Civil Writ Petition No. 20119 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION: May 23, 2011 M/s Sundaram Finance Limited .....Petitioner VERSUS Employees Provident Fund Organization and others ....Respondents CORAM:- HON'BLE MR.JUSTICE RANJIT SINGH 1. Whether Reporters of local papers may be allowed to see the judgement? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present: Mr. Alok Jain, Advocate, for the petitioner. Mr. Kamal Sehgal, Advocate, for respondents No. 1 and 2. Mr. Naresh Kaushik, Advocate, for respondent No. 4. **** RANJIT SINGH, J (ORAL) The petitioner is a finance company which is doing the business of hire and purchase of motor vehicle and machineries. Concededly, the petitioner provides loan facilities for the purpose of assets, lease of equipments and machinery. This fact is stated in the petition itself. The petitioner is having its offices all over the country. Respondent No. 4 is a private bus operator running the Civil Writ Petition No. 20119 of 2008 2 business of private deluxe buses and is being financed through the petitioner-company from time to time. As per the averment made in the petition, 18 buses of respondent No. 4 are financed by the petitioner-company under the hire purchase agreement. A sum of Rs. 1,51,23,902/- as principal amount is outstanding against respondent No. 4. The petitioner has placed on record a purchase bill of one bus. On account of default on the part of respondent No. 4 the installments were rescheduled and the hire purchase agreement was amended on 03.04.2002. Sometime on 29.11.2005, the petitioner-company, however, came to learn that respondent No. 2 has impounded the buses against which a representation was made. The petitioner- company submitted a statement of account to respondent No. 2 and inquired about 8 buses which were seized by the said respondent. It is stated that thereafter no further action was taken by respondent No. 2. It is stated that subsequently, respondent No.4 had become somewhat regular in depositing the installments of the buses and so the petitioner remained under bonafide impression and belief that the default towards Provident Fund Dues had also been regularized by respondent No. 4 who was plying the buses. The petitioner-company thereafter came across a proclamation of sale notice dated 10.10.2008 whereby auction of 8 buses was scheduled. The petitioner-company had then represented on 04.11.2008. The auction was postponed and the petitioner- company received a letter from respondent No. 3 to appear in person on 19.11.2008. Petitioner then learnt that respondent No. 4 was not cooperating with the recovery proceedings. Petitioner has a Civil Writ Petition No. 20119 of 2008 3 grievance that it would be loss of the petitioner-company and respondent No. 4 would not suffer in any manner from the order of attachment of buses. It is pointed out that because of this reason, respondent No. 4 even did not inform the authorities that the petitioner-company was the owner of the buses in question. This position was made known to respondent No. 3 who expressed his helplessness in the matter as it was a case of payment of arrears of Provident Fund. Respondent No. 3, however, still gave time to the petitioner-company till 27.11.2008 to approach the appropriate forum. The petitioner-company has thereafter filed this writ petition pleading that the buses in question are on a hire purchase agreement and cannot be put to auction for default by respondent No. 4. The respondents still have gone ahead with the auction of these buses towards recovery of provident fund dues. It is stated that respondent No. 3 could have effected the recovery by seeking attachment of the buses owned by respondent No. 4 and not the buses which are owned by the petitioner-company. The auction is stated to be in the breach of the provisions of Sections 8B and 8C of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the 'Act'). The challenge is accordingly made through the present proceedings. At the time of issuing notice of motion, reliance was placed on State of Maharashtra and others Vs. Sundaram Finance and others (1999), 9, Supreme Court Cases, 1 to contend that the provident fund dues of respondent No. 4 could not be recovered from the buses which were owned by the petitioner- purchaser. The auction of the buses in question was stayed on Civil Writ Petition No. 20119 of 2008 4 27.11.2008. This interim order was continued on different dates when the case was adjourned. On 06.10.2010, counsel for respondents No. 1 and 2 prayed for adjournment to enable him to furnish details of the liquidator on the adjourned date. Thereafter, the counsel for the parties again prayed for adjournment on one pretext or the other. A prayer was then made for ascertaining whether the company had gone into liquidation. To get this information the case was adjourned to 18.04.2011. Still request for adjournment