Supreme Court of India
EMPLOYEES PROVIDENT FUND COMMISSIONERversusO.L. OF ESSKAY PHARMACEUTICALS LIMITED
- Citation
- 2011 INSC 787
- Decided
- 8 November 2011
- Disposal
- Appeal(s) allowed
- Bench
- G S SINGHVI
Holding
Section 11(2) of the EPF Act creates a first charge on the employer’s assets that must be paid in priority to all other debts, and this statutory priority is not displaced by the non‑obstante clause in Section 529A of the Companies Act.
Issues considered
- Whether the priority granted to dues payable by an employer under Section 11(2) of the Employees' Provident Funds Act is subject to Section 529A of the Companies Act.
- Whether the non‑obstante clause in the later Companies Act amendment overrides the earlier non‑obstante clause in the EPF Act.
- How the terms ‘workmen’s dues’ and ‘first charge’ are to be interpreted in the context of winding‑up proceedings.
Legislation cited
- Companies Act, 1956s. 529, s. 529(1) proviso, s. 529(3), s. 529A, s. 530(1)
- Employees' Provident Funds and Miscellaneous Provisions Act, 1952s. 11(1), s. 11(2)
Subjects
priority of duesnon obstante clauseEmployees' Provident Fund ActCompanies Actwinding upstatutory first chargeworkmen's duesinterpretation of statutessecured creditors
Judgment
(2011] 15 (ADDL.) S.C.R. 336
A EMPLOYEES PROVIDENT FUND COMMISSIONER
v.
O.L. OF ESSKAY PHARMACEUTICALS LIMITED
(Civil Appeal No. 9630 OF 2011)
NOVEMBER 8, 2011
B
[G. S. SINGHVI AND H. L. DATTU, JJ.]
Employees' Provident Funds and Miscellaneous
Provisions Act, 1952:
c
Object of its enactment - Discussed.
s.11(2) - Priority of payment of contributions over other
debts - Non-obstante clauses contained in s. 11 (2) of the EPF
Act and s.529A of the Companies Act - Interpretation of the
D provisions - Held: By virtue of non-obstante clause contained
in s. 11 (2) of the EPF Act, any amount due from an employer
is deemed to be first charge on the assets of the
establishment and is payable in priority to all other debts
including the debts due to a bank, which falls in the category
E of the secured creditors - It cannot be said that the non-
obstante clause contained in subsequent legislation i.e.
s.529A(1) of the Companies Act prevails over the similar
clause contained in s. 11 (2) of the EPF Act - While inserting
s.529A in the Companies Act, Parliament, in its wisdom, did
F not declare the workmen's dues (which inC!udes various dues
including provident fund) as first charge - The effect of the
amendment is only to expand the scope of the dues of
workmen and place them at par with the debts due to secured
creditors and there is no reason to interpret this amendment
G as giving priority to the debts due to secured creditor over the
dues of provident fund payable by an employer - Of course,
after the amount due from an employer unde1 the EPF Act is
paid, the other dues of the workers will be treated at par with
the debts due to secured creditors and payment thereof will
H 336
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 337
ESSKAY PHARMACEUTICALS LTD.
be regulated by the provisions contained in s.529(1) read with A
s.529(3), 529A and 530 of the Companies Act - Companies
Act, 1956 - s. 529A.
Companies Act, 1956:
ss.529, 530 (as amended) and s.529A - Interpretation of 8
- Held: By Companies (Amendment) Act, 1985, proviso was
q_dded to s.529(1) - By the same amendment, ss.529(3) and
529A were inserted - Simultaneously, the expression "subject
to the provisions of s.529A" was inserted in s.530(1) - The
object of the amendments was to ensure that the legitimate C
dues of workers should rank pari passu with those of secured
creditors - What Parliament has done by these amendments
is to define the term "workmen's dues" and to place them at
par with debts due to secured creditors to the extent such debts
rank under clause (c) of the proviso to s.529(1) - However, D
these amendments, though subsequent in point of time,
cannot be interpreted in a manner which would result in
diluting the mandate of s. 11 of the EPF Act - Interpretation
of statutes - Employees' Provident Funds and Miscellaneous
Provisions Act, 1952. E
s.529(1), proviso - Object of- Discussed.
Interpretation of statutes:
Contextual interpretation - Held: It is a well recognized F
rule of interpretatior. that every part of the statute must be
interpreted keeping in view the context in which it appears and
the purpose of legislation - Another rule of interpretation of
statutes is that if two special enactments contain provisions
which give overriding effect to the provisions contained G
therein, then the Court is required to consider the purpose and
the policy underlying the two Acts and the clear intendment
conveyed by the lang1,1age of the relevant provisions.
Social welfare legislation - Interpretation of - Held: A
legislation made for the benefit of workers must receive a H
338 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A liberal and purposive interpretation keeping in view the
Directive Principles of State Policy contained in Articles 38
and 43 of the Constitution - Constitution of India, 1950 -
Employees' Provident Funds and Miscellaneous Provisions
Act, 1952.
B
Non-obstante clause - lnterpretarion of.
Words and phrases:
Expression 'workmen dues' - Meaning of, in the context
c of s.529(3)(b) of the Companies Act, 1956.
The question which arose for consideration in these
appeals was whether priority given to the dues payable
by an employer under Section 11 of the Employees'
D Provident Funds and Miscellaneous Provisions Act, 1952
(EPF Act) is subject to Section 529A of the Companies
Act, 1956 in terms of which the workmen's dues and
debts due to secured creditors are required to be paid in
priority to all other debts.
E Allowing the appeals, the Court
HELD: 1. An analysis of Section 11 of the Employees'
Provident Funds and Miscellaneous Provisions Act, 1952
shows that it gives statutory priority to the amount
F payable to the employees over other debts. Section 11(1)
relates to an employer who is adjudged insolvent or
being a company against whom 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,
G damages recoverable under Section 148, accumulations
required to be transferred 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
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 339
ESSKAY PHARMACEUTICALS LTD.
property of the insolvent or the assets of the company A
being wound up, as the case may be. Section 11 (2)
contains a non obstante clause and lays down that if any
amount is due from an employer whether in respect of
the employee's contribution deducted from the wages of
the employees or the employer's contribution, the same B
shall be deemed to. be the first charge on the assets of·
the establishment and shall, notwithstanding anything
contained in any other law for the time being in force, be
paid in priority to all other debts. To put it differently, sub-
section (2) of Section 1! not only declares that the c
amount due from an employer towards contribution
payable under the EPF Act shall be treated as the first
charge on the assets of the establishment, but also lays
down that notwithstanding anything contained in any
other law, such dues shall be paid in priority to all other
0
debts. [Para 18] [354-G-H; 355-A-D]
2. The Companies Act. Part VII of the Companies Act,
which consists of 5 Chapters contains provisions relating
to winding up of a company. The provisions contained
in Chapter V (Sections 528 to 560), which deal with proof E
and ranking of claims are applicable to every mode of
winding up. Section 528 lays down that in every winding
up, all debts payable on a contingency, and all claims
against the company, present or future, certain or
contingent, ascertained or sounding only in damages, F
shall be admissible to proof against the company. This
is subject to the rider that in the case of insolvent
companies, law of insolvency will be applicable in
accordance with the provisions of the Companies Act.
Section 529 deals with application of insolvency rules in G
winding up of insolvent companies. Section 530, as it
existed prior to the amendment of the Companies Act by
Act No.35 of 1985, gave priority to revenue of the State
and local authorities and various amounts payable to
H
340 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R
A employees including the dues payable from a provident
fund, a pension fund, a gratuity fund or any other fund
maintained by the company for the welfare of the
employees. By the Companies (Amendment) Act No.35
of 1985, proviso was added to Section 529(1). By the
s same amendment, Sections 529(3) and 529A were
inserted in the Companies Act. Simultaneously, the
expression "subject to the provisions of Section 529A"
was inserted in Section 530(1). By inserting proviso in
Section 529(1 ), Parliament ensured protection of the
c interest of the workmen in winding up proceedings. The
object of this amendment is to place the legitimate dues
of workers at par with those of secured creditors. This
is also a legislative recognition of the fact that the
workmen contribute to the growth of the capital and
D industry and in the event of winding up of the company,
they are entitled to get their legitimate share in the assets
of the company by being treated at par with other
secured creditors. With the insertion of Section 529(3)(a),
the definition of the term ·workmen' contained in the
Industrial Disputes Act, 1947 has been incorporated in the
E Companies Act for the purposes of Sections 529, 529A
and 530. The expression "workmen's dues" has been
defined in Section 529(3)(b) to mean all wages or salary
including wages payable for time or piece work and
salary earned wholly or in part by way of commission of
F any workman in respect of services rendered to the
company and any compensation payable to any
workman under the Industrial Disputes Act, 1947, all
accrued holiday remuneration payable to any workman,
or in the case of his death to any other person in his right
G upon the termination of his employment before the
passing of winding up order and all sums due to any
workman from a provident fund, a pension fund, a
gratuity fund or any other fund for the welfare of the
workmen, which is maintained by the company. The
H
EMPLOYEES PROVIDENT FUND COMMNR. It O.L. OF 341
ESSKAY PHARMACEUTICALS LTD.
