P.MANDAKINI V. REGIONAL PROVIDENT FUND COMMR.

OP/11440/2003

AI Insights

This case involves the recovery of provident fund dues from M/s. Kamala Cashew Factory, which was under the proprietorship of Smt. R. Mandakini and leased to Ramakrishna Pillai. The EPF Authority initiated recovery proceedings against both the establishment and Ramakrishna Pillai for unpaid dues during the lease period. Smt. Mandakini contested the recovery against her establishment, while a purchaser of Ramakrishna Pillai's property contested the recovery against the property. The court examined the liability under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, particularly focusing on the responsibilities of a lessee and the recovery procedures available to the EPF Authority.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 694495 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 11-07-2018
• Assessment Year: misc
• Other Referred Cases: M.Rajagopal v. Secretary, State Transport Authority Thiruvananthapuram and others [115 ITR 364]
• Laws Referred To: Employees Provident Fund and Miscellaneous Provisions Act, 1952, Indian Contract Act, 1872
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: N N SUGUNAPALAN; BECHU THOMAS; N D PREMACHANDRAN
• Assessee Lawyers: T M CHANDRAN
• Keywords: Lease agreement; Provident Fund Dues; Public law; Recovery proceedings; Subrogation; Transferee liability
• Section: 8; 7A; 17B; 8B; 8G

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE WEDNESDAY, THE 11TH DAY OF JULY 2018 / 20TH ASHADHA, 1940 O.P. No. 11440 of 2003 PETITIONER(S): 1. P. MANDAKINI, PURAMBIL VEEDU, VALIYODU P.O., KOLLAM. BY ADV.SRI.T.M.CHANDRAN RESPONDENT(S): 1. THE REGIONAL PROVIDENT FUND COMMISSIONER, BHAVISHYA NIDHI BHAVAN, PATTON, THIRUVANANTHAPURAM. 2. THE ASSISTANT PROVIDENT FUND COMMISSIONER, KERALA, THIRUVANANTHAPURAM. 3. THE RECOVERY OFFICER, (KERALA, LAKSHADWEEP & MAHE), EMPLOYEES PROVIDENT FUNDS, BHAVISHYA NIDHI BHAVAN, THIRUVANANTHAPURAM. 4. RAMAKRISHNA PILLAI, PARASSERIL VEEDU, KILIKOLLOOR, KOLLAM. 5. ANILKUMAR, S/O. K.C. MOHANAN, GEETHANJALI, KILIKOLLOOR P.O., KILIKOLLOOR VILLAGE. 6. SUDHA, GEETHANJALI, KILIKOLLOOR P.O., KILIKOLLOOR VILLAGE. R1-R3 BY ADV. SRI.N.N. SUGUNAPALAN, SC R4 BY ADV. SRI.BECHU KURIAN THOMAS R5 & R6 BY ADV. SRI.N.D.PREMACHANDRAN THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 11-07-2018, ALONG WITH W.P(C) NO.14624/2007, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: RVS. O.P. No. 11440 of 2003 APPENDIX PETITIONER(S)' EXHIBITS: EXHIBIT-P1: TRUE COPY OF THE LEASE DEED EXECUTED BETWEEN THE PETITIONER AND THE FOURTH RESPONDENT DATED 03/11/2000. EXHIBIT-P2: A TRUE COPY OF THE CERTIFICATE ISSUED BY THE INSPECTOR OF FACTORIES AND BOILERS (CASHEW), KOLLAM DATED 12/09/2002. EXHIBIT-P3: TRUE COPY OF THE DEMAND NOTICE ISSUED BY THE THIRD RESPONDENT TO THE FOURTH RESPONDENT DATED 31/05/2002. EXHIBIT-P4: A TRUE COPY OF THE REPRESENTATION SUBMITTED BY THE PETITIONER TO THE FIRST RESPONDENT DATED 17/08/2002. EXHIBIT-P5: A TRUE COPY OF THE COMMUNICATION ISSUED BY THE SECOND RESPONDENT TO THE PETITIONER DATED 12/08/2002. EXHIBIT-P6: A TRUE COPY OF TELEGRAM SENT BY THE PETITIONER TO SECOND RESPONDENT DATED 11/09/2002. EXHIBIT-P7: A TRUE COPY OF THE JUDGMENT OF THIS HONOURABLE COURT IN O.P. NO.27679/2002 DATED 24/10/2002. EXHIBIT-P8: A TRUE COPY OF THE SALE NO. KR/10883/ENF.11(2)/03 DATED 20/01/2003. RESPONDENT(S)' EXHIBITS: EXHIBIT-R1(A): A TRUE COPY OF THE LETTER NO.KR/10883/ENF.11(2)/03 DATED 20/01/2003. EXHIBIT-R1(B): A TRUE COPY OF THE PROCEEDINGS ISSUED TO THE 4TH RESPONDENT DATED 16/11/2001. EXHIBIT-R1(C): A TRUE COPY OF THE DEMAND NOTICE ISSUED TO THE 4TH RESPONDENT DATED 31/05/2002. EXHIBIT-R1(D): A TRUE COPY OF THE SHOW CAUSE NOTICE NO. KR/10883/RO/TVM/RECOVERY/02 DATED 09/07/2002. /TRUE COPY/ P.S. TO JUDGE RVS. 03/08/2018. A.MUHAMED MUSTAQUE, J. ********************************************************************************************************* O.P.No.11440/2003 & W.P.(C) No.14624/2007 ********************************************************************************************************** Dated this the 11th day of July, 2018 JUDGMENT These writ petitions concern recovery of provident fund dues from an establishment and its employers. 2. The brief facts involved in the case are as follows: The establishment M/s.Kamala Cashew Factory is covered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (for short, the “Act”). Smt.R.Mandakini was the Proprietrix of that establishment. She transferred the establishment on lease to one Ramakrishna Pillai from 03.11.2000 to 02.11.2001. The subject matter of these writ petitions are essentially concerned with default of provident fund dues during the period of lease. 3. In the statement filed by the Employees O.P.No.11440/2003 & W.P.(C) No.14624/2007 2 Provident Fund Authority (hereinafter referred to as EPF Authority) in W.P.