TMI Blog2001 (11) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000 to the P.F. Account. Out of the said amount an amount of Rs. 72,96,915 represents the employees share of the Provident Fund contributions deducted from the wages of the employees. Therefore, the third respondent who was the recovery officer under the EPF Act issued an order of attachment dated 5-7-2001 prohibiting and restraining the appellant from transferring or changing the business in any way without the prior consent of the authority concerned. On the same day, an order was passed appointing the factory manager of the appellant-company as receiver. It also appears that the Board for Industrial and Financial Reconstruction (BIFR) issued directions directing the appellant-company to pay the employees share of EPF dues in three equal monthly instalments together with interest at applicable rates apart from issuing other directions. Aggrieved by the said directions, the appellant preferred an appeal before the Appellate Authority for Industrial and Financial Reconstruction, New Delhi and the same was pending. Question 3. The question, which arose for consideration before the learned single Judge is as to whether having regard to the provisions of section 22(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but no protection has been provided thereunder as regards the contribution of the employer. Findings 5. SICA has been enacted to make in the public interest, special provision with a view to securing the timely detection of sick and potentially sick industrial companies owning industrial undertakings, speedy determina-tion by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith and incidental thereto. The objectives are to fully utilise the productive industrial assets; afford maximum protection of employment and optimise the use of the funds of the banks and financial institutions. The salient features of the Act are to identify the sick industrial units, registered for not less than seven years, on the basis of symptomatic indices of cash losses for two consecutive years and accumulated losses equalling or exceeding the net worth of the company as at the end of the second financial year. The Act envisages for establishment of a Board consisting of experts in various relevant fields with powers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : " Suspension of legal proceedings, contracts, etc. 22(1) Where in respect of an industrial company, an enquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the Memorandum and Articles of Association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." Section 22 of SICA comes into operation where an enquiry under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablishment or employer by one or more of the modes, i.e., (1) attachment and sale of the movable or immovable property of the establishment of the employer, ( 2 ) arrest of the employer and his detention in prison, and ( 3 ) appointing a receiver for the management of the movable or immovable properties of the establishment or the employer. Section 8G provides that the provisions of the second and third schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, as in force from time to time, shall apply with necessary modifications as if the said provisions and the rules referred to the arrears of the amount mentioned in section 8 instead of to the Income-tax. 5.4 Para 32 of the scheme under EPF Act provides for recovery of a member s share or contribution from the wages of the member. Para 32(3) provides that any sum deducted by an employer from the wages of an employee under the scheme shall be deemed to have been entrusted to him for the purpose of paying the contribution in respect of which it was deducted. Para 32A provides for recovery of damages for default in the payment of any contribution to the Fund by the employer at the rates specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, complete waiver of damages may be allowed; ( b )in cases, where the Board for Industrial and Financial Reconstruction, reasons to be recorded in its scheme, in this behalf recommends, waiver of damages up to 100 per cent may be allowed; ( c )in other cases, depending on merits, reduction of damages upto 50 per cent may be allowed. 5.6 Para 38 provides that the employer before paying the member his wages in respect of any period or part of period for which contributions are payable, was under obligation to deduct the employee s contribution from his wages together with his own contribution and he shall within fifteen days of the close of every month pay the same to the Fund by separate bank drafts or cheques on account of contributions and admi-nistrative charge. Both the statutes are special statutes. Whereas the object for enactment of SICA was to provide for the revival and rehabilitation of sick industrial companies, the object of the EPF Act, as indicated hereinbefore, was as a measure to provide social security to the employees. The contribution of the employees towards PF is not a tax due. It is not also an amount recoverable under a contract. 5.7 The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was also held that the word proceeding in section 22(1) cannot be given a narrow or restricted interpretation so as to confine it only to legal proceedings and a proceeding under section 29(1) of the State Financial Corporation Act was held to be within the purview of section 22(1) of SICA. 5.9 Gram Panchayat s case ( supra ) is a case where Gram Panchayat initiated coercive proceedings under section 129 of the Bombay Village Panchayats Act to recover the amount due towards property tax against a sick company. The Apex Court held that coercive steps to recover dues for the payment of property tax would fall within the purview of section 22(1) and that no coercive steps should be taken without the permission of BIFR. It was held : "In the light of the steps taken by the Board under sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company s properties. As soon as the inquiry under section 16 is ordered by the Board, the various proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to collect amounts due to the revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statute in a business sense, should be avoided. (p. 2032) 5.11 In Tata Davy Ltd. v. State of Orissa [1998] 111 STC 462 the recovery of arrears due towards sales tax were sought to be recovered by the provisions of Orissa Sales Tax Act, 1947. The Apex Court held that arrears of taxes and the like due from sick companies that satisfy the conditions set out in section 22(1) cannot be recovered by coercive process unless consent is obtained from the BIFR to recover such arrears. 