# 15 (ADDL.) S.C.R. 1 MAHARASHTRA STATE CO-OPERATIVE BANK LTD v. THE ASSISTANT PROVIDENT FUND COMMISSIONER AND ORS

- **Citation:** [2009] 15 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 2009-10-08
- **Case number:** Civil Appeal No. 6893 of 2009
- **Bench:** B.N. Agrawal, G.S. Singhvi, AFTAS- At.AM
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/15-addl-s-c-r-1-maharashtra-state-co-operative-bank-ltd-v-the-assistant-25288
- **Pages:** 57

## Headnote

I
Employees' Provident Funds and Miscellaneous
Provisions Act, 1952:
8
c
S. 11 - Provident funds dues payable by employer -
Held: Would be first charge on assets of establishment -
Such dues shall be paid in priority to all other debts - Priority
clause enshrined in s. 11 operate against statutory as well as D
.>(
non-statutory and secured as well as unsecured debts
including a mortgage or pledge - On facts, held, sugar bags
pledged by Sugar Mills in favour of appellant-bank as security
for repayment of loan together with interest- Deeds of pledge
executed did not have effect of transferring of ownership of E
sugar bags to bank - Sugar bags could be attached and sold
for realization of provident fund dues of the workers -
Constitution of India, 1950 - Articles 38, 43.
-4,
Legislative intent behind enactment of the 1952 Act -
Explained.
Purposive interpretation - The 1952 Act is social welfare
legislation - Courts to give purposive interpretation to the
provisions contained therein in view of Directive Principles of
State Policy - Interpretation of statutes.
--4
Contract: Pawn or pledge - Necessary ingredients. -
Discussed.
The question which .arose for consideration in these
F
G
1
H
2
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A appeals was whether the sugar bags pledged by Sugar
Mills in favour of the appellant-bank as security for
repayment of the loan together with interest could be
attached and sold for realization of the dues of provident
funds etc. payable by the employer i.e., the management
9. of the Sugar Mills under the Employees' Provident Funds
and Miscellaneous Provisions Act, 1952.
Dismissing the appeals, the Court
HELD.: 1. The framers of Indian Constitu-tion were
C alive to the plight of the working class and particularly the
unorganized labour employed in factories and other -
establishments. They were also conscious of the fact that
the goals of justice - social, economic and political and
>
equality of status and of opportunity proposed to be
__
D incorporated in the preamble to the Constitution would
)<.
remain illusory for weaker sections of society unless the
State· takes affirmative legislative and administrative
measures for ameliorating the conditions of those
·sections including the workers employed in factories etc.
E Therefore, specific provisions were incorporated in Part
IV of the Constitution with the title "Directive Principles
of State Policy" casting an obligation upon the State to
apply these principles in making laws. Article 38 which
>--
has been renumbered as clause (1) thereof by the
F Constitution (Forty-fourth Amendment) Act, 1978
declares that the State shall strive to promote the welfare
of the people by securing and protecting, as effectively
as it may, a social order in which justice, social, economic
and political, shall inform .all the institutions of national
life. Clause (2) of Article 38 mandates the State to strive
G to minimize the inequalities in income, and endeavour to
elimin.ate inequalities. in status, facilities and
.>-
opportunities, not only amongst individuals but also
amongst groups of people residing in different areas or
H
-1
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
3
../
PROVIDENT FUND COMMNR. AND ORS .
{
engaged in different avocations. Article 43 casts a duty A
'
on the State to make efforts to secure by suitable
<'
legislation or economic organization or in any other way,
to all workers, agricultural, industrial or otherwise, work,
)
a living wage, conditions of work ensuri.ng a decent
'
A
standard of life and full enjoyment of leisure and social
B
-
and cultural opportunities, and, in particular, social
opportunities. [Para 16] [19-E-H; 20-A-D]
{
Recovery Officer and Assistant Provident Fund
Commissioner v. Kera/a Financial Corporation (2002) 3 LLJ c
643 Kerala; A.P. State Financial Corporation v. Official
Liquidator (2000) SCC 291; Central Bank of India v. State of
Kera/a (2009) 4 SCC 94, referred to.
~
2.1. With a view to ensure that the employers

## Text

_Characters 0–39,939 of 111,395. This is a partial read: ask again with offset=39939 for what follows._

t
[2009] 15 (ADDL.) S.C.R. 1
MAHARASHTRA STATE CO-OPERATIVE BANK LTD.
A
v.
THE ASSISTANT PROVIDENT FUND COMMISSIONER
AND ORS.
(Civil Appeal No. 6893 of 2009)
OCTOBER 8, 2009
[B.N. AGRAWAL, G.S. SINGHVI AND AFTAS- At.AM, JJ.]
I
Employees' Provident Funds and Miscellaneous
Provisions Act, 1952:
8
c
S. 11 - Provident funds dues payable by employer -
Held: Would be first charge on assets of establishment -
Such dues shall be paid in priority to all other debts - Priority
clause enshrined in s. 11 operate against statutory as well as D
.>(
non-statutory and secured as well as unsecured debts
including a mortgage or pledge - On facts, held, sugar bags
pledged by Sugar Mills in favour of appellant-bank as security
for repayment of loan together with interest- Deeds of pledge
executed did not have effect of transferring of ownership of E
sugar bags to bank - Sugar bags could be attached and sold
for realization of provident fund dues of the workers -
Constitution of India, 1950 - Articles 38, 43.