definition also takes within its fold funds capable of being A
transferred to and vested in the workman under a
contract with insurers under Section 14 of the Workmen's
Compensation Act as also the amounts due in respect of
any compensation or liability for compensation under the
Workmen's Compensation Act in respect of the death or B
disablement of any workman of the company. By virtue
of the non obstante clause contained in sub-section (1)
of Section 529A, statutory priority has been given to the
workmen's dues and debts due to secured creditors over
all other dues. [Paras 19, 21) [355-E-H; 356-A-B; 360-C- c
H; 361-A]
Organo Chemical Industries v. Union of India (1979) 4
SCC 573: 1974 (3) SCR 813; Central Bank of India v. State
of Kera/a (2009) 4 SCC 94: 2009 (3) SCR 735; Builders
Supply Corporation v. Union of India (1965) 2 SCR 289; State D
Bank of Bikaner and Jaipur v. National lrori and Steel Rolling
Corporation (1995) 2 SCC 19: 1994 (6) Suppl. SCR 566;
Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (2000) 5
SCC 694: 2000 (3) SCR 50; State of M.P. v. State Bank of
Indore (2002) 10 SCC 441 - relied on. E
3. The EPF Act is a social welfare legislation intended
to protect the interest of a weaker sec~ion of the society,
i.e. the workers employed in factories and other
establishments, who have made significant contribution F
in economic growth of the country. The workers and
o~her employees provide services of different kinds and
ensure continuous production of goods, which are made
available to the society at large. Therefore, a legislation
made for their benefit must receive a liberal and G
purposive interpretation keeping in view the Directive
Principles of State Policy contained in Articles 38 and 43
of the Constitution. [Para 22) (361-8-E]
4. The object of the amendments made in the
Companies Act by. Act No. 35 of 1985 was to ensure that H
342 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R
A the legitimate dues of workers should rank pari passu
with those of secured creditors. In other words, these
amendments are intended to protect the interest of the
workmen in winding up proceedings by placing them at
par with secured creditors and a statutory charge is
B created qua their dues on all available securities forming
part of the assets of the company in liquidation. There is
nothing in the language of Section 529A which may give
an indication that legislature wanted to create first charge
in respect of the workmen's dues, as defined in Sections
c 529(3)(b) and 529A and debts due to the secured
creditors. [Paras 35-36] [379-G-H; 380-A-F]
5. It is a well recognized rule of interpretation that
every part of the statute must be interpreted keeping in
view the context in which it appears and the purpose of
D legislation. Another rule of interpretation of Statutes is that
if two special ehactments contain provisions which give
overriding effect to the provisions contained therein, then
the Court is required to consider the purpose and the
policy underlying the two Acts and the clear intendment
E conveyed by the language of the relevant provisions.
[Paras 37-38] [380-G-H; 381-A-F]
RBI v. Peerless General Finance and Investment Co. Ltd.
(1987) 1 SCC 424: 1987 (2) SCR 1; Shri Ram Narain v.
F Sim/a Banking and Industrial Co. Ltd. 1956 SCR 603;
Kumaon Motor Owners' Union Ltd. v. State of Uttar Pradesh
(1966) 2 SCR 121; Ashok Marketing Limited v. Punjab
National Bank (1990) 4 SCC 406: 1990 (3) SCR 649 - relied
on.
G 6. Even before the insertion of proviso to Sections
529(1 ), 529(3) and Section 529A and amendment of
Section 530(1), all sums due to any employee from a
provident fund, a pension fund, a gratuity fund or any
other fund established for welfare of the employees were
H payable in priority to all other debts in a winding up
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 343
ESSKAY PHARMACEUTICALS LTD.
proceedings [Section 530(1)(f)]. Even the wages, salary A
and other dues payable to the workers and employees
were payable in priority to all other debts. What
Parliament has done by these amendments is to define
the term "workmen's dues" and to place them at par with
debts due to secured creditors to the extent such debts B
rank under clause (c) of the proviso to Section 529(1 ).
However, these amendments, though subsequent in
point of time, cannot be interpreted in a manner which
would result in diluting the mandate of Section 11 of the
EPF Act, sub-section (2) whereof declares that the c
amount due from an employer shall be the first charge
on the assets of the establishment and shall be paid in
priority to all other debts. The words "all other debts"
used in Section 11 (2) would necessarily include the
debts due to secured creditors like banks, financial
0
institutions etc. The mere ranking of the dues of workers
at par with debts due to secured creditors cannot lead
to an inferl:!nce that Parliament intended to create first
charge in favour of the secured creditors and give priority
to the debts due to secured creditors over the amount
due from the employer under the EPF Act. Therefore, in E
terms of Section 530(1), all revenues, taxes, cesses and
rates due from the company to the Central or State
Government or to a local authority, all wages or salary or
any employee, in respect of the services rendered to the
company and due for a period not exceeding 4 months F
all accrued holiday remuneration etc. and all sums due
to any employee from provident fund, a pension fund, a
gratuity fund or any other fund for the welfare of the
employees maintained by the company are payable in
priority to all other debts. This provision existed when G
Section 11 (2) was inserted in the EPF Act by Act No. 40
of 1973 and any amount due from an employer in respect
of the employees' contribution was declared first charge
on the assets of the establishment and became payable
in priority to all other debts. However, while inserting H
344 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A Section 529A in the Companies Act by Act No.35 of 1985
Parliament, in its wisdom, did not declare the workmen's
dues (this expression includes various dues including
provident fund) as first charge. The effect of the
amendment made in the Companies Act in 1985 is only
B to expand the scope of the dues of workmen and place
them at par with the debts due to secured creditors and
there is no reason to interpret this amendment as giving
priority to the debts due to secured creditor over the dues
of provident fund payable by an employer. Of course,
C after the amount due from an employer under the EPF Act
is paid, the other dues of the workers will be treated at
par with the debts due to secured creditors and payment
thereof will be regulated by the provisions contained in
Section 529(1) read with Section 529(3), 529A and 530 of
the Companies Act. [paras 42, 43] [383-C-H; 384-A-E]
0
Maharashtra State Cooperative Bank Ltd. v. Assistant
Provident Fund Commissioner (2009) 10 SCC 123: 2009 (15)
SCR 1; Maharashtra Tubes Ltd. v. State Industrial and
Investment Corporation of Maharashtra Ltd. (1993) ·2 SCC
E 144: 1993 (1) SCR 340; Recovery Officer and Asstt.
Provident Fund Commissioner v. Kera/a Financial
Corporation ILR (2002) 3 Kerala; Allahabad Bank v. Canara
Bank (2000) 4 sec 406: 2000 (2) SCR 1102 UCO Bank v.
Official Liquidator, High Court of Bombay (1994) 5 SCC 1:
F 1994 (1) Suppl. SCR 294; A.P. State Financial Corporation
v. Official Liquidator (2000) 7 SCC 291: 2000 (2) Suppl. SCR
288 Textile Labour Association v. Official Liquidator (2004) 9
sec 741: 2004 (3) SCR 1161; /CIC/ Bank Ltd. v. S/DCO
Leathers Ltd. (2006) 10 sec 452: 2006 (1) Suppl. SCR 528;
G Rajasthan State Financial Corporation v. Official Liquidator
(2005) 8 sec 190: 2005 (3) Suppl. SCR 1073; UCO Bank
v. Official Liquidator, High Court, Bombay (1994) 5 SCC 1:
1994 (1) Suppl. SCR 294- referred. to.
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 345
ESSKAY PHARMACEUTICALS LTD.
Case Law Reference: A
2009 (15) SCR 1 referretl to Para 11
1993 (1) SCR 340 referred to Para 12
1974 (3) SCR 813 . relied on Para 22 B
ILR (2002) 3 Kerala 4 referred to Paras 23, 28
2009 (3) SCR 735 relied on Para 24
(1965) 2 SCR 289 relied on Para 25
c
1994 (6) Suppl. SCR 566 relied on Paras 26, 27,
28
2000 (3) SCR 50 relied on Paras 26, 27,
28
D
(2002) 10 sec 441 relied on. Paras 26, 27,
28
2000 (2) SCR 1102 referred to Paras 28, 32,
33,34
E
1994 (1) Suppl. SCR 294 referred to Paras 29, 31
2000 (2) Suppl. SCR 288 referred to Paras 29 31,
34
2004 (3) SCR 1161 referred to Paras 29, 31 F
2006 (1) Suppl. SCR 528 referred to Paras 29, 33
2005 (3) Suppl. SCR 1073 referred to Para 33
1994 (1) Suppl. SCR 294 referred to Paras 29, 31
G
1987 (2) SCR 1 relied on Para 37
1956 SCR 603 relied on Para 39
(1966) 2 SCR 121 relied on Para 40
H
346 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A 1990 (3) SCR 649 relied on Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
9630 of 2011.
From the Judgment & Order dated 18.9.2008 of the High
B Court of Gujarat in O.J. Appeal No. 269 of 20Q7 in Company
Application No. 370 of 2007.
WITH
C.A. Nos. 9632, 9631 & 9633 of 2011.
c
Aparna Bhat, P. Ramesh Kumar for the Appellant.
Gaurav Agrawal for the Respondent.
The Judgment of the Court was delivered by
D
G.S. SINGHVI, J. 1. Delay condoned.
2. Leave granted.
E 3. The question which arises for consideration in these
appeals is whether priority given to the dues payable by an
employer under Section 11 of the Employees' Provident Funds
and Miscellaneous Provisions Act, 1952 (for short, 'the EPF
Act') is subject to SectjOn 529A of the Companies Act, 1956
(for short, 'the Companies Act') in terms of which the workmen's
F dues and debts due to secured creditors are required to be
paid in priority to all other debts.
4. For the sake of convenience, we have culled out the
facts from the record of the appeal arising out of SLP(C) No.
G 7642/2011.
5. Messrs Esskay Pharmaceuticals Limited is a company
registered under the Companies Act. It falls within the definition
of 'employer' under Section :2(e) of the EPF Act. On account
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 347
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.)
of the company's failure to pay the dues under the EPF Act for A
the periods from March 1998 to May 1999 and June 1999 to
August 2001, the competent authority passed two orders under
Section 7A of the EPF Act and held that it'was liable to pay
Rs.14,96,751/-. The company appears to have paid a sum of
Rs.4,02,126/- but did notpay the remaining amount despite the B
issue of demand notices dated 12.4.2001 and 19.4.2001 by
the competent authority. The orders passed under Section BF
of the EPF Act, which were communicated to the bankers of
the company also did not yield the desired result. The
competent authority then issued warrant for attachment of the c
company's property. This was followed by sale notice dated
20.9.2001.
