LPA No.893 of 2011 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Letters Patent Appeal No.893 of 2011 Date of decision: 15.7.2011 Regional Provident Fund Commissioner ...Appellant Versus Tayal Energy Limited and others ...Respondents CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Kamal Sehgal, advocate for the appellant. Mr. Vivek Salathia, Advocate for respondent/caveator. Adarsh Kumar Goel, ACJ. 1. This appeal has been preferred against order of learned Single Judge quashing demand for Provident fund dues from respondent-writ petitioner on the ground that the writ petitioner being auction purchaser was not liable for the dues of the previous concern. 2. M/s Goidwal Cooperative Spinning Mills Limited, Chadnigarh was a Cooperative society formed under the provisions of Punjab Cooperative Societies Act, 1961 (in short, ‘the 1961 Act’) The said concern was closed down and a winding up order was passed against it under the 1 LPA No.893 of 2011 provisions of the 1961 Act. On 11.1.2006, the assets of the concern were put to auction in favour of the writ petitioner. Terms of transfer provided that liability till the date of execution of the conveyance deed will be of the liquidator and thereafter of the transferee. The Provident Fund department initiated proceedings for recovery of Provident Fund dues under section 17B of the Employees Provident Fund & Misc. Provisions Act, 1952 (EPF Act). Aggrieved thereby, the writ petitioner approached this Court by way of a writ petition on the ground that it being transferee by operation of law, was not liable for the liability of the previous owner in view of judgment of this Court in M/s Driplex Water Engineering International Pvt. Limited v. The Regional Provident Fund Commissioner, 2009(2) SCT 742. 3. Learned Single Judge upheld the plea of the writ petitioner relying upon following judgments:- i) M/s Driplex Water Engineering International Pvt. Limited (supra); ii) Suburban Ply and Panels (P) Limited and Regional Provident Fund Commissioner and others, 2004-II-LLJ 1069 (Orissa); iii) M/s M.J.Foods Industries Pvt. Limited v. Regional Provident Fund Commissioner and others, 2005 Lab. I.C.3985 (Orissa); iv) Regional Provident Fund Commissioner, Mangalore v. M/s Karnataka Forest Plantations Corporation Limited, Bangalore, 2000-I-LLJ 1134 (Karnataka); v) Vitthal Sahakari Sakhar Karkhana and another v. Assistant Provident Fund Commissioner, Aurangabad and others, 2008 Lab. I.C. (NOC) 683 (Bombay). 2 LPA No.893 of 2011 Contrary view of the Full Bench of Calcutta High Court in Dulgaon Agro Industries Limited (now known as Tasati Tea Limited) v. Union of India and others, 2005-III LLJ 356 was dissenting from. 4. Learned Single Judge concluded as under:- “The different High Courts have consistently viewed that transferee would be liable only if it is voluntary transfer in the manner as given in Section 17B of the Act. The liability under the EPF Act would not arise when the transfer is by operation of law and is not voluntarily by the earlier employer. It would be safe to conclude that when the transfer is involuntary or on account of operation of law, then the transferee cannot be held liable for the payment, which was due prior to the date of transfer. I have deeply considered the view expressed by the Full Bench of Calcutta High Court. I am of the considered opinion that the liability would arise only when the transferee is stepping into the shoes of employer and in case of transfer by operation of law, the position would be different, for which there are number of precedents by different courts including our own court.” 5. We have heard learned counsel for the parties. 6. The provision in question is reproduced below:- “17-B. Liability in case of transfer of establishment – When an employer, in relation to an establishment transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or the Pension Scheme or the Insurance Scheme, as the 3 LPA No.893 of 2011 case may be, in respect of the period up to the date of such transfer: Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.” 7. Learned counsel for the appellant submitted that liability to meet the Provident Fund dues remains unaffected by transfer of establishment in view of Section 17-B of the EPF Act. Reliance has been placed on Full Bench judgment of Calcutta High Court in Dulgaon Agro Industries Limited. 8. Learned counsel for the respondent-caveator supported the impugned judgment. Apart from judgments relied upon in the impugned order, he placed reliance on judgment of Gujarat High Court in Employees Provident Fund Organization v. Jai Corporation Limited, 2009 Lab. I.C.670. 9. We are unable to accept the submissions made by learned counsel for the appellant. While there is no dispute that EPF Act is a welfare legislation to protect the weaker sections and has to be interpreted having regard to its objective, transferee by operation of law cannot be saddled with the liability of the previous owner unless the agreement or statute expressly or impliedly so provides. In the present case, the agreement does not expressly or impliedly render the transferee liable for the Provident Fund dues of the previous owner. Section 17B of the EPF Act is also not applicable to involuntary transfer. 