The present applications have been filed on behalf of the regional Provident Fund Commissioner, Sub-Regional Office Ambattur, Tamil Nadu. While E.A. T 88/2004 is filed under Order 1, Rule 10, C.P for seeking impleadment in the present proceedings, E.A. No. 89/2004 is filed under Order 38, Rule 4, C.P.C. praying inter alia setting aside the orders dated September 2, 2002 and February 10, 2003, passed in the present proceedings. Both the aforesaid applications are proposed to be disposed of by this common order.
2. Before embarking on the submissions made by the parties, it is relevant to cull out the brief facts relevant to dispose of the aforesaid applications.
3. The decree holder has filed the present petition against the judgment debtor for execution of a decree dated April 26, 2001 passed in CS (OS) No. 240/2001, which was based on a compromise arrived at between the parties and reduced into writing by way of a compromise application. It was recorded in the compromise application filed jointly by the decree holder and the judgment debtor that as on March 30, 2001, a sum of Rs. 25 lakhs was due and payable to the decree holder, by the judgment debtor. It was also confirmed by the judgment debtor that as on March 30, 2001, a sum of Rs. 19.74 lakhs was due and payable to it by Maruti Udyog Limited (hereinafter in short referred to as `the MUL') defendant No. 2, therein, and the judgment debtor agreed to clear the admitted dues of Rs. 25 lakhs to the decree holder in the following manner:
"That defendant No. 1 now agrees to make payment of the aforementioned amount to KMECCO in the following mode and manner:
That the plaintiff shall be entitled to receive a sum of Rs. 15.5 lacs out of a sum of Rs. 19.74 lacs as detailed in Clause `A' directly from MUL the defendant No. 2 on the account of defendant No. 1.
(ii) That IAEC, the defendant No. 1 shall be entitled to receive the balance sum of Rs. 4.24 lacs from defendant No. 2.
(ii) That defendant No. 1 further agrees that the plaintiff will be entitled to receive directly from the defendant No. 2 a sum of Rs. 9.5 lacs on account of defendant No. 1 out of the balance payment, if any, as and when found due and/or payable to defendant No. 1 by defendant No. 2 under P.O. No. MUL: PE : EMUL : BLRIII/MOD/1089 dated March 19, 1999. In case final due and/or payable amount from defendant No.2 to defendant No. 1 is found to be less than Rs. 9.5 lacs, plaintiff will receive and accept such less due and payable amount by defendant No. 2 from the account of defendant No. 1 and satisfy the claim of the plaintiff against the defendant No. 1"
4. It is stated by the counsel for the decree holder that it had received a sum of Rs. 15.5 lakhs from MUL in part satisfaction of the decree, thus leaving a balance amount of Rs. 9.5 lakhs which was sought to be recovered from MUL by means of issuance of warrants of attachment, as the said amount was liable to be paid by MUL to the judgment debtor against purchase order dated March 19, 1999.
5. Vide order dated March 22, 2002, warrants of attachment were issued to MUL for attaching the amount of Rs. 9.5 lakhs stated to be due from it to the judgment debtor, for remittance to this Court. Appearance was entered on behalf of MUL on April 15, 2002 and it was stated that as on March 19, 2002, the total amount payable by MUL to the judgment debtor, was Rs. 8,63,993/- and that out of the said amount, the Provident Fund Commissioner had already attached a sum of Rs. 7,45,682.10/-in January, 2002. However, the counsel for MUL undertook to deposit the balance amount of Rs. 1,18,310.90/- in the Court before the next date of hearing i.e. May 24, 2002, which was duly done. Vide order dated September 2, 2002, it was directed that the sum of Rs. 7,45,682.10/-lying attached with the MUL shall not be released to the Provident Fund Commissioner. Vide order dated November 27, 2002, a sum of Rs. 1,18,811 /-lying deposited in the Court was directed to be released to the decree holder. Thereafter, vide order dated February 10, 2003, it was directed that 50% of the amount lying with MUL be released to the decree holder forthwith, thus leaving the balance sum of Rs. 4,66,678/-which amount was directed to be deposited in the Court vide order dated December 15, 2004.
6. In the meantime, the Regional Provident Fund Commissioner (in short `RPFC), filed the present applications on November 17, 2003, praying inter alia for impleadment and for recall of orders dated September 2, 2002 and February 10, 2003, restraining any amount from being released to the RPFC and restraining the latter from taking any action against MUL for non-release of the amount, as also for calling , up the decree holder to refund the 50% amount' released in its favour.
