) of the EPF and MP Act overrides all
\n      provisions of other enactments including Section
\n      46-B of the SFC Act.”\n<\/p>\n<\/p>\n
30.     In the light of the above analysis of the relevant<\/p>\n
provisions of the Act and precedents, we shall now examine<\/p>\n
the tenability or otherwise of the argument of the learned<\/p>\n
senior counsel appearing on behalf of the appellant-bank<\/p>\n
that by virtue of the deeds of pledge executed by the Sugar<\/p>\n
Mills, his client had become owner of the sugar bags and<\/p>\n
the   same    could     not   have    been      attached      and   sold     for<\/p>\n
realization of the amount due under the Act.<\/p>\n
31.     A    careful     reading     of   the    deed    of    pledge      dated<\/p>\n
5.3.2001     executed    by   the    management     of     Kannad    Sahakari
\nSakhar   Karkhana      Ltd.    (the      terms   of    three   deeds   dated<\/p>\n
2.1.2003, 6.2.2003 and 4.4.2003 executed by the management<\/p>\n
of the other Sugar Mill are substantially similar) shows<\/p>\n
that even though the sugar bags which were available with<\/p>\n
the Sugar Mills at the relevant time were placed in the<\/p>\n
custody of the appellant-bank as security for repayment of<\/p>\n
loan together with interest, the former continued to be<\/p>\n
owner    thereof.      To     put   it    differently,      title   of   the<\/p>\n
property remained with the Sugar Mills and only limited<\/p>\n
interest therein was passed on to the appellant-bank as<\/p>\n
security for repayment of the loan etc.                  If the management<\/p>\n
of the Sugar Mills were to repay the dues of the appellant-<\/p>\n
bank within the time specified in the deeds of pledge, the<\/p>\n
latter was duty bound to lift its notional control over the<\/p>\n
sugar bags lying in the godowns of the Sugar Mills.                       In<\/p>\n
case of default, the appellant-bank could recover its dues<\/p>\n
by selling the sugar bags.            If the price of the sugar bags<\/p>\n
was less      than   the   amount     due,   the      appellant-bank   could<\/p>\n
resort   to    other   appropriate        adjudicatory      mechanism    for<\/p>\n
recovery of the balance amount.                  If the sugar bags had<\/p>\n
become property of the appellant-bank simply because the<\/p>\n
same were pledged by the management of the Sugar Mills for<\/p>\n
securing repayment of the loan etc., there was no occasion<\/p>\n
for the latter to take the responsibility of hiring godowns<\/p>\n
on behalf of the appellant-bank, pay rent thereof and get<\/p>\n
the goods insured.          Equally, there was no reason for the<\/p>\n
management of the Sugar Mills to take the responsibility of
\nchanging or repairing the godowns and bear its cost or<\/p>\n
confer immunity upon the bank in the matter of weight,<\/p>\n
quality, conditions or safety of the goods and take upon<\/p>\n
itself      the       responsibility        for     any   shortage,      damage      or<\/p>\n
shrinkage and insure the goods against any damage or loss<\/p>\n
or riots or civil commotion.                   In our considered view, the<\/p>\n
very fact that except giving the symbolic custody of the<\/p>\n
sugar bags to the appellant-bank by allowing it to put lock<\/p>\n
and key on the godowns, all steps for preserving the goods<\/p>\n
and getting the same insured were taken by the management<\/p>\n
of    the    Sugar       Mills        which    also       agreed    to   take        the<\/p>\n
responsibility           of     any     shortage,         damage    or   shrinkage<\/p>\n
unmistakably shows that the Sugar Mills continued to be<\/p>\n
owner of the sugar bags.\n<\/p>\n<\/p>\n
32.         As    per    Black’s      Law     Dictionary      (Eighth    edition),<\/p>\n
“pledge” is a formal promise or undertaking; the act of<\/p>\n
providing something as security for a debt or obligation; a<\/p>\n
bailment         or    other    deposit       of    personal       property     to     a<\/p>\n
creditor as security for debt or obligation.                        In   the     “Law<\/p>\n
of Personal Property” by Ray Andrews Brown (Second edition<\/p>\n
1936),      the       term     “pledge”       has    been    described     in        the<\/p>\n
following words:\n<\/p>\n<\/p>\n
      “A pledge is a bailment of personal property to
\n      secure an obligation of the bailor.        If the
\n      purpose of the transaction is to transfer property
\n      for security only, then the Courts will hold the
\n      transaction a pledge, even though in form it may
\n      be a sale or other out-and-out transfer.”\n<\/p><\/blockquote>\n
In    Mulla’s      Treaties   on   the    Transfer      of       Property,    the<\/p>\n
following description has been given to the term “pledge”:<\/p>\n
       “A pledge is a bailment of movable property by
\n       way of security.     Possession is given and the
\n       transaction   involves   a  transfer  of   special
