AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (11) TMI 639
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....ds from March 1998 to May 1999 and June 1999 to August 2001, the competent authority passed two orders under Section 7A of the EPF Act and held that it was liable to pay Rs. 14,96,751/-. The company appears to have paid a sum of Rs. 4,02,126/- but did not pay the remaining amount despite the issue of demand notices dated 12.4.2001 and 19.4.2001 by the competent authority. The orders passed under Section 8F of the EPF Act, which were communicated to the bankers of the company also did not yield the desired result. The competent authority then issued warrant for attachment of the company's property. This was followed by sale notice dated 20.9.2001. 6. Although, it is not clear from the record as to what happened to the sale notice, but this much is evident that after 2 years and about 4 months, the Enforcement Officer informed the appellant that the Gujarat High Court has passed order dated 11.3.2004 for winding up of the company and appointed Official Liquidator to look after its properties and clear the debts. The appellant then approached the Official Liquidator for payment of the amount determined under Section 7A of the EPF Act, but the latter did not give any respons....
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....ake clear that the provisions of Section-529(A) shall override the provisions contained in Section-530. Not only this, the provisions contained in Section-529(A) shall override the provisions contained in the ESI Act because the ESI Act is an Act of 1948, while the amendment in the Companies Act has been made in the year 1985 and with the fullest knowledge that it was to override the provisions contained in Section-530. If Section-94 of the ESI Act and Section-530 of the Companies Act are made subordinate to Section-529(A), then, Section-529(A) shall march over the rights of others to which the others are entitled either under the special laws or under Section-530 of the Companies Act. A combined/conjoint reading of Section- 529(A) of the Companies Act would make clear that in a matter of winding up, the workmen's dues and the debts due to the secured creditors to the extent such debts rank under clause (c) of the proviso to Sub-section (l) of Section-529(A) pari passu with such dues, shall be paid in priority to all other debts. If such dues and debts are paid in full and even thereafter, some money is left with the Official Liquidator for its distribution, then, such money ca....
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....ned in the subsequent legislation, i.e. Section 529A (1) of the Companies Act would prevail over similar clause contained in the earlier legislation, i.e. Section 11(2) of the EPF Act. In support of this argument, Shri Agrawal relied upon the judgment of this Court in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. (1993) 2 SCC 144. 13. We have considered the respective arguments. For deciding the question arising in these appeals, it will be useful to notice the relevant statutory provisions. The EPF Act 14. Section 11 (unamended) of the EPF Act was as under: "11. Priority of payment of contributions over other debts.- Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due - (a) from the employer in relation to an establishment to which any Scheme applies in respect of any contribution payable to the Fund, damages recoverable under Section 14-B, accumulations required to be transferred under sub-section (2) of Section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme; or (b) from the employer in relation to an exempt....
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.... Funds Organisation and to suggest improvements. The Committee had made a number of recommendations involving amendment of the Act. The Central Board of Trustees, Employees' Provident Fund had also, from time to time, made certain recommendations for amendment of the Act. The Standing Labour Committee had at its meeting held in September, 1986 considered inter alia the question of enhancement of the rate of provident fund contribution and recommended suitable enhancement. 3. Based on the above recommendations, it is proposed to carry on certain amendments in the Act. Some of the more important amendments are:-- (i) to (v) xxxx xxxx xxxx (vi) a provision is being made for treating the entire amount of arrears of provident fund dues as first charge on the assets of an establishment in the event of its liquidation; xxxx xxxx xxxx" 17. Section 11, as it stands after the amendment of 1988, reads as under: "11. Priorit....
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....other law for the time being in force, be paid in priority to all other debts." 18. An analysis of Section 11 of the EPF Act shows that it gives statutory priority to the amount payable to the employees over other debts. Section 11(1) relates to an employer who is adjudged insolvent or being a company against whom an order of winding up is made. It lays down that the amount due from the employer in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under Section 14B, accumulations required to be transferred under Section 15(2) or any charges payable by him under any other provision of the Act or the Scheme or the Insurance Scheme shall be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be. Section 11(2) contains a non obstante clause and lays down that if any amount is due from an employer whether in respect of the employee's contribution deducted from the wages of the employees or the employer's contribution, the same shall be deemed to be the first charge on the assets of the establishment and shall, notw....
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.... the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the produce of their labour and effort. It is accordingly proposed to amend Sections 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely, Section 529-A (vide clauses 4, 5 and 6 of the Bill)." 20. Sections 529(1) and (3) and 529A and the relevant parts of Section 530, as they stand after the 1985 amendments read as under: "529. Application of insolvency rules in winding up of insolvent companies. - (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to-- (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insol....
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....dent fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company; 529A.Overridingpreferential payment.--(1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company-- (a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub- section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 530. Preferential payments.- (1) In a winding up subject to the provisions of section 529A, there shall be paid in priority to all other debts- (a) all revenues taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of the sub- section (8), and having become due and payable within the twelve months next before that date; (b) all wages or salary....
