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TMI Blog2008 (8) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... d Miscellaneous Provisions Act,1952 (hereinafter referred to as the PF Act). It appears that the erstwhile establishment, was declared a sick undertaking under the provisions of Sick Industrial Companies (special provisions) Act 1985 (hereinafter referred to as SICA) and subsequently, proceedings under the provisions of The Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act) were initiated by Asset Reconstruction Co. India Ltd. (hereinafter referred to ARCIL ) and said ARCIL had taken over the possession of the secured assets of said erstwhile establishment and subsequently initiated auction proceedings of the assets of said Erstwhile Establishment, so as to recover the alleged unpaid amount. It was during the said auction proceedings by said ARCIL that the present respondent purchased the assets of the said Erstwhile Establishment. It appears that until then the dues of the Department i.e. the petitioner organization were not fully paid by the said Erstwhile Establishment, therefore, it raised demand against ARCIL after ARCIL took over the possession of the secured assets of the Erstw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned advocate for the petitioner organization and Mr. Devang Nanavati, learned advocate for the respondent No.1. 7. Mr. Mehta, learned advocate submitted that the order of P.F. Tribunal is erroneous and contrary to the provisions of the PF Act. Mr. Mehta, learned advocate also submitted that the P.F. Tribunal has committed serious error in allowing the appeal preferred by the present respondent. He submitted that the petitionerdepartment is justified in demanding the damages and interest from respondent No.1, which originally became payable by the Erstwhile Establishment in view of the delay caused by it in depositing the contribution. Mr.Mehta learned advocate has, however, not disputed the submission that the amount towards contribution has already been paid and the only demand which is being pressed is regarding damages and interest. 8. Mr. Nanavati for respondent No.1 submitted that petition does not deserve to be entertained and the order passed by the P.F. Tribunal, is just, equitable, legal and proper. Mr. Nanavati also raised a contention that it is not permissible to the petitioner to challenge the order passed by the highest adjudication authority under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.1 It appears that there was a concern named Santogen Spinning Mills Ltd., i.e. Erstwhile owneremployer and said Erstwhile Establishment was a unit of a Company named Sonu Synthetics Ltd. , and when asked that whether the Erstwhile Establishment was a subsidiary/sister concern of M/s. Sonu Synthetics Ltd. and how and on what basis, it has been described as a unit of Sonu Synthetics Ltd. , no reply is given either by the petitioner or the respondent. 9.2 The submission of the petitioner is that the said Erstwhile Establishment had caused delay in depositing the Provident Fund contribution and that therefore proceedings were initiated against the said Erstwhile Establishment (in which, at the relevant time presentrespondent was not a party) and during the said proceedings, the dues towards damages and interest were assessed at ₹ 1,35,96,274/under Section 14(B) and Section 7(q) of the Act. 9.3 It is relevant to note that the demand pertains to the period from 1995 to 2004 whereas the respondent No.1 purchased the assets of the Erstwhile Establishment in December 2005 vide sale Certificate dated 5.12.2005 and that too during auction. 9.4 The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The relevant fact is that the petitioner is claiming payment of damages and interest from the respondent No.1 on the ground that Erstwhile Employer had caused delay in depositing P.F. Contribution and therefore, it had become liable to pay damages under Section 14(B) and interest under Section 7(q) and now since the respondent No.1 has purchased the properties of Erstwhile Employer, it is its liability to make the said payment. 12. The questions, therefore, are whether the demand of petitioner, in the first instance, for the damages and interest is justified and maintainable and if yes, whether the department can enforce the said claim (i.e. liability of Erstwhile Employer) against the present respondent No.1. So as to appreciate the rival submissions, it is necessary to take into account, certain provisions of the P.F. Act and also of the SARFAESI Act. 13. The relevant provisions under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, are Section 2(e), 2(k), 14(b) and 7(Q). The same read thus : Section 2(e):- employer means (i) in relation to an establishment which is a factory, the owner or occupier of the factory, inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the Scheme] [emphasis supplied] 14. So far as the SARFAESI Act is concerned, the relevant provisions are to be found under Sections 2(v), 2(z), 2(zc), 3 and 9, Sections 13(2), 13(4), 13(7), 13(8), 13(9) and Section 15. For ready reference, the same are reproduced hereinbelow : Section 2(v) : reconstruction company means a company formed and registered under the Companies Act, 1956 (1 of 1956) for the purpose of asset reconstruction; Section 2(z) : securitisation means acquisition of financial assets by any securitsation company or reconstruction company from any originator, whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 13(2) : Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as nonperforming asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor shall be entitled to exercise all or any of the rights under subsection (4). Section 13(4) : In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely: (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement :- (1)[When the management of business of a borrower is taken over by a securitisation Company or reconstruction company under clause (a) of Section 9 or, as the case may be, by a secured creditor under clause (b) of section (4) of section 13] the secured creditor may, by publishing a notice in a newspaper published in English language and in a newspaper published in an Indian language in circulation in the place where the principal office of the borrower is situated, appoint as many persons as it thinks fit (a) in a case in which the borrower is a company as defined in the Companies Act, 1956(1 of 1956), to be the directors of that borrower in accordance with the provisions of that Act; or (b) in any other case, to be the administrator of the business of the borrower. 