JUDGMENT
1. An interesting question regarding the interpretation of S. 17-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, Act 19 of 1952 (hereinafter referred to as the Act) arises for decision in these writ petitions, impugning the order of the respondent herein in proceedings No. E. 7.TN/161.Regional, dated 10 August, 1979. Though the petitioners are different in the writ petitions, the order impugned is the same and as a common question arises for decision they are dealt with together..
2. The facts giving rise to the writ petitions may now be noticed. A partnership firm under the name and style of Kanakavel Nadar and Sons was running a mill at Madurai known as Raja Mills. The site over which the mills had been put up belongs to a mutt called Vyasaraya Mutt and the partnership firm had obtained a lease of the site from it. The mill premises comprising of the superstructure as well as the machinery installed therein belonged to the partnership firm Kanakavel Nadar and Sons. There is no dispute that Raja Mills came under the purview of the provisions of the Act and the schemes framed thereunder with effect from 1 November, 1952. For the period September 1967 to October 1969, it had not remitted contributions for the employees provident fund. Likewise, the administration charges and damages for the period, March 1966, to October 1969, had remained unremitted. There is no dispute that the aforesaid amounts totalling to Rs. 1,19,648.10 were recoverable from the partnership firm Kanakavel Nadar and Sons, which was then running Raja Mills. However, in 1965 the partnership firm of Kanakavel Nadar and Sons executed a mortgage in favour of Bank of Madurai, Ltd., over the assets belonging to it in Raja Mills comprising of the superstructure and the machinery installed therein. The amounts repayable under the mortgage having remained unpaid, the Bank of Madurai, Ltd., instituted O.S No. 118 of 1971, in the Sub Court, Madurai, to enforce the mortgage and for the sale of hypotheca. In due course, the Bank of Madurai, Ltd., obtained a preliminary decree and as the amount declared payable under the preliminary decree continued to remain unpaid, the Bank of Madurai, Ltd., proceeded to obtain a final decree as well. In E.P No. 172 of 1975, the Bank of Madurai, Ltd., put the final decree obtained by it in O.S No. 118 of 1971, into execution and sought the sale of hypotheca with a view to realise the amounts due to it under the final decree. In the Court auction sale held on 30 August, 1976, Krishnamaraja, the petitioner in Writ Petition No. 4151 of 1979, became the purchaser. Meanwhile, from about 20 August, 1976, the partnership firm of Kanakavel Nadar and Sons stopped running Raja Mills. Owing to the pendency of proceedings for setting aside the Court sale and other proceedings, the petitioner in Writ Petition No. 4151 of 1979, was unable to take possession of the property purchased by him in Court auction, though a sale certificate was obtained by him on 22 March, 1977. On account of the inability of the petitioner it Writ Petition No. 4151 of 1979, to secure possession of the property, a receiver was appointed to take possession and he leased out what was purchased in Court auction to a firm called Sri Angappa Spinning Mills, the petitioner in Writ Petition No. 3760 of 1979. Ultimately, on the termination of the proceedings taken to set aside the sale, the petitioner in Writ Petition No. 4151 of 1979, took possession. Subsequently, he sold the property on 3 November, 1977, to the petitioner in Writ Petition No. 3760 of 1979. That sale comprised of the superstructure as well as the items of machinery. The petitioner in Writ Petition No. 3760 of 1979 took possesion of the superstructure as well as the machinery pursuant to the sale, dated 3 November, 1977, and also obtained a renewal of the lease from the owner of the site, namely, Vyasaraya Mutt. Thereafter, after carrying out renovation and repairs, the petitioner in Writ Petition No. 3760 of 1979, started running the mill from 1 May, 1978.
