IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH C.W.P. No. 4631 of 2007. Date of Decision : February 16, 2009. A.P. Enterprises Pvt. Ltd. ...... Petitioner. Versus. Regional Provident Fund Organisation, and another. ...... Respondents. CORAM:HON'BLE MR. JUSTICE AUGUSTINE GEORGE MASIH. Present: Mr. P.K. Mutneja, Advocate, for the petitioner. Mr. Kamal Sehgal, Advocate, for the respondents. AUGUSTINE GEORGE MASIH, J. By this order, I propose to decide C.W.P. No. 4631 of 2007 and C.W.P. No. 5789 of 2007 wherein the common questions of facts and law are involved. Facts briefly leading to the filing of the present writ petition are that one M/s Rana Mahindra Papers Limited, Village Fathepur (Sialba), Kurali, District Ropar, Punjab, an establishment which has not been depositing Employees' Provident Fund dues of its workers, thus, forcing the authorities under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, (hereinafter referred to as the E.P.F. Act) to make assessment of the said establishment under Section 7-A of the E.P.F Act. The assessment was made by the Provident Fund Commissioner and an amount of Rs. 26,62,922/- was found payable as on 28.02.2007 by M/s Rana Mohindra Papers Limited. In order to recover the abovementioned amount, the bank accounts of M/s Rana Mohindra Papers limited were C.W.P. No. 4631 of 2007. attached. Despite the attachment of the accounts in the State Bank of Patiala, Canara Bank, I.C.I.C.I. Bank and Indian Overseas Bank, the respondent- department could not recover any amount. Thereafter, the respondent- department proceeded to take action against the employer Rana Hardeep Singh and a complaint was filed with S.S.P. Ropar, for registration of an F.I.R. under Sections 406/409 I.P.C. During this time, the respondent- department came to know that M/s A.P. Enterprises Private Limited and M/s Chanakaya Distributors are the business promoters of M/s Rana Mahindra Papers Limited. The Recovery Officer exercising the powers conferred on him under Section 8-G read with Rules 26 and 29 of the 2nd Schedule of Income Tax Act, 1961, issued prohibitory orders C.P. 3 to M/s A.P. Enterprises Private Limited in C.W.P. No. 4631 of 2007 on 10.04.2006 and to M/s Chanakaya Distributors in C.W.P. No. 5789 of 2007 on 18.05.2006, prohibiting the petitioners from making any payments to or on behalf of M/s Rana Mohindra Papers Limited. The petitioners rather than complying with the prohibitory orders dated 10.04.2006 and 18.05.2006 made payments on behalf of M/s Rana Mahindra Papers Limited to number of persons and also received payments on behalf of M/s Rana Mahindra Papers Limited, thus, violating the prohibitory orders passed by the Recovery officer. The Recovery Officer called upon the petitioners to explain their position and during the proceedings, it transpired that the petitioners have been carrying out the business activities of M/s Rana Mahindra Papers Limited as the petitioners have been making the payments of raw materials and purchasing finished goods and collecting payments on behalf of M/s Rana Mahindra Papers Limited and crediting the same to M/s Rana Mahindra's ledger account. -2- C.W.P. No. 4631 of 2007. The petitioners were called upon to appear before the Recovery Officer to remain present on 17.07.2006 at 11:00 A.M. alongwith balance sheet for the year 2005-2006. Both the petitioners put in appearance through Shri Kamal Dhami, duly authorised by the establishments on 17.07.2006, 21.07.2006 and 07.08.2006. The submissions as put forth was considered by the Recovery Officer. The petitioners failed to submit the balance sheet for the year 2005-2006 in respect of their establishments, however, Mr. Kamal Dhami, authorised representative, made his submission to the effect that the Commissioner has powers and must proceed to recover money from the employer of the establishments M/s Rana Mahindra Papers Limited which is running unit rather than from the establishments represented by him. He further submitted that a huge amount of money of the petitioners is locked up in/with M/s Rana Mahindra Papers Limited and in the hope of recouping the same, they were carrying their business with M/s Rana Mahindra Papers Limited. He during the proceeding admitted that M/s A.P. Enterprises Private Limited and M/s Chanakaya Distributors had made payments and received payments for and on behalf of M/s Rana Mahindra Papers Limited to the parties dealing with them even after receipt of notice in Employees' Provident Fund (C.P.3). He submitted that if they obeyed the orders of the Recovery Officer, their businesses would have come to a standstill and they may not be in a position to recover their money running in lakhs of rupees which they are to receive from M/s Rana Mahindra Papers Limited. After considering the submissions as put forth by the authorised representative of the petitioners and on going through the records and the documents which have been submitted by the authorised representative, the Recovery Officer came to a conclusion that both the petitioners are virtually running the -3- C.W.P. No. 4631 of 2007. business of M/s Rana Mahindra Papers Limited as they were not only receiving money from parties on behalf of M/s Rana Mahindra Papers Limited but also making payments on behalf of M/s Rana Mahindra Papers Limited. That being so both the petitioners have violated the