was made as none of the counsel for the parties had been able to apprise the Court whether the Company had gone into liquidation. Accordingly, the case was taken up for hearing without getting further information. Reply otherwise has been filed on behalf of respondent No. 2. Prayer is made for dismissing the writ petition on the ground that the establishment of M/s Pritam Bus Private Limited which was running the transport company has failed to comply with the provisions of the Act by not remitting the dues under the Act. This company is stated to be a sister concern of M/s Pritam Express Private Limited. The total dues outstanding are Rs. 39,42,279/- under Section 7A of the Act and Rs. 10,52,440/- under Section 14B of the Act. The total dues include default on account of non payment of employees share of provident fund contribution. Complaint under Section 405 of the Indian Penal Code was made and FIR No. 306 dated 28.11.2004 was lodged against Satpal, employer for not depositing the employees' share of provident fund contribution deducted from the salary of the employees amounting to Rs. 15,62,875/-. The said employer has been released on anticipatory bail. The Recovery Officer in exercise of power under Civil Writ Petition No. 20119 of 2008 5 Section 8 B of the Act had ordered the attachment of movable property of the establishment and issued warrant of attachment of movable property vide CP No. 02 dated 28.03.2005. Accordingly, 8 buses of the establishment bearing registration numbers as given in the reply were attached by the Recovery Officer. Reference is made to the objection raised by the counsel for the petitioner- company to the attachment which was disposed of by the Recovery Officer vide speaking order dated 22.12.2005. In order to cause sale of the attached buses by way of auction the reserve price was fixed by the Recovery Officer on the basis of a report furnished by M/s North India Technical Consultancy Organization Limited, Chandigarh and Automobile Association of Upper India, Ludhiana. The reserve price assessed by the agencies was duly informed to the establishment and comments were invited on the reserve price of each bus. The establishment was also given opportunity to remit the dues. No objection was received from the establishment. The amount was also not deposited. Sale proclamation was issued on 10.10.2008. The auction notice was advertised on 17.10.2008. The date of auction was fixed as 07.11.2008. At this stage, the petitioner again made a representation on 04.11.2008. This fact was brought to the notice of the Recovery Officer that the schedule of property as mentioned in the auction notice was the subject matter of hire purchase. The petitioner, statedly, was agreeable for the sale of the vehicles subject to the condition that the dues in respect of the hire purchase contract be paid to it. The Recovery Officer proceeded with the sale as the department was incurring monthly expenses of Rs. 16,854/- as Civil Writ Petition No. 20119 of 2008 6 security of 8 buses and the objections raised by the petitioner had already been disposed of on 22.12.2005. Three buses were auctioned. Two out of these fetched Rs. 2,52,000/- each and one bus was sold for Rs. 2,38,000/-. The custody of these buses was also handed over to the respective bidders on 07.11.2008. Even before auctioning the remaining five buses an opportunity was given to the petitioner to appear before the Recovery Officer on 19.11.2008 and to explain its position. On this date, the petitioner sought adjournment to file written submissions and the matter was adjourned to 27.11.2008. The petitioner instead filed the present writ petition before this Court where the recovery proceedings have been stayed. In view of the above noted position, the first aspect which would require consideration is whether the petitioner could be justified in challenging the auction notice without challenging the order of attachment which was made long ago in the year 2005. The objections which were filed by the petitioner on 29.11.2005 were disposed of by passing speaking order dated 22.12.2005. The petitioner chose never to challenge the order. Faced with this situation, the counsel for the petitioner has made very laborious efforts to justify the in action to challenge the order by saying that this order was never brought to the notice of the petitioner. It is stated that this order is not forthcoming before this Court. In my view, it would not be a valid ground to ignore this order. No effective relief can be granted to the petitioner unless any challenge is made to the order of attachment which was passed in the year 2005. Still the petitioner has made no efforts to obtain this order by invoking either the jurisdiction of this Court or by invoking Civil Writ Petition No. 20119 of 2008 7 the provisions of the Right to Information Act, 2005. The reply was filed by respondent No. 