REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6893 OF 2009 (Arising out of S.L.P. (C) No.15243 of 2007)

Maharashtra State Co-operative Bank Ltd. … Appellant

Versus

The Assistant Provident Fund Commissioner    … Respondents and others

WITH CIVIL APPEAL NO.6894 OF 2009

(Arising out of S.L.P. (C) No.20736 of 2007)

Maharashtra State Co-operative Bank Ltd. … Appellant

Versus

The Employees’ Provident Fund Organization   … Respondents and others

J  U  D  G  M  E  N  T

G.S. Singhvi,  J.

1. Leave granted.

2. Whether the sugar bags pledged by Kannad Sahakari  

Sakhar Karkhana Ltd. and Gangapur Sahakari Sakhar Karkhana  

Ltd.  in  favour  of  the  appellant-bank  as  security  for  

repayment  of  the  loan  together  with  interest  could  be  

attached and sold for realization of the dues of provident  

funds etc. payable by the employer i.e., the management of

the Sugar Mills under the Employees’ Provident Funds and  

Miscellaneous Provisions Act, 1952 (for short ‘the Act’) is  

the  question  which  arises  for  determination  in  these  

appeals filed against order dated 29.6.2007 passed by the  

Division  Bench  of  the  Bombay  High  Court  in  Civil  

Application  Nos.1680  and  1681  of  2007  in  Writ  Petition  

No.6824/2005  and  order  dated  19.7.2007  passed  in  Civil  

Application  No.245/2007  in  Letters  Patent  Appeal  

No.28/2004.   

3. We shall first notice the facts from the record of  

the appeal arising out of S.L.P.(C ) No.15243/2007.

4. During  crushing  season  2000-2001,  the  appellant  

advanced loan of Rs.4000 lacs to Kannad Sahakari Sakhar  

Karkhana  Limited  (hereinafter  described  as  ‘the  Sugar  

Mill’).  For securing repayment of the loan and interest,  

the  management  of  the  Sugar  Mill  executed  necessary  

documents  including  deed  of  pledge  dated  5.3.2001,  the  

relevant portions of which are extracted below:-

“We,  the  undersigned,  Kannad  Sahakari  Sakhar  Karkhana Ltd., Tal. Kannad, Aurangabad, member of  Maharashtra  State  Co-operative  Bank  Limited  (Incorporating  the  Vidarbha  Co-operative  Bank  Ltd.) hereinafter referred to as “the said Bank”  agree to take a loan from the said Bank on the  pledge  of  stocks/goods/commodities  on  the  following terms and conditions.  The credit limit  will be Rs.400000000 and its period will be upto  31.10.2001.

1. The stocks/goods/commodities which we have  at present placed in the custody of the said Bank  as security or which we might so place from time  to time will remain in the sole custody of the

said Bank and whatever action the said Bank will  take for indicating its custody shall be agreeable  to us.

3. If it is necessary to hire a godown, we  undertake to hire the godown in the name of the  said Bank and to pay the rent from time to time.

4. We  undertake  to  insure  the  stocks/goods/commodities for their full value with  an Insurance Company approved by the said Bank and  will get the policy issued in the name of the said  Bank.

5. If for any reason the godown is required  to be changed or repaired, we undertake to bear  the expenses in that connection.

6. We undertake to repay the principal of the  loan with interest and all expenses due by us by  _____  as  stipulated  in  para  (2)  hereof  if  the  period, be extended by the said Bank before the  expiry of the extended period.

7. The  loan  shall  bear  interest  at  ____  percent per annum.  If the rent of the godown, the  expenses in connection with insurance and other  expenses if any not paid by us, the same shall be  debited  to  our  loan  account  and  shall  bear  interest at the same rate.  This interest shall be  payable with half yearly rests on 30th June and  31st December  or  earlier  immediately  when  the  stocks/goods/commodities are relieved.

8. Over and above the aforesaid dues, if any  other  amount  is  due  to  the  said  Bank  by  us  exclusively or in partnership with anybody else,  we agree that the stocks/goods/commodities kept in  the custody of the said Bank will also be treated  as security for such amount due by us.

10. We shall not in any way hold the said Bank  responsible for the weight, quality, conditions or  safety of the stocks/goods/commodities given into  its custody.  We shall hold ourselves responsible  for  any  shortage,  damage  or  shrinkage  that  may  arise by any cause whatsoever.

13.   If and when there is insecurity due to  local riots or civil commotion, etc. we undertake  to insure the stocks/goods/commodities against any  damage or loss by such riots or civil commotion.  If we fail to do so, the said Bank shall so insure  the stocks/goods/commodities for and on our behalf

and shall be entitled to debit the cost thereof to  our account.

15. Though  by  this  Agreement,  the  date  of  repayment of the loan has been fixed as aforesaid,  the said Bank shall treat the loan as demand we  undertake to repay the same as soon as the said  Bank shall make a demand or the said Bank shall be  at full liberty to recover all the dues payable by  us.

16. In the event of breach of the aforesaid  conditions and or if we fail to repay the loan  within 24 hours, if so required by the said Bank,  it shall have the full right to recover its amount  by sale of the stocks goods commodities by public  auction or private treaty (though the said Bank is  not  bound  so  to  sell  the  stocks/goods/commodities).   On  receipt  of  the  Account  of  sale  under  the  signature  of  the  Manager, Accountant or other officer of the said  Bank  duly  authorized  we  shall  acknowledge  its  correctness.  If the proceeds of the sale do not  fully meet the loan due by us interest or other  expenses,  we  undertake  to  pay  the  balance  so  remaining with interest.”

5. On the same day i.e., 5.3.2001, the management of  

the Sugar Mill also executed promissory note for payment of  

Rs.40 crores with interest @ 15.50% with half yearly rests.  

6. Though, the appellant has not given the details of  

the  dues  of  provident  fund  payable  by  the  employer,  a  

reading of the document marked Ex. A (pages 119-122 of the  

SLP paper book) shows that the Assistant Provident Fund  

Commissioner,  Aurangabad  (for  short  ‘the  Assistant  

Commissioner’) passed order dated 29.9.2003 under Section  

7A of the Act whereby he held the employer liable to pay  

Rs.1,75,10,477/-  towards  EPF  contributions,  EPF  

administrative  charges,  EDLI  contributions,  EDLI

Ins./administrative  charges  and  directed  it  to  pay  the  

amount  with  interest  @  12%  within  10  days.    As  the  

employer failed to comply with that order,  the Assistant  

Provident  Fund  Commissioner  and  Recovery  Officer,  

Employees’ Provident Fund, Sub-Regional Office, Aurangabad  

(hereinafter referred to as ‘the Recovery Officer’) issued  

warrant of attachment dated 11.3.2004 under Section 8B of  

the Act for recovery of  Rs.3,85,21,734/- which included  

12%  interest  payable  in  accordance  with  Rule  5  of  the  

Second Schedule (Part I) of the Income-tax Act, 1961 read  

with Section 8G of the Act.  The warrant of attachment was  

executed  by  the  Enforcement  Officer  on  26.3.2004  by  

preparing  an  inventory  of  the  sugar  bags  lying  in  the  

godowns of the Sugar Mill and affixing paper seals on the  

same.   

7. The appellant challenged the warrant of attachment  

and consequential action taken by the Enforcement Officer  

in Writ Petition No.6824/2005, mainly on the ground that in  

view of the deed of pledge executed by the management of  

the Sugar Mill, the sugar bags which were lying under its  

lock and key, could not have been attached for realization  

of the dues of provident fund etc.  During the pendency of  

the writ petition, the Assistant Commissioner filed Civil  

Application No.2739/2006 for sale of the sugar bags.  At  

the hearing of that application, learned counsel appearing  

for the appellant-bank referred to the orders passed in

Writ  Petition  No.3413/2005  and  connected  cases  for  

conducting joint auction of the attached goods i.e., sugar  

bags.  After taking note of his submission, the Division  

Bench of the High Court passed order dated 1.12.2006, the  

relevant portions of which are as under:-

“We accordingly allow this application and direct  that the sugar bags attached by the petitioner as  well as the Assistant Provident Fund Commissioner  shall be jointly auctioned and the sale proceeds  shall  be  deposited  with  the  Registrar  of  this  Court.  The successful bidder will draw a Demand  Draft or a Banker’s Cheque in the name of the  Registrar General of this Court.

It  is  further  ordered  that  the  auction  sale  undertaken jointly, shall be completed within a  period of three months by floating public tenders  calling for bids and by accepting tender of the  highest bidder.

Once the amount is deposited with the Registrar  of this Court, liberty to apply for withdrawal of  the said amount.”

8. In  compliance  of  the  aforementioned  order,  the  

sugar bags lying in the godowns of the Sugar Mill were  

auctioned for a sum of Rs.9,24,08,254/-.  Thereafter, the  

Assistant Commissioner filed Civil Application No.1680/2007  

for  permission  to  withdraw  a  sum  of  Rs.7,77,46,511/-  

towards the dues of provident fund etc. by asserting that  

in addition to Rs.1,75,10,477/- payable under Section 7A  

with  interest  @  12%,  the  employer  is  liable  to  pay  

Rs.6,02,36,034/- in terms of order dated 27.3.2007 passed  

under Section 14B read with Section 7Q of the Act.   

9. It  appears  that  during  the  pendency  of  the

litigation, the Assistant Commissioner passed another order  

whereby  he  attached  the  bank  account  and  movable  and  

immovable properties of the Sugar Mill along with 69,000  

sugar bags.  Therefore, the management of the Sugar Mill  

filed Civil Application No.1681/2007 with the prayer that  

attachment effected by the Assistant Commissioner may be  

vacated.  

10. By the impugned order, the High Court disposed of  

both  the  applications  and  issued  various  directions  

including the following:-

“(a) Out of the amount of Rs.9,24,08,254/-, the  amount  of  Rs.4,20,67,446/-  (Principal  amount  Rs.1,75,10,477/-  plus  interest  Rs.2,45,56,969/-)  be  paid  to  the  Assistant  Provident  Fund  Commissioner  so  as  to  appropriate  towards  the  provident fund dues of the workers of the sugar  factory.

(b) Out of the remaining amount, the amount of  Rs.1,46,61,743/- shall be paid to the MSC Bank  which MSC Bank shall appropriate towards the dues  of the Sugar Factory.

