Gujarat High Court
Uco Bank vs Employees Provident Fund ... on 30 September, 2022
Bench: Bhargav D. Karia
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 754 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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UCO BANK
Versus
EMPLOYEES PROVIDENT FUND ORGANIZATION & 1 other(s)
==========================================================
Appearance:
MR GAUTAM JOSHI SENIOR ADVOCATE WITH MR VYOM SHAH WITH
MR CHAITANYA S JOSHI(5927) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 30/09/2022
CAV JUDGMENT
Heard learned Senior Advocate Mr.Gautam Joshi
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
with learned advocate Mr.Vyom Shah for learned
advocate Mr.I.G.Joshi for the petitioner and
learned advocate Mr.Chaitanya S. Joshi for the
respondent No.1.
1. By this petition under Article 226 of
the Constitution of India, the petitioner-
Bank has challenged the show cause notices
dated 19.07.2018 and 17.08.2018 issued by
the respondent No.1-Assistant Provident
Fund Commissioner & Recovery Officer of
Regional Office, Employees Provident Fund
Organization for the recovery of
Rs.18,66,697/- and further prayed for
refund of the said amount deposited by the
petitioner without prejudice with interest.
2. The brief facts of the case are as under:
2.1. The respondent No.2-M/s. Janta Glass
Limited approached the petitioner-
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UCO Bank for the financial
assistance in the year 1998. The
petitioner-Bank sanctioned and
disbursed various credit facilities
to respondent No.2-Company and
thereafter, renewed/enhanced the
same from time to time. Respondent
No.2 hypothecated the movable
properties as a security by
executing the deed of hypothecation
in favour of the petitioner as
secured asset i.e., all plant and
machineries including its machines,
batch house, cullet processing &
handling plant and machineries,
feeder machineries, lehr machine,
thermocouples, lab and QC equipment
etc. The land situated at Plot
Nos.410 and 411, Post: Gavsad,
Taluka: Padra, Dist. Vadodara
belonging to M/s. Pure Glass
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
Containers Private Limited was also
mortgaged to the petitioner-Bank as
the said company was a guarantor for
the respondent No.2.
2.2. The respondent No.2 defaulted in
repayment of the dues, therefore,
petitioner declared the account of
the respondent No.2 as Non
Performing Asset (NPA) on 30th June,
2010 according to the prudent norms
of the Reserved Bank of India. The
petitioner-Bank also initiated
actions under the provisions of
Securitisation and Reconstructions
of Financial Assets and Enforcement
of Security Interest Act, 2002 ('the
SARFAESI Act').
2.3. The petitioner issued notice dated
04.05.2011 under Section 13(2) of
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the SARFAESI Act. As the respondent
No.2 did not make any payment
towards outstanding dues of the
petitioner-Bank pursuant to the
notice under Section 13(2) of the
SARFAESI Act, the petitioner-Bank
through authorized Officer had taken
the possession of the secured assets
of all plants and machineries which
are hypothecated including the
factory premises located at Plot
Nos.410 and 411, Post: Gavsad,
Taluka: Padra, Dist. Vadodara under
Section 13(4) of the SARFAESI Act on
20th January, 2016.
2.4. The petitioner-Bank on failure of
the respondent No.2 to make the
payment of the outstanding dues
issued the notice dated 29.12.2017
for sale of the movable properties
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belonging to respondent No.2 and
fixed reserve price of Rs.450 lakh.
The petitioner-Bank was able to sale
the movable properties in public
auction to the successful bidder for
Rs.451 lakh.
2.5. The respondent No.1- Assistant
Provident Fund Commissioner &
Recovery Officer issued notices
dated 17.04.2017 and 03.05.2017
under Sections 14B and 7Q of the
Employees' Provident Fund Act and
Miscellaneous Provisions Act,
1952(for short 'EPF Act') to the
petitioner and issued summons to
appear on 02.05.2017. The authorized
officer of the petitioner in
compliance of such notices, appeared
before respondent No.1 and submitted
the reply dated 25.04.2017.
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2.6. The respondent No.1 passed an
order dated 13th June, 2017 directing
the respondent No.2 to pay an amount
of Rs.12,20,702/- within fifteen
days with interest amounting to
Rs.6,46,095/- towards the
outstanding provident fund dues
calculated as per the provisions of
the EPF Act.
2.7. The respondent No.1 also marked the
copy of the order dated 13th June,
2017 to the petitioner-Bank with a
direction to give first priority to
remit the due amount as shown in the
order immediately after the sale
proceeds of the secured assets by
the petitioner-Bank.
2.8. Thereafter, the respondent No.1 by
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letter dated 29.11.2017 addressed to
the petitioner-Bank claimed first
priority of the sale proceeds of the
property of the respondent No.2
which was replied by the petitioner-
Bank on 23.03.2018 informing that in
view of the amendment in the
SARFAESI Act from 01.09.2016,as per
section 26E, a secured creditor has
priority over all other debts and
requested the respondent No.1 to
withdraw the notice and drop the
recovery proceedings against the
petitioner-Bank.
2.9. The respondent No.2 however, issued
the notice dated 19.07.2018 under
Section 8G of the EPF Act read with
Rule 2 of the Second Schedule to the
Income Tax Act, 1961 upon the
General Manager of the petitioner-
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Bank directing to make the payment
as mentioned in the same to the
respondent No.1. The respondent No.1
thereafter again issued the show
cause notice dated 17.08.2018 and
thereby issued summons to appear in
person on 10.09.2018 upon the
respondent-Bank. The respondent-Bank
by letter dated 05.09.2018 deposited
an amount of Rs.18,66,697/- demanded
by the respondent No.1 reserving its
various rights and contentions to
challenge the same.
