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TMI Blog2001 (10) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1. The petitioners case in short is that the proceedings were started by the Regional Provident Fund Commissioner against petitioner No. 2, ABS Spinning for recovery of provident fund dues and in those proceedings certain assessments were made fixing its liability. Petitioner No. 2 is an independent company registered under the Companies Act, 1956, since April 1, 1990, having its own assets, and liability and the said company became a sick unit. The matter was referred to the Board for Industrial and Financial Reconstruction (hereinafter called "BIFR") and under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, declared the company as sick unit by order dated September 25, 1996, copy of which is Annexure 1. The BIFR directed petitioner No. 2 to submit the rehabilitation proposal and by order dated April 22, 1997, permitted the company to negotiate with private parties for disposal of its assets but though necessary steps were taken by making of the advertisement, no fruitful result could be achieved. The BIFR in its hearing dated April 27, 2000, declared that petitioner No. 2 be wound up under section 20 of the Sick Industrial Companies (Special Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, 2001, in respect of the land, building and machinery of petitioner No. 2 and the copies of the notice are Annexure 8 series. However, it is stated that petitioner No. 2 with a lot of effort arranged Rs. 25,00,000 and paid it to the opposite parties but in spite of that Annexure 8 was issued on February 13, 2001. The execution proceedings, according to the petitioner, are all illegal and in gross violation of section 22 of the SIC Act. In para 7 of the writ petition, it is stated that in view of Annexure 6, petitioner No. 1 apprehends that illegal steps would be taken by the opposite parties to attach the properties of petitioner No. 1 under section 8( b ) of the Provident Fund Act and in the process irreparable damage will be caused, when petitioner No.1 was not a party to the proceeding by the opposite parties against petitioner No. 2 in regard to determination of the provident fund dues nor is petitioner No. 1 a certificate debtor. Thus, according to the petitioners, the action of the opposite parties is in clear violation of the principles of natural justice. It is further asserted that there is no provision in the Provident Fund Act to proceed against the holding company or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Act are not covered under section 22 of the SIC Act. The opposite party-provident fund authorities assert that about 726 employees of M/s. ABS Spinning Mill have opted for voluntary retirement. If the provident fund and allied dues are not deposited with the Regional Provident Fund Commissioner, they shall not be receiving any terminal benefits from the Employees Provident Fund Organisation, inasmuch as it is the statutory duty of the Employees Provident Fund Commissioner to settle the claim of the retiring employees within 30 days. If the company fails to deposit the above-noted dues, the department shall fail in discharging its statutory liability of providing prompt and effective service to these employees of M/s. ABS Spinning Mill. The establishment of M/s. ABS Spinning Orissa Ltd. is the subsidiary unit of the establishment of M/s IDC and both the establishments are covered under the Employees Provident Funds and Miscellaneous Provisions Act, 1952, and allotted different code number for administrative convenience, M/s. ABS Spinning Orissa Ld. having failed to remit the provident fund and allied statutory dues to the tune of Rs. 2,98,33,310.70 for realisation of the dues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act empowers the Provident Fund Commissioner to determine the amount due from any employer under the provisions of the Act and section 11 requires priority of payment of contribution over other debts, whereas section 12 contemplates that no employer shall, by reason only of his liability for the payment of any contribution under the Act or the scheme rduce the wages of any employees or the total quantum of benefits in the nature of old age pension, gratuity, provident fund or life insurance to which the employee is entitled under the terms of his employment. Section 14 provides for penalty in the case of breach of any of the provisions under the Act section 14B of the Act is with regard to recovery of damages from the defaulting employer in payment of any contribution due from him. It is not in dispute that the Employees Provident Funds Scheme is applicable to the employees of the company and they are entitled to and the company is liable to pay the contribution, whereas the company is admittedly in default in payment of the contribution for some years, the employees contribution is deducted by the employer from the wages of the employees covered under the Scheme. Para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." Sri Rajat Ratha, learned counsel for the petitioners placed reliance on the decision of the Apex Court in Tata Davy Ltd. v. State of Orissa [1998] 93 Comp. Cas. 1 1 , in support of his contention that provision of section 22(1) of the SIC Act excludes application of all other laws and as such execution proceeding with regard to employees provident funds dues against petitioner No. 2 could not proceed. In Tata Davy Ltd. s case ( supra ), the Apex Court held that the Sick Industrial Act declares that it is for giving effect to the policy of the State towards securing the principles specified in clauses ( b ) and ( c ) of articles 39 of the Constitution, namely that the ownership and control of the material resources of the community are so distributed as best to ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. State Industrial Investment Corporation of Maharashtra Ltd. [1993] 78 Comp. Cas. 803. A contention has also been raised that the decision relied on by the Employees Provident Fund Commissioner in Writ Petition No. 1688 of 2000 of the Bombay High Court Ralliwolf Ltd. v. Regional Provident Fund Commissioner [2001] 1 LLJ 1425 is contrary to the dictum of the Apex Court in Tata Davy Ltd. s case ( supra ) and that cannot come to the aid of the opposite parties. Learned counsel reiterates that suspension of the proceedings