-4,
Legislative intent behind enactment of the 1952 Act -
Explained.
Purposive interpretation - The 1952 Act is social welfare
legislation - Courts to give purposive interpretation to the
provisions contained therein in view of Directive Principles of
State Policy - Interpretation of statutes.
--4
Contract: Pawn or pledge - Necessary ingredients. -
Discussed.
The question which .arose for consideration in these
F
G
1
H
2
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A appeals was whether the sugar bags pledged by Sugar
Mills in favour of the appellant-bank as security for
repayment of the loan together with interest could be
attached and sold for realization of the dues of provident
funds etc. payable by the employer i.e., the management
9. of the Sugar Mills under the Employees' Provident Funds
and Miscellaneous Provisions Act, 1952.
Dismissing the appeals, the Court
HELD.: 1. The framers of Indian Constitu-tion were
C alive to the plight of the working class and particularly the
unorganized labour employed in factories and other -
establishments. They were also conscious of the fact that
the goals of justice - social, economic and political and
>
equality of status and of opportunity proposed to be
__
D incorporated in the preamble to the Constitution would
)<.
remain illusory for weaker sections of society unless the
State· takes affirmative legislative and administrative
measures for ameliorating the conditions of those
·sections including the workers employed in factories etc.
E Therefore, specific provisions were incorporated in Part
IV of the Constitution with the title "Directive Principles
of State Policy" casting an obligation upon the State to
apply these principles in making laws. Article 38 which
>--
has been renumbered as clause (1) thereof by the
F Constitution (Forty-fourth Amendment) Act, 1978
declares that the State shall strive to promote the welfare
of the people by securing and protecting, as effectively
as it may, a social order in which justice, social, economic
and political, shall inform .all the institutions of national
life. Clause (2) of Article 38 mandates the State to strive
G to minimize the inequalities in income, and endeavour to
elimin.ate inequalities. in status, facilities and
.>-
opportunities, not only amongst individuals but also
amongst groups of people residing in different areas or
H
-1
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
3
../
PROVIDENT FUND COMMNR. AND ORS .
{
engaged in different avocations. Article 43 casts a duty A
'
on the State to make efforts to secure by suitable
<'
legislation or economic organization or in any other way,
to all workers, agricultural, industrial or otherwise, work,
)
a living wage, conditions of work ensuri.ng a decent
'
A
standard of life and full enjoyment of leisure and social
B
-
and cultural opportunities, and, in particular, social
opportunities. [Para 16] [19-E-H; 20-A-D]
{
Recovery Officer and Assistant Provident Fund
Commissioner v. Kera/a Financial Corporation (2002) 3 LLJ c
643 Kerala; A.P. State Financial Corporation v. Official
Liquidator (2000) SCC 291; Central Bank of India v. State of
Kera/a (2009) 4 SCC 94, referred to.
~
2.1. With a view to ensure that the employers
'II'
(
religiously comply with the mandate of provisions D
enacted for benefit of the workers, the legislature has not
only provided for imposition of penalty and damages but
also made comprehensive provisions for recovery of the
dues by way of attachment and sale of movable or
immovable property of the establishment or the employer,
E
as the case may be. Section 11 of Employees' Provident
Funds and Miscellaneous Provisions Act, 1952 gives
~
statutory priority to the payment of contributions over
other debts. Sub-section (1) of Section 11 relates to
priority qua an employer who is adjudged insolvent or F
being a company an order of winding up is made. It lays
down that the amount due from the employer in respect
of any contribution payable to the Fund or, as the case
may be, the Insurance Fund, damages recoverable under
Section 148, accumulations required to be transferred G
under Section 15(2) or any charges payable by him under
{
any other provision of the Act or the Scheme or the
Insurance Scheme shall be paid in priority to all other
debts in the distribution of the property of the insolvent
or the assets of the company being wound up, as the
H
4
SUPREME COURT REPORTS (2009] 15 (ADDL.) S.C.R.
'-....
A case may be. Sub-section (2) of Section 11 contains a non
}
obstante clause and lays down that if any amount is due
:
from the employer whether in respect of the employees'
contribution deducted from the wages of the employee
or the employer's contribution, the same shall be deemed
·"-
(
B 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 debts. [Para 18] [27;.G-H; 28-A-H; 29-A]
,
c
Organo Chemical Industries v. Union of India (1979) 4
SCC 573: Builders Supply Corporation v. Union of India
1965(2) SCR 289; State Bank of Bikaner and Jaipur v.
National Iron and Steel Rolling Corporation (1995) 2 SCC 19;
Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (2000) 5
D
SCC 694; State of M. P. v. State Bank of Indore (2002) 10
v
sec 441, referred to.