3. While so, the Regional Provident Fund Commissioner, Tamil Nadu, sent a communication to the petitioner in Writ Petition No. 4151 of 1979, in 1978, that provident fund contributions in respect of persons employed by the firm Kanakavel Nadar and Sons for the years 1966 to 1969, had not been remitted. By another notice dated 23 February, 1979, purporting to be under S. 7-A of the Act, the petitioner in Writ Petition No. 4151 of 1979, was informed that he would also be liable to pay the arrears of contributions due from the firm Kanakavel Nadar and Sons under S. 17-B of the Act. To this, the petitioner in Writ Petition No. 4151 of 1979, sent a detailed explanation on 3 May, 1977, that he was only a purchaser in Court auction sale in execution, of the decree in O.S No. 118 of 1971, and as such the provisions of S. 17-B of the Act would be inapplicable. In so far as the petitioner in Writ Petition No. 3760 of 1979, is concerned. On 11 June, 1978, a letter addressed to Raja Mills was served on it to the effect that a sum of Rs. 70,384 should be remitted and that in default, proceedings under Revenue Recovery Act would be resorted to. Thereupon, the petitioner in Writ Petition No. 3760 of of 1979, wrote to the Tahsildar setting out the facts and disputing its liability in respect of the amount demanded. Yet another communication was also sent to the petitioner in Writ Petition No. 3760 of 1979, on 31 October, 1978, persisting in the demand and requiring payment of the amount as aforesaid. Then again, the petitioner in Writ Petition No. 3760 of 1979, disputed its liability and prayed for the dropping of the proceedings. The dispute raised regarding the liability was not countenanced, but the Tahsildar was directed to take immediate steps to collect the amount of Rs. 70,384 from the petitioner in Writ Petition No. 3760 of 1979. Thereupon, the petitioner in Writ Petition No. 3760 of 1979, again prayed for the dropping of the proceedings under the Revenue Recovery Act while disputing its liability. While matters stood thus, on 4 December, 1978, the Regional Provident Fund Commissioner, Tamil Nadu, sent a communication to the petitioner in Writ Petition No. 3760 of 1979, to the effect that the petitioner therein would be liable for the contributions due from the erstwhile Raja Mills taken over by it, as it had failed to submit the returns and remit the provident fund contributions. The petitioner in Writ Petition No. 3760 of 1979, also disputed its liability on the ground that S. 17-B of the Act can have no application. Finally, the petitioners were informed that the matter would be enquired into. Before the Regional Provident Fund Commissioner, Tamil Nadu, the petitioners contested their liability on the ground that S. 17-B of the Act would not stand attracted as what was contemplated thereunder was only a transfer inter vivos and not an involuntary sale as had taken place in this case. However, the Regional Provident, Fund Commissioner, Tamil Nadu, took the view that, even an involuntary sale, like the Court sale in this case, would be covered by S. 17-B of the Act and the petitioners cannot dispute their liability for the contributions not remitted by Raja Mills during the time when it was run by the partnership firm of Kanakavel Nadar and Sons. Purporting to exercise powers under S. 7-A of the Act, the respondent concluded that the partners of Raja Mills, namely, Vajravel, Vijayavel and Seethalakshmi, Krishnamaraja, the petitioner in Writ Petition No. 4151 of 1979, and the partners of the firm running the petitioner mills in Writ Petition No. 3760 of 1979, would all be jointly and severally liable to pay the amounts due by Raja Mills for the period when it was run by the partnership firm Kanakavel Nadar and Sons. It is the correctness of this order that is challenged by both the petitioners on identical grounds.
4. Sri M.R Narayanaswamy, the learned counsel for the petitioners in these writ petitions, invited attention to the definition of “employer” in S. 2(e) of the Act, contended that the transfer contemplated under S. 17 B of the Act is a transfer inter vivos and not an involuntary transfer like a Court sale and that on the transferee, by virtue of a Court sale, no liability can be fastened for the payment of contribution and other sums due from the erstwhile employer. Elaborating this, the learned counsel pointed out that the words “in any other manner whatsoever” occurring in S. 17-B of the Act would cover transactions like sale, gift, lease or licence, which again should be transactions entered into by an employer with the transferee and would not take in execution sales. On the other hand, the learned counsel for the respondent submitted that whatever be the method by which the transfer is effected, so long as there is a transfer of an establishment, that would suffice to attract S. 17-B of the Act and, therefore, the petitioners cannot escape their liability to pay the contributions. Strong reliance was also placed by the learned Counsel for the respondent upon the decision in C.T Senthilnathan v. Regional Commissioner, Employees” Provident Funds, Madras, Writ Appeal No. 8 of 1973, dated 13 August, 1974.
5. Before proceeding to consider these rival contentions, it would be necessary to refer to a few of the relevant provisions in the Act. Under S. 2(e) of the Act, “employer” is defined as follows: “employer”, means—
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under Cl. (f) of Sub-sec. (1) of S. 7 of the Factories Act, 1948, the person so named; and
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;”
Section 2(k) of Act defines “occupier” as follows:
“occupier of a factory” means the person who has ultimate control over the affairs of the factory, and, where the said affairs are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory”.
Section 6 of the Act which obliges the employer and the employee to contribute is in the following terms.
“The contribution which shall be paid by the employer, to the fund shall be six and a quarter per cent of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable to each of the employee's whether employed by him directly or by or through a contractor, and the employee's contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires and if the scheme makes provision therefor, be an amount not exceeding eight and one-third per cent of his basic wages, dearness allowance and retaining allowance (if any).