2.10. The petitioner has therefore filed
this petition with the following
prayers:
"(i) to quash and set aside the
show-cause notice dated 19.07.2018
and 17.08.2018 issued by the
Respondent No.1.
(ii) to refund an amount of
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Rs.18,66,697/- with interest as the
same was deposited under protest on
05.09.2018 by Petitioner Bank.
(iii) to direct the Respondent No.1
Authority to drop all proceedings
against Petitioner Bank and its
Officials."
3. Learned Senior Advocate Mr.Gautam Joshi
for the petitioner-Bank submitted that as
per the provisions of Section 26E of the
SARFAESI Act as amended with effect from
01.09.2006, the petitioner-Bank is entitled
to receive the debts due in priority over
all other debts and all revenues, taxes,
cesses and all other rates payable to the
Central Government or State Government or
local authority.
3.1 It was therefore submitted that in view
of the provisions of Section 26E of the
SARFAESI Act, claim made by the respondent
No.1 to recover the PF dues by way of
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priority over the debt dues of the
petitioner-Bank is against the provisions
of the law and settled legal position as
per the various decisions of the Hon'ble
Apex Court and High Courts.
3.2 It was submitted by learned Senior
Advocate Mr. Joshi that Section 35 of the
SARFAESI Act provides for an overriding
effect over other laws and hence also the
debts due to the petitioner-Bank being a
secured creditor is to be paid in priority
over all other debts and all revenues
including PF dues of the borrower company.
3.3 It was submitted that debts due to the
petitioner-Bank are therefore required to
be paid in priority over all other debts
and therefore, the action initiated by the
respondent No.1 against petitioner-Bank on
account of failure of the respondent No.2
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to pay the provident fund contribution and
other dues is detrimental in the eyes of
law and requires to be set aside.
3.4 It was submitted that the respondent No.1
was not liable to be paid by the petitioner
the amount of recovery to be made from the
respondent No.2 out of the sale proceeds of
the secured assets realized in the auction
sale by the petitioner-Bank for recovery of
its outstanding dues.
3.5 In support of his submissions, learned
senior advocate Mr. Joshi relied upon the
following decisions:
(i) Kalupur Commercial Co-operative Bank
Limited versus State of Gujarat1.
(ii) Bank of Baroda Versus State of
2020 (1) GLR 625
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
Gujarat and Others(2014) 4 GLR 24982.
(iii) Punjab National Bank Versus Union of
India & Others3.
3.6 It was submitted that this Court in case of
Kalupur Commercial Co-operative Bank Limited
(Supra) applied the provisions of Section 26E
of the SARFAESI Act with regard to the
attachment notice issued by the Commercial Tax
Authorities under Section 48 of the Gujarat
Value Added Tax Act, 2003. A Division Bench of
this Court in the said decision held that
first priority over the secured asset shall be
of the petitioner-Bank and not of the State
Government by virtue of Section 48 of the VAT
Act, 2003. It was submitted that the Supreme
Court in the recent decision in case of Punjab
National Bank (Supra) also held that the
provisions of Section 26E of the SARFAESI Act
(2020) 4 GLR 2498
2022 SCC Online SC 227
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would override the provisions of Central
Excise Act, 1944 and having regard to the
provisions contained in Section 2(zc) to (zf)
read with Section 13 of the SARFAESI Act, the
petitioner-Bank shall have the first charge on
the secured assets coupled with the fact that
Section 35 of the SARFAESI Act inter-alia
provides that the provisions of the SARFAESI
Act shall have over riding effect on all other
laws.
3.7 It was submitted that the recovery made by
the respondent No.1 is contrary to the
settled legal position and the petitioner-
Bank is entitled to get back the amount paid
by it pursuant to the recovery notice issued
by the respondent No.1 as all rights and
contentions were kept open by the petitioner
Bank while depositing the amount claimed by
the respondent No.1 towards the outstanding
PF dues of the respondent No.2-Company.
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
4 On the other hand, learned advocate Mr.
Chaitanya Joshi for the respondent No.1
submitted that EPF Act is a statute enacted
keeping in mind Directive Principles of State
Policy enshrined in Articles 39 and 41 of the
Constitution of India for social security to
the employees working in any establishment
engaging more than 19 persons on any day. It
was submitted that the EPF Act and the EPF
Scheme, 1952 framed thereunder casts the
responsibility, in the first instance of
paying both the contribution payable by the
employers as well as on behalf of the members
employed by the employers directly or by or
through a Contractor as per paragraph 30(1)
of the EPF Scheme.
4.1 It was submitted that paragraph No.30(3) of
the EPF Scheme further casts the
responsibility on the employer to pay both
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
the contributions payable under the EPF Act
and the Scheme.
4.2 It was submitted by learned advocate Mr.
Joshi that the EPF Act provides for social
security in terms of pensionary benefits
(Employees' Pension Scheme, 1995) and
insurance benefit in the event of death of a
member while in service (Employees' Deposit
Linked Scheme, 1976) and thus, the EPF Act is
a comprehensive and special legislation.
4.3 It was submitted that the provisions of the
EPF Act provides for assessment of dues under
Section 7-A which is a quasi-judicial inquiry
in nature and gives power of a Judicial
Magistrate First Class for the purpose of
compelling the attendance of the employer as
also to deposit legitimate dues of the
workers.