(c) The remaining amount of Rs.3,56,79,065/-  be deposited initially for a period of 1 year with  the MSC Bank in the name of the Registrar General,  High Court, Bombay for a period of 1 year.  If  within the period of 1 year, the appeal filed by  the Petitioner with the Appellate Tribunal under  the Provident Fund Act is not disposed of, then  the Registrar General will re-deposit and/or renew  the said amount on yearly basis with MSC Bank till  final disposal of the said appeal.

(d) The information in respect of the number,  pendency or disposal of the Appeal shall be given  by the Sugar Factory to the Registrar General when  the said Appeal is disposed of.

(e) In case the said appeal filed by the Sugar  Factory is dismissed by the Appellate authority,  then the amount of Rs.3,56,79,065/- will have to

be  transferred  to  the  Assistant  Provident  Fund  Commissioner and the Registrar General is hereby  directed, accordingly, to transfer it.

(f) In case the appeal is allowed and thereby  the sugar factory becomes entitled to the amount  of  Rs.3,56,79,065/-,  then  the  MSC  Bank  is  at  liberty to appropriate the said amount towards the  dues of the Sugar Factory.

(g) In view of the above directions and the  disbursement of the amount, the order passed by  the  Assistant  Provident  Fund  Commissioner  attaching the assets, Bank Accounts and sugar bags  etc. of the Sugar Factory is hereby quashed and  set aside and the Sugar Factory is at liberty to  deal with the said assets in accordance with their  own Resolution and decisions keeping in mind the  directions.”

11. We may now notice some facts from the record of the  

other appeal.  

12. The  appellant  advanced  Rs.2000  lacs  to  Gangapur  

Sahakari Sakhar Karkhana Ltd. during crushing season 2002-

03.  For securing the payment of the loan, the management  

of  the  Sugar  Mill  executed  three  deeds  on  2.1.2003,  

6.2.2003 and 4.4.2003 and pledged the sugar bags lying in  

the godowns.  Simultaneously, three promissory notes were  

executed for payment of the amounts specified therein with  

interest at the rate of 13.5 per cent per annum with half  

yearly rests.  The terms and conditions of these deeds are  

similar to deed of pledge dated 5.3.2001 executed by the  

management  of  Kannad  Sahakari  Sakhar  Karkhana  Ltd.   On  

account  of  failure  of  the  employer  to  pay  the  dues  of  

provident fund etc., the competent authority passed orders  

under Sections 7A, 7Q and 14B of the Act and held it liable

to pay total sum of Rs.9,11,72,892/- towards the dues of  

provident fund, interest and damages.  After some time, the  

Assistant Commissioner issued warrant of attachment dated  

15.9.2003  which  was  duly  executed  by  the  Enforcement  

Officer on 22.9.2003.   

13. The appellant challenged the warrant of attachment  

in Writ Petition No. 3656/2003, which was dismissed by the  

learned Single Judge of the High Court (Aurangabad Bench)  

vide  his  order  dated  3.10.2003  by  relying  upon  the  

judgments of the Kerala High Court in Recovery Officer and  

Assistant Provident Fund Commissioner v. Kerala Financial  

Corporation (2002) 3 LLJ 643 Kerala and of this Court in  

A.P.  State  Financial  Corporation  v.  Official  Liquidator  

(2000) 7 SCC 291.  The letters patent appeal preferred by  

the appellant-bank was transferred to the Principal Seat of  

the  High  Court  at  Mumbai.   During  the  pendency  of  the  

letters  patent  appeal,  the  Assistant  Commissioner  filed  

Civil Application No.21/2006 for sale of the sugar bags  

lying in the godown of the employer.  By an order dated  

18.7.2006,  the  High  Court  granted  the  prayer  of  the  

Assistant Commissioner and directed that the sale amount be  

deposited  with  the  Registrar  General.   Thereafter,  the  

Assistant Commissioner filed Civil Application No.245/2007  

for permission to withdraw the amount lying deposited with  

the Registrar General of the High Court.  The same was  

disposed  of  by  the  Division  Bench  vide  order  dated

19.7.2007, the operative portion of which reads as under:-

“In view of the fact that this Court has taken a  consistent  view  that  the  amounts  recovered  from  sugar  factories  by  disposing  of  sugar  against  recovery made by co-operative banks for the secured  creditors can be appropriated towards payment of  Provident Fund dues, we find no reason to take a  different stand, and allow the application in terms  of prayer clause (a), with no order as to costs.”

14. Shri  Ashok  H.  Desai,  learned  senior  counsel  

appearing for the appellant assailed the impugned orders  

and argued that the sugar bags lying in the godowns of the  

Sugar Mills could not have been attached and sold at the  

instance of the Assistant Commissioner for realization of  

the  dues  of  provident  fund  etc.  because  the  same  had  

already  been  pledged  with  the  appellant-bank.   Learned  

senior counsel relied upon the judgments of this Court in  

Karnataka Pawnbrokers’ Association v. State of Karanataka  

(1998) 7 SCC 707, Central Bank of India v. Siriguppa Sugars  

& Chemicals Ltd. (2007) 8 SCC 353, and argued that even  

though under Section 11(2) of the Act, the amount due from  

an employer is treated as first charge on the assets of the  

establishment, the same cannot have priority or precedence  

over the dues of the appellant-bank, the payment of which  

is  secured  by  the  deeds  of  pledge  executed  by  the  

management of the Sugar Mills.  Shri Desai referred to  

various clauses of the deeds of pledge and submitted that  

for all practical purposes, the appellant-bank had become  

owner of the sugar bags and the Recovery Officer did not  

have the jurisdiction, power or authority to attach the

same.   Learned  senior  counsel  emphasized  that  the  term  

“assets”  used  in  Section  11(2)  of  the  Act  means  

unencumbered property of the establishment and argued that  

as  the  sugar  bags  pledged  with  the  appellant-bank  had  

become its property, the Recovery Officer was not entitled  

to attach the same for realizing the dues of provident fund  

etc.   In  support  of  this  argument,  Shri  Desai  placed  

reliance on paragraphs 67 and 73 of the judgment of this  

Court in Transcore v. Union of India (2008) 1 SCC 125.  

Another argument of the learned senior counsel is that, at  

best, the amount determined under Section 7A can be treated  

as first charge on the assets of the establishment but the  

interest payable under Section 7Q and damages levied under  

Section 14B cannot be recovered by invoking Section 11(2)  

of the Act.

15. Shri R.C. Kalra and Ms. Malvika Trivedi, learned  

counsel  for  the  respondents  argued  that  notwithstanding  

execution of the deeds of pledge by the management of Sugar  

Mills  in  favour  of  the  appellant-bank,  the  sugar  bags  

continued to be the property of the Sugar Mills and the  

same could be sold for realization of the dues of provident  

fund.  Learned counsel submitted that the expression ‘any  

amount due’ appearing in Section 11(2) includes the amount  

determined  under  Section  7A,  interest  payable  on  such  

amount in terms of Section 7Q and damages levied under  

Section 14B.  Learned counsel then argued that by virtue of

the deeming provision and non obstante clause contained in  

Section 11(2), any amount due from an employer in respect  

of the employees’ contribution or employer’s contribution  

is the first charge on the assets of the establishment and  

the same is required to be paid in priority qua all other  

debts.   Ms. Malvika Trivedi pointed out that notice in the  

SLPs filed by the appellant was issued primarily in view of  

the  assertions  contained  therein  that  similar  issue  is  

under consideration in S.L.P.(C) No.95 of 2005 – Central  

Bank of India v. State of Kerala and others and submitted  

that the appeals are liable to be dismissed in view of the  

judgment titled Central Bank of India v. State of Kerala  

(2009) 4 SCC 94.

16. We have considered the respective submissions.  In  

pre-independence era, some of the big industrial employers  

introduced schemes of provident funds for welfare of their  

workers.   However,  the  workers  of  small  industrial  

establishments  did  not  get  similar  benefits  because  

employers  of  those  establishments  did  not  introduce  

voluntary schemes of provident funds.  The framers of the  

Constitution were very much alive to the plight of the  

working  class  and  particularly  the  unorganized  labour  

employed in factories and other establishments.  They were  

also conscious of the fact that the goals of justice –  

social, economic and political and equality of status and  

of opportunity proposed to be incorporated in the preamble

to  the  Constitution  will  remain  illusory  for  weaker  

sections  of  society  unless  the  State  takes  affirmative  

legislative  and  administrative  measures  for  ameliorating  

the  conditions  of  those  sections  including  the  workers  

employed in factories etc.  Therefore, specific provisions  

were incorporated in Part IV of the Constitution with the  

title  “Directive  Principles  of  State  Policy”  casting  an  

obligation  upon  the  State  to  apply  these  principles  in  

making  laws.   Article  38  which  has  been  renumbered  as  

clause  (1)  thereof  by  the  Constitution  (Forty-fourth  

Amendment) Act, 1978 declares that the State shall strive  

to  promote  the  welfare  of  the  people  by  securing  and  

protecting, as effectively as it may, a social order in  

which justice, social, economic and political, shall inform  

all  the  institutions  of  national  life.   Clause  (2)  of  

Article 38 mandates the State to strive to minimize the  

inequalities  in  income,  and  endeavour  to  eliminate  

inequalities in status, facilities and opportunities, not  

only amongst individuals but also amongst groups of people  

residing  in  different  areas  or  engaged  in  different  

avocations.  Article 43 casts a duty on the State to make  

efforts  to  secure  by  suitable  legislation  or  economic  

organization  or  in  any  other  way,  to  all  workers,  

agricultural, industrial or otherwise, work, a living wage,  

conditions of work ensuring a decent standard of life and  

full  enjoyment  of  leisure  and  social  and  cultural  

opportunities,  and,  in  particular,  social  opportunities.

The State is also required to make special endeavour to  

promote cottage industries on an individual or cooperative  

basis in rural areas.   

