LA.AA.No.1253 of 2008 (Against the Judgment in LAR 216/2000)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE S.SIRI JAGAN** **& THE HONOURABLE MR. JUSTICE K.RAMAKRISHNAN** **WEDNESDAY, THE 19TH DAY OF JUNE 2013/29TH JYAISHTA 1935** ## **LA.App..No. 1253 of 2008 ( )** **----------------------------AGAINST THE JUDGMENT IN LAR 216/2000 of ADDITIONAL SUB COURT, KOLLAM =============================** ## **APPELLANTS/3RD CLAIMANT:** **-------------------------------------------** **THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION, THRISSUR.** ## **BY ADV. SRI.P.SANKARANKUTTY NAIR, SC, ESI CORPN** ## **RESPONDENTS/CLAIMANTS 1,2,4 & RESPONDENT:** **-------------------------------------------------------------------------** **1. MANAGING DIRECTOR, KERALA PREMO PIPE FACTORY, NEENDAKARA.** ## **2. TAHSILDAR, KARUNGAPAPPALLY.** **3. THE DIRECTOR, EMPLOYEES PROVIDENT FUND THIRUVANANTHAPURAM.** **4. THE STATE OF KERALA, REPRESENTED BY THE DISTRICT COLLECTOR, KOLLAM.** ## **R2,R4 BY ADV. GOVERNMENT PLEADER SRI. MOHAMMED SHAFI** **THIS LAND ACQUISITION APPEAL HAVING BEEN FINALLY HEARD ON 19-06-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **SD** S.SIRI JAGAN & K.RAMAKRISHNAN, JJ. **[CR]** -------------------------------------------------------------- L.A.A.No.1253 of 2008 --------------------------------------------------------------Dated this the 19[th] day of June, 2013 ## J U D G M E N T ## Siri Jagan, J. An interesting question as to priority of right to recover a debt from a defaulter, as between two State instrumentalities arises in this case although in the context of payment of compensation under the Land Acquisition Act. The appellant in this case is the Regional Director, ESI Corporation. Certain properties belonging to the first respondent herein was acquired by the State under the Land Acquisition Act. The compensation for such acquisition was deposited before the Court, and the matter was referred under Section 31(2) of the Land Acquisition Act, for apportionment of the amount as between the several claimants, who are creditors of the first respondent/ company. The 2[nd] respondent/Tahsildar, Karunagappally, laid claim on the compensation amount for recovery of Sales Tax dues payable by the first respondent company to the State Government. The 2[nd] respondent laid claim for contributions payable by the 1[st] L.A.A.No.1253 of 2008 2 respondent/company, under the Employees Provident Funds and Miscellaneous Provisions Act. The appellant, who was the 3[rd] claimant in the L.A.R, laid claim for contributions due from the company under the Employees State Insurance Act. The matter was referred to the Additional Sub Court, Kollam under Section 31(2) of the Land Acquisition Act and the Sub Court adjudicated the same as L.A.R. No.216/2000. The Sub Court came to the conclusion that, crown debt will have priority even over a secured debt, relying on the decision of this court in **Sherry Jacob v. Canara Bank 2004 (3) KLT 1089** . Apparently, the Sub Court was under the impression that the sales tax dues is the crown debt, and the dues to the E.S.I Corporation is ordinary debt. Therefore, the claim of the appellant herein was rejected and the Sub Court directed release of the entire amount deposited in court, as compensation for the land acquired from the first respondent company, in view of the fact that, more than the amount deposited was due from the first respondent company to the Government towards sales tax arrears. L.A.A.No.1253 of 2008 3 The appellant is challenging the said judgment. 2. The contention of the appellant is that, in view of Section 94 of the Employees State Insurance Act, the amount due towards the contributions payable under the E.S.I Act will have priority over all other debts. Therefore, the appellant has a priority right to recover contributions due from the first respondent company under the E.S.I Act, from the compensation amount in deposit, over all other debts including the debt due to the State under the Kerala General Sales Tax Act is the contention. The appellant relies on the decision of the Hon’ble Supreme Court in **Central Bank of India v. State of Kerala and others 2009 (4) SCC 94** , as also the Division Bench decision of this court in **Recovery Officer and Assistant Provident Fund Commissioner v. Kerala Financial Corporation 2002** ## **(2) KLT 723.** 3. On the other hand, the learned Government Pleader would contend that under Section 26B, notwithstanding anything to the contrary contained in any L.A.A.No.1253 of 2008 4 other law for the time being in force, any amount of tax, penalty, interest or any other amount, if any payable by a dealer or any other person under the Act, shall be the first charge on the property of the dealer or such person. Therefore, the State has a first charge over the property of a defaulter in payment of sales tax. Consequentially, when the property in which the state has a first charge is acquired, the state can exercise the charge over the property and recover the amounts due under the Kerala General Sales Tax Act, from the compensation payable for acquisition of the land, is the contention. For such proposition, he also relies on the very same decisions relied on by the learned counsel for the appellant. 4. We have considered the rival contentions in detail. 