9911796707
TMI Blog2001 (7) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... has been filed. FACTS: 2. The facts giving rise to the present application are as stated in the affidavit as under: The Employees State Insurance Corporation is a statutory Corporation, constituted under the Employees' State Insurance Act, 1940 (hereinafter referred to as "Act"). As per the provisions of said act, the aforesaid Mill Company (in Liquidation) was a 'Covered Establishment' and it has deducted the employees' contribution from the wages of the employees as well as it had to pay the employer's contribution, but it had failed and neglected to make the payment thereof to the applicant-Corporation as per the provisions of Section 40 of the Act. It was stated that the said company was taken into liquidation by an order of this Hon'ble Court on 22.11.1989 and the Official Liquidator was appointed to take over the charge of the assets of the Company. It had, in fact, taken over the assets of the said company in its possession and the same are still lying with the Official Liquidator. It was stated that in view of the provisions of the Act, the amount of employees' contribution is "trust money" in the hands of the employer- th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not mix the amount with the funds of the company and had the liability to pay interest. The company to the extent of the employees' contribution is thus entrusted with the Trust money and could not form part of the assets of the company in the hands of the Official Liquidator. It was submitted that the secured creditor bank is also not entitled to retain any amount to the extent of employees' contribution and shall hand over the amount with interest to that extent to the applicant, ESI Corporation. 4. It was submitted that in so far as the employer's contribution is concerned, it is a "debt due and payable" by the company in liquidation in the hands of the Official Liquidator, the respondent, and in view of section 94 of the Employees' State Insurance Act, 1948, (ESI Act for short) it is clearly provided that the amount of contribution, both employer's contribution and the employees; contribution, etc. therefore, includes the interest, damages, surcharge, etc., and the same amount will be considered to be due to the Corporation to have priority over other debts and, it is , therefore, held that even in a case where the company is in liquidation und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tle deed in favour the State Bank of India on 17.2.1975. The said equitable mortgage was extended on 26.5.1981, as further extended on 4.3.1986. Copy of the memorandum of entry extending equitable mortgage on 26.5.1981 and further extended on 4.3.1986 produced by the State Bank of India is taken on record of the case. 7. It was also stated that as regards the employees' contribution is for the period from 1.1.1979 to 30.11.1980, from 1.1.1978 to 31.12.1987, from 1.8.1976 to 31.7.1977 and 1.11.1986 to 30.11.1986. It was also stated that the amount was deducted from the wages of the workers but the amount is not paid. It was also stated by the applicant that a credit entry exit in the Books of Accounts of the company. Except that, the Regional Director has not stated whether the amount in fact was deducted and paid. It was further stated that Regional Director has not produced any other evidence to show that the workers of the Mill company have complained that though the contribution is deducted, the same has not been paid by the company. It was stated that the amount is deducted but in fact no proof whatsoever has been led by the applicant to show that the amount in fact has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the year 2000 the claim is made and even if the claim is required to be entertained, the same cannot be decided under the provisions of Section 530 of the Act and not in priority to the claim of the Secured Creditors as contended by the applicant. 9. Mr. Roshan Desai for State Bank of India contended that even if there was deduction, the same cannot be claimed by the applicant from the sale of the Security by the Secured Creditors. It is also submitted that the question of intermingling the trust money with the security also does not arise since the mortgage was created much prior to the deduction being made by the company. It was also submitted that the amount in the nature of trust money held by the company do not from part and parcel of the company of the company's assets in the hands of the liquidator. When the liquidator took possession, no assets of the company were available and the liquidator has not taken possession of any of the assets of the Secured Creditors and as such the Official Liquidator is only a custodian and trustee on behalf of the Secured Creditors. It was further submitted that the property or money, which can be identified as belonging to or held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch an amount of ₹ 77,32,000/- was disbursed to Secured Creditors namely Central Bank of India, Panigate, Baroda and ₹ 95,19,000/- was disbursed towards workers dues. At present Official Liquidator has ₹ 22,27,971/- lying with him from which regular payment of ₹ 18,875/- will have to be made to the security staff for preservation of land and building. On verification of the statements of affairs filed by the Ex.directors has shown and stated that the outstanding balance of ESI amounting to ₹ 2,94,607/- as preferential creditors in the said statement of affairs. 12. Before I consider the rival submissions made by the learned advocates for the parties in detail, the statutory provisions may be required to be considered in this behalf. The Employees State Insurance Act, 1948 (ESI Act) is a act to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto. Section 2(4) provides the definition of "contribution" means the sum of money payable to the Corporation by the principal employer in respect of an employee and includes any amount payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act the liability wherefor accrued before the date of the order of adjudication of the insolvent or the date of the winding up, as the case may be." 12.2 The learned counsel further submitted that in exercise of power conferred under Section 95 of the Employees' State Insurance Act, 1948 the Central Government has power to make rules. 