Section 8 of the Act provides for the mode of recovery of moneys due from the employers in the following terms:
“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 S. 14 B accumulations required to be transferred under Sub-sec. (2) of S. 15 or under Sub-sec. (5) of S. 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 S. 143 or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under S. 17 or in respect of the contribution payable by him towards the family pension scheme under the said S. 17, may if the amount is in arrear, be recovered by the Central Provident Fund Commissioner or such other officer as may be authorised by him by notification in the official gazette, in this behalf in the same manner as an arrear of land revenue”.
Section 17-B of the Act runs as follows:
“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, 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”.
It is not necessary to refer to the other sections of the Act for purposes of these writ petitions.
6. The definition of the word “employer” takes within its fold the owner or occupier of the factory inclusive of the agent of such owner or occupier, the legal representative of a deceased owner or occupier as-well as the manager so named under S. 7(1) (f) of the Factories Act. This is with reference to an establishment, which is a factory. With reference to any other establishment, the person or the authority exercising ultimate control would be the employer and where such authority or control is entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent. There is no dispute that the establishment in this case is a factory and S. 2(e)(i) of the Act would apply. There is no question of occupier, agent of owner or occupier, legal representative of a deceased ‘owner or occupier or other named person as the manager in this case, for admittedly, the partnership firm of Kanakavel Nadar and Sons was the owner of Raja Mills. There is no dispute that for the period in question, under S. 6 of the Act, the contribution in respect of the employees of Raja Mills should have been paid by the partnership firm of Kanakavel Nadar and Sons as owner of the factory and as such the employer as well under S. 2(e) (i) of the Act. For the non-payment of the contribution and other amounts in respect of the employees of Raja Mills by the employer, namely, the partnership firm of Kanakavel Nadar and sons, those amounts could have been recovered in the same manner as an arrear of land revenue from the firm of Kanakavel Nadar and Sons as per S. 8 of the Act. Section 8 of the Act indicates that the defaulting employer is liable to be proceeded against for the recovery of the amounts due either by way of contribution and others by resorting to the procedure applicable for the recovery of the arrears of land revenue. In other words, S. 8 of the Act contemplates recovery, from the employer as defined in S. 2(e) of the Act. The liability to pay contribution and other sums on transfer of an establishment is specially provided for under S. 17 B of the Act. The need for making special provision fastening liability for the payment of contribution and other sums on the transferee is a clear pointer that otherwise no person other than the employer would be liable for its payment. To put it differently, the underlying principle behind S. 17 B of the Act is that the employer, who is liable under S. 6 of the Act to pay the contribution and other sums, cannot by merely resorting to the device of transfer, be permitted to avoid such liability and, therefore it is, provision is made under S. 17 B of the Act that the employer as well as his transferee shall be jointly and severally liable to pay the contribution and other sums up to the date of transfer. The specification of the period also indicates that primarily the liability Would be that of the transferring employer, and by reason of the transfer, the liability on the employer would not cease, but would continue to exist and would also be fastened upon the transferee, though limited to the value of the assets obtained by the transferee by such transfer. Section 17-B of the Act, by making a special provision for the joint liability of the transferor and the transferee with reference to contributions and other sums due from the employer up to the date of such transfer, also clearly brings out that but for S. 17 B of the Act, the transferor-employer alone would be liable. In other words, the employer cannot be permitted to defeat his obligation to pay the contributions and other sums by transferring the establishment and, therefore it is, that up to the date of the transfer, the transferor and the transferee are both made liable jointly and severally. But at the same time, the transfer contemplated under S. 17 B of the Act is a transfer by an employer. The use of the words “where an employer… transfers” clearly indicates that the act of transfer must be attributed or referable to the employer if S. 17 B of the Act, fastening the liability on the employer and the transferee for the payment of contribution and other sums, is to operate. The transfer by the employer of the establishment contemplated under S. 17 B of the Act is by an act of transfer by the employer; as otherwise the word used would not have been “transfers” as found. If transfers other than a transfer by the employer had been contemplated, the language employed would have been different, for instance, if a transfer not attributable to an employer had also been contemplated, then the words “where the establishment had been transferred” could have been used. There is thus no indication that S. 17 B of the Act contemplated transfers otherwise than by an employer as defined in the Act in relation to an establishment. A Court sale takes place by operation of law and not by any transaction inter vivos. In that sense, it is an involuntary sale against the wishes of the person whose property is sold. That can hardly be called a transfer, as ordinarily understood, which connotes a voluntary transaction entered into between two parties. In this connection, it has also to be remembered that the provisions of the Transfer of Property Act, generally dealing with all kinds of transfers do not affect transfers by operation of law or by, or in execution, of, a decree or order of a Court of competent jurisdiction under S. 2 (d) of the Transfer of Property Act. It is also settled that a purchaser at a Court sale is a transferee by operation of law. A Court auction sale cannot, therefore, be considered as a transfer by an employer of the establishment to the transferee. In this case, after the passing of the final decree in Original Suit No. 118 of 1971, Sub-Court, Madurai, the mortgagors-judgment-debtors therein, namely, the partnership firm of Kanakavel Nadar and Sons, had nothing left in it which it could have thereafter transferred in favour of other persons. No doubt, some proceedings were taken to have the sale set aside, but they were not under the provisions of Order 34, Code of Civil Procedure. In other words after the passing of the final decree, in the events that happened, the partnership firm of Kanakavel Nadar and Sons, did not possess any transferable right as such and thus the sale that eventually took place through Court could not be put on a par with a transfer by the employer.
