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TMI Blog2006 (3) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... the Security Deposit lying with the petitioner given at the instance of the 2nd respondent, as its trading member according to bye-laws, rules and regulations of the Stock Exchange. 2. The petitioner is a recognised stock exchange in India having his own rules, bye-laws and regulations. The second respondent became a trading member in the petitioner stock exchange and as per the requirements of the bye-laws and rules, the 2nd respondent deposited a sum of ₹ 56 lakhs for their admission to membership of capital market segment. Out of this amount of ₹ 56 lakhs, ₹ 45 lakhs was received by the petitioner-stock exchange as security deposit against clearing and settlement of dues that may be accrued at the instance of the 2nd respondent trading member. ₹ 5 lakhs was received against equipment given to the 2nd respondent and the balance of ₹ 1 lakh was received for supply of U.P.S. by the petitioner stock exchange. Out of ₹ 45 lakhs received as security deposit, ₹ 9 lakhs had already been given to National Securities Clearing Corporation for the purpose of appropriation of member dues and the balance of deposit of ₹ 36 lakhs is with the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner shall keep the amount of ₹ 30 lakhs lying with the petitioner intact without any transactions for a period of eight weeks. By order dated 6.3.2002, this court continued the interim stay subject to the petitioner keeping ₹ 27,89,611.89 intact without any transaction, as it was represented by the learned counsel for the petitioner that the amount lying with the petitioner was only ₹ 27,89,611.89. 6. The 1st respondent filed counter affidavit. According to the 1 st respondent, M/s.Premier Housing and Industrial Enterprises Ltd. is an establishment covered under the Act bearing P.F.Code No. TN-39526. The said establishment failed to pay the statutory Provident Fund dues for the period from April 1998 to March 2000. As such an enquiry under Section 7A of the Act was initiated on 14.6.2000 and the dues were assessed to the extent of ₹ 17,97,510/- and necessary proceedings were issued to the establishment directing them to pay the P.F. dues and action under Section 8F of the Act was invoked for attachment of ₹ 2 0,42,057/- which includes dues of ₹ 17,97,510 by M/s.Premier Housing and Industrial Enterprises Ltd. and a sum of ₹ 2,44,547/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein. The major portion of the shares held by the 2nd respondent company have been acquired by M/s. Integrated Finance Company Ltd. 12. Section 8F(3)((i) and ii) of the Act reads as follows:- "8F(1) ... (2) ... (3)(i) The Central Provident Fund Commissioner or any other officer authorised by the Central Board in this behalf may, at anytime or from time to time, by notice in writing, require any person from whom money is due or may become due to the employer or, as the case may be, the establishment or any person who holds or may subsequently hold money for or on account of the employer or as the case may be, the establishment, to pay to the Central Provident Fund Commissioner either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due from the employer in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the employer jointly with any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om him. 14. The impugned proceedings have been issued following the provisions contained in Section 8F of the Act. But the learned Senior Counsel appearing for the petitioner submitted that as per the rules, byelaws and regulations framed by the petitioner stock exchange, the amount received as security deposit from the 2nd respondent shall vest with the defaulter's committee, who is entitled to take such other acts as contemplated under the bye-laws. In the case of the petitioner that so far 11 arbitration awards have been passed against the 2nd respondent and the total amount of award comes to ₹ 25,15,552.33 and the defaulting committee is liable to fulfil the obligations of the 2nd respondent from the security deposit available with the petitioner who has got exclusive lien and charge over the same. Therefore, it cannot be attached under Section 8F of the Act. 15. But the learned counsel for the 1st respondent submitted that under Section 11(2) of the Act, the amount due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, or to the extent of assessee's liability for any sum due under this Act, whichever is less. 18. In [2001]248ITR209(SC) (supra), the Hon'ble Supreme Court has held in para 9 as under:- 9. The Stock Exchange Rules, Bye-laws and Regulations have been approved by the Government of India under the Securities Contracts (Regulation) Act, 1956. There is no challenge to these Rules. The question whether right of membership confers upon the member any right of property is, therefore, to be examined within the framework of the Rules, Bye-laws and Regulations of the Exchange. On a plain and combined reading of the Rules, it is clear that right of membership is merely a personal privilege granted to a member, it is nontransferable and incapable of alienation by the member or his legal representatives and heirs except to the limited extent as provided in the Rules on fulfilment of conditions provided therein. The nomination wherever provided for is also not automatic. It is hedged by Rules. On right of nomination vesting in the Stock Exchange under the Rules, that right belongs to the Stock Exchange absolutely. The consideration received by the Stock Exchange on exercise of the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Builders Supply Corporation [1965]56ITR91(SC) ). 