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2019 DIGILAW 510 (ORI)

Sunil Jindal v. State Of Odisha

2019-08-07

K.R.MOHAPATRA, K.S.JHAVERI

body2019
JUDGMENT K.S. Jhaveri, C.J. - In W.P.(C) No. 5228 of 2007, the petitioner has challenged the order dated 10.10.2006 (Annexure-3) passed by opposite party no.3-Assistant Commissioner, Central Excise & Customs, Rourkela-II Division, Rourkela, calling upon him to pay dues of the previous owner of the property, namely, M/s. Duroweld (P) Ltd., which was purchased by him on auction by the Orissa State Financial Corporation-opp. party no.2 (for short the OSFC) under Section 29 of the State Financial Corporations Act, 1951 (for short the SFC Act) pursuant to the public advertisement issued by the opposite party no.2 in the local newspapers. 2. In W.P.(C) No. 5227 of 2007, the petitioner has challenged the order dated 16.01.2017 (Annexure-3) passed by the Asst. Provident Fund Commissioner/Recovery Officer, SRO, Rourkela-opposite party no. 3, 3. In W.P.(C) No. 17443 of 2017, the petitioner has challenged the order dated 16.01.2017 (Annexure-5) passed by the Asst. Provident Fund Commissioner/Recovery Officer, SRO, Rourkela-opposite party no. 5. 4. In W.P.(C) No. 20956 of 2017, the petitioner has challenged the order dated 19.09.2017 (Annexure-9) passed by the Asst. Provident Fund Commissioner/Recovery Officer, SRO, Rourkela-opposite party no. 5. 5. Since common question of facts and law involved in these writ petitions, they are heard together and are taken up for final disposal on consent of learned counsel for the parties. For the sake of convenience in discussion, W.P.(C) No. 5228 of 2007 is taken up as the leading case. 6. This Court vide order dated 02.05.2007 in W.P.(C) No. 5228 of 2007, while issuing notice to the opposite parties, passed an interim order directing that pursuant to the order dated 10.10.2006 vide Annexure-3, no coercive action shall be taken against the petitioner. 7. We have heard Mr. Mukherji, learned counsel for the petitioner, Mr. S.K. Pattnaik, learned Senior Advocate appearing for the EPF Commissioner, Mr. B.K. Dash, learned counsel for the OSFC and Mr. S.K. Das, learned counsel for the Central Excise Department. 8. Mr. Mukherji, learned counsel for the petitioner mainly relied upon the recent decision of the Honble Supreme Court in the case of Rana Girders Ltd.-v- Union of India (UOI) and Ors, reported in 2013 (10) SCC 746 , wherein it has been held at paragraphs-14, 22 and 23 as under: "14. 8. Mr. Mukherji, learned counsel for the petitioner mainly relied upon the recent decision of the Honble Supreme Court in the case of Rana Girders Ltd.-v- Union of India (UOI) and Ors, reported in 2013 (10) SCC 746 , wherein it has been held at paragraphs-14, 22 and 23 as under: "14. Before us, it was strenuously argued by the learned counsel for the Revenue that since the excise duty is a statutory liability such a duty has to be paid by the person who purchased the property of the borrower in default even when sold in auction under Section 29 of the State Financial Corporations Act. He further argued that in any case the High Court was right in holding that by virtue of the stipulations in the sale deed as well as in the agreement of sale, so far as the appellant is concerned, it was liable to discharge the excise liability. In the circumstances, two questions arise for consideration, namely: (1) On the interpretation of stipulation contained in the sale deed of the land and building and agreement of sale of plant and machinery, whether the appellant had agreed to discharge the dues payable to the Excise Department by the borrower? (2) Whether such a liability arises in law (dehors the stipulation in the sale deed/agreement of sale) having regard to the legal provisions contained in the Excise Act and the State Financial Corporations Act? 22. With this, we now revert to the first issue, namely, interpretation of the clause in the sale deed for land and building and similar clause in the agreement of sale for machinery on the basis of which the appellant is held to be liable to pay the dues. These clauses have already been incorporated in the earlier portion of our judgment. 23. We may notice that in the first instance it was mentioned not only in the public notice but there is a specific clause inserted in the sale deed/ agreement as well, to the effect that the properties in question are being sold free from all encumbrances. These clauses have already been incorporated in the earlier portion of our judgment. 23. We may notice that in the first instance it was mentioned not only in the public notice but there is a specific clause inserted in the sale deed/ agreement as well, to the effect that the properties in question are being sold free from all encumbrances. At the same time, there is also a stipulation that "all the statutory liabilities arising out of the land shall be borne by the purchaser in the sale deed" and "all the statutory liabilities arising out of the said properties shall be borne by the vendee and the vendor shall not be held responsible in the agreement of sale". As per the High Court, these statutory liabilities would include excise dues. We find that the High Court has missed the true intent and purport of this clause. The expressions in the sale deed as well as in the agreement for purchase of plant and machinery talk of statutory liabilities "arising out of the land" or statutory liabilities "arising out of the said properties" (i.e. the machinery). Thus, it is only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which arise out of the land and building or the plant and machinery. