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High Court of Judicature at Madras
K. CHANDRU
Indian Overseas Bank, Salem Main Branch, rep by its Chief Manager
Versus
Employees' State Insurance Corporation, rep by its Director General & Others
W.P.Nos.11177 & 23748 of 2008 & M.P.Nos.1 & 1 of 2008
Decided on : 07-06-2011
Bank Guarantee - Recovery of Dues - ESI Act, Section 45-G; PF Act, Section 11(2) - The court discussed the bank's contention that the bank guarantee can only be invoked by the court and that the attachment of the bank account was illegal. However, the court held that the PF and ESI departments have prior charge over the properties and the bank guarantee, and the bank cannot use writ jurisdiction to prevent recovery. The court referred to the Supreme Court judgment in Maharashtra State Cooperative Bank Ltd. v. Provident Fund Commissioner, emphasizing the statutory priority of dues from the employer and the authority of the departments to recover the dues.
Fact of the Case:
The Indian Overseas Bank filed two writ petitions challenging orders from the ESI Corporation and PF department regarding the recovery of dues from M/s.Jawahar Mills Ltd. The bank held a bank guarantee issued by the purchaser of the mills and claimed that the attachment of the bank account was illegal.
Finding of the Court:
The court found that the bank cannot use writ jurisdiction to prevent the recovery of dues by the PF and ESI departments, as they have prior charge over the properties and the bank guarantee. The court dismissed both writ petitions.
Issues: Whether the bank can challenge the notices from the PF and ESI authorities in a writ petition under Article 226 of the Constitution.
Ratio Decidendi: The PF and ESI departments have prior charge over the properties and the bank guarantee, and the bank cannot use writ jurisdiction to prevent recovery. The court referred to the Supreme Court judgment emphasizing the statutory priority of dues from the employer and the authority of the departments to recover the dues.
Final Decision: Both the writ petitions were dismissed, and there was no order as to costs. Connected miscellaneous petitions were closed.
1. Both the writ petitions came to be posted before this Court on being specially ordered by the Hon'ble Chief Justice vide order dated 4.1.2011.
2. Heard the arguments of learned counsel for both sides. In both the writ petitions, the petitioner is the Indian Overseas Bank represented by its Chief Manager. The first writ petition is filed challenging the order dated 31.3.2008 on the file of the second respondent Recovery Officer, ESI Corporation. By the impugned order, the ESI Corporation by exercise of power under Section 45-G of the ESI Act had ordered that M/s.Jawahar Mills Ltd., Salem was having dues to the corporation. It was sought to be purchased by one M/s.Haritex, who also gave bank guarantee by depositing Rs.1 Crore with the petitioner Bank. The guarantee was given by the purchaser towards ESI and PF dues. When they failed to pay dues to the Corporation, the Indian Overseas Bank was directed to pay out of the bank guarantee of Rs.1 Crore, a sum of Rs.37,09,722/-towards ESI dues. The petitioner bank aggrieved by the said order has filed the first writ petition. The writ petition was admitted on 29.4.2008. Pending the writ petition, this court had granted stay. It was observed that since the bank guarantee has been handed over by the purchaser to the Bank, it was always open to the Recovery Officer to encash the bank guarantee. Hence the attachment of property of the mills was stayed. On notice from this court, on behalf of respondents 1 to 3, a counter affidavit, dated 20.8.2008 has been filed.
3. Even while that writ petition is pending, the petitioner Bank came up with the second writ petition with W.P.No.23748 of 2008, seeking to challenge an another order dated 28.08.2008 passed by the PF department. In that order, the PF department had informed the bank that M/s.Haritex, Coimbatore was permitted to be the purchaser only on paying statutory dues and the dues towards workmen. Further, a division bench in W.A.No.50 of 2007 had directed the purchaser Haritex to give a bank guarantee to an extent of Rs.1 Crore towards PF and ESI claims. Already the purchaser had furnished the bank guarantee issued by M/s.South Indian Bank, Coimbatore to the Bank in lieu of the statutory dues. The PF department had already issued notice of attachment of properties to an extent of Rs.2,38,40,386/- and including damages and interest, it worked out to Rs.3,00,53,850/-. The purchaser has paid only Rs.98,69,032/- and still there was balance of Rs.1,64,70,124/- as arrears. The purchaser even after confirmation of sale did not remit the dues. Hence the PF department had requested to invoke the bank guarantee and to honour the claim. In that writ petition, on 26.09.2008 notice was directed to be served on the respondents and status quo was directed to be maintained. Subsequently, on 29.4.2009, the status quo order was directed to be continued until further orders.
4. The contention of the bank in both the writ petitions was that the Indian Overseas Bank is holding the bank guarantee of Rs.1 Crore issued by M/s.South Indian Bank, Coimbatore on account of purchaser of M/s.Jawahar Mills. The said bank guarantee is given as per the orders of this court and in trust for the benefit of various claimants. The said bank guarantee can be invoked only by the order of this court. The order of attachment made against the bank account was clearly illegal.
5. However, both PF and ESI Departments had clearly informed that they have prior charge over the properties of M/s.Jawahar Mills and the purchaser of the said mill is bound to honour the past dues in terms of the provisions of both enactments. The bank is possessing the bank guarantee given by the purchaser, which is for lawful dues payable to both departments. They have also got prior charge over the amount. If the petitioner bank is not willing to pay the amount, there is no other option than to proceed against the bank. The departments both PF and ESI are entitled to invoke the executive ma
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