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 British India at the relevant time within the meaning of Article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock exchange and since the said Rules and Regulations of the Board do not recognise a trading member as a member of the stock exchange, they cannot be brought within the net of the levy. They rely on the definition of " stock exchange" under Rule 2(d) of the Rules which states that " stock exchange" means a stock exchange which is for the time being recognised by the Central Government under Section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and a stock broker is defined as a member of a stock exchange. Since the stockbrokers of NSE being a company of which under Section 2(e) of the Act and NSE being a company of which shareholders are only institutions and trading members not being shareholders, they do not fall within the definition of a member of a stock exchange. It is difficult to accept this argument. Section 3(2)(c) of the SCR Act requires a stock exchange which applies for recognition to specify various classes of members who will be admitted as members of the stock exchange. This does not make any distinction between a full-fledged member and a trading member of the NSE. Further, clause 9 of Part II of annexure to Form 'A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, right in coming to the conclusion that on a default being committed the share broker ceases to become a member of the Exchange and all his rights, privileges etc. as a member come to an end. If he does not clear the dues within six months the Governing Body then has a right of nomination in respect of such membership. It will be incorrect to state that on the stock broker ceasing to be a member, he still retains any right or interest in the permission which has been granted to him by the Exchange to carry on business as a member. The membership card of a share broker is not his personal property which, on default being committed by him and his ceasing to be a member, can be sold and the proceeds distributed amongst his creditoRs. Rule 53 and 54 leave no manner of doubt that the member's right of membership vests in the Exchange after he is declared defaulter. This view, namely, that the defaulting member can claim no interest in the membership card and can pass none is in consonance with the decision of the Privy Council in Official Assignee of Bombay v. K.R.P.Shroff. In that case a member of the Bombay Stock Exchange had lost his membership for being a defaulter. The main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the benefit of the employees engaged in the factories and establishments. The entire Act is directed towards achieving this objective by enacting provisions requiring the employer to contribute towards Provident Fund, Family Pension and Insurance and keep the Commissioner informed of it by filing regular returns and submitting details in forms prescribed for that purpose. Paragraph 36-A of the Provident Funds Scheme framed by Central Government under Section 5 of the Act requires the employer in relation to a factory or other establishment to furnish Form 5-A mentioning details of its branches and departments, owners, occupiers, Directors, partners, Managers or any other person or persons who have ultimate control over the affairs of the factory or establishment. The purpose of giving details of the owners, occupiers and Directors etc. is not an empty formality but a deliberate intent to widen the net of responsibility on any and every one for any act or omission. It is necessary as well as in absence of such responsibility the entire benevolent scheme may stand frustrated. The anxiety of the legislature to ensure that the employees are not put to any hardship in respect of Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become due to the employer. It is an established fact that on the date the Appellant Bank received the money from the Insurance Company or the date on which it received the notice issued by the Commissioner under Section 8-F(3)(i) of the Act, there was no money in the hands of the Bank which was due to employer. Therefore, in issuing the impugned notice dated March 2, 1995, the Commissioner acted ultra vires of the Act. 27. In the above case, the Division Bench of the Karnataka High Court has held that in enforcing the liability of the employer to pay provident fund contributions against third parties, it becomes imperative that the Commissioner could raise the demand under subsection 3(i) of Section 8F of the Act 1952 against the third parties only when he finds the money of the employer in the hands of such third parties to whom the notice sent or in the course of time, required money will become due to the employer. 28. In (2002)ILLJ986MP , (supra) the Madhya Pradesh High Court has held that it was mandatory on the part of the Recovery Officer before passing the final orders, to hold an enquiry and give due opportunity to the person concerned. 29. By order dated 5.1.2001, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns over other debts and such being the nature of Provident Fund, any violation or breach in this regard, has to be strictly construed. 33. In the light of the above discussions, I am unable to oust the case of the petitioner. Consequently, W.P.No.24857/2001 is dismissed. No costs. The other connected W.P.M.Ps. are also dismissed. 34. (II) Writ Petition No. 25609/2001 has been filed for issue of a writ of certiorari to call for the records relating to the impugned attachment order No. E1/TN/36764/Enf/RC.j1/2001 dated 5.1.2001 issued by the 1st respondent and quash the same in so far as it attaches the NSC deposit money lying with the 2nd respondent to the credit of the 3 rd respondent towards the arrears payable by M/s.Premier Housing & Industrial Enterprises Ltd. 35. The petitioners herein initiated arbitration proceedings against the 3rd respondent, M/s.Premier Securities Ltd., before the 2nd respondent-National Stock Exchange of India Ltd. The 2nd respondent passed an award directing the 3rd respondent to pay a sum of ₹ 9,11,740.70 and ₹ 4,99,778.81 with interest. Thereafter, the writ petitioners filed E.P.Nos.759 and 761 of 2001. They also took up garnishee proce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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