6. Although, it is not clear from the record as to what
happened to the sale notice, but this much is evident that after
2 years and about 4 months, the Enforcement Officer informed D
the appellant that the Gujarat High Court has passed order
dated 11.3.2004 for winding up of the company and appointed
Official Liquidator to look after its properties and clear the
debts. The appellant then approached the Official Liquidator for
payment of the amount determined under Section 7A of the E
EPF Act, but the latter did not give any response.
7. Company Application No. 356/2007 filed by the
appellant for issue of a direction to the Official Liquidator to pay
the amount payable by the employer under the EPF Act was F
dismissed by the learned Company Judge by relying upon the
order passed by the Division Bench of the High Court in
Company Application No. 216 of 1997 in Company Petition
No.205 of 1996 and order dated 31.8.2005 passed in
Company Application No.195 of 2005 - Regional Provident G
Commis3ioner-I v. M.A. Kuvadia, O.L. and others.
8. The appellant challenged the order of the learned
Company Judge· by filing an appeal but could not convince the.
Division Bench of the High Court to entertain his plea that the
amount due from the employer is first charge on the assets of H
348 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A the company and is payable in priority to all other dues. The
Division Bench relied upon the judgment of the co-ordinate
Bench and held that the learned Company Judge did not
commit any error by dismissing the application filed by the
appellant. ·
B
9. Since the impugned judgment and the order passed by
the learned· Company Judge are entirely based on the order
passed by another Division Bench in Company Application No.
216/1997 in Company Petition No. 205/1996, it will be
appropriate to notice the ratio of that order. The same is as
C under: ·
"Section-530, Sub-section (1 ), clearly observes that in a
winding up matter, subject to the provisions of Section-
529(A), there shall be paid in priority to all other debts,
D dues of the Government, which are in the form of revenues,
tax, etc. When Section-530 is made subordinate to
Section-529(A), then, a Court is obliged to look into the
material provisions as contained under Seclion-529(A).
Section-529(A) clearly provides chat notwithstanding
E anything contained in any other provisicm of the Companies
Act or any other law for the time being in force, in the
winding up of a company, workmen's dues and debts due
to the secured creditors to the extent such debts ;ank under
clause (c) of the proviso to sub-section (1) of Section-529
F pari passu with such dues, shall be paid in priority to all
other debts.
Section-529(A) has been introduced in the year 1985. It
starts with a non-obstante clause. It clearly provides that
"notwithstanding anything contained in any other provision
G of the Act or any other law for the •ime being in force". A
true understanding of Section-529(A) would make clear
that the provisions of Section-529(A) shall override the
provisions contained in Seclion-530. Not only this, the
provisions contained in Section-529(A) shall override th~
H provisions contained in the ESI Act because the ESI Ac.;!
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 349
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
is an Act of 1948, while the amendment in the Companies A.
Act has been made in the year 1985 and with the fullest
knowledge that it was to override the provisions contained
in Section-530. If Section-94 of the ESI Act and Section-
530 of the Companies Act are made subordinate to
Section-529(A), then, Section-529(A) shall march over the B
rights of others to which the others are entitled either under
the special laws or under Section-530 of the Companies
Act. A combined/conjoint reading of Section-529(A) of the
Companies Act would make clear that in a matter of
winding up, the workmen's dues and the debts due to the c
secured creditors to the extent such debts rank under
clause (c) of the proviso to Sub-section (I) of Section-
529(A) pari passu with such dues, shall be paid in priority
to all other debts. If such dues and debts are paid in full
and even thereafter, some money is left with the Official D
Liquidator f~r its distribution, then, such money can .be
distributed under Section-530 of the Companies Act.
When such a situation crops up, the State Government or
the Central Government of the Local Authority may file their
claim before the learned Company Judge and at that point E
of time, they may say that in view of their preferential right,
either under the Local Act or under Section-530 of the
Companies Act, they be paid."
10. The factual matrix of the other appeals is more or less
similar. In all the cases, applications filed by the appellant for F
payment of the amount due from the employer were dismissed
by the learned Company Judge and the appeals were
dismissed by the Division Bench of the High Court . .
11. Ms. Aparna Bhat, learned counsel for the appellant G
relied upon the judgment in Maharashtra State Cooperative
Bank Ltd. v. Assistant Provident Fund Commissioner (2009)
10 sec 123 and argued that the impugned judgment. and the
order of the learned Company Judge are liable to be set aside
because the High Court's interpretation of Section 11 of the H
350 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A EPF Act is contrary to the law laid down by this Court. She
submitted that even though Section 529A of the Companies Act
also contains a non obstante clause, the provisions contained
therein cannot override Section 11 (2) of the EPF Act in terms
of which the amount due from an employer in respect of the
s employees contribution is treated as first charge on the assets
of the company and is payable in priority to all other debts. Ms.
Bhat further argued that the EPF Act is a special legislation for
institution of various types of funds and the schemes and in view
of the non obstante clause contained in Section 11 (2), priority
c given to the dues payable by an employer will prevail over the
priority given under Section 529A of the Companies Act to the·
workmen's dues and debts due to secured creditors.
12. Shri Gaurav Agrawal, learned counsel for respondent
No.1 supported the impugned judgment and argued that the
D statutory priority given to the dues of the employees under
Section 11 (2) of the EPF Act cannot override the priority ·given
to the dues of workers and secured creditors under Section
529A(1) of the Companies Act because Parliament had
inserted that section in the Companies Act with effect from
E 24.5.1995 knowing fully well priority given to the dues of the
employees under the EPF Act. He further argued that the non
obstante clause contained in the subsequent legislation, i.e.
Section 529A (1) of the Companies Act would prevail over
similar clause contained in the earlier legis'ation, i.e. Section
F 11 (2) of the EPF Act. In support of this argument, Shri Agrawal
relied upon the judgment of this Court in Maharashtra Tubes
Ltd. v. ,State Industrial and Investment Corporation of
Maharashtra Ltd. (1993) 2 SCC 144.
G 13. We have considered the respective arguments. For
deciding the question arising in these appeals, it will be useful
to notice the relevant statutory provisions.
The EPF Act
H 14. Section 11 (unamended) of the EPF Act was as under:
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 351
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
"11. Priority of payment of contributions over other A
debts.- Where any employer is adjudicated insolvent or,
being a company, an order for winding up is made, the
amount due-
(<!) from the employer in relation to an establishment to
8
which any Scheme applies in respect of any contribution
payable to the Fund, damages recoverable under Section
14-8, accumulations required to be transferred under sub-
section (2) of Section 15 or any charges payable by him
under any other provision of this Act or of any provision of C
the Scheme; or
(b) from the employer in relation to an exempted
establishment in respect of any contribution to the
provident fund (in so far as it relates to exempted
employees), under the rules of the provident fund (any D
contribution payable by him towards the Family Pension
Fund under sub-section (6) of Section 17), damages
recoverable under Section 13-8 or any charges payable
by him to the appropriate Government under any provision
of this Act or under any of the conditions specified under E
section 17,
shall where the liability therefor has accrued before the
order of adjudication or winding up is made, be deemed
to be included, among the debts which under Section 49
of the Presidency-towns Insolvency Act, 1909, or under F
Section 61 of the Provincial Insolvency Act, 1920 or under
Section 230 of the Indian Companies Act, 1913, are to 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 case may be." G
15. The EPF Act was amended by Act Nos. 40 of 1973,
19 of 1976 and 33 of 1988. By Act No. 40 of 1973, Section
11 was renumbered as Section 11 (1) and a new sub-section
was added as Section 11 (2) and it was declared that any H
352 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A amount due from an employer in respect of the employees'
contribution shall be deemed to be the first charge on the assets
of the establishment and shall be paid in priority to all other
debts. The scope pf Section 11 (2) was enlarged by Act No.
33 of 1988 by including the employer's contribution.
B
16. The background in which Amendment Act No.33 of
1988 was passed is discernible from the Statement of Objects
and Reasons appended to the Employees' Provident Funds
and Miscellaneous Provisions (Amendment) Bill, 1988, the
relevant portions of which are extracted below:
c
"The Employees' Provident Funds and Miscellaneous
Provisions Act, 1952 provides for the institution of
Compulsory Provident Fund; Family Pension Fund and
Deposit Linked Insurance Fund, for the benefit of the
D employees in factories and other establishments. The Act
is at present applicable to 1-73 industries and classes of
establishments employing twenty or more persons. As on
31-3-1987, about 1.66 1akh establishments with about
1.38 crore subscribers were covered under the Act.
E
2. The Act was last amended in 1976. The Government
had set up a high level Committee in April, 1980 to review
the working of the Employees' Provident Funds
Organisation and to suggest improvements. The
Committee had made a number of recommendations
F involving amendment of the Act. The Central Board of
Trustees, Employees' Provident Fund had also, from time
to time, made certain recommendations for amendment
of the Act. The Standing Labour Committee had at its
meeting held in September, 1986 considered inter alia the
G question of enhancement of the rate of provident fund
contribution and recommended suitable enhancement.