5. Section 94 of the Employees State Insurance Act, relied upon by the learned counsel for the appellant reads thus: **94. Contributions, etc., due to Corporation to have priority over other debts.** - There shall be L.A.A.No.1253 of 2008 5 deemed to be included among the debts which, under section 49 of the Presidency-towns Insolvency Act, 1909 (3 of 1909), or under section 61 of the Provincial Insolvency Act, 1920 (5 of 1920) [or under any law relating to insolvency in force [in the territories which, immediately before the 1[st] November, 1956, were comprised in a Part B State]], [or under section 530 of the Companies Act, 1956 (1 of 1956)], in the distribution of the property of the insolvent or in the distribution of the assets of a company being wound up, to be paid in priority to all other debts, the amounts due in respect of any contribution or any other amount payable under this Act the liability wherefor accrued before the date of the order of adjudication of the insolvent or the date of the winding up, as the case may be. Section 26B of the Kerala General Sales Tax 1963 reads thus: **26B. Tax payable to be first charge on the property** :- Notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person. The Employees’ State Insurance Act by itself does not create any charge over the properties of the defaulter for recovery of contributions under the Act, unlike in the Kerala General Sales Tax Act. On the other hand, under Section 45C of the Employees State Insurance Act, the Recovery Officer L.A.A.No.1253 of 2008 6 appointed under the Employees’ State Insurance Act, has to attach and sell the movable or immovable property of a defaulter for recovery of contributions under the Act. There are other modes of recovery also under Section 45G of the E.S.I Act, which also do not contemplate any charge over the defaulter's property for recovery of arrears of contributions. These provisions would show that the Act as such does not create any charge over the properties of a defaulter. On the other hand, under Section 26B of the Kerala General Sales Tax Act, there is a first charge over the property of the defaulter for amounts due as sales tax, penalty, interest etc., from the defaulter. That being so, statutorily the State Government has a first charge over the properties of a defaulter, for recovery of dues under the Kerala General Sales Tax Act, not withstanding anything to the contrary contained in any other law for the time being in force, which includes the E.S.I. Act. 6. The ratio of the decision in Kerala Financial Corporation's case (supra) is not applicable to the facts of L.A.A.No.1253 of 2008 7 this case since in the E.S.I. Act, there is no provision corresponding to Section 11(2) of the Employees Provident Funds and Miscellaneous Provisions Act, although Section 94 of the E.S.I. Act is in pari materia with Section 11(1) of the Employees Provident Funds and Miscellaneous Provisions Act. Section 11(2) of the Employees Provident Funds and Miscellaneous Provisions Act, reads thus: (2) Without prejudice to the provisions of subsection (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 deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the tie being force, be paid in priority to all other debts. In Kerala Financial Corporation's case, the question arose as to, as between the Kerala Financial Corporation and the Provident Fund Organisation, which of the two claims would prevail for realisation from the properties belonging to a defaulter, viz., claim for payment of amounts due to the Kerala Financial Corporation, and contributions due from the same defaulter, or the claim of Employees Provident L.A.A.No.1253 of 2008 8 Fund Organisation under the Employees Provident Funds and Miscellaneous Provisions Act for arrears of contributions under the said Act. In that decision, a Division Bench of this court held that Section 11(2) of the Employees Provident Funds and Miscellaneous Provisions Act, overrides all provisions of other enactments including Section 46B of the State Financial Corporations Act. Section 46B of the State Financial Corporations Act reads thus: “ **46B. Effect of the Act on other laws** .- The provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern.” 7. Although, Section 94 or Section 45C of the E.S.I Act is not in pary materia with Section 46B of the State Financial Corporations Act, the ratio of that decision applies to the facts of this case also, but against the appellant. Under the Employees State Insurance Act, no charge is L.A.A.No.1253 of 2008 9 created over the properties of the defaulter in payment of contributions under the Act. On the other hand, under Section 26B of the Kerala General Sales Tax Act, the State has a first charge on the properties of a defaulter for payment of amounts due to the State under the Kerala General Sales Tax Act. That being so, Section 26B of the KGST Act would certainly prevail over Section 94 of the Employees State Insurance Act. Consequently, the claim of the State of Kerala for recovery of sales tax dues from the compensation for the property acquired from the defaulter would prevail over the claim of the appellant for recovery of arrears of contributions under the E.S.I Act. In that view, there is no merit in this appeal and accordingly, the same is dismissed. Sd/- S.SIRI JAGAN, JUDGE Sd/- K.RAMAKRISHNAN, JUDGE // True Copy// P.A. To Judge ss