Augustan Textile Colours Limited v. The Assistant Provident Fund Commissioner, Employees Provident Fund Organization, Sub Regional Office, Kozhikode

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN WEDNESDAY, THE 21ST DECEMBER 2011 / 30TH AGRAHAYANA 1933 WP(C).No. 1672 of 2006(Y) ------------------------- PETITIONER: --------------AUGUSTAN TEXTILE COLOURS LIMITED, MALAMPUZHA ROAD, CHADAYANKALAI, KANJIKODE, PALAKKAD, REPRESENTED BY ITS PERSONNEL MANAGER SRI.P.M.JEEJO. BY ADV. SRI.ANTONY DOMINIC SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR RESPONDENT : --------------- THE ASSISTANT PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANIZATION, SUB REGIONAL OFFICE, BAVISHYANIDHI BHAVAN, ERNAHIPALAM P.O., KOZHIKODE - 673 006. ADV. SRI.THOMAS MATHEW NELLIMOOTTIL,SC, P.F. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/12/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX WP(C).No. 1672 of 2006(Y) ## PETITIONER'S EXHIBITS EXT.P1: TRUE COPY OF THE SUMMARY RECORD OF PROCEEDINGS DT.17.01.2005. EXT.P2: TRUE COPY OF THE NOTICE DT.13.12.2004 ISSUED BY THE BIFR TO THE SECURED CREDITORS AND VARIOUS STATUTORY AUTHORITIES. EXT.P3: TRUE COPY OF THE RETURN OF OWNERSHIP UNDER FORM 5-A DT.19.05.2005. EXT.P3(a):TRUE COPY OF THE PROFORMA OF PARTICULARS OF COVERAGE DT.19.05.2005. EXT.P4: TRUE COPY OF THE LETTER DT.24.10.2005, ALONG WITH DETAILS OF CONTRIBUTION FOR THE RELEVANT PERIOD. EXT.P5: COPY OF THE LETTER DT.25.11.05 ADDRESSED TO THE REGIONAL PROVIDENT FUND COMMISSIONER, KOZHIKODE. EXT.P6: COPY OF THE LETTER DT.16.12.2005 ADDRESSED TO THE REGIONAL PROVIDENT FUND COMMISSIONER, KOZHIKODE. EXT.P7: TRUE COPY OF THE COVERING LETTER 30.11.05 ADDRESSED TO THE ENFORCEMENT OFFICER, PALAKKAD FORWARDING DOCUMENTS ALONG WITH FORM 5A, WITHOUT ITS ENCLOSURES. EXT.P8: A COPY OF THE LETTER NO.KR/KK/17026/Enf.2(6)05 DT.02.12.05 REJECTING THE PETITIONER'S APPLICATION FOR ALLOTMENT OF NEW CODE NUMBER. EXT.P9: TRUE COPY OF THE REPLY DT.19.12.05 SENT BY THE PETITIONER TO THE RESPONDENT. EXT.P10: TRUE COPY OF THE LETTER NO.KR/KK/17026/Enf.2(6)05 DT.27.12.2005 ISSUED BY THE RESPONDENT. EXT.P11: A COPY OF THE LETTER NO.KR/KK/17026/Enf.2(6)05 DT.05.01.2006. /TRUE COPY/ P.A TO JUDGE ## **S. SIRI JAGAN, J.** ------------------------------------------- ## W.P.(C) No.1672 of 2006 ---------------------------------------------Dated this the 21[st] day of December, 2011 ## **JUDGMENT** The Board for Industrial Finance and Reconstruction (BIFR) notified the assets of M/s. Teak Tex processing complex Limited, a Company referred to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, for sale. The petitioner participated in the auction and came out successful. Pursuant thereto, the assets of the Company and certain identified liabilities were sold to the petitioner Company. Subsequently, the petitioner started an industry using the said assets purchased by them. They submitted an application before the respondent for allotment of a new code number under the Employees Provident Funds Scheme (the 'Scheme' for short). That application was rejected on the ground that the petitioner’s establishment is a continuation of the earlier establishment namely, M/s. Teak Tex Processing Complex Limited. The respondent also intimated the petitioner that the arrears of W.P.(C)No./10 2 contributions payable by the erstwhile sick Company under the Employees’ Provident Funds and Miscellaneous Provisions Act (the 'Act' for short) have to be cleared by the petitioner. According to the petitioner, in a sale by the BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, the purchaser is not liable to pay the liabilities of the erstwhile sick Company. It is under the above circumstances, the petitioner has filed this writ petition seeking the following reliefs: i) call for the records leading to Exts.P8, P10 and P11 and to quash the same by the issue a writ of certiorari or other appropriate writ, order or direction, ii) issue a writ of mandamus or other appropriate writ, order or direction, directing the respondents to allot a new code number to the petitioner’s establishment, iii) declare that the petitioner is not liable for payment of any amounts other than that identified by the BIFR under Exhibit P1 Scheme, iv) issue an interim order directing, the respondent to allot a code number to the petitioner's establishment pending disposal of this writ petition. v) issue an interim order granting stay of recovery of amounts pursuant to Exhibit P11 pending, disposal of this writ petition.” Ext.P8 is the communication from the respondent to the Personnel Manager of the petitioner intimating that the petitioner’s establishment is a continuation unit of M/s. Teak Tex Processing Complex Limited and therefore, the petitioner W.P.