Case Law Details
Syndicate Bank Vs Regional Provident Fund Commissioner (Telangana High Court)
The Telangana High Court in the case of Syndicate Bank Vs Regional Provident Fund Commissioner addressed a dispute regarding the priority of payments under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“the 1952 Act”). The case arose from a loan default by the Water Development Society, which had availed credit facilities from the Syndicate Bank. Despite the sale of properties by the bank to recover the dues, the Regional Provident Fund Commissioner filed a claim against the bank for unpaid provident fund contributions. The matter went through various judicial stages, including the Debts Recovery Tribunal (DRT) and the Debts Recovery Appellate Tribunal (DRAT).
The main issue was whether the bank’s mortgage debt took priority over the provident fund dues. The DRT initially ruled in favor of the Regional Provident Fund Commissioner, directing the bank to pay the outstanding provident fund amount along with interest. On appeal, the DRAT modified the decision, reducing the interest rate but still held that the bank should pay the provident fund dues. The petitioner, Syndicate Bank, challenged this decision in the Telangana High Court, arguing that damages and interest under the 1952 Act should not be included in the priority payment.
The court reviewed the provisions of Section 11 of the 1952 Act, specifically focusing on Section 11(2), which prioritizes the payment of employee and employer provident fund contributions. However, the court clarified that while the contributions themselves are given priority, damages and interest under Section 14B of the 1952 Act are not included. The court therefore modified the DRAT’s order, limiting the bank’s obligation to the principal provident fund contributions only, excluding the damages and interest.
Thus, the Telangana High Court’s ruling clarified that under the 1952 Act, only the principal contributions are treated as a first charge on the assets of the establishment, while the additional amounts like damages and interest do not enjoy the same priority status. The writ petition was disposed of accordingly, with the court setting aside the payment of damages and interest as directed by the DRAT.
Key Takeaways:
- The Telangana High Court focused on the interpretation of Section 11 of the 1952 Act, which prioritizes provident fund contributions over other debts.
- The judgment confirmed that the bank is only liable to pay the principal provident fund contributions, not the damages or interest.
- This case highlights the nuanced application of the priority provisions of the 1952 Act in debt recovery proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Mr. A. Krishnam Raju, learned counsel for the petitioner.
2. This writ petition is directed against the order dated 08.12.2014 passed by the Debts Recovery Appellate Tribunal at Kolkata by which the appeal filed by the petitioner under Section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as, “the 1993 Act”), has been disposed of
3. In order to appreciate the challenge of the petitioner to the impugned order, relevant facts need mention which are stated infra.
4. The petitioner bank (hereinafter referred to as, “the bank”), through its Moula Ali Branch, Hyderabad, extended financial assistance to M/s. Water Development Society, a society registered under the Andhra Pradesh (Telangana Area) Public Societies Registration Act, 1350 Fasli (hereinafter referred to as, “the Society’). The Society availed of credit limits from the bank and created charges in respect of immovable properties as a security for the loan availed by it. The Society failed to repay the amount of loan to the bank. Thereupon, the bank filed O.S.No.81 of 1993 before the learned Additional Subordinate Judge, Ranga Reddy District at Saroornagar. On constitution of the Debts Recovery Tribunal, the suit was transferred to the Debts Recovery Tribunal, Bangalore, and it was registered as O.A.No.406 of 1996. By an order dated 11.07.1997, the Debts Recovery Tribunal, Bangalore, allowed the same and the bank was held entitled to recover a sum of Rs.3,92,96,550.85 ps. along with current and future interest from the date of the suit till the date of realization of the amount. In addition, the bank was further held entitled to recovery of an amount of Rs.8,93,935/-.
5. The bank thereafter initiated proceedings under Section 25 of the 1993 Act for recovery of the aforesaid amount. In the aforesaid proceedings, one property belonging to the Society was sold for an amount of Rs.5,36,50,000/- whereas another property was sold for an amount of Rs.1,90,00,000/-. The bank received an amount of Rs.6,21,96,000/-, which was realised by way of sale of immovable properties belonging to the Society.
6. The Regional Provident Fund Commissioner filed a claim petition, namely Claim Petition No.1 of 2000, in O.A.No.406 of 1996 before the Recovery Officer, inter cilia, on the ground that the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as, “the 1952 Act”), applies to the Society as it is an establishment within the meaning of the 1952 Act. It was averred in the said petition that the Society failed to pay the provident fund contribution for the period from March 1991 to December 1992 and is also liable to pay damages of about Rs.17.00 lakhs and interest under Section 14B of the 1952 Act.