3. Based on the above recommendations, it is proposed
to carry on certain amendments in the Act. Some of the
H more important amendments are:-
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 353
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
(i) to (v) xxxx xxxx xxxx A
(vi) a provision is being made for treating the entire amount
of arrears of provident fund dues as first charge on the
assets of an establishment in the event of its liquidation;
xxxx xxxx xxxx" 8
17. Section 11, as it stands after the amendment of 1988,
reads as under:
"11. Priority of payment of contributions over other C
debts.- (1) Where any employer is adjudicated insolvent
or, being a company, an order for winding up is made, the
amount due -
(a) from the employer in relation to an establishment to
which any Scheme or the Insurance Scheme applies D
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 under sub-
section (2) of section 15 or any charges payable by E
him under any other provision of this Act or of any
provision of the Scheme or the Insurance Scheme;
or
(b) from the employer in relation to an exempted F
establishment in respect of any contribution to the
provident fund or any insurance fund (in so far it
relates to exempted employees), under the rules of
the provident fund or any insurance fund, any
contribution payable by him towards the Pension G
Fund under sub-section (6) of section 17, damages
recoverable under section 148 or any charges
payable -by him to the appropriate Government
under any provision of this Act, or under any of the
conditions specified under section 17,
H
354 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A shall, where the liability therefore has accrued before the
order of adjudication or winding up is made, be deemed
to be included among the debts which under section 49
of the Presidency Towns Insolvency Act, 1909 (3of1909),
or under section 61 of the Provincial Insolvency Act, 1920
B (5 of 1920), or under section 530 of the Companies Act,
1956 (1 of 1956), are to 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 case
may be.
c Explanation. - In this sub-section and in section 17,
"insurance fund" means any fund established by an
employer under any scheme for providing benefits in the
nature of life insurance to employees, whether linked to
their deposits in provident fund or not, without payment by
D the employees of any separate contribution or premium in
that behalf.
(2) Without prejudice to the provisions of sub-section (1),
if any amount is due from an employer whether in respect
of the employee's contribution (deducted from the wages
E
of the employee) or the employer's contribution, the amount
so due shall be deemed to be the first charge on the
assets of the establishment, and shall, notwithstanding
anything contained in any other law for the time being in
force, be paid in priority to all other debts."
F
18. An analysis of Section 11 of the EPF Act shows that
it gives statutory priority to the amount payable to the
employees over other debts. Section 11 (1) relates to an
employer who is adjudged insolvent or being a company
G against whom 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 under Section 15(2) or any charges
H payable by him under any other provision of the Act or the
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 355
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
Scheme or the Insurance Scheme shall be paid in priority to all A
other debts in the distribution of the property of the insolvent or
the assets of the company being wound up, as the case may
be. Section 11 (2) contains a non obstante clause and lays down
that if any amount is due from an employer whether in respect
of the employee's contribution deducted from the wages of the B
employees or the employer's contribution, the same shall be
deemed to be the first charge on the assets of the
establishment and shall, notwithstanding anything contained in
any other law for the time being in force, be paid in priority to
all other debts. To put it differently, sub-section (2) of Section c
11 not only declares that the amount due from an employer
towards contribution payable under the EPF Act shall be treated
as the first charge on the assets of the establishment, but also
lays down that notwithstanding anything contained in any other
law, such dues shall be paid in priority to all other debts.
D
The Companies Act
19. Part VII of the Companies Act, which consists of 5
Chapters contains provisions relating to winding up of a
company. The provisions contained in Chapter V (Sections 528 E
to 560), which deal with proof and ranking of claims are
applicable to every mode of winding up. Section 528 lays down
that in every winding up, all debts payable on a contingency; and
all claims against the company,,.-present or future, certain or
contingent, ascertained or sounding only in damages, shall be F
admissible to proof against the company. This is subject to the
rider that in the case of insolvent companies, law o{ insolvency
will be applicable in accordance with the pro"'isi~ns of the
Companies Act. Section 529 deals with application of
insolvency rules in winding up of insolvent companies. Section G
530, as it existed prior to the amendment of the Companies Act
by Act No.35 of 1985, gave priority to revenue of the State and
local authorities and various amounts payable to employees
including the dues payable from a provident fund, a pension fund,
a gratuity fund or any other fund maintained by the company for H
356 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A the welfare of the employees. By the Companies (Amendment)
Act No.35 of 1985, proviso was added to Section 529(1). By
the same amendment, Sections 529(3) and 529A were inserted
in the Companies Act. Simultaneously, the expression "subject
to the provisions of Section 529A" was inserted in Section
B 530(1). Paragraph 2 of the Statement of Objects and Reasons
contained in the Companies (Amendment) Bill, 1985 reads as
under:
"2. Another announcement made by the Finance Minister
·in his Budget speech relates to the decision of the
c Government to introduce necessary legislation so ~hat
legitimate dues of workers rank pari passu with secured
creditors in the event of closure of the company and above
even the dues to Government. The resources of companies
constitute a major segment of the material resources of the
D community and common good demands that the ownership
and control of the resources of every company are so
distributed that in the unfortunate event of its liquidation,
workers, whose labour and effort constitute an invisible but
easily perceivable part of the capital of the company are
E not deprived of their legitimate right to participate in the
produce of their labour and effort. It is accordingly
proposed to amend Sections 529 and 530 of the
Companies Act and also to incorporate a new section in
the Act, namely, Section 529-A (vide clauses 4, 5 and 6
F of the Bill)."
20. Sections 529(1) and (3) and 529A and the relevant
parts of Section 530, as they stand after the 1985 amendments
read as under:
G "529. Application of insolvency rules in winding up of
insolvent companies. - (1) In the winding up of an
insolvent company, the same rules shall prevail and be
observed with regard to-
H (a) debts provable;
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 357
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
(b) the valuation of annuities and future and contingent A
liabilities; and
(c) the respective rights of secured and unsecured
creditors; as are in force for the time being under the law
of insolvency with respect to the estates of persons B
adjudged insolvent:
Provided that the security of every secured creditor shall
be deemed to be subject to a pari passu charge in favour
of the workmen to the extent of the workmen's portion
therein, and, where a secured creditor, instead of C
relinquishing his security and proving his debt, opts to
realise his security,-
(a) the liquidator shall be entitled to represent the workmen
and enforce such charge; D
(b) any amount realised by the liquidator by way of
enforcement of such charge shall be applied rateably for
the discharge of workmen's dues; and
(c) so much of the debt due to such secured creditor as E
could not be realised by him by virtue of the foregoing
provisions of this proviso or the amount of the workmen's
portion in his security, whichever is less, shall rank pari
passu with the workmen's dues for the purposes of section
529A. F
529(3). For the J..'Jrposes of this ~ection, section 529A and
section 530,-
(a) "workmen'', in relation to a company, means the
employees of the company, being workmen within G
the meaning of the Industrial Disputes Act, 1947 (14
of 1947);
(b) "workmen's dues", in relation to a company, means
H
358 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A the aggregate of the following sums due from the
company to its workmen, namely:-
(i) all wages or salary including wages payable
for time or piece work and salary earned
wholly or in part by way of commission of any
B
workman, in respect of services rendered to
the company and any compensation payable
to any workman under any of the provisions
of the Industrial Disputes Act, 1947 (14 of
1947);
c
(ii) all accrued holiday remuneration becoming
payable to any workman, or in the case of his
death to any other person in his right, on the
termination of his employment before, or by
D the effect of, the winding up order or
resolution;
(iii) unless the company is being wound up
voluntarily merely for the purposes of
E
reconstruction or of amalgamation with
another company, or unless the company
has, at the commencement of the winding
up, under such a contract with insurers as is
mentioned in section 14 of the Workmen's
Compensation Act, 1923 (8 of 1923) rights
F capable of being transferred to and vested
in the workman, all amounts due in respect
of any compensation or liability for
compensation under the said Act in respect
of the death or disablement of any workman
G of the company;
(iv) all sums due to any workman from a
provident fund, a pension fund, a gratuity fund
or any other fund for the welfare of the
H workmen, maintained by the company;
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 359
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
529A. Overridingpreferential payment.-(1) Notwith- A
standing anything contained in any other provision of this
Act or any other law for the time being in force, in the
winding up of a company-
(a) workmen's dues; and
B
(b) debts due to secured creditors to the extent
such debts rank under clause (c) of the
proviso to sub-section (1) of section 529 pari
passu with such dues,
c
shall be paid in priority to all other debts.
(2) The debts payable under clause (a) and clause (b) of
sub-section (1) shall be paid in full, unless the assets are
insufficient to meet them, in which case they shall abate D
in equal proportions.
530. Preferential payments.- (1) In a winding up subject
to the provisions of section 529A, there shall be paid in
priority to all other debts-
E
(a) all revenues taxes, cesses and rates due from the
company to the Central or a State Government or
to a local authority at the relevant date as defined
in clause (c) of the sub-section (8), and having
become due and payable within the twelve months F
next before that date;
(b) all wages or salary (including wages payable for
time or piece work and salary earned wholly or in
part by way of commission) of any employee, in
respect of services rendered to the company and G
due for a period not exceeding four months within
the twelve months next before the relevant date
subject to the limit specified in sub-section (2);
(f) all sums due to any employee from a provident fund, H
360 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A a pension fund, a gratuity fund or any other fund for
the welfare of the employees maintained by the
company;
(2) The sum to which priority is to be given under clause
(b) of sub-section (1 ), shall not, in the case of any one
B
claimant, exceed such sum as may be notified by the
Central Government in the Official Gazette."
21. By inserting proviso in Section 529(1 ), Parliament
ensured protection of the interest of the workmen in winding up
C proceedings. The object of this amendment is to place the
legitimate dues of workers at par with those of secured
creditors. This is also a legislative recognition of the fact that
the workmen contribute to the growth of the capital and industry
and in the event of winding up of the company, they are entitled
D to get their legitimate share in the assets of the company by
being treated at par with other secured creditors. With the
insertion of Section 529(3)(a), the definition of the term
'workmen' contained in the Industrial Disputes Act, 1947 has
been incorporated in the Companies Act for the purposes of
E Sections 529 529A and 530. The expression "workmen's
dues" has been defined in Section 529(3)(b) to mean all wages
or salary including wages payable for time or piece work and
salary earned wholly or in part by way of commission of any
workman in respect of services rendered to the company and
F any compensation payable to any workman under the Industrial
Disputes Act, 1947, all accrued holiday remuneration payable
to any workman, or in the case of his death to any other person
in his right upon the termination of his employment before the
passing of winding up order and all sums due to any workman
from a provident fund, a pension fund, a gratuity fund or any
G other fund for the welfare of the workmen, which is maintained
by the company. The definition also takes within its fold funds
capable of being transferred to and vested in the workman
under a contract with insurers under Section 14 of the
Workmen's Compensation Act as also the amounts due in
H respect of any compensation or liability for compensation under
EMPLOYEES PROVIDENT FUND COMMNR v. O.L. OF 361
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
the Workmen's Compensation Act in respect of the death or A
disablement of any workman of the company. By virtue of the
non obstante clause contained in sub-section (1) of Section
529A, statutory priority has been given to the workmen's dues
and debts due to secured creditors over all other dues.
