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A & F Overseas Trade Limited rep by its Managing Director v/s Regional Director & Others

Company & Directors' Information:- A & F OVERSEAS TRADE LIMITED [Active] CIN = U52321TN1984PLC010790

Company & Directors' Information:- A.T. TRADE OVERSEAS PRIVATE LIMITED [Active] CIN = U99999MH1997PTC110234

Company & Directors' Information:- TRADE INDIA OVERSEAS PRIVATE LIMITED [Strike Off] CIN = U51909GJ1994PTC022799

    W.P.NOs.8583, 8932 & 9072 of 2005 & W.P.M.P.Nos.9264, 9679 & 9855 of 2005

    Decided On, 12 January 2011

    At, High Court of Judicature at Madras


    For the Petitioners: R. Parthiban, Advocate. For the Respondent: A. Paramasivam, Advocate.

Judgment Text

(Prayer: W.P.Nos.8583, 8932 of 2005 are preferred under Article 226 of the Constitution of India praying for the issue of a writ of certiorarified mandamus to call for the records relating to the order of the second respondent in proceedings No.PDY/RECY/CP-1/55-13422-22/CCR Nos.1741, 1743 and 1744 dated 2.3.2005 respectively, to quash the same and consequently, to forbear the respondents from taking any steps to recover any amount pursuant to the said orders.)

1. The petitioner in these three writ petitions is one and the same Company. They have filed the present writ petition seeking to challenge the recovery notices issued by the respondent ESI Corporation, dated 2.3.2005 in respect of the contribution for the period from 1985-86 to 1999-2000, then 4/01 to 3/03, 4/04 and 5/04. In the notices, the petitioners were informed that in addition to the amount payable, they are also liable to pay interest under Section 39(5)(a) and other costs.

2. The first writ petition was admitted on 15.3.2005. Pending the writ petition, the court granted an interim injunction on the same day. The second writ petition was admitted on 17.3.2005 and the court granted an interim injunction on the same day. The third writ petition was admitted on 18.3.2005 and on the same day, an interim injunction was also granted.

3. On notice from this court, the respondents have filed a counter affidavit, dated 16.10.2006. The contention raised by the petitioner was that the petitioner's factory at Puducherry had become sick. A reference has been made under Sick Industries Companies Act to the BIFR. It was registered as case No.359/2000. The BIFR had appointed IDBI as an operating agency. The BIFR had also passed an order in respect of the ESI dues. In the further order, dated 8.7.2010, in which in paragraph 2.3, the objection of the ESI in granting stay for Rs.31 lakhs being an outstanding amount was also referred to. But the company's representative told BIFR that the company had a provision for DRS. Therefore, on the strength of this order, Mr.R.Parthiban, learned counsel for the petitioner submits that once the BIFR is seized of the matter, then Section 22 of the SICA gives a complete protection to the petitioner.

4. Opposing the stand of the petitioner, in the counter affidavit, it is stated that since the petitioner is disputing their liability under the ESI Act, they must file an appropriate petition under Section 75 before the ESI Court and the writ remedy is not available. On the question of application of BIFR and the so-called scheme framed by the BIFR, it is stated that Section 22 will not apply.

5. In the light of the rival contentions, it has to be seen whether the petitioner's stand is legally valid?

6. With reference to BIFR framing a scheme or appointing an operating agency, the impunity provided under Section 22 will not come into service of the employer automatically. The scope of Section 22 came to be considered by a Full Bench of this court in Gowri Spinning Mills (Private) Ltd., (rep. by Managing Director), Dharmapurai Vs. Assistant Provident Fund Commissioner, Salem and another reported in 2006 (4) LLN 441 wherein it was held in paragraphs 31 and 32 as follows:

31. In Poysha Inds.Co. Ltd. V. Collector, Ghaziabad, [1988 (79) FLR 167] (All), a learned single Judge of the Allahabad High Court held as follows: -

"In the present case the recovery related to claim for wages by the workmen. Admittedly, the petitioner-company has not terminated the relationship of master and servant between the company and its workmen. No case has been made out of lay-off and lock-out or retrenchment or closure. Therefore, so long relationship of master and servant between the company and its workmen continues, the employer is bound to pay wages to the workmen even if the employer for some reason does not feel inclined to get actually the work done by the workmen. In respect of such payment the employer cannot dispute its liability because of the sickness of the Unit or pendency of the scheme for rehabilitation. Therefore, I am of the opinion that the proceedings for recovery of such wages is not covered by Section 22 of the said Act of 1985. Relying on the principle laid down in the case of Shri Chamundi Mopeds Limited (supra), I find that in case of such proceeding no consent from the B.I.F.R is required. Contrary interpretation of law will result in compelling the present workmen to continue to discharge duties without any payment of wages and this also cannot be the intention of the legislature. If the purpose of the said Act of 1985 is to rehabilitate the company itself, the same cannot mean that the workmen are to be compelled to continue without payment of wages as workmen are important constituent of the industrial unit. The said Act cannot be interpreted to mean that it saves only the employer and not the employees. Such an interpretation will not only leave the workmen to starve but also will lead to slavery."