7. Notice was issued on the aforesaid applications on December 16, 2003. It was stated on behalf of the RPFC that an enquiry was conducted against the judgment debtor company under Section 7A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to the `EPF' Act) and it was found that the said company owes provident fund dues to the tune of Rs. 7,45,682.10/- to the RPFC. The RPFC passed an order dated January 8, 2002, under Section 8F of the EPF Act calling upon MUL to pay the aforesaid amount due to it, failing which it proposed to take action under Section 8F(3)(x) of the EPF Act.
8. On March 1, 2002, the judgment debtor issued a letter to MUL confirming its account with the said company and stating that it had no objection to the payment of provident fund dues on its behalf. The applicant issued a reminder dated March 26, 2002 to the MUL, followed by a notice to show cause dated November 11, 2002, thereby calling upon it to produce evidence of payment of Rs. 7,45,682.10/- to the judgment debtor. Upon receiving a reply dated December 5, 2002 from the MUL, informing the RPFC of the orders of this Court dated September 2, 2002, the applicant came to know about the pendency of the present proceedings and about the subsequent order dated February 10, 2003, thus resulting in filing of the present applications.
9. Thereafter, pursuant to the order dated July 4, 2006, the RPFC filed an affidavit dated August 3, 2006, stating inter alia that an order dated April 23, 200I was passed by the RPFC in relation to the judgment debtor wherein for the period with effect from June, 2000 to February, 2001, a sum of Rs. 5,95,530/- was determined as due from the judgment debtor, along with interest amounting to Rs. 33,112.40/-. It was further stated that vide order dated December 27, 2001, for the period with effect from March, 2001 to July, 2001, a sum of Rs. 1,71,274.70/-was determined as due and payable by the judgment debtor to the RPFC, towards provident fund dues. It was stated that upon receipt of the aforesaid order, the judgment debtor, vide its letter dated December 24, 2001, informed the applicant that they were not carrying out any work and thus the balance amount of provident fund arrears may be adjusted from the account outstanding and payable by MUL to the judgment debtor, directly from MUL. It was also stated that the judgment debtor had no objection to the aforesaid adjustment being carried out.
10. The present applications were opposed by the counsel for the decree holder, who stated that the applicants were not entitled, either to be impleaded in the execution proceedings or for setting aside the orders dated September 2, 2002 and February 10, 2003 for the reason that the suit between the decree holder and the judgment debtor, being C.S. (OS) No. 240/2001, was decreed vide judgment dated April 26, 2001, passed on the basis of the compromise application between the parties, whereunder it was agreed by the judgment Debtor that the amount due in terms of the compromise was to be released by MUL in favour of the decree holder. Thus, it was stated that the judgment debtor had no right or lien over the aforesaid amount due and lying with MUL and that in terms of the aforesaid decree, he amount due to the decree holder ceased to be in amount belonging to the judgment debtor and therefore the applicant had no right to either claim or recover the said amount from MUL.
11. It was further submitted by the counsel for the decree holder that the letter dated January 8, 2002, issued by the applicant to MUL was almost after one year of passing of the is consent decree against the judgment debtor, of which MUL was well aware of and hence any attempt on the part of the RPFC to lay a claim on the amounts in the hands of MUL when the judgment debtor had no right or lien left on the amounts, was impermissible. An attempt was made on the part of the decree holder to claim that there was collusion between the judgment debetor and MUL to frustrate the Execution Petition. Much emphasis was laid on the fact that no indulgence could be granted to the applicant for claiming that the amounts deposited by the MUL in Court, which were liable to be released to the decree holder, in terms of the decree dated April 26, 2001, passed in its favour, much before MUL received the attachment order dated January 8, 2002 from the RPFC.
12. Counsel for the MUL denied the allegations levelled against his client and stated that, having complied with the orders of the Court and having deposited the amounts lying with it and as payable to the judgment debtor, 30 the MUL had no further role to play in the matter. An affidavit to the said effect was also filed by the MUL on October 23, 2007, stating inter alia that as on January 18, 2002, the date of receipt of the attachment order dated January 8, 2002, from the office of the RPFC, an amount of Rs. 8,63,993/- was due to the judgment debtor with regard to the purchase order dated March 10, 1999 and that the company had received the attachment orders issued in the present proceedings from this Court only on March 22, 2002.