\n       property in the subject of the security.         A
\n       Pawnee has no right of foreclosure since he never
\n       had absolute ownership at law and his equitable
\n       title cannot exceed what is specifically granted
\n       by law. In a pledge the pledge is in possession
\n       of and has a special property in the goods which
\n       he is entitled to detain to secure repayment.”\n<\/p><\/blockquote>\n
                                              (underlining is ours)<\/p>\n<\/blockquote>\n
33.        Under    the   common   law    a    pawn   or     a    pledge     is   a<\/p>\n
bailment of personal property as a security for some debt<\/p>\n
or engagement.         A pawner is one who being liable to an<\/p>\n
engagement gives to the person to whom he is liable a thing<\/p>\n
to be held as security for payment of his debt or the<\/p>\n
fulfilment of his liability. The two ingredients of a pawn<\/p>\n
or a pledge are: (1) that it is essential to the contract<\/p>\n
of pawn that the property pledged should be actually or<\/p>\n
constructively delivered to the pawnee and (2) a pawnee has<\/p>\n
only   a   special     property    in    the   pledge      but     the   general<\/p>\n
property therein remains in the pawner and wholly reverts<\/p>\n
to him on discharge of the debt. A pawn therefore is a<\/p>\n
security, where, by contract a deposit of goods is made as<\/p>\n
security for a debt. The right to property vests in the<\/p>\n
pledgee only so far as is necessary to secure the debt. In<\/p>\n
this sense a pawn or pledge is an intermediate between a<\/p>\n
simple lien and a mortgage which wholly passes the property
\nin the thing conveyed.\n<\/p><\/blockquote>\n
34.      In Lallan Prasad v. Rahmat Ali<\/a> (1967) 2 SCR 233,<\/p>\n
this    Court   referred   to   the   above   noted   common   law<\/p>\n
principles and observed:\n<\/p>\n<\/p>\n
       “……..A contract to pawn a chattel even though
\n       money is advanced on the faith of it is not
\n       sufficient in itself to pass special property in
\n       the chattel to the pawnee. Delivery of the chattel
\n       pawned is a necessary element in the making of a
\n       pawn. But delivery and advance need not be
\n       simultaneous and a pledge may be perfected by
\n       delivery after the advance is made. Satisfaction
\n       of the debt or engagement extinguishes the pawn
\n       and the pawnee on such satisfaction is bound to
\n       redeliver the property. The pawner has an absolute
\n       right to redeem the property pledged upon tender
\n       of the amount advanced but that right would be
\n       lost if the pawnee has in the meantime lawfully
\n       sold the property pledged. A contract of pawn thus
\n       carries with it an implication that the security
\n       is available to satisfy the debt and under this
\n       implication the pawnee has the power of sale on
\n       default in payment where time is fixed for payment
\n       and where there is no such stipulated time on
\n       demand for payment and on notice of his intention
\n       to sell after default. The pawner however has a
\n       right to redeem the property pledged until the
\n       sale. If the pawnee sells, he must appropriate the
\n       proceeds of the sale towards the pawner’s debt,
\n       for, the sale proceeds are the pawner’s monies to
\n       be so applied and the pawnee must pay to the
\n       pawner any surplus after satisfying the debt. The
\n       pawnee’s right of sale is derived from an implied
\n       authority from the pawner and such a sale is for
\n       the benefit of both the parties. He has a right of
\n       action for his debt notwithstanding possession by
\n       him of the goods pledged. But if the pawner
\n       tenders payment of the debt the pawnee has to
\n       return the property pledged. If by his default the
\n       pawnee is unable to return the security against
\n       payment of the debt, the pawner has a good defence
\n       to the action. This being the position under the
\n       common law, it was observed in Trustees of the
\n       Property of Ellis & Co. v. Dixon-Johnson that if a
\n       creditor holding security sues for the debt, he is
\n       under an obligation on payment of the debt to hand
\n     over the security, and that if, having improperly
\n     made away with the security he is unable to return
\n     it to the debtor he cannot have judgment for the
\n     debt.”\n<\/p><\/blockquote>\n
                                           (underlining is ours)<\/p>\n
The Court   further   observed   that   there   is   no   difference<\/p>\n
between Common Law of England and the law with regard to<\/p>\n
the pledge, as codified in Sections 172 to 176 of the<\/p>\n
Contract Act and held:\n<\/p><\/blockquote>\n
     “Under Section 172 a pledge is a bailment of the
\n     goods as security for payment of a debt or
\n     performance of a promise. Section 173 entitles a
