Summary
Where the Provident Fund Organisation sought to recover an establishment's dues from an asset reconstruction company that had auctioned two secured properties, while another secured creditor (Axis Bank) had sold a third property and claimed priority under Section 35 of the SARFAESI Act, the Court did not decide the competing priority but remanded the writ petition so that the High Court could determine, after impleading Axis Bank, who has the first charge under Section 11(2) of the PF Act vis-a-vis the secured creditors.
Issues
- Whether the balance of the provident fund dues of the establishment should be recovered from the appellant asset reconstruction company (which sold two properties for about Rs. 7 crores and had paid Rs. 75 lakhs) or from Axis Bank (which sold another property for about Rs. 12 crores and appropriated the proceeds).
- Whether the question of priority between the EPFO's charge under Section 11(2) of the PF Act and the secured creditors' claim under Section 35 of the SARFAESI Act could be decided without Axis Bank being a party before the High Court.
Provisions considered
- Section 11(2), Employees' Provident Funds and Miscellaneous Provisions Act, 1952The EPFO relied on this provision to assert priority of the provident fund dues over the proceeds of the secured properties auctioned by the banks and the appellant. The Court did not rule on the priority but directed the High Court to examine the first charge among the EPFO and the secured creditors in the light of this provision. (¶¶ 2.3, 2.4, 3, 11)
- Section 35, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Axis Bank contended that as a secured creditor its dues have priority over taxes and other dues payable to the Government or a local authority, so nothing could be recovered from it until its dues were fully satisfied. The Court left this contention to be decided first by the High Court on remand. (¶¶ 2.4, 6, 9, 11)
- Section 14B, Employees' Provident Funds and Miscellaneous Provisions Act, 1952The demand for damages of about Rs. 1.3 crores under this provision was under challenge in a separate pending writ petition in which the High Court had stayed it; the appellant's case was that if the EPFO ultimately succeeds, that balance should be recovered from Axis Bank. (¶¶ 3, 4, 5)
Held
- Although the appellant had not impleaded Axis Bank before the High Court, Axis Bank was impleaded and heard before the Supreme Court. The appropriate course is for the High Court to first decide Axis Bank's claim to a first charge and priority over the EPFO under Section 35 of the SARFAESI Act, and to examine the priority of charge between the EPFO and the secured creditors (Axis Bank, State Bank of India and State Bank of Travancore) in view of Section 11(2) of the PF Act. (¶¶ 8, 11)
- The Court expressly did not enter the merits of the first charge and priority question. On remand the High Court is to consider the fact that the EPFO had created a charge over the properties before Axis Bank's auction, and all parties remain at liberty to raise every contention. (¶ 12)
Result
Appeal allowed; impugned order set aside; Writ Petition No. 2543 of 2023 restored to its original number before the Karnataka High Court to be decided afresh in accordance with law after impleading Axis Bank as a respondent and allowing exchange of pleadings and hearing to all parties.