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
4.4 Learned advocate Mr. Chaitanya Joshi referred
to and relied upon the provisions of Sections
7Q for levy of interest and 14B for levy of
penal damages upon the employer. It was
submitted that in the facts of the case,
respondent No.2 -Company was allotted PF code
and was duty bound to comply with all the
provisions of the EPF Act and the Scheme. It
was therefore submitted that provisions of
the EPF Scheme shall over ride all the other
laws as per Section 11(2) of the EPF Act.
4.5 Learned advocate Mr. Joshi submitted that in
view of the provisions of Section 11(2) which
contains an non-obstante clause of giving
priority to the respondent No.1 over all
other debts, the recovery made by the
respondent No.1 is just and proper and the
petitioner-Bank cannot rely upon Section 26E
of the SARFAESI Act keeping in mind the fact
that the EPF Act is a social welfare
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
legislation intended to protect the interest
of employer-worker employed in the factories
and other establishments.
4.6 Learned advocate Mr.Joshi in support of his
submissions relied upon the decision of the
Hon'ble Supreme Court in case of Organo
Chemical Industries Versus Union of India4
wherein, Justice Krishna Iyer in his
concurring judgment observed as under :
"The measure was enacted for the support
of a Weaker sector viz. the working
class during the Superannuated winter of
their life. The financial reservoir for
the distribution of benefits filled by
the employer collecting, by deducting
from the workers' wages, completing it
with his own equal share and duly making
over the gross sums to the Fund. If the
employer neglects to remit or diverts
the moneys for alien purposes the Fund
gets dry and the retirees are denied the
meagre support when they most need it.
This prospect of destitution demoralises
the working class and frustrates the
hopes of the community itself. The whole
project gets stultified if employers
thwart contributory responsibility and
(1979) 4 SCC 573
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
this wider fallout must colour the
concept of 'damages' when the court
seeks to define its content in the
special setting of the Act. For,
judicial interpretation must further the
purpose of a statute. In a different
context and considering a fundamental
treaty, the European Court of Human
Rights, in the Sunday Times Case,
observed:
"The Court must interpret them in a
way that reconciles them as far as
possible and is most appropriate in
order to realise the aim and
achieve the object of the treaty."
"A policy-oriented interpretation, when
a welfare legislation falls for
determination, especially in the context
of a developing country, is sanctioned
by principle and precedent and is
implicit in Article 37 of the
Constitution since the judicial branch
is, in a sense, part of the State. So,
it is reasonable to assign to 'damages'
a larger, fulfilling meaning."
4.7 Reliance was also placed upon the decision of
the Hon'ble Supreme Court in case of
Employees Provident Fund Commissioner Versus
Official Liquidator of M/s.Esskay
Pharmaceuticals Limited5 wherein, in similar
(2011) 10 SCC 727
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situation, issue of priority of Section 11 of
the EPF Act vis-a-vis Section 529A(1) of the
Companies Act, 1956 was considered. It was
submitted that in paragraph Nos.42 and 43 of
the said judgment, the Apex Court has held as
under:
"[42]. It is also important to bear in
mind that even before the insertion of
proviso to Sections 529(1), 529(3) and
Section 529A and amendment of Section
530{1), all sums due to any employee from
a provident fund, a pension fund, a
gratuity fund or any other fund
established for welfare of the employees
were payable in priority to all other
debts in 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 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)
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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 the EPF
Act."
[43] At the cost of repetition, we would
emphasize that in terms of Section 530(1),
all revenues, taxes, cesses and rates due
from the company to the Central or State
Government or to a local authority, all
wages or salary or any employee, in
respect of the services rendered to the
company and due fora period not exceeding
4 months all accrued holiday remuneration
etc. and all sums due to any employee from
provident fund, a pension fund, a gratuity
fund or any other fund for the welfare of
the employees maintained by the company
are payable in priority to all other
debts. This provision existed when Section
11(2) was inserted in the EPF Act by Act
No. 40 of 1973 and any amount due from an
employer in respect of the employees'
contribution was declared first charge on
the assets of the establishment and became
payable in priority to all other debts.
However, while inserting Section 529A in
the Companies Act by Act No.35 of 1985
Parliament, in its wisdom, did not declare
the workmen's dues (this expression
includes various dues including provident
fund) as first charge. The effect of the
amendment made in the Companies Act in
1985 is only to expand the scope of the
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
dues of workmen and place them at par with
the debts due to secured creditors and
there is no reason to interpret this
amendment as giving priority to the debts
due to secured creditor over the dues of
provident fund payable by an employer. Of
course, after the amount due from an
employer under the EPF Act is paid, the
other dues of the workers will be treated
at par with the debts due to secured
creditors and payment thereof will be
regulated by the provisions contained in
Section 529(1) read with Section 529(3),
529A and 530 of the Companies Act." in the
Companies Act in 1985 is only to expand
the scope of the dues of workmen and place
them at par with the debts due to secured
creditors and there is no reason to
interpret this amendment as giving
priority to the debts due to secured
creditor over the dues of provident fund
payable by an employer. Of course, after
the amount due from an employer under the
EPF Act is paid, the other dues of the
workers will be treated at par with the
debts due to secured creditors and payment
thereof will be regulated by the
provisions contained in Section 929(1)
read with Section 529(3), 529A and 530 of
the Companies Act."