\n     pawnee to retain the goods pledged as security
\n     for payment of a debt and under Section 175 he is
\n     entitled   to  receive   from   the   pawner  any
\n     extraordinary   expenses   he  incurs    for  the
\n     preservation of the goods pledged with him.<\/p><\/blockquote>\n<\/blockquote>\n
     Section 176 deals with the rights of a pawnee and
\n     provides that in case of default by the pawner
\n     the pawnee has (1) the right to sue upon the debt
\n     and to retain the goods as collateral security
\n     and (2) to sell the goods after reasonable notice
\n     of the intended sale to the pawner. Once the
\n     pawnee by virtue of his right under Section 176
\n     sells the goods the right of the pawner to redeem
\n     them is of course extinguished. But as aforesaid
\n     the pawnee is bound to apply the sale proceeds
\n     towards satisfaction of the debt and pay the
\n     surplus, if any, to the pawner. So long, however,
\n     as the sale does not take place the pawner is
\n     entitled to redeem the goods on payment of the
\n     debt. It follows therefore that where a pawnee
\n     files a suit for recovery of debt, though he is
\n     entitled to retain the goods he is bound to
\n     return them on payment of the debt. The right to
\n     sue on the debt assumes that he is in a position
\n     to redeliver the goods on payment of the debt and
\n     therefore if he has put himself in a position
\n     where he is not able to redeliver the goods he
\n     cannot obtain a decree. If it were otherwise, the
\n     result would be that he would recover the debt
\n     and also retain the goods pledged and the pawner
\n     in such a case would be placed in a position
\n     where he incurs a greater liability than he
\n     bargained for under the contract of pledge. The
\n      pawnee therefore can sue on the debt retaining
\n      the pledged goods as collateral security. If the
\n      debt is ordered to be paid he has to return the
\n      goods or if the goods are sold with or without
\n      the assistance of the court appropriate the sale
\n      proceeds towards the debt. But if he sues on the
\n      debt denying the pledge, and it is found that he
\n      was given possession of the goods pledged and had
\n      retained the same, the pawner has the right to
\n      redeem the goods so pledged by payment of the
\n      debt. If the pawnee is not in a position to
\n      redeliver the goods he cannot have both the
\n      payment of the debt and also the goods. Where the
\n      value of the pledged property is less than the
\n      debt and in a suit for recovery of debt by the
\n      pledgee, the pledgee denies the pledge or is
\n      otherwise not in a position to return the pledged
\n      goods he has to give credit for the value of the
\n      goods and would be entitled then to recover only
\n      the balance……”\n<\/p><\/blockquote>\n
35.     In Bank of Bihar v. State of Bihar (1972) 3 SCC<\/p>\n
196, this Court considered the question whether the Cane<\/p>\n
Commissioner, who was an unsecured creditor of the Sugar<\/p>\n
Mill named Jagdishpur Zamindari Company Limited and did not<\/p>\n
have any right of priority over other creditors and in<\/p>\n
particular   the    secured   creditors   of   the   company,   could<\/p>\n
seize and sell the sugar which was already pledged with the<\/p>\n
appellant-bank as security for the advances made by it to<\/p>\n
the company.       The appellant-bank sued the State of Bihar<\/p>\n
and others including the Cane Commissioner and the company<\/p>\n
for return of 1818 bags of 27D quality of sugar and, in the<\/p>\n
alternative, for recovery of Rs.1,81,700.93 with interest<\/p>\n
by way of damages or illegal removal and detention of sugar<\/p>\n
or price thereof.      The trial Court decreed the suit.          It<\/p>\n
held that even though the order of seizure of the stock of<\/p>\n
sugar was valid, the plaintiff’s right as pledgee could not
\nbe extinguished by such seizure.                The High Court allowed<\/p>\n
the appeal filed by the State of Bihar and others and held<\/p>\n
that the plaintiff-bank had not been wrongfully deprived of<\/p>\n
the sugar.        In para 4 of the judgment, this Court noted<\/p>\n
that      the   Cane   Commissioner      did   not   have   any    right   of<\/p>\n
priority over the other creditors of the company and, in<\/p>\n
particular, the secured creditors and reversed the judgment<\/p>\n
of the High Court by recording the following observations.<\/p>\n
          “The pawnee has special property and a lien which
\n          is not of ordinary nature on the goods and so long
\n          as his claim is not satisfied no other creditor of
\n          the pawnor has any right to take away the goods or
\n          its price. After the goods had been seized by the
\n          Government it was bound to pay the amount due to
\n          the plaintiff and the balance could have been made
