Employees’ Provident Fund dues of workmen should be paid in priority to all other debts by employer during liquidation: SC of India

In EPF Commissioner v. Official Liquidator of Esskay Pharmaceuticals Ltd., the SCI (G.S. Singhvi and H. L. Dattu, JJ.) examined whether priority given to the dues payable by an employer under Section 11 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (‘EPF Act’) is subject to Section 529A of the Companies Act, 1956 (‘Companies Act’) in terms of which the workmen’s dues and debts due to secured creditors are required to be paid in priority to all other debts.

Relevant extracts from the judgment:

  1. Any EPF contributions made by an employee creates  first charge over the assets of the establishment and should be paid in priority to all other debts: “18. An analysis of Section 11 of the EPF Act shows that it gives statutory priority to the amount payable to the employees over other debts … Section 11(2) contains a non obstante clause and lays down that if any amount is due from an employer whether in respect of the employee’s contribution deducted from the wages of the employees 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 an employer towards contribution payable under the EPF 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.”
  2. Nature of EPF Act: “22. The EPF 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, who have made significant contribution in economic growth of the country. The workers and other employees provide services of different kinds and ensure continuous production of goods, which are made available to the society at large. Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation keeping in view the Directive Principles of State Policy contained in Articles 38 and 43 of the Constitution.”
  3. ‘Apparent Conflict’ between and Object of EPF Act and Companies Act amendments regarding workmen’s dues: Subsequently, the Court examined the purport of the creation of a priority payment of dues to workmen in light of both Section 11 of EPF Act and Section 529A of the Companies Act and the conflict in non-obstante clauses in both the provisions. Rejecting the argument that the subsequent legislation having the non-obstanteclause will take precedence over the other, it entered into an interpretative exercise to examine the object behind both the provisions and found that -
    • “36. … the object of the amendment made in the EPF Act was to treat the dues payable by the employer as first charge on the assets of the establishment and to ensure that the same are recovered in priority to other debts. As against this, the amendments made in the Companies Act in 1985 are intended to create a charge pari passu in favour of the workmen on every security available to the secured creditors of the company for recovery of their debts. There is nothing in the language of Section 529A which may give an indication that legislature wanted to create first charge in respect of the workmen’s dues, … and debts due to the secured creditors.
  4. Interpretation when conflict between two special statutes: “38. … if two special enactments contain provisions which give overriding effect to the provisions contained therein, then the Court is required to consider the purpose and the policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions.”
  5. Finally, finding that there was no conflict between both the provisions, the Court held that – the provision regarding payment of PF etc. to workmen in priority to all other dues already existed in Companies Act before the amendment to Section 11 of EPF Act, that created a first charge over the employer’s assets for any amount due in favour of employees’ contributions.
    • “43. … However, while inserting Section 529A in the Companies Act … [the] Parliament, in its wisdom, did not declare the workmen’s dues (this expression includes various dues including provident fund) as first charge. The effect of the amendment made in the Companies Act in 1985 is only to expand the scope of the dues of workmen and place them at par with the debts due to secured creditors and there is no reason to interpret this amendment as giving priority to the debts due to secured creditor over the dues of provident fund payable by an employer. Of course, after the amount due from an employer under the EPF Act is paid, the other dues of the workers will be treated at par with the debts due to secured creditors and payment thereof will be regulated by the provisions contained in Section 529(1) read with Section 529(3), 529A and 530 of the Companies Act.”
This judgment clarifies various points of law with regard to interpretation of conflicting provisions in special enactments, and more importantly the preferential payment of workmen’s dues over all other debts during winding up of a company.

The Adversity of Adverse Possession- a time to re-look at the doctrine? SCI examines.

On 30th September 2011 in State of Haryana v. Mukesh Kumar & Ors., the Supreme Court of India handed down a judgement that could force a re-look at the colonial ‘relic‘ of adverse possession which has the effect of legally (read ‘with authority of law’) vesting the title of a property in a trespasser from a true owner.

The Court held that “the theory of adverse possession is … perceived by the general public as a dishonest way to obtain title to property… mistakes by landowners or negligence on their part should never transfer their property rights to a wrongdoer, who never paid valuable consideration for such an interest.”

Although,the Government can also acquire land by adverse possession, but “fairness dictates and commands that if the government can acquire title to private land through adverse possession, it should be able to lose title under the same circumstances”.

The Court then examined the historical exigencies that led to the creation of a right to title in a property by way of adverse possession. However, it said that position had changed in the U.S. and the U.K., with right to property being elevated to a human right.

In advising the Parliament to take a re-look at the outmoded doctrine, the Court made various important alternative observations:

  1. The Parliament may consider abolishing the law of adverse possession or at least amending and making substantial changes in law in the larger public interest. And especially, if the governmental authorities, like the police try to use their might to acquite land using this doctrine, it is the most tragic – in the Supreme Court’s words – “a testament to the absurdity of the law and a black mark upon the justice system’s legitimacy“. Rather, the government should protect a citizen’s property and not ‘steal’ it.
  2. The Parliament must either require the adverse possessors to compensate the owners at the prevalent market value, or abolish the ‘bad faith’ adverse possession, and maybe increase the period of possession to claim adversely from the current 12 years to 30 or 50 years.
Finally the Court held that:
“Adverse possession allows a trespasser – a person guilty of a tort, or even a crime, in the eyes of law – to gain legal title to land which he has illegally possessed for 12 years. How 12 years of illegality can suddenly be converted to legal title is, logically and morally speaking, baffling. This outmoded law essentially asks the judiciary to place its stamp of approval upon conduct that the ordinary Indian citizen would find reprehensible.

The doctrine of adverse possession has troubled a great many legal minds. We are clearly of the opinion that time has come for change.

If the protectors of law become the grabbers of the property (land and building), then, people will be left with no protection and there would be a total anarchy in the entire country.”

UK Supreme Court on Interpretation of Commercial Contracts and Patentability of Gene Sequences

The UK Supreme Court on Nov. 2, 2011 handed down two interesting judgments:

The Court held that when there is an ambiguity in construction of a clause in a commercial contract, the interpretation that would be consistent with business common sense should be given effect to. Also, in the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances.
In holding that gene sequences can have industrial application, reversing the lower courts’ findings, the Supreme Court gave primacy two policy arguments- attracting biosciences investment into the UK and bringing UK interpretations in compliance with the European Patent Convention. See this analysis of the judgment.

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