IN THE HIGH COURT OF JUDICATURE AT MADRAS (Appellate Jurisdiction) Tuesday, the Tenth day of october Two thousand and six PRESENT: The Honourable THE CHIEF JUSTICE The Honourable Mr. Justice D.MURUGESAN and The Honourable Mr.Justice R.SUDHAKAR Writ Appeal Nos.173 & 230 of 2006 Listed with W.P.Nos. 4908/2001, 6732/2002, 36706/2002, 39643 to 39645 of 2002, 40072, 40073/2002, 41172/2002, 46043/2002, 6059/2003, 6995 to 6997/2003, 7039/2003, 8271/2003, 9980/2003, 18014/2003, 22726/2003, 1504/2004, 23392/2003, 23678/2003, 23847/2003, 24318/2003, 24610/2003, 26252/2003, 26672/2003, 27214/2003, 27797/2003, 29490/2003, 30634/2003, 30720/2003, 34354/2003, 362/2004, 1127/2004, 1151/2004, 1199 & 1200/2004, 1505/2004, 1520, 1523, 1532 of 2004, 1704/2004, 1871/2004, 2645/2004, 2976/2004, 3884/2004, 4274, 4275/2004, 4285/2004, 4291/2004, 4304/2004, 4442/2004, 4496/2004, 4869/2004, 5473/2004, 5726/2004, 6114/2004, 6337/2004, 6346/2004, 6585/2004, 7465 & 7466/2004, 7848/2004, 8087/2004, 8750/2004, 9478/2004, 11733/2004, 13132/2004, 18951/2004, 19057, 19060 to 19062/2004, 21488/2004, 24890 to 24892/2004, 25235/2004, 25950/2004, 28819 & 28820/2004, 28910/2004, 30584/2004, 30675 to 30681 of 2004, 31687/2004, 31886/2004, 33196 & 33197/2004, 33389/2004, 33458/2004, 36732/2004, 37625/2004, 1309 & 1310/2005, 2092/2005, 2719/2005, 2812/2005, 4482 & 4483/2005, 4687/2005, 4797/2005, 6001/2005, 6692 & 6693/2005, 8296/2005, 8501/2005, 8573/2005, 9453 & 9454/2005, 12195/2005, 16160/2005, 20740/2005, 21103/2005 and 34108 of 2005 And connected miscellaneous Petitions ---------- W.A.No. 173 of 2006 M/s.Gowri Spinning Mills (P) Ltd., Rep. by the Managing Director, Thokkampatti,Dharmapuri. … Appellants/Petitioners in WA No.173/06 https://hcservices.ecourts.gov.in/hcservices/ Vs. 1. Assistant Provident Fund Commissioner Sub Regional Office, Salem – 636 004. 2. Recovery Officer – II, Sub Regional Office, Sri Jayalakshmi Plaza, Anna Salai, Swarnapuri, Salem – 636 004. … Respondents/Respondents WA No. 230/2006: Sri Lakshmi Spinner (P) Ltd., rep. by its Executive Director, No.10, Green Field Road, Pulaiyakulam, Coimbatore-45. ..Appellant/Petitioner Vs. Employees Provident Fund organisation, Regional Office, LDC Road, Madurai - 625 002. .. Respondent/Respondent Appeal filed under Clause 15 of the Letters Patent against the order passed in W.P.M.P.No. 44206 of 2005 in W.P.No.41166 of 2005 dated 23.12.2005. WPMP NO. 44206/05: Petition to grant interim injunction restraining the second respondent from enforcing the recovery of Provident Fund Contributions pursuant to the order of the 1st Respondent in Proceedings No. TN/SL//ENF/III/21284/KRI-II/2004 dt. 6.8.04 without permission of Board for Industrial and finance reconstruction pending disposal of Writ Petition No. 41166/05 presented under ARticle 226 of the Constitution of India to issue Writ of Mandamus or any other writ or direction forbearing the first and second respondents from enforcing the recovery of Provident Fund contribution pursuant to the order of the first respondent in proceedings No. TN/SL/ENF- III/21284/KRI-II/2004 dated 6.8.2004 without Permission of Board of Industrial and Financial Reconstruction. WPMP No. 1906/06: Petition to grant interim stay of the operation of the order of the respondent dated 10.11.2005 bearing ref/no.TN/MD/5928/Enf/Spl.Task/RO/05 pending disposal of the Writ https://hcservices.ecourts.gov.in/hcservices/ petition No. 1662/2006 presented under Article 226 of the Constitution of India to issue Certiorarified Mandamus after calling for the concerned records from the respondent, quash the order of the respondent dated 10.11.2005 bearing ref.No.TN/MD/5928/Enf/ Spl.Task/ RO/05 and consequently direct the respondent to approach the Board for Industrial and Financial Reconstruction for obtaining the consent for recovery of alleged non-remittance provident fund contribution for the period September 2000 to December 2000 and award cost. For Appellant in WA No. 173/06 :::: Mr. S.Sivanandam For Appellant in WA No. 230/06 :::: Mr. Balan Haridoss For Respondents :::: Ms.V.J.Latha in both W.As. Writ Appeals under Clause 15 of the Letters Patent against the order of the Honourable Mr. Justice V. Dhanapalan, dated 23.12.2005 and 24.1.06 and made in the exercise of the Special Original Jurisdiction of the High Court in Writ Petition MP No. 44206/05 in WP No. 41166 of 2005 and WPMP No. 1906/06 in WP No.1662/2006 respectively. JUDGMENT: These Writ Appeals coming on for