Sri Basistha Narayan Chaubey V. Union Of India and The Ministry Of Labour, Government Of India and Regional Office, Provident Fund Commissioner and Regional Provident Fund Commissioner II cum Recovery Officer and Employees Provident Fund Organization and Sri Rajesh Pandey and Sri Sunil Kumar and Sri Divya Jyoti

CWJC/697/2012

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The case involves Sri Basistha Narayan Chaubey, the Managing Director of M/s. Eclat Industries, who faced legal action for non-payment of provident fund dues amounting to Rs. 22,01,044. The company, declared sick under the Sick Industrial Companies (Special Provisions) Act, 1985, led to financial distress and failure to meet provident fund obligations. Multiple show cause notices and warrants of arrest were issued against the petitioner, who contested these actions. The Recovery Officer's decision to detain the petitioner was challenged on grounds of improper procedure and lack of substantive grounds for such a severe action. The court's decision emphasized the need for strict adherence to procedural safeguards before ordering arrest and detention for non-payment of dues.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 803475 (HC-PATNA)
• Appeal Type: Others
• Pronouncement Date: 29-12-2012
• Assessment Year: misc
• Other Referred Cases: Mohan vs. Regional Provident Fund Commissioner, Sobhag Textiles Ltd. Vs. RPFC, Haryana
• Laws Referred To: Sick Industrial Company (Special Provisions) Act, 1985, Employees Provident Fund and Miscellaneous Provisions Act, 1952, Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PRASHANT SINHA; SHAILENDRA SINHA
• Assessee Lawyers: RAJIV PRASAD; AMOD KUMAR; RAKESH KUMAR
• Keywords: BIFR; Recovery Officer; Sick industrial company; Provident Fund Default; Arrest for Non-Payment
• Section: 73; 51; 7Q; 8B(1)

Judgement Text

" IN THE HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.697 of 2012 1. Sri Basistha Narayan Chaubey Of Sri Radhika Raman Choubey Managing Director Of M/S Eclat Son Industries Ltd., Industrial Area, Patliputra Colony, P.S. Patliputra, District – Patna - Petitioner. Versus 1. Union Of India - Through The Ministry Of Labour, Government Of India, New Delhi 2. The Ministry Of Labour, Government Of India, Shram Shakti Bhawan, Rafi Marg, New Delhi - 110001 Through Secretary 3. Regional Office, Through Provident Fund Commissioner 4. Regional Provident Bhavishya Nidhi Bhawan, R-Block, Road No. 6, Bihar, Patna - 800001 Provident Fund Commissioner - Ii, Bhavishya Nidhi Bhawan, R-Block, 6-Serpentine Road, Regional Office, Fund Commissioner - Ii, Employees Provident Fund Organization, Bhavishya Nidhi Bhawan, R-Block , 6-Serpentine Road, Regional Office, Patna 5. Sri Rajesh Pandey Regional Patna 6. Sri Sunil Kumar, Enforcement Officer, Regional Office, Bhavishya Nidhi Bhawan, R-Block, Road No. 6, Patna 7. Sri Divya Jyoti, Enforcement Officer, Regional Office, Bhavishya Nidhi Bhawan, R-Block, Road No. 6, Patna - Respondents. … For the petitioner: Mr. Rajiv Ranjan Prasad, Mr. Amod Kumar and Mr. Rakesh Kumar, Advocates. For respondent 3-7: Mr. Prashant Sinha and Mr. Shailendra Kumar Sinha, Advocates. 3 Later on 13.1.2012 Heard learned counsel for the parties. The petitioner is the Managing Director of M/s. Eclat Industries Limited which was established some time in the year 1967. The petitioner faced acute financial crisis since 1998 and his company was declared sick. A reference under section 51 of the Sick Industrial Company (Special Provisions) Act, 1985 was made to the Board for Industrial & Financial Reconstruction (hereinafter to be referred as „BIFR‟). As a result of the company being declared sick, the petitioner admittedly failed to pay the provident fund of his employees on account of which a proceeding was initiated by the Public Provident Fund Officer. It is stated on behalf of the respondents that the petitioner had defaulted a sum of 2 Rs.22,01,044/-. The petitioner filed an appeal against the assessment order which was stayed subject to payment of 25% of the demand. The first show cause notice as to why the petitioner should not be arrested was issued on 30.7.2004. The warrant of arrest was issued on 26.8.2004. The said warrant of arrest was stayed by the Tribunal. Subsequent to that second show cause notice was issued asking the petitioner to show cause as to why he should not be arrested. The warrant of arrest was again struck down and stayed vide Annexures 6 and 6/1 by the Regional Provident Fund Commissioner II cum Recovery Officer. While considering all aspects of the matter, the Regional Provident Fund Officer held as follows: “1. That . . . . . “2. The proceedings for arrest and detention shall be kept in abeyance for 45 days. However, it is made clear that the section 8B (1) of the Act lays down three modes for recovery of the certificate dues and the Modes of recovery are alternative modes and not exclusive of each other and the Recovery Officer can resort