Thursday, August 20, 2009

Supreme Court Judgments 2009

  • Priority of Debts
  • Employees Provident Fund & Miscellaneous Provisions Act, 1952 Sec 11(2)
  • Maharashtra State Co-operative Bank Limited Vs. Asst. Provident Fund Commissioner and others

G.S.Singhvi J.

      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.

      Cases Referred:

AP State Financial Corporation Vs. Official Liquidator (2000) 7 SCC 291

Central Bank of India Vs. Siriguppa Sugars & Chemicals Limited (2007) 8 SCC 353

Builders Supply Corporation v. Union of India 1965(2) SCR 289

State Bank of Bikaner and Jaipur Vs. National Iron and Steel Rolling Corporation (1995) 2 SCC 19

Dena Bank Vs. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694

State of M.P. Vs. State Bank of Indore (2002) 10 SCC 441

Central Bank of India Vs. State of Kerala 2009(4) SCC 94

UCO Bank Vs. Official Liquidator, High Court Bombay and another (1994) 5 SCC 1

Textile Labour Association and another Vs. Official Liquidator and another (2004) 9 SCC 741

Recovery Officer and Assistant Provident Fund Commissioner Vs. Kerala Financial Corporation (2002) 2 KLT 723=2002 (3) LLJ 643 (Ker)

Bank of Bihar Vs. State of Bihar (1972) 3 SCC 196

Branch Manager, Federal Bank Limited Vs N.S.Sebastian

In our view the State Commission was not at all justified in awarding interest to the respondent. Undisputedly the drawer, namely, Anil Kumar did not deposit any amount in the bank between 28th March, 1998 and the date on which the cheque is said to have been issued in favour of the respondent. Therefore, it was impossible for the respondent to get the amount credited in his account. If the cheque had not been lost in transit, the same would have been dishonoured due to insufficiency of funds. On its part, the bank had advised the respondent to obtain duplicate cheque from the drawer. Banking Ombudsman gave similar advise to the respondent by pointing out that he can get duplicate cheque by resorting to Section 45A of the Negotiable Instruments Act. However, the respondent did not take any steps whatsoever for obtaining duplicate cheque from Anil Kumar. The reason for this is not far to see. Anil Kumar had sum less than Rs.200/- in his account at the relevant time. The appellant was aware of this and, therefore, he did not resort to Section 45A of the Negotiable Instruments Act. Not only this, he did not take any action for recovery of Rs.9.85 lakhs from Anil Kumar either by filing a complaint before appropriate forum or by filing a suit before the competent civil court. This being the position, the direction given by the State Commission for payment of interest to the respondent is liable to be set aside. Consequently, the order of the National Commission is also liable to be set aside. Accordingly, the appeal is allowed, impugned orders are set aside and the complaint filed before the State Commission is dismissed. No costs.


Reported in 2009 (4) SCC 94=2009(3) JT 216

Central Bank of India Vs State of Kerala and ors

Statutory charge created in favor of the State u/s 26 (B) of Kerala General Sales Tax Act 1963 has primacy over the rights of the Bank to recover its dues.

Sec 17 SARFAESI Act – Jurisdiction of DRT to interfere with action taken by Secured Creditor after the stage contemplated under Section 13 (4) of the Act

Authorized Officer, Indian Overseas Bank and Another Vs. Ashok Saw Mills

Supreme Court Judgment Dated 16.07.2009


The intention of the legislature is, therefore, clear that while the Banks and Financial Institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under Sub-Section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act.

The Legislature by including Sub-Section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr. Gopalan and Mr. Altaf Ahmed that the DRT has no jurisdiction to deal with a post 13(4) situation, cannot be accepted. The dichotomy in the views expressed by the Bombay High Court and the Madras high Court has, in fact, been resolved to some extent in the Mardia Chemicals Ltd.'s case (supra) itself and also by virtue of the amendments effected to Sections 13 and 17 of the principal Act. The liberty given by the learned Single Judge to the appellants to resist S.A.No.104 of 2007 preferred by the respondents before the DRT on all aspects was duly upheld by the Division Bench of the High Court and there is no reason for this Court to interfere with the same.

We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act.

On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT.

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