1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE, BENCH AT AURANGABAD WRIT PETITION NO. 5489 OF 2008 Jalgaon District Co-operative Bank (Registered Co-operative Society) Through its Banking Officer, Janardhan Panditrao Sonwane, Age 52 yrs., Occu. Service with the Petitioner Bank, R/o. C/o. Jalgaon District Central Co-op. Bank Ltd., Jalgaon, Tq. & Dist. Jalgaon. ....Petitioner. Versus 1. The Assistant Provident Fund Commissioner/Special Recovery Officer (SRO), Employees Provident Fund Organisation, Sub Regional Office, P-11, Bhavishanidhi Bhavan, MIDC Area, Satpur, Nasik-422 007. 2. Belganga Sahakari Sakhar Karkhana Ltd., Boras, Tq. Chalisgaon, Dist. Jalgaon. 3. The Union of India, Through its Principal Secretary, Ministry of Consumer Affairs, Food and Public Distribution, Department of Food & Public 2 Distribution, Krishi Bhavan, New Delhi - 110 001. 4. The Chief Director of Sugar, Department of Food and Public Distribution, Krishi Bhavan, New Delhi - 110 001. 5. The Commissioner of Sugar, State of Maharashtra, Pune. 6. The State of Maharashtra Through its Principal Secretary, Department of Co-operation, Mantralaya, Mumbai - 32. ....Respondents. Shri. R.N. Dhorde, Advocate for petitioner. Shri. K.B. Choudhari, Advocate for respondent No. 1. Shri. P.S. Gaikwad, Advocate for respondent No. 2. Shri. Alok Sharma, Standing Counsel for respondent Nos. 3 and 4. Shri. D.R. Kale, A.G.P. for respondent Nos. 5 and 6. CORAM : R.K. DESHPANDE, J. DATE OF RESERVING JUDGMENT : 16th July, 2010. DATE OF PRONOUNCEMENT : 22nd July, 2010. ORAL JUDGMENT : 1. Notices in this matter were issued, in response to which the 3 learned counsel Shri. K.B. Choudhari appears for the respondent No. 1, Shri. P.S. Gaikwad, appears for the respondent No. 2, Shri. Alok Sharma appears for the respondent Nos. 3 and 4 and Shri. D.R. Kale, the learned A.G.P. appears for respondent Nos. 5 and 6. The learned counsels appearing for the parties agree that the matter can be decided finally at the stage of admission. Hence, Rule, returnable forthwith. By the consent of parties, the matter is heard finally. 2. This writ petition challenges "Prohibitory order" dated 28th of March 2008 and the show cause notice dated 18th of June 2008, issued by the respondent No. 1 Assistant Provident Fund Commissioner (Recovery), Sub Regional Office, Nasik. By "Prohibitory order" dated 28th of March 2008, the attention of petitioner bank is invited to the various provisions under Section 8-F of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 ("E.P.F. Act" for short). This order informs the petitioner bank that a sum of Rs. 76,34,695/- is recoverable from the respondent No. 2 M/s. Belganga Sahakari Sakhar Karkhana Ltd., at post Boras, Taluka Chalisgaon, Dist Jalgaon (hereinafter referred to as 'the respondent No. 2 society') under the E.P.F. Act, being an amount of arrears of provident fund payable for the period from February 1997 to June 2009 and calls upon the petitioner bank to remit the said amount by way of demand draft in the name of the Regional Provident Fund Commissioner, Nasik, from the amount, which the petitioner bank was holding on account of the respondent No. 2 Society. 4 It further invites the attention of petitioner bank to the provisions of Clause (ix) of Sub-section (3) of Section 8-F of the said Act, which acts as prohibition to discharge any liability of respondent No. 2 employer/society after receipt of notice. 3. By subsequent notice dated 28th of March 2008, the petitioner is informed that sugar stock of the said society was sold by the petitioner bank on 1st December 2006 and the sale proceeds of Rs. 56.02 lakhs have not been deposited in terms of "Prohibitory order" dated 14th of March 2008 and hence, the petitioner bank was called upon to show cause, as to why it should not be deemed to be "the employer in default" in respect of the said amount and hence, why further proceedings for realization of the said amount should not be initiated against the petitioner bank, in the manner provided under Sections 8-B to 8-E of the E.P.F. Act read with Schedule I & II of the Income Tax Act, 1961 and the Rules framed thereunder. 