Full Judgment Text
2006:BHC-AS:6481-DB
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
APPELLATE SIDE
WRIT PETITION NO.2932 OF 2004
M/s. Indus Agro Products. ...Petitioner.
Vs.
Union of India & Ors. ...Respondents.
....
Mr. S.S. Patwardhan for the Petitioner.
Mr. M.S. Karnik for Respondent No.3.
Mr. V.M. Jhaveri for Respondent No.4.
Mr. M.S. Topkar for Respondent No.7.
.....
CORAM : KSHITIJ R. VYAS, C.J. &
DR.D.Y.CHANDRACHUD, J.
March 28, 2006 .
JUDGMENT (Per Dr. D.Y. Chandrachud, J.) :
Rule, by consent of Counsel returnable forthwith.
Respondents waive service. By consent and at the request of
Counsel , taken up for hearing and final disposal.
I
1. A purchaser in a sale conducted by the State Financial
Corporation has challenged an attachment levied under the
Employees' Provident Funds and Miscellaneous Provisions Act,
1952. The issues that have been canvassed before the Court
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here relate to (i) the meaning and extent of the first charge
statutorily created by Section 11(2) of the EPF Act, 1952; (ii)
whether, as the Petitioner contends, the charge cannot be
enforced in the hands of a purchaser in a sale conducted under the
State Financial Corporation Act, 1951; and (iii) whether the charge
and the priority created by Parliament in the payment of PF dues is
confined to insolvency and winding up alone. We have declined to
accept the line of argument pressed before us. The first charge on
the assets of the establishment created by Parliament while
enacting section 11(2) of the EPF Act, 1952 and the priority
enunciated there is given overriding effect, notwithstanding
anything to the contrary contained in any law for the time being in
force. The charge and the priority are founded on overriding social
welfare principles: protecting the terminal benefits of industrial
workers over other competing claims. We decline to read down
Parliament's mandate. Finally, we hold that the terms of the sale
put the Petitioner on notice that this was a sale on an “as is where
is” basis. For the reasons which we now elucidate, we decline to
interfere, in our jurisdiction under Article 226 of the Constitution.
II
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The Facts :
2. The Fifth Respondent conducted, prior to 2002, business
activities from a plot of land (W-79) in the MIDC area at Shiroli,
Kolhapur. Maharashtra State Financial Corporation (MSFC),
impleaded to these proceedings as the Fourth Respondent, had
granted term loan facilities to the Fifth Respondent. Upon the
default of the Fifth Respondent, MSFC took steps under Section
29 of the State Financial Corporations Act, 1951, (“SFC Act, 1951”)
and took over the plot and the structures standing thereon. The
lease hold rights in the land and the structures were sold to the
st
Petitioner under and in pursuance of a Sale Deed executed on 21
October 2002. Possession was transferred to the Petitioner. On
th
5 March 2004, the Third Respondent, who is the Recovery Officer
in the Employees' Provident Fund Organisation at Kolhapur,
served an order of attachment upon the Petitioner in respect of the
land and the structures standing thereon. The notice was under
the provisions of the Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 (EPF Act, 1952). The Fifth
Respondent was in arrears of Provident Fund dues and it appears
from the record that a notice of attachment was served on the
ground that the Fifth Respondent had failed to pay a sum of
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Rs.8,35,809/- which was due under a certificate of the Regional
th
Provident Fund Commissioner dated 17 April 2002. The
th
Petitioner submitted a representation to MSFC on 12 March 2004
and having failed to elicit a response thereafter, moved these
proceedings under Article 226 of the Constitution in order to
challenge the order of attachment. A declaration has also been
sought to the effect that the Petitioner is not liable for the Provident
Fund dues towards the employees of the Fifth Respondent.
III
SUBMISSIONS :
3. On behalf of the Petitioner, it has been submitted that (i)
The Petitioner having purchased the property in question, in an
auction sale conducted by MSFC under Section 29 of the SFC
Act, 1951, Section 11(2) of the EPF Act, 1952 and the priority set
out therein cannot apply to the Petitioner since the Petitioner is not
the employer of the employees in respect of whose dues the
Provident Fund Authorities are proceeding; (ii) The property had
ceased to be the assets of the establishment of the Fifth
Respondent who is liable to pay the dues; (iii) The priority
envisaged in Section 11(2) is attracted only in the case of winding
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up and in the facts of this case it has no application where neither
the Fifth Respondent, nor the Petitioner has been ordered to be
wound up; (iv) The sale by MSFC in favour of the Petitioner not
being a voluntary transfer by the owner of the property, Section
17-B of the EPF Act, 1952 would have no application. MSFC
which is also a party to these proceedings has similarly submitted
that the first charge created by Section 11(2) and the priority
reflected therein can apply only in a situation where a Company is
in liquidation or an employer is adjudged as an insolvent. Absent a
proceeding for liquidation or proceedings in insolvency, it was
urged, Section 11(2) would have no application. Hence, it is
submitted that the view of the Kerala High Court in Recovery
Officer and Assistant Provident Fund Commissioner vs. Kerala
Financial Corporation
, 2002 III CLR 191, does not reflect the
correct position in law and the decision of the Division Bench of this
Janata Sahakari Bank Ltd. Vs. Assistant Provident Fund
Court in
Commissioner and Recovery Officer,
(Writ Petition 639 of 2005
rd
decided on 23 June 2005) is per incuriam and requires
reconsideration. These submissions would now merit
consideration.
IV
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-1. The First charge and priority under Section 11(2) :
The EPF Act, 1952, is an Act to provide for the Institution
of Provident Funds, Pension Funds and Deposit Linked Insurance
Funds for employees in Factories and other establishments. The
EPF Act constituted, when it was enacted five decades ago, a
water shed in the evolution of social security norms for industrial
workers. The institution of a Contributory Provident Fund in which
both the workers and the employer would contribute was
envisaged to provide social security to industrial workers who at
the end of their working careers would otherwise be left with no
safety net to meet their own needs and those of their families.
Section 11 of the EPF Act, 1952 declares the priority of
payment of contributions over other debts. As originally enacted,
Section 11 read as follows :
“11. Priority of payment of contributions over other
debts.- The amount due in respect of any contribution
under this Act or under any scheme and any charges
incurred in respect of the administration of the Fund
under any scheme shall, where the liability therefor has
accrued before the person liable is adjudicated insolvent,
or, in the case of a company ordered to be wound up,
before the date of such order, be deemed to be included
among the debts which under section 49 of the
Presidency-Towns Insolvency Act, 1909 (III of 1909) or
under section 61 of the Provincial Insolvency Act, 1920
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(V of 1920) or under Section 230 of the Indian
Companies Act, 1913 (VII of 1913) are to be paid in
priority to all other debts in the distribution of the property
of the insolvent or the assets of the company being
wound up, as the case may be.”
