K.T.SANKARAN,J M/s. Lekshmi Enterprises, Kollam was an establishment coming under the Employees Provident Fund and Miscellaneous Provisions Act. That establishment took loan from ING Vysya Bank Ltd and several items of properties belonging to the establishment, its partners and guarantor were mortgaged to the bank. The account maintained by ING Vysya Bank became NPA account. The Bank initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (In short, 'SARFAESI Act'). Certain items of properties belonging to the establishment were sold under the provisions of the SARFAESI Act and were purchased by four persons, viz, Mathewkutty, Salahuddin, Suphiqur Ahamed and Anil Kumar (hereinafter referred to as the 'Auction Purchasers'). 2. Meanwhile, the Employees Provident Fund (EPF) Organization initiated proceedings under Section 7(A) of the Employees Provident Fund Act (hereinafter referred to as 'EPF Act') against the establishment. Assessment orders were passed and those orders are said to have become final. The EPF organization imposed interest under Section 7(Q) and damages under Section 14B of the EPF Act. According to the EPF organization, the arrears due from the establishment as on 15.3.2011 were Rs.7,47,94,923/-. EPF organization initiated proceedings for realisation of the amounts due from the Employer's establishment and its properties. At that juncture, apprehending that the properties purchased by the purchasers in auction might also be proceeded against by the EPF organization, the auction purchasers approached this court in WP(C)Nos. 1127, 1132,1133 and 8137 of 2009. All the affected parties were impleaded in those writ petitions. It was contended by the purchasers that they were bonafide purchasers and the first charge available to EPF organization should not be extended to the properties purchased by them. It was also contended by the purchasers that at best, EPF organization could proceed against the bank to realise the purchase price in the auction under the SARFAESI Act.
3. The learned Single Judge disposed of WP(C) Nos.1127, 1132, 1133 and 8137 of 2009 by a common judgment dated 28.3.2011, holding that the interests of the auction purchasers should be protected to the extent possible, since they were bonafide purchasers. Learned Single Judge also recognised the first charge available in favour of the EPF organization. During the course of hearing, the bank made an offer that an extent of 52.57 ares in Sasthamcotta Village which belonged to the establishment and/or its partners could be made available for sale by the EPF organization and the bank was prepared to surrender their rights in those properties in favour of the EPF organization. That offer was accepted by the learned Single Judge in spite of the opposition made by Lekshmi Enterprises, the establishment. The offer made by the Bank was acceptable to the Provident Fund Organisation as well subject to the condition that they should be permitted to recover the shortfall from the purchase price available with the Bank. The learned Single Judge held that it was not necessary to consider the rights of the establishment and its partners under the Employees Provident Fund and Miscellaneous Provisions Act as against the EPF organization. The learned Single Judge held that for the purpose of disposal of the writ petitions, it was sufficient to consider the rights as between the bank as mortgagee on the one hand and the EPF organization on the other. The learned Single Judge held that it would not be just and proper to upset the auction sale in favour of the writ petitioners and the interests of EPF organization could be protected by recognizing the right to proceed against the purchase price with the bank, in case the EPF dues are not realised by the sale of 52.57 ares offered to be surrendered by the bank in favour of EPF organization. Accordingly, learned Single Judge disposed of the writ petitions with the following directions.
“ Accordingly, these writ petitions are disposed of as follows:-
1. It is declared that the Provident Fund Organization does not have any right to proceed against the properties purchased by the petitioners in proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, in sale proceedings initiated by the Bank.
2. It is declared that the rights of the Provident Fund Organisation in exercise of their statutory first charge in respect of the properties is only to proceed against the sale price obtained by the Bank by sale of the said properties in favour of the petitioners in these writ petitions.
3. Accordingly, it is declared that the petitioners hold the properties free from all encumbrances created by the owner of the properties in favour of the Bank and the statutory first charge in favour of the Provident Fund Organisation.
4. The Bank shall surrender their mortgage rights on 52.57 ares of land ( made up of 31.97 ares in Re.Sy No.60/7-1 (old Sy.No.572/4) and 20.60 ares in Re.Sy No.60/3 (old Sy No.572/AB)] of Sasthamkotta Village, Kunnathur Taluk, belonging to Shri.Radhakrishna Pillai together with the cashew factory and machinery thereon covered by sale deed Nos.515/990 and 1967/97 of Sasthamkotta Sub Registrar's Office, in favour of the Provident Fund Organisation. This shall done within two weeks.
5. On getting surrender of the properties, the Provident Fund Organisation shall take steps to sell the properties by public auction or by inviting tenders. The Bank shall be informed about every step taken by the Provident Fund Organisation for sale of the said properties. The Provident Fund Organisation shall take into account every reasonable suggestion made by the bank in respect of such sale for realizing the best possible price for the properties. Notice regarding sale of the property shall be issued to M/s. Lekshmi Enterprises and, the owner of the property. Purchasers in such sale would have all the rights of purchasers who purchase land in a sale in exercise of powers of the Bank under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act.