(C)No./10 3 shall continue compliance of the Act and Scheme, under the same code number and requesting the petitioner to submit Form No.5 and Form No.2 in respect of all employees of the establishment. Exts.P10 and P11 are similar communications to the same effect. In Ext.P11, arrears of contributions payable by the erstwhile Company to the tune of Rs.3,91,875/are also demanded from the petitioner. 2. A counter affidavit has been filed by the respondent taking the stand that Section 17B of the Employees’ Provident Funds and Miscellaneous Provisions Act is applicable in this case. The petitioner Company has taken over the assets of the erstwhile Company, which is a transfer as contemplated under Section 17B and consequently by virtue of the Section 17B, the petitioner becomes liable for the arrears of contributions payable by the erstwhile Company is the contention of the respondent. 3. I have considered the rival contentions detail. Section 17B of the Employees’ Provident Funds and Miscellaneous Provisions Act reads thus: “ **17B. Liability in case of transfer of establishment.** - Where an employer, in relation W.P.(C)No./10 4 to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or the Pension Scheme or the Insurance Scheme, as the case may be, in respect of the period up to the date of such transfer: Provided that the liability of the trasnferee shall be limited to the value of the assets obtained by him by such transfer. In this case, I am of opinion that there is no transfer as contemplated in Section 17B when the BIFR sells the assets of a Company registered as a sick Company with it, pursuant to the powers conferred on the BIFR under Section 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985. Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 reads thus: “ **20. Winding up of sick industrial company** .- (1) Where the Board, after making inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. (2) The High Court shall, on the basis of the opinion of the Board, order winding up of the W.P.(C)No./10 5 sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956 (1 of 1956). (3) For the purpose of winding up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick industrial company and the officer so appointed shall for the purpose of the winding up of the sick industrial company be deemed to be, and have all the powers of, the official liquidator under the Companies Act, 1956 (1 of 1956). (4) Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A, and other provisions of the Companies Act, 1956 (1 of 1956).” Section 17B is applicable only when an employer in relation to an establishment transfers that establishment in whole or in part by sale, gift, lease or licence or in any other manner whatsoever to another person. Here, the employer has not transferred the establishment in whole or in part to the petitioner, the original owner of the establishment. A Company registered under the Companies Act resorted to provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. Under that Act, the BIFR considers whether that Company can 6 W.P.(C)No./10 be revived or not. After complying with the provisions of that Act, once BIFR comes to the conclusion that the Company cannot be revived, then the only option of the BIFR is to refer the matter to High Court having jurisdiction with its recommendation to wind up the Company. Under Section 20 (4), the BIFR is conferred with the power to sell the assets of the Sick Industrial Company in such manner as it may deem fit. For doing the same, consent or approval of the Company whose assets are sold is not necessary at all. Therefore, the sale involved in this writ petition is a sale by operation of law and not a voluntary sale by an employer to a prospective purchaser. Therefore, the transfer under Section 20(4) of the Sick Industrial Companies (Special Provisions) Act is not a transfer as contemplated in Section 17B of the Employees’ Provident Funds and Miscellaneous Provisions Act 1952. Consequently, the purchaser of the assets of the Company pursuant to proceedings under Section 20(4) of the Sick Industrial Companies (Special Provisions) Act is not liable to honour the liabilities of the Sick Industrial Company whose assets have been purcahased by the petitioner Company, 7 W.P.(C)No./10 except specific liabilities which have been taken over. 4. Several High Courts have, after construing provisions of Section 17B, come to the same conclusion. In the decision of **U.P. State Sugar Corporation Ltd.