prohibitory orders issued by the Recovery Officer under Section 8 of the E.P.F. Act and accordingly ordered the petitioners to remit the amount of Rs. 26,62,922/- within seven days of receipt of the orders failing which the same shall be recovered as per provisions of E.P.F. Act, treating them as defaulters instead of M/s Rana Mahindra Papers Limited. This was common order passed against both the petitioners by the Recovery Officer on 16.03.2007 which has been challenged by the petitioners in the present writ petitions. In pursuance to the said orders, the petitioners having failed to remit the amount ordered to be recovered, the Recovery Officer issued a letter dated 23.03.2007 to the Bankers of the petitioners requesting the Manager of Bank under Section 8-F of the E.P.F. Act to pay the amount due from the petitioners as per provisions of the E.P.F. Act. The petitioners have in these writ petitions therefore challenged the initial prohibition order dated 18.05.2006 (in C.W.P. No. 4631 of 2007) and prohibition order dated 10.04.2006 (in C.W.P. No. 5789 of 2007) and subsequent order dated 16.03.2007 and letter dated 23.03.2007. Counsel for the petitioner contends that Section 8-F of the E.P.F. Act provides for other modes of recovery according to which the recovery could be effected under this provision by the Central Provident Fund Commissioner or any other Officer authorised by the Central Board in this behalf. He contends that the Regional Provident Fund Commissioner, Punjab, is not the competent authority as it has not been authorised by the -4- C.W.P. No. 4631 of 2007. Central Board and therefore, the prohibitory orders and impugned order dated 16.03.2007 as well as letter dated 23.03.2007 deserve to be quashed. This contention of counsel for the petitioner only deserves reference but does not hold good as counsel for the respondent has produced a notification No. R.R.Cell./8(9)92/R.M./2350, dated 27.07.1992 issued by the office of Central Provident Fund Commissioner, New Delhi, issued in exercise of the powers conferred by Sub-section 1 of Section 8-F of the E.P.F. Act, whereby Central Board has authorised the Regional Provident Fund Commissioner, Punjab, to exercise the powers conferred under Sub- section (2), (3) and (4) of Section 8-F of the E.P.F. Act in relation to all establishments covered under the provisions of E.P.F. Act in respect of areas mentioned therein. Now counsel for the petitioner contends that the prohibitory orders could not have been resorted to by the Recovery Officer without exhausting the remedy available to the Recovery Officer against the defaulter M/s Rana Mahindra Papers Limited. He contends that the first step should have been to recover the said amount from the defaulter and only when the same had not been exhausted and still some recovery was due resort to Sections 8-F and 8-G of the Act could have been made by the Recovery Officer. He submits that the establishments of M/s Rana Mahindra Papers Limited are still working and the Recovery Officer should have proceeded against them by locking up and taking further steps against the said establishment which has been provided under the E.P.F. Act. The next submission which has been put forth by counsel for the petitioner is that as per Section 8-F of the E.P.F. Act, the relevant date is to be seen is the date on which notice is served upon the petitioners. If on that -5- C.W.P. No. 4631 of 2007. date any money is owed by the petitioners to M/s Rana Mahindra Papers Limited, the said amount can be deducted and credited to the Provident Fund. The said amount cannot in any case exceed the amount due. If the amount due on the said date when the notice is served falls short of the amount due by M/s Rana Mahindra Papers Limited, the same cannot be deducted from the transactions after the said date from the amount which would fall due thereafter. He further contends that if the provisions of Section 8-F(3)(i)(ii) are interpreted in the manner as the Recovery Officer has interpreted in the impugned order, the same would amount to violation of Article 19-G of the Constitution of India. What has been asserted in the impugned order by the Recovery Officer is that of subsequent transactions after the date of service of notice of prohibition, no transaction can take effect with M/s Rana Mahindra Papers Limited. What can be recovered is only the amount due from the employer and not what would be amount of transaction. He further contends that the amount which would fall due to the petitioners from M/s Rana Mahindra Papers Limited has not been determined and an order for recovery has been ordered without taking into consideration the amount due. He on this basis contends that the impugned orders/letters deserve to be set aside. On the other hand, counsel for the respondents submits that the petitioners have not approached this Court with clean hands. They have deliberately omitted 16 credit entries in the balance sheet which has been produced before this Court. The petitioners have, therefore, tried to mislead this Court and given benefit by such omission as these credit entries account for is Rs. 23,50,600/- and if these credit entries are taken into consideration M/s Rana Mahindra Papers Limited would become debtor to tune of Rs. -6- C.W.P. No. 4631 of 2007. 