17. Soon  after  enforcement  of  the  Constitution,  the  

Government  of  India  promulgated  the  Employees  Provident  

Funds Ordinance on 15.11.1951, which was replaced by the  

Act, which belongs to the family of legislations enacted by  

the Parliament in furtherance of the mandate of Articles 38  

and 43 of the Constitution and is intended to give social  

security to the workers employed in the factories and other  

establishments.   The  Act  provides  for  institution  of  

provident funds, pension fund and deposit–linked insurance  

fund in factories and other establishments.    It requires  

the employers of the factories and specified establishments  

to deduct certain amount from the wages payable to the  

employees  and  also  make  contribution  to  various  funds,  

which  are  administered  by  the  Central  and  Regional  

Provident Fund Commissioners.  Section 2(aa) of the Act  

defines the term “authorized officer” to mean the Central  

Provident Fund Commissioner, Additional Central Provident  

Fund  Commissioner,  Deputy  Provident  Fund  Commissioner,  

Regional Provident Fund Commissioner or such other officer  

as  may  be  authorised  by  the  Central  Government,  by  

notification in the Official Gazette.  The term “Fund” has  

been defined in Section 2(h) to mean the provident fund  

established under a Scheme.  The term “Recovery Officer”  

has been defined in Section 2(kd) to mean any officer of

the Central Government, State Government or the Board of  

Trustees  constituted  under  Section  5A,  who  may  be  

authorised by the Central Government, by notification in  

the Official Gazette, to exercise the powers of a Recovery  

Officer under the Act.  Section 5(1) lays down that the  

Central  Government  may,  by  notification  in  the  Official  

Gazette,  frame  a  Scheme  to  be  called  the  Employees'  

Provident Funds Scheme for the establishment of provident  

funds under this Act for employees or for any class of  

employees  and  specify  the  establishments  or  class  of  

establishments to which the said Scheme shall apply.  This  

section further lays down that soon after framing of the  

Scheme, a Fund shall be established in accordance with the  

provisions of the Act and the Scheme. Section 6 speaks of  

the contribution required to be made by the employer and  

employees to the Fund.  Section 6A(1) postulates framing of  

Employees'  Pension  Scheme  for  the  purpose  of  providing  

superannuation pension, retiring pension or permanent total  

disablement pension to the employees of any establishment  

or class of establishments to which this Act applies and  

widow  or  widower's  pension,  children  pension  or  orphan  

pension  payable  to  the  beneficiaries  of  such  employees.  

Section  6A(2)  lays  down  that  notwithstanding  anything  

contained in Section 6, there shall be established, as soon  

as may be after framing of the Pension Scheme, a pension  

fund  to  which  a  specified  sum  should  be  paid  from  the  

employer’s  contribution  under  Section  6.   Section  6C(1)

postulates framing of Employees’ Deposit-linked Insurance  

Scheme for the purpose of providing life insurance benefits  

to  the  employees  of  any  establishment  or  class  of  

establishments to which the Act applies.  Section 6C(2)  

provides for establishment of a Deposit-linked Insurance  

Fund into which the employer is required to pay a specified  

amount in respect of every employee.  Section 7A empowers  

the  competent  authority  to  decide  dispute  regarding  

applicability of the Act to an establishment as also the  

amount due from any employer under the provisions of the  

Act, the Scheme or the Pension Scheme or the Insurance  

Scheme, as the case may be.  Section 7Q declares that the  

employer shall be liable to pay simple interest at the rate  

of twelve per cent per annum or at such higher rate as may  

be specified in the Scheme on any amount due from him under  

the Act from the date on which the amount has become so due  

till  the  date  of  its  actual  payment.   Proviso  to  this  

Section lays down that higher rate of interest specified in  

the Scheme shall not exceed the lending rate of interest  

charged by any scheduled bank.  Section 8 specifies the  

mode of recovery of moneys due from employers.  Section 8B  

lays down that where any amount is in arrear under Section  

8, the authorized officer may issue a certificate to the  

Recovery Officer specifying therein the amount of arrears  

and on receipt of the certificate, the Recovery Officer  

shall proceed to recover the particular amount from the  

establishment or the employer by adopting one or more of

the modes specified in that section.  Section 8F specifies  

other modes of recovery.  Section 11 speaks of priority of  

payment of contributions over other debts.  Section 14B  

provides for recovery of damages.  Some of these provisions  

which have direct bearing on the decision of these appeals  

are reproduced below:

8.  Mode  of  recovery  of  moneys  due  from  employer  –  Any  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 under sub-section (5) of section 17 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  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 or in  respect  of  the  contribution  payable  by  him  towards the Pension Scheme under the said section  17.

may, if the amount is in arrear, be recovered in  the manner specified in sections 8B to 8G.

8B. Issue of certificate to the Recovery Officer.

(1) Where any amount is in arrear under section  8,  the  authorised  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  movable  or  immovable property of the establishment or, as

the case may be, the employer;

(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:

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 for recovering the whole of the  amount of arrears specified in the certificate,  the Recovery Officer may take such proceedings  against the property of the employer for recovery  of the whole or any part of such arrears.

(2)  The  authorised  officer  may  issue  a  certificate  under  sub-section  (1),  notwithstanding that proceedings for recovery of  the arrears by any other mode have been taken.

8F. Other modes of recovery.

(1) Notwithstanding the issue of a certificate to  the  Recovery  Officer  under  section  8B,  the  Central Provident Fund Commissioner or any other  officer  authorised  by  the  Central  Board  may  recover the amount by any one or more of the  modes provided in this section.

(2) xxx xxx xxx xxx

(3)(i) to (ix) xxx xxx xxx

(x) If the person to whom a notice under this  sub-section  is  sent  fails  to  make  payment  in  pursuance thereof to the Central Provident Fund  Commissioner  or  the  officer  so  authorized  he  shall be deemed to be an employer in default in  respect of the amount specified in the notice and  further proceedings may be taken against him for  the realization of the amount as if it were an  arrear due from him, in the manner provided in

sections 8B to 8E and the notice shall have the  same effect as an attachment of a debt by the  Recovery Officer in exercise of his powers under  section 8B.

(4) xxx xxx xxx xxx

(5) The Central Provident Fund Commissioner or  any  officer  not  below  the  rank  of  Assistant  Provident Fund Commissioner may, if so authorised  by the Central Government by general or special  order, recover any arrears of amount due from an  employer  or,  as  the  case  may  be,  from  the  establishment by distraint and sale of his or its  movable property in the manner laid down in the  Third Schedule to the Income-tax Act, 1961 (43 of  1961).

8G. Application of certain provisions of Income- tax Act – The provisions of the Second and Third  Schedules  to  the  Income-tax  Act,  1961  (43  of  1961)  and  the  Income-tax  (Certificate  Proceedings) Rules, 1962, as in force from time  to time, shall apply with necessary modifications  as if the said provisions and the rules referred  to the arrears of the amount mentioned in section  8 of this Act instead of to the Income-tax;

Provided  that  any  reference  in  the  said  provisions and the rules to the “assessee” shall  be construed as a reference to an employer as  defined in this Act.

11.Priority  of  payment  of  contributions  over  other debts.

(l) 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  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 therefor 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 sub- section  (1),  if  any  amount  is  due  from  an  employer  whether  in  respect  of  the  employees'  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.

14B. Power to recover damages.  

Where an employer makes default in the payment of  any contribution to the Fund, the Pension Fund or  the  Insurance  Fund  or  in  the  transfer  of  accumulations required to be transferred by him  under  sub-section  (2)  of  section  15  or  sub- section (5) of section 17 or in the payment of  any charges payable under any other provision of

this Act or of any Scheme or Insurance Scheme or  under  any  of  the  conditions  specified  under  section  17,  the  Central  Provident  Fund  Commissioner  or  such  other  officer  as  may  be  authorised  by  the  Central  Government,  by  notification  in  the  Official  Gazette,  in  this  behalf  may  recover  from  the  employer  such  damages, not exceeding the amount of arrears, as  may be specified in the scheme:

Provided that before levying and recovering such  damages, the employer shall be given a reasonable  opportunity of being heard:

Provided  further  that  the  Central  Board  may  reduce  or waive  the damages  levied under  this  section in relation to an establishment which is  a sick industrial company and in respect of which  a scheme for rehabilitation has been sanctioned  by  the  Board  for  Industrial  and  Financial  Reconstruction established under section 4 of the  Sick  Industrial  Companies  (Special  Provisions)  Act, 1985 (1 of 1986), subject to such terms and  conditions as may be specified in the Scheme.

18. An analysis of the above provisions shows that for  

providing financial benefits to the workers who contribute  

to the growth of the industries and industrialization of  

the country, the legislature has made provision for framing  

of various schemes under Sections 5(1), 6A(1) and 6C(1) and  

establishment  of  Funds  under  Sections  5(1),  6A(2)  and  

6C(2).   With  a  view  to  ensure  that  the  employers  

religiously comply with the mandate of provisions enacted  

for benefit of the workers, the legislature has not only  

provided for imposition of penalty under Sections 14, 14A,  

14AA  and  damages  under  Section  14B,  but  also  made  

comprehensive provisions for recovery of the dues by way of  

attachment and sale of movable or immovable property of the

establishment or the employer, as the case may be.  Section  

8 lays down that if the amount is in arrear, the same can  

be recovered in the manner specified in Sections 8B to G.  

Section  8B  provides  for  issue  of  certificate  by  the  

authorised officer in respect of the amount due to the  

Recovery Officer so as to enable him to recover the amount  

specified  therein  by  attachment  and  sale  of  movable  or  

immovable property of the establishment or the employer or  

by arrest of the employer and his detention in prison or by  

appointing a receiver for the management of the movable or  

immovable properties of the establishment or the employer,  

as the case may be.  Section 8F specifies other modes of  

recovery of any amount due from the establishment or the  

employer.  By Section 8G some of the provisions contained  

in  Income-tax  Act,  1961  and  the  Income-tax  (Certificate  

Proceedings) Rules, 1962 have been made applicable to the  

arrears of the amount mentioned in Section 8.  Section 11  

gives statutory priority to the payment of contributions  

over other debts.  The original Section 11 was renumbered  

as sub-section (1) by an amendment made vide Act No.40 of  

1973.  This sub-section relates to priority qua an employer  

who is adjudged insolvent or being a company an order of  

winding up is made.  It lays down that the amount due from  

the employer 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 Section 15(2) or any charges payable by

him under any other provision of the Act or the Scheme or  

the Insurance Scheme shall 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.  Sub-section (2), which was added to Section 11 by  

Act No.40 of 1973 contains a non obstante clause and 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.  Section  14B  empowers  the  Central  Provident  Fund  

Commissioner or such other officer as may be authorized by  

the  Central  Government,  by  notification  in  the  Official  

Gazette  to  recover  from  the  defaulting  employer  damages  

which shall not exceed the arrears.  First proviso to this  

section casts a duty on the concerned officer to give the  

employer reasonable opportunity of hearing before imposing  

and recovering damages.  Second proviso thereto empowers

the Central Board to reduce or waive damages levied in  

relation  to  establishment  which  is  a  sick  industrial  

company and in respect of which a scheme for rehabilitation  

has  been  sanctioned  by  the  Board  of  Financial  and  

Industrial Reconstruction.