10. Principle that transfer contemplated under section 17B is not involuntary transfer was formulated in Suburban Ply and Panels (P) Limited, thus:- 4 LPA No.893 of 2011 “6. A conjoint reading the provisions of Sections 2, 8 and 17-B of the EPF Act as quoted above gives a clear picture that the liability to pay contribution and other sums due from the employer on transfer of an establishment is specifically provided in Section 17-B of the EPF Act. The principle behind it is that the employer, who is liable to pay under Section 6 of the Act the contribution and other sums, cannot by reason of its owing or occupying the establishment on transfer be permitted to avoid such liability and therefore provision is made under section 17B of the Act, that the employer as well as the transferee shall be jointly and severally liable to pay the contribution and other sums up to the date of transfer. This speaks that by reason of the transfer, the liability on the employer would not cease, but would continue to exist and would also be fastened upon the transferee, though limited to the value of the assets obtained by the transferee by such transfer. The transfer by the employer of the establishment contemplated under section 17B is an act by the employer. Here is a case where the transfer has not been made by the employer but after seizure of the unit/establishment, the same was transferred by the OSFC to the present petitioner. There is no indication that Section 17B contemplates transfers otherwise than by an employer as defined in the EPF Act in relation to an establishment. By a Court sale or otherwise a transfer takes place by operation of law and not by any transaction inter vivos. In that sense, it is an involuntary sale against the wishes of the person whose property is sold. That can hardly be called a transfer, as ordinarily understood which connotes a voluntary transaction entered into between two parties. In this connection it has also to be remembered that the provisions of the Transfer of Property Act generally dealing kinds of transfers do not affect transfer by operation of law, or by or in execution of a decree or order of a court of competent jurisdiction under section 2(d) of the Transfer of Property Act (see Angappa spinning Mills, Madurai v. Regional 5 LPA No.893 of 2011 Commissioner Employees Provident Fund, Madras 1986 Lab IC 458 (Madras).” 11. We are in agreement with the above view which has also been followed in other judgments relied upon on behalf of the respondent. We respectfully dissent from the view of Calcutta High Court to the contrary. 12. In Isha Marbles v. Bihar SEB, (1995) 2 SCC 648, question was whether auction purchaser was liable for the arrears of electricity. It was held that in absence of arrears being charge over the property, the auction purchaser will not be so liable. Relevant observations are:- “56. From the above it is clear that the High Court has chosen to construe Section 24 of the Electricity Act correctly. There is no charge over the property. Where that premises comes to be owned or occupied by the auction- purchaser, when such purchaser seeks supply of electric energy he cannot be called upon to clear the past arrears as a condition precedent to supply. What matters is the contract entered into by the erstwhile consumer with the Board. The Board cannot seek the enforcement of contractual liability against the third party. Of course, the bona fides of the sale may not be relevant. 57. The form of requisition relating to the contract is in Annexure VIII prescribed under clause VI of the Schedule to the Electricity Act. They cannot make the auction- purchaser liable. In the case of Isha Marbles we have already extracted the relevant clause wherein the consumer was asked to state his willingness to clear off the arrears to which the answer was in the negative. Therefore, the High Court has rightly held that the auction-purchaser, namely, “the writ petitioner before us is ready and willing to enter into a new contract (sic and) that the auction-purchaser does not intend to obtain the continuance of supply of electrical energy on the basis of the old agreement”. It is true that it 6 LPA No.893 of 2011 was the same premises to which reconnection is to be given. Otherwise, with the change of every ownership new connections have to be issued does not appear to be the correct line of approach as such a situation is brought about by the inaction of the Electricity Board in not recovering the arrears as and when they fall due or not providing itself by adequate deposits.” 