Shree Renuka Sugars Limited and Others vs The Recovery Officer, Employees'' Provident Fund and Others

Anand Byrareddy, J—These petitions are considered and disposed of together having regard to the fact that they are inter linked.

The petition in WP 31536/2008 is filed by M/s. Renuka Sugars Limited, a company registered under the provisions of the Companies Act, 1956, which is engaged in the manufacture of sugar and allied products in power and ethanol, having its registered office in Belgaum, Karnataka, with key manufacturing facilities at several places in Karnataka and that the petitioner also operates leased facilities at various places in Karnataka and Maharashtra. According to the petitioner, it has the largest sugar refining capacity in India of 4000 tons per day (TPD), two 1000 TPD each refineries integrated with its plants at Munoli and Athani and a 2000 TPC port based refinery coming up in Haldia SRSL etc., It is stated that the sugar factories all over Karnataka are facing financial crises and were declared as sick units and many had been liquidated. Because of the said financial crisis, stake holders were suffering huge losses including the sugar cane growers, sugar mills and other incidental parties depending on the industry. Therefore, in order to relieve the sugar factories which were under the loss, policy decisions were taken by the Government to provide for lease of such loss making sugar factories on Lease Rehabilitate Operate Transfer (LROT) and Transfer and Build Own Operate Transfer (BOOT) basis after following due procedure of law. Therefore, the second respondent which was a Co-operative Society registered under the Karnataka Co-operative Societies Act, 1959, which was a manufacturer of sugar and allied products was unable to generate sufficient funds to keep the crushing on and had become defunct, the Government of Karnataka with an intention to revive the defunct Society and by its order dated 16.01.2007 accorded permission to lease its factory on LROT basis for a period of 30 years to the petitioner. This had been challenged before this Court in Writ Petition No. 12835/2007 which was ultimately dismissed. There was a lease deed executed in favour of the petitioner dated 16.10.2008 and one of the terms under the lease deed was as follows:

"The Lessee shall be responsible for the payment of salaries, allowances and other monetary benefits payable to the entire staff of the factory from the date of lease till the expiry of lease period out of its own funds. The Lessee shall be liable to pay the P.F. contribution, ESI contribution, bonus, Labour Welfare contributions and all other statutory payment payable to the employees and gratuity contributions on the rendered service and drawn wages by the entire staff during the period of lease and shall also bear the liability towards payment of retirement benefits to the employees during the period of lease of per law. All outstanding dues as on the date of lease towards employees'' salary arrears, PF, ESI and labour welfare contributions are to be borne by the Lessor. The Lessor covenants that as on date there are no outstanding dues payables by it to any of its employees and that it is compliant with all applicable laws, rules and legislations."

It transpires that under the terms of the lease deed, a sum of Rs. 30 crores was deposited with the Deputy Commissioner, Belgaum, to make payments towards the cane growers and the employees of the lessor. It then transpires that the petitioner herein the lessee of the sugar factory was served with a notice by the Recovery Officer, Employees Provident Fund Organisation of Hubli, demanding a sum of Rs. 3,82,97,945/- towards provident fund and allied payments for the period prior to the coming into force of the lease agreement. It is that which is under challenge in this writ petition.

In W.P. No. 67143/2011, the petitioner is Rayabag Sahakari Sakkare Karkhane which is the lessor referred to hereinabove and the lessor petitioner herein was questioning the legality and validity of the order of the Employees Provident Fund Appellate Tribunal in the following background. It is not in dispute that the petitioner was a sick industry and as already stated, to bail out the petitioner, it had been permitted to lease the factory to M/s. Renuka Sugars, the petitioner in the said writ petition and therefore the liability to pay any such provident fund as undertaken under the lease deed was that on the petitioner, since as a sick industry, it was not liable to pay any amounts towards penalty and interest. The petitioner after having paid a total sum of Rs. 3,22,00,000/- has sought waiver of the remaining amount claimed towards penalty and interest. This having negated, an appeal was preferred before the Employees'' Provident Fund Appellant Tribunal. The Tribunal, however, has dismissed the appeal as not maintainable by a cryptic order which reads as under:

"Heard the arguments of the advocates for the parties on the maintainability of the appeal. This appeal has been filed against a warrant of arrest issued by the Authority. The Section 7A which deals with the provision of preference of appeal before the Tribunal makes it clear that any person aggrieved by an order of the Authority passed under Section 7A, 7B, 7C or 14B of the Act can prefer an appeal before the Tribunal, however, there is no provision to entertain an appeal preferred against a warrant of arrest. So, the present appeal is not maintainable.