13. Learned advocate for the applicant has relied upon the provisions of Trust Act, particularly, Section 66 of the Trust Act which provides the rights in case of blended priority which reads as under : Section : 66. Right in case of blended property : Where the trustee wrongfully mingles the trust-property with his own, the beneficiary is entitled to a charge on the whole fund for the amount due to him. 14. Learned advocate for the applicant has also relied upon the provisions of the Companies Act, particularly, Section 529, 529(A) and 530 of the Companies Act which reads as follows : Section : 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 val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a company, means the aggregate of the following sums due from the company to its workmen, namely :- (i) all wages or salary including wages payable for time or piecework 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 work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where the mortgagor ostensibly sells the mortgaged property - on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the buyer the sale shall become void. or on condition that on such payment being made the buyer shall transfer the property to the seller. the transaction is called a mortgage by conditional sale and the mortgage a mortgagee by conditional sale; Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale. (d) Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorizes him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. According to him in view of the provisions of the Act alongwith the provisions of Section 66 of the Indian Evidence Act which provides that whether the trustee wrongfully mingles the trust property with his own, the beneficiary is entitled to a charge on the whole fund for the amount due to him. According to him, an amount which was deducted by the company from the wages of the employee of the ESI contribution is held by the company as a trust money and when the company has wrongfully mingled the amount in question trust money which is owned by the workers in this cse are entitled to charge whole fund for the amount due to them. He has also stated that in view of the provisions of Section 45-B of the Act which provides any contribution payable under this Act may be recovered as an arrears of land revenue. He has also stated that in view of the provisions of Section 94 which provides contribution etc. due to corporation to have prority over other debts. 17. In support of his contention learned advocate for the applicant has relied upon the judgement in case of Baroda Spg. & Wvg. Mills Co. Ltd. (in Liquidation) Vs. Baroda Spg. Wvg. Mills Cooperative Credit Society reported in 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the company, which cam to it by way of deduction from the wages and salary payable to its employees, on the requisition of the society, of which the employees were the members, for satisfying the demand or debt which they owed to the society, was impressed with the character of a trust in the hands of the company, and the same can be recovered by the society from the liquidator before the liquidator proceeds to distribute the assets of the company. It must be paid over in full before any distribution of the assets of the company takes place." 17.1(a) Learned counsel has also relied upon judgement of this Court in the Company Application No. 72 of 1991 in Company Application No. 52 of 1989 in the case of Central Bank of India Vs. Recovery Mamlatdar and others (Coram : S.D.Shah,J) on 13.4.1994 and reported in 87 Company Cases 284. 17.1(b) After referring to the judgement of this court in the case of Baroda Spinning and Weaving Mills Co. Ltd. (In Liquidation) Vs. Baroda Spinning and Weaving Mills Co-operative Credit Society Ltd. (1976) (46 Company Cases 1) (Guj) the Court observed on page 287 as follows:- "The money which the company has deducted from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 128 at paragraphs 27, 28 and 29, this contention has been negatived by the court. Paragraphs 27, 28 and 29 read thus: "Para 27 - This contention coming from learned counsel in this respect, requires to be repelled on the reasonings which has governed the answer for the first question. Undoubtedly, the money lying with the mills company on the date of the order of liquidation and/or winding up were the money belonging to the credit society - the applicant before me, and that, the mills company in liquidation was holding the money in the capacity of a trustee. The mills company in liquidation was obviously not the owner of the money and in the same way, not the beneficiary. The money were being held by the mills company in liquidation in trust which were required to be transmitted to the credit society, so that it could be adjusted by the said society against the dues of the members, who incidentally would be the workers' of the mills company in question. Para 28 - It is indeed true that when the properties were mortgaged with secured creditors having the first charge over the same, the mills company in liquidation had the equity of redemption with them. On the passing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made security for thepayment of money to anotyher, and the transaction does not amount to a mortage, a charge is created onthe proepryt and all the provisions in the Transfer of Property Act which apply to a simple mortage shall, so far may be, apply to such charge. A mortgage on theother hand, is denied under Section 58 of the Transfer of Property Act as a tranfer of an interest in specific immovable property for the purpose of scruing the payument of money advanced or to be advanced as set out therein. The distinction between a mortgage and a charge was considered by this Court in the case of Dattatreya Shanker Mote Vs. Anand Chintaman Datar, (1974) 2 SCC 799. The Court has observed (at page 806-807) that a charge is a wider term as it includes also a mortgage, inthat, every mortage is charge, but every charge is not a mortgage. The Court has then considered the application of the second part of Section 100 of the Transfer of Property Act which inter alia deals with a chage not being enforceable against bona fide transferee of the porperty for value without notice of the carhge. It has held that the phrase "transferee