hearing on this day upon perusing the Grounds of Apeal, the order of the Honourable Mr.Justice V. Dhanapalan dated 23.12.2005 & 24.1.06 respectively and made in the exercise of the Special Original Jurisdiction of the High Court in Writ Petition MP No. 44206/05 in WP No. 41166/05 and WPMP 1906/06 in WP No. 1662 of 2006 and all other papers material to this case, and upon hearing the arguments of Mr. Balan Haridoss, Advocate for the Appellant in WA No. 230/06 and of Mr.S. Sivanandam, Advocate for the Appellant in WA No. 173/2006 and of Ms. V.J. Latha, Advocate for the respondents in both the Appeals, the Court made the following Judgment:- J U D G M E N T THE HON’BLE THE CHIEF JUSTICE The short but important issue which falls for our consideration in the present appeals is whether the action to recover the dues payable under the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, is maintainable when the employer, who is sought to be proceeded against is an Industrial Company in respect of whom a proceeding is pending under the Sick Industrial Companies (Special Provisions) Act, 1985. 2. The appellants in the aforesaid writ appeals are sick companies within the meaning of Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short ‘the SICA’). https://hcservices.ecourts.gov.in/hcservices/ The facts leading to these appeals are undisputed and need to be noted in brief. Writ Appeal No.230 of 2006 The admitted facts are that the appellant company had committed defaults in remitting the amounts due to the Employees Provident Fund Scheme to the tune of Rs.10,96,676/- during the period from September 2000 to December 2000. Therefore, notice dated 10.11.2005 has been issued by the Regional Provident Fund Commissioner (C & R) Madurai calling upon the appellant to remit the amount of Rs.10,96,676/- within 10 days of receipt of the notice, failing which action will be taken under Section 8B to 8G of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (for short ‘the EPF Act’) to recover the dues. In the meanwhile the appellant made a reference before the Board for Industrial & Financial Reconstruction (BIFR) under Section 15(1) of the SICA. The said application of the appellant is registered as Case No.401/2001. The application was rejected by the BIFR by order dated 01.05.2002 against which an appeal was preferred to the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). The appeal was allowed by the AAIFR vide order dated 07.11.2005 and the matter has been remitted back to the BIFR and consequently the matter is now with the BIFR. The appellant has challenged the notice under the EPF Act in W.P.No.1662 of 2006. The sole basis of the challenge is that having regard to the provisions of Section 22(1) of the SICA, the recovery proceedings without the consent of the BIFR are not maintainable. In W.P.M.P.No.1906 of 2006 the learned single Judge granted interim stay on condition of deposit of 50% of the total amount of dues within a period of four weeks, failing which the stay granted shall stand automatically vacated. Aggrieved by the order of the learned single Judge, the appellant has preferred the aforesaid writ appeal. W.A.No.173 of 2006 The appellant company has become sick having accumulated losses exceeding its entire net worth within the meaning of Section 3(1)(o) of the SICA. The appellant has filed Form-A before the BIFR on 15.12.2004 and the reference is registered as Case No. 35/2005. The scheme for revival is not yet framed. In the meantime, the Assistant Provident Fund Commissioner determined the provident fund contribution by the appellant under Section 7A of the EPF Act for the period from 01.08.2003 to 30.06.2004 in TN/SL/ENF- III/21284/KR1/II/2004 dated 06.08.2004. The appellant has filed W.P. No.41166 of 2005 contending inter alia that as its reference is pending before the BIFR, the respondents are not empowered to take any coercive steps in view of Section 22 of the SICA. The grievance of the appellant is that even though the respondents are informed about the BIFR proceedings, they have initiated recovery proceedings without the consent from the BIFR and therefore, the said proceedings are liable to be quashed and set aside. In W.P.M.P.No.44206 of 2005, the learned single Judge granted interim injunction on payment of 50% of the amount to the authority concerned within a period of four weeks from the date of receipt of the order, failing which the order https://hcservices.ecourts.gov.in/hcservices/ of interim stay shall stand automatically vacated. Being aggrieved, the appellant has preferred the present writ appeal. 