\n          available to satisfy the claim of other creditors
\n          of the pawnor. But by a mere act of lawful seizure
\n          the Government could not deprive the plaintiff of
\n          the amount which was secured by the pledge of the
\n          goods to it. As the act of the Government resulted
\n          in deprivation of the amount to which the
\n          plaintiff was entitled it was bound to reimburse
\n          the plaintiff for such amount which the plaintiff
\n          in ordinary course would have realized by sale of
\n          the goods pledged with it on the pawnor making a
\n          default in payment of debt.\n<\/p><\/blockquote>\n
          The    approach   of    the   trial    court   was
\n          unexceptionable. The plaintiff’s right as a pawnee
\n          could not be extinguished by the seizure of the
\n          goods in its possession inasmuch as the pledge of
\n          the goods was not meant to replace the liability
\n          under the cash credit agreement. It was intended
\n          to give the plaintiff a primary right to sell the
\n          goods in satisfaction of the liability of the
\n          pawnor. The Cane Commissioner who was an unsecured
\n          creditor could not have any higher rights than the
\n          pawnor and was entitled only to the surplus money
\n          after satisfaction of the plaintiff’s dues.”\n<\/p><\/blockquote>\n
36.         The ratio of the above noted two judgments is that<\/p>\n
in    a    contract    of   pawn   the   property    pledged      should   be
\nactually     or   constructively        delivered         to   the    pawnee     and<\/p>\n
pawnee has only a special property in the pledge but the<\/p>\n
general property remains with the pawner and wholly reverts<\/p>\n
to him on discharge of debt.                 The right to property vests<\/p>\n
in the pledgee only so far as necessary to secure his debt.<\/p>\n
We, therefore, hold that the deeds of pledge executed by<\/p>\n
the management of the Sugar Mills as security for repayment<\/p>\n
of loan etc. did not have the effect of transferring of the<\/p>\n
ownership of the sugar bags to the appellant-bank and the<\/p>\n
Recovery Officer did not commit any illegality by attaching<\/p>\n
the   same    and    the     High    Court     was    fully      justified        in<\/p>\n
directing payment of a portion of the sale price to the<\/p>\n
Assistant Commissioner for being appropriated towards the<\/p>\n
provident fund dues of the workers.\n<\/p>\n<\/p>\n
37.       Before    leaving      this    issue,      we    may   refer      to   the<\/p>\n
judgments on which reliance has been placed by the learned<\/p>\n
senior    counsel     appearing        for    the    appellant-bank.             The<\/p>\n
question     which     fell      for     consideration           in       Karnataka<\/p>\n
Pawnbrokers’ Association v. State of Karnataka (supra), was<\/p>\n
whether    pawnbroker      is    a   dealer    and    carries        on    business<\/p>\n
within the meaning of Tamil Nadu General Sales Tax Act,<\/p>\n
1959 read with the Tamil Nadu Pawnbrokers Act, 1943 and<\/p>\n
Rules as also the Karnataka Sales Tax Act, 1957 read with<\/p>\n
Karnataka Pawnbrokers Act, 1961 and Rules, when it caused<\/p>\n
sale of unredeemed goods occasioned by the default of the<\/p>\n
pawnor.       The    Court      referred      to    the    decisions        of   the
\nDivision Benches of Karnataka and Madras High Courts and<\/p>\n
held:\n<\/p>\n<\/p>\n
        “It cannot be and it is not disputed that the
\n        pawnbroker has special property rights in the
\n        goods pledged, a right higher than a mere right of
\n        detention of goods but a right lesser than general
\n        property   right  in   the   goods.   To  put   it
\n        differently, the pawnor at the time of the pledge
\n        not only transfers to the pawnee, the special
\n        right in the pledge but also passes on his right
\n        to transfer the general property right in the
\n        pledge in the event of the pledge remaining
\n        unredeemed resulting in the sale of the pledge by
\n        public auction through an approved auctioneer. The
\n        position being what is stated above, the natural
\n        consequence will be that it is the pawnee who
\n        holds not only the absolute special property right
\n        in the pledge but also the conditional general
\n        property interest in the pledge, the condition
\n        being that he can pass on that general property
\n        only in the event of the pledge being brought to
\n        sale by public auction in accordance with the Act
\n        and the Rules framed thereunder.”\n<\/p><\/blockquote>\n
                                             (underlining is ours)<\/p>\n<\/blockquote>\n
38.       In   Central      Bank    of   India    v.    Siriguppa     Sugars    &<\/p>\n