Section 11 was amended by Amending Act 40 of 1973 and by
Amending Act 33 of 1988. As it stands today, Section 11 reads as
follows:
“11. Priority of payment of contributions over other
debts.- (1) Where any employer is adjudicated insolvent
or, being a company, an order for winding up is made,
the amount due-
(a) from the employer in relation to an establishment to
which any Scheme or the Insurance Scheme applies in
respect of any contribution payable to the Fund or, as the
case may be, the Insurance Fund, damages recoverable
under section 14B, accumulations required to be
transferred under sub-section (2) of Section 15 of any
charges payable by him under any other provision of this
act or of any provision of the Scheme or the Insurance
Scheme; or
(b) from the employer in relation to an exempted
establishment in respect of any contribution to the
provident fund or any insurance fund in so far it relates to
exempted employees, under the rules of the provident
fund or any insurance fund, any contribution payable by
him towards the Pension Fund under sub-section (6) of
section 17, damages recoverable under section 14B or
any charges payable by him to the appropriate
Government under any provision of this Act or under any
of the conditions specified under Section 17;
shall, where the liability therefor has accrued before the
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order of adjudication or winding up is made, be deemed
to be included among the debts which under Section 49
of the Presidency-Towns Insolvency Act, 1909 (3 of
1909) or under section 61 of the Provincial Insolvency
Act, 1920 (5 of 1920), or under Section 530 of the
Companies Act, 1956 (1 of 1956) are to be paid in
priority to all other debts in the distribution of the property
of the insolvent or the assets of the company being
wound up, as the case may be.
Explanation. - In this sub-section and in
section 17, “insurance fund” means any fund established
by an employer under any scheme for providing benefits
in the nature of life insurance to employees, whether
linked to their deposits in provident fund or not, without
payment by the employees of any separate contribution
or premium in that behalf.
(2)Without prejudice to the provisions of sub-section (1),
if any amount is due from an employer whether in
respect of the employee's contribution deducted from
the wages of the employee or the employer's
contribution, the amount so due shall be deemed to be
the first charge on the assets of the establishment,
and shall, notwithstanding anything contained in any
other law for the time being in force, be paid in priority
to all other debts.”
The provisions of sub-Section (1) of Section 11 apply in
a situation where an employer is adjudged insolvent or, when an
employer is a Company, an order of winding up is made. In that
event, amounts falling in the description contained in clauses (a)
and (b) of sub-section (1) which have accrued before the order of
adjudication or winding up was made are deemed to be included
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among the debts which are to be paid in priority to all other debts in
the distribution of the property of the insolvent, or the Company in
liquidation, as the case may be, under the Insolvency Acts of 1909
or 1920 or under Section 530 of the Companies Act, 1956. Sub-
section (2) of Section 11 is essentially the provision which falls for
consideration in the present case. Sub-section (2) is prefaced with
the words “without prejudice to the provisions of sub-section (1)”.
The provision applies if any amount is due from an employer
whether in respect of the employee's contribution that has been
deducted from the wages or the employer's contribution. Upon
any such amount being due, the statute mandates that the amount
due shall (i) be deemed to be the first charge on the assets of the
establishment (ii) be paid in priority to all other dues,
notwithstanding anything contained in any other law for the time
being in force.
-2. Is Section 11(2) confined to insolvency and winding up ?
On behalf of the Petitioner and MSFC, it was submitted
that Sub-section (2) must apply only in those situations which are
covered by Sub-section (1) namely, where an employer is
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adjudged insolvent or where the employer, being a company, is
being wound up. That construction, however, cannot be accepted
for a number of reasons. First and foremost, the words “without
prejudice to the provisions of Sub-section (1)” are intended to
indicate that the provisions of Sub-section (2) shall not dilute the
operation of sub-section (1). Consequently, the priority which is
created by Sub-section (1) in the distribution of the property of an
insolvent or of the assets of a Company which is being wound up is
not disturbed by the first charge or the priority which is created by
Sub-section (2). Secondly, interpreting the words of Sub-Section
(2) as they stand, the provision is intended to apply if any amount
is due from an employer whether in respect of the employer's own
contribution or the employee's contribution for which a deduction
has been made from the wages. Once any such amount is due,
Parliament has provided that it shall be deemed to be a first charge
on the assets of the establishment and be paid in priority to all
other debts notwithstanding anything contained in any other law for
the time being in force. To read Sub-section (2) as subservient to
Sub-section (1) or as a provision which operates in the same field
as sub-section (1) wound render sub-section (2) largely otiose.
Such a construction cannot be accepted since it would be contrary
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to the plain and grammatical meaning that attaches to the words
used in Sub-section (2) of Section 11. The words “if any amount is
due from the employer” must be given a full and untrammeled
construction. The deeming fiction in Sub-section (2) by which a
first charge is created on the assets of the establishment must be
taken to its logical conclusion and must comprehend within its
ambit all the consequences which can reasonably be construed to
emanate therefrom. Sub-Section (2) is not a proviso to sub-section
(1) but is a provision that stands by itself to lend teeth to the
recoverability of the dues of the employees by way of contribution.
-3. The view taken by the Karala High Court and by this Court:
The view which we to take finds support in a judgment of
Recovery Officer and
a Division Bench of the Kerala High Court in
Assistant Provident Fund Commissioner vs. Kerala Financial
Corporation, 2002 III CLR 191. In that case, proceedings were
initiated under Section 29 of the SFC Act, 1951. An attachment
was levied under the EPF Act, 1952 by the Recovery Officer which
was challenged by the State Finance Corporation. Chief Justice
B.N. Srikrishna (as His Lordship then was) speaking for the
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Division Bench noted that Sub-section (1) of Section 11 deals with
the question of priority where an employer is adjudged an insolvent
or; being a company, is subjected to an order of winding up. The
Division Bench held that Sub-section (2) of Section 11 “deals with
other types of priorities.” (emphasis supplied). The Kerala High
Court inter alia rejected the submission that it was the SFC Act of
1951 which had overriding effect in view of Section 46B of that
Act. The Court held that while the SFC Act was enacted with a
view to ensuring quick and effective recovery of amounts due from
defaulters, Provident Fund payable to workers was of greater
moment since it was a matter of a terminal social security benefit
made available by statute to the working classes. Besides, the
EPF Act, 1952 being a later Act also enacted by Parliament, it was
Section 11(2) of that Act which would override all other provisions,
including Section 46B. The judgment of the Division Bench sums
up the position thus:
“The contention of the first respondent based on the
overriding effect of S.46-B of the SFC Act has no
substance in our judgment. Undoubtedly, the intention of
Parliament in enactment S.46-B in the year, 1956 was to
ensure that a State Financial Corporation could quickly
and effectively recover the amounts due by taking
possession of the property of the defaulter instead of
having resort to the cumbersome method of recovery
through a court of law. While this was the law,
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Parliament amended S.11 of the EPF & MP Act by
specifically enacting sub-s.(2) thereof, declaring that the
amounts due as contribution to the Employees Provident
Fund has first charge on the assets of the establishment
and that, notwithstanding anything contained in any
other law for the time being in force, it shall be paid in
priority against all other debts. In fact, the second facet
of S.11(2) of the EPF & MP Act goes one step further
than what is provided in S.46-B of SFC Act. the reason
for this is obvious. While the State Financial Corporation
would have to be helped to recover the debts due to it
from a defaulting debtor, the Provident Fund payable to
workers is of greater moment, since it is a matter of
terminal social security benefit made available by statute
to the working class. Taking into consideration that EPF
& MP Act is a social benefit legislation, and the evil
consequences of Provident Fund dues being defeated by
prior claims of secured or unsecured creditors, the
Legislature took care to declare that irrespective of when
a debt is created, the dues under the EPF & MP Act
would always remain first charge and shall be paid first
out of the assets of the establishment. We are also not
impressed by the contention of the first respondent that
upon usage of non obstante clause in S.46-B of the SFC
Act. Sub-s. (2) of S.11 of the EPF Act is of subsequent
date. No doubt, both S.46-B of the SFC Act and S.11(2)
of the EPF Act declare their intent by usage of the non
obstante clause. But, since S.11(2) of the EPF & MP Act
has been enacted later, we must ascribe to the
Parliament the intention to override the earlier legislation
also. It is, therefore, clear that S.11(2) of the EPF & MP
Act overrides all provisions of other enactments including
S.46-B of the SFC Act.”