2 on 06.08.2009. At least the petitioner- company is in the knowledge of this order from the reply since 06.08.2009 onwards. Still pleading ignorance would not serve its cause. Even otherwise, I find that this is only an effort to avoid main issues. It is clearly disclosed in the reply that all the proceedings were initiated when these buses were ordered to be attached. The Recovery Officer had taken action under Section 8 B of the Act while ordering the attachment of movable property of the establishment. The warrant of attachment was issued on 28.03.2005. The petitioner-company had filed objections to the same on 29.11.2005. The petitioner cannot plead ignorance that those objections remained undecided. No efforts were made to know the outcome of the objections filed. Indeed those objections had been decided on 22.12.2005 but still no efforts were made by the petitioner to either procure the order or to challenge the same on any ground that may be available to it. Even when the auction was fixed for 07.11.2008 the petitioner-company had filed a representation on 04.11.2008. At this stage, the petitioner-company would have made itself aware that no auction could be held before passing the order of attachment of movable property. The petitioner is not a novice that it would not be knowing the provisions of law. Petitioner would have battery of experts person to advice and assist. The petitioner was aware that the proceeding for recovery of employees provident fund amount due was being made. Even during November, 2008, the petitioner-company agreed for the sale of vehicles but wanted the Civil Writ Petition No. 20119 of 2008 8 auction money to be deposited with it. This was asking for something which would be impermissible under law. There would not be any provision, and no such provision has been brought to my notice, that the Recovery Officer who had attached the movable property pursuant to the provisions of the Provident Fund Act would duly auction and deposit the money recovered with the petitioner concern which may be having the hire purchase agreement. Once the petitioner had itself conceded for the sale of the property, then it cannot now be permitted to complain as to why the property was put to auction. In view of this factual background, I am not inclined to deal with the submissions made by the learned counsel for the petitioner on the basis of law laid down in State of Maharashtra and others' case (supra). The issue was also not exactly the same though the right of the hire purchaser was a common issue but there would be different consideration so far as liability to pay the provident fund is concerned. As is noticed, a substantial sum of provident fund amount was recovered by respondent No. 4 but he failed to deposit the same with respondent No. 2. The hire purchase agreement may have different connotations and technically the petitioner may be the owner of the buses but primarily it would be notional ownership, if at all and defacto owner would be the company which was running the transport. The fact about running of buses and the requirement of recovery of the employees' provident fund amount has not been disputed. The status of the petitioner-company, in fact, would remain that of a loaner who has advanced loan which was being recovered in installments. The primary issues thus in my view would be Civil Writ Petition No. 20119 of 2008 9 regarding the priority of debt recoverable in such like cases. On that issue the position is clearly well settled. The recovery of employees' provident fund would always have priority over the amounts of debt like hire purchase. Doubt, if any, raised can be set at rest by making reference to the Maharashtra State Cooperative Bank Limited Vs. Assistant Provident Fund Commissioner and others (2009), 10, Supreme Court Cases, 123 relied upon by Mr. Sehgal. Para 31 of this judgement would clearly explain this position without any doubt which reads as under:- “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 Civil Writ Petition No. 20119 of 2008 10 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.” Section 11 of the Act as interpreted by the Hon'ble Supreme Court would clearly show that priority granted to provident fund dues would operate over all other forms or debts or dues including mortgaged or pledged. Hire-purchase arrangement may not rank over pledge or mortgage and basically is a loan which is secured by the property which is subject matter of hire-purchase arrangement. The workers' claim therefore cannot be allowed to be defeated by such technicalities as are urged before me. In fact there is no merit in the pleas raised when the petitioner has allowed this situation to reach this stage without challenging the attachment order. In view of what has been noted above, there is no merit in the petition. The same is, accordingly, dismissed. May 23, 2011 ( RANJIT SINGH ) Amodh JUDGE