3. In the writ appeals the principal submission of the appellants is that the appellants are sick companies within the meaning of Section 3(1)(o) of the SICA, and further according to the appellants, under Section 22 (1) of the SICA, when an enquiry under Section 16 is pending before BIFR, then notwithstanding anything contained in the Companies Act, 1956, or any other law, no proceedings for execution, distress or the like against any of the properties of the industrial company would lie or be proceeded with further except with the consent of the BIFR. It is further contended that since the EPF Act does not contain any non obstante clause and the SICA and the EPF Act are both special statutes, and since the SICA came into force later than the EPF Act, in that case, the provisions of the SICA must prevail over the EPF Act. Reliance is placed on an unreported decision of a Division Bench of this Court dated 02.11.2001 rendered in W.A.No.1831 of 2001 (M/s.ESSORPE Mills Limited Vs. Central Provident Fund Commissioner and Others). The Division Bench in the aforesaid case has held that in view of the provisions of Section 22 of the SICA no action for realization against a sick company relating to the amounts payable under the EPF Act is permissible without prior consent from the BIFR. The writ appeals were posted for hearing before the Division Bench to which one of us (A.P.Shah, C.J.) was a party. The Division Bench recording its disagreement with the aforesaid decision in M/s.ESSORPE Mills’ case took a view that Section 22(1) of the SICA has no application and the proceedings under the EPF Act would not come within the purview thereof. Consequently, the matters came to be referred to the Larger Bench. 4. We have heard learned counsel appearing for the appellants and the respondents as well as learned counsel appearing for the intervenor companies whose writ petitions are listed along with the writ appeals. 5. The submission which has been urged on behalf of the appellants/intervenors is that the action which has been adopted by the authorities under the provisions of the EPF Act, is contrary to the provisions of Section 22(1) of the SICA. Learned counsel appearing for the appellants/intervenors submitted that Section 22(1) has been judicially interpreted by the Supreme Court as imposing restriction on even the recovery of the statutory dues. The effect of non obstante clause contained in Section 22(1) and the non obstante provisions of Section 32 of the SICA is that whatever may be the other law or its effect, no proceeding against the properties of a sick company would lie or be proceeded with. The SICA being a special statute in relation to sick industrial companies and a later statute, it will prevail over the general provisions of the EPF Act. Even where there are two special statutes which contain non obstante https://hcservices.ecourts.gov.in/hcservices/ clauses, the later statute must prevail. It is therefore contended that Section 22(1) amounts to statutory interdict to the realization of the provident fund dues and for the same reason no steps can be taken to realize such dues by taking recourse to coercive measures. 6. Learned counsel appearing on behalf of the respondents, on the other hand, would urge that the provident fund dues are statutory liability and the Provident Fund Act is a piece of social welfare legislation enacted for the purpose of welfare of the labourers. If the industry is to run smoothly, the labour welfare legislation has to be given effect to and that construction of Section 22 of the SICA could not be given in such a way, which takes away or suspends the rights of the provident fund authorities from realizing the provident fund dues and/or damages. It is submitted that merely because the company is a sick company and it has been referred to the BIFR is not an impediment in recovering the dues of the provident fund. A reference was made to the amended Section 14-B of the EPF Act which empowers the Central Provident Fund Commissioner to recover damages where default had been committed in the payment of any contribution to the Fund and such damages can be reduced or waived in respect of a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the BIFR, but no protection has been provided thereunder as regards the contribution of the employees and/or the employer. 