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property, etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax, etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. This fine distinction is not taken note of at all by the High Court." In the aforesaid decision, the Honble Supreme Court has held that in view of specific clause in sale deed, the purchaser would be liable to the statutory dues/liabilities fastened to the properties and not otherwise. Thus, the Honble Supreme Court allowed the appeal and set aside the judgment of the High Court as well as the notice of the Excise Department calling upon the appellant to pay dues of the erstwhile owner in respect of the unit in question. 9. In an earlier judgment in the case of Macson Marbles Pvt. Ltd. -v- Union of India (UOI), reported in (2008) 15 SCC 481, the Honble Supreme Court has held as under: "1. An industrial unit run by M/s Diamond Marbles (P) Ltd., Respondent 4 was brought to sale in terms of Section 29 of the State Financial Corporations Act, 1951 (for short "the State Act") by Rajasthan Financial Corporation, Respondent 3. The appellant before us participated in auction and its bid having been accepted, took possession of the said unit on 28-8- 1987 pursuant to the agreement entered into between them. 2. On 4-12-1987, the Additional Collector of Central Excise adjudicated in a proceeding arising out of a show-cause notice issued under Section 11-A of the Central Excise Act to Respondent 4 in relation to certain goods that are said to have been removed between 13-8-1986 and 23-8-1986 and excise duty of Rs 1,04,586.17 and penalty of Rs 3 lakhs was levied and demanded. A letter was sent by the Central Excise Department to the appellant demanding a sum of Rs 4,07,291.75 pursuant to the adjudication order made against Respondent 4. 3. The appellant in his letter to the Department contended that it had no liability to pay the excise dues of Respondent 4. The Department not having acceded to it, a writ petition was filed in the High Court challenging the recovery proceedings initiated by the Department. However, the said amount was paid. 4. 3. The appellant in his letter to the Department contended that it had no liability to pay the excise dues of Respondent 4. The Department not having acceded to it, a writ petition was filed in the High Court challenging the recovery proceedings initiated by the Department. However, the said amount was paid. 4. In the writ petition several contentions were raised, including the question that the liability is only that of Respondent 4 and not of the appellant; that the appellant having taken over the unit from the third respondent, had no liability to pay the excise dues; that Rule 230(2) of the Central Excise Rules, 1944 has no application to the present case. The High Court disagreed with these submissions and took the view that in terms of the said Rule, it is open to the Department to proceed against the plants and machinery of the owner from whom it was transferred and made it clear that it is open to the appellant to agitate against the erstwhile owner, Respondent 3 but had to pay the dues to the Department and thereby dismissed the writ petition. Hence this appeal by special leave. 5. In this appeal, Ms Radha Rangaswamy, learned counsel for the appellant very strenuously contended that in view of Section 46-B of the State Act it would prevail over the Central Excise Act and relied upon the decision of this Court (sic the A.P. High Court) in Sitani Textiles & Fabrics (P) Ltd. v. CCE and Customs [(1999) 106 ELT 296 (AP)] She submitted that as the State Act is a special enactment and the Central Excise Act is a general enactment, the State Act would prevail over the same. It is brought to our notice that this aspect is under consideration in another matter before this Court. 6. Ms Rangaswamy also submitted that as held in N.B. Sanjana v. Elphinstone Spg. and Wvg. Mills Co. Ltd. [ (1971) 1 SCC 337 : 1978 ELT 399 ] the penalty was not attracted in the present case at all. She also relied upon the decision of this Court in Isha Marbles v. Bihar SEB [ (1995) 2 SCC 648 ] to contend that in case of sales effected under Section 29(1) of the State Act, the recovery of dues of previous owner from the auction-purchaser could not be made. 7. She also relied upon the decision of this Court in Isha Marbles v. Bihar SEB [ (1995) 2 SCC 648 ] to contend that in case of sales effected under Section 29(1) of the State Act, the recovery of dues of previous owner from the auction-purchaser could not be made. 7. Now taking the last contention, first we may notice that this Court in Isha Marbles[ (1995) 2 SCC 648 ] considered the scope of Section 24 of the Electricity Act and held that there is no charge over the property in question and when a premises comes to be owned or purchased by the auction-purchaser, he cannot be called upon to clear the past arrears when such purchaser seeks supply of electric energy or it is made clear in that decision that what matters is the contract entered into by the erstwhile consumer with the Board and the Board cannot seek the enforcement of contractual liability against the third party. Therefore, this decision in Isha Marbles [ (1995) 2 SCC 648 ] cannot be taken advantage of by the appellant at all in this case. 8. In the instant case the liability arises under the Central Excise Act and Rule 230(2) of the Central Excise Rules. The said Rule clearly indicates that it is a mode of recovery of the excise dues from the assets owned by a predecessor and on his liabilities being assessed could be recovered even from the successor. 