The judgment of the Kerala High Court has been followed by a
Division Bench of this Court in Janata Sahakari Bank Ltd. vs.
Assistant Provident Fund Commissioner
(Writ Petition 639 of
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rd
2005 decided on 23 June 2005) to which one of us, D.Y.
Chandrachud, J. was a party. In that case, the question which
arose before the Court related to the impact of the provisions of
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, on the provisions of the
EPF Act, 1952. This Court noted that the intention of Parliament in
enacting the Securitization Act was to ensure that Banks and
Financial Institutions can quickly and effectively recover amounts
due to them by taking possession of the secured assets instead of
having to resort to the cumbersome method of recovery through
Civil Courts and Tribunals. The Securitization Act, however, does
not have any substantive provision giving precedence to the dues
of Banks and Financial Institutions whereas, on the other hand,
Section 11(2) of the EPF Act declares that amounts due as
contribution to the Employees' Provident Fund shall be a first
charge on the assets of the establishments to be paid in priority
against all other dues notwithstanding anything contained in any
other law for the time being in force. The reason for this, the Court
said, was obvious:
“The Legislature intended to secure the terminal social
security benefit made available by the statute to the
working class. ... The non-obstante clause contained in
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section 35 of the Securitization and Reconstruction Act
has to be construed and given effect to having regard to
the object and purpose of the said Act and so construed
it does not in any way effect the operation of the
provisions of EPF and MP Act. We are therefore, of the
view that the respondent No.1 shall be entitled to
exercise power as a Recovery Officer for recovering
Provident Fund dues.”
-4. Statement of Objects cannot override plain statutory
construction.
On behalf of MSFC, however, it is submitted that the
judgments of the Kerala High Court and of the Division Bench of
this Court are not correct and that sub-Section (2) was intended to
operate only in a situation where an establishment is wound up. It
was emphasised from the Statement of Objects and Reasons
appended to the Bill resulting in Amending Act 40 of 1973 that the
National Commission of Labour had recommended that arrears of
Provident Fund should be made a first charge on the assets of the
establishment at the time of its winding up. Similarly, when the Act
was amended by Amending Act 33 of 1980, the Statement of
Objects and Reasons contained a reference to the effect that
provision was being made for treating the entire amount of arrears
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of Provident Fund dues as a first charge on the assets of the
establishment in the event of its liquidation.
Now, in assessing this submission it becomes
necessary to advert to what is perhaps a basic principle of statutory
interpretation. Reference to the Statement of Objects and Reasons
accompanying the enactment of a law is permissible for
understanding the background, the antecedent state of affairs, the
surrounding circumstances in relation to a statute, and the evil
which the statute sought to remedy. ( Sanghvi Jeevraj Ghewar
Chand v. Secretary, Madras Chillies, Grains and Kirana
Merchants Workers Union, Virji Ram Sutaria
AIR 1969 SC 530;
v. Nathalal Premji Bhanvadia, AIR 1970 SC 765; Shiv Kirpal
Singh v. V. V. Giri , AIR 1970 SC 2097; Secretary, Regional
Transport Authority v. D. P. Sharma, AIR 1989 SC 509; and
Devadoss (Dead) v. Veera Makali Amman Koil Athlur,
AIR 1998
SC 750.) It is equally well settled that the Statement of Objects
and Reasons cannot be used to determine the true meaning and
effect of the substantive provisions of the statute. A Statement of
Objects and Reasons cannot be used except for the limited
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purpose of understanding the background and the antecedent state
of affairs leading to the legislation. Hence, it would impermissible
for this Court to restrict the operation of the plain and grammatical
meaning of the words contained in Sub-section (2) of Section 11
with reference to the Statement of Objects and Reasons. Similarly,
a reference therein to the report of the National Commission of
Labour can at the highest indicate the historical antecedents, the
surrounding circumstances or the mischief which was intended to
be remedied. In interpreting the language of a statute, it is trite law
that it is the language that has to be construed. An effort was
made to submit that the words “be paid in priority to all other debts”
must have meaning only to insolvency or winding up. The charge
that is created by sub-Section (2) and the mandate that the amount
due shall be paid in priority to all other debts cannot, however, be
restricted only to a situation of insolvency or winding up. Clearly,
sub-section (2) cannot be so construed or restricted.
-5. The sale to the Petitioner : As-is-where-is :
In the present case, it would be necessary to advert to
Clause 2 of the Sale Deed under which the Petitioner acquired the
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st
property from MSFC on 21 October 2002. Clause 2, in so far as
is material provides as follows:
“The property offered for sale is on “as is where is and
what is basis”. The corporation does not undertake any
responsibility to procure any permission /licence etc., in
respect of the property offered for sale or for any dues
like MIDC water/service charges, transfer fees, electricity
dues and charges for fresh power connection, dues of
the Coop. Industrial Estate, taxes of Municipal
Corporation/local authority or other dues/taxes such as
dues of the Sales Tax Department, Excise Department,
Customs Department, if any, in respect of the said
property and the same shall be payable by the
purchaser.” (emphasis supplied).
The terms of the contract between MSFC and the Petitioner
clearly stipulate that the property was offered for sale on an “as is
where is” basis. MSFC put the Petitioner on notice that it did not
undertake any responsibility to procure any permission in respect
of the property offered for sale or for any dues (like MIDC
water/service charges, transfer fees, electricity dues, charges for
fresh power connection, dues of the Cooperative Industrial Estate,
taxes of the Local Authorities) or other dues.
-6. Section 100 of the Transfer of Property Act, 1882 :
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The Petitioner was at all times on clear notice of the fact
that the property was being sold on an as is where is basis and that
MSFC did not undertake any liability for the payment of dues. We
advert to this because it has been one of the limbs of argument of
the Petitioner that the Petitioner was not on notice of the liability, if
any, that was required to be borne to the Provident Fund
Authorities. Section 100 of the Transfer of Property Act, 1882,
inter alia provides as follows :
“”100. Where immovable property of one person is by act
of parties or operation of law made security for the
payment of money to another, and the transaction does
not amount to a mortgage, the latter person is said to
have a charge on the property, and all the provisions
hereinbefore contained which apply to a simple mortgage
shall, so far as may be, apply to such charge.