19. Since  the  Act  is  a  social  welfare  legislation  

intended to protect the interest of a weaker section of the  

society, i.e., the workers employed in factories and other  

establishments, it is imperative for the courts to give a  

purposive  interpretation  to  the  provisions  contained  

therein keeping in view the Directive Principles of State  

Policy embodied in Articles 38 and 43 of the Constitution.  

In  this  context,  we  may  usefully  notice  the  following  

observations made by Krishna Iyer, J. in Organo Chemical  

Industries v. Union of India (1979) 4 SCC 573:   

“The pragmatics of the situation is that if the  stream of contributions were frozen by employers’  defaults after due deduction from the wages and  diversion  for  their  own  purposes,  the  scheme  would be damnified by traumatic starvation of the  Fund, public frustration from the failure of the  project  and  psychic  demoralisation  of  the  miserable  beneficiaries  whey  they  find  their  wages deducted and the employer get away with it  even after default in his own contribution and  malversation  of  the  workers’  share.  “Damages”  have a wider socially semantic connotation than  pecuniary loss of interest on non-payment when a  social welfare scheme suffers mayhem on account  of the injury. Law expands concepts to embrace  social  needs  so  as  to  become  functionally  effectual.

The  measure  was  enacted  for  the  support  of  a  weaker sector viz. the working class during the  superannuated winter of their life. The financial  reservoir  for  the  distribution  of  benefits  is

filled by the employer collecting, by deducting  from the workers’ wages, completing it with his  own equal share and duly making over the gross  sums  to  the  Fund.  If  the  employer  neglects  to  remit or diverts the moneys for alien purposes  the Fund gets dry and the retirees are denied the  meagre  support  when  they  most  need  it.  This  prospect of destitution demoralises the working  class and frustrates the hopes of the community  itself.  The  whole  project  gets  stultified  if  employers thwart contributory responsibility and  this wider fall-out must colour, the concept of  `damages’  when  the  court  seeks  to  define  its  content in the special setting of the Act. For,  judicial interpretation must further the purpose  of  a  statute.  In  a  different  context  and  considering  a  fundamental  treaty,  the  European  Court of Human Rights, in the Sunday Times Case,  observed:  

The  Court  must  interpret  them  in  a  way  that  reconciles them as far as possible and is most  appropriate  in  order  to  realise  the  aim  and  achieve the object of the treaty.

A policy-oriented interpretation, when a welfare  legislation  falls  for  determination,  especially  in  the  context  of  a  developing  country,  is  sanctioned  by  principle  and  precedent  and  is  implicit in Article 37 of the Constitution since  the judicial branch is, in a sense, part of the  State. So it is reasonable to assign to “damages”  a larger, fulfilling meaning.”

20. We  shall  now  consider  the  question  whether  the  

provision contained in Section 11(2) of the Act operates  

against other debts like mortgage, pledge, etc.  Answer to  

this  question  is  clearly  discernible  from  the  plain  

language of Section 11.  The priority given to the dues of  

provident fund etc. in Section 11 is not hedged with any  

limitation or condition.  Rather, a bare reading of the  

section makes it clear that the amount due is required to  

be paid in priority to all other debts.  Any doubt on the  

width and scope of Section 11 qua other debts is removed by

the use of expression ‘all other debts’ in both the sub-

sections.  This  would  mean  that  the  priority  clause  

enshrined in Section 11 will operate against statutory as  

well  as  non-statutory  and  secured  as  well  as  unsecured  

debts including a mortgage or pledge.  Sub-section (2) was  

designedly  inserted  in  the  Act  for  ensuring  that  the  

provident fund dues of the workers are not defeated by  

prior claims of secured or unsecured creditors.  This is  

the reason why the legislature took care to declare that  

irrespective of time when a debt is created in respect of  

the assets of the establishment, the dues payable under the  

Act would always remain first charge and shall be paid  

first  out  of  the  assets  of  the  establishment  

notwithstanding anything contained in any other law for the  

time being in force.  It is, therefore, reasonable to take  

the view that the statutory first charge created on the  

assets of the establishment by sub-section (2) of Section  

11 and priority given to the payment of any amount due from  

an employer will operate against all types of debts.     

21. The view we have taken on the interpretation of  

Section 11(2) is in tune with a series of decisions of this  

Court  in  which  the  provisions  contained  in  different  

statutes  giving  priority  to  the  dues  of  the  State  and  

workers have been interpreted.  In the first place, we may  

refer to some decisions relating to dues of the State.  In  

Builders Supply Corporation v. Union of India 1965(2) SCR  

289, the Constitution Bench considered the question whether

tax payable to the Union of India has priority over other  

debts.  After making reference to some judgments of the  

Bombay and Madras High Courts, the Constitution Bench laid  

down the following propositions:

1. There is a consensus of judicial opinion that  the arrears of tax due to the State can claim  priority over private debts.

2. The common law doctrine about priority of Crown  debts which was recognised by Indian High Courts  prior to 1950 constitutes “law in force” within  the meaning of Article 372(1) and continues to be  in force.

3.  The  basic  justification  for  the  claim  for  priority of State debts is the rule of necessity  and the wisdom of conceding to the State the right  to claim priority in respect of its tax dues.

4. The doctrine may not apply in respect of debts  due  to  the  State  if  they  are  contracted  by  citizens  in  relation  to  commercial  activities  which may be undertaken by the State for achieving  socio-economic  good.  In  other  words,  where  the  welfare State enters into commercial fields which  cannot be regarded as an essential and integral  part  of  the  basic  government  functions  of  the  State and seeks to recover debts from its debtors  arising  out  of  such  commercial  activities  the  applicability of the doctrine of priority shall be  open for consideration.

22. In State Bank of Bikaner and Jaipur v. National  

Iron  and  Steel  Rolling  Corporation  (1995)  2  SCC  19,  a  

three-Judge Bench considered whether statutory first charge  

created by Section 11-AAAA of the Rajasthan Sales Tax Act,  

1954 in favour of the State will have priority over the  

debts of the bank which had been secured by the borrower by  

creating mortgage of its factory and answered the same in  

affirmative by making the following observations:

“Section  100  of  the  Transfer  of  Property  Act  deals  with  charges  on  an  immoveable  property  which can be created either by an act of parties  or by operation of law. It provides that where  immoveable  property  of  one  person  is  made  security for the payment of money to another, and  the transaction does not amount to a mortgage, a  charge  is  created  on  the  property  and  all  the  provisions in the Transfer of Property Act which  apply to a simple mortgage shall, so far as may  be, apply to such charge. A mortgage on the other  hand, is defined under Section 58 of the Transfer  of Property Act as a transfer of an interest in  specific immoveable property for the purpose of  securing the payment of money advanced or to be  advanced  as  set  out  therein.  The  distinction  between a mortgage and a charge was considered by  this Court in the case of Dattatreya Shanker Mote  v.  Anand Chintaman Datar (1974) 2 SCC 799. The  Court  has  observed  (at  pages  806-807)  that  a  charge  is  a  wider  term  as  it  includes  also  a  mortgage, in that, every mortgage is a charge,  but every charge is not a mortgage. The Court has  then  considered  the  application  of  the  second  part of Section 100 of the Transfer of Property  Act  which  inter  alia  deals  with  a  charge  not  being enforceable against a bona fide transferee  of the property for value without notice of the  charge. It has held that the phrase “transferee  of property” refers to the transferee of entire  interest in the property and it does not cover  the transfer of only an interest in the property  by way of a mortgage.

In the present case we have to consider whether  the statutory first charge which is created under  Section 11-AAAA of the Rajasthan Sales Tax Act  over  the  property  of  the  dealer  or  a  person  liable to pay sales tax and/or other dues under  the  Rajasthan  Sales  Tax  Act,  is  created  in  respect of the entire interest in the property or  only  the  mortgagor’s  interest  in  the  property  when  the  dealer  has  created  a  mortgage  on  the  property.  In  other  words,  will  the  statutory  first  charge  have  priority  over  an  earlier  mortgage. It was urged by Mr. Tarkunde, learned  counsel for the appellant-bank that at the time  when  the  statutory  first  charge  came  into  existence,  there  was  already  a  mortgage  in  respect of the same property. Therefore, the only  property which was possessed by the dealer and/or  person liable to pay tax or other dues under the  Rajasthan Sales Tax Act, was equity of redemption

in  respect  of  that  property.  The  first  charge  would operate, therefore, only on the equity of  redemption. The argument though ingenious, will  have to be rejected.  Where a mortgage is created  in  respect  of  any  property,  undoubtedly,  an  interest in the property is carved out in favour  of the mortgagee. The mortgagor is entitled to  redeem his property on payment of the mortgage  dues.  This  does  not,  however,  mean  that  the  property  ceases  to  be  the  property  of  the  mortgagor. The title to the property remains with  the mortgagor. Therefore, when a statutory first  charge is created on the property of the dealer,  the property subjected to the first charge is the  entire property of the dealer. The interest of  the  mortgagee  is  not  excluded  from  the  first  charge.  The  first  charge,  therefore,  which  is  created  under  Section  11-AAAA  of  the  Rajasthan  Sales Tax Act will operate on the property as a  whole and not only on the equity of redemption as  urged by Mr. Tarkunde.

In the present case, the section creates a first  charge  on  the  property,  thus  clearly  giving  priority to the statutory charge over all other  charges on the property including a mortgage. The  submission, therefore, that the statutory first  charge  created  by  Section  11-AAAA  of  the  Rajasthan Sales Tax Act can operate only over the  equity  of  redemption,  cannot  be  accepted.  The  charge  operates  on  the  entire  property  of  the  dealer  including  the  interest  of  the  mortgagee  therein.