9. The argument advanced by the appellant that sale having taken place under the State Act free of encumbrances and the transferor's rights or liabilities cannot be that of transferee does not hold good. Section 29(2) of the State Act makes it clear that the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation can be brought to sale and such a sale if resulted in transfer of property shall vest in the successor all rights in the property transferred as if the transfer has been made by the owner of the property. When sale made by the Corporation is deemed to be a sale made by the owner of the property, necessarily Rule 230(2) of the Central Excise Rules would be attracted. 10. We are not impressed with the argument that the State Act is a special enactment and the same would prevail over the Central Excise Act. When sale made by the Corporation is deemed to be a sale made by the owner of the property, necessarily Rule 230(2) of the Central Excise Rules would be attracted. 10. We are not impressed with the argument that the State Act is a special enactment and the same would prevail over the Central Excise Act. Each of them is a special enactment and unless in the operation of the same any conflict arises this aspect need not be examined. In the instant case no such conflict arises between the Corporation and the Excise Department. Hence it is unnecessary to examine this aspect of the matter. 11. The Department having initiated the proceedings under Section 11-A of the Central Excise Act adjudicated liability of Respondent 4 and held that Respondent 4 is also liable to pay penalty in a sum of Rs 3 lakhs while the excise dues liable would be in the order of a lakh or so. It is difficult to conceive that the appellant had any opportunity to participate in the adjudication proceedings and contend against the levy of the penalty. Therefore, in the facts and circumstances of this case, we think it appropriate to direct that the said amount, if already paid, shall be refunded within a period of three months. In other respects, the order made by the High Court shall remain undisturbed. The appeal is disposed of accordingly." 10. Learned counsel for the petitioner has also relied upon another judgment of the Honble Supreme Court in the case of Union of India & Ors. -v- Sicom Ltd. & ANR, reported in (2009) 2 SCC 121 , wherein it has been held at paragraphs-9, 10, 22, 23 and 24 as under: "9. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the "debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors". [See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.), p. 1147.] Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. [See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.), p. 1147.] Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. 10. It is trite that when Parliament or a State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments. 22. The Orissa High Court in Suburban Ply case [ (2002) 144 ELT 257 (Ori)] failed to notice the binding precedent of this Court in Dena Bank [ (2000) 5 SCC 694 ] in its proper perspective. We are concerned here with the respective rights of a secured creditor and unsecured creditor over a property. If the finding of the Orissa High Court is correct, there was no necessity for the State Legislatures or Parliament to amend laws incorporating provisions to create first charge over the properties of the debtor. The High Court failed to notice Article 372 of the Constitution as also the well-settled principles of law that a statutory provision shall prevail over the Crown debt. 23. Furthermore, the right of a State Financial Corporation is a statutory one. The High Court failed to notice Article 372 of the Constitution as also the well-settled principles of law that a statutory provision shall prevail over the Crown debt. 23. Furthermore, the right of a State Financial Corporation is a statutory one. The Act contains a non obstante clause in Section 46-B of the Act which reads as under: "46-B. Effect of Act on other laws.The provisions of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern." The non obstante clause shall not only prevail over the contract but also other laws. (See Periyar & Pareekanni Rubbers Ltd. v. State of Kerala [ (2008) 14 SCC 704 : (2008) 4 Scale 125 ] .) 24. For the reasons aforementioned, there is no merit in the appeals. The appeals are dismissed accordingly with costs. Counsel's fee quantified at Rs 50,000." 11. Mr.S.K. Pattanaik, learned Senior Advocate for the EPF Commissioner has appeared and contended that in view of the provision of Section 11(2) read with Section 17-B of the EPF Act, 1952, they have priority over the dues in respect of the property and the transfer is subject to liability in view of Section 17-B) of the Act. Section 11(2) and Section 17-B of the EPF Act read as under: 11.Priority of payment of contributions over other debts: (1) xxx xxx xxx (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 employers 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. 