IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN MONDAY, THE 28TH MARCH 2011 / 7TH CHAITHRA 1933 WP(C).No. 1132 of 2009(I) ------------------------- PETITIONER: ------------------- A.K. SHAHALUDEEN, S/O. ABDUL MAJEED, ELLUVILLAYIL BUHARI PALACE, KUTTICHIRA, PEROOR, TKMC P.O., KOOTTARAKKARA VILLAGE, KOLLAM. BY ADVS. SRI.G.P.SHINOD SRI.RAM MOHAN.G. SRI.MANU V. RESPONDENTS: ----------------------- 1. THE EMPLOYEES PROVIDENT FUND ORGANISATION, REGIONAL OFFICE, BHAVISHYANIDHI BHAVAN, PATTOM, THIRUVANANTHAPURAM. 2. THE RECOVERY OFFICER, EMPLOYEES PROVIDENT FUND ORGANISATION, REGIONAL OFFICE, KOLLAM. 3. ING VYSYA BANK LTD., KOLLAM BRANCH, A.G.C. COMPLEX, BEACH ROAD, KOLLAM, REPRESENTED BY ITS AUTHORISED OFFICER,. 4. M/S LEKSHMI ENTERPRISES , 2ND MILE STONE KILIKOLLOOR P.O., KOLLAM, REPRESENTED BYITS MANAGING PARTNER, MR. K. RADHAKRISHNA PILLAI. 5. MR. K. RADHAKRISHNA PILLAI, S/O. SHRI.KUTTAN PILLAI, MANAGING PARTNER, M/S LEKSHMI ENTERPRISES, “LEKSHMI”, 2ND MLE STONE, KILIKOLLOOR P.O., KOLLAM. 6. MRS. K.VASANTHAKUMARI, W/O. MR.K. RADHAKRISHNA PILLAI PARTNER, M/S LEKSHMI ENTERPRISES, LEKSHMI 2ND MILE STONE, KILIKOLLOOR P.O., KOLLAM. 7. MS. SHIMY, D/O. MR. K.RADHAKRISHNA PILLAI, PARTNER, M/S LEKSHMI ENTERPRISES, LEKSHMI 2ND MILE STONE, KILIKOLLOOR P.O., KOLLAM. WP(C).No. 1132 of 2009(I) --2-- R1 AND R2 BY ADVS. SRI.N.N. SUGUNAPALAN, SC, P.F. SRI.PIRAPPANCODE V.S.SUDHIR,SC,EPF ORGN SMT.T.N.GIRIJA, SC,EPF ORGANISATION R3 BY ADV. SRI.K.K.JOHN FOR R3 R4 TO R6 BY ADVS. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.ANIL D. NAIR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28/03/2011, ALONG WITH WPC NO. 1133 OF 2009 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 1132 of 2009(I) A P P E N D I X PETITIONER'S EXHIBITS:- EXT.P1:-COPY OF THE ADVERTISEMENT IN “DEEPIKA DAILY” DATED 17.09.2008 BY THE 3RD RESPONDENT. EXT.P2:- COPY OF THE SALE DEED NO.4178/2008 OF THE S.R.O, KANNANELLUR DATED 21.11.08. EXT.P3:-COPY OF THE TAX RECEIPT NO.25175 DATED 25.11.2008. EXT.P4:-COPY OF THE NOTICE ISSUED BY THE 2ND RESPONDENT TO THE 5TH RESPONDENT. EXT.P5:-COPY OF THE REPRESENTATION DATED 03.12.2008 SUBMITTED BY THE PETITIONER BEFORE THE 2ND RESPONDENT. RESPONDENT'S EXHIBITS:- EXT.R4(A):- COPY OF THE ORDER DATED 22.5.2006 PASSED BY THE REGIONAL PROVIDENT FUND COMMISSIONER, THIRUVANANTHAPURAM IN RESPECT OF THE ESTABLISHMENTS OWNED BY THE FIRM. EXT.R4(B):- COPY OF THE JUDGMENT OF THE HON'BLE HIGH COURT IN W.P(C). NO.22346/2006 DATED 18.9.2006. EXT.R4(C):- COPY OF THE ORDER DATED 2.4.2007 PASSED BY THE ASSISTANT PROVIDENT FUND COMMISSIONER, THIRUVANANTHAPURAM. EXT.R4(D):- COPY OF THE NOTICE OF DEMAND DATED 23.5.2007 ISSUED BY THE RECOVERY OFFICER, EMPLOYEES' PROVIDENT FUND, THIRUVANANTHAPURAM. EXT.R4(E):- COPY OF THE JUDGMENT IN W.P(C) NO.27189/2007, DATED 12.2.2008. EXT.R4(F):- COPY OF THE ORDER DATED 26.8.2008 PASSED BY THE REGIONAL PROVIDENT COMMISSIONER, THIRUVANANTHAPURAM. //TRUE COPY// P.A. TO JUDGE S. SIRI JAGAN, J. ---------------------------------------------- W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 ----------------------------------------------- Dated this the 28th day of March, 2011 J U D G M E N T These four writ petitions are filed by the purchasers of properties belonging to M/s.Lekshmi Enterprises or belonging to the individual partners of M/s.Lekshmi Enterprises, which is a partnership firm, in a sale conducted by the ING Vysya Bank Ltd, in exercise of their mortgage rights over the properties, for the loan amounts advanced by them to M/s.Lakshmi Enterprises. The cause of action for filing this writ petition arose when the Regional Provident Fund Commissioner initiated proceedings against those properties in exercise of their statutory first charge for recovery of arrears of Provident Fund Contributions with interest etc, due from M/s.Lekshmi Enterprises. 2. According to the petitioners, the Provident Fund Organisation cannot proceed against the properties of the petitioners, who are bonafide purchasers of the property, insofar as even if the Provident Fund Organisation has a statutory first charge over the properties, their remedy is to proceed against the sale proceeds of the properties at the W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -2- hands of the Bank and not to proceed against the properties as such, insofar as they cannot claim any right in respect of the properties in excess of the value realised by the Bank for that property, in the absence of any allegation of fraud, collusion or undervaluation etc. Therefore, they are challenging the proceedings initiated by the Provident Fund Organisation against the properties in question, seeking a direction to the Provident Fund Organisation not to proceed against the properties purchased by them. 3. I have heard the learned counsel for the petitioners, learned