Looked at a little differently, the statute has  created  a  first  charge  on  the  property  of  the  dealer. What is meant by a “first charge”? Does  it have precedence over an earlier mortgage? Now,  as set out in   Dattatreya Shanker Mote case   (1974)    2  SCC  799   a  charge  is  a  wider  term  than  a    mortgage.  It  would  cover  within  its  ambit  a  mortgage also. Therefore, when a first charge is  created by operation of law over any property,  that charge will have precedence over an existing  mortgage.”

(emphasis supplied)

23. In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.  

(2000)  5  SCC  694,  a  two-Judge  Bench  reiterated  the

principles  enunciated  in  Builders  Supply  Corporation  v.  

Union  of  India  (supra)  and  proceeded  to  observe  that  

Section 158(1) of the Karnataka Land Revenue Act not only  

gives a statutory recognition to the doctrine of State’s  

priority  for  recovery  of  debts,  but  also  extends  its  

applicability over private debts forming the subject matter  

of mortgage, judgment, decree, execution or attachment of  

the like.

24. In State of M.P. v. State Bank of Indore (2002) 10  

SCC  441, this  Court  considered  whether  statutory  first  

charge created under Section   33-C of the M.P. General  

Sales Tax Act, 1958 would prevail over the bank’s charge.  

The facts of that case were that for securing repayment of  

the  loan  obtained  from  the  State  Bank  of  Indore,  the  

borrower  executed  a  promissory  note  and  pledged  certain  

machinery.  The bank sued the borrower for recovery of its  

dues.  During the pendency of the case instituted by the  

bank,  Section  33-C  was  inserted  in  the  State  Act.  

Thereafter, the State claimed priority in the matter of  

recovery of dues of sales tax vis-à-vis the dues of the  

bank.  The trial Court and the High Court rejected the plea  

of the State.  The High Court observed that the bank’s  

charge  on  the  machinery  was  prior  to  the  insertion  of  

Section 33-C in the State Act and the subsequent loans  

taken in 1979 do not alter the position in favour of the  

State.  The  High  Court  then  proceeded  to  hold  that  the

charge created in favour of the Bank remains valid and  

operative till repayment of the loan. This Court reversed  

the judgments of the trial Court and the High Court and  

held:  

“Section  33-C  creates  a  statutory  first  charge  that  prevails  over  any  charge  that  may  be  in  existence. Therefore, the charge thereby created  in favour of the State in respect of the sales  tax dues of the second respondent prevail over  the  charge  created  in  favour  of  the  Bank  in  respect  of  the  loan  taken  by  the  second  respondent.  There  is  no  question  of  retrospectivity here, as, on the date when it was  introduced, Section 33-C operated in respect of  all  charges  that  were  then  in  force  and  gave  sales tax dues precedence over them.”

25. Recently,  in  Central  Bank  of  India  v.  State  of  

Kerala  2009(4)  SCC  94,  the  issue  was  considered  in  a  

slightly  different  perspective.   The  appellant-bank  had  

challenged the vires of Section 26-B of the Kerala General  

Sales Tax Act, 1963, whereby first charge was created on  

the property of the dealer or the person liable to pay tax  

by  contending  that  the  same  was  beyond  the  legislative  

competence of the State and was also inconsistent with the  

provisions contained in the Recovery of Debts Due to Banks  

and Financial Institutions Act, 1963 and the Securitization  

and Reconstruction of Financial Assets and Enforcement of  

Security Interest Act, 2002.  In the connected appeals,  

vires of Section 38C of the Bombay Sales Tax Act, 1959 was  

challenged  on  similar  grounds.   This  Court  considered  

various  facets  of  the  challenge  and  held  that  the  

provisions contained in the Sales Tax Act were not beyond

the legislative competence of the State.  The Court further  

held that there is no inconsistency between the provisions  

of the State and Central Acts and the non obstante clauses  

contained in the Central legislations will not override the  

provisions of the State legislations by which first charge  

was  created  in  favour  of  the  State  in  the  matter  of  

recovery of the dues of sales tax.

26. We  shall  now  notice  some  decisions  in  which  

statutes giving parity or priority to the workers claim  

have been interpreted.  In UCO Bank v. Official Liquidator,  

High Court Bombay and another (1994) 5 SCC 1, this Court  

considered the scope of proviso to Section 529(1) of the  

Companies Act as inserted by the Companies (Amendment) Act,  

1985.  The Court noted that the object of the amendment was  

to protect the interest of the workers and to place them at  

par with secured creditors and held:

“The proviso to sub-section (1) of Section 529  inserted by the Amending Act clearly provides that  “the security of every secured creditor shall be  deemed to be subject to a pari passu charge in  favour of the workmen”. The effect of the proviso  is to create, by statute, a charge pari passu in  favour of the workmen on every security available  to the secured creditors of the employer company  for recovery of their debts at the time when the  amendment came into force. This expression is wide  enough to apply to the security of every secured  creditor which remained unrealised on the date of  the amendment. The clear object of the amendment  is that the legitimate dues of workers must rank  pari passu with those of secured creditors and  above  even  the  dues  of  the  Government.  This  literal  construction  of  the  proviso  is  in  consonance with, and promotes, the avowed object  of  the  amendment  made.  On  the  contrary,  the

construction  of  the  proviso  suggested  by  the  learned  counsel  for  the  appellant,  apart  from  being in conflict with the plain language of the  proviso  also  defeats  the  object  of  the  legislation.

A debt due to a secured creditor, when recovered  by realisation of the security after commencement  of  the  winding  up  proceedings,  results  in  depletion  of  the  assets  in  the  hands  of  the  Official Liquidator. This provision is intended to  protect  the  interests  of  the  workmen  in  proceedings for winding up. In view of the nature  of  workmen’s  dues  being  similar  to  those  of  secured creditors, the purpose of this provision  is to place the workmen on a par with the secured  creditors and create a statutory charge in their  favour on all available securities forming part of  the assets of the company in liquidation so that  the workmen also share the securities pari passu  with the secured creditors. The workmen contribute  to the growth of the capital and must get their  legitimate share in the assets of the company when  the  situation  arises  for  its  closure  and  distribution of its assets first among the secured  creditors due to winding up of the company. The  aforesaid amendment made in the Act is a statutory  recognition  of  this  principle  equating  the  legitimate dues of the workmen with the debts of  the secured creditors of the company. To achieve  this purpose, it is necessary that the amended  provision must apply to all available securities  which form part of the assets of the company in  liquidation  on  the  date  of  the  amendment.  The  conclusion reached by the Division Bench of the  High Court is supported by this reason.”

(emphasis supplied)

27. In  A.P.  State  Financial  Corporation  v.  Official  

Liquidator (supra), this Court considered the inter-play of  

Section 29(1) of the State Financial Corporations Act, 1951  

and Section 529A of the Companies Act, 1956, which is pari  

materia to Section 11(2) of the Act, and held:

“The Act of 1951 is a special Act for grant of  financial assistance to industrial concerns with a  view  to  boost  up  industrialisation  and  also

recovery  of  such  financial  assistance  if  it  becomes bad and similarly the Companies Act deals  with  companies  including  winding  up  of  such  companies.  The  proviso  to  sub-section  (1)  of  Section 529 and Section 529-A being a subsequent  enactment, the non obstante clause in Section 529- A prevails over Section 29 of the Act of 1951 in  view  of  the  settled  position  of  law.  We  are,  therefore, of the opinion that the above proviso  to sub-section (1) of Section 529 and Section 529- A will control Section 29 of the Act of 1951. In  other  words  the  statutory  right  to  sell  the  property under Section 29 of the Act of 1951 has  to  be  exercised  with  the  rights  of  pari  passu  charge to the workmen created by the proviso to  Section  529  of  the  Companies  Act.  Under  the  proviso  to  sub-section  (1)  of  Section  529,  the  liquidator  shall  be  entitled  to  represent  the  workmen  and  force  (  sic   enforce)  the  above  pari    passu  charge.  Therefore,  the  Company  Court  was  fully justified in imposing the above conditions  to enable the Official Liquidator to discharge his  function  properly  under  the  supervision  of  the  Company  Court  as  the  new  Section     529-A  of  the    Companies  Act  confers  upon  a  Company  Court  the  duty to ensure that the workmen’s dues are paid in  priority to all other debts in accordance with the  provisions of the above section. The legislature  has  amended  the  Companies  Act  in  1985  with  a  social  purpose  viz.  to  protect  dues  of  the  workmen. If conditions are not imposed to protect  the  right  of  the  workmen  there  is  every  possibility  that  the  secured  creditor  may  frustrate  the  above  pari  passu  right  of  the  workmen.”

(emphasis supplied)

28. In  Textile  Labour  Association  and  another  v.  

Official  Liquidator  and  another  (2004)  9  SCC  741,  this  

Court again interpreted the scope of Section 529-A of the  

Companies Act, 1956 and held:

“The effect of Sections 529 and 529-A is that the  workmen of the company become secured creditors by  operation of law to the extent of the workmen’s  dues  provided  there  exists  secured  creditor  by  contract. If there is no secured creditor then the  workmen  of  the  company  become  unsecured  preferential creditors under Section 529-A to the  extent  of  the  workmen’s  dues.  The  purpose  of

Section 529-A is to ensure that the workmen should  not be deprived of their legitimate claims in the  event of the liquidation of the company and the  assets of the company would remain charged for the  payment of the workers’ dues and such charge will  be  pari  passu with  the  charge  of  the  secured  creditors. There is no other statutory provision  overriding  the  claim  of  the  secured  creditors  except  Section  529-A.  This  section  overrides  preferential claims under Section 530 also. Under  Section 529-A the dues of the workers and debts  due to the secured creditors are to be treated  pari passu and have to be treated as prior to all  other dues.”