13. The above view was reiterated in Haryana State Electricity Board v. Hanuman Rice Mills, Dhanauri, (2010) 9 SCC 145 as follows :- “Re: Point (ii) 9. The High Court held that the demand was untenable in view of the decision in Isha Marbles, (1995) 2 SCC 648. In Isha Marbles, this Court held that in the absence of a charge over the property in respect of the previous electricity dues, and in the absence of any statutory rules authorising a demand for the dues of the previous occupant, an auction-purchaser seeking supply of electrical energy by way of a fresh connection, cannot be called upon to clear the pre-sale arrears, as a condition precedent for granting fresh connection. This Court further held that an Electricity Board could not seek the enforcement of the contractual liability of the previous owner/occupier against a purchaser, who was a third party insofar as the contract between the Electricity Board and the previous occupant and that an auction- purchaser who purchases the property after disconnection of the electricity supply, could not be considered as a “consumer” within the meaning of the Electricity Act, 1910 or the Electricity (Supply) Act, 1948, even though he seeks reconnection in respect of the same premises. This Court observed: (SCC p. 664, para 63) 7 LPA No.893 of 2011 “63. … Electricity is public property. Law, in its majesty, benignly protects public property and behoves everyone to respect public property. Hence, the courts must be zealous in this regard. But, the law, as it stands, is inadequate to enforce the liability of the previous contracting party against the auction- purchaser who is a third party and is in no way connected with the previous owner/occupier. It may not be correct to state, if we hold as we have done above, it would permit dishonest consumers transferring their units from one hand to another, from time to time, infinitum without the payment of the dues to the extent of lakhs and lakhs of rupees and each one of them can easily say that he is not liable for the liability of the predecessor-in-interest. No doubt, dishonest consumers cannot be allowed to play truant with the public property but inadequacy of the law can hardly be a substitute for overzealousness.” Xx xx xx xx xx 11. In Paschimanchal Vidyut Vitran Nigam Ltd. v. DVS Steels & Alloys (P) Ltd. (2009) 1 SCC 210 this Court held, while reiterating the principle that the electricity dues did not constitute a charge on the premises, that where the applicable rules require such payment, the same will be binding on the purchaser. This Court held: (SCC p. 214, paras 11-13) “11. … A transferee of the premises or a subsequent occupant of a premises with whom the supplier has no privity of contract cannot obviously be asked to pay the dues of his predecessor-in-title or possession, as the amount payable towards supply of electricity does not constitute a ‘charge’ on the premises. A purchaser of a premises, cannot be foisted with the electricity dues of any previous 8 LPA No.893 of 2011 occupant, merely because he happens to be the current owner of the premises. … 12. … When the purchaser of a premises approaches the distributor seeking a fresh electricity connection to its premises for supply of electricity, the distributor can stipulate the terms subject to which it would supply electricity. It can stipulate as one of the conditions for supply, that the arrears due in regard to the supply of electricity made to the premises when it was in the occupation of the previous owner/occupant, should be cleared before the electricity supply is restored to the premises or a fresh connection is provided to the premises. If any statutory rules govern the conditions relating to sanction of a connection or supply of electricity, the distributor can insist upon fulfilment of the requirements of such rules and regulations. If the rules are silent, it can stipulate such terms and conditions as it deems fit and proper to regulate its transactions and dealings. So long as such rules and regulations or the terms and conditions are not arbitrary and unreasonable, courts will not interfere with them. 13. A stipulation by the distributor that the dues in regard to the electricity supplied to the premises should be cleared before electricity supply is restored or a new connection is given to a premises, cannot be termed as unreasonable or arbitrary. In the absence of such a stipulation, an unscrupulous consumer may commit defaults with impunity, and when the electricity supply is disconnected for non-payment, may sell away the property and move on to another property, thereby making it difficult, if not impossible for the distributor to recover the dues. … provisions similar to Clauses 4.3(g) and (h) of the Electricity 9 LPA No.893 of 2011 Supply Code are necessary to safeguard the interests of the distributor.” 14. The above view also supports the writ petitioner that auction purchaser is a third party as regards liability of previous owner and unless the liability is charge on the property, auction purchaser does not take over liability of previous owner. 15. Thus, we are of the opinion that in absence of agreement or statutory provision express or implied, the dues not being charge over the property, the transferee in an auction sale is not liable to Provident Fund dues of the previous owner from whom property is purchased in an auction sale. Statutory liability under Section 17B is limited to voluntary transfers. We, thus, do not find any ground to interfere with the view taken by learned Single Judge. The appeal is dismissed. (Adarsh Kumar Goel) Acting Chief Justice July 15, 2011 (Ajay Kumar Mittal) ‘gs’ Judge 10