G MAHADEVAPPA AND SONS Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) In this petition, the petitioners have sought for : (1) a direction to the lst respondent to deposit a sum of Rs. 446.59 Lakhs (Rupees four hundred fortysix lakhs fiftynine thousand only) with interest at the rate of 21 % per annum from the date of taking over of the Mill until such deposit is made with the Commissioner; (2) for a declaration that the notice of demand dated 3tst May, 1990, issued by the Regional Provident Fund Commissioner, Bangalore, (hereinafter referred to as the 'Provident Fund Commissioner'), the copy of which has been produced as Annexure-G, as illegal and void; (3) for a direction restraining the 3rd respondent Provident Fund Commissioner or his subordinates from demanding or enforcing recovery through the Revenue Department of the amount claimed under Annexure-G; (4) for a further direction to the 2nd respondent to adjudicate the claim and disburse the amounts as per the provisions of the Karnataka Co-operative Textile Mills (Acquisition and Transfer) Act, 1986 (hereinafter referred to as the 'Act' ); (5) and also for a direction to the 3rd respondent Provident Fund Commissioner to withdraw the prosecution proceedings instituted against the petitioners or other Ex Partners of the 1st petitioner.

(2.) The facts of the case may be set-out in brief as hereunder:The 1st petitioner is a partnership firm constituted as per the Deed of Partnerrship dated 23rd February, 1970, and the 2nd petitioner is one of the Partners of the 1st petitioner firm. The 1st petitioner took on lease by means of registered lease Deed dated 29th August 1970, a Textile Mill belonging to M/s. Karnataka Co-operative Textile Mills Ltd., Dharwad. Subsequent to taking over of the said Mill on lease, the name of the Mill was changed to M/s. Mahadeva Textile Mills, by which name it was being run by the 1st petitioner Firm. It is the case of the petitioners that at the time of taking over the Mills on lease by the 1st petitioner, the same was not working as the machineries of the Mills were very old, out dated and the Mill had suffered huge loss; and after taking over the Mills, they had invested huge sums of money amounting toRs.70 Lakhs (Rupees seventy lakhs only); and they had taken huge loan from the financial institutions and banks for modernisation of the said Mills by installing new machineries, errection of buildings etc. and after such modernisation, the Mill had gone into production; however, on account of Textile policy of the Government, fluctuating prices of cotton, yarn, frequent power cuts, instifficient funding, large workforce, frequent labour unrest and for various reasons beyond the control of the Mill, the same became sick again and it resulted in huge loss continuously year after year from the year 1975, and on account of that the petitioners had to close down the operation of the Mill in the year 1975; and since the Mill had become sick and the operation of it had been closed down, the Central Government in exercise of powers conferred on it under Section l8AA of the Industries (Development and Regulations) Act, 1956, by means of an order dated 30th March, 1979, the copy of which has been produced as Annexure-A to this petition, authorised the State Government to take over the management of the said Mill initially for a period of five years; and pursuant to the said order, the Government of Karnataka took over the management of the Mill on 4th April, 1979; and the Central Government by means of another order dated 31 st March, 1979, issued in exercise of the powers conferred on it under Section l8FB (l)(b) of the Industries (Development and Regulations) Act, 1956, the copy of which has been produced as Annexure-B to this petition, declared that the operation of all contracts assurances of property, agreements, settlements, awards, standing orders or other instruments in force immediately before the date of issue of the said order (other than those relating to secured liabilities to banks and financial institutions) to which the said industrial undertaking was a party, or which may be applicable to such industrial undertaking and all obligations and liabilities accuring or arising thereunder before the said date shall remain suspended for a period of one year; and thereafter, the State of Karnataka promulgated an ordinance known as "The Karnataka Co-operative Textile Mills (Acquisition and Transfer) Ordinance, 1986" (Karnataka Ordinance No. 11/86) and the said ordinance came into effect from 30th June, 1986, and from that date M/s. Mahadeva Textile Mills Limited stood transferred and vested absolutely in the State Government; and the said ordinance was replaced by means of an act known as "The Karnataka Co-operative Textile Mills (Acquisition and Transfer) Act, 1986" and the same was published in the Karnataka Gazette on the 1 st day of October, 1986; and thereafter, by means of a Notification dated 29th December, 1987, the copy of which has been produced as per Annexure-C to this petition, the Government of Karnataka directed that the said Mill would vest in the Karnataka State Textile Private Limited, with effect from the 1st day of January, 1988.

(3.) Sri S. G. Sundaraswamy, learned Senior Counsel, appearing along with Sri Pradeep S. Sawkar, for the pettioners, submitted that though the ordinance was promulgated with effect from 30th June, 1986 and the Act had come into force with effect from the 1st day of October, 1986, and the Mill had vested with the State Government with effect from the 30th June, 1986, and the. Government was under a statutory obligation as provided under Section 9 of the Act towards the transfer and vesting in the Government under Section 4 of the Act, and the right, title and interest in relation to the Mills, to pay an amount of Rupees 446.59 lakhs (Rupees fourhundred fortysix lakhs fiftynine thousand only) by depositing the same with the Commissioner to enable him to disburse the amount to the lessor, lessee or other persons entitled thereto in the manner specified in Chapter V of the Act, till now the said amount has not been deposited in utter disregard of the mandate of Section 9 of the Act and the right to property guaranteed to the petitioners under Article 300A of the Constitution of India. He submitted that the petitioners having admittedly taken over the Mills in question on lease and also having made huge investments to make the Mills suitable for operation, cannot be deprived of the right to compensation by not depositing the amount as provided under Section 9 of the Act, which has been fixed for taking over the Mill by the Government; and on account of the default on the part of the Government in not complying with the provisions of Section 9 of the Act, the 2nd respondent who has been appointed as Commissioner as provided under Section l5 of the Act is not in a position to disburse the amount in respect of the claims made by various persons and authorities/institutions and also having regard to the priorities provided under Section 19 read along with the schedule given to the Act; and if the amount were to be deposited as provided under Section 9 of the Act within the reasonable period, there would not have been any criminal proceedings initiated against the partners of the firm for not depositing the arrears in relation to the contribution to be made by the lessee to the Provident Fund, Employees Insurance Fund etc; and it is not permissible for the 3rd respondent Provident Fund Commissioner to proceed against the petitioners for recovery of the Provident Fund amount due as an arrears of land revenue; and the notice Annexure-G is also liable to be quashed as without the authority of law. He submitted that under similar circumstances when proceedings were initiated to recover the sales tax due by the Mills from the petitioners, the same was challenged before this Court in Writ petition No. 12215/1986 and this Court by its order dated l6th February, 1987, took the view that it was not permissible to the Department to issue demand notice for recovery of the tax due for the pre-take over period from the petitioners and it was open to the Government to take a claim before the Commissioner appointed under the Act and the said decision of this Court would apply in all force with regard to the contentions of the petitioners that the claim made for recovery of arrears of provident fund as per Annexure-G is without the authority of law. He also relied upon the decision of this Court dated l4th June, 1993, made in Writ petition No. 12412/ 1985 and also the decision dated 8th January, 1990, made in Writ Appeal No. 740 to 759/1984 in support of his contention that Annexure-G is without the authority of law.