Case: Indus Agro Products Vs. Union of India

( 2 ) THE Fifth respondent conducted, prior to 2002, business activities from a plot of land) in the MIDC area at Shiroli, Kolhapur. Maharashtra State financial Corporation (MSFC), impleaded to these proceedings as the Fourth respondent, had granted term loan facilities to the Fifth respondent. Upon the default of the Fifth respondent, MSFC took steps under section 29 of the State financial Corporations Act, 1951,) and took over the plot and the structures standing thereon. The lease hold rights in the land and the structures were sold to the petitioner under and in pursuance of a Sale Deed executed on 21st October, 2002. Possession was transferred to the petitioner. On 5th March, 2004, the Third respondent, who is the Recovery Officer in the employees Provident Fund Organization at Kolhapur, served an order of attachment upon the petitioner in respect of the land and the structures standing thereon. The notice was under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act, 1952 ). The Fifth respondent was in arrears of Provident Fund dues and it appears from the record that a notice of attachment was served on the ground that the Fifth respondent had failed to pay a sum of Rs. 8,35,809which was due under a certificate of the Regional provident Fund Commissioner dated 17th April, 2002. The petitioner submitted a representation to MSFC on 12th March, 2004 and having failed to elicit a response thereafter, moved these proceedings under Article 226 of the constitution in order to challenge the order of attachment. A declaration has also been sought to the effect that the petitioner is not liable for the Provident Fund dues towards the employees of the Fifth respondent

Court's reasoning:
We have declined to accept the line of argument pressed before us. The first charge on the assets of the establishment created by Parliament while enacting section 11 (2) of the EPF Act, 1952 and the priority enunciated there is given overriding effect, notwithstanding anything to the contrary contained in any law for the time being in force The charge and the priority are founded on overriding social welfare principles : protecting the terminal benefits of industrial workers over other competing claims. We decline to read down Parliaments mandate. Finally, we hold that the terms of the sale put the petitioner on notice that this was a sale on anbasis. For the reasons which we now elucidate, we decline to interfere, in our jurisdiction under Article 226 of the ConstitutionThat construction, however, cannot be accepted for a number of reasons. First and foremost, the wordst prejudice to the provisions ofare intended to indicate that the provisions of subsection (2) shall not dilute the operation of). Consequently, the priority which is created byin the distribution of the property of an insolvent or of the assets of a Company which is being wound up is not disturbed by the first charge or the priority which is created by). Secondly, interpreting the words ofthey stand, the provision is intended to apply if any amount is due from an employer whether in respect of the employers own contribution or the employees contribution for which a deduction has been made from the wages. Once any such amount is due, parliament has provided that it shall be deemed to be a first charge on the assets of the establishment and be paid in priority to all other debts notwithstanding anything contained in any other law for the time being in force. To read subsection (2) as subservient toor as a provision which operates in the same field aslargely otiose. Such a construction cannot be accepted since it would be contrary to the plain and grammatical meaning that attaches to the words used inof section 11. The wordsf any amount is due from themust be given a full and untrammeled construction. The deeming fiction inby which a first charge is created on the assets of the establishment must be taken to its logical conclusion and must comprehend within its ambit all the consequences which can reasonably be construed to emanate therefrom.is not a proviso tobut is a provision that stands by itself to lend teeth to the recoverability of the dues of the employees by way of contributionIn the recent judgment of the Supreme Court in State of Karnataka vs. Shreyas Papers pvt. Ltd. (2006) 1 SCC 615 one of the issues which fell for consideration was whether the purchaser of assets of a concern sold by a State Financial corporation under section 29 of the SFC Act, 1951 would be liable under the karnataka Sales Tax Act, 1967 for the arrears of Sales Tax of the concern whose assets had been transferred. Section 15 (1) of the State Sales Tax Act showed that the liabilities of the defaulting transferor could be foisted on the transferee only if the ownership of the business was transferred. In that case, the Supreme Court noted that it was not a matter of dispute that there was only a transfer of the individual assets of the defaulting Company rather than the defaulting company being sold as a going concern. Hence, section 15 (1) of the Karnataka Sales Tax act, 1967 was held not to have been attracted. In that case, the Supreme Court also noted that no provision of law had been cited before the Court that exempted the requirement of a notice of the charge for its enforcement against a transferee who had no notice of the same. The Supreme Court noted that the transferee had in fact, no notice of the arrears of sales tax either actual or constructive. The State sales Tax Act, therefore, contained a provision subjecting the transferee to the liabilities of the transferor only when the ownership of the business was transferred. Secondly, the State law did not contain any provision exempting the requirement of the notice of a charge to the transferee. In contrast it may be noted that section 11 (2) of the EPF Act, 1952 specifically (i) creates a first charge in respect of any amount being due from the employer on account of employers or employees contribution; (ii) provides that the amount shall be liable to be paid in priority to all other debts; and (iii) envisages that this shall be notwithstanding anything contained in any other law for the time being in force. The non obstante provision, therefore, would necessarily override all other provisions of law including the Transfer of Property Act, 1882For the purpose of this case we have proceeded on the basis that this is so. SectionB of the EPF Act, 1952 comes into operation where 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. In such a case, both the employer and the person to whom the establishment is transferred are jointly and severally liable to pay the contribution and other sum due from the employer under the provisions of the act or of any scheme framed thereunder. The liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.The submission was that section 17b applies to a situation where a transfer of establishment has taken place by the employer meaning thereby that there is a voluntary transfer of assets.Even if the submission were to be accepted, section 17b is an additional provision which deals with a specific eventuality viz. , the transfer of an establishment in whole or in part by an employer to a transferee. We clarify that in the view which we have taken, it has not been necessary to enter a finding on the correctness of the interpretation of sectionB suggested by the petitioner. We leavs that open for decision in an appropriate case. The provisions of section 11 (2) are, however, wide enough to cover an eventuality not within the purview of section 17b, insofar as it creates a first charge and provides that it shall have priority over all other debts notwithstanding anything contained in any other law for the time being in force( 5 ) THE judgment of the Supreme Court in State Bank of Bikaner (supra), it may be noted, has been followed both in the judgment of the Division Bench of the Kerala High Court and by the Division Bench of this Court noted above. In our view, then (2) of section 11 has force and effect notwithstanding anything contained in any other law for the time being in force which will include both the State Financial Corporations Act, 1951 and, for that matter, the Transfer of Property Act, 1882. We, therefore, do not find any merit in any of the contention which has been urged on behalf of the petitioner. The first charge on the assets of the establishment cannot be disrupted by the sale of the property. In any event, as we have already noted, the sale deed that was executed in favour of the petitioner does in the facts of this case provide an answer to the contention that the petitioner had no notice of the possible liability which could have arisen( 6 ) IN the circumstances, we do not find any reason to exercise our jurisdiction under Article 226 of the Constitution. There is no merit in the petition which is accordingly dismissed.