)
'
2.2. The priority given to the dues of provident fund
etc. in Section 11 is not hedged with any limitation or
condition. Rather, a bare reading of the section makes it
E clear that the amount due is required to be paid in priority
to all other debts. Any doubt on the width and scope of
Section 11 qua other debts is removed by the use of
expression 'all other debts' in both the sub-sections. This
,.
would mean that the priority clause enshrined in Section
F
11 will operate against statutory as well as non-statutory
and secured as well as unsecured debts including a
mortgage or pledge. Sub-section (2) was .designedly
inserted in the Act for ensuring that the provident fund
dues of the workers are not defeated by prior claims of
>
secured or unsecured creditors. This is the reason why
)
G the legislature took care to declare that irrespective of
time when a debt is created in respect of the assets of
>
the establishment, the dues payable under the Act would
always remain first charge and shall be paid first out of
H
the assets of the establishment notwithstanding anything
-
.........
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
5
PROVIDENT FUND COMMNR. AND ORS.
~
contained in any other law for the time being in force. A
[Para 20] [31-8]
UCO Bank v. Official Liquidator, High Court Bombay and
..
another (1994) 5 SCC 1; Textile Labour Association and
.another v. Official Liquidator and another (2004) 9 SCC 741;
B
Recovery Officer and Assistant Provident Fund Commissioner
v. Kera/a Financial Corporation (2002) 2 KLT 723, referred
to.
·'(
3. Section 11 gives statutory priority to the amount
due from the employer tJis-a-vis all other debts. Clause (a) c
of sub-section (1) of Section 11 is applicable to cases
where an employer is adjudicated insolvent or, being a
company, an order of its winding up is made. Clause (b)
=='!:
is applicable to cases where the amount is due from the
~
employer in relation to exempted establishment in respect D
of any contribution to the provident fund or any insurance
_.
fund in so far it relates to exempted employees under the
rules of provident fund or any insurance fund, any
contribution payable by him towards the Pension Fund
under Section 17(6), damages recoverable under Section
E
148 or any charges payable by him to the appropriate
Government under the Act or under any of the conditions
~
specified in Section 17. This sub-section then lays down
that such amount shall be paid in priority to all other
debts in the distribution of the property of the insolvent F
or the assets of the company being wound up. Subsection (2) lays down that any amount due from the
employer whether in respect of the employees'
...
contribution deducted from the wages of the employe~
or the employer's contribution shall be deemed to 1>$-the G
first charge on the assets of the establishment, and shall
be paid in priority to all other debts. The expression "any
a.mount due from an employer" appearing in sub-section
(2) of Section 11 has to be interpreted keeping in view the
object of the Act and other provisions contained therein
H,
••
6
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A including sub-section (1) of Section 11 and Sections 7 A,
7Q, 148 and 15(2) which provide for determination of the
dues payable by the employer, liability of the employer
to pay interest in case the payment of the amount due is
delayed and also pay damages, if there is default in
B making contribution to the Fund. If any amount payable
by the employer becomes due and the same is not paid
within the stipulated time, then the employer is required
to pay interest in terms of the mandate of Section 7Q.
Likewise, default on the employer's part to pay any
C contribution to the Fund can visit him with the
consequence of levy of damages. Sub-section (2) was
inserted in Section 11 by Amendment Act No.40 of 1973
with a view to ensure that payment of provident fu~d
dues· of the workers are· not defeated by the prior claims
D of the secured and/or of ths unsecured creditors. Whiie
enacting sub-section (2), the legislature w:~s conscious
of the fact that in terms of existing Section 11 priority has
been given fo the amount due from an employer in
relation to an establishment to which any scheme or fund
is applicable including damages recoverable under
E Section 148 and accumulations required to be
transferred under Section 15(2). The legislature was also
aware that in case of delay the employer is statutorily
responsible to pay interest in terms of Section 17.
Therefore, there is no plausible reason to give a
F restricted meaning· to the expression 'any amount due
from the employer' and confine it to the amount
determined under Section 7 A or the contribution payable
under Section 8. If interest payable by the employer under
Section 7Q and damages leviable under Section 14 are
G excluded from the ambit of expression "any amount due
from an employer", every employer would conveniently
refrain from paying contribution to the Fund and other
dues and resist the efforts of the concerned authorities
to recover the dues as arrears of land revenue by
H contending that the movable or immovable property of
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
7
PROVIDENT FUND COMMNR. AND ORS.
the establishment is subject to other debts. Any such
A
'(
interpretation would frustrate the object of introducing the
deeming provision and non obstante clause in Section
11(2). [Para 47] (55-A-H; 56-A-H]
"-
4. A careful reading of the deeds of pledge executed
B
by the management of Sugar Mills show that even
though the sugar bags which were available with the
Sugar Mills at the relevant time were placed in the
custody of the appellant-bank as security for repayment
of loan together with interest, the former continued to be c
owner thereof. If the management of the Sugar Mills were
to repay the dues of the appellant-bank within the time
specified in the deeds of pledge, the latter was duty
bound to lift its notional control over the sugar bags lying
in the godowns of the Sugar Mills. In case of default, the
~
appellant-bank co·uld recover its dues by selling the D
sugar bags. The very fact that except giving the symbolic
~
custody of the sugar bags to the appellant-bank by
allowing it to put lock and key on the godowns, all steps
for preserving the goods and getting the same insured
were taken by the management of the Sugar Mills which
E
also agreed to take the responsibility of any shortage,
damage or shrinkage unmistakably shows that the Sugar
Mills continued to be owner of the sugar bags. [Para 31]
(42-H; 43-A-C; F-H]
5.1. The two ingredients of a pawn or a pledge are:
F
(1) that it is essential to the contract of pawn that the
property pledged should be actually or constructively
delivered to the pawnee and (2) a pawnee has only a
special property in the pledge but the general property G
therein remains in the pawner and wholly reverts to him
on discharge of the debt. A pawn therefore is a security,
where, by contract a deposit of goods is made as security
for a debt. The right to property vests in the pledgee only
so far as is necessary to secure the debt. In this sense a
H
... _
8
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A pawn or pledge is an intermediate between a simple lien
and a· mortgage which wholly passes the property in the
thing conveyed. [Para 33) [44-G-H; 45-A,.B]
Lal/an Prasad v. Rahmat Ali (1967) 2 SCR 233, referred
•
. B to.
