Recovery Officer, Employees Provident Fund Organisation, Salem v Official Liquidator, High Court, Madras, as the Liquidator of Uma Maheswai Spinning Mills Limited and another

Madras High Court

26 March 2013

Comp. A. No. 493 of 2011 in C.P. No. 173 of 2001

The Order of the Court was as follows :

1. This application under Order XIV Rule 8 of the Original Side Rules read with Rule 9, 11(b) and 19 of the Companies (Court) Rules, 1959, has been filed to direct the respondents to release the provident fund dues to the tune of Rs.8,20,91,568/- (Rupees eight crores twenty lakhs ninety one thousand five hundred and sixty eight only), on priority to the Recovery Officer, Employees Provident Fund Organisation.

2. In the affidavit, it is pleaded that M/s.Uma Maheswari Spinning Mills Ltd., Plot No.85-89, SIPCOT Industrial Estate, Hosur, was establishment covered under theEmployees Provident Fund and Miscellaneous Provisions Act, 1952. The establishment defaulted in payment of provident fund dues and the provident fund contribution inclusive of interest and damages amounting to Rs.8,20,91,568/- (Rupees eight crores twenty lakhs ninety one thousand five hundred and sixty eight only).

3. The case of the applicant is, that immovable properties of the establishment were attached by the Recovery Officer under Section 8B to 8G of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, read with 2nd schedule of the Income-Tax Act, 1961, vide order dated 07.06.2001.

4. In response to the notice of the recovery officer, the applicant was informed that Indian Overseas Bank had filed a petition before the learned Debts Recovery Tribunal, Chennai, for recovery from the company.

5. The recovery proceedings were delayed, as the company was registered with B.I.F.R. and there was also an order of injunction by this Court in writ petitions and Crl.O.Ps. The writ petitions, however, were subsequently dismissed or disposed of.

6. This Court, in C.P.No.178 of 2001, ordered winding up of M/s.Uma Maheswari Spinning Mills Ltd. Thereafter, in response to the notice issued by the Official Liquidator, the Provident Fund Organisation filed a claim for recovery, which stands adjudicated by the Official Liquidator.

7. It is admitted case of the applicant, that in Company Application No.1453 of 2010, the bank was allowed to go out of the liquidation proceedings and permitted to sell the movable and immovable properties of the company in liquidation being secured creditor under the SARFAESI Act, by associating the Official Liquidator, so as to enable him to settle the priority u/s. 529 A of the Companies Act, 1956.

8. It is not disputed that auction was conducted under the SARFAESI Act, and property was sold for a total sale consideration of Rs.12,57,00,000/- (Rupees twelve crores fifty seven lakhs only) and the sale amount has been paid to the bank.

9. It is the submission of the learned counsel for the applicant, that the applicant is entitled to recover Rs.8,20,91,568/- (Rupees eight crores twenty lakhs ninety one thousand five hundred and sixty eight only), out of the sale proceeds, as provident fund dues are to be paid before the dues of the workmen or secured creditors of the company are settled, as the provident fund dues are paramount charge on the properties of the establishment, in preference to all debts, whether secured or unsecured, in view of S. 11(2) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952.

10. It is submitted that the Authorised Officer of the Indian Overseas Bank failed to pay the demanded amount to the applicant, therefore, proceedings have been initiated by the Recovery Officer to recover the amount from the bank.

11. The learned counsel for the applicant admits that the action of the Recovery Officer in declaring the bank to be defaulter, to effect recovery has been stayed by this Court on the writ side. In spite of the fact that the recovery has been stayed by this Court, this application has been pressed for directing the Authorised Officer and the Official Liquidator to pay the money to the applicant. It is not understood how an application can be filed before a company Judge, without getting the stay vacated. The practice to have two parallel proceedings needs to be put to an end with heavy hand.

12. In support of the contention that the applicant is entitled to the prior charge over and above the secured creditors and workmen, reliance is placed on the judgment of the Hon’ble Supreme Court in Employees Provident Fund Commissioner vs. Official Liquidator of Esskay Pharmaceuticals Limited and Others, 2011 (6) CTC 317 2011 Indlaw SC 765 (SC), laying down as under:-

“43. At the cost of repetition, we would emphasize that in terms of S. 530(1), all revenues, taxes, cesses and rates due from the Company to the Central or State Government or to a local authority, all wages or salary of any employee, in respect of the services rendered to the company and due for a period not exceeding 4 months, all accrued holiday remuneration, etc. and all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees maintained by the company are payable in priority to all other debts. This provision existed when S. 11(2) was inserted in the EPF Act by Act 40 of 1973 and any amount due from an employer in respect of the employees contribution was declared first charge on the assets of the establishment and became payable in priority to all other debts. However, while inserting Section 529-A in the Companies Act by Act 35 of 1985 Parliament, in its wisdom, did not declare the workmen s dues (this expression includes various dues including provident fund) as first charge.

50. The effect of the amendment made in the Companies Act in 1985 is only to expand the scope of the dues of workmen and place them on a par with the debts due to secured creditors and there is no reason to interpret this amendment as giving priority to the debts due to secured creditor over the dues of provident fund payable by an employer. Of course, after the amount due from an employer under the EPF Act is paid, the other dues of the workers will be treated on a par with the debts due to secured creditors and payment thereof will be regulated by the provisions contained in S. 529(1) read with Ss. 529(3), 529-A and 530 of the Companies Act.”

13. This application is opposed by the learned Official Liquidator on the plea that the recovery is not to be made from the Official Liquidator, therefore, this application before the company Court is not competent, as the sale was effected under the SARFAESI Act. The recovered amount from the sale is to be distributed as per the priority u/s. 529 A of the Companies Act. The applicant is not claiming priority u/s. 529 A, but seeks to enforce the right under S. 11(2) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, claiming prior charge. The dispute regarding this is pending on the writ side where stay has been granted.

14. The remedy with the applicant, if any, was to move the SARFAESI Court, for claiming prior charge, if any, that too after the decision in writ or on vacation of stay. This application in company Court is not competent, and in any case, the prayer could not be pressed in view of the stay by this Court on the writ side.

15. Dismissed for want of jurisdiction of this Court to entertain the application. No costs.

Application dismissed