2011 (11) TMI 639 - SC - Companies Law

EPF Act: Statutory Charge Trumps Debts! Official Liquidator Ordered to Pay Provident Fund Dues

The Court held that the statutory first charge created on the assets of the establishment by Section 11(2) of the EPF Act takes precedence over all types ... Whether priority given to the dues payable by an employer under Section 11 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short, `the EPF Act') is subject to Section 529A of the Companies Act, 1956 (for short, `the Companies Act') in terms of which the workmen's dues and debts due to secured creditors are required to be paid in priority to all other debts? Issues Involved1. Whether the priority given to the dues payable by an employer under Section 11 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is subject to Section 529A of the Companies Act, 1956.2. Interpretation of the relevant statutory provisions of the EPF Act and the Companies Act.3. The impact of non obstante clauses in conflicting statutes.Detailed AnalysisIssue 1: Priority of Dues under EPF Act vs. Companies ActThe primary question was whether the statutory priority given to the dues payable by an employer under Section 11 of the EPF Act is subordinate to Section 529A of the Companies Act, which prioritizes workmen's dues and debts due to secured creditors.The Court observed that Section 11(2) of the EPF Act, which was amended in 1973 and 1988, declared that any amount due from an employer in respect of employees' contributions shall be deemed to be the first charge on the assets of the establishment and shall be paid in priority to all other debts. This provision was intended to ensure that the dues payable by the employer are recovered in priority to other debts.On the other hand, Section 529A of the Companies Act, introduced in 1985, aimed to create a charge pari passu in favor of the workmen on every security available to the secured creditors of the company for recovery of their debts. The Court noted that there is nothing in the language of Section 529A that indicates the legislature intended to create a first charge in respect of the workmen's dues and debts due to the secured creditors.Issue 2: Interpretation of Statutory ProvisionsThe Court analyzed the relevant provisions of both the EPF Act and the Companies Act. It emphasized that Section 11(2) of the EPF Act contains a non obstante clause and declares that the amount due from an employer towards contribution payable under the EPF Act shall be treated as the first charge on the assets of the establishment and shall be paid in priority to all other debts.The Court also referred to the amendments made in the Companies Act in 1985, which were intended to protect the interest of the workmen in winding up proceedings by placing them at par with secured creditors. However, these amendments do not indicate that the legislature intended to give priority to the debts due to secured creditors over the amount due from the employer under the EPF Act.Issue 3: Impact of Non Obstante ClausesThe Court noted that when two special enactments contain provisions giving overriding effect to the provisions contained therein, the Court must consider the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions.The Court referred to several precedents, including *Shri Ram Narain v. Simla Banking and Industrial Co. Ltd.* and *Kumaon Motor Owners' Union Ltd. v. State of Uttar Pradesh*, to emphasize that the overriding effect of one or the other of the relevant provisions in these two Acts must be determined based on broader considerations of the purpose and policy underlying the two Acts.The Court concluded that the object of the amendment made in the EPF Act was to treat the dues payable by the employer as first charge on the assets of the establishment and to ensure that the same are recovered in priority to other debts. In contrast, the amendments made in the Companies Act were intended to create a charge pari passu in favor of the workmen on every security available to the secured creditors of the company for recovery of their debts.ConclusionThe Court held that the statutory first charge created on the assets of the establishment by Section 11(2) of the EPF Act and the priority given to the payment of any amount due from an employer will operate against all types of debts, including those due to secured creditors. The judgment and order of the learned Company Judge were set aside, and the applications filed by the appellant were allowed.The Court directed the Official Liquidator to deposit the dues of provident fund payable by the employer within a period of three months. The parties were left to bear their own costs.