Nothing in this section applies to the charge of
a trustee on the trust property for expenses properly
incurred in the execution of his trust, and, save as
otherwise expressly provided by any law for the time
being in force, no charge shall be enforced against any
property in the hands of a person to whom such property
has been transferred for consideration and without notice
of the charge.”
Ahmedabad Municipal Corporation vs Haji Abadulgafur Haji
In
Husseinbhai, 1971 (1) SCC 757, the Supreme Court considered
the provisions of Section 141 of the Bombay Provincial Municipal
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Corporations Act, 1949, under which property taxes due are to be
regarded, subject to the prior payment of the land revenue due to
the State Government to be a first charge on the property. A
person was in arrears of property taxes in respect of which the
Municipal Corporation had a charge on the property of the
defaulter. The property was, however, sold in execution of a
mortgage decree and when the Corporation purported to exercise
its charge, the purchaser in a Court auction, filed a suit for
declaration that he was the owner of the property and that arrears
of taxes were not recoverable from him. The Supreme Court held
that under Section 100 of the Transfer of Property Act, 1882, what
is enacted by the second half is a general prohibition and no
charge shall be enforced against any property in the hands of a
transferee for consideration without notice of the charge and the
exception to this general rule must be expressly provided by law.
While constructive notice was sufficient, to satisfy the requirement
of notice in the proviso to Section 100, whether the transferee has
constructive notice is to be determined in the facts and
circumstances of the case. The provisions of Section 100 were
revisited in the State Bank of Bikaner & Jaipur vs. National Iron
& Steel Rolling Corporation,
(1995) 2 SCC 19. The State Bank
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had given a Cash Credit Facility to a borrower who had created a
Deed of Mortgage on his Factory premises. The Bank filed a suit
for the recovery of its dues at which stage, the Commercial Tax
Officer of the State of Rajasthan got himself impleaded on the
ground that the Department had a prior claim for the recovery of
Sales tax dues under Section 11AAAA of the Rajasthan Stales
Tax Act, 1954. That provision was to the effect that notwithstanding
anything contrary contained in any law for the time being in force,
any amount of tax, penalty, interest and any other sum payable by
a dealer or any other person shall be the first charge on the
property. The Supreme Court considered the provisions of Section
11AAAA and its impact on Section 100 of the Transfer of Property
Act, 1882. The Court noted that there was a distinction between a
mortgage and a charge, one which was noted by the Supreme
Dattatraya Shanker Mote vs. Anant Chintaman Datar
Court in ,
(1974) 2 SCC 799. The Supreme Court held that the phrase
“transfer of property” refers to the transferee of the entire interest in
the property and it does not cover the transfer of only an interest in
the property by way of a mortgage. The Supreme Court held that
since the statute created a first charge, it gave priority to the
statutory charge over all other charges on the property including a
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mortgage since the charge operates on the entire property of
dealer including the interest of the mortgagee therein. In the
recent judgment of the Supreme Court in State of Karnataka vs.
Shreyas Papers Pvt. Ltd . (2006) 1 SCC 615 one of the issues
which fell for consideration was whether the purchaser of assets of
a concern sold by a State Financial Corporation under Section 29
of the SFC Act, 1951 would be liable under the Karnataka Sales
Tax Act, 1967 for the arrears of Sales Tax of the concern whose
assets had been transferred. Section 15(1) of the State Sales
Tax Act showed that the liabilities of the defaulting transferor could
be foisted on the transferee only if the ownership of the business
was transferred. In that case, the Supreme Court noted that it was
not a matter of dispute that there was only a transfer of the
individual assets of the defaulting Company rather than the
defaulting company being sold as a going concern. Hence, Section
15(1) of the Karnataka Sales Tax Act, 1967 was held not to have
been attracted. In that case, the Supreme Court also noted that
no provision of law had been cited before the Court that exempted
the requirement of a notice of the charge for its enforcement
against a transferee who had no notice of the same. The Supreme
Court noted that the transferee had in fact, no notice of the
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arrears of sales tax either actual or constructive. The State Sales
Tax Act, therefore, contained a provision subjecting the transferee
to the liabilities of the transferor only when the ownership of the
business was transferred. Secondly, the State law did not contain
any provision exempting the requirement of the notice of a charge
to the transferee. In contrast it may be noted that Section 11(2)
of the EPF Act, 1952 specifically (i) creates a first charge in respect
of any amount being due from the employer on account of
employer's or employee's contribution; (ii) provides that the amount
shall be liable to be paid in priority to all other debts; and (iii)
envisages that this shall be notwithstanding anything contained in
any other law for the time being in force. The non obstante
provision, therefore, would necessarily override all other provisions
of law including the Transfer of Property Act, 1882.
4. On behalf of the Petitioner it has been urged that Section
17B of the EPF Act, 1952 will not apply to a situation such as the
present. For the purpose of this case we have proceeded on the
basis that this is so. Section 17-B of the EPF Act, 1952 comes
into operation where an employer in relation to an establishment
transfers that establishment in whole or in part by sale, gift, lease
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24
or licence or in any other manner whatsoever. In such a case, both
the employer and the person to whom the establishment is
transferred are jointly and severally liable to pay the contribution
and other sum due from the employer under the provisions of the
Act or of any scheme framed thereunder. The liability of the
transferee shall be limited to the value of the assets obtained by
him by such transfer. The submission was that Section 17B
applies to a situation where a transfer of establishment has taken
place by the employer meaning thereby that there is a voluntary
transfer of assets. Even if the submission were to be accepted,
Section 17B is an additional provision which deals with a specific
eventuality viz., the transfer of an establishment in whole or in part
by an employer to a transferee. We clarify that in the view which
we have taken, it has not been necessary to enter a finding on the
correctness of the interpretation of Section 17-B suggested by the
Petitioner. We leave that open for decision in an appropriate case.
The provisions of Section 11(2) are, however, wide enough to
cover an eventuality not within the purview of Section 17B, in so
far as it creates a first charge and provides that it shall have priority
over all other debts notwithstanding anything contained in any
other law for the time being in force.
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25
State Bank of
5. The judgment of the Supreme Court in
Bikaner
(supra), it may be noted, has been followed both in the
judgment of the Division Bench of the Kerala High Court and by
the Division Bench of this Court noted above. In our view, the non-
obstante provision contained in Sub-section (2) of Section 11 has
force and effect notwithstanding anything contained in any other
law for the time being in force which will include both the State
Financial Corporations Act, 1951 and, for that matter, the Transfer
of Property Act, 1882. We, therefore, do not find any merit in any
of the contention which has been urged on behalf of the Petitioner.
The first charge on the assets of the establishment cannot be
disrupted by the sale of the property. In any event, as we have
already noted, the sale deed that was executed in favour of the
Petitioner does in the facts of this case provide an answer to the
contention that the Petitioner had no notice of the possible liability
which could have arisen.
6. In the circumstances, we do not find any reason to
exercise our jurisdiction under Article 226 of the Constitution.
There is no merit in the petition which is accordingly dismissed.
There is no order as to costs.
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26
CHIEF JUSTICE
Dr.D. Y. Chandrachud, J.