4.8 Reliance was also placed on the decision of
the Hon'ble Supreme Court in case of
Maharashtra State Co-operative Bank Limited
Versus APFC in Civil Appeal No.6893 of 2009
wherein it is observed as under:
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"As mentioned earlier, sub-section (2) was
inserted in Section 11 by Amendment Act
No.40 of 1973 with a view to ensure that
payment of PF dues of the workers are not
defeated by the prior claims of the
secured and/or of the unsecured creditors,
While enacting sub-section (2), the
legislature was conscious of the fact that
in terms of existing Section 11, priority
has been given to the amount due from an
employer in relation to an establishment
to which any scheme or fund is applicable
including damages recoverable under
Section 14B and accumulations required to
be transferred under Section 15/2. The
legislature was also aware that in case of
delay the employer is statutorily
responsible to pay interest in terms of
Section 7Q. Therefore, there is no
plausible reason to give a restricted
meaning to the expression 'any amount due
from the employer' and confine it to the
amount determined under Section 7A or the
contribution payable under Section 8. If
interest payable by the employer under
Section 7Q and damages leviable under
Section 14 are excluded from the ambit of
expression 'any amount due from an
employer', every employer will
conveniently refrain from paying PF
contribution and other dues and resist the
efforts of the concerned authorities to
recover the dues as arrears of land
revenue by contending that the movable or
immovable property of the establishment is
subject to other debts. Any such
interpretation would frustrate the object
of introducing the deeming provision and
non obstante clause in Section 11(2).
Therefore, contention of the Petitioner
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Bank cannot be accepted that the amount of
interest payable under Section 7Q and
damages leviable under Section 14B do not
form part of the amount due from an
employer for the purpose of Section 11(2)
of the EPF Act.
4.9 It was therefore submitted that the Apex
Court has made it abundantly clear that any
amount due from the employer should not be
given a constricted meaning so as to
suffocate the very purpose of the statute and
must invariably also mean to include interest
under Section 7Q and damages under Section
14B of the EPF Act.
4.10 Learned advocate Mr.Joshi invited the
attention of the Court to the provisions of
Section 36(4)(a)(iii) of the Insolvency &
Bankruptcy Code, 2016 to submit that the said
provision excludes the Provident Fund from
the liquidation estate and the same cannot be
recovered in the process of liquidation.
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4.11 It was therefore submitted that by virtue
of statutory provision of Section 11(2) of
the EPF Act, any amount due from the
establishment shall have priority over all
other debts and therefore the consideration
received by the petitioner-Bank from the
auction sale cannot be permitted to be
adjusted in priority of EPF dues against its
own debt applying provisions of Section 26E
of the Act.
4.12 Learned advocate Mr.Joshi in support of his
submission referred to and relied upon the
decision of the Allahabad High Court in case
of Kotak Mahindra Bank Limited & Another
Versus Union of India and Others6, wherein,
the Allahabad High Court has held that the
recovery of debts do not get primacy over
dues payable by the employer as under :
"26. The Supreme Court in Employees
AIR 2016 ALLAHABAD 29
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Provident Fund Commissioner v. Official
Liquidator of; Esskay Pharmaceuticals
Limited, 2011 (10) SCC 727 : (AIR 2012 SC
11) dealt with the question as to whether
" priority given to the dues payable by an
employer under Section 11 of E.P.F Act is
subject to section 529-A of the Companies
Act, 1956", the court observed that " it
is also important to bear in mind that
even before the insertion of proviso to
Sections 529(1), 529(3) and Section 529A
and amendment of Section 530(1), all sums
due to any employee from a provident fund,
a pension fund, a gratuity fund or any
other fund established for welfare of the
employees were payable in priority to all
other debts in 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. bye
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
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to an inference that Parliament intended
to create first charge in favour of the
cured creditors and give priority to the
debts due to secured creditors over the
amount due from the employer under the EPF
Act."
4.13 Reliance was also placed on the decision of
the Madras High Court in case of Authorised
Officer, Indian Oversus Bank Versus Employees
Provision Fund Organisation7, wherein it is
held as under :
"44. In the present case, the question is
regarding priority. Thus, the priority
must be given to the labourers in respect
of their Provident Fund and other dues to
be settled for the services rendered by
these labourers in the company in
liquidation."
4.14 Learned advocate Mr.Joshi has also referred
to the decision of the Rajasthan High Court
in case of GMG Engineers & Contractor Private
Limited Versus State of Rajasthan through
Principal Secretary, Commissioner, Sales Tax
2020(1) LLJ 107
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Department8 to submit that the different
legislations providing for the first charge
against the dues were considered by the Apex
Court in case of Central Bank of India which
was in reference to Workmen's Compensation
Act, Employees' Provident Fund Act, Excise
Duty Act and Companies Act, etc. and the
charge created by the EPF was considered in
priority. In the said decision, the Rajasthan
High Court has held as under:
"27. The different legislations providing
for first charge against the dues were
also considered by the Apex Court in the
case of Central Bank of India (supra). It
was in reference to Workmens' Compensation
Act, Employees' Provident Fund Act, Excise
Duty Act and Companies Act, etc. Therein
also, statutory first charge is provided
against the dues. The reference of those
enactments were given to make distinction
between priority rights of the secured
creditor vis a vis statutory first charge
on the property.
28. Learned Senior Counsel appearing for
the petitioner- company submits that
Section 26E of the amended Act gives
priority to the secured creditor against
2017 LawSuit (Raj) 1996
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all other debts and Government dues. In
view of the above, effect of first charge
gets nullified. I have considered the
aforesaid argument also and find that
Section 26E of the Act of 2002 gives
priority to the secured creditor. It
cannot be construed to nullify the
statutory first charge. If the intention
of Parliament would have been to nullify
statutory first charge then language of
the amended provision would have been as
provided in Workmens' Compensation Act,
Employees' Provident Fund Act, etc.