5.2. The deeds of pledge executed by the
management of the Sugar Mills as security for repayment
of loan etc. ~id not have the effect of transferring of the
ownership of th.e sugar bags to the appellant-bank and
C the Recovery. Officer did not commit any illegality by
attaching the same and the High Court was fully justified
in directing payment of a portion of the ~ale price to the
Assistant Commissioner for being appropriated towards
the provident fund dues of the workers. (Pa~a 36) (49-DD E]
Karnataka Pawnbrokers' Association v. State of
Karanataka (1998) i SCC 707; Central Bank of India V.
Siriguppa Sugars & Chemicals Ltd. (2007) 8 SCC 353; Bank
E of Bihar v. s_tate of Bihar (1972) 3 SCC 196; Transcore v ..
Union of India (2008) 1 SCC 125, distinguished.
I
Velchand Chhaganlal v. Mussan 1-4 Som.LR. 633,
referred to.
F
Black's- Law Dictionary (Eighth edition); Mu/la's Treatise
on the Transfer of Property; Law Lexicon by P. Ramanatha
Aiyar (Second edition); Law of Personal Property: Ray
Andrews Brown Second edition 1936; Salmond's
Jurisprudence, referred to.
G
Case Law Reference:
(2002) 3 LLJ 643
'
(20QO') sec 291
H
(1998) 7 sec 101
referred to
referred to
distinguished
Para 13
Para 13
Paras 14, 37
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
9
PROVIDENT FUND COMMNR. AND ORS.
.(
(2001) 8 sec 353
distinguished
Paras 14, 38
A
(1972) 3 sec 196
distinguished
Paras 35, 38
(2008) 1 sec 125
distinguished
Paras 14, 45
(2009) 4 sec 94
referred to
Para 15
B
(1979) 4 sec 573
referred to
Para 19
:,. -f
1965(2) SCR ·289
referred to
Para 21
(1995) 2 sec 19
referred to
Para 22
Para 23
c
(2000) 5 sec 694
referred to
(2002) 1 o sec 441
referred to
Para 24
')
(2009) 4 sec 94
referred to
Para 25
~
(1994) 5 sec 1
referred to
Para 26
D
(2004) 9 sec 741
referred to
Para 28
(2002) 2 KLT 723
referred to
Para 29
(1967) 2 SCR 233
referred to
Para 34
E
14 Born.LR. 633
referred to
Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6893 of 2009.
From the Judgment & Order dated 29.6.2007 of the High
F
Court of Bombay in Civil Application No. 1680 of 2007 @ Writ
Petition No. 6824 of 2005
.
WITH
G
C.A. Nos. 6894 of 2009.
Ashok H. Desai Prashant Naik, Rakesh K. Sharma for the
Appellant.
Malvika Trivedi, T. Mahipal, Kuldip Singh (NP), R.C. Kalra,
H
10
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A A.P. Dhamija, J.P. Singh, Sanjeev Malhotra for the
B
Respondents.
The Judgment of the Court was delivered by
G.S. SINGHVI, J. 1. Leave granted.
2. Whether the sugar bags pledged by Kannad Sahakari
Sakhar Karkhana Ltd. and Gangapur Sahakari Sakhar
Karkhana Ltd. in favour of the appellant-bank as security for
repayment of the loan together with interest could be attached
c and sold for realization of the dues of provident funds etc.
payable by the employer i.e., the management of the Sugar Mills
under the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952 (for short 'the Act') is the question which
arises for determination in these appeals filed against order
0 dated 29.6.2007 passed by the Division Bench of the Bombay
High Court in Civil Application Nos.1680 and 1681/ of 2007 in
Writ Petition No.6824/2005 and order dated 19.7.2007 passed
in Civil Application No.245/2007 in Letters Patent Appeal
No.28/2004.
E
3. We shall first notice the facts from the record of the
appeal arising out of S.L.P.(C ) No.15243/2007.
4. During crushing season 2000-2001, the appellant.
advanced loan of Rs.4000 lacs to Kannad Sahakari Sakhar
F Karkhana Limited (hereinafter described as 'the Sugar Mill').