** v. **Regional Provident Fund Commissioner** [2011(III) CLR 132], the High Court of Allahabad has held that the liability to pay employees' provident fund dues under Section 17B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 would be on the transferee of the establishment or factory, only in case of voluntary transfer of the said establishment or factory. In the decision of **Alico Rubber Reclamation (Private) Limited** v. **Employees' Provident Fund Organisation** [2011 LLR 1032], the Himachal Pradesh High Court has held that a purchaser of an undertaking from the Financial Corporation will not be liable to pay the arrears of provident fund contributions which were payable by the earlier owner, since the purchaser has not purchased the establishment from the owner but, from the Financial Corporation. Again High Court of Bombay has, in the decision of **ANK Seals, Nagpur** v. **Employees' State Insurance Corporation, Nagpur and others** [2007 (I) LLJ 310], held that 8 W.P.(C)No./10 liability in case of transfer of establishment by the Financial Corporation for payment of dues under the Employees’ State Insurance Act, is not on the purchaser. The Orissa High Court has also held a similar view in the decision of **Suburban Ply and Panels (P) Ltd.** v. **Regional Provident Fund Commissioner** **and others** [2004-II- LLJ 1069], wherein it was held that Section 17B of the Employees’ Provident Funds and Miscellaneous Provisions Act does not apply to transfer by operation of law, and the sale by the Orissa State Financial Corporation in exercise of powers under the State Financial Corporation Act does not fasten any liability on the purchaser for arrears of contributions under the Act. 5. I fully agree with the said decisions of those High Courts. The learned counsel for the Provident Fund Organisation would rely on a subsequent order of the BIFR in respect of the Company in question, wherein, in paragraph 8, the BIFR has directed as follows: “8. The Bench, on consideration of the facts, merits of the case, materials on record and also the submissions made by the concerned agencies present in the today's hearing notes that, after takeover of the assets of the sick company M/s TPCL by the company M/s ATCL in W.P.(C)No./10 9 terms of the provisions of the SS-05, the normal operations of the sick company M/s TPCL have been completely suspended. The Bench further notes that the Hon'ble KHC has already appointed an Official Liquidator (OL) for liquidation of the residual assets of the sick company M/s TPCL. As the company M/s Teatex Processing Complex Ltd. (TPCL) has lost its identity as a 'sick industrial company', within the meaning of Section 3(1)(e) & (f) of the Act, the Bench hereby discharges the company M/s Teatex Processing Complex Ltd. (TPCL) from the purview of SICA/BIFR and issues the following further directions:- i) The ICICI is hereby relieved from the responsibility as the MA. ii) The company's secured creditors and other concerned agencies, including the statutory authorities viz. ESIC, EPFO etc., whose dues have already been paid/settled by the company/promoter(s), are permitted to file suit(s)/pursue the suit(s) already filed by them for recovery of their legitimate dues, through legal actions against the promoter/guarantors, and no further protection u/s 22(1) or 22(3) of the Act would be available to them. iii) The 'Special Director', appointed by the BIFR on the company's 'Board of Directors' (BOD), if any, would stand discharged with immediate effect. iv) The company would complete necessary formalities with the 'Registrar of Companies' (ROC), as may be required. v) A coy of the 'summary of proceedings' (SOP) of the today's hearing be also sent to the 'Registrar', Hon'ble Kerala High Court (KHC) for placing the same before the Official Liquidator (OL) of the KHC who is stated to have taken the charge of the sick company's residual assets for its liquidation.” ## (underlining supplied0 I am of opinion that the directions contained in sub paragraph 10 W.P.(C)No./10 ii) thereof which is relied upon by the counsel for the Provident Fund Organisation applies to only promoters and guarantors and not purchasers of the assets of the Sick Company under Section 20(4) of the Act. 6. In view of the above findings, I am of opinion that the respondent cannot insist on the petitioner Company continuing the establishment under the original code number allotted to the original owner of the establishment and he cannot also recover from the petitioner, arrears of provident fund dues recoverable from the original owner of the establishment. 7. Accordingly, the writ petition is allowed with the following directions: The respondent shall allot a new code number to the petitioner’s establishment, as expeditiously as possible, at any rate, within one month from the date of receipt of a copy of this judgment. The respondent is directed not to insist on payment of any amounts due from the original owner of the Company by the petitioner. However, I make it clear that it would be open to the respondent to claim payment of arrears W.P.(C)No./10 11 of contributions payable by the original owner in the winding up proceedings of the original owner pursuant to proceedings by the BIFR. ## **S. SIRI JAGAN, JUDGE** acd W.P.(C)No./10 12