2022 Supreme(Guj) 1015

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Bhargav D. Karia, J.
U.C.O. Bank – Appellant
Versus
Employees Provident Fund Organization & 1 Others – Respondents
R/Special Civil Application No. 754 of 2019
Decided On : 30-09-2022

Headnote:

SARFAESI ACT - SECTION 26E - EPF ACT - SECTION 11(2) - PRIORITY - WORKER'S DUES - SECURED CREDITOR - The provisions of Section 11(2) of the EPF Act shall prevail over Section 26E of the SARFAESI Act. The action of the respondent no.1 to recover the outstanding dues with interest payable by the respondent no.2 establishment from the petitioner Bank was legal and justified as per provision of section 11(2) of the EPF Act.

Fact of the Case:

The petitioner- Bank sanctioned and disbursed various credit facilities to respondent No.2-Company and thereafter, renewed/enhanced the same from time to time. Respondent No.2 hypothecated the movable properties as a security by executing the deed of hypothecation in favour of the petitioner as secured asset i.e., all plant and machineries including its machines, batch house, cullet processing & handling plant and machineries, feeder machineries, lehr machine, thermocouples, lab and QC equipment etc. The land situated at Plot Nos.410 and 411, Post: Gavsad, Taluka: Padra, Dist. Vadodara belonging to M/s. Pure Glass Containers Private Limited was also mortgaged to the petitioner-Bank as the said company was a guarantor for the respondent No.2. Respondent No.2 defaulted in repayment of the dues, therefore, petitioner declared the account of the respondent No.2 as Non Performing Asset (NPA) on 30th June, 2010 according to the prudent norms of the Reserved Bank of India. The petitioner-Bank also initiated actions under the provisions of Securitisation and Reconstructions of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the SARFAESI Act’). The petitioner issued notice dated 04.05.2011 under Section 13(2) of the SARFAESI Act. As the respondent No.2 did not make any payment towards outstanding dues of the petitioner-Bank pursuant to the notice under Section 13(2) of the SARFAESI Act, the petitioner-Bank through authorized Officer had taken the possession of the secured assets of all plants and machineries which are hypothecated including the factory premises located at Plot Nos.410 and 411, Post: Gavsad, Taluka: Padra, Dist. Vadodara under Section 13(4) of the SARFAESI Act on 20th January, 2016. The petitioner-Bank on failure of the respondent No.2 to make the payment of the outstanding dues issued the notice dated 29.12.2017 for sale of the movable properties belonging to respondent No.2 and fixed reserve price of Rs.450 lakh. The petitioner-Bank was able to sale the movable properties in public auction to the successful bidder for Rs.451 lakh. The respondent No.1- Assistant Provident Fund Commissioner & Recovery Officer issued notices dated 17.04.2017 and 03.05.2017 under Sections 14B and 7Q of the Employees’ Provident Fund Act and Miscellaneous Provisions Act, 1952(for short ‘EPF Act’) to the petitioner and issued summons to appear on 02.05.2017. The authorized officer of the petitioner in compliance of such notices, appeared before respondent No.1 and submitted the reply dated 25.04.2017. The respondent No.1 passed an order dated 13th June, 2017 directing the respondent No.2 to pay an amount of Rs.12,20,702/- within fifteen days with interest amounting to Rs.6,46,095/- towards the outstanding provident fund dues calculated as per the provisions of the EPF Act. The respondent No.1 also marked the copy of the order dated 13th June, 2017 to the petitioner-Bank with a direction to give first priority to remit the due amount as shown in the order immediately after the sale proceeds of the secured assets by the petitioner-Bank. Thereafter, the respondent No.1 by letter dated 29.11.2017 addressed to the petitioner-Bank claimed first priority of the sale proceeds of the property of the respondent No.2 which was replied by the petitioner- Bank on 23.03.2018 informing that in view of the amendment in the SARFAESI Act from 01.09.2016,as per section 26E, a secured creditor has priority over all other debts and requested the respondent No.1 to withdraw the notice and drop the recovery proceedings against the petitioner-Bank. The respondent No.2 however, issued the notice dated 19.07.2018 under Section 8G of the EPF Act read with Rule 2 of the Second Schedule to the Income Tax Act, 1961 upon the General Manager of the petitioner- Bank directing to make the payment as mentioned in the same to the respondent No.1. The respondent No.1 thereafter again issued the show cause notice dated 17.08.2018 and thereby issued summons to appear in person on 10.09.2018 upon the respondent-Bank. The respondent-Bank by letter dated 05.09.2018 deposited an amount of Rs.18,66,697/- demanded by the respondent No.1 reserving its various rights and contentions to challenge the same.

Finding of the Court:

The provisions of Section 11(2) of the EPF Act shall prevail over Section 26E of the SARFAESI Act. The action of the respondent no.1 to recover the outstanding dues with interest payable by the respondent no.2 establishment from the petitioner Bank was legal and justified as per provision of section 11(2) of the EPF Act.

Issues: Whether the provisions of Section 11(2) of the EPF Act shall prevail over Section 26E of the SARFAESI Act.

Ratio Decidendi: The provisions of Section 11(2) of the EPF Act shall prevail over Section 26E of the SARFAESI Act. The action of the respondent no.1 to recover the outstanding dues with interest payable by the respondent no.2 establishment from the petitioner Bank was legal and justified as per provision of section 11(2) of the EPF Act.

Final Decision: The petition fails and is accordingly dismissed. Rule is discharged. No orders as to cost.