29. The primacy of first charge created under Section  

11(2) of the Act was considered by a Division Bench of the  

Kerala  High  Court  in  Recovery  Officer  and  Assistant  

Provident Fund Commissioner v. Kerala Financial Corporation  

(2002) 2 KLT 723, in the backdrop of the argument that the  

provision contained in Section 46-B of the State Financial  

Corporations Act, 1951 which also contains a non obstante  

clause, will override the provisions of the Act.  In that  

case, the Recovery Officer appointed under the Act made an  

application  for  recovery  of  the  dues  of  provident  fund  

payable by the employer-company. He also attached 37 cents  

of  land  which  the  company  had  mortgaged  to  the  State  

Financial Corporation.  The latter challenged the action of  

the Recovery Officer by filing writ petition under Article  

226 of the Constitution.  A learned Single Judge of the  

High Court allowed the writ petition and declared that the  

company’s land could not have been attached for recovery of  

dues payable under the Act because the same stood mortgaged  

in favour of the State Financial Corporation.  The Division

Bench reversed the order of the learned Single Judge and  

held:

“… Sub-section (2) of Section 11 of the EPF and  MP Act has two facets. First, it declares that  the  amount  due  from  the  employer  towards  contribution under the EPF and MP Act shall be  deemed to be the first charge on the assets of  the establishment. Second, it also declares that  notwithstanding anything contained in any other  law for the time being in force, such debt shall  be  paid  in  priority  to  all  other  debts.  Both  these  provisions  bring  out  the  intention  of  Parliament  to  ensure  the  social  benefit  as  contained  in  the  legislation.  There  are  other  provisions in the Act rendering the amounts of  provident  fund  immune  from  attachment  of  civil  court’s  decree,  which  also  indicate  such  intention of Parliament.”

The Division Bench of the High Court then considered the  

argument that the non obstante clause contained in Section  

46-B of the State Financial Corporations Act has overriding  

effect qua Section 11(2) of the Act and negatived the same  

by making the following observations:

“The contention of the first respondent based on  the overriding effect of Section 46-B of the SFC  Act  has  no  substance  in  our  judgment.  Undoubtedly,  the  intention  of  Parliament  in  enacting  Section  46-B  in  the  year  1956  was  to  ensure that a State Financial Corporation could  quickly and effectively recover the amounts due  by  taking  possession  of  the  property  of  the  defaulter  instead  of  having  resort  to  the  cumbersome method of recovery through a court of  law. While this was the law, Parliament amended  Section 11 of the EPF and MP Act by specifically  enacting sub-section (2) thereof, declaring that  the amount due as contribution to the employees  provident fund has first charge on the assets of  the  establishment  and  that,  notwithstanding  anything contained in any other law for the time  being  in  force,  it  shall  be  paid  in  priority  against  all  other  debts.  In  fact,  the  second  facet of Section 11(2) of the EPF and MP Act goes  one step further than what is provided in Section

46-B  of  the  SFC  Act.  The  reason  for  this  is  obvious.  While  the  State  Financial  Corporation  would have to be helped to recover the debts due  to  it  from  a  defaulting  debtor,  the  provident  fund  payable  to  workers  is  of  greater  moment,  since it is a matter of terminal social security  benefit made available by statute to the working  class. Taking into consideration that the EPF and  MP Act is a social benefit legislation, and the  evil  consequences  of  provident  fund  dues  being  defeated by prior claims of secured or unsecured  creditors, the legislature took care to declare  that irrespective of when a debt is created, the  dues under the EPF and MP Act would always remain  first charge and shall be paid first out of the  assets  of  the  establishment.  We  are  also  not  impressed  by  the  contention  of  the  first  respondent that upon usage of non obstante clause  in Section 46-B of the SFC Act. Sub-section (2)  of Section 11 of the EPF Act is of subsequent  date. No doubt, both Section 46-B of the SFC Act  and Section 11(2) of the EPF and MP Act declare  their intent by usage of the non obstante clause.  But, since Section 11(2) of the EPF and MP Act  has  been  enacted  later,  we  must  ascribe  to  Parliament the intention to override the earlier  legislation  also.  It  is,  therefore,  clear  that  Section 11(2) of the EPF and MP Act overrides all  provisions of other enactments including Section  46-B of the SFC Act.”

30. In the light of the above analysis of the relevant  

provisions of the Act and precedents, we shall now examine  

the tenability or otherwise of the argument of the learned  

senior counsel appearing on behalf of the appellant-bank  

that by virtue of the deeds of pledge executed by the Sugar  

Mills, his client had become owner of the sugar bags and  

the  same  could  not  have  been  attached  and  sold  for  

realization of the amount due under the Act.

31. A  careful  reading  of  the  deed  of  pledge  dated  

5.3.2001  executed  by  the  management  of  Kannad  Sahakari

Sakhar  Karkhana  Ltd.  (the  terms  of  three  deeds  dated  

2.1.2003, 6.2.2003 and 4.4.2003 executed by the management  

of the other Sugar Mill are substantially similar) shows  

that even though the sugar bags which were available with  

the Sugar Mills at the relevant time were placed in the  

custody of the appellant-bank as security for repayment of  

loan together with interest, the former continued to be  

owner  thereof.   To  put  it  differently,  title  of  the  

property remained with the Sugar Mills and only limited  

interest therein was passed on to the appellant-bank as  

security for repayment of the loan etc.  If the management  

of the Sugar Mills were to repay the dues of the appellant-

bank within the time specified in the deeds of pledge, the  

latter was duty bound to lift its notional control over the  

sugar bags lying in the godowns of the Sugar Mills.   In  

case of default, the appellant-bank could recover its dues  

by selling the sugar bags.  If the price of the sugar bags  

was  less  than  the  amount  due,  the  appellant-bank  could  

resort  to  other  appropriate  adjudicatory  mechanism  for  

recovery of the balance amount.  If the sugar bags had  

become property of the appellant-bank simply because the  

same were pledged by the management of the Sugar Mills for  

securing repayment of the loan etc., there was no occasion  

for the latter to take the responsibility of hiring godowns  

on behalf of the appellant-bank, pay rent thereof and get  

the goods insured.  Equally, there was no reason for the  

management of the Sugar Mills to take the responsibility of

changing or repairing the godowns and bear its cost or  

confer immunity upon the bank in the matter of weight,  

quality, conditions or safety of the goods and take upon  

itself  the  responsibility  for  any  shortage,  damage  or  

shrinkage and insure the goods against any damage or loss  

or riots or civil commotion.  In our considered view, the  

very fact that except giving the symbolic custody of the  

sugar bags to the appellant-bank by allowing it to put lock  

and key on the godowns, all steps for preserving the goods  

and getting the same insured were taken by the management  

of  the  Sugar  Mills  which  also  agreed  to  take  the  

responsibility  of  any  shortage,  damage  or  shrinkage  

unmistakably shows that the Sugar Mills continued to be  

owner of the sugar bags.  

32. As  per  Black’s  Law  Dictionary  (Eighth  edition),  

“pledge” is a formal promise or undertaking; the act of  

providing something as security for a debt or obligation; a  

bailment  or  other  deposit  of  personal  property  to  a  

creditor as security for debt or obligation. In  the  “Law  

of Personal Property” by Ray Andrews Brown (Second edition  

1936),  the  term  “pledge”  has  been  described  in  the  

following words:

“A pledge is a bailment of personal property to  secure  an  obligation  of  the  bailor.   If  the  purpose of the transaction is to transfer property  for security only, then the Courts will hold the  transaction a pledge, even though in form it may  be a sale or other out-and-out transfer.”

In  Mulla’s  Treaties  on  the  Transfer  of  Property,  the  

following description has been given to the term “pledge”:

“A pledge is a bailment of movable property by  way  of  security.   Possession  is  given  and  the  transaction  involves  a  transfer  of  special  property  in  the  subject  of  the  security.   A  Pawnee has no right of foreclosure since he never  had absolute ownership at law and his equitable  title cannot exceed what is specifically granted  by law.  In a pledge  the pledge is in possession  of and has a special property in the goods which  he is entitled to detain to secure repayment.”

    (underlining is ours)

33. Under  the  common  law  a  pawn  or  a  pledge  is  a  

bailment of personal property as a security for some debt  

or engagement.  A pawner is one who being liable to an  

engagement gives to the person to whom he is liable a thing  

to be held as security for payment of his debt or the  

fulfilment of his liability. The two ingredients of a pawn  

or a pledge are: (1) that it is essential to the contract  

of pawn that the property pledged should be actually or  

constructively delivered to the pawnee and (2) a pawnee has  

only  a  special  property  in  the  pledge  but  the  general  

property therein remains in the pawner and wholly reverts  

to him on discharge of the debt. A pawn therefore is a  

security, where, by contract a deposit of goods is made as  

security for a debt. The  right to property vests in the  

pledgee only so far as is necessary to secure the debt. In  

this sense a pawn or pledge is an intermediate between a  

simple lien and a mortgage which wholly passes the property

in the thing conveyed.

34. In Lallan Prasad v. Rahmat Ali (1967) 2 SCR 233,  

this  Court  referred  to  the  above  noted  common  law  

principles and observed:

“……..A  contract  to  pawn  a  chattel  even  though  money  is  advanced  on  the  faith  of  it  is  not  sufficient in itself to pass special property in  the chattel to the pawnee. Delivery of the chattel  pawned is a necessary element in the making of a  pawn.  But  delivery  and  advance  need  not  be  simultaneous  and  a  pledge  may  be  perfected  by  delivery after the advance is made.  Satisfaction  of the debt or engagement extinguishes the pawn  and the pawnee on such satisfaction is bound to  redeliver the property. The pawner has an absolute  right to redeem the property pledged upon tender  of the amount advanced but that right would be  lost if the pawnee has in the meantime lawfully  sold the property pledged. A contract of pawn thus  carries with it an implication that the security  is available to satisfy the debt and under this  implication the pawnee has the power of sale on  default in payment where time is fixed for payment  and  where  there  is  no  such  stipulated  time  on  demand for payment and on notice of his intention  to sell after default.  The pawner however has a  right  to  redeem  the  property  pledged  until  the  sale. If the pawnee sells, he must appropriate the  proceeds of the sale towards the pawner’s debt,  for, the sale proceeds are the pawner’s monies to  be  so  applied  and  the  pawnee  must  pay  to  the  pawner any surplus after satisfying the debt. The  pawnee’s right of sale is derived from an implied  authority from the pawner and such a sale is for  the benefit of both the parties. He has a right of  action for his debt notwithstanding possession by  him  of  the  goods  pledged.  But  if  the  pawner  tenders  payment  of  the  debt  the  pawnee  has  to  return the property pledged. If by his default the  pawnee is unable to return the security against  payment of the debt, the pawner has a good defence  to the action. This being the position under the  common law, it was observed in  Trustees of the  Property of Ellis & Co. v. Dixon-Johnson that if a  creditor holding security sues for the debt, he is  under an obligation on payment of the debt to hand

over the security, and that if, having improperly  made away with the security he is unable to return  it to the debtor he cannot have judgment for the  debt.”