21,50,600/-. He further contends that petitioner M/s A.P. Enterprises Private Limited had vide its letter, copy whereof has been placed as Annexure-R-1, admitted with reference to letter of recovery dated 10.04.2006 that there is a debit balance amounting to Rs. 16,40,828-24 in its books of account in respect of M/s Rana Mahindra Papers Limited. He submits this document has not been contradicted by the petitioners. This clearly shows the admission on the part of petitioners and therefore, they cannot now turn around and say that there is no due which the petitioners owe to M/s Rana Mahindra Papers Limited. He further submits that the act does not restrict the authority of the Recovery Officer under Section 8 of the E.P.F. Act to a particular mode to be adopted by the Recovery Officer to make good the recovery which has been found to be due against employer. The modes of recovery has been provided for under the various provisions contained in the E.P.F. Act and it is at the discretion of the Recovery Officer who would exercise the powers within those parameters to recover the amount due. He further contends that Section 8-F of the Act itself is a reply to the contention raised by counsel for the petitioner that the recovery can be effected from the dues as calculated on the date of receipt of notice from the petitioners. He has referred to various provisions of Section 8-F of the E.P.F. Act to substantiate his contentions. I have heard counsel for the parties and with their able assistance have gone through the records of the case. Before proceeding further in the matter, Section 8-F of the E.P.F. Act, which is the bone of contention needs to be referred to and therefore, the same is reproduced herein below :- “8F. Other modes of recovery.- -7- C.W.P. No. 4631 of 2007. (1) Notwithstanding the issue of a certificate to the Recovery Officer under Section 8B, the Central Provident Fund Commissioner or any other officer authorised by the Central Board may recover the amount by any one or more of the modes provided in this section. (2) If any amount is due from any person to any employer who is in arrears, the Central Provident Fund Commissioner or any other officer authorised by the Central Board in this behalf may require such person to deduct from the said amount the arrears due from such employer under this Act and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Central Provident Fund Commissioner or the officer so authorised, as the case may be: Provided that nothing in this sub-section shall apply to any part of the amount exempt from attachment in execution of a decree of a civil under Section 60 of the Code of Civil Procedure, 1908 (5 of 1908). (3)(i) The Central Provident Fund Commissioner or any other officer authorised by the Central Board in this behalf may, at any time or from time to time, by notice in writing, require any person from whom money is due or may become due to the employer or, as the case may be, the establishment or any person who holds or may subsequently hold money for or on account of the employer or as the case may be, the establishment, to pay to the the Central Provident Fund Commissioner either forthwith upon the money becoming due -8- C.W.P. No. 4631 of 2007. or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due from the employer in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the employer jointly with any other person and for the purposes of this sub-section, the shares of the joint- holders in such account shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the employer at his last address known to the Central Provident Fund Commissioner or, as the case may be, the officer so authorised and in the case of a joint account to all the joint-holders at their last addresses known to the Central Provident Fund Commissioner or the officer so authorised. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made notwithstanding any rule, practice or requirement to the contrary. -9- C.W.P. No. 4631 of 2007. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the employer or that he does not hold any money for or on account of the employer, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such persons shall be personally liable to the Central Provident Fund Commissioner or the officer so authoised to the extent of his own liability to the employer on the date of the notice, or to the extent of the employer's liability for any sum due under this Act, whichever is less. (vii) The Central Provident Fund Commissioner or the officer so authorised may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii) The Central Provident Fund Commissioner or the officer so authorised shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the employer to the extent of the amount so paid. -10- C.W.P. No. 4631 of 2007. (ix) Any person discharging any liability to the employer after the receipt of a notice under this sub-section shall be personally liable to the Central Provident Fund Commissioner or the officer so authorised to the extent of his own liability to the employer so discharged or to the extent of the employer's liability for any sum due under this Act, whichever is less. (x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Central Provident Fund Commissioner or the officer so authorised he shall be deemed to be an employer in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were an arrear due from