Chemicals      Ltd.<\/a>    (supra),     an   interim       order   passed    by   the<\/p>\n
Division       Bench     of    Karnataka         High     Court,      directing<\/p>\n
disbursement of certain amount realized from sale of stocks<\/p>\n
of sugar owned by respondent no.1 – company, which was held<\/p>\n
under     pledge       by     the    appellant-bank,           came     up    for<\/p>\n
consideration before this Court.                 The Labour Commissioner<\/p>\n
had passed an order under Section 33-C of the Industrial<\/p>\n
Disputes Act in respect of the dues of the workmen.                           The<\/p>\n
same was challenged by respondent no.1, by filing a writ<\/p>\n
petition.       The Cane Commissioner also passed orders for<\/p>\n
recovery of the amount due from respondent no.1 – company
\nfor    being    paid    to     the    sugarcane      growers    for       the   cane<\/p>\n
supplied       by    them.       During      the     pendency       of    the   writ<\/p>\n
petition, the concerned authority took possession of the<\/p>\n
stock of sugar which was pledged with the appellant-bank.\n<\/p><\/blockquote>\n
The appellant-bank got itself impleaded as party to the<\/p>\n
writ petition.          As the stock of sugar was likely to lose<\/p>\n
its value       by    being    stored       indefinitely,      the       High   Court<\/p>\n
directed     sale     thereof.         The    writ    petition       was    finally<\/p>\n
dismissed by the learned Single Judge.                     During the pendency<\/p>\n
of the appeal, the Division Bench made an interim order<\/p>\n
directing disbursement of a portion of the sale proceeds to<\/p>\n
the Labour Commissioner and Cane Commissioner for being<\/p>\n
paid    to     the    employees        of    the     company    and       sugarcane<\/p>\n
cultivators.          The     bank    challenged      the    interim       order    by<\/p>\n
contending that as the sugar was pledged with it, the High<\/p>\n
Court could not have ordered disbursement of a portion of<\/p>\n
the price.           After making reference to various judgments<\/p>\n
including      Bank    of     Bihar    v.    State    of    Bihar    (supra)       and<\/p>\n
Karnataka Pawnbrokers’ Association v. State of Karnataka<\/p>\n
(supra), this Court held:\n<\/p>\n<\/p>\n
       “Thus, going by the principles governing the
\n       matter propounded by this Court, there cannot be
\n       any doubt that the rights of the appellant Bank
\n       over the pawned sugar had precedence over the
\n       claims of the Cane Commissioner and that of the
\n       workmen. The High Court was, therefore, in error
\n       in passing an interim order to pay parts of the
\n       proceeds to the Cane Commissioner and to the
\n       Labour Commissioner for disbursal to the cane
\n       growers and to the employees. There is no dispute
\n       that the sugar was pledged with the appellant
\n       Bank for securing a loan of the first respondent
\n       and the loan had not been repaid. The goods were
\n      forcibly taken possession of at the instance of
\n      the revenue recovery authority from the custody
\n      of the pawnee, the appellant Bank. In view of the
\n      fact that the goods were validly pawned to the
\n      appellant Bank, the rights of the appellant Bank
\n      as pawnee cannot be affected by the orders of the
\n      Cane Commissioner or the demands made by him or
\n      the demands made on behalf of the workmen. Both
\n      the Cane Commissioner and the workmen in the
\n      absence of a liquidation, stand only as unsecured
\n      creditors and their rights cannot prevail over
\n      the rights of the pawnee of the goods.”\n<\/p><\/blockquote>\n
                                             (underlining is ours)<\/p>\n<\/blockquote>\n
39.       The    above      referred   judgments       do    not   have    any<\/p>\n
bearing on these appeals because in both the cases, the<\/p>\n
Court dealt with the right of unsecured creditors vis-`-vis<\/p>\n
secured creditors i.e., the bank in whose favour the goods<\/p>\n
had been pledged\/mortgaged.                Moreover, in neither of the<\/p>\n
cases, a provision analogous to Section 11 of the Act was<\/p>\n
considered by the Court.\n<\/p><\/blockquote>\n
40.       The    next    point     which    requires    consideration       is<\/p>\n
whether    the   sugar      bags   pledged     with    the   appellant-bank<\/p>\n
constitute assets of the establishment within the meaning<\/p>\n
of Section 11(2) of the Act.\n<\/p>\n<\/p>\n
41.       As per Black’s Law Dictionary (Eighth edition), the<\/p>\n
word `asset’ means, an item that is owned and has value;<\/p>\n
the   entries     on    a   balance    sheet    showing      the   items   of<\/p>\n
property owned, including cash, inventory, equipment, real<\/p>\n
estate, accounts receivable and goodwill; all the property<\/p>\n
of a person available for paying debts or for distribution.