(underlining is ours)

The  Court  further  observed  that  there  is  no  difference  

between Common Law of England and the law with regard to  

the  pledge,  as  codified  in  Sections  172  to  176  of  the  

Contract Act and held:

“Under Section 172 a pledge is a bailment of the  goods  as  security  for  payment  of  a  debt  or  performance of a promise. Section 173 entitles a  pawnee to retain the goods pledged as security  for payment of a debt and under Section 175 he is  entitled  to  receive  from  the  pawner  any  extraordinary  expenses  he  incurs  for  the  preservation  of  the  goods  pledged  with  him.  Section 176 deals with the rights of a pawnee and  provides that in case of default by the pawner  the pawnee has (1) the right to sue upon the debt  and to retain the goods as collateral security  and (2) to sell the goods after reasonable notice  of  the  intended  sale  to  the  pawner.  Once  the  pawnee by virtue of his right under Section 176  sells the goods the right of the pawner to redeem  them is of course extinguished. But as aforesaid  the pawnee is bound to apply the sale proceeds  towards  satisfaction  of  the  debt  and  pay  the  surplus, if any, to the pawner. So long, however,  as the sale does not take place the pawner is  entitled to redeem the goods on payment of the  debt. It follows therefore that where a pawnee  files a suit for recovery of debt, though he is  entitled  to  retain  the  goods  he  is  bound  to  return them on payment of the debt. The right to  sue on the debt assumes that he is in a position  to redeliver the goods on payment of the debt and  therefore if he has put himself in a position  where he is not able to redeliver the goods he  cannot obtain a decree. If it were otherwise, the  result would be that he would recover the debt  and also retain the goods pledged and the pawner  in  such  a  case  would  be  placed  in  a  position  where  he  incurs  a  greater  liability  than  he  bargained for under the contract of pledge. The

pawnee therefore can sue on the debt retaining  the pledged goods as collateral security. If the  debt is ordered to be paid he has to return the  goods or if the goods are sold with or without  the assistance of the court appropriate the sale  proceeds towards the debt. But if he sues on the  debt denying the pledge, and it is found that he  was given possession of the goods pledged and had  retained the same, the pawner has the right to  redeem the goods so pledged by payment of the  debt.  If  the  pawnee  is  not  in  a  position  to  redeliver  the  goods  he  cannot  have  both  the  payment of the debt and also the goods. Where the  value of the pledged property is less than the  debt and in a suit for recovery of debt by the  pledgee,  the  pledgee  denies  the  pledge  or  is  otherwise not in a position to return the pledged  goods he has to give credit for the value of the  goods and would be entitled then to recover only  the balance……”

35. In Bank of Bihar v. State of Bihar (1972) 3 SCC  

196, this Court considered the question whether the Cane  

Commissioner, who was an unsecured creditor of the Sugar  

Mill named Jagdishpur Zamindari Company Limited and did not  

have any right of priority over other creditors and in  

particular  the  secured  creditors  of  the  company,  could  

seize and sell the sugar which was already pledged with the  

appellant-bank as security for the advances made by it to  

the company.  The appellant-bank sued the State of Bihar  

and others including the Cane Commissioner and the company  

for return of 1818 bags of 27D quality of sugar and, in the  

alternative, for recovery of Rs.1,81,700.93 with interest  

by way of damages or illegal removal and detention of sugar  

or price thereof.  The trial Court decreed the suit.  It  

held that even though the order of seizure of the stock of  

sugar was valid, the plaintiff’s right as pledgee could not

be extinguished by such seizure.  The High Court allowed  

the appeal filed by the State of Bihar and others and held  

that the plaintiff-bank had not been wrongfully deprived of  

the sugar.  In para 4 of the judgment, this Court noted  

that  the  Cane  Commissioner  did  not  have  any  right  of  

priority over the other creditors of the company and, in  

particular, the secured creditors and reversed the judgment  

of the High Court by recording the following observations.

“The pawnee has special property and a lien which  is not of ordinary nature on the goods and so long  as his claim is not satisfied no other creditor of  the pawnor has any right to take away the goods or  its price. After the goods had been seized by the  Government it was bound to pay the amount due to  the plaintiff and the balance could have been made  available to satisfy the claim of other creditors  of the pawnor. But by a mere act of lawful seizure  the Government could not deprive the plaintiff of  the amount which was secured by the pledge of the  goods to it. As the act of the Government resulted  in  deprivation  of  the  amount  to  which  the  plaintiff was entitled it was bound to reimburse  the plaintiff for such amount which the plaintiff  in ordinary course would have realized by sale of  the goods pledged with it on the pawnor making a  default in payment of debt.

The  approach  of  the  trial  court  was  unexceptionable. The plaintiff’s right as a pawnee  could not be extinguished by the seizure of the  goods in its possession inasmuch as the pledge of  the goods was not meant to replace the liability  under the cash credit agreement. It was intended  to give the plaintiff a primary right to sell the  goods  in  satisfaction  of  the  liability  of  the  pawnor. The Cane Commissioner who was an unsecured  creditor could not have any higher rights than the  pawnor and was entitled only to the surplus money  after satisfaction of the plaintiff’s dues.”  

36. The ratio of the above noted two judgments is that  

in  a  contract  of  pawn  the  property  pledged  should  be

actually  or  constructively  delivered  to  the  pawnee  and  

pawnee has only a special property in the pledge but the  

general property remains with the pawner and wholly reverts  

to him on discharge of debt.  The right to property vests  

in the pledgee only so far as necessary to secure his debt.  

We, therefore, hold that the deeds of pledge executed by  

the management of the Sugar Mills as security for repayment  

of loan etc. did not have the effect of transferring of the  

ownership of the sugar bags to the appellant-bank and the  

Recovery Officer did not commit any illegality by attaching  

the  same  and  the  High  Court  was  fully  justified  in  

directing payment of a portion of the sale price to the  

Assistant Commissioner for being appropriated towards the  

provident fund dues of the workers.

37. Before  leaving  this  issue,  we  may  refer  to  the  

judgments on which reliance has been placed by the learned  

senior  counsel  appearing  for  the  appellant-bank.   The  

question  which  fell  for  consideration  in  Karnataka  

Pawnbrokers’ Association v. State of Karnataka (supra), was  

whether  pawnbroker  is  a  dealer  and  carries  on  business  

within the meaning of Tamil Nadu General Sales Tax Act,  

1959 read with the Tamil Nadu Pawnbrokers Act, 1943 and  

Rules as also the Karnataka Sales Tax Act, 1957 read with  

Karnataka Pawnbrokers Act, 1961 and Rules, when it caused  

sale of unredeemed goods occasioned by the default of the  

pawnor.   The  Court  referred  to  the  decisions  of  the

Division Benches of Karnataka and Madras High Courts and  

held:

“It cannot be and it is not disputed that the  pawnbroker  has  special  property  rights  in  the  goods pledged, a right higher than a mere right of  detention of goods but a right lesser than general  property  right  in  the  goods.  To  put  it  differently, the pawnor at the time of the pledge  not  only  transfers  to  the  pawnee,  the  special  right in the pledge but also passes on his right  to  transfer  the  general  property  right  in  the  pledge  in  the  event  of  the  pledge  remaining  unredeemed resulting in the sale of the pledge by  public auction through an approved auctioneer. The  position being what is stated above, the natural  consequence  will  be  that  it  is  the  pawnee  who  holds not only the absolute special property right  in  the  pledge  but  also  the  conditional  general  property  interest in  the  pledge,  the  condition  being that he can pass on that general property  only in the event of the pledge being brought to  sale by public auction in accordance with the Act  and the Rules framed thereunder.”

(underlining is ours)

38. In  Central  Bank  of  India  v.  Siriguppa  Sugars  &  

Chemicals  Ltd.  (supra),  an  interim  order  passed  by  the  

Division  Bench  of  Karnataka  High  Court,  directing  

disbursement of certain amount realized from sale of stocks  

of sugar owned by respondent no.1 – company, which was held  

under  pledge  by  the  appellant-bank,  came  up  for  

consideration before this Court.  The Labour Commissioner  

had passed an order under Section 33-C of the Industrial  

Disputes Act in respect of the dues of the workmen.  The  

same was challenged by respondent no.1, by filing a writ  

petition.  The Cane Commissioner also passed orders for  

recovery of the amount due from respondent no.1 – company

for  being  paid  to  the  sugarcane  growers  for  the  cane  

supplied  by  them.   During  the  pendency  of  the  writ  

petition, the concerned authority took possession of the  

stock of sugar which was pledged with the appellant-bank.  

The appellant-bank got itself impleaded as party to the  

writ petition.  As the stock of sugar was likely to lose  

its  value  by  being  stored  indefinitely,  the  High  Court  

directed  sale  thereof.   The  writ  petition  was  finally  

dismissed by the learned Single Judge.  During the pendency  

of the appeal, the Division Bench made an interim order  

directing disbursement of a portion of the sale proceeds to  

the  Labour  Commissioner  and  Cane  Commissioner  for  being  

paid  to  the  employees  of  the  company  and  sugarcane  

cultivators.   The  bank  challenged  the  interim  order  by  

contending that as the sugar was pledged with it, the High  

Court could not have ordered disbursement of a portion of  

the price.  After making reference to various judgments  

including  Bank  of  Bihar  v.  State  of  Bihar  (supra)  and  

Karnataka Pawnbrokers’ Association v. State of Karnataka  

(supra), this Court held:

“Thus,  going  by  the  principles  governing  the  matter propounded by this Court, there cannot be  any doubt that the rights of the appellant Bank  over  the  pawned  sugar  had  precedence  over  the  claims of the Cane Commissioner and that of the  workmen. The High Court was, therefore, in error  in passing an interim order to pay parts of the  proceeds  to  the  Cane  Commissioner  and  to  the  Labour  Commissioner  for  disbursal  to  the  cane  growers and to the employees. There is no dispute  that  the  sugar  was  pledged  with  the  appellant  Bank for securing a loan of the first respondent  and the loan had not been repaid. The goods were

forcibly taken possession of at the instance of  the revenue recovery authority from the custody  of the pawnee, the appellant Bank. In view of the  fact that the goods were validly pawned to the  appellant Bank, the rights of the appellant Bank  as pawnee cannot be affected by the orders of the  Cane Commissioner or the demands made by him or  the demands made on behalf of the workmen.  Both  the  Cane  Commissioner  and  the  workmen  in  the  absence of a liquidation, stand only as unsecured  creditors  and  their  rights  cannot  prevail  over  the rights of the pawnee of the goods.”