him, in the manner provided in sections 8B to 8E and the notice shall have the same effect as an attachment of a debt by the Recovery Officer in exercise of his powers under section 8B. (4) The Central Provident Fund Commissioner or the officer authorised by the Central Board in this behalf may apply to the court in whose custody there is money belonging to the employer for payment to him of the entire amount of such money, or it if is more than the amount due, an amount sufficient to discharge the amount due. (5) The Central Provident Fund Commissioner or any officer not below the rank of Assistant Provident Fund Commissioner may, if so authorised by the Central Government by general or special order, recover any arrears of amount due from an -11- C.W.P. No. 4631 of 2007. employer or, as the case may be, from the establishment by distraint and sale of his or its movable property in the manner laid down in the Third Schedule to the Income-tax Act, 1961 (43 to 1961).” (emphasis supplied) A perusal of the above section would show that the Recovery Officer who has been so authorised by the Central Board can proceed against the employer or against any person, if any amount is due to any employer from him, who is in arrears. Clause (ii) enjoins upon such persons to comply with any requisition made by the officer so authorised and is duty bound to pay the sum so deducted to the credit of the officer so authorised. Under clause 3(i), the authorised officer at any time or from time to time, by notice in writing, require any person from whom money is due or may become due to the employer or any person who holds or may subsequently holds money for and on account of employer or the establishment to pay the authorised officer either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due from the employer in respect of arrears or the whole of the money when it is equal to or less than that amount and thereafter, clause 3(ii) gives powers to the authorised officer to issue notice to any person who holds or may subsequently hold any money for or on account of the employer jointly with any other person and shares joint holdership in such account shall have to pay the amount due until the contrary is proved, to be equal. A perusal of these provisions clearly establishes that relevant date as tried to be put forth by the petitioner stating it to be the date of -12- C.W.P. No. 4631 of 2007. receipt of notice and only dues which were present on that date to the employer is to be seen, cannot be accepted. These provisions clearly spell out that not only on the date when the notice is served but subsequently also if any money becomes due to the employer or he subsequently holds money for or on account of the employer jointly, the same has to pay such amount to the authorised officer forthwith if it is available on the date the notice is received or on the date the same becomes due. This however is limited to the amount which has to be recovered. Once the said amount as has been specified in the certificate of recovery issued against the employer is satisfied, no further remittance has to be made to the authorised officer. That being the position as per the provisions referred to above, the contention of counsel for the petitioner cannot be accepted that it is only on the date when the notice is issued and the amount which is due to the employer on such date only is to be paid to the authorised officer. The next submission which has been put forth that the transaction can be after the said date with the defaulter employer but only the amount due is to be recovered otherwise it would violate Article 19-G of the Constitution of India. In this regard, Section 8-G of the E.P.F. Act, needs to be looked into. As per this section certain provisions of 2nd and 3rd Schedules of Income-tax Act,1961 and the Income-tax (certified proceedings) Rules, 1962, as enforced from time to time shall apply with necessary modifications as if the said provisions and rules referred to the arrears of amount mentioned in Section 8 of the E.P.F. Act would be applicable. This means the recovery of the provident fund due by virtue of Section 8-G of the E.P.F. Act, can be effected as per the provisions of the -13- C.W.P. No. 4631 of 2007. Income-tax Act and Rules which have been made applicable under the E.P.F. Act. Under these provisions of the Income-tax Act, 1961, one of the modes of recovery is by way of attachment and sale of immovable property which includes debts, shares etc. The term debts means actual money claim that has already become due though it may be payable on a future date, and also include a share of debts. Life Insurance Policy is 'debt' though payable on the death of the insured. A debt in order to be attachable, however, need not become payable at once. Under Rule 26(1)(i) a debt not secured by a Negotiable Instrument is attached by a written order of attachment prohibiting the creditor from recovering the debt and the debtor from making payment thereof until the further order of the Tax Recovery Officer. Any such payment (the amount of his debt) made by the debtor prohibited under 26(1)(i) to the Tax Recovery Officer shall discharge him as effectually as payment to the party entitled to receive the same by virtue of Rule 26(3). By virtue of Rule 36(3)(b) of the Income Tax (Certificate Proceedings Rules, 1962), the tax