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1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
APPELLATE SIDE
WRIT PETITION NO.2932 OF 2004
M/s. Indus Agro Products. ...Petitioner.
Vs.
Union of India & Ors. ...Respondents.
....
Mr. S.S. Patwardhan for the Petitioner.
Mr. M.S. Karnik for Respondent No.3.
Mr. V.M. Jhaveri for Respondent No.4.
Mr. M.S. Topkar for Respondent No.7.
.....
CORAM : KSHITIJ R. VYAS, C.J. &
DR.D.Y.CHANDRACHUD, J.
March 28, 2006 .
JUDGMENT (Per Dr. D.Y. Chandrachud, J.) :
Rule, by consent of Counsel returnable forthwith.
Respondents waive service. By consent and at the request of
Counsel , taken up for hearing and final disposal.
I
1. A purchaser in a sale conducted by the State Financial
Corporation has challenged an attachment levied under the
Employees' Provident Funds and Miscellaneous Provisions Act,
1952. The issues that have been canvassed before the Court
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2
here relate to (i) the meaning and extent of the first charge
statutorily created by Section 11(2) of the EPF Act, 1952; (ii)
whether, as the Petitioner contends, the charge cannot be
enforced in the hands of a purchaser in a sale conducted under the
State Financial Corporation Act, 1951; and (iii) whether the charge
and the priority created by Parliament in the payment of PF dues is
confined to insolvency and winding up alone. We have declined to
accept the line of argument pressed before us. The first charge on
the assets of the establishment created by Parliament while
enacting section 11(2) of the EPF Act, 1952 and the priority
enunciated there is given overriding effect, notwithstanding
anything to the contrary contained in any law for the time being in
force. The charge and the priority are founded on overriding social
welfare principles: protecting the terminal benefits of industrial
workers over other competing claims. We decline to read down
Parliament's mandate. Finally, we hold that the terms of the sale
put the Petitioner on notice that this was a sale on an “as is where
is” basis. For the reasons which we now elucidate, we decline to
interfere, in our jurisdiction under Article 226 of the Constitution.
II
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3
The Facts :
2. The Fifth Respondent conducted, prior to 2002, business
activities from a plot of land (W-79) in the MIDC area at Shiroli,
Kolhapur. Maharashtra State Financial Corporation (MSFC),
impleaded to these proceedings as the Fourth Respondent, had
granted term loan facilities to the Fifth Respondent. Upon the
default of the Fifth Respondent, MSFC took steps under Section
29 of the State Financial Corporations Act, 1951, (“SFC Act, 1951”)
and took over the plot and the structures standing thereon. The
lease hold rights in the land and the structures were sold to the
st
Petitioner under and in pursuance of a Sale Deed executed on 21
October 2002. Possession was transferred to the Petitioner. On
th
5 March 2004, the Third Respondent, who is the Recovery Officer
in the Employees' Provident Fund Organisation at Kolhapur,
served an order of attachment upon the Petitioner in respect of the
land and the structures standing thereon. The notice was under
the provisions of the Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 (EPF Act, 1952). The Fifth
Respondent was in arrears of Provident Fund dues and it appears
from the record that a notice of attachment was served on the
ground that the Fifth Respondent had failed to pay a sum of
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4
Rs.8,35,809/- which was due under a certificate of the Regional
th
Provident Fund Commissioner dated 17 April 2002. The
th
Petitioner submitted a representation to MSFC on 12 March 2004
and having failed to elicit a response thereafter, moved these
proceedings under Article 226 of the Constitution in order to
challenge the order of attachment. A declaration has also been
sought to the effect that the Petitioner is not liable for the Provident
Fund dues towards the employees of the Fifth Respondent.
III
SUBMISSIONS :
3. On behalf of the Petitioner, it has been submitted that (i)
The Petitioner having purchased the property in question, in an
auction sale conducted by MSFC under Section 29 of the SFC
Act, 1951, Section 11(2) of the EPF Act, 1952 and the priority set
out therein cannot apply to the Petitioner since the Petitioner is not
the employer of the employees in respect of whose dues the
Provident Fund Authorities are proceeding; (ii) The property had
ceased to be the assets of the establishment of the Fifth
Respondent who is liable to pay the dues; (iii) The priority
envisaged in Section 11(2) is attracted only in the case of winding
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5
up and in the facts of this case it has no application where neither
the Fifth Respondent, nor the Petitioner has been ordered to be
wound up; (iv) The sale by MSFC in favour of the Petitioner not
being a voluntary transfer by the owner of the property, Section
17-B of the EPF Act, 1952 would have no application. MSFC
which is also a party to these proceedings has similarly submitted
that the first charge created by Section 11(2) and the priority
reflected therein can apply only in a situation where a Company is
in liquidation or an employer is adjudged as an insolvent. Absent a
proceeding for liquidation or proceedings in insolvency, it was
urged, Section 11(2) would have no application. Hence, it is
submitted that the view of the Kerala High Court in Recovery
Officer and Assistant Provident Fund Commissioner vs. Kerala
Financial Corporation
, 2002 III CLR 191, does not reflect the
correct position in law and the decision of the Division Bench of this
Janata Sahakari Bank Ltd. Vs. Assistant Provident Fund
Court in
Commissioner and Recovery Officer,
(Writ Petition 639 of 2005
rd
decided on 23 June 2005) is per incuriam and requires
reconsideration. These submissions would now merit
consideration.
IV
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6
-1. The First charge and priority under Section 11(2) :
The EPF Act, 1952, is an Act to provide for the Institution
of Provident Funds, Pension Funds and Deposit Linked Insurance
Funds for employees in Factories and other establishments. The
EPF Act constituted, when it was enacted five decades ago, a
water shed in the evolution of social security norms for industrial
workers. The institution of a Contributory Provident Fund in which
both the workers and the employer would contribute was
envisaged to provide social security to industrial workers who at
the end of their working careers would otherwise be left with no
safety net to meet their own needs and those of their families.
Section 11 of the EPF Act, 1952 declares the priority of
payment of contributions over other debts. As originally enacted,
Section 11 read as follows :
“11. Priority of payment of contributions over other
debts.- The amount due in respect of any contribution
under this Act or under any scheme and any charges
incurred in respect of the administration of the Fund
under any scheme shall, where the liability therefor has
accrued before the person liable is adjudicated insolvent,
or, in the case of a company ordered to be wound up,
before the date of such order, be deemed to be included
among the debts which under section 49 of the
Presidency-Towns Insolvency Act, 1909 (III of 1909) or
under section 61 of the Provincial Insolvency Act, 1920
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7
(V of 1920) or under Section 230 of the Indian
Companies Act, 1913 (VII of 1913) are to be paid in
priority to all other debts in the distribution of the property
of the insolvent or the assets of the company being
wound up, as the case may be.”