G
H
For securing repayment of the loan and interest, the
management of the Sugar Mill executed necessary documents
including deed of pledge dated 5.3.2001, the relevant portions
of which are extracted below:-
c
"We, the undersigned, Kannad Sahakari Sakhar Karkhana
Ltd., Tai. Kannad, Aurangabad, member of Maharashtra
State Co-operative Bank Limited (Incorporating the
Vidarbha Co-operative Bank Ltd.) hereinafter referred to
as "the said Bank" agree to take a loan from the said Bank
on the pledge of stocks/goods/commodities on the
.,,
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
11
PROVIDENT FUND COMMNR. AND ORS. [G.S. SINGHVI, J.]
following terms and conditions. The credit limit will be
A
Rs.400000000 and its period will be upto 31.10.2001.
1. The stocks/goods/commodities whiph we have at
present placed in the custody of the said Bank as security
or which we might so place from time to time will remain
B
in the sole custody of the said Bank and whatever action
the said Bank will take for indicating its custody shall be
agreeable to us.
3. If it is necessary to hire a godown, we undertake to hire
the godown in the name of the said Bank and to pay the
C
rent from time to time.
4. We undertake to insure the stocks/goods/commodities
for their full.value with an Insurance Company approved by
the said Bank and will get the policy issued in the name
0
of the said Bank.
5. If for any reason the godown is required to be changed
or repaired, we undertake to bear the expenses in that
connection.
6. We undertake to repay the principal of the loan with
interest and all expenses due by us by
as stipulated
in para (2) hereof if the period, be extended by the said
Bank before the expiry of the extended period.
7. The loan shall bear interest at __ percent per annum.
E
F
If the rent of the godown, the expenses in connection with
insurance and other expenses if any not paid by us, the
same shall be debited to our loan account and shall bear
interest at the same rate. This interest shall be payable with
half yearly rests on 30th June and 31st December or G
earlier immediately when the stocks/goods/commodities
are relieved.
8. Over and above the aforesaid dues, if any other amount
is due to the said Bank by us exclusively or in partnership
H
: '
12
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
::
'·-
A
with anybody else, we agree that the stocks/goods/
commodities kept in the custody of the said Bank will also
.,.,
be treated as security for such amount due by us.
' ·' '
10. We shall not in any way hold the said Bank responsible
-
B
for the weight, quality, conditions or safety of the stocks/
..,
goods/commodities given into its custody. We shall hold
ourselves responsible for any shortage, damage or
shrinkage that may arise by any cause whatsoever.
>.
~-....
13. If and when there is insecurity due to local riots or civil
c
commotion, etc. we undertake to insure the stocks/goods/
commodities against any damage or loss by such riots or
civil commotion. If we fail to do so, the said Bank shall so
insure the stocks/goods/commodities for and on our behalf
and shall be entitled to debit the cost thereof to our
J~
D
account.
)-
15. Though by this Agreement, the dale of repayment of
the loan has been fixed as aforesaid, the said Bank shall
"
treat the loan as demand we undertake to repay the same
""
E
as soon as the said Bank shall make a demand or the
said Bank shall be at full liberty to recover all the dues
payable by us.
16. In the event of breach of the aforesaid conditions and
~
or if we fail to repay the loan within 24 hours, if so required
F
by the said Bank, it shall have the full right to recover its
amount by sale of the stocks goods commodities by public
auction or private treaty (though the said Bank is not bound
so to sell the stocks/goods/commodities). On receipt of the
Accounf of sale under the signature of the Manager,
.('
Accountant or other officer of the said Bank duly authorized
I
G
we shall acknowledge its correctness. If the proceeds of
ft.,
the sale do not fully meet the loan due by us interest or
other expenses, we undertake to pay the balance so
remaining with interest."
H
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSIT.
13
PROVIDENT FUND COMMNR. AND ORS. [GS. SINGHVI, J.]
•\
5. On the same day i.e., 5.3.2001, the management of the
A
Sugar Mill also executed promissory note for payment of Rs.40
crores with interest @ 15.50% with half yearly rests.
6. Though, the appellant has not given the details of the
dues of provident fund payable by the employer, a reading of 8
the document marked Ex. A (pages 119-122 of the SLP paper
book) shows that the Assistant Provident Fund Commissioner,
Aurangabad (for short 'the Assistant Commissioner') passed
order dated 29.9.2003 under Section 7A of the Act whereby
he held the employer liable to pay Rs.1,75, 10,477/- towards
C
EPF contributions, EPF administrative charges, EDLI
contributions, EDU lns./administrative charges and directed it
to pay the amount with interest @ 12% within 1 O days. As the
employer failed to comply with that order, the Assistant
Provident Fund Commissioner and Recovery Officer,
Employees' Provident Fund, Sub-Regional Office, Aurangabad
D
(hereinafter referred to as 'the Recovery Officer') issued
warrant of attachment dated 11.3.2004 under Section 88 of the
Act for recovery of Rs.3,85,21, 734/- which included 12%
interest payable in accordance with Rule 5 of the Second
Schedule (Part I) of the Income-tax Act, 1961 read with Section
E
BG of the Act. The warrant of attachment was executed by the
Enforcement Officer on 26.3.2004 by preparing an inventory of
the sugar bags lying in the godowns of the Sugar Mill and
affixing paper seals on the same.
