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