7. The enumeration of the nature of the transaction of transfer like sale, gift, lease or licence is also significant in that a transfer by sale or gift or lease or licence is normally between one person and another. It will be useful in this connection to refer to S. 5 of the Transfer of Property Act which sets out that an act by which one person conveys property either in present or in future to one or more living persons, or to himself, and one or more other living persons is a transfer of property. The provisions of the Transfer of Property Act governs sales, gifts, leases, etc. The enumeration of these several transactions by which the transfer can be effected also indicates that the transfer contemplated is a transfer by an employer and not any other. The words “in any other manner whatsoever” occurring in S. 17-B of the Act would not cover a case of involuntary sale or Court sale. The transaction of transfer may not be brought about by sale, gift, lease or licence, but in some other manner. However, by whatsoever transaction a transfer is brought about, again, it must be attributed to an act of transfer on the part of the employer in bringing it about in any manner whatsoever. Theefore the words, “in any other manner whatsoever” cannot be interpreted in a manner to comprehend Court sales. Again, the words in any other manner whatsoever”. would cover only transactions like sale, gift, lease or licence. In other words, the use of the words in any other manner whatsoever is only with a view to rope in transactions like sale, gift, lease or licence, though not in that form. But that does not however dispense with the requirement of a transfer by an employer. Looked at from this point of view also, S. 17-B of the Act cannot be interpreted as taking within its fold involuntary sales. In my view, therefore, the learned counsel for the petitioners is certainly well-founded in his contention that Court sales are outside the pale of S. 17-B of the Act.
8. The decision in C.T Senthilnathan v. Regional Commissioner, Employees' Provident Funds Madras [Writ Appeal No. 8 of 1973, dated 13 August, 1974] (vide supra), relied on by the learned counsel for the respondent to sustain the demand made against the petitioners may now be noticed. From the facts as could be culled out from Writ Petition No. 3096 of which gave rise to Writ Appeal No. 8 of 1972 it is seen that there was an agreement between the transferor and the transferee, but that was not produced before the Regional Provident Fund Commissioner in order to establish that the transferor was not liable to pay the contribution and other charges and that the transferee had agreed to take over that liability as part of the transfer. That was why it was also stated in the course of the order in Writ Petition No. 3096 of 1972, that in the event of the petitioner therein being compelled to pay the entire arrears, he had the remedy to seek contribution from those responsible to so contribute and this could be only on the basis of a contract in that regard. It is, therefore, obvious that in that case there was a transfer by the employer and an understanding was arrived at between the employer and the transferee regarding the payment of contribution and other charges. However, on appeal, it was observed as follows:
“… the liability is a continuous one and it is realised from the owner for the time being. In such cases, the transferee, when there are arrears, will have to make arrangement with the transferor for payment thereof. That is a matter of adjustment between the transferor and transferee. So far as the Commissioner is concerned, he only looks to the owner or occupier at the time and not to the owners or occupiers at different times”.
This proceeds on a recognition of an arrangement between the employer-transferor and the transferee in regard to the payment of the arrears. This is precisely the case provided for under S. 17-B of the Act. It has been stated therein that in so far as the Commissioner is concerned, he can look to the owner or occupier at the time and not the owners or occupiers at different times. This is also justified by stating that there is a charge on the factory. A careful consideration of the provisions of the Act does not reveal that any charge was intended to be created on the establishment so that irrespective of the hand into which the establishment may pass, the then owner or occupier would be liable even in respect of contributions and other charges remaining unpaid at the time when the then owner was not the employer. Unfortunately, S. 8 of the Act had gone unnoticed. That decision can at best be held applicable to a case to which S. 17-B of the Act may stand attracted and not to a case like the present.
9. For the foregoing reasons, S. 17-B of the Act cannot be applied at all on the facts and circumstances of this case to fasten liability on the petitioners in these writ petitions for the contributions and other charges which had remained unpaid in respect of a period long prior to the petitioners becoming the employers as defined in the Act. Consequently, the rule nisi is made absolute and the writ petitions are allowed. There will be however, no order as to costs.