M/S.Le Meridien vs 4 M/S.Sohan Singh Hotels Ltd
2023 Latest Caselaw 6591 Mad

                                                                                 W.P.No.30200 of 2013

                                    IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                DATED :        20.06.2023

                                                        CORAM :

                                  THE HONOURABLE MR.JUSTICE V. LAKSHMINARAYANAN

                                            Writ Petition No.30200 of 2013
                                                 and M.P.No.1 of 2013

                     M/s.Le Meridien
                     Owned By M/s.Appu Hotels Ltd.
                     762 Avinashi Road Neelambur
                     Coimbatore 641 062
                     Rep. By Its Director - Human Resources.                    ….     Petitioner

                                                             -Vs-

                     1 The Recovery Officer
                       Employees Provident Funds Organisation
                       Regional Office Bhavishya Nidhi Bhavan
                       Dr.Balasundaram Road Coimbatore 641 018

                     2 M/s.Tourism Finance Corporation
                       Of India Ltd. 13th Floor IFCI Tower
                       61 Nehru Place New Delhi 110 019

                     3 The Recovery Officer
                       Office Of The Recovery Officer
                       Debts Recovery Tribunal I, Delhi Sanskriti Bhawan
                       D B Gupta Road Jhandewalan
                       New Delhi 110 055

                     4 M/s.Sohan Singh Hotels Ltd.
                       Hotel Sohan Regency Plot No.26 Devi
                       Apartments 31 Krishnaswamy Mudaliar Road
                       Coimbatore 641 001.                                      ….     Respondents



                     Prayer : Writ Petition under Article 226 of the Constitution of India praying for

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                                                                                      W.P.No.30200 of 2013

                     the issuance of a Writ of to call for the records of the 1st respondent in
                     proceedings No.TN/ RO-CBE/ RECOVERY/ CC-16/ 34334/ 2013 and quash the
                     notice dated 29.10.2013.


                                        For Petitioner     : Mr.Anand Gopalan
                                                             for M/s.T.S.Gopalan and Co.,
                                        For Respondents    : Mrs.R.Meenakshi, Standing Counsel – for R1
                                                             Mr.V.Suresh – for R2
                                                             R3 – Tribunal
                                                             R4 – No appearance

                                                             ORDER

Here is an interesting case, whereby the original borrower establishment

has been left out and the litigation is now continued for the dues of the said

establishment.

2. M/s.Sohan Singh Hotels Ltd., was owner of the property in Coimbatore.

In order to develop its hotel business, the establishment had taken a loan from

M/s.Tourism Finance Corporation Limited, New Delhi. The establishment was not

able to run the hotel and therefore it went into financial distress. As a creditor /

mortgagee of the assets in Coimbatore, M/s.Tourism Finance Corporation Limited

(hereinafter referred to as 'mortgagee') approached the Debts Recovery Tribunal

(DRT) in New Delhi for sale of the assets. The proceedings initiated in O.A.No.78

of 2000 ended in favour of the mortgagee. The DRT-I in New Delhi granted a

certificate for recovery of a sum of Rs.6,85,62,267/-. Despite the issuance of the

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recovery certificate, the establishment did not pay the amount. Therefore, the

recovery certificate was put into execution and a sum of Rs.14,70,13,567/- was

claimed due as on 15.01.2004. This was as per proceedings in R.C.No.174 of

2002. Had the mortgagee not done anything further, this litigation itself would

not have arisen.

3. In its desire to recover the money on the basis of the recovery

certificate, the mortgagee brought the property for auction. The mortgagee

approached the Recovery Officer, DRT-I, seeking permission for sale under the

Second Schedule of the Income Tax Rules, 1961.

4. In response to the publication made by the mortgagee, four institutions

objected to the dues (i) Municipal Corporation of Coimbatore to the tune of

Rs.6,27,000/- (ii) Tamil Nadu Electricity Board – Rs.4,62,260/- (iii) Employees

Provident Fund (EPF) – Rs.20,57,815/-, and (iv) BSNL for Rs.1,39,293/-. None of

these authorities had taken steps to file an application as required under Rule 11

of the Income Tax Rules. The mortgagee further muddled the waters by

mentioning the name of the creditors, but went on to say that the aforesaid

departments had only intimated on dues on the property. The curious turn in

the publication is, it specifically states as follows:

“In response to notice issued by the undersigned to various

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departments regarding dues on the property proposed to be auctioned, the following departments have intimated dues on property.

(i) Municipal Corporation due Rs.6,27,000/- upto 29.03.2004

(ii) Tamil Nadu Electricity Board dues Rs.4,62,260/- as per letter

dated 24.12.2002.

(iii)Employee Provident Funds due Rs.20,57,815/- as per letter

dated 26.03.2003.

(iv)Bharat Sanchar Nigam dues of Rs.1,39,293/- upto

01.04.2002.

This fact may be included in the sale proclamation for the

knowledge of prospective buyer.”