Section 11 was amended by Amending Act 40 of 1973 and by
Amending Act 33 of 1988. As it stands today, Section 11 reads as
follows:
“11. Priority of payment of contributions over other
debts.- (1) Where any employer is adjudicated insolvent
or, being a company, an order for winding up is made,
the amount due-
(a) from the employer in relation to an establishment to
which any Scheme or the Insurance Scheme applies in
respect of any contribution payable to the Fund or, as the
case may be, the Insurance Fund, damages recoverable
under section 14B, accumulations required to be
transferred under sub-section (2) of Section 15 of any
charges payable by him under any other provision of this
act or of any provision of the Scheme or the Insurance
Scheme; or
(b) from the employer in relation to an exempted
establishment in respect of any contribution to the
provident fund or any insurance fund in so far it relates to
exempted employees, under the rules of the provident
fund or any insurance fund, any contribution payable by
him towards the Pension Fund under sub-section (6) of
section 17, damages recoverable under section 14B or
any charges payable by him to the appropriate
Government under any provision of this Act or under any
of the conditions specified under Section 17;
shall, where the liability therefor has accrued before the
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8
order of adjudication or winding up is made, be deemed
to be included among the debts which under Section 49
of the Presidency-Towns Insolvency Act, 1909 (3 of
1909) or under section 61 of the Provincial Insolvency
Act, 1920 (5 of 1920), or under Section 530 of the
Companies Act, 1956 (1 of 1956) are to be paid in
priority to all other debts in the distribution of the property
of the insolvent or the assets of the company being
wound up, as the case may be.
Explanation. - In this sub-section and in
section 17, “insurance fund” means any fund established
by an employer under any scheme for providing benefits
in the nature of life insurance to employees, whether
linked to their deposits in provident fund or not, without
payment by the employees of any separate contribution
or premium in that behalf.
(2)Without prejudice to the provisions of sub-section (1),
if any amount is due from an employer whether in
respect of the employee's contribution deducted from
the wages of the employee or the employer's
contribution, the amount so due shall be deemed to be
the first charge on the assets of the establishment,
and shall, notwithstanding anything contained in any
other law for the time being in force, be paid in priority
to all other debts.”
The provisions of sub-Section (1) of Section 11 apply in
a situation where an employer is adjudged insolvent or, when an
employer is a Company, an order of winding up is made. In that
event, amounts falling in the description contained in clauses (a)
and (b) of sub-section (1) which have accrued before the order of
adjudication or winding up was made are deemed to be included
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9
among the debts which are to be paid in priority to all other debts in
the distribution of the property of the insolvent, or the Company in
liquidation, as the case may be, under the Insolvency Acts of 1909
or 1920 or under Section 530 of the Companies Act, 1956. Sub-
section (2) of Section 11 is essentially the provision which falls for
consideration in the present case. Sub-section (2) is prefaced with
the words “without prejudice to the provisions of sub-section (1)”.
The provision applies if any amount is due from an employer
whether in respect of the employee's contribution that has been
deducted from the wages or the employer's contribution. Upon
any such amount being due, the statute mandates that the amount
due shall (i) be deemed to be the first charge on the assets of the
establishment (ii) be paid in priority to all other dues,
notwithstanding anything contained in any other law for the time
being in force.
-2. Is Section 11(2) confined to insolvency and winding up ?
On behalf of the Petitioner and MSFC, it was submitted
that Sub-section (2) must apply only in those situations which are
covered by Sub-section (1) namely, where an employer is
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10
adjudged insolvent or where the employer, being a company, is
being wound up. That construction, however, cannot be accepted
for a number of reasons. First and foremost, the words “without
prejudice to the provisions of Sub-section (1)” are intended to
indicate that the provisions of Sub-section (2) shall not dilute the
operation of sub-section (1). Consequently, the priority which is
created by Sub-section (1) in the distribution of the property of an
insolvent or of the assets of a Company which is being wound up is
not disturbed by the first charge or the priority which is created by
Sub-section (2). Secondly, interpreting the words of Sub-Section
(2) as they stand, the provision is intended to apply if any amount
is due from an employer whether in respect of the employer's own
contribution or the employee's contribution for which a deduction
has been made from the wages. Once any such amount is due,
Parliament has provided that it shall be deemed to be a first charge
on the assets of the establishment and be paid in priority to all
other debts notwithstanding anything contained in any other law for
the time being in force. To read Sub-section (2) as subservient to
Sub-section (1) or as a provision which operates in the same field
as sub-section (1) wound render sub-section (2) largely otiose.
Such a construction cannot be accepted since it would be contrary
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11
to the plain and grammatical meaning that attaches to the words
used in Sub-section (2) of Section 11. The words “if any amount is
due from the employer” must be given a full and untrammeled
construction. The deeming fiction in Sub-section (2) by which a
first charge is created on the assets of the establishment must be
taken to its logical conclusion and must comprehend within its
ambit all the consequences which can reasonably be construed to
emanate therefrom. Sub-Section (2) is not a proviso to sub-section
(1) but is a provision that stands by itself to lend teeth to the
recoverability of the dues of the employees by way of contribution.
-3. The view taken by the Karala High Court and by this Court:
The view which we to take finds support in a judgment of
Recovery Officer and
a Division Bench of the Kerala High Court in
Assistant Provident Fund Commissioner vs. Kerala Financial
Corporation, 2002 III CLR 191. In that case, proceedings were
initiated under Section 29 of the SFC Act, 1951. An attachment
was levied under the EPF Act, 1952 by the Recovery Officer which
was challenged by the State Finance Corporation. Chief Justice
B.N. Srikrishna (as His Lordship then was) speaking for the
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12
Division Bench noted that Sub-section (1) of Section 11 deals with
the question of priority where an employer is adjudged an insolvent
or; being a company, is subjected to an order of winding up. The
Division Bench held that Sub-section (2) of Section 11 “deals with
other types of priorities.” (emphasis supplied). The Kerala High
Court inter alia rejected the submission that it was the SFC Act of
1951 which had overriding effect in view of Section 46B of that
Act. The Court held that while the SFC Act was enacted with a
view to ensuring quick and effective recovery of amounts due from
defaulters, Provident Fund payable to workers was of greater
moment since it was a matter of a terminal social security benefit
made available by statute to the working classes. Besides, the
EPF Act, 1952 being a later Act also enacted by Parliament, it was
Section 11(2) of that Act which would override all other provisions,
including Section 46B. The judgment of the Division Bench sums
up the position thus:
“The contention of the first respondent based on the
overriding effect of S.46-B of the SFC Act has no
substance in our judgment. Undoubtedly, the intention of
Parliament in enactment S.46-B in the year, 1956 was to
ensure that a State Financial Corporation could quickly
and effectively recover the amounts due by taking
possession of the property of the defaulter instead of
having resort to the cumbersome method of recovery
through a court of law. While this was the law,
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13
Parliament amended S.11 of the EPF & MP Act by
specifically enacting sub-s.(2) thereof, declaring that the
amounts due as contribution to the Employees Provident
Fund has first charge on the assets of the establishment
and that, notwithstanding anything contained in any
other law for the time being in force, it shall be paid in
priority against all other debts. In fact, the second facet
of S.11(2) of the EPF & MP Act goes one step further
than what is provided in S.46-B of SFC Act. the reason
for this is obvious. While the State Financial Corporation
would have to be helped to recover the debts due to it
from a defaulting debtor, the Provident Fund payable to
workers is of greater moment, since it is a matter of
terminal social security benefit made available by statute
to the working class. Taking into consideration that EPF
& MP Act is a social benefit legislation, and the evil
consequences of Provident Fund dues being defeated by
prior claims of secured or unsecured creditors, the
Legislature took care to declare that irrespective of when
a debt is created, the dues under the EPF & MP Act
would always remain first charge and shall be paid first
out of the assets of the establishment. We are also not
impressed by the contention of the first respondent that
upon usage of non obstante clause in S.46-B of the SFC
Act. Sub-s. (2) of S.11 of the EPF Act is of subsequent
date. No doubt, both S.46-B of the SFC Act and S.11(2)
of the EPF Act declare their intent by usage of the non
obstante clause. But, since S.11(2) of the EPF & MP Act
has been enacted later, we must ascribe to the
Parliament the intention to override the earlier legislation
also. It is, therefore, clear that S.11(2) of the EPF & MP
Act overrides all provisions of other enactments including
S.46-B of the SFC Act.”