13. I have heard learned counsel for the parties and have perused their pleadings in the application as also the relevant correspondence between the parties and other documents. There is no dispute to the fact that MUL owed certain amounts to the judgment debtor, which were directed to be deposited in this Court in accordance with the provisions of Order 21, Rule 46(c) of the C.P.C., and in terms of the orders passed from time to time and as on date, to further amounts are due or payable by the MUL to the judgment debtor.
14. The question that needs to be decided his regarding the entitlement to the amount on the basis of prior claim. In order to decide the issue of prior claim, it is necessary to refer to the relevant provision of EPF Act. Section 6 which teals with the contributions and matters which may be provided for in schemes, is the charging Section. Section 7A provides for determination of moneys due from employers. Section 8 deals with the mode of recovery of moneys due from employers and stipulates that if any amount payable by an employer is in arrears, the same may be recovered in the same manner as an arrear of land revenue and the modes of recovery are laid down under Section 8-F of the Act. The proviso to Section 8-F(2) stipulates that nothing in the said sub-section shall apply to any part of the amount exempt from attachment in execution of a decree of a Civil Court under Section 60 of the C.P.C. Section 11 lays that payment of contributions shall have priority over other debts of the employer. Sub-section (2) of Section 11 is relevant for the purposes of the present proceedings and is reproduced herein below for ready reference:
"(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 deemed to be the first charge on the assets of the establishment, and shall, notwith?standing anything contained in any other law for the time being in force, be paid in priority to all other debts."
15. The law of priority or precedence of crown debts was discussed by the Supreme Court while deciding as to whether recovery of sales tax dues, amounting to crown debt shall have precedence over the right of a bank to proceed against the property of the borrowers and mortgaged in favour of the bank. The Supreme Court while relying on the judgment of the Constitution Bench in the case of Builders Supply Corporation v. Union of India, AIR I965 SC 1061, has held in the case of Dena Bank v. B. P. Parekh & Co., AIR 2000 SCC 3654 as below:
"8. The principle of priority of Government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well recognized principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be an possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues. (See Builders Supply Corporation v. Union of India (supra). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of Article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the crown by reference to the State's sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements Their Lordships have summed up the law as under:
1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts.
2. The common law doctrine about priority of crown debts which was recognized by Indian High Courts prior to 1950 constitutes "law in force" within the meaning of Article 372(1) and continues to be in force.
3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues.
4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration."
16. In Srikanta Datta Narasimharaja Wodiyar vs. Enforcement Officer, Mysore, AIR 1993 SC 1656: (1993 Lab IC 1359), while referring to the EPF Act, the Supreme Court has held in para 13 as follows:
"13. That depends, obviously, on the scheme of the Act, the liability it fastens on the Director of the Company and applicability of the penal provisions to the statutory violation or breach of the Scheme framed under it. But before doing so it may not be out of place to mention that the Act is a welfare legislation enacted for the benefit of the employees engaged in the factories and establishments. The entire Act is directed towards achieving this objective by enacting provisions requiring the employer to contribute towards Provident Fund, Family Pension and Insurance and keep the Commissioner informed of it by filing regular returns and submitting details in forms prescribed for that purpose. Paragraph 36-A of the Provident Funds Scheme framed by Central Government under Section 5 of the Act requires the employer in relation to a factory or other establishment to furnish Form 5-A mentioning details of its branches and departments, owners, occupiers, Directors, partners, Managers or any other person or persons who have ultimate control over the affairs of the factory or establishment. The purpose of giving details of the owners, occupiers and Directors etc. is not an empty formality but a deliberate intent to widen the net of responsibility on any and every one for any act or omission. It is necessary as well as in absence of such responsibility the entire benevolent scheme may stand frustrated. The anxiety of the legislature to ensure that the employees are not put to any hardship in respect of Provident Fund is manifest from Sections 10 and 11 of the Act. The former grants immunity to Provident Fund from being attached for any debt outstanding against the employee. And the latter provides for priority of Provident Fund contribution over other debts if the employer is adjudged insolvent, or the Company is winded up. Such being the nature of Provident Fund any violation or breach in this regard has to be construed strictly and against the employer."