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....amounts due in respect of any compensation or liability for compensation under the Workmen's Compensation Act in respect of the death or disablement of any workman of the company. By virtue of the non obstante clause contained in sub-section (1) of Section 529A, statutory priority has been given to the workmen's dues and debts due to secured creditors over all other dues. 22. The EPF Act is a social welfare legislation intended to protect the interest of a weaker section of the society, i.e. the workers employed in factories and other establishments, who have made significant contribution in economic growth of the country. The workers and other employees provide services of different kinds and ensure continuous production of goods, which are made available to the society at large. Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation keeping in view the Directive Principles of State Policy contained in Articles 38 and 43 of the Constitution. In Organo Chemical Industries v. Union of India (1979) 4 SCC 573, this Court negatived challenge to the constitutionality of Section 14-B of the EPF Act. In the main judgment delivere....
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....LR (2002) 3 Kerala 4. Speaking for the Bench, B.N. Srikrishna, J. (as he then was) observed: "The F.P.F. and M.P. Act, 1952 is an Act to provide for the institution of Provident Fund, Pension Fund, Deposit Linked Insurance Fund etc. in factories and other establishments, to carry forward the Constitutional mandate of rendering social justice to the working class. It is intended to give social security to industrial workers at the end of their careers. The E.P.F. and M.P. Act requires every employer to deduct certain prescribed amounts from the wages payable to employees along with prescribed contribution by the employer and deposit such contributions in the Provident Fund. The Provident |is administered by the Central and Regional Provident Fund Commissioners, who are statutory authorities. What is of importance to us is that section 11 of E.P.F. and M.P. Act, declares the priority of payment of contributions under the Act over other debts. Sub-section (1) of section 11 of E.P.F. and M.P. Act deals with the question of priority where an employer is adjudicated insolvent or being a company subjected to an order of winding up. Sub-section (2) of section 11 deals with other types of ....
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....o the Constitution. The rules of common law relating to substantive rights which had been adopted by this country and enforced by judicial decisions, amount to `law in force' in the territory of India at the relevant time within the meaning of Article 372(1). In that view of the matter, the contention of the appellant that after the Constitution was adopted the position of the Union of India in regard to its claim for priority in the present proceedings had been alerted could not be upheld. (iii) The basic justification for the claim for priority of government debts rests on the well-recognised principle that the State is entitled to raise money by taxation, otherwise it will not be able to function as a sovereign Government at all. This consideration emphasises the necessity and wisdom of conceding to the State the right to claim priority in respect of its tax dues." (emphasis supplied) 26. The ratio of the judgment in Builders Supply Corporation v. Union of India (supra) was applied to the cases in which statutory first charge was created in favour of the State in the matter of recovery of tax, penalty, interest etc.. - State Bank of Bikaner and Jaipur v. National Iron and....
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....tes as also Section 14A of the Workmen's Compensation Act, 1923, Section 11 of the EPF Act, Section 74 of the Estate Duty Act, 1953, Section 25 of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, 1958, Section 529A of the Companies Act, 1956, Section 46B of the State Financial Corporations Act, 1951 and observed: "Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-`-vis Section 69 or Section 69-A of the Transfer of Property Act. In terms of that sub-section, a secured creditor can enforce security interest without intervention of the court or tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a Receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of the Narasimham Committee's Second Report in which specific reference was made to the provisions re....
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....eferred to the earlier judgments in Builders Supply Corporation v. Union of India (supra), State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation (supra), Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (supra), State of M.P. v. State Bank of Indore (supra), Allahabad Bank v. Canara Bank (2000) 4 SCC 406, the judgment of the Division Bench of the Kerala High Court in Recovery Officer and Asstt. Provident Fund Commissioner v. Kerala Financial Corporation (supra) and observed: "While enacting the DRT Act and the Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State dues was recognised. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529-A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax, etc. However, th....
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....possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and the Securitisation Act on the one hand and Section 38-C of the Bombay Act and Section 26-B of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis-`-vis Section 38-C of the Bombay Act and Section 26-B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured creditors but as Parliament has not made any such provision in either of the enactments, the first charge created by the State legislations on the property of the d....
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....ain first charge and shall be paid first out of the assets of the establishment notwithstanding anything contained in any other law for the time being in force. It is, therefore, reasonable to take the view that the statutory first charge created on the assets of the establishment by sub- section (2) of Section 11 and priority given to the payment of any amount due from an employer will operate against all types of debts." (emphasis supplied) 30. The ratio for the last mentioned judgment is that by virtue of the non obstante clause contained in Section 11(2) of the EPF Act, any amount due from an employer shall be deemed to be first charge on the assets of the establishment and is payable in priority to all other debts including the debts due to a bank, which falls in the category of secured creditor. 31. We may now notice some judgments which have bearing on the interpretation of Sections 529 or 529A of the Companies Act. The scope of proviso to sub-section (1) of Section 529 (as inserted by Amendment Act No.35 of 1985) was examined in UCO Bank v. Official Liquidator, High Court, Bombay (1994) 5 SCC 1. The facts of that case were that in Company Petition No.27 of 1971, th....
