2002 (6) TMI 596

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....erala. 3. A company by name "M/s. Darpan Electronics (Private) Limited" (hereinafter referred to as "the company") was running an industrial concern engaging employees and was covered by the provisions of the E.P.F. & M.P. Act, 1952. The Company had obtained loans from the first respondent Corporation for the purpose of setting up its business. On 21.2.1997, it executed a loan agreement securing by mortgage certain immovable property belonging to it and by a deed of hypothecation certain movable properties. During the period March 1990 and December 1990 the Company committed default in payment of the contributions to the Employees Provident Fund under the E.P.F. & M.P. Act. It also committed default in repayment of the loan which it had taken from the first respondent Corporation. The first respondent initiated proceedings under Section 29 of the State Financial Corporations Act, 1951 (hereinafter referred to as "S.F.C. Act") and took over all the movable and immovable assets of the Company on 18th November, 1991. On 20.12.1993, the movable assets were sold towards realisation of the debts due to the first respondent Corporation. A sum of Rs. 89,083/- is lying in the account of ....

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.... in derogation of, any other law for the time being applicable to an industrial concern." 7. The E.P.F. & 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. & 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 Fund 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 the E.P.F. & M.P. Act declares the priority of payment of contribution under the Act over other debts. Sub-section (1) of Section 11 of E.P.F. & 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 p....

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....n transferred for consideration and without notice of charge. It is contended by the first respondent that, since the charge itself came into effect subsequently, the first respondent Corporation is a transferee for valuable consideration and, obviously, without notice of charge. For this reason, it is contended. that the first respondent's debts are to be first met out of the assets before the Provident Fund dues can be realised therefrom. These arguments have substantially been accepted by the learned single Judge for coming to the conclusion that the first respondent has a higher priority in the matter of realisation of its debts. 9. With regard to the argument based on Section 100 of the Transfer of Property Act, the matter is no longer res integra. In State Bank of Bikaner and Jaipur v. National Iron & Steel Rolling Corporation & Ors., (1995)2 SCC 19, this question came up specifically for consideration of the Supreme Court and the answer given by the Supreme Court is unmistakably against the first respondent. That was a case where the State Bank of Bikaner claimed priority over Sales Tax arrears due to the State on the ground that it was a secured creditor. Section 11-....

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....ear, 1956 was to ensure that a State Financial Corporation could quickly and effectively recover the amounts due by taking possession of the property of the defaulter instead of having resort to the cumbersome method of recovery through a court of law. While this was the law, Parliament amended Section 11 of the E.P.F. & M.P. Act by specifically enacting sub-section (2) thereof, declaring that the amount due as contribution to the Employees Provident Fund has first charge on the assets of the establishment and that notwithstanding anything contained in any other law for the time being in force, it shall be paid in priority against all other debts. In fact the second facet of Section 11(2) of the E.P.F. & M.P. Act goes one step further than what is provided in Section 46-B of S.F.C. Act. The reason for this is obvious. While the State Financial Corporation would have to be helped to recover the debts due to it from a defaulting debtor, the Provident Fund payable to workers is of greater moment, since it is a matter of terminal social security benefit made available by statute to the working class. Taking into consideration that E.P.F. & M.P. Act is a social benefit legislation, and ....

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.... financial assistance to industrial concerns with a view to boost industrialisation and to enable recovery of amounts advanced and the Companies Act was also an Act dealing with Companies including winding up such companies, the proviso to sub-section (1) of the Section 529 and Section 529-A being a subsequent enactment, the non obstante clause in Section 529-A prevails over Section 29 of the S.F.C. Act. Hence, the Supreme Court held that statutory right to sell the property under Section 29 of the S.F.C. Act had to be exercised with the rights of pari passu charge to the workmen specifically created by the proviso to Section 529 of the Companies Act. Under the proviso to sub-section (1) of the Section 529, the liquidator shall be entitled to represent the workmen to enforce the above pari passu charge. The judgment of the Company Court was upheld. While upholding the judgment of the Company Court, it was pointed out by the Supreme Court that State Financial Corporation could not stay outside the winding up proceedings. It was also held that Section 529-A of the Companies Act imposes upon the Company Court the duty to ensure that the workmen's dues are paid in priority to all o....