(C) No.14624 of 2007, it is stated that the dues are for the following periods: i. For the period 8/95 to 10/96 assessment order under Section 7A dated 3.3.1997 was issued to SunderRaj, M/s. Dee Dee and Company for an amount of Rs.1,82,983/-. After giving credit to the remittances made the balance outstanding for this period is Rs.32,983/-. ii. For the period 11/96 to 2/97 assessment order under Section 7A dated 5.7.1997 was issued to Sunder Raj, M/s. Dee Dee and Company for an amount of Rs.76,151/-. After giving credit to the remittances made the balance outstanding for this period is Rs.55,189/-. iii. For the period 3/2000 to 9/2000 assessment order under Section 7A dated 18.4.2001 was issued to N.Gopinathan, Veluthamby Memmorial Cashew Factory O.P.No.11440/2003 & W.P.(C) No.14624/2007 3 for an amount of Rs.47,744.60. There is no amount outstanding for this period. iv. For the period 11/2000 to 9/2001 assessment order under Section 7A dated 31.10.2001 was issued to Ramakrishna Pillai, Durga Cashew Company, the second respondent herein for an amount of Rs.7,39,783/-. The entire amount of Rs.7,39,783/- is outstanding. 4. I am not dealing with liability and recovery for any other period other than the period covered by the lease to Ramakrishna Pillai. The total dues from the establishment covering all periods as above is Rs.8,27,955/- along with future interest as applicable. In so far as the lease period is concerned, it can be seen from Exts.P1, P2 and P3 produced in O.P.No.11440 of 2003 the dues is Rs.7,39,783/- (the period from 11/2000 to 9/2001). Admittedly, the period is covered by the lease. The revenue recovery proceedings were initiated by the EPF O.P.No.11440/2003 & W.P.(C) No.14624/2007 4 Authority by proceeding against the assets of the establishment as well as the personal property of Ramakrishna Pillai. Smt.Mandakini filed O.P.No.11440/2003 aggrieved by the action of the Department in proceeding against assets of her establishment. W.P.(C) No.14624/2007 was filed by a purchaser of personal property from Ramakrishna Pillai. He is aggrieved by an order passed by the recovery officer setting aside the sale in his favour. Therefore, two questions are to be considered in this matter. One is in regard to the liability and the other is in regard to the recovery. In regard to the liability there cannot be any legal dispute in the light of the proceedings as well as in the light of Section 17B of the Act. Under Section 17B of the Act, the liability is on the transferee. Ramakrishna Pillai being a transferee, he is liable. Ramakrishna Pillai has a case in this matter that he O.P.No.11440/2003 & W.P.(C) No.14624/2007 5 cannot be proceeded for recovery for the reason that no notice was served on him and he never conducted the establishment. 5. I have to repel the conditions of Ramakrishna Pillai for the simple reason that he was a party to the earlier round of litigation initiated by Smt.Mandakini leading to Ext.P7 judgment in O.P.No.11440/2003. Ext.P7 judgment would have some bearing for determination of the issue in the matter with regard to the recovery of dues as well. I shall now refer to Ext.P7 judgment to meet the argument now raised by the learned counsel for Ramakrishna Pillai stating that he had no notice. O.P.No.27679/2002 was filed by Smt.Mandakini leading to Ext.P7 to initiate recovery proceedings against Ramakrishna Pillai and his assets by the Provident Fund Department. In that matter, Ramakrishna Pillai appeared through counsel namely O.P.No.11440/2003 & W.P.(C) No.14624/2007 6 Sri.K.A.Samsudheen. Therefore, Ramakrishna Pillai cannot now pretend ignorance as to the orders passed determining the provident fund dues. Therefore, the argument of Ramakrishna Pillai will have to be repelled. Thus, I have to conclude that the liability would rest on the transferee in terms of Section 17B of the Act and in the light of the orders passed in the matter. 6. In regard to the recovery, that is a crucial question to be decided in this case. Section 8 of the Act lays down mode of recovery of moneys due from employer. Section 8B refers to Issue of Certificate to the Recovery Officer to recover the amount and the manner in which recovery can be effected. It is appropriate to refer the mode of recovery as referred in Section 8B of the Act: “a. attachment and sale of the movable or immovable property of the establishment or, as the case may be, the employer; O.P.No.11440/2003 & W.P.(C) No.14624/2007 7 b. arrest of the employer and his detention in prison; c. appointing a receiver for the management of the movable or immovable properties of the establishment or, as the case may be, the employer.” 