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....nds of the Official Liquidator. This provision is intended to protect the interests of the workmen in proceedings for winding up. In view of the nature of workmen's dues being similar to those of secured creditors, the purpose of this provision is to place the workmen on a par with the secured creditors and create a statutory charge in their favour on all available securities forming part of the assets of the company in liquidation so that the workmen also share the securities pari passu with the secured creditors. The workmen contribute to the growth of the capital and must get their legitimate share in the assets of the company when the situation arises for its closure and distribution of its assets first among the secured creditors due to winding up of the company. The aforesaid amendment made in the Act is a statutory recognition of this principle equating the legitimate dues of the workmen with the debts of the secured creditors of the company. To achieve this purpose, it is necessary that the amended provision must apply to all available securities which form part of the assets of the company in liquidation on the date of the amendment. The conclusion reached by the Divis....
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.... who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in Sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the Official Liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in Section 529(2). Till today, Canara Bank has not made it clear whether it wants to come under this category. The second class of secured creditors referred to above are those who come under Section 529-A(1)(b) read with proviso (c) to Section 529(1). These are those who opt to stand outside the winding up to realise their security. Inasmuch as Section 19(19) permits distribution to secured creditors only in accordance with Section 529-A, the said category is the one consisting of creditors who stand outside the winding up. These secured creditors in certain circumstances can come before the Company Court (here....
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....by relying upon an earlier judgment in Rajasthan State Financial Corporation v. Official Liquidator (2005) 8 SCC 190 and observed: "In fact in Allahabad Bank it was categorically held that the adjudication officer would have such powers to distribute the sale proceeds to the banks and financial institutions, being secured creditors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priority in law. Section 529-A of the Companies Act no doubt contains a non obstante clause but in construing the provisions thereof, it is necessary to determine the purport and object for which the same was enacted. In terms of Section 529 of the Companies Act, as it stood prior to its amendment, the dues of the workmen were not treated pari passu with the secured creditors as a result whereof innumerable instances came to the notice of the Court that the workers may not get anything after discharging the debts of the secured creditors. It is only with a view to bring the workmen's dues pari passu with the secured creditors, that Section 529-A was enacted. The non obstante nature of a provision although may be of....
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....rs upon a Company Court the duty to ensure that the workmen's dues are paid in priority to all other debts in accordance with the provisions of the above section. The legislature has amended the Companies Act in 1985 with a social purpose viz. to protect dues of the workmen. If conditions are not imposed to protect the right of the workmen there is every possibility that the secured creditor may frustrate the above pari passu right of the workmen." (emphasis supplied) 35. We have referred to these judgments only for the purpose of showing that the object of the amendments made in the Companies Act by Act No. 35 of 1985 was to ensure that the legitimate dues of workers should rank pari passu with those of secured creditors. In other words, these amendments are intended to protect the interest of the workmen in winding up proceedings by placing them at par with secured creditors and a statutory charge is created qua their dues on all available securities forming part of the assets of the company in liquidation. However, the propositions laid down in these judgments are of little assistance in deciding the question raised in these appeals because in none of the cases the C....
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.... and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place." 38. Another rule of interpretation of Statutes is that if two special enactments contain provisions which give overriding effect to the provisions contained therein, then the Court is required to consider the purpose and the policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions. 39. In Shri Ram Narain v. Simla Banking and Industrial Co. Ltd. 1956 SCR 603, this Court was considering the provisions contained in the Banking Companies Act, 1949 and the Displaced Persons (Debts Adjustment) Act, 1951. Both the enactments contained provisions giving overriding effect to the provisions of the enactment over any other law. After noticing t....
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.... a winding up proceedings [Section 530(1)(f)]. Even the wages, salary and other dues payable to the workers and employees were payable in priority to all other debts. What Parliament has done by these amendments is to define the term "workmen's dues" and to place them at par with debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to Section 529(1). However, these amendments, though subsequent in point of time, cannot be interpreted in a manner which would result in diluting the mandate of Section 11 of the EPF Act, sub-section (2) whereof declares that the amount due from an employer shall be the first charge on the assets of the establishment and shall be paid in priority to all other debts. The words "all other debts" used in Section 11(2) would necessarily include the debts due to secured creditors like banks, financial institutions etc. The mere ranking of the dues of workers at par with debts due to secured creditors cannot lead to an inference that Parliament intended to create first charge in favour of the secured creditors and give priority to the debts due to secured creditors over the amount due from the employer under t....