4. The facts leading to the case are as under :- The petitioner - Jalgaon District Central Co-operative Bank, Jalgaon and the respondent No. 2 Belganga Sahakari Sakhar Karkhana Ltd. are the specified co-operative societies as defined under Section 73- G of the Maharashtra Co-operative Societies Act, 1960 (hereinafter referred to as 'the Co-operative Societies Act') and are registered as such under the said Act. The petitioner society is also a co-operative bank as 5 defined under Section 2(10) of the Co-operative Societies Act and is engaged in the business of banking as defined in clause (b) of Sub- section (1) of Section 5 of the Banking Companies Act, 1949. The respondent No. 2 Society is engaged in the business of manufacture of sugar at village Boras, Taluka Chalisgaon, Dist. Jalgaon. The petitioner bank has provided various facilities of loans and advances to the respondent No. 2 Society for the purpose of its business of manufacture of sugar. The petitioner bank claims that an amount of Rs. 5045.52 lakhs is to be recovered from the respondent No. 2 Society towards such loans and advances granted to it. The petitioner bank claims itself to be a "secured creditor" of the respondent No. 2 Society, as the immovable property of the said society is mortgaged with the petitioner bank and the movable property in the form of sugar bags, containing the sugar manufactured by the said society, are pledged with it. 5. The respondent No. 2 Society, in order to carry out its business of manufacture of sugar, has employed several employees. The provisions of the E.P.F. Act and the schemes framed thereunder are applicable to the factory establishment of the respondent No. 2 Society, and the respondent No. 2 Society is the "employer" within the meaning of Section 2 (e) of the E.P.F. Act. The respondent No. 2 Society, being the employer, is under the statutory obligation to contribute its share in the provident fund of the employees, as provided by Section 6 of the E.P.F. Act and the scheme framed under the said Act. The Regional Provident 6 Fund Commissioner, Nasik is empowered under the provisions of the E.P.F. Act, to see that the provisions of the said Act are implemented. The Regional Provident Fund Commissioner is empowered under the provisions of Section 7-A of the E.P.F. Act, to determine the moneys due from the employers under the provisions of the E.P.F. Act. The respondent No. 1 - the Assistant Provident Fund Commissioner/Special Recovery Officer, Employees Provident Fund Organization, is empowered to recover the amount so determined from the employer. 6. It seems that the Regional Provident Fund Commissioner has determined the sum of Rs. 76,34,695/- to be recoverable from the respondent No. 2 Society, as per Section 7-A of E.P.F. Act, towards the arrears of provident fund dues, payable for the period from February 1997 to June 2001. The respondent No. 2 Society has failed to remit the said amount in spite of the notices. The respondent No. 1 is empowered to adopt the mode of recovery of such determined amount, along with interest payable thereof upon, from the employer i.e. the respondent No. 2 Society in this case, in accordance with provisions of Section 8 to 8-E of the E.P.F. Act. In addition to this mode of recovery, Section 8-F of the E.P.F. Act provides the "other modes of recovery," which include the deductions of any amount due from any person to the employer, who is in arrears of provident fund dues and its remittance to the Central Provident Fund Commissioner or the Officer, so authorised to determine the amount of arrears from the employers. 7 7. It seems that upon failure of the respondent No. 2 Society to pay the said sum of Rs. 76,34,695/- towards arrears of amount of provident fund, the respondent No. 1 Assistant Provident Fund Commissioner adopted the "other mode of recovery" as contemplated by Section 8-F of the E.P.F. Act. The respondent No. 1 was of the opinion that the petitioner bank is required to pay sum of Rs. 76,34,695/- to the respondent No. 2 Society and it was holding the said amount on account of the respondent No. 2 Society, who is the employer, under the savings banks/current/joint accounts maintained by the petitioner bank. Hence, for the first time, the "Prohibitory order" dated 14th of March 2008 was issued by the respondent No. 1 to the petitioner bank, calling upon the petitioner bank to remit the said amount by way of demand draft, drawn in favour of the Regional Provident Fund Commissioner, Nasik. This order invites attention of petitioner bank to various provisions under Section 8-F of E.P.F. Act, including Clause (ix) of Sub-section (3) of Section 8-F, which operates as prohibition against the petitioner bank to discharge any liability of respondent No. 2 Society, after receipt of said order. 