of entire interest in the property and it does not cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of the same amount through the clearing house system to another New York bank for the account of the defendant. The defendant petitioned the English High Court to be wound up compulsorily. On 2nd December a winding up order was made. The defendant was insolvent and the plaintiff could not hope to recover the whole of the amount paid by mistake on 3rd July if it proved as a creditor in the winding up. The plaintiff brought an action in England against the defendant claiming inter alia, a declaration that on 3rd July 1974 the defendant became a trustee for the plaintiff of the huge amount, namely $US 2,000,687.50. In these facts and circumstances of the case the plaintiff was entitled to trace and recover that sum. On page 1039 the court has observed as under: "I have on the other hand heard a good deal of argument, and I have been referred to a number of authorities, regarding the characterisation of the same provisions of New York law by an English court. It is unnecessary, and therefore undesirable, for me to express any opinion on that question. I have held, after examining Re Diplock's Estate (1948) 2 All ER 318 that under English municipal law a party who pays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H & CO. & ORS. reported in 2000(4) Supreme Today 500. In this case, in para 8 the Supreme Court has held as under:- "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 recognised 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 in possession of necessary funds and this consideration emphasises the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (See M/s. Builders Supply Corporation Vs. Union of India AIR 1965 SC 1061). 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 Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one that of the subject, has prevailed already. In GILES VS. GROVER (183) 131 ER 563 it has been held that the Crown has no precedence over a pledgee of goods. In BANK OF BIHAR VS. STATE OF BIHAR & ORS. AIR 1971 SC 1210, the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose staes in Law of Mortgage (T.L.L. Seventh Edition, p. 386) `It seems a Government debt in India is not entitled to precedence over a prior secured debt.' In para 15 of the judgement, the Supreme Court further observed as follows:- "We have seen that the common law doctrine of priority of crown debts would not extend to providing preference to crown debts over secured private debts. It was submitted by the learned counsel for the appellant that under the Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a primacy to all the moneys recoverable under Chapter XVI, which will include sales tax arrears." 19.2 The learned counsel has relied on judgement in the case of RAMABAI GOVIND VS. RAGHUNATH VASUDEO reported in AIR 1952 Bombay 106 where the court has on page No. 110 in para 5(a) has observed as follows: "Unless and until the trustee succeeds in establishing before a Court of law that no part of the trust property formed part of the consideration for the purchase of that property and he had purchased it out of his own separate property or properties, he would not be able to claim the property as his own, and the beneficiary or the cestui que trust would be entitled to that property. This is the position which is clearly laid down in law and is well recognised in the text books and the authorities as above stated." 19.3 He has also relied on the Division Bench judgement of this court in the case of GUJARAT STATE FINANCIAL CORPORATION VS. OFFICIAL LIQUIDATOR AND OTHERS reported in 87 Company Cases 658. On page 673 the Court has observed as under:- "If that be the correct position, and in our opinion it is, the conclusion is irresistible that a secured cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any step which results in directly or indirectly coercing the applicant to make the payment of arrears in question which are subjudice and in respect of which the court after hearing the learned counsel for both the parties has ordered on 30th April, 1998 that applicant ought not to be disturbed and coercive actions should not be taken against it. It is further clarified that any proposals put by the applicant as transferee of the property in question shall not be refused and rejected solely on account of non-payment of the arrears of property tax in question in this application." 20. Mr. Mayank Buch, learned counsel for another secured creditor has relied on the judgement of Kerala High Court in the case of KERALA FINANCIAL CORPORATION VS. RECOVERY OFFICER AND ASSISTANT PROVIDEND FUND COMMISSIONER AND ANOTHER reported in (1994) Corporate Law Adviser Volume 15 page 343 in which on page 344 the court observed thus: "The anture of the rights claimed by the Corporation and the Recovery Officer may be considered in the light of the relevant provisions of law. The m to the payment of employer's contribution under sub-section (2) of Section 11 of the Provident Funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . S.R. Shah, learned advocate for the applicant, heavily relied on the judgement in the case of STATE BANK OF BIKANER & JAIPUR VS. NATIONAL IRON & STEEL ROLLING CORPN. AND OTHERS (supra) which is delivered by three Judges Bench. He has submitted that Mr. Roshan Desai has relied on the judgement of the Hon'ble Supreme Court in the case of DENA BANK VS. BHIKHABHAI PRABHUDAS PAREKH & CO. & ORS. (supra) which has been delivered by two Judges Bench. He further submitted that the Hon'ble Supreme Court in DENA BANK's case (supra) has not referred to three Judges Bench's judgement of the Hon'ble Supreme Court in the case of STATE BANK OF BIKANER & JAIPUR (supra). He stated that the earlier judgement is delivered by three Judges Bench which is binding on two Judges Bench and as such the later judgement of the Hon'ble Supreme Court has not referred to the earlier judgement. The subsequent judgement of the Hon'ble Supreme Court is per curiam and is not binding on this Court. Mr. Roshan Desai, learned advocate for the Bank has submitted that this court should not follow the judgement of this court in NUTAN MILLS' case (supra) delivered by Mr. Justice S.D. Dave, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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