counsel for the Bank and the counsel for the original owner of the properties. No doubt, under the Employees Provident Funds and Miscellaneous Provisions Act, in respect of properties belonging to defaulters of payment of contributions under the Act, the Provident Fund Organisation has a statutory first charge for amounts due under the Act. Therefore, the mortgage rights of the Bank can only be subject to the first charge of the Provident Fund Organisation, in respect of the properties mortgaged to the Bank. But, to say that because of that first charge, the W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -3- sale of the charged properties conducted by the Bank in favour of bonafide purchasers in excise of the mortgage rights of the Bank, would be too harsh and unjust. In any event, the charge in favour of the Provident Fund Organisation in respect of the property cannot exceed the actual value of the property. The Provident Fund Organisation has no allegation before me that there is any fraud committed by the Bank or the purchasers in respect of sale or that there was any undervaluation of the properties or that the actual value of the land has not been realised in the sale by the Bank. Although the owners of the properties would in their counter affidavit stated to have been filed today, raise such allegations. I am not inclined to countenance such contentions at the hands of the owners of the properties who are admittedly, defaulters not only to the Bank, but also to the Provident Fund Organisation. I am of opinion that they have raised this contention only to delay the sale of properties and to put cogs in the wheels of both the Bank and the Provident Fund Organisation in realizing the amounts due to them by sale of the properties in exercise of their rights over the properties. In such circumstances, the remedy of the Provident W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -4- Fund Organisation to enforce their first charge in respect of the properties so sold, is to demand from the Bank to hand over the sale proceeds to the Provident Fund Organisation. Thus according to me, they cannot now proceed against the properties by putting the properties to a second sale which would only complicate the situation and prejudice the rights of the parties who have entered into bonafide contracts of sale of the properties in question by paying the value of the land. Therefore, I hold that the Provident Fund Organisation can only proceed against the sale price obtained by the Bank for sale of such properties. 4. In view of the said opinion of this Court, the Bank put forward a proposition as follows:- The Bank has taken possession, pursuant to the proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI Act), for recovery of amounts due from M/s.Lekshmi Enterprises and their partners other properties which have not been sold. Such properties measure 52.57 ares in Sasthamkotta Village in Kunnathoor Taluk. They are prepared to W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -5- surrender their rights in those properties in favour of the Provident Fund Organisation and the Provident Fund Organisation may sell the properties and recover amounts due to the Provident Fund Organisation from the sale proceeds, instead of proceeding against the sale proceeds of the properties involved in these writ petitions. This offer is acceptable to the Provident Fund Organisation subject to the condition that if the amount realised by such sale is not sufficient to cover the amounts due to the Provident Fund Organisation, which they have quantified as Rs.7,47,94,923/- as on 15.3.2011, they may be permitted to proceed further against other properties or the sale proceeds of the subject properties, for recovery of the balance. If the sale price realised by the Provident Fund Organisation is in excess of the amounts due to the Provident Fund Organisation they are prepared to hand over the balance to the Bank. 5. M/s.Lekshmi Enterprises and their partners stoutly oppose the said suggestion also. According to them, such a settlement would prejudice their rights under the Employees Provident Funds and W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -6- Miscellaneous Provisions Act, insofar as under the provisions of the Act, the Provident Fund Organisation has to first proceed against the properties of the establishment and then only they can proceed against individual properties of the partners. 