CWP No.12202 of 2009.doc - 1 – HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH **** CWP No.12202 of 2009 (O&M) Date of Decision: 24.09.2010 **** Employees’ Provident Fund Organisation ...Petitioner VS. Punjab Financial Corporation & Anr. ….Respondents **** CORAM : HON’BLE MR.JUSTICE SURYA KANT **** 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? **** Present: Mr. Kamal Sehgal, Advocate for the petitioner Mr. SS Toor, Advocate for respondent No.1 ***** SURYA KANT J. (ORAL) (1). The petitioner – Organisation seeks a mandamus to direct the Punjab Financial Corporation – respondent No.1 to deposit a sum of `1,51,059/- recoverable under the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 from respondent No.2 - M/s. Punjab Chlorochem Works Ltd. which was taken over by the Punjab Financial Corporation under Section 29 of the State Financial Corporations Act, 1951. (2). The dispute essentially revolves around the provisions of the two Statutes, namely, (i) the CWP No.12202 of 2009.doc - 2 – Employees Provident Fund & Miscellaneous Provisions Act, 1952; and (ii) The State Financial Corporations Act, 1951, for the purpose of determining as to out of the two, which one shall have precedence and priority in the matter of recovery of the above-mentioned dues? (3). Having heard learned counsel for the parties, it appears that the issue involved herein is no longer res integra. A Division Bench of the Kerala High Court in Recovery Officer/Asstt. Provident Fund Commissioner v. Kerala Financial Corp., 2003(1) ISJ 36 (Banking) had an occasion to consider the provisions of Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 vis-à- vis the State Financial Corporation Act, 1951 and after taking note of the non obstante clause contained in Section 46(b) of the State Financial Corporations Act and following the view taken by the Hon’ble Supreme Court in A.P. State Financial Corporation v. Official Liquidator, (2002) 7 SCC 291, it ruled that :- “…….In our view, the reasoning advanced by the Supreme Court in A.P. State Financial Corporation (supra) is equally applicable to the case before us. Firstly, S.11(2) of the EPF CWP No.12202 of 2009.doc - 3 – & MP Act is subsequently in point of time and, therefore, must be taken to be the latest manifestation of the intendment of the Parliament. Secondly, the social purpose behind the amendment of S.11(2) is to protect the terminal social security dues of workmen, and therefore, needs to be given higher priority as intended by Parliament. We are, therefore, of the view that the appellant shall be entitled to exercise his powers as a Recovery Officer for recovering the Provident Fund dues. Hence, the notices issued vide Exts.P1 and P3, and the orders at Exts. P4, P5(a), P5(b) and P5(c) were perfectly legal and justified. We are unable to accept the reasoning of the learned Single Judge and conclusions arrived at on the inter se contest between the provisions of S.46-B of the SFC Act and S.11(2) of the EPF & MP Act.” (Emphasis applied) (4). The Hon’ble Supreme Court in a later decision in Maharashtra State Cooperative Bank Limited v. Assistant Provident Fund Commissioner and others, (2009) 10 SCC 123 has put the seal of its approval to the above-reproduced view of Kerala High Court, while holding as follows :- “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 CWP No.12202 of 2009.doc - 4 – (Ker), 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: "7. ... 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 payable 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: "10. The contention of the first respondent based on the overriding effect of Section 46-B of the SFC Act has no CWP No.12202 of 2009.doc - 5 – 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) 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 CWP No.12202 of 2009.doc - 6 – 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." (5). The Apex Court while interpreting Section 11(2) of the 1952 Act further ruled that :- “………..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 CWP No.12202 of 2009.doc - 7 – 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.” (6). In this view of the matter, the claim of the petitioner – EPF Organisation being found upon a ‘social welfare legislation’ shall have precedence over the claim of respondent under the State Financial Corporation Act. (7). For the reasons afore-stated, the writ petition is allowed and respondent No.1-Corporation is directed to deposit `1,51,059/- towards arrears of employees’ Provident Fund payable by respondent No.2-Company and if so required, by disposing the assets of respondent No.2 in accordance with law, within a period of three months from the date of receipt of a certified copy of this order. (8). Ordered accordingly. (9). Dasti . (SURYA KANT) JUDGE 24.09.2010 vishal shonkar