15. Before proceeding further, it is appropriate and necessary to consider the objection of respondent No.1 against the petition on the ground of its maintainability. 16. As per the provision under the P.F. Act, the P.F. Tribunal is the ultimate adjudicating authority exercising appellate jurisdiction over the Regional Provident Commissioner and the orders passed by Region ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Present Petitioner) wherein the claims and assertions by the present respondent were not disputed and the P.F. Tribunal also took notice of the fact that the Commissioner, while passing the order, did not take into consideration the submissions of the appellant (i.e. Present respondent). The P.F. Tribunal has, in the order, made acidulous remark that It is apparent from the face of the impugned order that the oral submissions made by the General Manager of the appellant Company followed by written submissions have not been appreciated in right perspective. The P.F. Tribunal has, to support and justify its observations, findings and decision, relied upon the observation of the Honorable Supreme Court in the case of M/s. Hindustan Steel Ltd. Vs. State of Orissa reported in AIR 1970 S.C.C. 253. The observations of Honourable Apex Court in said judgment, on which, the P.F. Tribunal has based its findings and order are : An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the auction purchase of the assets by Present respondent and that the APF Commissioner did not apply mind and did not address the issue as to whether the contribution was deliberately not paid by Erstwhile Establishment and whether there was malafide intention. Above all the aforesaid features which vitiate A.P.F. Commissioner's order, the justification as regards the decision to recover the amount in question from the respondent No.1 is also absent. The A.P.F. Commissioner who is the concerned adjudicating authority has not recorded any reason in support of or to justify his decision and action of demanding the amount in question from the respondent No.1. Actually this issue is not addressed at all, and there is total nonapplication of mind by the petitioner A.P.F. Commissioner. The tribunal also examined other aspects of the A.P.F. Commissioner's order on merits and after examining the order on merits, the learned tribunal found, in light of the judgments of Honourable Apex Court in case of Hindustan Steel Ltd. V/s. State of Orissa (Supra) the Honourable Kerala High Court in the case of Erna Kulam Dist. Cooperative Bank v/s. R.P.F.C. (Supra) that the order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or petitioner, made a submission which was not raised by the department before A.P.F. Commissioner nor before the P.F. Tribunal and is raised for the first time in the petition. Mr.Mehta submitted that in light of the provision under Section 17B of the Act, the action of the department and the order of A.P.F. Commissioner are not unreasonable or they are not unjustified. He submitted that the said provision empowers the department to demand, in the event of transfer of establishment, the dues from the vendor and/or the purchaser. 24. On this count, before proceeding further, it is necessary to mention that this ground is not urged by the petitioner department at any earlier stage i.e. either during the original proceeding in which the A.P.F. Commissioner passed the order dated 19.06.2006 or before the P.F. Tribunal and is raised now for the first time in the petition under Article 227 of the Constitution of India. Mr.Nanavati objected on the ground that the contention which has not been urged even at the appellate stage ought not be allowed to be raised in this proceeding under Article 227. Mr. Nanavati is justified in taking this objection in view of department's failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n otherwise there was no purpose of using, at the outset of the section, the words where an employer . The said opening words are attached to and qualify the word transfers so as to mean where an employer transfers. ... .... . The Section takes in its fold voluntary transfer by an employer. Otherwise the Section would have been framed differently. If the legislature did not intend to restrict the applicability or coverage of this provision to only those transfers which are made voluntarily by employer and if the intention was to take in its fold even the transfers imposed by operation of law then the said words where an employer. ... ... would not have been used. The use of the said words at the outset of the Section is clear pointer about the intention of legislature. Any other interpretation would render the said words where an employer. ... ... nugatory. 29. Thus, this provision would come in play and can be invoked by the department when the transfer is effected by the employer. Hence, in present case the department must show, to take shelter under the said provision, that the transfer of Erstwhile Establishment was effected by its employer. 30. In p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from employer and similarly Section 7Q also provides for recovery of interest from employer. 