17B. 17B. Liability in case of transfer of establishment: Where an employer, in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision Of this Act or the Scheme or the Pension Scheme or the Insurance Scheme, as the case may be, in respect of the period up to the date of such transfer: Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer. He has also relied upon the decision of the Honble Supreme Court in the case of Maharashtra State Co-operative Bank Ltd. - v- Assistant Provident Fund Commissioner and others, reported in 2009 (10) SCC 123 wherein it has been held at paragraphs-39 and 67 as under: "39. In A.P. State Financial Corpn. v. Official Liquidator [ (2000) 7 SCC 291 ] this Court considered the interplay of Section 29(1) of the State Financial Corporations Act, 1951 and Section 529-A of the Companies Act, 1956, which is in pari materia to Section 11(2) of the Act, and held: (SCC pp. 295-96, para 10) 11 "10. 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. 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) 67. 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 7-A, 7-Q, 14-B 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 7-Q. Likewise, default on the employer's part to pay any contribution to the Fund can visit him with the consequence of levy of damages." 12. Mr. S.K. Das, learned counsel for the Central Excise Department contended that the penalty of both the periods, i.e. prior to purchase i.e. of previous owner and after the auction sale, the petitioner himself is bound to pay the dues. The petitioner has also an alternative remedy of preferring an appeal against the demand made by authorities. Mr. S.K. Das, learned counsel for the Central Excise Department contended that the penalty of both the periods, i.e. prior to purchase i.e. of previous owner and after the auction sale, the petitioner himself is bound to pay the dues. The petitioner has also an alternative remedy of preferring an appeal against the demand made by authorities. Hence, the writ petition is not maintainable. 13. However, Mr. Mukherji, learned counsel for the petitioner has made a statement that the employees dues of the petitioner have already been paid. Therefore, the petitioner could not have preferred appeal against the order in respect of the dues of the previous owner as he had no alternate remedy. 14. Coming to the point of the Central Excise Department, though public notice was issued, it was not objected. It will not be out of place to mention here that no objection was raised by the Department at any point of time conveying their claim over the unpaid dues of the previous owner of the property, which was purchased in the year, 2006 and dues which are claimed by the Central Excise Department, is of the year 2002. Therefore, the cause of action, if any, had arisen prior to the year 2001-02. The auction was finalized in 2006 and they have never objected to the public advertisement as stated by the learned counsel for the OSFC that none of the opposite parties has objected to such public advertisement or auction. 15. In that view of the matter, the petitioner was a bona fide purchaser and in view of the decisions of the Honble Supreme Court referred to hereinabove, the petitioner is not liable to pay excise dues of the previous owner. 16. Coming to the contention of the learned counsel for the EPF Commissioner, it is true that Section 11(2) of the EPF Act empowers their priority over the dues. The language used by the Legislature is as under: "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 employers 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 force, be paid in priority to all other debts." 17. Regarding the charge, the EPF authorities had never objected when advertisement was issued or the property was transferred. Therefore, question of charge over the property has lapsed because of lapses of the Officers and their omissions. In that view of the matter, now they cannot take advantage of their own omissions, which will prejudicially affect the petitioner, who has purchased the property pursuant to the public advertisement and in a public auction held under SFC Act. 18. Regarding the charge over the amount, it will come into play only when the authorities raise their claim at the time of payment of the auction amount before the competent court to decide their priority over the OSFC. 19. In our considered opinion, that has not been done by the authority concerned due to their sheer negligence. Therefore, one should not take advantage of their own omissions or negligence. In that view of the matter, the contention is misconceived and the same cannot be accepted. 20. Regarding section 17-B of the EFF Act, this is not a transfer by the employer. This is a transfer of only the property in exercise of power under Section 29 of the SFC Act. In that view of the matter, Section 17-B of the EPF Act will not come into play. Therefore, the contention is not accepted and rejected. 21. Regarding 46-B of the SFC Act overriding effect of Act on other laws as stated hereinabove, the EPF Commissioner will have priority against OSFC, but not against the petitioner. They have not lodged or claimed against the OSFC. In that view of the matter, Section 46-B of the SFC Act will not come into play against the petitioner. 22. Regarding penalty in view of the statement made by Mr. Mukherji, learned counsel for the petitioner that if the petitioner himself has not paid his dues after the transfer of property in his name, then he is bound to pay the penalty. To that extent, we are not inclined to interfere with the same. But, penalty imposed in respect of the dues of the previous owner cannot be imposed in view of the discussions made above. 23. In that view of the matter, all the writ petitions deserve to be allowed and the notices issued by the Central Excise Department and EPF Commissioner are required to be quashed and the same are quashed. No cost.