7. The appellant challenged the warrant of attachment and
consequential action taken by the Enforcement Officer in Writ
Petition No.6824/2005, mainly on the ground that in view of the
deed of pledge executed by the management of the Sugar Mill,
F
the sugar bags which were lying under its lock and key, could
not have been attached for realization of the dues of provident
G
fund etc. During the pendency of the writ petition, the Assistant
Commissioner filed Civil Application No.2739/2006 for sale of
the sugar bags. At the hearing of that application, learned
H
14
SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.
A
counsel appearing for the appellant-bank referred to the orders
passed in Writ Petition No.3413/2005 and connected cases
for conducting joint auction of the attached goods i.e., sugar
bags. After taking note of his submission, the Division Bench
ofthe High Court passed order dated 1.12.2006, the relevant
)
B
portions of which are as under:-
,.,·
c
D
E
F
G
H
"We accordingly allow this application and direct that the
sugar bags attached by the petitioner as well as the
Assistant Provident Fund Commissioner shall be jointly
auctioned and the sale proceeds shall be deposited with
the Registrar of this Court. The successful bidder will draw
a Demand Draft or a Banker's Cheque in the name of the
Registrar General of this Court.
It is further ordered that the auction sale undertaken jointly,
shall be completed within a period of three months by
floating public tenders calling for bids and by accepting
tender of the highest bidder.
Once the amount is deposited with the Registrar of this
Court, liberty to apply for withdrawal of the said amount."
8. In compliance of the aforementioned order, the sugar
bags lying in the godowns of the Sugar Mill were auctioned for
a sum of Rs.9,24,08,254/-. Thereafter, the Assistant
Commissioner filed Civil Application No.1680/2007 for
permission to withdraw a sum of Rs.7,77,46,511/- towards the
dues of provident fund etc. by asserting that in additior. to
Rs.1, 75, 10,4 771- payable under Section 7 A with interest @
12%, the employer is liable. to pay Rs.6,02,36,03",'- in terms
of order dated 27.3.2007 passed under Section 14B read with
Section 7Q of the Act.
9. It appears that during the pendency of the litigation, the
Assistant Commissioner passed another order whereby he
attached the bank account and movable and immovable
,,,.
>-
,
'I-
}-·
..
' ...-
1
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT.
15
PROVIDENT FUND COMMNR. AND ORS. [G.S. SINGHVI, J.]
properties of the Sugar Mill along with 69,000 sugar bags.
A
Ill' Therefore, the management of the Sugar Mill filed Civil
Application No .168112007 with the prayer that attachment
effected by the Assistant Commissioner may be vacated.
10. By the impugned order, the High Court disposed of 8
both the applications and issued various directions including
the following:-
"(a) Out of the amount of Rs.9,24,08,254/-, the amount of
Rs.4,20,67,446/- (Principal amount Rs.1, 75, 10,477/- pltJs
interest Rs.2,45,56,969/-) be paid to the Assistant
C
Provident Fund Commissioner so as to appropriate
towards the provident fund dues of the workers of the sugar
factory.
(b) Out of the remaining amount, the amount of 0
Rs.1,46,61,743/- shall be paid to the MSC Bank which
MSC Bank shall appropriate towards the dues of the Sugar
Factory.
(c) TIJe remaining amount of Rs.3,56, 79,065/- be
deposited initially' for a period of 1 'year with the MSC
E
Bank in the name of the Registrar General, High Court,
Bombay for a period of 1 year. If within the period of 1
year, the appeal filed by the Petitioner with the Appellate
Tribunal under the Provident Fund Act is not disposed of,
then the Registrar General will re-deposit and/or renew the
F
said amount on yearly basis with MSC Bank till final
disposal of the said appeal.
(d) The information in respect of the number, pendency or
disposal of the Appeal shall be given by the Sugar Factory
G
to the Registrar General when the said Appeal is disposed
+-
of.
(e) In case the said appeal filed by the Sugar Factory is
H
16
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.CR.
A
dismissed by the Appellate authority, then the amount of
Rs.3,56,79,065/- will have to be transferred to the-~
Assistant Provident Fund Commissioner and the Registrar~
General is hereby directed, accordingly, to transfer it.
B
(f) In case the appeal is allowed and thereby the sugar
factory becomes entitled to the amount of Rs.3,56, 79,065/
"
-, then the MSC Bank is at liberty to appropriate the said
amount towards the dues of the Sugar Factory.
(g) In view of the above directions and the disbursement'~ """"
c
of the amount, the order passed by the Assistant Provident
Fund Commissioner attaching the assets, Bank Accounts
and sugar bags etc. of the Sugar Factory is hereby
quashed and set aside and the Sugar Factory is at liberty
to deal with the said assets in accordance with their own
D
Hesolution and decisions keeping in mind the directions." · c:: •
·~
11. We may now notice some facts from the record of the
n
other appeal.