B
22. The EPF Act is a social welfare legislation intended
to protect the interest of a weaker section of the society, i.e.
the workers employed in factoFies-and-other establishments,
who have made significant contribution in economic growth of
the country. The workers and other employees provide services
of different kinds and ensure continuous production of goods, C
which are made available to the society at large. Therefore, a
legislation made for their benefit must receive a liberal and
purposive interpretation keeping in view the Directive Principles
of State Policy contained in Articles 38 and 43 of the
Constitution. In Organo Chemical Industries v. Union of India D
(1979) 4 SCC 573, this Court negatived challenge to the
constitutionality of Section 14-B of the EPF Act. In the main
judgment delivered by him, A.P. Sen, J. referred to the
Statement of Objects and Reasons contained in the Bill
presented before Parliament, which led to the enactment of E
Amendment Act No. 40/1973 and observed:
"Each word, phrase or sentence is to be considered in the
light of general purpose of the Act itself. A bare mechanical
interpretation of the words "devoid of-concept or purpose" F
will reduce must of legislation to futility. It is a salutary rule,
well established, that the intention of the legislature must
be found by reading the statute as a whole."
In his concurring judgment, Krishna Iyer, J. observed:
G
"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 H
362 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A 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
B 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
c must further the purpose of a statute. In a different context
and considering a fundamental treaty, the European Court
of Human Rights, in the Sunday Times Case, observed:
The Court must interpret them in a way that
reconciles them as far as possible and is most
D appropriate in order to realise the aim and achieve
the object of the treaty.
A policy-oriented interpretation, when a welfare legislation
falls for determination, especially in the context of a
E developing country, is sanctioned by principle and
precedent and is implicit in Article 37 of the Constitution
since the judicial branch is, in a sense, part of the State.
So it is reasonable to assign to 'damages' a larger,
fulfilling meaning."
F 23. Section 11 (2) of the EPF Act was interpreted by the
Division Bench of the Kera/a High Court in Recovery Officer
and Asstt. Provident Fund Commissioner v. Kera/a Financial
Corporation, ILR (2002) 3 Kerala 4. Speaking for the Bench,
B.N. Srikrishna, J. (as he then was) observed:
G
"The F.P.F. and M.P. Act, 1952 is an Actto provide for the
institution of Provident Fund, Pension Fund, Deposit
Linked Insurance Fund etc. in factories and other
establishments, to carry forward the Constitutional
H mandate of rendering social justice to the working class.
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 363
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
It is intended to give social security to industrial workers A
at the end of their careers. The E.P.F. and M.P. Act
requires every employer to deduct certain prescribed
amounts from the wages payable to employees along with
prescribed contribution by the employer and deposit such
contributions in the Provident Fund. The Provident jis B
administered by the Central and Regional Provident Fund
Commissioners, who are statutory authorities. What is of
importance to us is that section 11 of E.P.F. and M.P. Act,
declares the priority of payment of contributions under the
Act over other debts. Sub-section (1) of section 11 of E.P.F. c
and M.P. Act deals with the question of priority where an
employer is adjudicated insolvent or being a company
subjected to an order of winding up. Sub-section (2) of
section 11 deals with other types of priorities and reads
as under:
D
"11 (2) Without prejudice to the provisions of sub-
section (1), if any amount is due from an employer,
whether in respect of the employee's contribution
deducted from the wages of the employee or the
employer's contribution, the amount so due shall be E
deemed to be the first charge on the assets of the
establishment, and shall, notwithstanding anything
contained in any other law, for the time being in
force, be paid in priority to all other debts."
F
Sub-section (2) of section 11 of the E.P.P. and M.P. Act
has two facets. First, it declares that the amount due from
the employer towards contribution under the E.P.F. and
M.P. Act shall be deemed to be a first charge on the
assets of the establishment. Second, it also declares that G
notwithstanding anything contained in any other law for the
time being in force, such debt shall be paid in priority to
all other debts. Both these provisions bring out the intention
of Parliament to ensure the social benefit as contained in
the legislation. There are other provisions in 'the Act H
364 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A rendering the amounts of Provident Fund payable immune
from attachment of Civil Court's decree, which also
indicate such intention of Parliament."
24. The ratio of the afore-mentioned judgment has been
B noticed in Central Bank of India v. State of Kera/a (2009) 4
SCC 94 and Maharashtra State Cooperative Bank Ltd. v.
Assistant Provident Fund Commissioner (2009) 10 SCC 123.
25. The nature of priority given to the taxes payable to the
State over other debts was considered by the Constitution
C Bench in Builders Supply Corporation v. Union of India (1965)
2 SCR 289. After noticing the judgments of the Bombay and
Madras High Courts, the Constitution Bench held:
"(i) The common law doctrine of the priority of Crown debts
D had a wide sweep but the question in the present appeal
was the narrow one whether the Union of India was entitled
to claim that the recovery of the amount of tax due to it from
a citizen must take precedence and priority over unsecured
debts due from the said citizen to his other private
creditors. The weight of authority in India was strongly in
E
support of the priority of tax dues.
(ii) The common law doctrine on which the Union of India
based its claim in the present proceedings had been
applied and upheld in that part of India which was known
F as 'British India' prior to the Constitution. The rules of
common law relating to substantive rights which had been
adopted by this country and enforced by judicial decisions,
amount to 'law in force' in the territory of India at the
relevant time within the meaning of Article 372(1 ). In that
G view of the matter, the contention of the appellant that after
the Constitution was adopted the position of the Union of
India in regard to its claim for priority in the present
proceedings had been alerted could not be upheld.
(iii) The basic justification for the claim for priority of
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 365
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
government debts rests on the well-recognised principle A
that the State is entitled to raise money by taxation,
otherwise it will not be able to function as a sovereign
Government at all. This consideration emphasises the
necessity and wisdom of conceding to the State the right
to claim priority in respect of its tax dues." B
(emphasis supplied)
26. The ratio of the judgment in Builders Supply
Corporation v. Union of India (supra) was applied to the cases
in which statutory first charge was created in favour of the State C
in the matter of recovery of tax, penalty, interest etc.. - 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 SCC 694 and State of M.P.
v. State Bank of Indore (2002) 10 SCC 441. In the last D
mentioned judgment, i.e. State of M.P. v. State Bank of Indore
(supra), this Court considered the question whether statutory
first charge created under Section 33-C of the M.P. General
Sales Tax Act, 1958 would prevail over the bank's charge and
held: E
"Section 33-C creates a statutory first charge that prevails
over any charge that may be in existence. Therefore, the
charge thereby created in favour of the State in respect
of the sales tax dues of the second respondent prevailed F
over the charge created in favour of the Bank in respect
of the Joan taken by the second respondent. There is no
question of retrospectivity here, as, on the date when it was
introduced, Section 33-C operated in respect of all
charges that were then in force and gave sales tax dues
precedence over them." G
(emphasis supplied)
27. At this juncture, it will be apposite to mention that the
nature of statutory first charge and the rule of priority of the H
366 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A State's dues were considered in Builders Supply Corporation
v. Union of India (supra), State Bank of Bikaner and Jaipur v.
National Iron and Steel Rolling Corporation (supra), Dena
Bank v. Bhikhabhai Prabhudas Parekh & Co. (supra) and
State of M.P. v. State Bank of Indore (supra) in the context of
B contra claim made by unsecured creditors. The question
whether first charge created by taxing statutes enacted by State
legislatures will prevail over the debts due to secured creditors
was considered by a three Judge Bench in Central Bank of
India v. State of Kera/a (supra) and answered in affirmative. In
c that case, this Court was called upon to consider whether the
first charge created on the property of the dealer by the
legislations enacted by State legislatures for levy and collection
of sales tax would prevail over the debts due to banks, financial
institutions and other secured creditors, which could be
recovered under the Recovery of Debts Due to Banks and
0
Financial Institutions Act, 1993 and/or the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002. The Court referred to the relevant provisions
contained in the ORT Act, the Securitisation Act and Sales Tax
legislations of different States as also Section 14A of the
E Workmen's Compensation Act, 1923, Section 11 of the EPF
Act, Section 74 of the Estate Duty Act, 1953, Section 25 of the
Mines and Minerals (Regulation and Development) Act, 1957,
Section 30 of the Gift Tax Act, 1958, Section 529A of the
Companies Act, 1956, Section 46B of the State Financial
F Corporations Act, 1951 and observed:
"Under Section 13(1) of the Securitisation Act, limited
primacy has been given to the right of a secured creditor
to enforce security interest vis-a-vis Section 69 or Section
G 69-A of the Transfer of Property Act. In terms of that sub-
section, a secured creditor can enforce security interest
without intervention of the court or tribunal and if the
borrower has created any mortgage of the secured asset,
the mortgagee or any person acting on his behalf cannot
H sell the mortgaged property or appoint a Receiver of the
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 367
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
income of the mortgaged property or any part thereof in a A
manner which may defeat the right of the secured creditor
to enforce security interest. This provision was enacted in
the backdrop of Chapter VIII of the Narasimham
Committee's Second Report in which specific reference
was made to the provisions relating to mortgages under B
the Transfer of Property Act.