32. A Division Bench of the Karnataka High Court in the case of Indian Plywood Manufacturing Company Ltd. v. Commissioner of Labour and others, [2000 (2) L.L.N 677(Kar)], following the decision of the Allahabad High Court in the case of Modi Industries case [1999 (4) L.L.N. 892] (vide supra) held that the impugned notice and recovery certificate under Section 33(c) of the Industrial Disputes Act cannot be regarded as governed by Section 22(1) of the SICA. Similar is the view of the Uttranchal High Court in Uptron India Ltd. v. Presiding Officer, Labour Court [2004 -2-LLJ page 378] and that of the Madhya Pradesh High Court in Kedia Distilleries Ltd., Indore, and another v. General Secretary, Chhatisgarh Chemical Mill Majdoor Sangh, Rajnandgaon, and others [2000 (4) L.L.N. 473]."

7. The Supreme Court vide its judgment in Maharashtra State Cooperative Bank Limited Vs. Assistant Provident Fund Commissioner and others reported in 2009 (10) SCC 123 while considering the non obstante clause under Section 11(2) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, it was held in paragraphs 31 and 32 as follows:

"31. We shall now consider the question whether the provision contained in Section 11(2) of the Act operates against other debts like mortgage, pledge, etc. Answer to this question is clearly discernible from the plain language of Section 11. The priority given to the dues of provident fund, etc. in Section 11 is not hedged with any limitation or condition. Rather, a bare reading of the section makes it clear that the amount due is required to be paid in priority to all other debts. Any doubt on the width and scope of Section 11 qua other debts is removed by the use of expression "all other debts" in both the sub-sections. This would mean that the priority clause enshrined in Section 11 will operate against statutory as well as non-statutory and secured as well as unsecured debts including a mortgage or pledge. Sub-section (2) was designedly inserted in the Act for ensuring that the provident fund dues of the workers are not defeated by prior claims of secured or unsecured creditors. This is the reason why the legislature took care to declare that irrespective of time when a debt is created in respect of the assets of the establishment, the dues payable under the Act would always remain first charge and shall be paid first out of the assets of the establishment notwithstanding anything contained in any other law for the time being in force. It is, therefore, reasonable to take the view that the statutory first charge created on the assets of the establishment by sub-section (2) of Section 11 and priority given to the payment of any amount due from an employer will operate against all types of debts.

32. The view we have taken on the interpretation of Section 11 (2) is in tune with a series of decisions of this Court in which the provisions contained in different statutes giving priority to the dues of the State and workers have been interpreted. In the first place, we may refer to some decisions relating to dues of the State."*

The provision under Section 94 of the ESI Act is similar to that of Section 11(2) of the EPF Act. Therefore, the reasoning found in Maharashtra State Cooperative Bank Limited Case will squarely apply to the case on hand.

8. Further, the Supreme Court had also made a distinction between the statutory dues and dues to be recovered in terms of a contract, vide its judgment in relation to Kerala Sales Tax Act in Central Bank of India Vs. State of Kerala and others reported in 2009 (4) SCC 94. The following passages found in paragraphs 127 to 129 may be usefully extracted below:

"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.

128. If the provisions of the DRT Act and the Securitisation Act are interpreted keeping in view the background and context in which these legislations were enacted and the purpose sought to be achieved by their enactment, it becomes clear that the two legislations, are intended to create a new dispensation for expeditious recovery of dues of banks, financial institutions and secured creditors and adjudication of the grievance made by any aggrieved person qua the proced

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ure adopted by the banks, financial institutions and other secured creditors, but the provisions contained therein cannot be read as creating first charge in favour of banks, etc. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14-A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, and Section 529-A of the Companies Act, 1956 would have been incorporation in the DRT Act and the Securitisation Act." 9. In the light of the above, the contentions raised by the petitioner does not stand scrutiny of law. Hence all the three writ petitions must fail. Accordingly, All the three writ petitions will stand dismissed. However, there will be no order as to costs. Consequently, connected miscellaneous petitions stand closed.