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TMI Blog2007 (8) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... d is an excess of the sum available, without taking into account the secured creditors' debts, the sums due on account of other employees' provident fund cannot be met out of the money available for disbursement. - C.A. NO. 180 OF 2007 AND C. P. NO. 215 OF 1991 - - - Dated:- 16-8-2007 - SANJIB BANERJEE, J. S.C Prasad for the Appellant. S.N. Mukherjee and R. Chowdhury for the Respondent. JUDGMENT Sanjib Banerjee, J. A point of principle arises, though the sum involved in this case is the princely amount of Rs. 1323.80. The point has arisen in a number of matters. The Regional Provident Fund Commissioner seeks an adjudication whether provident fund dues of all employees of a company in liquidation should stand on the same footing as workmen's dues. Sections 529, 529A and 530 need first to be seen to appreciate the issue involved : "529. Application of insolvency rules in winding up of insolvent companies. (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to ( a )debts provable ; ( b )the valuation of annuities and future and contingent liabilities ; and ( c )the respective rights of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947) ; ( ii )all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution ; ( iii )unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company ; ( iv )all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (34 of 1948), or any other law for the time being in force; ( e )unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any employee of the company ; ( f )all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees, maintained by the company; and ( g )the expenses of any investigation held in pursuance of section 235 or 237, in so far as they are payable by the company. (2) The sum to which priority is to be given under clause ( b ) of sub-section (1) shall not, in the case of any one claimant, exceed such sum as may be notified by the Central Government in the Official Gazette. (3) Where any compensation under the Workmen's Compensation Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this section ( a )any remuneration in respect of a period of holiday or of absence, from work through sickness or other good cause shall be deemed to be wages in respect of services rendered to the company during that period ; ( b )the expression 'accrued holiday remuneration' includes, in relation to any person, all sums which, by virtue either of his contract of employment or of any enactment (including any order made or direction given under any enactment), are payable on account of the remuneration which would, in the ordinary course, have become pay able to him in respect of a period of holiday, had his employment with the company continued until he became entitled to be allowed the holiday ; (bb)the expression 'employee' does not include a workman ; and ( c )the expression 'the relevant date' means ( i )in the case of a company ordered to be wound up compulsorily, the date of the appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date ; and ( ii )in any case where sub-clause ( i ) does not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason of the powers vested in him, functions mainly of a managerial nature." Section 11(2) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, was introduced by way of an amendment in 1973 and section 11 was renumbered as sub-section (1) of amended section 11. Post-amendment, section 11 reads as follows : "11. Priority of payment of contributions over other debts. (1) Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due ( a )from the employer in relation to an establishment to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the fund or as the case may be the Insurance Fund damages recoverable under section 14B, accumulations required to be transferred under sub-section (2) of section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme ; or ( b )from the employer in relation to an exempted establishment in respect of any contribution to the provident fund or any insurance fund (in so far as it relates to exempted employees), under the rules of the provident fund or any ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the work of the establishment; ( ii )engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment;" Section 530(1)( f ) of the Companies Act refers to sums being due to an employee, inter alia , from a provident fund. Section 530(8)(bb) provides that the expression "employee" in such section does not include a workman. The opening words of section 530 make the entirety of the provisions that follow subservient to section 529A. Workmen's dues are covered by section 529A and by virtue of the definition of "workmen's dues" contained in section 529(3)( b ), the provident fund dues of a workman are included in the expression "workmen's dues" appearing in section 529A(1)( a ). Section 529(3)( b )( iv ) and section 530(1)( f ) are similarly worded except that the former covers provident fund and related dues of workmen and the latter covers provident fund and like dues of all employees not being workmen. Upon section 529A being introduced, all of the workmen's dues, including on account of provident fund, are to rank pari passu with those of a secured creditor to the extent the dues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court dealt with section 220(2) and section 220(3) of the Income-tax Act, 1961. Sub-section (3) contained similar opening words as in section 11(2) of the 1952 Act. Sub-section (2) of section 220 of the Income-tax Act, as it originally stood, made an assessee liable to pay simple interest at four per cent, per annum and sub-section (3) permitted an income-tax officer to extend the time for payment or allow payment by instalments subject to such conditions as he may impose. In order to obtain favourable instalments, the assessee offered to pay interest at the rate of five per cent, per annum, which was more than the rate fixed under section 220(2), and the Income-tax Officer relaxed the period for payment upon such offer. During the period that the Revenue's claim had not been completely discharged by the assessee, the rate of interest in section 220(2) of the Income-tax Act was raised by an amendment to six per cent, per annum. The question before the Supreme Court was whether upon the Income-tax Officer's order having been passed at a time when the rate of interest in sub-section (2) was lower than the rate offered to be paid by the assessee, there was good ground for it not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent would stand superseded. The argument of the assessee is that sub-sections (2) and (3) of section 220 were independent provisions which operated in fields of their own. We are, however, unable to accept this somewhat broad proposition of law. Sub-sections (2) and (3) form part of the same section, namely, section 220, and are, therefore, closely allied to each other. It is no doubt true that the two sub-sections deal with separate issues but the non-obstante clause of sub-section (3) clearly restricts the order passed under sub-section (3) to the conditions mentioned in sub-section (2) of section 220 of the Act." It is of some interest that the Supreme Court referred to the relevant words in section 220(3) as a non-obstante clause. Though a non-obstante clause is ordinarily understood to be one found in the dominant provision, the Supreme Court read the opening words of section 220(3) of the Income-tax Act as a non-obstante clause, implying clearly that the opening words of sub-section (3) made that sub-section subservient to the dominant provision of sub-section (2). A non-obstante clause generally indicates the extent of its dominance. There may be non-obstante clauses in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. the assets of the company being wound up . . ." Section 11 as it stood prior to the Act 40 of 1973 introducing sub-section (2) thereto and renumbering the existing section as sub-section (1), placed provident fund dues of the employees as covered by the section as a debt of a company that had to be paid in priority to other debts of a company in liquidation, but subject to the rank assigned to such debt in section 530. Section 529A carved out special provisions for workmen. Section 529A made two classes out of the entire body of employees of a company in liquidation: its workmen and the remaining set of employees. All sums due to workmen of a company in liquidation were upgraded to sit alongside secured creditors' dues in so far as they are covered by the securities, in the list of priorities. Clause (bb) of sub-section (8) of section 530 was introduced by the same Amending Act of 1985 (35 of 1985) by which section 529A found place in the Companies Act. The net effect of section 11(1) of the 1952 Act, the influence of section 11(2) of the 1952 Act being subservient to section 11(1) and the amendment to the Companies Act in 1985, is that provident fund dues of workmen are ahead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in pari passu along with the claim of secured creditors under section 529A" Provident fund dues of workmen, thus, rank alongside the debts of the secured creditors of a company in liquidation to the extent that the same are covered by the securities. Provident fund dues of other employees stand below the workmen's dues on account of provident fund and the secured creditors' dues on a construction of section 529A and section 530 of the Companies Act. In the instant case, the Provident Fund Commissioner has an equal claim, along with the secured creditors of the company in liquidation in so far as such debts are covered by the securities, for the sum of Rs. 1323.80. The quantum of the secured creditors' dues and the provident fund dues of the workmen have to be ascertained and the sum of Rs. 1323.80 has to be paid out by the official liquidator to the secured creditors and the provident fund authorities on a pro rata basis. Since, it appears that the claim of the provident fund authorities on account of workmen's provident fund is an excess of the sum available, without taking into account the secured creditors' debts, the sums due on account of other employees' provident fund ..... X X X X Extracts X X X X X X X X Extracts X X X X
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