29. The State dues may be without a
provision of first charge and in that
situation, the secured creditors would have
priority over the State dues and,
accordingly, amended provision is to be
given interpretation. It cannot, however,
nullify a provision for first charge on the
property. The first charge on the property
creates (20 of 20) [CW-6872/2017] right
even as per the Act of 1882. It has already
been observed that if intention of the
Central Government was to nullify first
charge, the language of amended provision
would have been in the manner indicated by
the Apex Court in the case of Central Bank
of India (supra). It is otherwise a case
where attachment of the property in
pursuance of first charge of the State
Government is much prior to the amended Act
of 2002 and 1993 thus those amendments
would not apply even if subsequently
auction of the property was made. It is
nothing but auction of the property already
attached by the Government, that too, after
initiation of proceedings under the Act of
1956."
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5. Having heard the learned advocates for the
respective parties and having gone through
the material on record as well as the
decisions cited by both the sides, only
question which arises for consideration is
whether the respondent No.1-EPF Department
has a priority over the secured debts of the
petitioner Bank in view of the provisions of
Section 11(2) of the EPF Act vis-a-vis
Section 26E read with Section 35 of the
SARFAESI Act
6. It would therefore be germane to refer to
both the provisions which reads as under :
"Section 11 of the EPF Act :- Priority of
payment of contributions over other debts.
--(1)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 10[an
establishment] to which any 11[Scheme or
the Insurance Scheme] applies in respect
of any contribution payable to the Fund
12[or, as the case may be, the Insurance
Fund], damages recoverable under section
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14B, 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 the
Insurance Scheme]; or
(b) from the employer in relation to an
exempted [establishment] in respect of any
contribution to [the Provident Fund or any
Insurance Fund] (in so far it relates to
exempted employees), under the rules of
[the Provident Fund or any Insurance
Fund], [any contribution payable by him
towards the Family Pension Fund under sub-
section (6) of section 17, damages
recoverable under section 14B or any
charges payable by him to the appropriate
Government under any provision of this Act
or under any of the conditions specified
under section 17 shall, where the
liability thereof has accrued before the
order of adjudication or winding up is
made, be deemed to be included] among the
debts which under section 49 of the
Presidency-towns Insolvency Act, 1909 (3
of 1909), or under section 61 of the
Provincial Insolvency Act, 1920 (5 of
1920), or under [section 530 of the
Companies Act, 1956 (1 of 1956)], are to
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.
(2) Without prejudice to the provisions of
sub-section (1), if any amount is due from
an employer whether in respect of the
employee's contribution (deducted from the
wages of the employee) or the employer's
contribution], the amount so due shall be
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deemed to be the first charge on the
assets of the establishment, and shall,
notwithstanding anything contained in any
other law for the time being in force, be
paid in priority to all other debts.
Section 26E of the SARFAESI Act: -
Priority to secured creditors. --
Notwithstanding anything contained in any
other law for the time being in force,
after the registration of security
interest, the debts due to any secured
creditor shall be paid in priority over
all other debts and all revenues, taxes,
cesses and other rates payable to the
Central Government or State Government or
local authority.
Section 35 of the SARFAESI Act: - The
provisions of this Act to override other
laws.--The provisions of this Act shall
have effect, notwithstanding anything
inconsistent therewith contained in any
other law for the time being in force or
any instrument having effect by virtue of
any such law."
7. The question raised in this petition is
therefore required to be answered considering
the decision of the Division Bench of this
court in case of Kalupur Commercial Co-
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operative Bank Limited (Supra) as well as the
recent decision of the Apex Court in case of
Punjab National Bank (Supra) wherein, the
Courts have taken into consideration the
earlier decisions of Apex Court in cases of
Central Bank of India Versus State of Kerala
and Others9 and Employees Provident Fund
Commissioner Versus Official Liquidator of M/
s.Esskay Pharmaceuticals Limited (Supra)
which has bearing on the issues arising in
this petition.
8. The Division Bench of this Court in case of
Kalupur Commercial Co-operative Bank Limited
(Supra) with regard to non-obstante clause
appearing in the provision of Section 26E of
the SARFAESI Act after analysis of the
various decisions of the Apex Court has held
as under :
(2009) 4 SCC 94
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"21. A non-obstante clause is generally
appended to a section with a view to give
the enacting part of the section, in case
of conflict, an overriding effect over the
provision in the same or other Act
mentioned in the non-obstante clause. It
is equivalent to saying that inspite of
the provisions or Act mentioned in the
non-obstante clause, the provision
following it will have its full operation
or the provisions embraced in the non-
obstante clause will not be an impediment
for the operation of the enactment or the
provision in which the non- obstante
clause occurs. [See 'Principles of
Statutory Interpretation', 9th Edition by
Justice G.P. Singh Chapter V, Synopsis IV
at pages 318 & 319].
22. When two or more laws or provisions
operate in the same field and each
contains a non-obstante clause stating
that its provision will override those of
any other provisions or law, stimulating
and intricate problems of interpretation
arise. In resolving such problems of
interpretation, no settled principles can
be applied except to refer to the object
and purpose of each of the two provisions,
containing a non-obstante clause. Two
provisions in same Act each containing a
non-obstante clause, requires a harmonious
interpretation of the two seemingly
conflicting provisions in the same Act. In
this difficult exercise, there are
involved proper consideration of giving
effect to the object and purpose of two
provisions and the language employed in
each. [See for relevant discussion in para
20 in Shri Swaran Singh & Anr. v. Shri
Kasturi Lal; (1977) 1 SCC 750].