8. The petitioner bank was reluctant to comply with this "Prohibitory order". Hence, the respondent No. 1 issued another notice dated 28th of March 2008, calling upon the petitioner bank, as to why it should not be deemed to be "the employer in default", in respect of the 8 amount specified in the notice dated 14th of March 2008 and as to why the further proceedings should not be initiated against the petitioner bank for realization of the said amount, as if it were an arrears due from the petitioner bank, in the manner provided under Section 8-B to 8-E of the E.P.F. Act read with Schedule I and II of the Income Tax Act, 1961 and the Rules framed thereunder. This notice dated 28th of March 2008 specifically alleges that the sugar stock of the respondent No. 2 Society was sold by the petitioner bank on 1st December 2006 and the sale proceeds of Rs. 56.02 lakhs were deposited in the joint account of the petitioner bank and the respondent No. 2 Society, instead of depositing the same in the joint account in the name of the petitioner bank and the Employees Provident Fund Organization. It is further alleged in the said notice that the petitioner bank has failed to comply with the requirement of "Prohibitory order" dated 14th of March 2008 and hence, show cause notice as above was issued. 9. It seems that on 10.4.2003 the Commissioner for Co-operation and Registrar of Co-operative Societies had passed an order under Section 110-A (iii) of the Co-operative Societies Act, superseding the Board of Directors of the petitioner bank and appointing the District Deputy Registrar, Co-operative Societies, Jalgaon as an administrator. The petitioner bank alleges that the administrator, acting under the pressure of the respondent No. 1, transferred the amount of Rs. 56.02 lakhs in the joint account of the petitioner bank and the Employees 9 Provident Fund Organization on 4.7.2008. It is further alleged that the said administrator also paid Rs. 17,87,346/- to the respondent No. 1 on 11.7.2009 and the balance amount of Rs. 38,12,789/- still remains in the joint account of the petitioner bank and the Employees Provident Fund Organization. The petitioner bank alleges that this was all done without prejudice to its rights. 10. What is under challenge in this Writ Petition at the first instance, is the "Prohibitory order" dated 14th of March 2008. This order merely narrates certain facts, which may or may not be correct. It does not determine that the petitioner bank is liable to pay a sum of Rs. 76,34,695/-, which are the arrears of provident fund dues outstanding against the respondent No. 2 Society. Though it directs the petitioner bank to remit the aforesaid amount forthwith, it is not upon adjudication of any liability of the petitioner bank to remit the said sum, due to the default committed by the respondent No. 2 Society. The order states that the petitioner bank is holding sum on account of the respondent No. 2 Society under the saving bank/ current/joint account maintained by the petitioner bank. However, it does not speak of any determined sum nor does it speak of any definite account of the respondent No. 2 Society lying in the account of the respondent No. 2 Society, maintained by the petitioner bank. Bare reading of the order shows that this order invites the attention of the petitioner bank to various relevant provisions under Section 8-F of the E.P.F. Act, conferring 10 powers upon the respondent No. 1, in respect of the other modes of recovery. The order is styled as "Prohibitory order" and it essentially cautions the petitioner bank of the consequences of discharging any liability of the respondent No. 2 Society, from the date of receipt of the said order and nothing more than that. 11. The question is, whether the "Prohibitory order" dated 14th of March 2008 affects any rights of the petitioner bank, so as to provide an opportunity of being heard or to follow the principles of natural justice before passing of such an order. This order is an exercise of statutory powers conferred by Clause (ix) of Sub-section (3) of Section 8-F of the E.P.F. Act. There is no provision requiring respondent No. 1 to provide an opportunity of being heard before passing of such order. As pointed out in the aforesaid paragraph, the order contains certain statements of fact, which may or may not be correct. The order merely invites attention of the petitioner bank to the various provisions of other modes of recovery under Section 8-F of the E.P.F. Act. It informs the petitioner bank of all the consequences of discharge of liability of the respondent No. 2 Society by the petitioner bank, upon receipt of "Prohibitory order". At the most, it can be said that this order prohibits the petitioner bank from discharging any liability of the respondent No. 2 Society, after the date of receipt of this order, by the petitioner bank. The order, in no manner, affects any rights, much less the legal rights of the petitioner bank. The petitioner bank, therefore, cannot be said to be a person aggrieved by 