.. ~-
12. The appellant advanced Rs.2000 lacs to Gangapur
E Sahakari Sakhar Karkhana Ltd. during crushing season 200203. For securing the payment ofthe loan, the management of
the Sugar Mill executed three deeds on 2.1.2003, 6.2.2003 and
4.4.2003 and pledged the sugar bags lying in the godowns. ~
Simultaneously, three promissory notes were executed for
F payment of the amounts specified therein with interest at the
rate of 13.5 per cent per annum with half yearly rests. The terms
and conditions of these deeds are similar to deed of plec::ie
dated 5.3.2001 executed by the management of K~:-.nad
Sahakari Sakhar Karkhana Ltd. On account of failure of the
G employer to pay the dues of provident fund etc., the competent
authority pass~d orders under Sections 7 A, 70 and 14B of the
Act and held it liable to pay total sum of Rs.9, 11, 72,892/-
,_,
towards the dues of provident fund, interest and damages. After
some time, the Assistant Commissioner issued warrant of
H attachment dated 15.9.2003 which was duly executed by the
"!
-
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT. 17
PROVIDENT FUND COMMNR. AND ORS. [G.S. SINGHVI, J.]
-Enforcement Officer on 22.9.2003.
13. The appellant challenged the warrant of attachment in
A
,;
Writ Petition No. 3656/2003, which was dismissed by the ..
learned Single Judge of the High Court (Aurangabad Bench)
vide his order dated 3.10.2003 by relying upon the judgments
8
of the Kerala High Court in Recovery Officer and Assistant
Provident Fund Commissioner v. Kera/a Financial
... Corporation (2002) 3 LLJ 643 Kerala and of this Court in A.P.
State Financial Corporation v. Official Liquidator (2000} 7
SCC 291. The letters patent appeal preferred by the appellantC
bank was transferred to the Principal Seat of the High Court at
Mumbai. During the pendency of the letters patent appeal, the
Assistant Commissioner filed Civil Application No.21/2006 for
_. sale of the sugar bags lying in the godown of the employer. By
~ order dated 18. 7.2006, the High Court granted the prayer
of the Assistant Commissioner and directed that the sale
D
amount be deposited with the Registrar General. Thereafter,
-r- · the Assistant Commissioner filed Civil Application No.245/2007
, for permission to withdraw the amount lying deposited with the
Registrar General of the High Court. The same was disposed
of by the Division Bench vide order dated 19. 7.2007, the
E
operative portion of which reads as under:-
~
"In view of the fact that this Court has taken a consistent
view that the amounts recovered from sugar factories by
disposing of sugar against recovery made by co-operative
F
banks for the secured creditors can be appropriated
towards payment of Provident Fund dues, we find no
reason to take a different stand, and allow the application
in terms of prayer clause (a), with no order as to costs."
+ 14. Shri Ashok H. Desai, learned senior counsel
G
appearing for the appellant assailed the impugned orders and
argued that the sugar bags lying in the godowns of the Sugar
Mills could not have been attached and sold at the instance of
the Assistant Commissioner for realization of the dues of
H
18
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
provident fund etc. because the same had already been 't'
pledged with the appellant-bank. Learned senior counsel relied
upon the judgments of this Court in Kamataka Pawnbrokers'
Association v. State of Karanataka (1998) 7 SCC 707, Central
Bank of India v. Siriguppa Sugars & Chemicals Ltd. (2007) 8
B sec 353, and argued that even though under Section 11 (2)
of the Act, the amount due from an employer is treated as first
charge on the assets of the establishment, the same cannot
have priority or precedence over the dues of the appellant-bank, 't
the payment of which is secured by the deeds of pledge
c executed by the management of the Sugar Mills. Shri Desai
referred to various clauses of the deeds of pledge and
submitted that for all practical purposes, the appellant-bank had
become owner of the sugar bags and the Recovery Officer did
not have the jurisdiction, power or authority to attach the same.
0
Learned senior counsel emphasized that the term "assets" ..,.__
used in Section 11 (2) of the Act m~ans unencumbered property "
of the establishment and argued that as the sugar bags
pledged with the appellant-bank had become its property, the
Recovery Officer was not entitled to attach the same for
E
realizing the dues of provident fund etc. In support of this
argument, Shri Desai placed reliance on paragraphs 67 and
73 of the judgment of this Court in Transcore v. Union of India
(2008) 1 SCC 125. Another argument of the learned senior~
counsel is that, at best, the amount determined under Section
7 A can be treated as firs( charge on the assets of the
F
establishment but the interest payable under Section 7Q and
damages levied under Section 148 cannot be recovered by
invoking Section 11 (2) of the Act.
15. Shri R.C. Kalra and Ms. Malvika Trivedi, learned
G counsel for the respondents argued that notwithstanding
execution of the deeds of pledge by the management of Sugar 1
Mills in favour of the appellant-bank, the sugar bags continued
to be the property of the Sugar Mills and the same could be
sold for realization of the dues of provident fund. Learned
H counsel submitted that the expression 'any amount due'
-- ...
I
I
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MAHARASHTRA STATE CO-OP. BANK LTD:. v. ASSTT.