5. Thereafter, the matter came up before the DRT for proclamation of sale

as required under Rule 38 and 52(2) of the Second Schedule of the Income Tax

Rules read with Debts Recovery Tribunals Act of 1993. In this publication, the

DRT had stated “ The sale will be of the property of the defendant above named

as mentioned in the schedule below and the liabilities and claims attached to the

said property so far as they have been ascertained are those specified in the

Schedule against each lot.” It was also published that the sale of the property is

on “AS IS WHERE IS BASIS”.

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6. Under the Schedule, the liabilities as aforesaid were merely set forth

but there is nothing on record to show that it had been ascertained before the

Recovery Officer / RO. When the position remained so, the petitioner, pursuant

to the advertisements made in the leading dailies, participated in the auction. In

the auction, the property was knocked down in favour of the writ petitioner. The

property was sold for a sum of Rs.5,15,50,000/-. The EPF authorities were also

casual in their approach. They did not file any claim as required under Rule 11

of the Second Schedule of the Income Tax Rules, 1961. Treating the company

as if it had been wound up, the EPF authorities filed an application was filed

under Form-66. This has created the entire confusion and has led to this

litigation.

7. In its anxiety to take over the entire amount deposited by the auction

purchaser, the mortgagee took a stand before the DRT that no proper claim by

way of any application was filed by any of the aforesaid parties. The DRT took

cognizance of the position of the mortgagee and agreed with it. It passed the

following order.

“ After perusal of all relevant records and hearing argument, it is clear that details of these dues were received in DRT-I in response to notice under Rule 53 through letters. No proper claim through any application was filed by any of the parties.

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Concerned authorities never appeared to put forward their views on these issues. These issues are being decided on the basis of record and arguments of CHFI and auction purchaser. It is clear from above discussion that Electricity dues and Bharat Sanchar dues are result of a contract between a service provider and service seeker and these dues are not charge on mortgaged property, so they are neither to be paid by auction purchaser not to be paid from sale proceeds. Claimants may take steps for recovery of their dues against appropriate party at appropriate forums. As regards the issue of payment of Employees Provident Fund dues, in the absence of full facts from relevant party contention of CHFI appears to be correct and auction purchaser is not liable to pay these dues.”

CHFI means Certificate Holder Financial Institution, who is referred to in this order as 'mortgagee'.

8. The direction of the DRT was that the mortgagee is responsible only

insofar as municipal dues are concerned and that the dues of BSNL, EPF and the

Electricity Board, not having been proved, the mortgagee and the writ petitioner

are not liable. Feeling aggrieved over the fact that out of the amount which it

has received from the auction, it has to share the same with the municipal

corporation, the mortgagee filed an appeal before the DRT in Application No.23

of 2005.

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9. The DRT came to a further conclusion that it was in agreement with the

view of the Recovery Officer and that the order of the Recovery Officer does not

suffer from any illegality and therefore, confirmed the appeal. It is pertinent to

point out that the appeal was preferred only by the mortgagee, in which the

auction purchaser, other bidders as well as the mortgagee were parties.

10. Taking it up further before the Debts Recovery Appellate Tribunal

(DRAT) in New Delhi in Application No.50 of 2007, the DRAT reversed the order

of the DRT and the Recovery Officer and came to a conclusion that the

mortgagee is not responsible for any of the dues including the municipal dues

and allowed the appeal. The said order has become final.

11. During the proceedings before the Recovery Officer, DRT or before

DRAT, the EPF authorities did not move a little finger to get themselves

impleaded and fight for their rights. The curious fact is that Hamlet was played

without the Prince of Denmark. The authorities under the Recovery of Debts

due to Banks and Financial Institution Act, 1993 did not include EPF. This put

both the writ petitioner as well as the mortgagee in a cosier position. The

auction purchaser got the property and had started developing the same. The

mortgagee got the money and was happy with it. Nothing would have

happened, but for the present impugned order.

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12. Like Rip Van Winkle, the EPF authorities woke up from their deep

slumber and passed the impugned order. They made a claim, which they ought

to have made before the DRT, by way of the impugned order. As per the

impugned order, they directed payment of dues by the auction purchaser for the

dues payable by the mortgagor [M/s.Sohan Singh Hotels Limited] and claimed

that the writ petitioner will have to satisfy the same. The writ petitioner has

immediately approached this Court and has obtained orders of stay.

13. Irony in this case is that the property was sold sometime in 2005 and

despite being aware of the same, EPF authorities brought forth attachment only

in the year 2012. It escapes one's understanding as to how a property can be

attached, when the establishment due to which the dues came about, was not

the owner of the property on the date of attachment.

15. Ms.Meenakshi, learned counsel for the EPF would submit that under

Section 11(2) of the EPF Act, the EPF authorities have a first charge. There can

be no doubt on this proposition. Amongst the creditors, EPF dues stand first.

But, this Court has to interpret the first charge as to mean only the right of EPF

over other creditors and not over the properties of the auction purchaser.

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16. Mr.Anand Goplan would submit that Section 17B of the EPF Act cannot

be invoked and, last but not the least, he would point out that the hierarchy of

Courts viz., Recovery Officer, DRT and DRAT have passed orders in his favour

and the EPF cannot ignore the same and pass the impugned order.