17. The aforesaid judgments rendered by the Supreme Court clearly indicate that the EPF Act being a welfare legislation enacted for the benefit of the employees and directed towards ensuring that the employers make their contribution towards the dues as determined, endeavour ought to be made to ensure that the object of the aforesaid scheme is not frustrated. The aforesaid arrears of Provident Fund undoubtedly enjoy special protection under Section 11(2) of the EPF Act and are entitled to be treated as `Crown Debt' under the said Act.
18. Also, as is evident from a perusal of the orders dated April 23, 2001 and December 27, 2001 passed by the RPFC, the charge created under the said Act by the charging Section, namely Section 6, for the periods with effect from June, 2000 to February, 2001, and with effect from March, 2001 to July, 2001 was prior in time to the judgment and decree dated April 26, 2001. Even if the charge created under the EPF Act for the periods with effect from March, 2001 to July, 2001, subject matter of orders dated December 27, 2001, is excluded for the time being, it is apparent that a sum of Rs. 5,95,530/- was determined as the amount payable by the judgment debtor to the RPFC under Section 7-A of the EPF Act, as the principal amount for the period with effect from June, 2000 to February, 2001, apart from the interest levied under Section 70 of the EPF Act amounting to Rs. 33,112.40/-. Taking into consideration the fact that the amount presently lying deposited in this Court is only a sum of Rs. 4,66,678/-, the said amount will fall far short of even the principal amount payable by the judgment debtor to the RPFC for the period with effect from June, 2000 to February, 2001, what to speak of the amount of Rs. 1,71,274.70/- due and payable by the judgment debtor to the RPFC for the period with effect from March, 2001 to July, 2001.
19. The specious plea taken on behalf of the decree holder that the decree dated April 26, 2001, sought to be executed against the judgment debtor being prior in time is liable to be given priority, is untenable for the reason that the relevant date for the purposes of calculating prior debt is neither January 8, 2002, the date when orders under Section 8-F of the EPF Act were issued by the RPFC to the MUL calling upon it to pay Rs. 7,45,682.10/-, nor the dates of passing the orders i.e. April 23, 2001 and December 27, 2001 by the RPFC, by which the amounts payable by the judgment debtor for the period from June, 2000 to February, 2001 and from March, 2001 to July, 2001, were determined. Instead, the relevant date is the date on which the amounts fell due i.e. the period from June, 2000 to February, 2001 and March, 2001 to July, 2001, in terms of the charging Section, namely, Section 6 of the Act, irrespective of th
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e date of determination of moneys due under the EPF Act. Thus, at least the amount of Rs. 5,95,530/- became due and payable by the judgment debtor to the applicant, for the period from June, 2000 to February, 2001, which was prior to the date of passing of the decree dated April 26, 2001. 20. Secondly, as noted above, the amount lying in the hands of MUL is admittedly owed to the judgment debtor, who is a defaulter in payment of Provident Fund contributions. As per the provisions of Section 11(2) of EPF Act, the amount so due shall be deemed to be the first charge and be paid in priority to all other debts. Thus, the provision of Section 11(2) of the EPF Act, being a non-obstante clause has an overriding effect and priority, irrespective of anything contained in any other law in force. 21. For the aforesaid reason, this Court is of the opinion that the claim of the decree holder based on the judgment and decree dated April 26, 2001, shall have to give way to the claim of the applicant/RPFC for enforcement of its statutory rights. The EPF Act being a welfare legislation, while balancing the claim of a private party against the judgment debtor as against a debt owed by the judgment debtor towards Provident Fund arrears, the scales ought to tilt in favour of the employees, who ought not be put to any hardship in respect of Provident Fund contributions, as is manifest from the incorporation of Sections 10 and 11 in the EPF Act, both of which seek to protect the interests of the employees against any such hardships. 22. In these circumstances, while holding that the applicant RPFC is entitled to receive the balance amount of Rs. 4,66,678/-deposited in this Court by MUL towards part satisfaction of its claims against the judgment debtor, on the basis of priority of ?Crown Debts', this Court declines to set aside the orders dated September 2, 2002 and February 10, 2003, passed prior to fling of the present applications, by which some amounts have already been released in favour of the decree holder in execution of the judgment & decree dated April 26, 2001. The Registry is directed to release the entire balance amount deposited by the MUL, in favour of the applicant, through counsel. 23. The applications are disposed of.