7. Section 8G of the Act also states that the provisions of Income Tax Act, 1961, would apply in so far as recovery of arrears amount referred in Section 8 of the Act. On a close glance of Section 8B, it can be seen that the recovery can be effected by the attachment and sale of the movable or immovable property of the establishment or any personal property of the employer. That means if the establishment was on lease, such movable and immovable properties of the establishment in the hands of the lessee can be proceeded for recovery of arrears even though the ownership of such establishment belongs to the lessor. In such an event, if the lessor wants to salvage the O.P.No.11440/2003 & W.P.(C) No.14624/2007 8 establishment, he has to pay the amount and recover it from the lessee. In so far as the public law is concerned, the lessor was put on caveat as to the consequences that would follow when the establishment is transferred to the lessee and if such lessee fails to pay the provident fund dues on time. 8. Sri.Chandran, the learned counsel for Smt.Mandakini, argued that the establishment as referred under Section 8B of the Act cannot be the establishment originally owned by Smt.Mandakini. The establishment as referred has to be understood as a distinct establishment of the lessee. He particularly pointed out to the amendment brought to Section 8 wherein the liability cast on the employer in relation to a 'factory' as originally stood, was replaced with the 'establishment', by way of an amendment in the year, 1956. Therefore, it is argued that the factory O.P.No.11440/2003 & W.P.(C) No.14624/2007 9 and establishment are two different concepts for the purpose of recovery and therefore, the moment, the lease period expire, the movable property and immovable property of the establishment becomes a factory that belongs to the original lessor and does not belong to the lessee. The argument at first blush is attractive. But I am of the view that this argument will have to be repelled for more than one reason. Firstly, dues are in respect of the establishment. That establishment continues to be an establishment for all practical purpose of recovery even if the lessee sever his ties with the establishment after the period of lease. Secondly, reference made in Section 8B in regard to the establishment has to be understood with respect to the period of liability and not with reference to the time of recovery. Therefore, the establishment would continue to be one and the same either during and after the O.P.No.11440/2003 & W.P.(C) No.14624/2007 10 lease period for the purpose of recovery. Thus, I am of the view that recovery proceedings can be initiated against the establishment even though lessee sever his ties with the establishment due to the efflux of period of lease. 9. In cases where the lessor was forceed to pay the dues to save the assets of the establishment, he can recover such amount from the lessee after paying it to the EPF Authority. This is based on principles of subrogation. The Common Law Courts acknowledge the doctrine of subrogation as if it is part of the Common Law. 10. The next question which arises for consideration is the most crucial point in this case, whether the EPF Authority can proceed against the establishment in view of certain intervening factors involved in this matter. It is to be noted that Mandakini alerted the EPF Authority by Exts.P4 and P6 produced in her original petition, about the O.P.No.11440/2003 & W.P.(C) No.14624/2007 11 hasty steps being undertaken by Ramakrishna Pillai, the defaulter to alienate his personal property to avoid the liability. Exts.P4 and P6 are the communications. Ext.P4 is dated 17.8.2002 and Ext.P6 is dated 11.09.2002. Fearing that no action will be taken by the EPF Authority, Smt.Mandakini filed original petition before this Court as O.P.No.27679/2002. In that writ petition, Ramakrishna Pillai appeared through counsel. After hearing all the parties, this Court closed the matter recording the submission of the learned Standing Counsel for the EPF Authority that properties of Ramakrishna Pillai had already been attached pursuant to the demand notice. The judgment was rendered on 24.10.2002. That would show that interest of Mandakini was protected by attaching the property of Ramakrishna Pillai. 11. Now, it turned out to be that there was no such O.P.No.11440/2003 & W.P.(C) No.14624/2007 12 attachment. In the pleadings of provident fund, it can be seen that the EPF Authority went to the establishment to effect the attachment only in the month of February, 2003 and turned away without effecting the attachment for the reason that Mandakini appraised to the officials about a stay obtained from this Court. Nowhere in the pleadings, it is stated that there was any attachment. Ramakrishna Pillai, in the meanwhile, sold his personal assets to Sri.Anil Kumar, the writ petitioner in W.P.(C) No.14624/2007 and his wife on 27.11.2002. 12. The question is whether Mandakini can be absolved from discharging the liability of Ramakrishna Pillai for the period covered by the lease. As already adverted that movable and immovable properties of the establishment could be proceeded even for recovery of the dues from the lessee after the expiry of lease period, as O.P.No.11440/2003 & W.P.