19
PROVIDENT FUND COMMNR. AND ORS. [G.S. SINGHVI, J.]
appearing in Section 11 (2) includes the amount determined
A
under Section 7 A, interest payable on such amount in terms of
Section 7Q and damages levied under Section 148. Learned
counsel then argued that by virtue of the deeming provision and
non obstante clause contained in Section 11 (2), any amount
due from an employer in respect of the employees' contribution
8
or employer's contribution is the first charge on the assets of
the establishment and the same is required to be paid in priority
qua all other debts. Ms. Malvika Trivedi pointed out that notice
in the SLPs filed by the appellant was issued primarily in view
of the assertions contained therein that similar issue is under
C
consideration in S.L.P.(C) No.95 of 2005 - Central Bank of
India v. State of Kerala and others and submitted that the
appeals are liable to be dismissed in view of the judgment titled
Central Bank of India v. State of Kera/a (2009) 4 SCC 94.
16. We have considered the respective submissions. In
D
pre-independence era, some of the big industrial employers
introduced schemes of provident funds for welfare of their
workers. However, the workers of small industrial
establishments did not get similar benefits because employers
of those establishments did not introduce voluntary schemes
of provident funds. The framers of the Constitution were very
much alive to the plight of the working class and particularly the
unorganized labour employed in factories and other
establishments. They were also conscious of the fact that the
goals of justice - social, economic and political and equality
of status and of opportunity proposed to be incorporated in the
preamble to the Constitution will remain illusory for weaker
sections of society unless the State takes affirmative legislative
E
F
and administrative measures for ameliorating the conditions of
those sections including the workers employed in factories etc.
G
Therefore, specific provisions were incorporated in Part IV of
the Constitution with the title "Directive Principles of State
Policy" casting an obligation upon the State to apply these
principles in making laws. Article 38 which has been
renumbered as clause (1) thereof by the Constitution (FortyH
20
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
~/
A fourth Amendment) Act, 1978 declares that the State shall
strive to promote the welfare of the people by securing and
,.
protecting, as effectively as it may, a social order in which
""-
justice, social, economic and political, shall inform all the
_,.,..
institutions of national life. Clause (2) of Article 38 mandates
~
B the State to strive to minimize the inequalities in income, and
··"'
endeavour to eliminate inequalities in status, facilities and
opportunities, not only amongst individuals but also amongst
groups of people residing in different areas or engaged in
different avocations. Article 43 casts a duty on the State to
)Ic make efforts to secure by suitable legislation or economic
organization or in any other way, to all workers, agricultural,
industrial or otherwise, work, a living wage, conditions of work
ensuring a decent standard of life and full enjoyment of leisure
,.
and social and cultural opportunities, and, in particular, social
opportunities. The State is also required to make special
...,
D endeavour to promote cottage industries on an individual or
.,.._
cooperative basis in rural areas.
17. Soon after enforcement of the Constitution, the
r-
' '
Government of India promulgated the Employees Provident
..
E Funds Ordinance on 15.11.1951, which was replaced by the
Act, which belongs to the family of legislatibns enacted by the
Parliament in furtherance of the mandate of Articles 38 and 43
of the Constitution and is intended to give social security to the
)>·
workers employed in the factories and other establishments.
I
F The Act provid~s for institution of provident funds, pension fund
Iand deposit-linked ·insurance fund in factories and other
~
establishments. It ·requires the employers of the factories and
specified establishments to deduct certain amount from the
wages payable to the employees and also make contribution
G to various funds, which are administered by the Central and
)-
Regional Provident Fund Commissioners. Section 2(aa) of the
Act defines the term "authorized officer" to mean the Central
-1Pr.evident Fund Commissioner, Additional Central Provident
Fund Commissioner, Deputy Provident Fund Commissioner,
H Regional Provident Fund Commissioner or such other officer
'(
~
...
-1(
(
-I.
-<(
-
...
~
MAHARASHTRA STATE CO-OP. BANK LTD. v. ASSTT. 21
PROVIDENT FUND COMMNR. AND ORS. [GS. SINGHVI, J.)
as may be authorised by the Central Government, by
notification in the Official Gazette. The term "Fund" has been
defined in Section 2(h) to mean the providentfund established
under a Scheme. The term "Recovery Officer" has been defined
in Section 2(kd) to mean any officer of the Central Government,
State Government or the Board of Trustees constituted under
Section 5A, who may be authorised by the Central Government,
by notification in the Official Gazette, to exercise the powers
of a Recovery Officer under the Act. Section 5(1) lays down that
the Central Government may, by notification in the Official
Gazette, frame a Scheme to be called the Employees'
Provident Funds Scheme for the establishment of provident
funds under this Act for employees or for any class of
employees and specify the establishments or class of
establishments to which the said Scheme shall apply. This
section further lays down that soon after framing of the Scheme,
a Fund shall be established in accordance with the provisions
of the Act and the Scheme. Section 6 speaks of the contribution
required to be made by the employer and employees to the
Fund. Section 6A(1) postulates framing of Employees' Pension
Scheme for tne purpose of providing superannuation pension,
retiring pension or permanent total disablement pension to the
employees of any establishment or class of establishments to
which this Act applies and widow or widower's pension,
children pension or orphan pension payable to the beneficiaries
of such employees. Section 6A(2) lays down that
notwithstanding anything contained in Section 6, there shall be
established, as soon as may be after framing of the Pension
Scheme, a pension fund to which a specified sum should be
paid from the employer's contribution under Section 6.