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23. Normally the use of the phrase by the
Legislature in a statutory provision like
'notwithstanding anything to the contrary
contained in this Act' is equivalent to
saying that the Act shall be no impediment
to the measure [See Law Lexicon words
'notwithstanding anything in this Act to
the contrary']. Use of such expression is
another way of saying that the provision
in which the non-obstante clause occurs
usually would prevail over the other
provisions in the Act. Thus, the non-
obstante clauses are not always to be
regarded as repealing clauses nor as
clauses which expressly or completely
supersede any other provision of the law,
but merely as clauses which remove all
obstructions which might arise out of the
provisions of any other law in the way of
the operation of the principle enacting
provision to which the non-obstante clause
is attached. [See Bipathumma & Ors. v.
Mariam Bibi; 1966(1) Mysore Law Journal
page 162, at page 165].
27. The principles discernible from the
decision of the Supreme Court in the case
of Kumaon Motor Owners' Union Ltd. (supra)
are that, if there is a conflict between
the provisions of the two Acts and if
there is nothing repugnant, the provisions
in the later Act would prevail. The second
principle discernible is that, while
resolving the conflict, the court must
look into the object behind the two
statutes. To put it in other words, what
necessitated the legislature to enact a
particular provision, later in point of
time, which may be in conflict with the
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provisions of the other Acts. The third
principle discernible is that the court
must look into the language of the
provisions. If the language of a
particular provision is found to be more
emphatic, the same would be indicative of
the intention of the legislature that the
Act shall prevail over the other statutes.
29. The principles of law discernible from
the decision of the Supreme Court in the
case of Solidaire India Ltd. (supra) are
that, if there is a conflict between the
two special Acts, the later Act must
prevail. To put it in other words, when
there are two special statutes which
contain the non-obstante clauses, the
later statute must prevail. This is
because at the time of enactment of the
later statute, the legislature could be
said to be aware of the earlier
legislation and its non-obstante clause.
If the legislature still confers the later
enactment with a non- obstante clause, it
means that the legislature wanted that
enactment to prevail.
30. We are conscious of the fact that in
the case on hand there is no conflict
between two special statutes enacted by
the Parliament. The conflict is with the
State Act and the Central Act. We are
trying to understand the true purport and
effect of Section 26E of the SARFAESI Act
which came to be enacted later in point of
time and also the effect of Section 31B of
the RDB Act which came to be enacted later
in point of time. In other words, what
necessitated the introduction of the two
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provisions in the two enactments and what
object the two provisions would subserve."
9. The Apex Court in case of Punjab National
Bank (Supra) considering the issue of
priority of the excise dues under the Central
Excise Act, 1944 and the applicability of
provisions of Section 26E read with Section
35 of the SARFAESI Act has held as under:
"43. In view of the above, we are of the
firm opinion that the arguments of the
learned counsel for the Appellant, on the
second issue, hold merit. Evidently, prior
to insertion of Section 11E in the Central
Excise Act, 1944 w.e.f. 08.04.2011, there
was no provision in the Act of 1944 inter
alia, providing for First Charge on the
property of the Assessee or any person
under the Act of 1944. Therefore, in the
event like in the present case, where the
land, building, plant machinery, etc. have
been mortgaged/hypothecated to a secured
creditor, having regard to the provisions
contained in section 2(zc) to (zf) of
SARFAESI Act, 2002, read with provisions
contained in Section 13 of the SARFAESI
Act, 2002, the Secured Creditor will have
a First Charge on the Secured Assets.
Moreover, section 35 of the SARFAESI Act,
2002 inter alia, provides that the
provisions of the SARFAESI Act, shall have
overriding effect on all other laws. It is
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further pertinent to note that even the
provisions contained in Section 11E of the
Central Excise Act, 1944 are subject to
the provisions contained in the SARFAESI
Act, 2002."
10. The Apex Court in case of Central Bank of
India (Supra) took the view that if the State
Act creates first charge over the property
then secured creditor cannot have the claim
against the statutory provisions by observing
as under :
"111. However, what is most significant to
be noted is that there is no provision in
either of these enactments by which first
charge has been created in favour of
banks, financial institutions or secured
creditors qua the property of the
borrower.
xxxx
116. The non obstante clauses contained in
Section 34(1) of the DRT Act and Section
35 of the Securitisation Act give
overriding effect to the provisions of
those Acts only if there is anything
inconsistent contained in any other law or
instrument having effect by virtue of any
other law. In other words, if there is no
provision in the other enactments which
are inconsistent with the DRT Act or
Securitisation Act, the provisions
contained in those Acts cannot override
other legislations. Section 38C of the
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Bombay Act and Section 26B of the Kerala
Act also contain non obstante clauses and
give statutory recognition to the priority
of State's charge over other debts, which
was recognized by Indian High Courts even
before 1950. In other words, these
sections and similar provisions contained
in other State legislations not only
create first charge on the property of the
dealer or any other person liable to pay
sales tax, etc. but also give them
overriding effect over other laws.
Xxxx
126. 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 9 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 127 126. 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 9 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
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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, the fact of the
matter is that no such provision has been
incorporated in either of these enactments
despite conferment of extraordinary power
upon the secured creditors to take
possession and dispose of the secured
assets without the intervention of the
court or Tribunal. The reason for this
omission appears to be that the new legal
regime envisages transfer of secured
assets to private companies.
