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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 ..... loyees Provident Fund And 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 ..... 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 the Act, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 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 was in process of recovering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner 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, including the agent of such owner or occupier, the legal repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctioned 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: Section 2(z-c) :- "secured asset" means the property on which security interest is created: Section -3 : Registration of Securitisation companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the substantial part of the business of the borrower is held as security for the debt;] Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Regional Provident Commissioner and/or the Assistant Provident Fund Commissioner under the Act. Considering the fact that the P.F. Tribunal is the ultimate appellate authority under the Act, this Court, in the above referred order dated 14.02.2005 in Special Civil Application No.1509 of 2005, held that Commissioner or the E.P.F. Organization sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a manner of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 by petitioner was unsustainable. 20. Now when the learned tribunal reached such a conclusion then as a corrolary the tribunal should quash such an order. Hence the PF Tribunal quashed the said order of A.P.F. Commissioner. With all these vitiating factors inherent in the A.P.F. Commissioner's order, the learned Tribunal could not have rejected the appeal and it has rightly allowed the appeal by quashing the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in urging it at any earlier stage. Normally a party to a petition under Article 227 would not be allowed to raise a contention which is not urged at the trial stage and more so when it is not raised even at the appeal stage. However, in present case, considering the facts of this case as well as having regard to the fact that the submission is based on the provision of the statute and its scope and applicability i.e. Is purely a contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 present case there is no dispute about the fact that prior to the auction, the "employer" was Santogen Spinning Mills and there is also no dispute about the fact that said Santogen Spinning Mills and/or its employer has not "transfered in any manner whatsoever" the erstwhile establishment or any of its assets to present respondent No.1. Thus present case would not come within the purview of said Section. 31. From the order dated 19.06.2006 by Assistant Provident Fund Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the defaulter - like the erstwhile establishment in present case - go away without discharging the liability. Secondly, in present case, it would require ARCIL to pay or discharge the liability at least equal to the value of assets received by it. Thirdly, it would obliterate the real object behind the said provision. 38. It is obvious that the object behind the said provision under Section 17B is to ensure that the defaulter may not escape its liability merely by transferring assets and also to check f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be considered or can not be said to be "occupier of the factory" as defined and contemplated under Section 2(k) of the Act. 41. The submission of the petitioner regarding Section 17B acknowledges that transfer of establishment has to be by "employer" as defined under Section 2(e) of the Act. The petitioner therefore submits that since ARCIL had taken over assets of Erstwhile Establishment, it is to be considered "employer" under Section 2(e) which defines the term "employer" and provides, in first place, that in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 35 that : A penal provision should be construed strictly. Only, because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from Section 85B of the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by reason of an enabling provision, the same cannot be construed as imperative. Even otherwise, an endeavor should be made to constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under challenge before this Court in this petition under Article 227 of the Constitution of India is the order dated 26.07.2007 passed by the P.F. Tribunal. Thus, this Court is required to examine only that order and that too within well recognised limitations of jurisdiction of this Court under Article 227 of the Constitution of India. Further, the said order can be examined only in the light of and in the background of the contentions raised before and examined by the P.F. Tribunal and any other material or contention which was not before the P.F. Tribunal can obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Tribunal on the ground which was not urged before the P.F. Tribunal, more so when it was also not the premise of the claim before or order by the A.P.F. Commissioner also and when neither the A.P.F. Commissioner's order nor the P.F. Tribunal's order contain its reference. The aforesaid observations and discussion is only with a view to put on record that the contention was urged during the hearing and upon having considered the same, this Court is not inclined to find fault in the P.F. Tribunal's order on this count. Since, as mentioned earlier, the said co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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