Gujarat Industrial Investment Corp. Ltd. vs H.B. Parmar, or his Successor

M.R. Shah, J.—By way of this petition under Article 226 of the Constitution of India, petitioner Gujarat Industrial Investment Corporation Limited a secured creditor has prayed for an appropriate writ, direction or order quashing and setting aside the impugned notice dated 07.11.2001 (Annexure A to the petition) issued by the Recovery Officer, ESIC, Gujarat seeking to recover a sum of Rs. 6,06,593/ - due and payable by M/s. Gujarat Trans-receivers Ltd. (the defaulter), towards the ESI amount/contribution. It is the case on behalf of the petitioner, so pleaded in the petition, that a total sum of Rs. 49 lacs was advanced and/or sanctioned by way of term loan in favour of one M/s. Gujarat Trans-receivers Ltd. (the defaulter) who did not pay the total sum of Rs. 230.89 lacs, due and payable, inclusive of the principal amount, interest, penal interest and therefore, proceedings were initiated to recover the said amount by auctioning the property of the said Company (the defaulter), as the properties of the Company were mortgaged and/or put as a security with the petitioner and the property in question came to be sold by public auction in the year 2000. It appears that a total sum of Rs. 6,06,593/ - was also due and payable by the said Company towards the ESI contribution, by impugned notice dated 07.11.2001, the Recovery Officer issued a notice upon the petitioner as well as the Company i.e. M/s. Gujarat Trans-receivers Ltd. to pay the said amount and hence, the petitioner has preferred the present petition under Article 226 of the Constitution of India challenging the aforesaid recovery notice so far as the petitioner is concerned.

Shri Dave, learned advocate appearing on behalf of the petitioner has submitted that no amount was due and payable by the petitioner towards the contribution to ESI Corporation and therefore, the impugned notice deserves to be quashed and set aside, so far as the petitioner is concerned. It is submitted that as such the ESI contribution / dues are not in the priority u/s 5(A) of Section 39 of the ESI Act and the said amount cannot be recovered from the petitioner towards the proceeds of the properties sold, which was mortgaged with the petitioner. He has heavily relied upon the recent decision of the Division Bench of this Court in the case of Baroda City Co-operative Bank Ltd. v. (The) State of Gujarat and Ors. reported in 2010 (2) GLH 525. Therefore, it is requested to allow the present petition.

Shri B.P. Bhatt, learned advocate appearing on behalf of respondent No. 1 is not in a position to satisfy the Court, how the petitioner can be held liable to make the payment of ESI contribution as per the impugned notice dated 07.11.2001. Shri Bhatt, learned advocate appearing on behalf of respondent No. 1 is also not in a position to show any decision contrary to the decision of the Division Bench in the case of Baroda City Co-operative Bank Ltd. (Supra) relied upon by the learned advocate appearing on behalf of the petitioner.

Having heard learned advocates appearing on behalf of the respective parties and Shri Bhatt, learned advocate appearing on behalf of respondent No. 1, having failed to satisfy the Court how the petitioner can be held liable to pay the amount of ESI contribution for which the impugned notice dated 07.11.2001 has been issued, the impugned notice deserves to be quashed and set aside, so far as the petitioner is concerned. Even otherwise, the controversy is squarely covered by the decision of the Division Bench of this Court in the case of Baroda City Co-operative Bank Ltd. (Supra). Admittedly, the dues of ESI contribution does not come within the priority and the same shall not have any priority over the secured creditor like the petitioner. The same cannot prevail over the secured debt.

In view of the above and for the reasons stated above, petition succeeds and impugned notice dated 07.11.2001 issued by the Recovery Officer, ESI Corporation, Gujarat is hereby quashed and set aside, so far as the petitioner is concerned and it will be open for the respondent to recover the amount from respondent No. 2 Company, for which this Court has not expressed anything on merits. Rule is made absolute to the aforesaid extent. No costs.