11 the said order and it does not give rise, to any cause of action for the petitioner bank, to challenge the same in any Court, much less before this Court under Articles 226 and 227 of the Constitution of India. Probably, this is the reason as to why, there is no provision made under Section 8-F to provide an opportunity of being heard or to follow the principles of natural justice before passing of such "Prohibitory order". If the intention of the respondent No. 1 Authority in issuing "Prohibitory order" was to affect the rights of the petitioner bank or to determine the liability of the petitioner bank or to treat the petitioner bank as an "employer in default", then it would not have issued the show cause notice dated 28th of March 2008. Hence, no fault can be found with such statutory exercise of powers by the competent authority by issuing "Prohibitory order" dated 14th of March 2008. The challenge to it is, therefore, not maintainable. 12. The next challenge in the petition is to the show cause notice dated 28th of March 2008. This seems to be an exercise by the respondent No. 1, of the powers conferred upon it, under the provisions of Clause (x) of Sub-Section (3) of Section 8-F of the E.P.F. Act. It makes a reference to the "Prohibitory order" dated 14th of March 2008. It states that the dues of the Employees Provident Fund Organization (E.P.F.O.) shall be the first charge on the assets of the establishment of the respondent No. 2 Society, in terms of Section 11 (2) of the E.P.F. Act and the respondent No. 1 is entitled to sale, even the mortgaged properties of 12 the secured creditors. It further states that in the meeting held on 27th of January 2006 in the presence of Central Provident Fund Commissioner, Commissioner of Sugar, Maharashtra and officials of E.P.F.O, it was decided that the sale proceeds of the sugar are to be deposited in the joint account of the co-operative bank and E.P.F.O. and the contents of the said meeting were communicated to the petitioner. It further states that the petitioner bank on 1st December 2006 has sold the sugar stock of the respondent No. 2 Society and the sale proceeds of Rs. 56.02 lakhs have been deposited in the joint account of the petitioner bank and the respondent No. 2 Society/Karkhana, instead of in the joint account of the petitioner bank and E.P.F.O. The petitioner bank is, therefore, called upon to file its reply within a period of 7 days from the date of service of notice, as to why :- (1) the petitioner bank shall not be deemed "the employer in default" in respect of the amount specified in the notice, and (2) further proceedings shall not be initiated against the petitioner bank for the realization of the said amount, as if it were an arrears due from the petitioner bank, in the manner provided under Sections 8-B to 8-E of the E.P.F. Act read with Schedule I and II of the Income Tax Act and the Rules framed thereunder. 13 13. Thus, the show cause notice dated 28th of March 2008, is in respect of treating the petitioner bank, as "an employer in default" in terms of Clause (x) of Sub-section (3) of Section 8-F of the E.P.F. Act. The petitioner bank is required to furnish its explanation, which shall be considered by the respondent No. 1, the competent authority. If the respondent No. 1 decides to hold the petitioner bank as "an employer in default", then the proceedings for realization of an amount of Rs. 56.02 lakhs shall be initiated against the petitioner bank for realization, as if it were an arrears due from the petitioner in the manner provided under Section 8-B to 8-E of the E.P.F. Act read with the relevant provisions of the Income Tax Act and Rules framed thereunder. Not only that, but the provision regarding penalties as contemplated under Sub-section (2) of Section 14 of the E.P.F. Act, may also be initiated against the petitioner bank, if it is found that the petitioner bank has contravened or has made default in compliance with any of the provisions thereof and the petitioner bank shall be liable for punishment with imprisonment for term which may extend to one year or with fine, which may extent to Rs. 4000/- or with both. 14. Thus, the determination of the issues/points involved in the show cause notice has serious consequences and it affects the legal rights of the petitioner bank. It is the garnishee enquiry to be objectively made by the respondent No. 1. Though, there is no provision under Section 8-F of the E.P.F. Act, either to issue show cause notice or to provide any 14 opportunity of being heard to the petitioner bank, alleged to be the debtor of the respondent No. 2 Society, such a requirement is implicit in it. The