127. The definition of "secured creditor"
includes securitisation/ reconstruction
company and any other trustee holding
securities on behalf of bank/financial
institution. The definition of
"securitisation company" and
"reconstruction company" in Sections 2(1)
(za) and (v) shows that these companies
may be private companies registered under
the Companies Act, 1956 and having a
certificate of registration from Reserve
Bank under section 3 of the Securitisation
Act. Evidently, Parliament did not intend
to give priority to the dues of private
creditors over sovereign debt of the
State.
xxxx
130. Undisputedly, the two enactments do
not contain provision similar to the
Workmen's Compensation Act, etc. In the
absence of any specific provision to that
effect, it is not possible to read any
conflict or inconsistency _or overlapping
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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.
131. 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-a-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 g
not made any such provision in either of
the enactments, the first charge created
by the State legislations on the property
of the dealer or any other person, liable
to pay sales tax, etc., cannot be
destroyed by implication or inference,
notwithstanding the fact that banks, etc.
fall in the category of secured
creditors."
11. It is true that the aforesaid decision of the
Central Bank of India (Supra) is prior to the
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amendment in the SARFAESI Act in
2016,however, while enacting the SARFAESI
Act, the Parliament was aware of the law laid
down by the Apex 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.
The Apex Court thereafter, proceeded to
observe that the fact of the matter is that
no such provision has been incorporated in
either of these enactments despite conferment
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of extraordinary power upon the secured
creditors to take possession and dispose of
the secured assets without the intervention
of the court or Tribunal.
12. In view of such observation, it appears that
the parliament has enacted Section 26E of the
SARFAESI Act which also start with a non-
obstante clause and in such circumstances,
the Division Bench of this court in case of
Kalupur Commercial Co-operative Bank Limited
(Supra) after analysing the various decisions
of the Apex Court on non-obstante clause, has
held that when there is a conflict between
the two legislations, if there is nothing
repugnant through provision, the later Act
prevails as held by the Supreme Court in case
of Kumaon Motor Owners' Union Limited and
another Versus State of Uttar Pradesh10 and in
case of Solidaire India Limited Versus
AIR 1966 SC 785
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Fairgrowth Financial Services Limited and
Others11 and while resolving the conflict, it
is held by the Apex Court that the Court must
look into the object behind the two statutes
meaning thereby, the legislator to enact a
particular provision, later in point of time,
which may be in conflict with the provisions
of the other Acts and thirdly, the Court must
look into the language of the provisions and
if language of a particular provision is
found to be more emphatic, the same would be
indicative of the intention of the
legislature that the Act shall prevail over
the other statutes.
13. In the cases of Kalupur Commercial Co-
operative Bank Limited (Supra) and Bank of
Baroda (Supra), this Court has considered the
priority of the State to recover the dues of
under Section 48 of the Gujarat Value Added
(2001) 3 SCC 71
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Tax Act,2003 ('VAT Act') vis-a-vis Section
26E of the of the SARFAESI Act and as the
provisions of Section 26E of the SARFAESI Act
was brought on statute later in point of time
in the year 2016 and that being a Central
Act, this Court held that the priority be
given to the provisions of Section 26E of the
Act as observed in paragraph No.34 of the
said decision as under:
"34. We are sure of one thing that there
exists no repugnancy in the two
legislations. The intention of the
Parliament could not be said to nullify
the State enactment providing the first
charge on the property. The legislations
have been made by the Central Government
and the State respectively under Entries I
and II of the Schedule and not of the
Concurrent List. The amendment made by the
Parliament is to give priority to the
secured creditors vis-a-vis the State dues
without speaking about the first charge.
This aspect was duly considered by the
Supreme Court in the case of Central Bank
of India (supra). The amended provision,
i.e. Section 26E of the SARFAESI Act and
Section 31B of the RDB Act, would have
been different as indicated by the Apex
Court in the case of Central Bank of India
(supra)"
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14. The Division Bench after considering the
decisions of the Rajasthan High Court in case
of GMG Engineers & Contractor Private
Limited (Supra) as well as the decision of
the Apex Court vis-a-vis Section 31B of the
RDB Act, 1993 in case of Centra Bank of India
(Supra), the decision of the Madhya Pradesh
High Court in case of Bank of Baroda Versus
Commissioner of Sales Tax, M.P., Indore12 and
Full Bench decision of the Madras High Court
in case of The Assistant Commissioner (CT)
Versus Indian Overseas Bank13 held as under:
"47. Thus, the dictum of law as laid by
the Supreme Court in the aforesaid
decision is that the State's preferential
right to the recovery of debts over other
creditors is confined to ordinary or
unsecured creditors. The Supreme Court
took the view that the Common Law of
England or the principles of equity and
good conscience (as applicable to India)
do not accord the Crown a preferential
right for the recovery of its debts over a
mortgagee or pledgee of the goods or a
secured creditor. It is true that
ultimately the bank was not granted any
(2018) 55 GSTR 210 (MP)
AIR 2017 Madras 67
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relief, but the same was not granted in
the peculiar facts of the case. Otherwise,
the principle of law as explained is very
clear. In no uncertain terms, the Supreme
Court held that the appellant, i.e. the
bank, was right in submitting that on the
date on which the State of Karnataka
proceeded to attach and sell the property
of the partners of the firm mortgaged with
the bank, it could not have appropriated
the sale proceeds to the sales-tax arrears
payable by the firm, thereby defeating the
bank's security. In taking such view, the
Supreme Court relied on its earlier
decision in the case of CST vs.
Radhakishan, (1979) 43 STC 4 : AIR 1979 SC
1588."