to any or all the modes prescribed U/S 8B (1). I am supported by the rulings of the Division Bench of Punjab and Haryana High Court in the case of Mohan vs. Regional Provident Fund Commissioner (2002 – III – LLJ 779) and in case of Sobhag Textiles Ltd. Vs. RPFC , Haryana. Therefore the modes for recovery by arrest and detention is not being proceeded which is subject to the other conditions in this order. The other mode that is attachment and sale of the assets of the company shall proceed as per the law. This will not act as bar for fresh proceedings for recovery by detention of the M.D. “3. . . . . “4. No fresh warrant shall be issued provided the Managing Director provides further within 30 days details in regards to the make and year of manufacture of the plant and machinery and his personal assets. The items of plant and machinery shall be attached after the details are obtained but shall 3 continue to remain in custody of the defaulter Company. “5. . . . . “6. In the event of the Managing Director not cooperating in the matter of attachment of assets, furnishing of documents and evaluation of attached assets the proceedings for arrest and detention shall again be instituted.” Finally the third show cause notice was issued to the petitioner on 15.3.2010. It is submitted on behalf of the respondents that the petitioner refused to take the notice, whereas the petitioner challenges the aforesaid comment of the process server. At this juncture it may be relevant to mention that the petitioner had already approached the BIFR for rehabilitation package and a proceeding has been initiated. The petitioner‟s property has already been attached as mentioned earlier subject to the fact that the petitioner has been permitted to utilize his property for his business. On 29.12.2011 the Recovery Officer while handing over the petitioner to the Superintendent of Beur Central Jail, Patna at about 5.45 P.M. On 29.12.2011 the Recovery Officer passed the following order: “Whereas Sri Bashistha Narayan Choubey Managing Director of M/s. Eclat Industries, Patna has been brought before the undersigned under a warrant in execution of Certificate No. 3556 dated… 28/4/2004…. Forwarded by the Authorized Officer Assistant Provident Fund Commissioner, Patna to the Recovery Officer Patna for recovery of arrears from him a certified copy of which has been forwarded to the undersigned under section 8-C(2) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 specifying that an amount of Rs.2965817/- is to be recovered from him; “And whereas he has not satisfied the undersigned that 4 he is entitled to be discharged from custody and has not paid the amount due from him as detailed below:- Certificate/Specified Amount Rs.2965817/- Cost Charge - to be calculated later on. Interest u/s 7Q of the act Rs.770038/- (Up to date of warrant) Total: Rs.3735855/- plus cost. “And whereas the undersigned is satisfied that the said Sri Bashistha Narayan Choubey Managing Director of M/s. Eclat Industries, Panta should be committed to the civil prison and an order to that effect has been passed by the undersigned on the 29th Day of December 2011. You are hereby commanded and required to take and receive the said Sri Bashistha Narayan Choubey, Managing Director of M/s. Eclat Industries, Patna into the civil prison keep him imprisoned therein for a period of 14 days or until the amount aforesaid and together with further interest on Rs.2955817/- at 12% percent per annum for the period commencing immediately after the date of issue of this warrant payable under section 7Q of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 is paid to you or until you receive an order of release from the undersigned. “The undersigned does hereby fix at prescribed rate by the Jail Authority Per diem as the rate for subsistence allowance of the said Sri Bashistha Narayan Choubey, Managing Director of M/s. Eclat Industries, Patna during his confinement under this warrant. “Given under my hand seal at Patna this 29th Day of December, 2011.” The petitioner is aggrieved by the aforesaid order and prays that the Recovery Officer could not have arrested him as he has not taken into account the law and the condition under which an arrest can be made. Counsel for the respondents relies on section 8-B (1) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 to submit that the petitioner could have been arrested as 5 per the aforesaid provision as it has already been held by several decisions of the Supreme Court, that the Recovery Officer can take action under one or all modes mentioned in section 8-B (1) of the aforesaid Act. The modes specified under section 8-B (1) are as follows: “(1) Where any amount is in arrear under section 8, the authorized officer may issue, to the Recovery Officer, a certificate under his signature specifying the amount of arrears and the Recovery Officer, on receipt of such certificate, shall proceed to recover the amount specified therein from