Hence ordered, the appeal is dismissed as not maintainable. Copy of order be sent to the parties and the file be consigned to record room."

Therefore, the petitioner is before this Court questioning the said order and it is pointed out that the main relief prayed for in the said appeal was for waiver of penalty and interest and it was incidental that an interim prayer was sought seeking stay of coercive measures by way of warrant of arrest issued against the petitioner and its officers. The Tribunal, however, has rejected the appeal itself on the ground that it has no jurisdiction or power to address the challenge to a warrant of arrest which is totally misconceived. The main appeal and the relief sought was not in respect of the warrant of arrest and it was only incidental. Therefore, learned counsel for the petitioner would submit that the petition would have to be allowed on the face of it.

In W.P. No. 66767/2011, the petitioner is again Rayabag Sahakari Sakkare Karkhane Rayabag questioning the liability, insofar as, the penalty and interest is concerned in view of the Tribunal having dismissed its appeal as not maintainable. This petition was filed in the circumstance that when the petitioner had preferred an appeal before the Employees Provident Fund Central Appellate Tribunal, New Delhi and there was an order of stay of the demand raised by the Regional Provident Fund Commissioner, it transpires that notwithstanding the order of the said demand having been raised for a further sum of Rs. 1 crore which was also included in the payments that were made by the petitioner, the petitioner was compelled to file this writ petition and an order of stay was granted in this petition. Hence, the question is as regards the liability to be fastened on M/s. Renuka Sugars by virtue of Section 17B of the Employees'' Provident Funds and Miscellaneous Provisions Act, 1952, (hereinafter referred to as ''the EPF Act'' for brevity). In that, M/s. Renuka Sugars would claim that under the lease agreement, the lessor was liable to pay all statutory dues, such as, a demand now raised and liable to be paid for the period prior to the lease agreement and therefore, the liability is entirely on the lessor. Insofar as the demand now made which pertains to a period prior to the lease agreement and it is also the claim by the lessor that though it is liable to pay and has already paid a sum of Rs. 3,22,00,000/-, the remaining amount is towards penalty and interest which is not liable to pay as it is a sick industry and it has been liquidated and is not in a position to pay even if the liability is found.

The other question is whether the Appellate Tribunal was justified in rejecting the appeal on the ground of maintainability. Insofar as the first two questions above are concerned, would have to be decided by the Tribunal. The third question would have to be answered in favour of the petitioners as the Tribunal was not justified in rejecting the appeal on the ground that the relief of questioning the claim against the warrant of arrest was not maintainable and therefore the appeal itself having been rejected, is not justified. The appeal was preferred against the demand towards penalty and interest which M/s. Rayabag Sahakari Sakkare Karkhane, Rayabag, would contend is not liable to be levied in view of the said petitioner being a sick industry. This would have been to be tested by the Tribunal in terms of Section 7-I of the EPF Act. Therefore, the rejection of the appeal is not in accordance with law. The incidental relief against stay of the warrant of arrest could not be granted as the main relief in holding that the appeal was not maintainable. Therefore, the appeal shall be restored to the file before the Tribunal and the interim order of stay granted earlier would also revive and the respondent-Regional Provident Fund Commissioner and his officers are restrained from taking any action during the pendency of the appeal and the currency of the interim order granted earlier.

The petition in WP 67143/2011 is allowed in terms stated above. In view of the said writ petition having been allowed, the other writ petitions are also disposed of as a consequence.