6. After the sale of the properties, if the sale proceeds realised are in excess of the dues of the Provident Fund Organisation, the balance amount realised shall be handed over to the Bank, who shall credit the same to the loan account of the mortgagee. If the sale price realised is not sufficient to cover the balance dues of the Provident Fund Organisation, it would be open to the Provident Fund Organisation to proceed against, either the sale price with the Bank by sale of the properties, which is the subject matter of these writ petitions, or against other properties belonging to the defaulter establishment or its partners.
7. The Provident Fund Organisation shall complete the sale proceedings as directed above within a period of three months from the date of receipt of a copy of this judgment. I make it clear that, it is without prejudice to the right of the establishment and its partners to challenge the quantum fixed by the Provident Fund Organisation, as amounts due from them, in accordance with law”.
4. Learned counsel appearing for the EPF organization submitted that though the establishment, viz Lekshmi Enterprises challenged the judgment of the learned Single Judge in writ appeals, those writ appeals were dismissed at the admission stage. The present writ appeals are filed by the bank challenging the judgment of the learned Single Judge.
5. Sri K.K.John, the learned counsel appearing for the Bank submitted two points for consideration.
(1) The EPF arrears due and which is sought to be realised by the EPF organization takes in interest under Section 7(Q) and damages under Section 14B of the EPF Act. Under Section 11(2) of the EPF Act, the first charge is in respect of only the amount due from the employer whether in respect of Employees contribution (deducted from the wages of the employee) or the employers contribution and it does not include interest under Section 7(Q) or damages under Section 14B of the Act.
(2) An extent of 32.10 ares in R.S.No.275/4-2, 18; 275/4-
1 and 275/8-2 of Pooyappalli Village does not belong to the establishment but it belongs to Shimy, the guarantor to the bank. Therefore, the EPF arrears which becomes a first charge under Section 11(2) of the EPF Act could not be made a charge on the property belonging to Shimy since she is neither a defaulter nor an establishment nor a partner.
6. The learned counsel appearing for the EPF organization submitted that the first submission made by the learned counsel for the appellant is unsustainable. In Maharashtra State Co-operative Bank Ltd V. Assistant Provident Fund Commissioner and Others (2009(10)SCC 123), Supreme Court considered the ambit of Section 11(2) of the EPF Act with particular reference to the expression, “amount due” occuring therein and held as follows:-
“67. The expression “ any amount due from an employer” appearing in sub-section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub- section (1) of Section 11 and Sections 7-A, 7-Q, 14-B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the madate of Section 7-Q. Likewise, default on the employer's part to pay any contribution to the Fund can visit him with the consequence of levy of damages.
68. As mentioned earlier, sub-section (2) was inserted in Section 11 by Amendment Act 40 of 1973 with a view to ensure that payment of provident fund 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 14-B 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 17. 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 7-A or the contribution payable under Section 8.
69. If interest payable by the employer under Section 7-Q and damages leviable under Section 14( sic Section 14-B)are excluded from the ambit of expression “any amount due from an employer”, every employer will conveniently refrain from paying contribution to the Fund and other dues and resist the efforts of the authorities concerned 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, it is not possible to agree with the learned Senior Counsel for the appellant Bank that the amount of interest payable under Section 7-Q and damages leviable under Section 14-B do not form part of the amount due from an employer for the purpose of Section 11(2) of the Act”.
7. In view of the decision of the Supreme Court in 2009(10) SCC 123, the aforesaid contention put forward by the appellant is not sustainable.
8. The second submission made, if correct, requires acceptance. To consider the contention as to whether the property having an extent of 32.10 ares belonged to Shimy and whether Shimy is having only the capacity of a guarantor, it is necessary to have an adjudication on facts. Normally, it would not be possible to undertake such an adjudication involving disputed questions of fact in a writ petition. It would be sufficient to observe that the appellant bank would be entitled to raise this contention before the EPF organization and EPF organization is bound to consider this objection before proceeding with the sale of the said item. It is submitted that the extent of 32.10 ares of property belonging to Shimy was sold in auction under the SARFAESI Act and it was purchased by D.Mathukutty, the petitioner in WP(C) 1127 of 2009 (from which W.A.1188/2011 arose). The question whether the extent of 32.10 ares of land belonged to Shimy would assume importance only when the EPF organization were to proceed against the money in the possession of the bank out of proceeds of the auction sale. If that course of action becomes necessary, EPF organization shall issue notice to the bank, hear them and take a final decision in that matter after affording a meaningful and real opportunity to the bank to put forward relevant evidence.
9. Learned counsel appearing for the appellant also submitted that the bank may be afforded an opportunity to make a claim/submit a petition before the EPF organization to reduce the damages under Section 14B of the EPF Act. We are of the view that in the peculiar facts and circumstances of the case, the bank should be given an opportunity to do so and we accept this submission.
The writ appeals are allowed to the above extent and disposed of as above.
K.T.SANKARAN, JUDGE P.D.RAJAN, JUDGE lgk