In an apparent bid to overcome the likely difficulty faced
by the secured creditor which may include a bank or a
financial institution, Parliament incorporated the non C
obstante clause in Section 13 and gave primacy to the right
of secured creditor vis-a-vis other mortgagees who could
exercise rights under Sections 69 or 69-A of the Transfer
of Property Act._However, this primacy has not been
extended to other provisions like Section 38-C of the
Bombay Act and Section 26-8 of the Kera/a Act by which D
first charge has been created in favour of the SttJte over
the property of the dealer or any person liable to pay the
dues of sales tax, etc. Sub-section (7) of Section 13 which
envisages application of the money received by the
secured creditor by adopt\ng any of the measures E
specified under sub-section (4) merely regulates
distribution of money received by the secured creditor. It
does not create first charge in favour of the secured
creditor.
F
By enacting various provisos to sub-section (9) of Section
13, the legislature has ensured that priority given to the
claim of workers of a company in liquidation under Section
529-A of the Companies Act, 1956 vis-a-vis the secured
creditors like banks is duly respected. This is the reason G
why first of the five unnumbered provisos to Section 13(9)
lays down that in the case of a company in liquidation, the
amount realised from the sale of secured assets shall be
distributed in accordance with the provisions of Section
529-A of the Companies Act, 1956. This and other H
368 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A provisos do not create first charge in favour of the worker
of a company in liquidation for the first time but merely
recognise the existing priority of their claim under the
Companies Act. It is interesting to note that the provisos
to sub-section (9) of Section 13 do not deal with the
B companies which fall in the category of borrower but which
are not in liquidation or are not being wound up.
It is thus clear that provisos referred to above are only part
of the distribution mechanism evolved by the legislature
and are intended to protect and preserve the right of the
c workers of a company in liquidation whose assets are
subjected to the provisions of the Securitisation Act and
are disposed of by the secured creditor in accordance with
Section 13 thereof."
D (emphasis supplied)
. .
28. The Court then referred to the earlier judgments in
Builders Supply Corporation v. Union of India (supra), State
Bank of Bikaner and Jaipur v. National Iron and Steel Rolling
E Corporation (supra), Dena Bank v. Bhikhabhai Prabhudas
Parekh & Co. (supra), State of M.P. v. State Bank of Indore
(supra), Allahabad Bank v. Canara Bank (2000) 4 SCC 406,
the judgment of the Division Bench of the Kera la High Court in
Recovery Officer and Asstt. Provident Fund Commissioner v.
F Kera/a Financial Corporation (supra) and observed:
"While enacting the ORT Act and the Securitisation Act,
Parliament was aware of the law laid down by this Court
wherein priority of the State dues was recognised. If
Parliament intended to create first charge in favour of
G banks, financial institutions or other secured creditors on
the property of the borrower, then it would have
incorporated a provision like Section 529-A of the
Companies Act or Section 11(2) of the EPF Act and
ensured that notwithstanding series of judicial
H pronouncements, dues of banks, financial institutions and
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 369
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
other secured creditors should have priority over the State's A
statutory first charge in the matter of recovery of the dues
of sales tax, etc. However, the fact of the matter is that no
such provision has been incorporated in either of these
enactments despite conferment of extraordinary power
upon the secured creditors to take possession and B
dispose of the secured assets without the intervention of
the court or Tribunal. The reason for this omission appears
to be that the new legal regime envisages transfer of
secured assets to private companies.
The definition of "secured creditor" includes securitisation/ c
reconstruction company and any other trustee holding
securities on behalf of bank/financial institution. The
definition of "securitisation company" and "reconstruction
company" in Sections 2(1)(za) and (v) shows that these
companies may be private companies registered under D
the Companies Act, 1956 and having a certificate of
registration from Reserve Bank under Section 3 of the
Securitisation Act. Evidently, Parliament did not intend to
give priority to the dues of private creditors over sovereign
debt of the State. E
If the provisions of the DRT Act and the Securitisation Act
are interpreted keeping in view the background and context
in which these legislations were enacted and the purpose
sought to be achieved by their enactment, it becomes F
clear that the two legislations, are intended to create a new
dispensation for expeditious recovery of dues of banks,
financial institutions and secured creditors and
adjudication of the crievance made by any aggrieved
person qua the procedure adopted by the banks, financial G
institutions and other secured creditors, but the provisions
contained therein cannot be read as creating first charge
in favour of banks, etc.
If Parliament intended to give priority to the dues of banks,
financial institutions and other secured creditors over the H
370 SUPREME COURT REPORTS (2011] 15 (ADDL.) S.C.R.
A first charge created under State legislations then
provisions similar to those contained in Section 14-A of
the Workmen's Compensation Act, 1923, Section 11 (2)
of the EPF Act, Section 74(1) of the Estate Duty Act, 1953,
Section 25(2) of the Mines and Minerals (Regulation and
B Development) Act, 1957, Section 30 of the Gift Tax Act,
and Section 529-A of the Companies Act, 1956 would
have been incorporated in the ORT Act and the
Securitisation Act.
Undisputedly, the two enactments do not contain provision
c similar to the Workmen's Compensation Act, etc. In the
absence of any specific provision to that effect, it is not
possible to read any conflict or inconsistency or
overlapping between the provisions of the ORT Act and
the Securitisation Act on the one hand and Section 38-C
0 of the Bombay Act and Section 26-B of the Kerala Act on
the other and the non·obstante clauses contained in
Section 34(1) of the ORT Act and Section 35 of the
Securitisation Act cannot be invoked for declaring that the
first charge created under the State legislation will not
E operate qua or affect the proceedings initiated by banks,
financial institutions and other secured creditors for
recovery of their dues or enforcement of security interest,
as the case may be.
The Court could have given effect to the non obstante
F
clauses contained in Section 34(1) of the ORT Act and
Section 35 of the Securitisation Act vis-a-vis Section 38-
C of the Bombay Act and Section 26-B of the Kerala Act
and similar other State legislations only if there was a
specific provision in the two enactments creating first
G
charge in favour of the banks, financial institutions and
other secured creditors but as Parliament has not made
any such provision in either of the enactments, the first
charge created by· the State legislations on the property
of the dealer or any other person, liable to pay sales tax,
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 371
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
etc., cannot be destroyed by implication or inference, A
notwithstanding the fact that banks, etc. fall in the category
of secured creditors."
(emphasis supplied)
29. In Maharashtra State Cooperative Bank Ltd. v. B
Assistant Provident Fund Co;nmissioner (supra), the Court
was called upon to consider whether dues payable by the
employer under Section 11 of the EPF Act will have priority over
debts due to the bank. The facts of that case were that Kannad
Sahakari Sakhar Karkhana Ltd. and Gangapur Sahakari C
Sakhar Karkhana Ltd. had pledged sugar bags in favour of the
appellant bank as security for repayment of the loan and
interest. The respondent initiated proceedings for recovery of
the dues payable under the EPF Act. The appellant bank
questioned the legality of the orders passed under the EPF Act D
on the ground that being a secured creditor, the -amount due
to it was payable on priority vis-a-vis other dues including the
dues payable by the employer under the EPF Act. The High
Court negatived the challenge. The Court referred to the
relevant provisions of the EPF Aclincluding Section 11, the E
· judgments noticed hereinabove as also the judgments in UCO
Bank v. Official Liquidator, High Court of Bombay (1994) 5
SCC 1, AP. State Financial Corporation v. Official Liquidator
(2000) 7 SCC 291, Textile Labour Association v. Official
Liquidator (2004) 9 SCC 741 and held: F
"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 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 G
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 11 will
operate against statutory as well as non-statutory and
secured as well as unsecured debts including a mortgage H
372 SUPREME COURT REPORTS [2011] 15 (ADDL) S.C.R.
A 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 the legislature
took care to declare that irrespective of time when a debt
B 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 the assets of the
establishment notwithstanding anything contained in any
other law for the time being in force. It is, therefore,
reasonable to take the view that the statutory first charge
c
created on the assets of the establishment by sub-section
(2) of Section 11 and priority given to the payment of any
amount due from an employer will operate against all types
of debts."
D (emphasis supplied)
30. The ratio for the last mentioned judgment is that by
virtue of the non obstante clause contained in Section 11 (2)
of the EPF Act, any amount due from an employer shall be
E deemed to be first charge on the assets of the establishment
and is payable in priority to all other debts including the debts
due to a bank, which falls in the category of secured creditor.
31. We may now notice some judgments which have
bearing on the interpretation of Sections 529 or 529A of the
F Companies Act. The scope of proviso to sub-section (1) of
Section 529 (as inserted by Amendment Act No.35 of 1985)
was examined in UCO Bank v. Official Liquidator, High Court,
Bombay (1994) 5 SCC 1. The facts of that case were that in
Company Petition No.27 of 1971, the learned Company Judge
G of the Bombay High Court made an order dated 15.11.1972
for winding up of M/s. Glass Carboys and Pressedwares
Limited. The Official Liquidator took possession of the assets
of the company. Appellant - UCO Bank, Which was a secured
creditor of the company obtained a decree on 22.4.1976 for
H recovery of its debt. Thereafter, the High Court's Commissioner
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 373
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
for taking accounts was directed to sell certain movables of the A
company. In the meantime, the Companies Act was amended
by Act No.35 of 1985 and Sections 529 and 530 were
amended and Section 529A was inserted. It was argued on
behalf of the appellant that the amendment was not applicable
to its case because the decree had been passed before the B
amendment and being a secured creditor, it was entitled to
realize its debt in priority to other dues. The learned Company
Judge accepted the argument but he was overruled by the
Division Bench. While dealing with the argument, which found
favour with the learned Company Judge, this Court referred to c
the Stat•;ment of Objects and Reasons contained in the Bill and
observed:
"The proviso to sub-section (1) of Section 529 inserted by
the Amending Act clearly provides that "the security of
every secured creditor shall be deemed to be subject to D
a pari passu charge in favour of the workmen". The effect
of the proviso is to create, by statute, a charge pari passu
in favour of the workmen on every security available to
the secured creditors of the employer company for
recovery of their debts at the time when the amendment E
came into force. This expression is wide enough to apply
to the security of every secured creditor which remained
unrealised on the date of the amendment. The clear object
of the amendment is that the legitimate dues of workers
must rank pari passu with those of secured creditors and · F
above even the dues of the Government. This literal
construction of the proviso is in consonance with, and
promotes, the avowed object of the amendment made. On
the contrary, the construction of the proviso suggested by
the learned counsel for the appellant, apart from being in G
conflict with the plain language of the proviso also defeats
the object of the legislation.