15. Therefore, the Division Bench as well as the
Apex Court were dealing with the situation
where the provisions of the respective State
Act or Central Act were in conflict with the
provisions of the Section 26E of the SARFAESI
Act. However, in the facts of the case,
Section 11(2) of the EPF Act provides that if
any amount is due from an employer in respect
of the PF dues, the due shall be deemed to be
the first charge on the assets of the
establishment and notwithstanding anything
contained in any other law, for the time
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being in force, be paid in priority to all
other debts meaning thereby that the dues of
the PF shall have the first charge on the
property and therefore, as observed by the
Apex Court in case of Centra Bank of India
(Supra), the purpose and intend of the
legislature is required to be looked into.
The first charge on the property vis-a-vis
the PF dues would be created moment there
would be a failure on the part of the
employer to deposit the PF dues. Therefore,
in the facts of the case, the decision relied
upon on behalf of the petitioner would not
apply so far as the outstanding dues of the
PF is concerned as in the facts of the case,
there is conflict between two Central Acts
namely EPF Act and the SARFAESI Act. In such
situation, the Hon'ble Supreme Court has laid
down in no uncertain terms that later Act
must prevail if there is nothing repugnant in
the later Act. The Apex Court in case of
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Kumaon Motor Owners' Union Limited (Supra) as
well as in case of Solidaire India Limited
(Supra) has laid down the principle that
while resolving conflict, the Court must look
into the object behind the two statutes. It
is therefore necessary to find out what
necessitated the legislature to enact a
particular provision, later in point of time,
which may be in conflict with the provisions
of other Acts. Considering the language of
the provision of Section 26E of the SARFAESI
Act, which has been brought on statute in the
year 2016, the object behind the same appears
to be to secure the debts due to any secured
creditor in priority over all other debts
including the revenues, taxes, cesses and all
other rates payable to the Central Government
or State Government or local authority
subject to provisions of Insolvency &
Bankruptcy Code, 2016. Similarly, Section 35
of the SARFAESI Act provides that the
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provisions of the SAEFAESI Act shall have
effect, notwithstanding anything inconsistent
therewith contained in any other law for the
time being in force or any instrument having
effect by virtue of any such law.
16. Considering provisions of section 26E of the
SARFAESI Act brought on statute later in
point of time, the language of Section 11(2)
of EPF Act is found to be more emphatic and
the same would be indicative of the intention
of the legislature to the effect that the EPF
Acts shall prevail over the other statutes to
secure the outstanding dues of the workers.
In this context, the observations made by the
Apex Court in case of Employees Provident
Fund Commissioner Versus Official Liquidator
of M/s.Esskay Pharmaceuticals Limited (Supra)
in paragraph no. 48 thereof are very clear to
the effect that the words "all other debts"
used in Section 11(2) of the EPF Act would
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necessarily include the debts due to secured
creditors like Banks, Financial Institutions,
etc. It is further observed by the Apex Court
that the mere ranking of the dues of workers
on par with debts due to secured creditors
cannot lead to an inference that parliament
intended to create first charge in favour of
the secured creditor over the amount due from
the employer under the EPF Act. In this
context the Apex Court has observed as under:
"49. At the cost of repetition, we
would emphasise that in terms of
Section 530(1), all revenues, taxes,
cesses and rates due from the company
to the Central or State Government or
to a local authority, all wages or
salary of any employee, in respect of
the services rendered to the company
and due for a period not exceeding 4
months, all accrued holiday
remuneration, etc. and all sums due to
any employee from a provident fund, a
pension fund, a gratuity ' fund or any
other fund for the welfare of the
employees maintained by the company are
payable in priority to all other debts.
This provision existed when Section
11(2) was inserted in the EPF Act by
Act 40 of 1973 and any amount due from
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an employer in respect of the
employees' contribution was declared
first charge on the assets of the
establishment and became payable f in
priority to all other debts. However,
while inserting Section 529-A in the
Companies Act by Act 35 of 1985
Parliament, in its wisdom, did not
declare the workmen's dues (this
expression includes various dues
including provident fund) as first
charge.
50. The effect of the amendment made in
the Companies Act in 1985 is only to
expand the scope of the dues of workmen
and place them on a par with the debts
due to secured creditors and there is
no reason to interpret this J amendment
as giving priority to the debts due to
secured creditor over the dues of
provident fund payable by an employer.
Of course, after the amount due from an
employer under the EPF Act is paid, the
other dues of the workers will be
treated on a par with the debts due to
secured creditors and payment thereof
will be regulated by the provisions
contained in Section . 529(1) read with
Sections 529(3), 529-A and 530 of the
Companies Act.
51. In view of what we have observed
above on the interpretation of Section
11 of the EPF Act and Sections 529,
529-A and 530 .of the Companies Act,
the judgment of the Division Bench of
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the Gujarat High Court, which turned on
the interpretation of Section 94 of the
Employees' State Insurance Act and
Sections 529-A and 530 of the Companies
Act and on which reliance has been
placed by the learned Company Judge and
the Division Bench of the High Court
while dismissing the applications filed
by the appellant, cannot be treated as
laying down the correct law."
17. In view of above dictum of law and
considering the language of Section 11(2) of
the EPF Act and the object behind the same
for the benefit of the workers and
considering the intention of the legislature,
the provisions of Section 11(2) shall prevail
over Section 26E of the SARFAESI Act. The
action of the respondent no.1 to recover the
outstanding dues with interest payable by the
respondent no.2 establishment from the
petitioner Bank was legal and justified as
per provision of section 11(2) of the EPF
Act.
C/SCA/754/2019 CAV JUDGMENT DATED: 30/09/2022
18. In view of the foregoing reasons, the
petition fails and is accordingly dismissed.
Rule is discharged. No orders as to cost.
(BHARGAV D. KARIA, J)
PALAK