(underlining is ours)

39. The  above  referred  judgments  do  not  have  any  

bearing on these appeals because in both the cases, the  

Court dealt with the right of unsecured creditors vis-à-vis  

secured creditors i.e., the bank in whose favour the goods  

had been pledged/mortgaged.  Moreover, in neither of the  

cases, a provision analogous to Section 11 of the Act was  

considered by the Court.

40. The  next  point  which  requires  consideration  is  

whether  the  sugar  bags  pledged  with  the  appellant-bank  

constitute assets of the establishment within the meaning  

of Section 11(2) of the Act.   

41. As per Black’s Law Dictionary (Eighth edition), the  

word `asset’ means, an item that is owned and has value;  

the  entries  on  a  balance  sheet  showing  the  items  of  

property owned, including cash, inventory, equipment, real  

estate, accounts receivable and goodwill; all the property  

of a person available for paying debts or for distribution.

In Law Lexicon by P. Ramanatha Aiyar (Second edition), the  

word `assets’ has been described as the property in the  

hands of an heir, an executor, administrator or trustee  

which  is  legally  or  equitably  chargeable  with  the  

obligations  with  such  heir,  executor,  administrator  or  

trustee is, as such, required to discharge.  Everything  

which  can  be  made  available  for  the  payment  of  debts,  

whether belonging to the estate of a deceased person or  

not; property in general all that one owns, considered as  

applicable to the payment of his debts; as, his assets are  

much greater than his liabilities.  In Velchand Chhaganlal  

v.  Mussan  14  Bom.L.R.  633,  it  was  held  that  the  word  

`assets’ means, a man’s property of whatever kind which may  

be used to satisfy debts or demands existing against him.   

42. As per Salmond’s Jurisprudence, the word “property”  

means – in its widest sense, property includes a person’s  

legal rights, of whatever description.  A man’s property is  

all that is his in law.  This usage however, is obsolete at  

the present day, though it is common enough in the older  

books. In a second and narrower sense, property includes  

not all a person’s rights, but only his proprietary as  

opposed to his personal rights.  The former constitutes his  

estate or property, while the latter constitute his status  

or  personal  condition.   In  this  sense  a  man’s  land,  

chattel, shares and the debts due to him are his property;  

but not his life or liberty or reputation…. In a third

application,  which  is  that  adopted  (here)  the  terms  

includes not even all proprietary rights but only those  

which are both proprietary and in rem.  The law of property  

is  the  right  of  proprietary  rights  in  rem,  the  law  of  

proprietary rights in personam being distinguished from it  

as  the  law  of  obligations.   According  to  this  usage  a  

freehold  or  leasehold  estate  in  land,  or  a  patent  or  

copyright, is property;  but a debt or the benefit or a  

contract is not.  Finally, in the narrowest use of the  

term, it includes nothing more than corporeal property -  

that  is  to  say,  the  right  of  ownership  in  a  material  

object, or that object itself.   

43. In  the  light  of  the  above  dictionary  and  legal  

meanings of the word `assets’ and jurisprudential concept  

of the word `property’, it has to be seen whether the sugar  

bags pledged with the appellant-bank constituted assets of  

the establishment for the purpose of Section 11(2) of the  

Act.   We  have  already  held  that  even  though  symbolic  

custody of the sugar bags was given to the appellant-bank  

as security for repayment of loan etc., the Sugar Mills  

continued to be owner thereof.  In other words, the sugar  

bags  pledged  with  the  appellant-bank  continued  to  be  

movable property i.e. assets of the establishment, which  

could be attached and sold by the Recovery Officer in terms  

of Section 8B or by adopting alternative modes of recovery  

enumerated in Section 8F.

44. At  the  cost  of  repetition,  it  is  apposite  to  

mention that Section 11 is declaratory in nature.  Sub-

section (2) thereof declares that any amount due from an  

employer shall be deemed to be first charge on the assets  

of the establishment and shall be paid in priority to all  

other  debts.   For  recovery  of  the  amount  due  from  an  

employer which is treated as arrear of land revenue, the  

Recovery Officer or any other authorized officer has to  

take recourse to the provisions contained in Section 8 read  

with Sections 8B and 8F.  The recovery can be effected by  

attachment or sale of the movable or immovable property of  

the establishment or, as the case may be, the employer, or  

by arrest of the employer and his detention in prison or by  

appointing a receiver for the management of the movable or  

immovable properties of the establishment or, as the case  

may be, the employer or by taking action in the manner laid  

down in the Third Schedule to the Income-tax Act, 1961.

45. The judgment in Transcore v. Union of India (supra)  

on which reliance has been placed by Shri Desai, does not  

have  any  bearing  on  any  of  the  facets  of  the  question  

raised in these appeals.  In paragraph 62 of that judgment,  

the Court merely referred to Snell’s Principles of Equity.  

In  paragraph  73,  the  Court  explained  the  distinction  

between symbolic and physical possession and observed that  

the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 basically  

deals with the securities by which the creditor obtains  

ownership of or interest in the property concerned i.e.,  

mortgages  and  the  securities  under  which  the  secured  

creditor,  namely,  the  Bank/Financial  Institution  obtains  

interest in the property concerned.

46. We shall now deal with the last argument of the  

learned  senior  counsel  for  the  appellant-bank  that  the  

interest payable in terms of Section 7Q and damages imposed  

under Section 14B of the Act cannot be treated as first  

charge  on  the  assets  of  the  establishment  payable  in  

priority to all other debts within the meaning of Section  

11(2).

47. Section 11 gives statutory priority to the amount  

due from the employer vis-à-vis all other debts.  Clause  

(a) of sub-section (1) of Section 11 is applicable to cases  

where  an  employer  is  adjudicated  insolvent  or,  being  a  

company, an order of its winding up is made.  In that  

situation, the amount due 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 Section 15(2) or any other  

charges payable by him under any other provision of this

Act or of any provision of the Scheme or the Insurance  

Scheme.  Clause (b) is applicable to cases where the amount  

is  due  from  the  employer  in  relation  to  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 provident fund or  

any insurance fund, any contribution payable by him towards  

the Pension Fund under Section 17(6), damages recoverable  

under Section 14B or any charges payable by him to the  

appropriate Government under the Act or under any of the  

conditions specified in Section 17.  This sub-section then  

lays down that such amount shall 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.  

Sub-section (2) lays down that any amount due from the  

employer whether in respect of the employees’ contribution  

deducted from the wages of the employee or the employer’s  

contribution shall be deemed to be the first charge on the  

assets of the establishment, and shall be paid in priority  

to all other debts. The expression “any amount due from an  

employer” appearing in sub-section (2) of Section 11 has to  

be interpreted keeping in view the object of the Act and  

other  provisions  contained  therein  including  sub-section  

(1) of Section 11 and Sections 7A, 7Q, 14B and 15(2) which  

provide  for  determination  of  the  dues  payable  by  the  

employer, liability of the employer to pay interest in case  

the  payment  of  the  amount  due  is  delayed  and  also  pay

damages, if there is default in making contribution to the  

Fund.  If any amount payable by the employer becomes due  

and the same is not paid within the stipulated time, then  

the employer is required to pay interest in terms of the  

mandate of Section 7Q.  Likewise, default on the employer’s  

part to pay any contribution to the Fund can visit him with  

the consequence of levy of damages.  As mentioned earlier,  

sub-section (2) was inserted in Section 11 by Amendment Act  

No.40  of  1973  with  a  view  to  ensure  that  payment  of  

provident fund dues of the workers are not defeated by the  

prior  claims  of  the  secured  and/or  of  the  unsecured  

creditors.  While enacting sub-section (2), the legislature  

was conscious of the fact that in terms of existing Section  

11  priority  has  been  given  to  the  amount  due  from  an  

employer  in  relation  to  an  establishment  to  which  any  

scheme or fund is applicable including damages recoverable  

under  Section  14B  and  accumulations  required  to  be  

transferred under Section 15(2).  The legislature was also  

aware that in case of delay the employer is statutorily  

responsible  to  pay  interest  in  terms  of  Section  17.  

Therefore,  there  is  no  plausible  reason  to  give  a  

restricted meaning to the expression ‘any amount due from  

the employer’ and confine it to the amount determined under  

Section 7A or the contribution payable under Section 8.  If  

interest  payable  by  the  employer  under  Section  7Q  and  

damages leviable under Section 14 are excluded from the  

ambit  of  expression  “any  amount  due  from  an  employer”,

every  employer  will  conveniently  refrain  from  paying  

contribution to the Fund and other dues and resist the  

efforts of the concerned authorities to recover the dues as  

arrears of land revenue by contending that the movable or  

immovable property of the establishment is subject to other  

debts.  Any such interpretation would frustrate the object  

of  introducing  the  deeming  provision  and  non  obstante  

clause in Section 11(2).  Therefore, it is not possible to  

agree with the learned senior counsel for the appellant-

bank that the amount of interest payable under Section 7Q  

and damages leviable under Section 14B do not form part of  

the amount due from an employer for the purpose of Section  

11(2) of the Act.     

48. In the result, the appeals are dismissed.

49. Although, while issuing notice in the special leave  

petitions and passing order of  status quo, the Court had  

made it clear that in the event of dismissal of the special  

leave petitions, the amount shall be paid by the petitioner  

(appellant herein) with interest at the rate which may be  

fixed by the Court, we do not consider it just and proper  

to saddle the appellant-bank with the liability of interest  

because  price  of  the  sugar  sold  pursuant  to  the  High  

Court’s order remained deposited with its Registrar General  

and  the  appellant-bank  did  not  have  the  benefit  of  

utilizing the same.

           ……………………………….J.     [B.N. AGRAWAL]

    ……………………………….J.     [G.S. SINGHVI]

    ……………………………….J.     [AFTAB ALAM]

New Delhi, October 8, 2009.