The judgment of the Kerala High Court has been followed by a
Division Bench of this Court in Janata Sahakari Bank Ltd. vs.
Assistant Provident Fund Commissioner
(Writ Petition 639 of
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14
rd
2005 decided on 23 June 2005) to which one of us, D.Y.
Chandrachud, J. was a party. In that case, the question which
arose before the Court related to the impact of the provisions of
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, on the provisions of the
EPF Act, 1952. This Court noted that the intention of Parliament in
enacting the Securitization Act was to ensure that Banks and
Financial Institutions can quickly and effectively recover amounts
due to them by taking possession of the secured assets instead of
having to resort to the cumbersome method of recovery through
Civil Courts and Tribunals. The Securitization Act, however, does
not have any substantive provision giving precedence to the dues
of Banks and Financial Institutions whereas, on the other hand,
Section 11(2) of the EPF Act declares that amounts due as
contribution to the Employees' Provident Fund shall be a first
charge on the assets of the establishments to be paid in priority
against all other dues notwithstanding anything contained in any
other law for the time being in force. The reason for this, the Court
said, was obvious:
“The Legislature intended to secure the terminal social
security benefit made available by the statute to the
working class. ... The non-obstante clause contained in
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15
section 35 of the Securitization and Reconstruction Act
has to be construed and given effect to having regard to
the object and purpose of the said Act and so construed
it does not in any way effect the operation of the
provisions of EPF and MP Act. We are therefore, of the
view that the respondent No.1 shall be entitled to
exercise power as a Recovery Officer for recovering
Provident Fund dues.”
-4. Statement of Objects cannot override plain statutory
construction.
On behalf of MSFC, however, it is submitted that the
judgments of the Kerala High Court and of the Division Bench of
this Court are not correct and that sub-Section (2) was intended to
operate only in a situation where an establishment is wound up. It
was emphasised from the Statement of Objects and Reasons
appended to the Bill resulting in Amending Act 40 of 1973 that the
National Commission of Labour had recommended that arrears of
Provident Fund should be made a first charge on the assets of the
establishment at the time of its winding up. Similarly, when the Act
was amended by Amending Act 33 of 1980, the Statement of
Objects and Reasons contained a reference to the effect that
provision was being made for treating the entire amount of arrears
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16
of Provident Fund dues as a first charge on the assets of the
establishment in the event of its liquidation.
Now, in assessing this submission it becomes
necessary to advert to what is perhaps a basic principle of statutory
interpretation. Reference to the Statement of Objects and Reasons
accompanying the enactment of a law is permissible for
understanding the background, the antecedent state of affairs, the
surrounding circumstances in relation to a statute, and the evil
which the statute sought to remedy. ( Sanghvi Jeevraj Ghewar
Chand v. Secretary, Madras Chillies, Grains and Kirana
Merchants Workers Union, Virji Ram Sutaria
AIR 1969 SC 530;
v. Nathalal Premji Bhanvadia, AIR 1970 SC 765; Shiv Kirpal
Singh v. V. V. Giri , AIR 1970 SC 2097; Secretary, Regional
Transport Authority v. D. P. Sharma, AIR 1989 SC 509; and
Devadoss (Dead) v. Veera Makali Amman Koil Athlur,
AIR 1998
SC 750.) It is equally well settled that the Statement of Objects
and Reasons cannot be used to determine the true meaning and
effect of the substantive provisions of the statute. A Statement of
Objects and Reasons cannot be used except for the limited
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17
purpose of understanding the background and the antecedent state
of affairs leading to the legislation. Hence, it would impermissible
for this Court to restrict the operation of the plain and grammatical
meaning of the words contained in Sub-section (2) of Section 11
with reference to the Statement of Objects and Reasons. Similarly,
a reference therein to the report of the National Commission of
Labour can at the highest indicate the historical antecedents, the
surrounding circumstances or the mischief which was intended to
be remedied. In interpreting the language of a statute, it is trite law
that it is the language that has to be construed. An effort was
made to submit that the words “be paid in priority to all other debts”
must have meaning only to insolvency or winding up. The charge
that is created by sub-Section (2) and the mandate that the amount
due shall be paid in priority to all other debts cannot, however, be
restricted only to a situation of insolvency or winding up. Clearly,
sub-section (2) cannot be so construed or restricted.
-5. The sale to the Petitioner : As-is-where-is :
In the present case, it would be necessary to advert to
Clause 2 of the Sale Deed under which the Petitioner acquired the
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18
st
property from MSFC on 21 October 2002. Clause 2, in so far as
is material provides as follows:
“The property offered for sale is on “as is where is and
what is basis”. The corporation does not undertake any
responsibility to procure any permission /licence etc., in
respect of the property offered for sale or for any dues
like MIDC water/service charges, transfer fees, electricity
dues and charges for fresh power connection, dues of
the Coop. Industrial Estate, taxes of Municipal
Corporation/local authority or other dues/taxes such as
dues of the Sales Tax Department, Excise Department,
Customs Department, if any, in respect of the said
property and the same shall be payable by the
purchaser.” (emphasis supplied).
The terms of the contract between MSFC and the Petitioner
clearly stipulate that the property was offered for sale on an “as is
where is” basis. MSFC put the Petitioner on notice that it did not
undertake any responsibility to procure any permission in respect
of the property offered for sale or for any dues (like MIDC
water/service charges, transfer fees, electricity dues, charges for
fresh power connection, dues of the Cooperative Industrial Estate,
taxes of the Local Authorities) or other dues.
-6. Section 100 of the Transfer of Property Act, 1882 :
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19
The Petitioner was at all times on clear notice of the fact
that the property was being sold on an as is where is basis and that
MSFC did not undertake any liability for the payment of dues. We
advert to this because it has been one of the limbs of argument of
the Petitioner that the Petitioner was not on notice of the liability, if
any, that was required to be borne to the Provident Fund
Authorities. Section 100 of the Transfer of Property Act, 1882,
inter alia provides as follows :
“”100. Where immovable property of one person is by act
of parties or operation of law made security for the
payment of money to another, and the transaction does
not amount to a mortgage, the latter person is said to
have a charge on the property, and all the provisions
hereinbefore contained which apply to a simple mortgage
shall, so far as may be, apply to such charge.