17. I am entirely in agreement with Mr.Anand Gopalan that Section 17(b)

cannot be invoked in the present case because, there has not been 'transfer of

establishment', but there has only been 'transfer of assets'. This issue is no

longer res integra and I would refer to the judgment of this Court in Sri

Angappa Spinning Mills and Others -vs- Regional Commissioner,

Employees Provident Fund, Tamil Nadu and Pondicherry reported in

(1986) 1 MLJ 386 equivalent to (1987) 1 LLN 586.

18. Insofar as the argument that the orders of Recovery Officer, DRT and

DRAT are in his favour is concerned, a perusal of the orders of the respective

authorities show that the submission of Mr.Anand Gopalan is correct. It cannot

be controverted by Mr.V.Suresh, representing M/s.Sivakumar and Suresh,

learned counsel for the 2nd respondent. In fact it was the morgagee who had

successfully convinced the Recovery Officer that EPF dues need not be paid

because, EPF authorities had not filed appropriate claim in the appropriate

manner. There cannot be any doubt with the proposition laid down by Mr.Anand

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Gopalan and Mr.Suresh. It is very clear that the EPF authorities did not file any

application or claim under Rule 11 in order to substantiate their case. As already

pointed out, they surprisingly took a stand as if M/s.Sohan Singh Hotels Limited

has been wound up and ended up filing an application under Form 66 of the

Company Court Rules, which is absolutely inapplicable in the case of DRT

proceedings. Therefore, it was in those circumstances that the hierarchy of

authorities in the previous proceedings came to a conclusion that the EPF claims

did not deserve any consideration.

19. Mrs.R.Meenakshi, learned Standing Counsel appearing for the first

respondent EPF would submit on the basis of Maharashtra State Cooperative

Bank Limited -Vs- Employees Provident Fund Organization and Others

reported in (2009) 10 SCC 123, in particular referring to paragraphs 68 and

69, that the dues of EPF will have priority over a secured creditor viz., Tourism

Finance Corporation Limited (mortgagee).

20. The law having been laid down by the Supreme Court, there is no

question of any quarrel with the same. However, this argument should have

been taken by the EPF authorities at the time the matter was being agitated

before the DRT. They cannot arrogate to themselves the power of deciding

priority of claims when they had volunteered and submitted to the jurisdiction of

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the authorities under the DRT. Having submitted to the jurisdiction of the DRT,

they ought to have taken steps and filed the forms under Rule 11. Having failed

to do so, they cannot arrogate to themselves the power to ignore the orders

passed by the authorities under a duly constituted Parliamentary Statute and try

to nullify the same. They had missed the bus in Delhi and cannot attempt to

board the same in Coimbatore.

21. Had that been the end of the story, I could have simply allowed the

writ petition and could have be done with it. However, I have to take note of the

fact that the dues belong to the workmen, who were neither heard nor their

claims were considered by the Tribunal under the DRT Act. I cannot at the same

time, permit the authority who had submitted to the jurisdiction of the Tribunal

created under Debts Recovery Act to ignore the orders and proceed further. It is

well settled that any order which voidable has to be set aside in a manner known

to law. The order passed by DRT as if it was passed by a Civil Court. Article 261

of the Constitution of India, dealing with Public Acts, Records and Judicial

Proceedings provides that full faith and credit shall be given to the judicial

proceedings by every authority throughout the territory of India. Therefore, the

order passed by the authorities under the DRT Act deserve respect and cannot

be ignored by any statutory authority, especially when that statutory authority

has submitted to the jurisdiction of the former.

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22. On these reasons, I set aside the order passed by the EPF authorities

in Proceedings No.TN/RO-CBE/RECOVERY/CC-16/34334/2013 dated 29.10.2013.

The writ petition stands allowed. No costs. Consequently, connected

miscellaneous petition is closed.

23. While I allow the writ petition, I grant liberty to the EPF authorities to

approach the DRT to take appropriate proceedings, as they may be advised, in

order to work out their claims. I should also point out that I am giving liberty to

the EPF authorities to approach the DRT to work out their claims not only under

Article 261 of the Constitution of India and since they submitted to the

jurisdiction of the DRT authorities, but also since their claims seems to have

been vascillating as the shifting sands of Sahara; when they issued the notice

their claim was Rs.20,57,815/- and when they filed counter before this Court,

their claim drastically came down to Rs.9,66,425/-. Reserving the above liberty

to EPF authorities, the writ petition is allowed.

20.06.2023

Index : Yes/No Neutral Citation : Yes/No Speaking Order / Non-speaking order KST

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To

1 The Recovery Officer Employees Provident Funds Organisation Regional Office Bhavishya Nidhi Bhavan Dr.Balasundaram Road Coimbatore 641 018

2 M/s.Tourism Finance Corporation Of India Ltd. 13th Floor IFCI Tower 61 Nehru Place New Delhi 110 019

3 The Recovery Officer Office Of The Recovery Officer Debts Recovery Tribunal I, Delhi Sanskriti Bhawan D B Gupta Road Jhandewalan New Delhi 110 055

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V. LAKSHMINARAYANAN, J.

KST

W.P.No. 30200 of 2013

20.06.2023

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