(C) No.14624/2007 13 the law creates such burden on the original owner who with full knowledge and caveat entered into such transaction with the lessee about the consequence that would follow on default of such payments by the lessee. 13. The case has another dimension due to the peculiar facts involved. Is it possible for the EPF Authority, the creditor to recover the amount from the assets of an establishment when their officials willfully failed to recover the dues from the assets of the lessee ? 14. The original petition filed by Mandakini was closed for the reason that it was reported before this Court that there was an attachment. In fact there was no attachment. The recovery would have been possible by attaching the personal property of Ramakrishna Pillai through the intervention of this Court. I am of the view that consequent upon omission on the part of the creditor, O.P.No.11440/2003 & W.P.(C) No.14624/2007 14 the EPF Authority, it would result in legal consequences of the discharge of the person, who is otherwise burdened. Mandakini was vigilant enough throughout, who not only had approached the EPF Authority but also approached this Court to ensure that recovery is effected from the personal assets of Ramakrishna Pillai. It is only on account of failure to attach the property, Ramakrishna Pillai was able to sell the property to Anil Kumar.(See the principles of discharge under Sections 139 and 141 of the Indian Contract Act, 1872). Therefore, I am of the view that the act and omission on the part of EPF Authority resulted in legal consequence of discharge of the burden imposed on the establishment. Thus, I hold that the officials cannot proceed against the establishment so far as recovery covered by Ext.P3 in O.P.No.11440 of 2003. 15. The next question is whether the personal O.P.No.11440/2003 & W.P.(C) No.14624/2007 15 property of Ramakrishna Pillai which was sold to Anil Kumar can be proceeded against for recovery or not. As already adverted, the procedure as referred in the Income Tax Act will have to be followed in the matter of mode of recovery. It was argued by the learned Standing Counsel for the EPF Authority that the sale was effected after the issuance of notice of recovery and therefore, the sale is bad. It is appropriate to refer Rule 16 of the Second Schedule which states as follows: Private alienation to be void in certain cases. 16(1) Where a notice has been served on a defaulter under rule 2, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the O.P.No.11440/2003 & W.P.(C) No.14624/2007 16 payment of money. (2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment. Sub Clause 2 of Rule 16 states that such private alienation would be void if such transfer is made after the attachment is effected. Nobody has a case that there was attachment. In that sense, it cannot be stated that the alienation is void. It is appropriate to refer the judgment of this Court in M.Rajagopal v. Secretary, State Transport Authority Thiruvananthapuram and others [115 ITR 364], wherein this Court held that “even after a defaulter is served with notice, if he chooses to transfer the properties standing in his name and there is no attachment at the time of such O.P.No.11440/2003 & W.P.(C) No.14624/2007 17 transfer, normally such a transfer would be a good enough. It is only on an attachment being effected that transfer thereafter would be subject to the liability which has occasioned the attachment”. This Court held so after adverting to Rule 16 as above. In such a scenario, I am of the view that Sri.Anil Kumar is a bona fide purchaser, his property cannot be proceeded as he purchased the property without notice as well as the property was not burdened with attachment. It cannot be said that the transaction itself is void in the absence of any attachment effected on such property. 16. Thus only possible way of recovery is to recover the dues from the personal movable and immovable properties of Ramakrishna Pillai. I am not adverting to the scope of such recovery in the case since there is no challenge in that regard put forward in this case. It is open O.P.No.11440/2003 & W.P.(C) No.14624/2007 18 for Ramakrishna Pillai to resist such recovery if such recovery is legally impermissible or unsustainable. 17. With the above observations, these original and writ petitions are allowed with the following orders: i. The EPF Authority is restrained from proceeding against the establishment owned by Mandakini for the recovery of any amount as referred in Ext.P3 in O.P.No.11440/2003. ii. The impugned order in W.P.(C) No.14624/2007 is set aside and the petitioner therein is free to enjoy the property as his own and without burden. iii. The EPF Authority is free to proceed against the property of Ramakrishna Pillai in accordance with law for recovery of the amount covered by the lease period. Sd/- A.MUHAMED MUSTAQUE, JUDGE ln "