\nIn Law Lexicon by P. Ramanatha Aiyar (Second edition), the<\/p>\n
word `assets’ has been described as the property in the<\/p>\n
hands of an heir, an executor, administrator or trustee<\/p>\n
which    is      legally    or    equitably       chargeable        with    the<\/p>\n
obligations      with   such     heir,   executor,       administrator        or<\/p>\n
trustee is, as such, required to discharge.                         Everything<\/p>\n
which   can    be    made   available    for    the     payment     of   debts,<\/p>\n
whether belonging to the estate of a deceased person or<\/p>\n
not; property in general all that one owns, considered as<\/p>\n
applicable to the payment of his debts; as, his assets are<\/p>\n
much greater than his liabilities.               In Velchand Chhaganlal<\/p>\n
v.    Mussan   14    Bom.L.R.    633,    it    was    held   that    the   word<\/p>\n
`assets’ means, a man’s property of whatever kind which may<\/p>\n
be used to satisfy debts or demands existing against him.<\/p>\n
42.      As per Salmond’s Jurisprudence, the word “property”<\/p>\n
means – in its widest sense, property includes a person’s<\/p>\n
legal rights, of whatever description.                 A man’s property is<\/p>\n
all that is his in law.          This usage however, is obsolete at<\/p>\n
the present day, though it is common enough in the older<\/p>\n
books. In a second and narrower sense, property includes<\/p>\n
not all a person’s rights, but only his proprietary as<\/p>\n
opposed to his personal rights.               The former constitutes his<\/p>\n
estate or property, while the latter constitute his status<\/p>\n
or    personal      condition.      In   this        sense   a   man’s     land,<\/p>\n
chattel, shares and the debts due to him are his property;<\/p>\n
but not his life or liberty or reputation…. In a third
\napplication,       which     is      that    adopted    (here)       the        terms<\/p>\n
includes not even all proprietary rights but only those<\/p>\n
which are both proprietary and in rem.                  The law of property<\/p>\n
is the right of proprietary rights in rem, the law of<\/p>\n
proprietary rights in personam being distinguished from it<\/p>\n
as the law of obligations.                   According to this usage a<\/p>\n
freehold     or   leasehold        estate    in     land,   or   a    patent        or<\/p>\n
copyright, is property; but a debt or the benefit or a<\/p>\n
contract is not.           Finally, in the narrowest use of the<\/p>\n
term, it includes nothing more than corporeal property –<\/p>\n
that   is   to    say,    the     right     of   ownership    in     a    material<\/p>\n
object, or that object itself.\n<\/p>\n<\/p>\n
43.     In    the    light      of   the    above    dictionary          and    legal<\/p>\n
meanings of the word `assets’ and jurisprudential concept<\/p>\n
of the word `property’, it has to be seen whether the sugar<\/p>\n
bags pledged with the appellant-bank constituted assets of<\/p>\n
the establishment for the purpose of Section 11(2) of the<\/p>\n
Act.    We    have       already     held    that    even    though       symbolic<\/p>\n
custody of the sugar bags was given to the appellant-bank<\/p>\n
as security for repayment of loan etc., the Sugar Mills<\/p>\n
continued to be owner thereof.                   In other words, the sugar<\/p>\n
bags   pledged      with     the     appellant-bank         continued          to   be<\/p>\n
movable property i.e. assets of the establishment, which<\/p>\n
could be attached and sold by the Recovery Officer in terms<\/p>\n
of Section 8B or by adopting alternative modes of recovery<\/p>\n
enumerated in Section 8F.\n<\/p>\n
44.      At   the    cost    of    repetition,       it   is    apposite     to<\/p>\n
mention that Section 11 is declaratory in nature.                        Sub-<\/p>\n
section (2) thereof declares that any amount due from an<\/p>\n
employer shall be deemed to be first charge on the assets<\/p>\n
of the establishment and shall be paid in priority to all<\/p>\n
other   debts.       For    recovery      of   the   amount     due   from   an<\/p>\n
employer which is treated as arrear of land revenue, the<\/p>\n
Recovery Officer or any other authorized officer has to<\/p>\n
take recourse to the provisions contained in Section 8 read<\/p>\n
with Sections 8B and 8F.            The recovery can be effected by<\/p>\n
attachment or sale of the movable or immovable property of<\/p>\n
the establishment or, as the case may be, the employer, or<\/p>\n
by arrest of the employer and his detention in prison or by<\/p>\n
appointing a receiver for the management of the movable or<\/p>\n
