2014 (3) TMI 1146 - HC - Companies Law

Whether the sale of properties of petitioner company vitiated in view of provision in Section 20(4) of SICA? HELD THAT - Power is vested in the BIFR under Section 16 to cause enquiry to determine whether any industrial company has become a sick industrial company and incidental thereto. If in such enquiry it is established that a company has become a sick industrial company in exercise of power vested by Sections 17 to19 the BIFR can take all possible steps to revive the sick industrial company. If the BIFR fails in its effort to revive the sick industrial company it is empowered to recommend to wind up the sick industrial company in exercise of power under Section 20(1). However such company cannot be wound up unless winding up orders are passed. Section 20(4) deals with the interregnum period between the date of recommendation by BIFR to wind up a sick industrial company and the date of order of winding up. As per Section 20(4) the power to sell the assets of sick industrial company vests only in BIFR. However BIFR has to obtain orders from concerned High Court before utilizing the sale proceeds - Section 22(1) deals with a situation when enquiry under Section 16 or scheme referred to in Section 17 is under preparation and prior to orders of BIFR recommending for winding up of the sick industrial company were passed. It seeks to freeze the assets and liabilities during the interregnum period. In Employees Provident Fund Commissioner the defaulting company was wound up. The company was in default towards EPF contributions. The EPF organization approached the official liquidator for payment of amount determined under Section 7(A) of EPF Act. Since there was no response EPF filed company application for issuance of directions to the official liquidator to pay the amount payable by the employer under the EPF Act and the same was dismissed. The dues payable by the petitioner to the EPF acquires first charge compared to any other dues - In the instant case EPF sold the properties of petitioner company after BIFR recommended for winding up the petitioner company. The EPF Act 1952 is a social welfare legislation and is intended to safeguard the interest of employees. Provident fund contribution is one of the important element in an employee s service and savings accrued through such contributions alone are the backbone for the employee after his retirement. These contributions are part of his salary and emoluments and as a reward to the service rendered by him to the company while he was working. Therefore the employees are entitled to receive their amounts. It is the paramount duty of employer to promptly credit the PF contributions. Failure to credit the same by employer is a serious matter - As it appears the company is not working and proposal to wind up the company was made on 21.06.2000. For the last more than 13 years the employees of the petitioner company are denied of their due amounts. Therefore any further delay in settlement of their dues would cause great hardship and suffering. Furthermore in the sale conducted by EPFO a third party paid huge sum as per auction conducted and purchased the property. He is no way concerned with the controversy. He is a bonafide purchaser. If the sale is upset his interests would also adversely affect. It can not be said that the infraction pointed out is not curable. Thus in the facts of this case though it is noticed that the procedure as mandated by Section 20(4) of the SICA is not followed the sale confirmed in the year 2011 cannot be upset at this stage. While rejecting the prayer of the petitioner the EPFO is directed to approach BIFR duly intimating the sale of petitioner company assets seek its ratification for appropriation of the sale proceeds towards PF dues of petitioner company and on receipt of such request BIFR shall undertake required formalities to ratify the action of EPFO. Entire exercise shall be completed within a period of six (06) weeks from the date of receipt of copy of this order. Petition disposed off.

Summary

Issues Involved:
1. Whether the sale of properties of the petitioner company was vitiated in light of Section 20(4) of SICA.
2. To what relief the petitioner is entitled.

Detailed Analysis:

Issue 1: Whether the sale of properties of the petitioner company was vitiated in light of Section 20(4) of SICA.

The petitioner company, governed by the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (Act, 1952), failed to pay its provident fund contributions, leading to the attachment and subsequent auction of its property by the EPFO. The petitioner argued that under Section 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), only the BIFR has the authority to sell the assets of a sick industrial company until winding up orders are passed by the High Court. The petitioner contended that the EPFO's auction was illegal and void as it contravened this provision.

The court noted that Section 20(4) of SICA empowers the BIFR to sell the assets of a sick industrial company and forward the sale proceeds to the High Court for distribution. Section 22(1) of SICA suspends legal proceedings against the properties of an industrial company under BIFR's purview without its consent. Section 32(1) of SICA asserts the Act's overriding effect over other laws.

The EPFO argued that the Act, 1952, being a special enactment, prevails over SICA in matters of provident fund dues. The EPFO emphasized its statutory duty to ensure payment of contributions and its authority under Section 8(f) of the Act, 1952, to recover dues by any mode. The court referenced several precedents, including Sarvaraya Textiles Limited v. Commissioner, Employees' Provident Fund, which held that Section 22(1) of SICA does not apply to EPF dues, and Maharashtra State Cooperative Bank Limited v. Assistant Provident Fund Commissioner, which allowed the sale of mortgaged properties under Section 11 of the Act, 1952.

The court observed that while the EPFO has the authority to recover dues, Section 20(4) of SICA explicitly vests the power to sell the assets of a sick company in the BIFR. The court concluded that the EPFO should have approached the BIFR for recovery of PF dues, as the sale of assets by the EPFO without following Section 20(4) of SICA was procedurally incorrect.

Issue 2: To what relief the petitioner is entitled.

Despite the procedural infraction, the court noted the petitioner's failure to respond to opportunities to clear dues and the fact that the sale was conducted after ample notice. The court emphasized the EPFO's role in safeguarding employee interests and the paramount importance of provident fund contributions. The court recognized the bona fide nature of the sixth respondent's purchase in the auction and the potential hardship to employees if the sale were annulled.

The court, exercising its discretionary jurisdiction under Article 226 of the Constitution, decided not to upset the sale. Instead, it directed the EPFO to seek ratification from the BIFR for the sale and appropriation of proceeds towards PF dues, ensuring compliance with Section 20(4) of SICA. The BIFR was instructed to complete the formalities within six weeks.

Conclusion:

The writ petition was disposed of, with the court rejecting the petitioner's prayer to annul the sale but directing the EPFO to seek BIFR's ratification for the sale and appropriation of proceeds towards provident fund dues. The court's decision balanced the statutory requirements, the interests of employees, and the bona fide purchaser's rights.