Nothing in this section applies to the charge of
a trustee on the trust property for expenses properly
incurred in the execution of his trust, and, save as
otherwise expressly provided by any law for the time
being in force, no charge shall be enforced against any
property in the hands of a person to whom such property
has been transferred for consideration and without notice
of the charge.”
Ahmedabad Municipal Corporation vs Haji Abadulgafur Haji
In
Husseinbhai, 1971 (1) SCC 757, the Supreme Court considered
the provisions of Section 141 of the Bombay Provincial Municipal
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20
Corporations Act, 1949, under which property taxes due are to be
regarded, subject to the prior payment of the land revenue due to
the State Government to be a first charge on the property. A
person was in arrears of property taxes in respect of which the
Municipal Corporation had a charge on the property of the
defaulter. The property was, however, sold in execution of a
mortgage decree and when the Corporation purported to exercise
its charge, the purchaser in a Court auction, filed a suit for
declaration that he was the owner of the property and that arrears
of taxes were not recoverable from him. The Supreme Court held
that under Section 100 of the Transfer of Property Act, 1882, what
is enacted by the second half is a general prohibition and no
charge shall be enforced against any property in the hands of a
transferee for consideration without notice of the charge and the
exception to this general rule must be expressly provided by law.
While constructive notice was sufficient, to satisfy the requirement
of notice in the proviso to Section 100, whether the transferee has
constructive notice is to be determined in the facts and
circumstances of the case. The provisions of Section 100 were
revisited in the State Bank of Bikaner & Jaipur vs. National Iron
& Steel Rolling Corporation,
(1995) 2 SCC 19. The State Bank
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21
had given a Cash Credit Facility to a borrower who had created a
Deed of Mortgage on his Factory premises. The Bank filed a suit
for the recovery of its dues at which stage, the Commercial Tax
Officer of the State of Rajasthan got himself impleaded on the
ground that the Department had a prior claim for the recovery of
Sales tax dues under Section 11AAAA of the Rajasthan Stales
Tax Act, 1954. That provision was to the effect that notwithstanding
anything contrary contained in any law for the time being in force,
any amount of tax, penalty, interest and any other sum payable by
a dealer or any other person shall be the first charge on the
property. The Supreme Court considered the provisions of Section
11AAAA and its impact on Section 100 of the Transfer of Property
Act, 1882. The Court noted that there was a distinction between a
mortgage and a charge, one which was noted by the Supreme
Dattatraya Shanker Mote vs. Anant Chintaman Datar
Court in ,
(1974) 2 SCC 799. The Supreme Court held that the phrase
“transfer of property” refers to the transferee of the entire interest in
the property and it does not cover the transfer of only an interest in
the property by way of a mortgage. The Supreme Court held that
since the statute created a first charge, it gave priority to the
statutory charge over all other charges on the property including a
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22
mortgage since the charge operates on the entire property of
dealer including the interest of the mortgagee therein. In the
recent judgment of the Supreme Court in State of Karnataka vs.
Shreyas Papers Pvt. Ltd . (2006) 1 SCC 615 one of the issues
which fell for consideration was whether the purchaser of assets of
a concern sold by a State Financial Corporation under Section 29
of the SFC Act, 1951 would be liable under the Karnataka Sales
Tax Act, 1967 for the arrears of Sales Tax of the concern whose
assets had been transferred. Section 15(1) of the State Sales
Tax Act showed that the liabilities of the defaulting transferor could
be foisted on the transferee only if the ownership of the business
was transferred. In that case, the Supreme Court noted that it was
not a matter of dispute that there was only a transfer of the
individual assets of the defaulting Company rather than the
defaulting company being sold as a going concern. Hence, Section
15(1) of the Karnataka Sales Tax Act, 1967 was held not to have
been attracted. In that case, the Supreme Court also noted that
no provision of law had been cited before the Court that exempted
the requirement of a notice of the charge for its enforcement
against a transferee who had no notice of the same. The Supreme
Court noted that the transferee had in fact, no notice of the
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arrears of sales tax either actual or constructive. The State Sales
Tax Act, therefore, contained a provision subjecting the transferee
to the liabilities of the transferor only when the ownership of the
business was transferred. Secondly, the State law did not contain
any provision exempting the requirement of the notice of a charge
to the transferee. In contrast it may be noted that Section 11(2)
of the EPF Act, 1952 specifically (i) creates a first charge in respect
of any amount being due from the employer on account of
employer's or employee's contribution; (ii) provides that the amount
shall be liable to be paid in priority to all other debts; and (iii)
envisages that this shall be notwithstanding anything contained in
any other law for the time being in force. The non obstante
provision, therefore, would necessarily override all other provisions
of law including the Transfer of Property Act, 1882.
4. On behalf of the Petitioner it has been urged that Section
17B of the EPF Act, 1952 will not apply to a situation such as the
present. For the purpose of this case we have proceeded on the
basis that this is so. Section 17-B of the EPF Act, 1952 comes
into operation where an employer in relation to an establishment
transfers that establishment in whole or in part by sale, gift, lease
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or licence or in any other manner whatsoever. In such a case, both
the employer and the person to whom the establishment is
transferred are jointly and severally liable to pay the contribution
and other sum due from the employer under the provisions of the
Act or of any scheme framed thereunder. The liability of the
transferee shall be limited to the value of the assets obtained by
him by such transfer. The submission was that Section 17B
applies to a situation where a transfer of establishment has taken
place by the employer meaning thereby that there is a voluntary
transfer of assets. Even if the submission were to be accepted,
Section 17B is an additional provision which deals with a specific
eventuality viz., the transfer of an establishment in whole or in part
by an employer to a transferee. We clarify that in the view which
we have taken, it has not been necessary to enter a finding on the
correctness of the interpretation of Section 17-B suggested by the
Petitioner. We leave that open for decision in an appropriate case.
The provisions of Section 11(2) are, however, wide enough to
cover an eventuality not within the purview of Section 17B, in so
far as it creates a first charge and provides that it shall have priority
over all other debts notwithstanding anything contained in any
other law for the time being in force.
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State Bank of
5. The judgment of the Supreme Court in
Bikaner
(supra), it may be noted, has been followed both in the
judgment of the Division Bench of the Kerala High Court and by
the Division Bench of this Court noted above. In our view, the non-
obstante provision contained in Sub-section (2) of Section 11 has
force and effect notwithstanding anything contained in any other
law for the time being in force which will include both the State
Financial Corporations Act, 1951 and, for that matter, the Transfer
of Property Act, 1882. We, therefore, do not find any merit in any
of the contention which has been urged on behalf of the Petitioner.
The first charge on the assets of the establishment cannot be
disrupted by the sale of the property. In any event, as we have
already noted, the sale deed that was executed in favour of the
Petitioner does in the facts of this case provide an answer to the
contention that the Petitioner had no notice of the possible liability
which could have arisen.
6. In the circumstances, we do not find any reason to
exercise our jurisdiction under Article 226 of the Constitution.
There is no merit in the petition which is accordingly dismissed.
There is no order as to costs.
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CHIEF JUSTICE
Dr.D. Y. Chandrachud, J.
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