A debt due to a secured creditor, when recovered by
realisation of the security after commencement of the H
374 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A winding up proceedings, results in depletion of the assets
in the hands of the Official Liquidator. This provision is
intended to protect the interests of the workmen in
proceedings for winding up. In view of the nature of
workmen's dues being similar to those of secured
B creditors, the purpose of this provision is to place the
workmen on a par with the secured creditors and create
a statutory charge in their favour on all available
securities forming part of the assets of the company in
liquidation so that the workmen also share the securities
c pari passu with the secured creditors. The workmen
contribute to the growth of the capital and must get their
legitimate share in the assets of the company when the
situation arises for its closure and distribution of its
assets first among the secured creditors due to winding
up of the company. The aforesaid amendment made in
D
the Act is a statutory recognition of this principle equating
the legitimate dues of the workmen with the debts of the
secured creditors of the company. To achieve this purpose,
it is necessary that the amended provision must apply to
all available securities which form part of the assets of the
E company in liquidation on the date of the amendment. The
conclusion reached by the Division Bench of the High
Court is supported by this reason."
(emphasis supplied)
F
32. In Allahabad Bank v. Canara Bank (supra), a two-
Judge Bench was called upon to consider the question whether
an application can be filed under the Companies Act, 1956
during the pendency of proceedings under the ORT Act. The
G facts of that case show that Allahabad Bank filed an OA before
the Delhi Bench of the ORT under Section 19. The same was
decreed on 13.1.1998. The debtor company filed an appeal
before DRAT, Allahabad. Canara Bank also filed application
under Section 19 before ORT, Delhi. During the pendency of
H its application, Canara Bank filed an interlocutory application
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 375
ESSKAY PHARMACEUTICALS LTD. (G.S. SINGHVI, J.]
before the Recovery Officer for impleadment in the proceedings A
arising out of the OA filed by Allahabad Bank. That application
was dismissed on 28.9.1998. In the auction conducted by the
Recovery Officer, the property of the debtor company was
auctioned and the sale was confirmed. Thereupon, Canara
Bank filed applications under Section 22 of the ORT Act. During B
the pendency of applications, Canara Bank filed company
application in Company Petition No. 141 of 1995 filed by
Ranbaxy Ltd. against M.S. Shoes Company under Sections
442 and 537 of the Companies Act for stay of the proceedings
of Recovery Case No. 9of1998 instituted by Allahabad Bank. c
By an order dated 9.3.1999, the learned Company Judge
stayed further sale of the assets of the company. The Allahabad
Bank challenged the order of the learned Company Judge and
pleaded that in view of the amendment made in Section 19(19)
of the ORT Act, Section 529A is attracted for a limited purpose,
0
i.e_. recovery of the dues of workmen. While dealing with this
plea, the Court observed as under:
"The respondent's contention that Section 19(19) gives
priority to all 'secured creditors' to share in the sale
proceeds before the Tribuna1/ Recovery Officer cannot, in E
our opinion, be accepted. The said words are qualified by
the words 'in accordance with the provision of Section 529-
A'. Hence, it is necessary to identify the above limited class
of secured creditors who have priority over all others in
accordance with Section 529-A. F
Secured creditors fall under two categories. Those who
desire to go before the Company Court and those who like
to stand outside the winding up.
The first category of secured creditors mentioned above G
are those who go before the Company Court for dividend
by relinquishing their security in accordance with the
insolvency rules mentioned in Section 529. The insolvency
rules are those contained in Sections 45 to 50 of the
Provincial Insolvency Act. Section 47(2) of that Act states H
376 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A that a secured creditor who wishes to come before the
Official Liquidator has to prove his debt and he can prove
his debt only if he relinquishes his security for the benefit
of the general body of creditors. In that event, he will rank
with the unsecured creditors and has to take his dividend
B as provided in Section 529(2). Till today, Canara Bank has
· not made it clear whether it wants to come under this
category.
The second class of secured creditors referred to above
are those who come under Section 529-A(1)(b) read with
c proviso (c) to Section 529(1). These are those who opt to
stand outside the winding up to realise their security.
Inasmuch as Section 19(19) permits distribution to
secured creditors only in accordance with Section 529-A,
the said category is the one consisting of creditors who
D stand outside the winding up. These secured creditors in
certain circumstances can come before the Company
Court (here, the Tribunal) and claim priority over all other
creditors for release of amounts out of the other monies
lying in the Company Court (here, the Tribunal). This limited
E priority is declared in Section 529-A(1) but it is restricted
only to the extent specified in clause (b) of Section 529-
A(1). The said provision refers to clause (c) of the proviso
to Section 529(1) and it is necessary to understand the
scope of the said provision."
F
33. The judgment in Allabahad Bank v. Canara Bank
(supra) was distinguished by a two-Judge Bench judgment in
/CIC/ Bank Ltd. v. S!DCO Leathers Ltd. (2006) 10 SCC 452.
In that case, the appellant and Punjab National Bank had
G advanced loans to respondent No. 1 for setting up a plant for
manufacture of leather boards and for providing working capital
funds respectively. Respondent No.1 created first charge in
favour of the appellant along with other financial institutions, i.e.
IFCI and IDBI by way of equitable mortgage by deposit of title
H deeds of its immovable property. A second charge was
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 377
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
created in favour of Punjab National Bank by way of A
constructive delivery of title deeds, clearly indicating therein that
the charge in favour of the latter was subject to and subservient
to charges in favour of IFCI, IDBI and ICICI. On an application
filed by respondent No.1, the Allahabad High Court passed
winding up order and appointed Official Liquidator. Thereafter, B
the appellant filed a suit for recovery of the amount credited to
respondent. In due course, the suit was transferred to Debts
Recovery Tribunal, Bombay. During the pendency of the
proceedings before the Tribunal, the Official Liquidator was
granted permission to continue the proceedings of the suit. Civil C
Judge, Fatehpur before whom the suit was pending, ordered
sale of the assets of the company. At that stage, the appellants,
IFCI and IDBI jointly filed an application before the Company
Judge for considering their claim on pro rata basis and also
for exclusion of the claim of the Punjab National Bank. The
learned Company Judge accepted the first prayer of the D
appellant but rejected the second one by relying upon the
judgment in Allahabad Bank v. Canara Bank (supra). The intra
Court appeal was dismissed by the Division Bench by relying
upon Section 529A of the Companies Act. On further appeal,
this Court distinguished the judgment in Allahabad Bank v. E
Canara Bank by relying upon an earlier judgment in Rajasthan
State Financial Corporation v. Official Liquidator (2005) 8
sec 190 and observed:
"In fact in Allahabad Bank it was categorically held that the F
adjudication officer would have such powers to distribute
the sale proceeds to the banks and financial institutions,
being secured creditors, in accordance with inter se
agreemenUarrangement between them and to the other
persons entitled thereto in accordance with the priority in G
law.
Section 529-A of the Companies Act no doubt contains a
non obstante clause but in construing the provisions
thereof, it is necessary to determine the purport and object
for which the same was enacted. H
378 . SUPREME COURT REPORTS (2011) 15 (ADDL) S.C R
A In terms of Section 529 of the Companies Act, as it stood
prior to its amendment, the dues of the workmen were not
treated pari passu with the secured creditors as a result
whereof innumerable instances came to the notice of the
Court that the workers may not get anything after
discharging the debts of the secured creditors. It is only
B
with a view to bring the workmen's dues pari passu with
the secured creditors, that Section 529-A was enacted.
The non obstante nature of a provision although may be
of wide amplitude, the interpretative process thereof must
c be kept confined to the legislative policy. Only because the
dues of the workmen and the debts due to the secured
creditors are treated pari passu with each other, the same
by itself, in our considered view, would not lead to the
conclusion that the concept of inter se priorities amongst
D the secured creditors had thereby been intended to be
given a total go-by.
A non obstante clause must be given effect to, to the extent
Parliament intended and not beyond the same.
E Section 529-A of the Companies Act does not ex facie
contain a provision (on the aspect of priority) amongst the
secured creditors and, hence, it would not be proper to
. re;:id there into things, which Parliament did not
·. comprehend:" . .
.F
34. In A.P. State Financial Corporation v. Official
Liquidator (supra), the Court rejected the argument that the
proceedings initiated by the Financial Corporation under
Section 29 of the State Financial Corporations Act, 1951 will
G not be affected by the non obstante clause contained in Section
529A of the Companies Act and observed:
"The Act of 1951 is a special Act for grant of financial
assistance to industrial concerns with a view to boost up
industrialisation and also recovery of such financial
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 379
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
assistance if it becomes bad and similarly the Companies A
Act deals with companies including winding up of such
companies. The proviso to sub-section (1) of Section 529
and Section 529-A being a subsequent enactment, the
non obstante clause in Section 529-A prevails over
Section 29 of the Act of 1951 in view of the settled B
position of Jaw. We are, therefore, of the opinion that the
above proviso to sub-section (1) of Section 529 and
Section 529-A will control Section 29 of the Act of 1951.