5.12 In Gujarat Steel Tube Co. Ltd. v. Virchandbhai B. Shah [1999] 8 SCC 11 the Apex Court had occasion to consider the question as to whether an application for eviction under the Karnataka Rent Control Act was maintainable notwithstanding the provisions of section 22. Relying on the decision in Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association [1992] 3 SCC 1 the Apex Court held that the Rent Control Act gave protection to a statutory tenant to continue to occupy the premises but such right could not be regarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be specified in the scheme. When the provisions of section 14B were inserted, the Parliament took cognisance of the provisions of the EPF Act and in its wisdom only the recovery of damages was permitted to be reduced or waived subject to the conditions provided thereunder. Even the condi- tions specified in Para 32B of the Scheme does not provide for any provision exempting a sick company from withholding the PF contribu- tions collected from the wages of the employees or prohibiting the authority under the EPF Act from proceeding against such employers who defaulted to remit the contributions collected from the wages of the employees to the PF Fund, in accordance with the provisions of the EPF Act. 5.15 In this case, the default is admitted. Section 14B clearly provides that the Central Board can reduce or waive the damages levied under the said provision but no provision has been made in relation to the employees provident fund and, in our view, having regard to the directive principles of State policy as contained in Part IV of the Constitution of India no such provision could be made. For the purpose of applicability of the second proviso, the pre-conditions therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effectuate the directive principles of State policy contained in articles 39 and 41 of the Constitution of India. The following observations of the Apex Court may also be noticed : The measure was enacted for the support of a weaker sector viz. the working class during the superannuated winter of their life. The financial reservoir for the distribution of benefits is filled by the employer collecting, by deducting from the workers wages, completing it with his own equal share and duly making over the gross sums to the fund. If the employer neglects to remit or diverts the moneys for alien purposes the Fund gets dry and the retirees are denied the meagre support when they most need it. This prospect of destitution demoralises the working class and frustrates the hopes of the community itself. The whole project gets stultified if employers thwart contributory responsibility and this wider fall-out must colour, the concept of damages when the court seeks to define its content in the special setting of the Act. For, judicial interpretation must further the purpose of a statute. In a different context and considering a fundamental treaty, the European Court of Human Rights, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits. The payment of provident fund dues to the Fund, therefore, stands on the same footing as the payment of wages, which is due to the employees. That is an entitlement to which the employees are entitled by dint of the work, which they have put in. These are dues which are payable whether or not an undertaking is sick. They constitute an intrinsic part of the employees right to life under Article 21 of the Constitution. 5.23 In BSL Ltd. v. Gift Holdings Pvt. Ltd. [2000] 2 SCC 737 1 the Apex Court was considering the applicability of the provisions of section 138 of the Negotiable Instruments Act. In relation to a sick company. It was held that once offence committed by the company under section 138 is complete by reason of non-payment of the amount covered by the cheque issued by it, even if thereafter BIFR passes an order declaring the company as sick, section 22(1) of SICA would not bar institution of criminal proceedings against the company and its directors under the Negotiable Instruments Act. 5.24 In Kusum Ingots Alloys Ltd. v. Pennar Peterson Securities Ltd. [2000] 2 SCC 745 2 was again a case dealing with the provisions of section 138 of Negotiable I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercive steps for recovery of the dues towards the employees share of contribution. 5.26 At this stage, we may record that on 9-10-2001, the learned counsel appearing for the appellant has filed a petition bringing to the notice of this Court that the appeal filed against the order passed by the BIFR had since been disposed of by the Appellate Authority and the same be taken into consideration while disposing of the present appeal. It appears that the appellate authority for Industrial and Financial Reconstruction, New Delhi in appeal No. 243 of 2001 by order dated 27-9-2001 disposed of the appeal in the following terms : The appellant s case is that it is not having sufficient cash flow and has been irregular in payment of salaries and wages of employees and workers as well as in depositing the amounts deducted therefrom towards EPF and ESIC contribution. We realise the hardship faced by the workers due to delay in payment of their wages. We also feel concerned about the fate of workers who have died or retired and have not received their legal dues. We are also aware that EPF and ESIC organisations have their policies for recovery of arrears of EPF and ESIC dues over a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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