9911796707
TMI Blog2001 (7) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- the Company in liquidation. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 under Section 53, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our 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 been ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,90,00,000/- out of which 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution or any other amount payable under 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947) ; (b) workmen , in relation 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee. (c) 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 prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account of the company. The learned advocate for the applicant has stated that in view of Section 40(4) of the ESI Act, 1948 any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted. 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Property which can be identified as belonging to or held by a company in trust, for other persons, may be followed and recovered from the liquidator. After referring the said passage, the learned judge on page 22 held as under:- Applying the principles to which reference has been made in this judgement, it is crystal clear that the amount, in 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 rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demption with them and on the appointment of the liquidator for the company in question after the orders of winding up, the liquidator was having that equity alone and that, though he has significant amounts in his hand, the entire amount would be required to be paid to the secured creditors and no money as urged by the applicant credit society should be either set apart or paid. On page 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 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11-AAAA of the Rajasthan Sales Tax Act, 1954 on an existing mortage in respect of the property of the dealer or the person liable to pay sales tax or other sums under the Rajasthan Sales Tax Act, 1954. Section 100 of the Transfer of Property Act deals with Charges on an immovable property which can be created either by an act of parties or by operation of law. It provides that where immovable property of one person 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on judgement in the case of CHASE MANHATTAN BANK NA V. ISRAEL-BRITISH BANK (LONDON) LTD. reported in All England Law Reports Volume 3, 1979 page 1025. This case shows that plaintiff, a New York bank, was instructed to pay huge amount to another New York bank for the account of the defendant. The plaintiff duly made the payment through the New York clearing house system. Later that day by mistake because of a clerical error it made a second payment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple applies even where there is no specific trust but the company is in possession as constructive trustee without having any beneficial interest. Cf. Baroda Spinning and Weaving Mills Ltd. Vs. Its Co-op. Society (1976) 46 Com Cases 1 (Guj) . 19. On the other hand Mr. Roshan Desai, learned counsel for the secured creditors, has relied on the recent judgement of the Hon'ble Supreme Court in the case of DENA BANK VS. BHIKHABHAI PRABHUDAS PAREKH 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors. The Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Cronw's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King comences, the rule does not apply, for there 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 satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the Bank. A perusal of the relevant statutory provisions quoted in the judgement goes to show that any provision pari materia with the one contained in Section 158 of Karnataka Land Revenue Act was not to be found in any of the local acts under consideration of this Court in Collector of Aurangabad Vs. Central Bank of India. The effect of Section 190 is to make the procedure for recovery of arrears of land revenue applicable for recovery of sales tax arrears. The effect of Section 158 is to accord 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 enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary acceptance of a valid transfer is inherent in principle right to follow property in the hands of transferee. Therefore, once the applicant has purchased the property at auction held by Official Liquidator which was confirmed by the court, in the absence of any statutory prohibition against transfer, the Corporation cannot refuse to recognise the purchaser as a transferee and to deal with it as transferee of the property in question. Therefore, I deem it necessary to clarify that the Corporation would not take 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in the trust money in the hands of a trustee, in avour of the trustree, or else the trustees in many such cases would also enjoy position of a creator of a trust and the only beneficiaries. This would militate against the very basics of the Doctrine of Trust not only implied but express also. 23. As regards the contention of the secured creditors that this properties were already morgaged prior to charge created by the Corporation and, therefore, the Corporation has no right to claim the said amount. 23.1 Mr. 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 O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in STATE BANK OF BIKANER JAIPUR Vs. NATIONAL IRON STEEL ROLLING CORPORATION reproted in 1995 AIR SCW 214 is binding or whether the judgement of the Hon'ble Supreme Court in the case of DENA BANK Vs. BHIKHABHAI PRABHUDAS PAREKH CO., reported in 2000 (4) Supreme Today 5000 is binding to this case ? (2) Whether amount standing to the credit of the workers regarding their contribution to Employees State Insurance Act in the books of the Mill Company (In Liquidation) is impressed with the character of a Trust and hence, it does not form part of the assets of the company and the Liquidator is bound to pass the same in priority before any distribution of the assets of the company is made by him ? (3) Whether the property/assets of the Company which has already been mortgaged or earmarked by the secured creditors and when the Company is in the liquidation whether the Liquidator was having that equity alone and whether the entire amount was required to be paid to the secured creditors or the applicant is entitled to priority over the said dues in this behalf.? 26. In view of the aforesaid discussion in the matter, as the matter is required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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