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2017 (4) TMI 875 - HC - Indian LawsAttachment of immovable properties ordered by PF organization - priority over the dues - Secured creditors (Banks) or PF organization - Held that - Inclusion of Section 31B does not change the position insofar as primacy of claim under the provisions of the EPF Act is concerned. The mention of Government dues which would include revenues taxes cesses and rates due to the Central Government State Government or local authority would not take into its fold the first charge created by operation of law in the form of Section 11(2) of the EPF Act. On the other hand what is sought to be recovered by the petitioner-Bank from respondent No.2 is its debts which are included in Section 11(2) of the EPF Act and therefore there is no hesitation in holding that the PF organization was within its power to issue the order dated 09.08.2016. The challenge therefore for quashing and setting aside the aforesaid order fails. The petition is dismissed.
Issues Involved:
1. Challenge to the attachment order by the Employees’ Provident Fund Organization (PF organization). 2. Priority of claims between the secured creditor (petitioner-Bank) and the PF organization. 3. Interpretation of Section 31B of the RDDB Act, 1993 in relation to Section 11(2) of the EPF Act, 1952. Detailed Analysis: 1. Challenge to the Attachment Order by the PF Organization: The petitioner, a Nationalized Bank, challenged the PF organization’s order dated 09.08.2016, which attached immovable properties of M/s. Safari Apparel Pvt. Ltd. The Bank had provided credit facilities to the company and its Directors, who had executed guarantees and created equitable mortgages on certain immovable properties. Due to defaults in repayment, the petitioner classified the account as non-performing and initiated recovery actions under the SARFAESI Act, 2002, and the RDDB Act, 1993. The Bank obtained a decree from the Debts Recovery Tribunal-II, Ahmedabad, and claimed priority over the attached properties to satisfy its debts over the PF dues. 2. Priority of Claims Between the Secured Creditor and the PF Organization: The petitioner-Bank argued that under Section 31B of the RDDB Act, the secured creditor’s right to realize its debts by selling secured assets should have priority over all other debts, including Government dues. The Bank cited the Full Bench judgment of the Madras High Court in The Assistant Commissioner (CT) Vs. The Indian Overseas Bank & Anr., which supported the precedence of secured creditors’ claims. 3. Interpretation of Section 31B of the RDDB Act, 1993 in Relation to Section 11(2) of the EPF Act, 1952: The Court extensively reviewed the issue of priority of claims, referencing the Supreme Court’s judgment in Central Bank of India Vs. State of Kerala & Ors., which held that the priority of State dues was recognized and that no provision in the DRT Act or SARFAESI Act created a first charge in favor of banks over State dues. The Court emphasized that Section 11(2) of the EPF Act, which creates a first charge on the property of an employer for PF dues, takes precedence over other debts, including those of secured creditors. This position was reaffirmed in subsequent Supreme Court judgments, including Maharashtra State Cooperative Bank Limited Vs. Assistant Provident Fund Commissioner & Ors., which underscored the social welfare nature of the EPF Act and its priority over other debts. Conclusion: The Court concluded that the inclusion of Section 31B in the RDDB Act did not alter the priority of claims under Section 11(2) of the EPF Act. The first charge created by the EPF Act for PF dues remains paramount, and the PF organization was within its rights to issue the attachment order dated 09.08.2016. Consequently, the petition to quash the attachment order was dismissed.
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