7. The Recovery Officer, by an order dated 11.01.2001, dismissed the petition filed by the Regional Provident Fund Commissioner. Against the order passed by the Recovery Officer, the Regional Provident Fund Commissioner preferred an appeal before the Debts Recovery Tribunal, Hyderabad. The Debts Recovery Tribunal, by an order dated 26.09.2008, inter cilia, held that Section 11 of the 1952 Act creates a right/statutory charge in favour of the claimant and the bank cannot claim priority even in respect of their debt, which is secured by the mortgage. The Debts Recovery Tribunal placed reliance on a Full Bench decision of the Madras High Court in UTI Bank v. Deputy Commissioner of Central Excise’. Accordingly, the appeal was allowed and the bank was directed to pay an amount of Rs.29,71,810/- along with future interest @ 16% per annum compounded monthly from 17.01.2000 till the date of payment.
8. The bank thereupon challenged the aforesaid order in an appeal before the Debts Recovery Appellate Tribunal at Kolkata. The Debts Recovery Appellate Tribunal, by an order dated 08.12.2014, modified the order passed by the Debts Recovery Tribunal and reduced the rate of interest from 16% per annum compounded monthly from 17.01.2000 as to 12% simple interest per annum from 17.01.2000. Accordingly, the appeal was disposed of. In the aforesaid factual background, the bank has filed this writ petition.
9. Learned counsel for the bank, while inviting the attention of this Court to Section 11(2) of the 1952 Act, submits that the same is applicable only in respect of the employee’s contribution or the employer’s contribution. However, the amount of interest and the amount of damages under Section 14B of the 1952 Act could not be included. It is further submitted that the Debts Recovery Appellate Tribunal has failed to appreciate the aforesaid aspect of the matter.
10. We have considered the submissions made by the learned counsel for the bank and have perused the record.
11. Before proceeding further, it is apposite to take note of Section 11 of the 1952 Act, which deals with priority of payment of contributions over other debts. Section 11 of the 1952 Act reads as under:
“11. Priority of paynient of contributions over other debts:- (1) Where any employer is adjudicated insolvent or, being a company, an order for winding up is made, the amount due–
(a) from the employer in relation to an establishment to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under section 14B, accumulations required to be transferred under sub-section (2) of section 15 or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme: or
(b) from the employer in relation to an exempted establishment in respect of any contribution to the Provident Fund or any Insurance Fund (in so far it relates to exempted employees), under the rules of the Provident Fund or any Insurance Fund, any contribution payable by him towards the Family Pension Fund under sub-section (6) of section 17, damages recoverable under section 14B or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under section 17, shall, where the liability thereof has accrued before the order of adjudication or winding up is made, be 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 section 530 of the Companies Act, 1956 (1 of 1956), are to be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be.
Explanation.–In this sub-section and in section 17, “insurance fund” means any fund established by an employer under any scheme for providing benefits in the nature of life insurance to employees, whether linked to their deposits in provident fund or not, without payment by the employees of any separate contribution or premium in that behalf.
(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 time being in force, be paid in priority to all other debts.”
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12. A three-Judge Bench of the Supreme Court in Maharashtra State Cooperative Bank Limited v. Assistant Provident Fund Commissioner2, has taken into account the scope and ambit of Section 11(2) of the 1952 Act and in paragraph 28 has held as under:
“28. Sub-section (2), which was added to Section 11 by Act 40 of 1973 contains a non obstante clause arid lays down that if any amount is due from the employer whether in respect of the employees’ contribution deducted from the wages of the employee or the employer’s contribution, the same 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 time being in force, be paid in priority to all other debts. To put it differently, sub-section (2) of Section 11 not only declares that the amount due from the employer towards contribution under the Act shall be treated as the first charge on the assets of the establishment, but also lays down that notwithstanding anything contained in any other law, such dues shall be paid in priority to all other debts.”
13. Thus, it is evident that Section 11(2) of the 1952 Act applies to the extent of employee’s contribution or the employer’s contribution and creates the first charge on the assets of the establishment.
14. However, as stated supra, Section 11(2) of the 1952 Act applies only to the extent of the contribution which may be made by the employees or the employer and the amount of damages under Section 14B of the 1952 Act as well as the amount of interest which may be payable on the amount of provident fund which may be due from an employer is not included within Section 11(2) of the 1952 Act.
15. Therefore, it is directed that the bank shall pay the amount due by the employer towards employee’s provident fund as well as the employer’s contribution of the provident fund only to the Regional Provident Fund Commissioner. The order dated 08.12.2014 passed by the Debts Recovery Appellate Tribunal insofar as it directs payment of the amount of damages under Section 14B of the 1952 Act as well as the amount of interest on the amount of provident fund due is set aside.
16. To the aforesaid extent, the order passed by the Debts Recovery Appellate Tribunal is modified.
17. In the result, the writ petition is disposed of.
Miscellaneous applications pending, if any, shall stand closed. However, there shall be no order as to costs.
Notes:-
1 (2007) 135 Comp Cas 329 (FB)
2 (2009) 10 SCC 123
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