would be applicable to all kinds of proceedings as the Legislature could not have conceived all possible steps or measures that may be taken inasmuch as acceptance of the Bombay High Court judgment would mean exception has to be carved out to the bar to proceedings contemplated under section 22 of the Act which will run against the statute, inasmuch as, in that case the party resorted to serious kind of fraud, cheating and did not approach the BIFR with clean hands and, therefore, factually standing on the different footing. It is further stated that the reliance and aid taken from section 14B of the Employees Provident Funds Act in the Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope and purview of section 22 of the SIC Act, 1985. This view was expressed taking into aid the ratio of the judgment in Corromandal Pharmaceuticals Ltd. s case ( supra ) also. In the context and the purpose for which section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 is enacted, as could be apparent from the discussions made in the decision of the Apex Court in Tata Davy Ltd. s case ( supra ) to keep the proceedings for the winding up or for execution distress or the like against any of the properties of the sick industrial company or for appointment of a receiver in respect thereof under suspension till the proceeding before the BIFR or AAIFR under section 25 thereof are pending in the absence of the consent of such authorities. In other words, to protect a sick industrial company from further ruin financially from the creditors seeking to recover their dues from such sick industrial unit. The recovery remains deferred, but the creditors remedy is protected for the period of deferment by reason of sub-section (5) of section 22, which provides exclusion of that period from the computation of the period of limitation. The framers of the provision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at about 726 employees of petitioner No. 2-company, M/s. ABS Spinning Mills Ltd. have already opted for voluntary retirement, but the Regional Provident Fund Commissioner, is not in a position to settle their claims because of the default committed by petitioner No. 2 in depositing both the employees share of contribution and the employees share, even if, the company has deducted the employees share from their salaries/wages. Under the Employees Provident Funds and Miscellaneous Provisions Act, 1952, the Commissioner is required to settle such claim within a period of 30 days. Petitioner No. 2, M/s. ABS Spinning Mills Ltd., under the cover of a sick industrial unit, approaching the Board for Industrial and Financial Reconstruction (BIFR) and the appellate authority under section 25 of the Sick Industrial Companies (Special Provisions) Act, cannot claim immunity like suspension of execution proceedings or distress under sub-section (1) of section 22 of the Act, to avoid payment of the legitimate claim or entitlements of provident fund dues under the Employees Provident Funds and Miscellaneous Provisions Act as has been held earlier in this judgment. In such circumstances, I fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , petitioner No. 1 could be made liable for the same. It is the contention that the liability of the subsidiary company can be recovered from the holding company and as such, petitioner No. 1 cannot otherwise escape from the liability. A company is defined under section 3(1)( i ) of the Companies Act to mean a company formed and registered under the Act or an existing company as defined in clause ( ii ). Section 4 of the Act defines a "holding company" and "subsidiary" and a Government company is defined under section 617 to mean any company in which, not less than fifty-one per cent of the paid up share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company. In section 34 of the Companies Act, the effect of registration has been contemplated. Section 34 of the Companies Act may be quoted hereunder : "34. Effect of registration . (1) On the registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incorporated and, in the case of a limited company, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a factory; the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named a manager of the factory under clause ( f ) of sub-section (1) of section 7 of the Factories Act, 1948, the person so named; in relation to any other establishment, the person who or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent. Thus, on a consideration of the aforesaid provisions of law, petitioner No. 1, a holding company would not come within the scope or ambit of employer as contended by learned counsel for the Employees Provident Fund Commissioner. Section 2A of the Act declared that where an establishment consists of different departments or has branches, whether situate in the same place or in different places all such departments or branches shall be treated as parts of the same establishment. This provision equally is inapplicable to the present case since a subsidiary, independently registered as a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in this Act. In any view of the matter, I cannot subscribe to the view and the contentions raised on behalf of the provident fund authority to hold that the liability of petitioner No. 2 in the event of its default, becomes the liability of the company meaning holding the company of which the liable company is a subsidiary. In view of what has been held in the foregoing paragraphs, notice issued by the Recovery Officer, Employees Provident Fund Organisation (Annexure 4) to the chairman- cum -managing director, IDC Ltd. to withhold the amount from the pending bills of the certificate debtor, i.e. ABS Spinning Mills Orissa Ltd. on the premise that the said IDC Ltd. is the holding company and as such liable to pay the dues of the subsidiary company being misconceived in law has to be quashed. Similarly, the notice in Annexure 6 of the Regional Provident Fund Commissioner-II (Compliance and Recovery Officer, State of Orissa) addressed to the chairman- cum -managing director, IDC (petitioner No. 1) declaring it to be a deemed defaulter in view of section 8F of the Act, read with the Certificate Rules, 1989, is misconceived in law and has to be quashed. However, I find no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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