immovable properties of the establishment or, as the case<\/p>\n
may be, the employer or by taking action in the manner laid<\/p>\n
down in the Third Schedule to the Income-tax Act, 1961.<\/p>\n
45.      The judgment in Transcore v. Union of India<\/a> (supra)<\/p>\n
on which reliance has been placed by Shri Desai, does not<\/p>\n
have any bearing on any of the facets of the question<\/p>\n
raised in these appeals.          In paragraph 62 of that judgment,<\/p>\n
the Court merely referred to Snell’s Principles of Equity.<\/p>\n
In    paragraph     73,    the    Court    explained      the    distinction<\/p>\n
between symbolic and physical possession and observed that<\/p>\n
the Securitisation and Reconstruction of Financial Assets
\nand Enforcement of Security Interest Act, 2002 basically<\/p>\n
deals with the securities by which the creditor obtains<\/p>\n
ownership of or interest in the property concerned i.e.,<\/p>\n
mortgages       and    the       securities       under    which    the     secured<\/p>\n
creditor,      namely,       the    Bank\/Financial        Institution      obtains<\/p>\n
interest in the property concerned.\n<\/p>\n<\/p>\n
46.       We shall now deal with the last argument of the<\/p>\n
learned       senior    counsel      for    the    appellant-bank         that   the<\/p>\n
interest payable in terms of Section 7Q and damages imposed<\/p>\n
under Section 14B of the Act cannot be treated as first<\/p>\n
charge    on     the    assets       of    the    establishment      payable       in<\/p>\n
priority to all other debts within the meaning of Section<\/p>\n
11(2).\n<\/p>\n<\/p>\n
47.       Section 11 gives statutory priority to the amount<\/p>\n
due from the employer vis-`-vis all other debts.                            Clause<\/p>\n
(a) of sub-section (1) of Section 11 is applicable to cases<\/p>\n
where    an    employer      is     adjudicated      insolvent      or,    being    a<\/p>\n
company, an order of its winding up is made.                               In that<\/p>\n
situation, the amount due from the employer in relation to<\/p>\n
an    establishment         to     which   any    Scheme    or     the    Insurance<\/p>\n
Scheme applies in respect of any contribution payable to<\/p>\n
the   Fund     or,     as   the     case   may    be,     the   Insurance    Fund,<\/p>\n
damages       recoverable          under    Section        14B,    accumulations<\/p>\n
required to be transferred under Section 15(2) or any other<\/p>\n
charges payable by him under any other provision of this
\nAct or of any provision of the Scheme or the Insurance<\/p>\n
Scheme.    Clause (b) is applicable to cases where the amount<\/p>\n
is   due   from     the     employer     in    relation     to   exempted<\/p>\n
establishment      in     respect   of   any    contribution     to    the<\/p>\n
provident fund or any insurance fund in so far it relates<\/p>\n
to exempted employees under the rules of provident fund or<\/p>\n
any insurance fund, any contribution payable by him towards<\/p>\n
the Pension Fund under Section 17(6), damages recoverable<\/p>\n
under Section 14B or any charges payable by him to the<\/p>\n
appropriate Government under the Act or under any of the<\/p>\n
conditions specified in Section 17.             This sub-section then<\/p>\n
lays down that such amount shall be paid in priority to all<\/p>\n
other debts in the distribution of the property of the<\/p>\n
insolvent or the assets of the company being wound up.<\/p>\n
Sub-section (2) lays down that any amount due from the<\/p>\n
employer whether in respect of the employees’ contribution<\/p>\n
deducted from the wages of the employee or the employer’s<\/p>\n
contribution shall be deemed to be the first charge on the<\/p>\n
assets of the establishment, and shall be paid in priority<\/p>\n
to all other debts. The expression “any amount due from an<\/p>\n
employer” appearing in sub-section (2) of Section 11 has to<\/p>\n
be interpreted keeping in view the object of the Act and<\/p>\n
other   provisions      contained   therein     including    sub-section<\/p>\n
(1) of Section 11 and Sections 7A, 7Q, 14B and 15(2) which<\/p>\n
provide    for    determination     of   the    dues   payable    by   the<\/p>\n
employer, liability of the employer to pay interest in case<\/p>\n
the payment of the amount due is delayed and also pay
\ndamages, if there is default in making contribution to the<\/p>\n
Fund.    If any amount payable by the employer becomes due<\/p>\n
and the same is not paid within the stipulated time, then<\/p>\n
the employer is required to pay interest in terms of the<\/p>\n