35. Mr. Mehta, realizing the situation and facing the predicament, advanced an alternative submission that the ARCIL sold and thereby transferred, the erstwhile establishment to respondent No.1 and ARCIL being the employer within the meaning of Section 2(e), the action is justified and authorised. 36. It appears that what Mr.Mehta wants to submit on behalf of petitioner is that since ARCIL took over the possession of the assets of the erstwhile establishment under the authority conferred by SARFAESI Act, it became the occupier and consequently it would be employer within the meaning of Section 2(e) which defines the said term and that therefore the sale, and thereby the transfer, of the assets of Erstwhile Establishment by ARCIL would be a saletransfer by employer and thus provision of Section 17B would be applicable in present case also. This submission may now be examined. 37. Before proceeding further, it is apposite to note at this stage that if such submission were to be accepted then it would, in first place, amount to accepting a position which would allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act which include providing proper management by taking over management or sale or lease of business or rescheduling the schedule of payment and such other measures, for the purpose of reconstruction of assets. Thus, the measures mentioned in Section 9 can be taken by reconstruction Company (in present case ARCIL) only for the said specified purpose of reconstruction of assets and not for any other purpose. Hence, the power of reconstruction company and the object of its actions are circumscribed. Likewise under Section 10 also, it can take steps for the purpose of recovering dues. ... Besides, Section 13 also circumscribes the decisions and actions and manner of take over of management and subSection 4 of Section 15 provides that if the management was taken over then the reconstruction Company shall on realization of debt restore the management of the borrower to him. The other provisions of the SARFAESI Act go to suggest, on conjoint reading, that such reconstruction Company could take over only Secured Assets of the defaulter and that too for specific purpose and can act only in prescribed manner and can exercise only prescribed authority. Thus the said ARCIL can not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f present case. The demand and action of petitioner against respondent No.1, therefore, fails on this count. 43. Now, even if it is assumed that protection of Section 17B of 1952 Act could be available to the petitioner's action of demanding the dues of erstwhile establishment from respondent then also the action of the petitioner is not justified and in view of this Court, it is unsustainable. The Act provides for both, damages and interest, but the same should not be imposed and/or recovered arbitrarily and without considering relevant aspects. 44. The assessing and original adjudicating authority should also take into account host of factors, including the reason for delay and as to whether there was any mala fide intention in delay in depositing the contribution and whether there are any mitigating circumstances or not, before imposing damages and while deciding the quantum of damages. 45. In this regard the Honourable Apex Court has, while considering similar provisions under Employees' State Insurance Act,1948 very recently held in the case between EMPLOYEES' STATE INSURANCE CORPORATION v/s. HMT LTD. AND ANOTHER reported in (2008)3 S.C.C. Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the P.F. Tribunal, applied his mind as regards reasons for delay in depositing the contribution by the Erstwhile Establishment which was before BIFR as a sick undertaking and there was a strong possibility of compelling or mitigating circumstances existing at that time and the same ought to have been considered while deciding to impose damages and interest and/or while quantifying the amount. In present case even this aspect has not been duly addressed by the A.P.F. Commissioner. The foregoing discussion and a glance at the order in original dated 19.06.2006 shows that in present case none of the relevant aspects have been properly considered by A.P.F. Commissioner and the levy on the respondent is unjust and also unauthorised. The P.F. Tribunal is right and justified in setting aside the said order of A.P.F. Commissioner. The learned P.F. Tribunal's order which is impugned in present case does not suffer from any infirmity and the challenge, even if it is assumed that A.P.F. Commissioner can challenge the order of P.F. Tribunal, is misconceived and the impugned order does not warrant any interference. 47. At this stage it deserves to be mentioned that what is und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be mentioned that the said document is between ARCIL and the respondent and it may probably indemnify the ARCIL against any claim, but it would not help the petitioner to bring the respondent within the purview of Section 17B or to invoke Section 17B. As per the petitioner, the said document gives right and authority to it dehors the Act to recover the amount from the respondent and/or gives it right and authority under the Act also to claim and recover the amount. Assuming that the petitioner is right in its said contention, then also the same cannot be made a ground to assail the order of P.F. Tribunal more so because the respondent has not been afforded opportunity to lead evidence to explain the said document and/or plead its nonapplicability in the facts of the case since it was not raised at any earlier stage and the P.F. Tribunal's order can not be faulted by this Court on ground based on said document. It is clarified that this Court has not pronounced on the right of the petitioner, if at all there is any, on the basis of the said document and all that is considered and observed is that the petitioner, at this stage, cannot be allowed to assail the order of the P.F. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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