principles of natural justice also require an opportunity to show cause and of being heard, to be given to the petitioner bank, before determining the question, as to whether the petitioner bank is to be treated as "an employer in default" in respect of the amount specified in the show cause notice and it is infact looking to the consequences flowing from passing such an order, that the show cause in question dated 28th of March 2008 seems to have been issued. Thus, the question, whether the petitioner bank is to be treated as "an employer in default", is to be adjudicated in the proceedings of show cause and mere issuance of show cause notice, in no manner affects the rights of the petitioner bank. Hence, the challenge to it is also not maintainable. 15. Shri. Dhorde, the learned counsel appearing for the petitioner bank has invited my attention to the decision of the Apex Court reported in 1981 (137) ITR 129 in the case of Beharilal Ramcharan vs. Income Tax Officer and another and to the decision of the Madhya Pradesh High Court reported in 2001 Law Suit (MP) 428 in the case of Ferro Concrete Construction (India) Ltd., Vs. Regional Provident Fund Commissioner in support of his contention that the determination of the question, as to whether the petitioner bank is to be treated as "an employer in default", is an exercise of quasi-judicial authority by the respondent No. 1 and therefore, it is obligatory on the part of the 15 respondent No. 1 to provide an effective opportunity to the petitioner bank to establish that no amount is due from the petitioner bank to the respondent No. 2 Society/employer, who is in arrears of provident fund dues, as contemplated by Sub-section (2) of Section 8-F of the E.P.F. Act. He does not dispute that the sugar manufactured by the respondent No. 2 Society, containing the sugar bags, was sold by the petitioner bank on 1st December 2006 and sale proceeds of Rs. 56.02 lakhs were realized. He submits that those were the dues, which the petitioner bank was entitled to recover from the respondent No. 2 Society and it has been so recovered by the petitioner bank in the mode and manner, which was available to it in law. In view of this, according to him, it was the recovery of dues of the petitioner bank, outstanding against the respondent No. 2 Society and hence, the same are not covered by Sub-section (2) of Section 8-F of the E.P.F. Act. 16. An alternate submission of Shri. Dhorde is that the petitioner bank has already appropriated the sale proceeds of Rs. 56.02 lakhs on 1st December 2006 against the dues, which were to be recovered by the petitioner bank from the respondent No. 2 Society. According to him, the petitioner bank, at the most, may be prohibited from discharging any liability of the respondent No. 2 Society from the date of receipt of "Prohibitory order" dated 14th of March 2008. He submits that the petitioner bank has not discharged any of the liabilities of the respondent No. 2 Society after the date of receipt of "Prohibitory order" 16 dated 14th of March 2008. Hence, the petitioner bank cannot be treated as "an employer in default" in terms of Clause (x) of Sub-section (3) of Section 8-F of the E.P.F. Act. Consequently, the question of recovering such amount by the respondent No. 1 from the petitioner bank as per the provisions of Sections 8-B to 8-E of the said Act or to impose any penalty upon the petitioner bank as provided under Sub-section (2) of Section 14 of the E.P.F. Act, does not arise. 17. The decision of the Apex Court relied upon by Shri. Dhorde cited supra is rendered on the provisions of Section 226 (3) of the Income Tax Act and it has been held that it is a quasi-judicial decision preceded by a quasi-judicial enquiry, involving observance of the principles of natural justice. The another decision of the Madhya Pradesh High Court relied upon by Shri. Dhorde holds that the provisions of Section 8-F (3) of the E.P.F. Act and Section 226 (3) of the Income Tax Act are both identically worded and are enacted for one object. It further holds that Section 226 (3) of the Income Tax Act consist of 10 Sub-sections (i) to (x), which are bodily lifted and inserted in the E.P.F. Act as Section 8-F (3) (i) to (x) and hence, the legal position emerging from reading of both these provisions, the interpretation of Section 226 (3) of the Income Tax Act, made by the Supreme Court, explaining its scope and ambit, will equally apply to the cases falling under Section 8-F (3) of the E.P.F. Act. Thus, both the decisions clearly lay down that a quasi-judicial enquiry is contemplated in respect of show cause notice issued on the subject 17 under Clause (x) of