2009 Supreme(SC) 1638

2009(7) Supreme 515
SUPREME COURT OF INDIA
B.N. Agrawal, G.S. Singhvi, and Aftab Alam, JJ.
Maharashtra State Co-operative Bank Ltd. — Appellant
versus
The Assistant Provident Fund Commissioner and others — Respondents
Civil Appeal No. 6893 of 2009
(Arising out of S.L.P. (C) No.15243 of 2007)
Decided on : 9-10-2009

IMPORTANT POINTS
1. The statutory first charge created on the assets of the establishment by sub-section (2) of Section 11 of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and priority given to the payment of any amount due from an employer will operate against all types of debts.
2. Pledge is a formal promise or undertaking; the act of providing something as security for a debt or obligation, a bailment or other deposit of personal property to a creditor as security for debt or obligation.
3. Asset is an item that is owned and has value, the entries on a balance sheet showing the items of property owned, including cash, inventory, equipment, real estate, accounts receivable and goodwill, all the property of a person available for paying debts or for distribution.

Headnote:Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 – Section 11–Appeals against order passed by High Court in Civil Application Nos.1680 and 1681 of 2007 in Writ Petition No.6824/2005 and order passed in Civil Application No.245/2007 in Letters Patent Appeal No.28/2004.whereby it directed that the sugar bags attached by the petitioner as well as the Assistant Provident Fund Commissioner shall be jointly auctioned and the sale proceeds shall be deposited with the Registrar of Court. – Issue arose whether the sugar bags pledged by Kannad Sahakari Sakhar Karkhana Ltd. and Gangapur Sahakari Sakhar Karkhana Ltd. in favour of the appellant-bank as security for repayment of the loan together with interest could be attached and sold for realization of the dues of provident funds etc. payable by the employer i.e., the management of the Sugar Mills – Held even though symbolic custody of the sugar bags was given to the appellant-bank as security for repayment of loan etc., the Sugar Mills continued to be owner thereof - In other words, the sugar bags pledged with the appellant – bank continued to be movable property i.e. assets of the establishment, which could be attached and sold by the Recovery Officer in terms of Section 8B or by adopting alternative modes of recovery enumerated in Section 8F – Section 11 is declaratory in nature – Sub-section (2) thereof declares that any amount due from an employer shall be deemed to be first charge on the assets of the establishment and shall be paid in priority to all other debts – For recovery of the amount due from an employer which is treated as arrear of land revenue, the Recovery Officer or any other authorized officer has to take recourse to the provisions contained in Section 8 read with Sections 8B and 8F - The recovery can be effected by attachment or sale of the movable or immovable property of establishment or, as the case may be, the employer, or by arrest of the employer and his detention in prison or by appointing a receiver for the management of the movable or immovable properties of the establishment or, as the case may be, the employer or by taking action in the manner laid down in the Third Schedule to the Income-tax Act, 1961– Deeds of pledge executed by the management of the Sugar Mills as security for repayment of loan etc. did not have the effect of transferring of the ownership of the sugar bags to the appellant – bank and the Recovery Officer did not commit any illegality by attaching the same and the High Court was fully justified in directing payment of a portion of the sale price to the Assistant Commissioner for being appropriated towards provident fund dues of the workers – Appeals dismissed (Paras 43 to 49)

        Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 – Section 11–Interpretation of – Whether the provision contained in Section 11(2) of the Act operates against other debts like mortgage, pledge, etc – Answer to this question is clearly discernible from the plain language of Section 11– 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 11 qua other debts is removed by 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 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 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 time being in force – It is, therefore, reasonable to take the view that the statutory first charge 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 (Para 20)

        Words and Phrases – “Pledge” – Meaning of – Pledge is a formal promise or undertaking; the act of providing something as security for a debt or obligation; a bailment or other deposit of personal property to a creditor as security for debt or obligation (Paras 32, 33)

        Words and Phrases – “Asset” – Meaning of As per Black’s Law Dictionary (Eighth edition), word `asset’ means, an item that is owned and has value; the entries on a balance sheet showing the items of property owned, including cash, inventory, equipment, real estate, accounts receivable and goodwill; all the property of a person available for paying debts or for distribution – In Law Lexicon by P. Ramanatha Aiyar (Second edition), the word `assets’ has been described as the property in the hands of an heir, an executor, administrator or trustee which is legally or equitably chargeable with the obligations with such heir, executor, administrator or trustee is, as such, required to discharge – Everything which can be made available for the payment of debts,whether belonging to the estate of a deceased person or not; property in general all that one owns, considered as applicable to the payment of his debts; as, his assets are much greater than his liabilities (Para 41)

       Facts of the Case :

        Issue in consideration in present case was whether the sugar bags pledged by Kannad Sahakari Sakhar Karkhana Ltd. and Gangapur Sahakari Sakhar Karkhana Ltd. in favour of the appellant-bank as security for repayment of the loan together with interest could be attached and sold for realization of the dues of provident funds etc. payable by the employer i.e., the management of the Sugar Mills.

       Findings of the Court :

        Held even though symbolic custody of the sugar bags was given to the appellant –bank as security for repayment of loan etc., the Sugar Mills continued to be owner thereof . In other words, the sugar bags pledged with the appellant – bank continued to be movable property i.e. assets of the establishment, which could be attached and sold by the Recovery Officer in terms of Section 8B or by adopting alternative modes of recovery enumerated in Section 8F. Section 11 is declaratory in nature . Sub – section (2) thereof declares that any amount due from an employer shall be deemed to be first charge on the assets of the establishment and shall be paid in priority to all other debts. For recovery of the amount due from an employer which is treated as arrear of land revenue, the Recovery Officer or any other authorized officer has to take recourse to the provisions contained in Section 8 read with Sections 8B and 8F. The recovery can be effected by attachment or sale of the movable or immovable property of establishment or, as the case may be, the employer, or by arrest of the employer and his detention in prison or by appointing a receiver for the management of the movable or immovable properties of the establishment or, as the case may be, the employer or by taking action in the manner laid down in the Third Schedule to the Income-tax Act, 1961.Appeals dismissed.