In other words the statutory right to sell the property under
Section 29 of the Act of 1951 has to be exercised with the c
rights of pari passu charge to the workmen created by the
proviso to Section 529 of the Companies Act. Under the
proviso to sub-section (1) of Section 529, the liquidator
shall be entitled to represent the workmen and force (sic
enforce) the above pari passu charge. Therefore, the 0
Company Court was fully justified in imposing the above
conditions to enable the Official Liquidator to discharge
his function properly under the supervision of the
Company. Court as the new Section 529-A of the
Companies Act confers upon a Company Court the duty E
to ensure that the workmen's dues are paid in priority to
all other debts in accordance with the provisions of the
above section. The legislature has amended the
Companies Act in 1985 with a social purpose viz. to protect
dues of the workmen. If conditions are not imposed to
protect the right of the workmen there is every possibility F
that the secured creditor may frustrate the above pari
passu right of the workmen."
(emphasis supplied)
G
35. We have referred to these judgments only for the
purpose of showing that the object of the amendments made
in the Companies Act by Act No. 35 of 1985 was to ensure
that the legitimate dues of workers should rank pari passu with
those of secured creditors. In other words, these amendments H
380 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A are intended to protect the interest of the workmen in winding
up proceedings by placing them at par with secured creditors
and a statutory charge is created qua their dues on all available
securities forming part of the assets of the company in
liquidation. However, the propositions laid down in these
B judgments are of little assistance in deciding the question
raised in these appeals because in none of the cases the Court
considered the so called conflict in the non obstante clauses
contained in Section 11 (2) of the EPF Act and Section 529A
of the Companies Act.
c 36. The argument of Shri Gaurav Agrawal that the non
obstante clause contained in the subsequent legislation, i.e.
Section 529A(1) of the Companies Act should prevail over
similar clause contained in an earlier legislation, i.e. Section
11 (2) of the EPF Act sounds attractive, but if the two provisions
D are read in the light of the objects sought to be achieved by
the legislature by enacting the same; it is not possible to agree
with the learned counsel. As noted earlier, the object of the
amendment made in the EPF Act by Act No.40 of 1973 was
to treat the dues payable by the employer as first charge on
E the assets of the establishment and to ensure that the same
are recovered in priority to other debts. As against this, the
amendments made in the Companies Act in 1985 are intended
to create a charge pari passu in favour of the workmen on every
security available to the secured creditors of the company for
F recovery of their debts. There is nothing in the language of
Section 529A which may give an indication that legislature
wanted to create first charge in respect of the workmen's dues,
as defined in Sections 529(3)(b) and 529A and debts due to
the secured creditors.
G
37. It is a well recognized rule of interpretation that every
part of the statute must be interpreted keeping in view the
context in which it appears and the purpose of legislation. In
RBI v. Peerless General Finance and Investment Co. Ltd.
H (1987) 1 SCC 424, Chinnappa Reddy, J. highlighted the
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L OF 381
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
importance of the rule of contextual interpretation in the following A
words:
"Interpretation must depend on the text and the context.
They are the bases of interpretation. One may well say if
the text is the texture, context is what gives the colour. B
Neither can be ignored. Both are important. That
interpretation is best which makes the textual interpretation
match the contextual. A statute is best interpreted when we
know why it was enacted. With this knowledge, the statute
must be read, first as a whole and then section by section, C
clause by clause, phrase by phrase and word by word. If .
a statute is looked at, in the context of its enactment, with
the glasses of the statute-maker, provided by such context,
its scheme, the sections, clauses, phrases and words may
take colour and appear different than when the statute is
looked at without the glasses provided by the context. With D
these glasses we must look at the Act as a whole and
discover what each section, each clause, each phrase and
each word is meant and designed to say as to fit into the
scheme of the entire Act. No part of a statute and no word
of a statute can be construed in isolation. Statutes have E
to be construed so that every word has a place and
everything is in its place."
38. Another rule of interpretation of Statutes is that if two
special enactments contain provisions which give overriding F
effect to the provisions contained therein, then the Court is
required to consider the purpose and the policy underlying the
two Acts and the clear intendment conveyed by the language
of the relevant provisions.
39. In Shri Ram Narain v. Simla Banking and Industrial G
Co. Ltd. 1956 SCR 603, this Court was considering the
provisions contained in the Banking Companies Act, 1949 and
the Displaced Persons (Debts Adjustment) Act, 1951. Both the
enactments contained provisions giving overriding effect to the
H
382 SUPREME COURT REPORTS [2011] 15 (ADDL.) S.C.R.
A provisions of the enactment over any other law. After noticing
the relevant provisions, the Court observed:
"Each enactment being a special Act, the ordinary principle
that a special law overrides a general law does not afford
any clear solution in this case."
B
"It is, therefore, desirable to determine the overriding effect
of one or the other of the relevant provisions in these two
Acts, in a given case, on much broader considerations of
the purpose and policy underlying the two Acts and the
c clear intendment conveyed by the language of the relevant
provisions therein."
40. In Kumaon Motor Owners' Union Ltd. v. State of Uttar
Pradesh (1966) 2 SCR 121, there was conflict between the
D provisions contained in Rule 131(2) (g) and (1) of the Defence
of India Rul~s. 1962 and Chapter IV-A of the Motor \(ehicles
Act, 1939. Section 68-B gave overriding effect to the provisions
of Chapter IV-A of the Motor Vehicles Act whereas Section 43
of the Defence of India Act, 1962, gave overriding effect to the
E provisions contained in the Defence of India Rules. This Court
held that the Defence of India Act was later than the Motor
Vehicles Act and, therefore, if there was anything repugnant,
the provisions of the later Act should prevail. This Court also
looked into object behind the two statutes, namely, Defence of
India Act and Motor Vehicles Act and on that basis also it was
F held that the provisions contained in the Defence of India Rules
would have an overriding effect over the provisions of the Motor
Vehicles Act.
41. In Ashok Marketing Limited v. Punjab National Bank
G (1990) 4 SCC 406, the Constitution Bench considered some
of the precedents on the interpretation of statutes and observed
"The principle which emerges from these decisions is that
in the case of inconsistency between the provisions of two
H
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 383
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
enactments, both of which can be regarded as special A
in nature, the conflict has to be resolved by reference to
the purpose and policy underlying the two enactments
and the clear intendment conveyed by the language of
the relevant provisions therein."
B
(emphasis supplied)
42. It is also important to bear in mind that even before
the insertion of proviso to Sections 529(1 ), 529(3) and Section
529A and amendment of Section 530(1), all sums due to any
employee from a provident fund, a pension fund, a gratuity fund C
or any other fund established for welfare of the employees were
payable in priority to all other debts in a winding up
proceedings [Section 530(1)(f)). Even the wages, salary and
other dues payable to the workers and employees were
payable in priority to all other debts. What Parliament has done D
by these amendments is to define the term ''workmen's dues"
and to place them at par with debts due to secured creditors
to the extent such debts rank under clause (c) of the proviso to
Section 529(1 ). However, these amendments, though
subsequent in point of time, cannot be interpreted in a manner E
which would result in diluting the mandate of Section 11 of the
EPF Act, sub-section (2) whereof declares that the amount due
from an employer shall be the first charge on the assets of the
establishment and shall be paid in priority to all other debts.
The words "all other debts" used in Section 11 (2) would F
necessarily include the debts due to secured creditors like
banks, financial institutions etc. The mere ranking of the dues
of workers at par with debts due to secured creditors cannot
lead to an inference that Parliament intended to create first
charge in favour of the secured creditors and give priority to G
the debts due to secured creditors over the amount due from
the employer under the EPF Act.
43. At the cost of repetition, we would emphasize that in
terms of Section 530(1), all revenues, taxes, cesses and rates
due from the company to the Central or State Government or H
384 SUPREME COURT REPORTS [2011) 15 (ADDL.) S.C.R.
A to a local authority, all wages or salary or any employee, in
respect of the services rendered to the company and due for
a period not exceeding 4 months all accrued holiday
remuneration etc. and all sums due to any employee from
provident fund, a pension fund, a gratuity fund or any other fund
B for the welfare of the employees maintained by the company
are payable in priority to all other debts. This provision existed
when Section 11 (2) was inserted in the EPF Act by Act No.
40 of 1973 and any amount due from an employer in respect
of the employees' contribution was declared first charge on the
c assets of the establishment and became payable in priority to
all other debts. However, while inserting Section 529A in the
Companies Act by Act No.35of1985 Parliament, in its wisdom,
did not declare the workmen's dues (this expression includes
various dues including provident fund) as first charge. The
effect of the amendment made in the Companies Act in 1985
0
is only to expand the scope of ~he dues of workmen and place
them at par with the debts due to secured creditors and there
is no reason to interpret this amendment as giving priority to
the debts due to secured creditor over the dues of provident
fund payable by an employer. Of course, after the amount due
E from an employer under the EPF Act is paid, the other dues of
the workers will be treated at par with the debts due to secured
creditors and payment thereof will be regulated by the
provisions contained in Section 529(1) read with Section
529(3), 529A and 530 of the Companies Act.
F
44. In view of what we have observed above on the
interpretation of Section 11 of the EPF Act and Sections 529,
529A and 530 of the Companies Act, the judgment of the
Division Bench of the Gujarat High Court, which turned on the
G interpretation of Section 94 of the Employees' State Insurance
Act and Sections 529A and 530 of the Companies Act and on
which reliance has been placed by the learned Company Judge
and the Division Bench of the High Court while dismissing the
applications filed by the appellant, cannot be treated as laying
H down the correct law.
EMPLOYEES PROVIDENT FUND COMMNR. v. O.L. OF 385
ESSKAY PHARMACEUTICALS LTD. [G.S. SINGHVI, J.]
45. In the result, the appeals are allowed. The impugned A
judgment as also the order of the learned Company Judge are
set aside and the applications filed by the appellant are allowed
in terms of the prayer made. The Official Liquidator appointed
by the High Court shall deposit the dues of provident fund
payable by the employer within a period of 3 months. The B
parties are left to bear their own costs.
D.G. Appeals allowed.
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