the establishment, or as the case may be, the employer by one or more of the modes mentioned below:- “(a) attachment and sale of the moveable or immoveable property of the establishment or, as the case may be, the employer; “(b) arrest of the employer and his detention in prison; “© appointing a receiver for the management of the moveable or immovable properties of the establishment or, as the case may be, the employer: “Provided that the attachment and sale of any property under this section shall first be effected against the properties of the establishment and where such attachment and sale is insufficient, the Recovery Officer may take such proceedings against the property of the employer for recovery of the whole or any part of such arrears.” In order to meet the arguments raised on behalf of the respondents Provident Fund Recovery Officer, counsel for the petitioner refers to rule 73 to the Schedule II of the Income Tax Act, 1961. Rule 73 reads as follows: “73 (1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil 6 prison and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied- (a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after the drawing up of the certificate by the Tax Recovery Officer, dishonestly transferred, concealed, or removed any part of his property, or (b) that the defaulter has, or had since the drawing up of the certificate by the Tax Recovery Officer the means to pay the arrears or some substantial part thereof and refuses or neglect or has refused or neglected to pay the same. “(2) Notwithstanding anything contained in sub- rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer. (3) Where appearance is not made in obedience to a notice issued and served under sub-rule (1), the tax Recovery Officer may issue a warrant for the arrest of the defaulter. (3A) A warrant of arrest issued by a Tax Recovery Officer under sub-rule (2) or sub-rule (3) may also be executed by any other Tax Recovery Officer within whose jurisdiction the defaulter may for the time being be found. (4) Every person arrested in pursuance of a warrant of arrest under this rule shall be brought before the Tax Recovery Officer issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest exclusive of the time required for the journey. “Provided that, if the defaulter pays the amount entered in the warrant or arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him.” There is no doubt about the fact that an arrest can be made for non-compliance of non-payment of the provident 7 fund, subject to certain conditions. However, while making such an arrest, the provisions of sections have to be taken into consideration. Rule 73 begins with a negative word stating that „No order‟ for arrest shall be passed unless the show cause notice is issued to the person concerned and that certain conditions as mentioned in sub-clause (a) and (b) are fulfilled. The conditions require that the defaulter with the intention of obstructing the execution of the certificate, has, after the drawing up of the certificate by the Tax Recovery Officer, dishonestly transferred, concealed, or removes any part of his property or that the defaulter has, or has had since the drawing up of the certificate by the Tax recovery Officer had the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same, shall result in a notice for arrest. In the opinion of this court the procedure before an extreme measure, such as, arrest is made, the Recovery Officer has to comply by not only sending the show cause notice, but also coming to a prima facie finding, that the employer / defaulter has or intends to remove or conceal all his assets, in order to avoid payment of his dues or he has the means to make payment but deliberately tries to default the creditor by not making payment and makes false statement. In this case there is neither an allegation that the petitioner has tried to sell of his property nor is there any allegation that he has the means and money to pay all his credit i.e. dues of the employees, the Recovery Officer, acting on the show cause has 8 put the petitioner behind the bar, which is not sustainable in view of the provisions of rule 73 referred to above. Counsel for the petitioner, on the other hand, has taken a stand that the petitioner was called by the Recovery Officer to meet him for negotiation regarding the sum of money that was to be paid by him. When the petitioner appeared before the Recovery Officer, he was arrested and put behind the bar. It is submitted that this act of the Recovery Officer is inhuman and against the law and that the petitioner is entitled to compensation for such an act. This court is not inclined to consider this aspect of the matter in this proceeding. In the result, I direct that the petitioner should be released forthwith from the civil jail custody in Certificate Case No. 3556, dated 28.4.2004 and Annexure 5 is quashed. This writ petition is, thus, allowed. haque ( Sheema Ali Khan, J .) "