6. I am unable to countenance the contention raised by M/s.Lekshmi Enterprises and the partners of the said firm. In these writ petitions, I am not considering the rights and liabilities of the defaulters under the Employees Provident Funds and Miscellaneous Provisions Act, between the Provident Fund Organisation. Even the establishment and its partners do not dispute the fact that the Provident Fund Organisation has a first charge over the properties of the establishment and its partners. What I am now considering is only the rights as between the Bank as a mortgagee on the one hand and the Provident Fund Organisation as the holder of a first charge over the properties in question under the Employees Provident Funds and Miscellaneous Provisions Act. While considering that question, it is not necessary to consider the rights of the establishment as against the Provident Fund Organisation insofar as here the Bank is W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -7- transferring their mortgage rights in respect of certain properties belonging to the establishment and its partners which they have already taken over possession of, in exercise of their rights and powers under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. In deciding that question, I am not called upon to decide the rights of the establishment and its partners under the Employees Provident Funds and Miscellaneous Provisions Act against the Provident Fund Organisation. Therefore, I am inclined to accept the offer put forward by the Bank for settling the dispute between the Bank and the Provident Fund Organisation so that the Bank's action will not prejudice the rights of the petitioners in these writ petitions who are bonafide purchasers of the land in sale proceedings initiated by the Bank under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. Accordingly, these writ petitions are disposed of as follows:- 1. It is declared that the Provident Fund Organisation does not have any right to proceed against the properties purchased by the W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -8- petitioners in proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, in sale proceedings initiated by the Bank. 2. It is declared that the rights of the Provident Fund Organisation in exercise of their statutory first charge in respect of the properties is only to proceed against the sale price obtained by the Bank by sale of the said properties in favour of the petitioners in these writ petitions. 3. Accordingly, it is declared that the petitioners hold the properties free from all encumbrances created by the owner of the properties in favour of the Bank and the statutory first charge in favour of the Provident Fund Organisation. 4. The Bank shall surrender their mortgage rights on 52.57 ares of land [made up of 31.97 ares in Re.Sy No.60/7-1 (old Sy.No.572/4) and 20.60 ares in Re.Sy No.60/3 (old Sy No.572/AB)] of Sasthamkotta Village, Kunnathur Taluk, belonging to Shri.Radhakrishna Pillai together with the cashew factory and machinery thereon covered by sale deed Nos.515/990 and 1967/97 of Sasthamkotta Sub Registrar's Office, in W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -9- favour of the Provident Fund Organisation. This shall done within two weeks. 5. On getting surrender of the properties, the Provident Fund Organisation shall take steps to sell the properties by public auction or by inviting tenders. The Bank shall be informed about every step taken by the Provident Fund Organisation for sale of the said properties. The Provident Fund Organisation shall take into account every reasonable suggestion made by the bank in respect of such sale for realizing the best possible price for the properties. Notice regarding sale of the property shall be issued to M/s.Lekshmi Enterprises and, the owner of the property. Purchasers in such sale would have all the rights of purchasers who purchase land in a sale in exercise of powers of the Bank under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. 6. After the sale of the properties, if the sale proceeds realised are in excess of the dues of the Provident Fund Organisation, the balance amount realised shall be handed over to the Bank, who shall credit the same to the W.P(C) Nos.1132, 1133, 1127 & 8137 of 2009 -10- loan account of the mortgagee. If the sale price realised is not sufficient to cover the balance dues of the Provident Fund Organisation, it would be open to the Provident Fund Organisation to proceed against, either the sale price with the Bank by sale of the properties, which is the subject matter of these writ petitions, or against other properties belonging to the defaulter establishment or its partners. 7. The Provident Fund Organisation shall complete the sale proceedings as directed above within a period of three months from the date of receipt of a copy of this judgment. I make it clear that, it is without prejudice to the right of the establishment and its partners to challenge the quantum fixed by the Provident Fund Organisation, as amounts due from them, in accordance with law. Sd/- S. SIRI JAGAN JUDGE //TRUE COPY// P.A. TO JUDGE KRK