7. In order to appreciate the rival contentions which have been urged at the Bar, reference may be made to some of the fundamental provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The EPF Act has been enacted to provide for the “institution of provident funds, pension funds and deposit linked insurance funds for the employees in factories and other establishments”. Therefore, it is a welfare legislation intended as a measure to provide social security. Under the provisions of the EPF Act a Scheme known as ‘Employees’ Provident Fund Scheme, 1952’ has been framed. After the framing of the Scheme a Fund is established which is vested and administered by the Central Board constituted under Section 5 – A of the EPF Act. Section 6 of the EPF Act provides that 8-1/3 % of the basic wages, dearness allowance and retaining allowance, if any, for the time being payable to each of the employees shall be deducted as contribution from the employees and an equal amount thereto shall be contributed by the employer. Section 6-A of the Act provides for the Employees Pension Scheme and Section 6-C for the Employees’ Deposit Linked Insurance Scheme. Section 7-A empowers the Provident Fund Commissioner and his officers to determine, inter alia, the amount due from any employer under the provisions of the Act. Section 8 provides for the mode of recovery of moneys due from employees. Section 8-A provides for recovery of moneys by employers and contractors. Section 8-B provides that where an amount is in arrears under Section 8 the authorized officer may issue to the Recovery Officer, a certificate specifying the amount of arrears and the Recovery Officer on receipt of such certificate shall proceed to recover the amount specified therein from the https://hcservices.ecourts.gov.in/hcservices/ establishment or employer by one or more of the modes, i.e., (a) attachment and sale of the movable or immovable properties of the establishment or the employer; (b) arrest of the employer and his detention in prison; and (c) appointing a receiver for the management of the movable or immovable properties of the establishment or the employer. Section 8-G provides that the provisions of the Second and Third Schedules to the Income-tax Act, 1961, and the Income-tax (Certificate Proceedings) Rules 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 the Act instead of to the income-tax. Section 11 of the Act provides for the priority of payment of contributions over other debts. Section 12 lays down that no employer shall, by reason only of his liability for the payment of any contribution under the Act or the Scheme reduce the wages of any employee or the total quantum of benefits in the nature of Old Age Pension, Gratuity, Provident Fund or Life Insurance to which the employee is entitled under the terms of his employment express or implied. 8. The penalties, which are provided for the breach of the provisions of the EPF Act, are contained in a group of Sections beginning with Section 14. Section 14-B of the Act empowers the Central Provident Fund Commissioner to recover damages from an employer who makes a default in the payment of contribution to the fund by the employer and the proviso appended thereto empowers the Central Board to 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 BIFR, subject to such terms and conditions as may be specified in the scheme. Section 14-B reads thus:- “14-B: 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 charge 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 authorized by the Central Government, by notification in the Official Gazette, in this behalf may recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme. https://hcservices.ecourts.gov.in/hcservices/ 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.” 