mandate of Section 7Q.                  Likewise, default on the employer’s<\/p>\n
part to pay any contribution to the Fund can visit him with<\/p>\n
the consequence of levy of damages.                           As mentioned earlier,<\/p>\n
sub-section (2) was inserted in Section 11 by Amendment Act<\/p>\n
No.40   of   1973        with       a    view     to    ensure     that        payment      of<\/p>\n
provident fund dues of the workers are not defeated by the<\/p>\n
prior   claims         of     the       secured        and\/or     of     the       unsecured<\/p>\n
creditors.        While enacting sub-section (2), the legislature<\/p>\n
was conscious of the fact that in terms of existing Section<\/p>\n
11   priority      has       been       given     to    the    amount     due       from   an<\/p>\n
employer     in    relation             to   an   establishment          to     which      any<\/p>\n
scheme or fund is applicable including damages recoverable<\/p>\n
under   Section          14B       and       accumulations         required          to     be<\/p>\n
transferred under Section 15(2).                        The legislature was also<\/p>\n
aware that in case of delay the employer is statutorily<\/p>\n
responsible       to        pay    interest        in     terms     of     Section         17.<\/p>\n
Therefore,        there       is        no    plausible         reason        to    give     a<\/p>\n
restricted meaning to the expression `any amount due from<\/p>\n
the employer’ and confine it to the amount determined under<\/p>\n
Section 7A or the contribution payable under Section 8.                                     If<\/p>\n
interest     payable         by     the      employer     under        Section       7Q    and<\/p>\n
damages leviable under Section 14 are excluded from the<\/p>\n
ambit   of   expression            “any      amount      due    from     an    employer”,
\nevery     employer     will      conveniently    refrain      from    paying<\/p>\n
contribution to the Fund and other dues and resist the<\/p>\n
efforts of the concerned authorities to recover the dues as<\/p>\n
arrears of land revenue by contending that the movable or<\/p>\n
immovable property of the establishment is subject to other<\/p>\n
debts.        Any such interpretation would frustrate the object<\/p>\n
of    introducing      the    deeming    provision     and    non    obstante<\/p>\n
clause in Section 11(2).            Therefore, it is not possible to<\/p>\n
agree with the learned senior counsel for the appellant-<\/p>\n
bank that the amount of interest payable under Section 7Q<\/p>\n
and damages leviable under Section 14B do not form part of<\/p>\n
the amount due from an employer for the purpose of Section<\/p>\n
11(2) of the Act.\n<\/p>\n<\/p>\n
48.       In the result, the appeals are dismissed.<\/p>\n
49.       Although, while issuing notice in the special leave<\/p>\n
petitions and passing order of status quo, the Court had<\/p>\n
made it clear that in the event of dismissal of the special<\/p>\n
leave petitions, the amount shall be paid by the petitioner<\/p>\n
(appellant herein) with interest at the rate which may be<\/p>\n
fixed by the Court, we do not consider it just and proper<\/p>\n
to saddle the appellant-bank with the liability of interest<\/p>\n
because       price   of   the   sugar   sold   pursuant      to    the   High<\/p>\n
Court’s order remained deposited with its Registrar General<\/p>\n
and     the    appellant-bank      did    not   have    the    benefit      of<\/p>\n
utilizing the same.\n<\/p>\n
                   ……………………………….J.\n<\/p>\n
                   [B.N. AGRAWAL]<\/p>\n
                    ……………………………….J.
\n                   [G.S. SINGHVI]<\/p>\n
                    ……………………………….J.
\n                   [AFTAB ALAM]<\/p>\n
New Delhi,
\nOctober 8, 2009.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Maharashtra State Co-Op.Bank Ltd vs Assistant P.F.Commr.& Anr on 8 October, 2009 Author: G Singhvi Bench: B.N. Agrawal, G.S. Singhvi, Aftab Alam REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.6893 OF 2009 (Arising out of S.L.P. (C) No.15243 of 2007) Maharashtra State Co-operative Bank Ltd. … […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-102463","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nMaharashtra State Co-Op.Bank Ltd vs Assistant P.F.Commr.& Anr on 8 October, 2009 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/maharashtra-state-co-op-bank-ltd-vs-assistant-p-f-commr-anr-on-8-october-2009\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Maharashtra State Co-Op.Bank Ltd vs Assistant P.F.Commr.& Anr on 8 October, 2009 - 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