9. Paragraph 26 of the Scheme under the EPF Act requires that every employee employed in or in connection with the work of a factory or other establishment to which the Scheme applies, other than an excluded employee, shall become a member of the Fund. Paragraph 30 of the Scheme postulates that the employer shall, in the first instance, pay both the contribution payable by himself and also, on behalf of the member employed by him, the contribution payable by such member. The principal employer is obligated to pay the contributions payable by himself in respect of employees directly employed by him as well as in respect of employees engaged by or through a contractor together with the administrative charges. Paragraph 31 of the Scheme provides that the employer shall not be entitled to deduct the employer’s contribution from the wages of a member or otherwise to recover it from him. However, the employee’s contribution can be recovered under paragraph 32 by the employer by means of a deduction from the wages of the members of the Scheme. Paragraph 32-B provides for the terms and conditions for reduction or waiver of damages, and it reads thus:- “32-B. Terms and conditions for reduction or waiver of damages:- The Central Board may reduce or waive the damages levied under Section 14-B of the Act in relation to an establishment specified in the second proviso to Section 14-B, subject to the following terms and conditions, namely; (a)in case of a change of management including transfer of the undertaking to workers’ Co-operative and in case of merger or amalgamation of the sick industrial company with any other industrial company, complete waiver of damages may be allowed; (b)in cases, where the Board for Industrial and Financial Reconstruction, for reasons to be recorded in its scheme, in this behalf recommends, waiver of damages upto 100 per cent may be allowed; (c)in other cases, depending on merits, reduction of damages upto 50 per cent may be allowed.” https://hcservices.ecourts.gov.in/hcservices/ 10. Paragraph 38 of the Scheme provides that the employer before paying the member his wages in respect of any period or part of a period for which contributions are payable, was under an obligation to deduct the employee’s contribution from his wages together with his own contribution, and administrative charges, and he shall within 15 days of the close of every month pay the same to the Fund by separate bank drafts or cheques. 11. It will be useful to refer to the relevant provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The Preamble of the Act states as follows:- “ An Act to make, in the public interest, special provision with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto.” Sections 3(b), 3(i) and 3(o) may also be read:- “ 3(b). ‘Board’ means the Board for Industrial and Financial Reconstruction established under Section 4; 3(i). ‘Operating Agency’ means any public financial institution, State level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the board; 3(o) ‘Sick industrial company’ means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth.” 12. Chapter III of the SICA deals with “References, inquiries and schemes”. Section 15 thereof authorizes the Board of Directors of the Company to make a reference to the Board (BIFR) for determination of the measures which shall be adopted with respect to the company. Section 16 authorises the Board to make such inquiries as it may deem fit for determining whether any industrial company has become a sick industrial company. Section 17(2) says that where the Board is satisfied that a company has become a sick industrial company, it could give a reasonable time to the company to make its net worth positive. Where it is not practicable for sick industrial company to make its net worth positive within a reasonable time, Section 17(3) steps in authorizing the Board to direct any operating agency to prepare a scheme in relation to the company. The Board may specify the various measures to be considered by the operating agency. These measures are detailed out in Section 18 and the operating agency has to prepare a scheme as per the order specified by the Board. Under https://hcservices.ecourts.gov.in/hcservices/ Section 18(3) of the Act a scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification made by the Board shall be sent to the sick industrial company and the operating agency. The draft scheme shall be published in brief in daily newspapers, inviting suggestions and objections. It is open to the Board to make modifications as it considers necessary in the light of the suggestions and objections received. It is thereafter the scheme is sanctioned by the Board and it shall come into force on such date as the Board may specify in that behalf. Section 19 of the Act provides for rehabilitation by giving financial assistance. 13. Section 22 of the Act provides for suspension of legal proceedings, contracts, etc., in respect of the cases mentioned therein. Sub-section (1) of Section 22, as amended in 1993, reads thus: - “Section - 22: Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties