[Cites 8, Cited by 0]
Bombay High Court
Asstt. Provident Fund Commissioner vs M/S. National Organic Chemical ... on 6 March, 2026
Author: Amit Borkar
Bench: Amit Borkar
2026:BHC-AS:10962
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AGK
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ATUL
GANESH WRIT PETITION NO.2905 OF 2016
KULKARNI
Central Board of Trustees, EPF
Digitally signed
by ATUL
GANESH A body of corporate having perpetual
KULKARNI
Date: 2026.03.06 succession and common seal, having
11:46:16 +0530
office at Bhavisyanidhi Bhavan,
14, Bhikaji Cama Place, New Delhi 110 066
The Asstt. Provident Fund Commissioner,
(Legal), Employees' Provident Fund
Organization, Sub-Regional Office,
Tower-6, 5th Floor, Vashi Railway Station
Complex, Vashi, Navi Mumbai 400 073 ... Petitioner
Vs.
National Organic Chemical Industries Ltd.,
Mafatlal House, H.T. Parekh Marg,
Backbay Reclamation, Churchgate,
Mumbai - 400 020 ... Respondent
WITH
WRIT PETITION NO.11859 OF 2017
The Asstt. Provident Fund Commissioner,
Sub-Regional Office, Tower-6, 5th Floor
Vashi Railway Station Complex, Vashi,
Navi Mumbai 400 073 ... Petitioner
Vs.
National Organic Chemical Industries Ltd.,
Mafatlal House, H.T. Parekh Marg,
Backbay Reclamation, Churchgate,
Mumbai - 400 020 ... Respondent
1
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Mr. Sandeep Mishra with Ms. Madhura Muley for the
petitioner.
Mr. Lancy D'Souza with Mr. Rahul Sanghavi i/by M/s.
Sanjay Udeshi & Co., for the respondent in
WP/2905/2016.
Mr. Anand Pai with Mr. Rahul Sanghavi i/by M/s.
Sanjay Udeshi & Co., for the respondent in
WP/11859/2017.
Mr. H.D. Mulla, AGP for State in WP/2905/2016.
Ms. Mamta Shrivastava, AGP for State in
WP/11859/2017.
CORAM : AMIT BORKAR, J.
RESERVED ON : FEBRUARY 27, 2026.
PRONOUNCED ON : MARCH 6, 2026
JUDGMENT:
1. Since the questions of law and fact arising in all these writ
petitions are common, the same are being disposed of by this
common judgment.
2. By the present writ petitions filed under Article 227 of the
Constitution of India, the petitioner challenges the order dated 23
January 2014 passed by the Presiding Officer, Provident Fund
Appellate Tribunal, New Delhi, in ATA Nos. 672(09) and 673(09)
of 2007.
3. The facts giving rise to the present writ petitions, stated
briefly, are as follows. The respondent is an establishment covered
under the provisions of the Employees' Provident Funds and
Miscellaneous Provisions Act, 1952, and was allotted Code No.
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MH/9437. The respondent failed and neglected to deposit
provident fund contributions, Family Pension Fund contributions,
administrative charges, and deposit linked insurance contributions
as required under the Act and the Employees' Pension Scheme,
1995, for the period from March 2002 to September 2004. The
said contributions were eventually deposited on or about 10
November 2004.
4. The petitioner issued a show cause notice dated 19 April
2006 calling upon the respondent to explain why damages under
Section 14B of the Act and interest under Section 7Q of the Act
should not be recovered. The respondent submitted its reply. The
explanation furnished for delayed remittance of contributions was
not accepted by the competent authority. Consequently, by order
dated 25 July 2007, the authority levied damages under Section
14B read with Paragraph 32 of the Scheme and interest under
Section 7Q of the Act.
5. Under Section 7Q of the Act, payment of interest is
mandatory. Paragraph 60 of the Scheme obligates the
Commissioner to credit interest to the account of each member at
such rate as may be determined by the Central Government in
consultation with the Central Board of Trustees. The petitioner
contends that an order passed under Section 7Q is not appealable
under Section 7-I of the Act.
6. The respondent challenged the order dated 25 July 2007
before the Appellate Tribunal by filing Appeal No. 672(9) of 2007.
By interim order dated 26 February 2010, the Tribunal directed the
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respondent to deposit 25% of the assessed amount with the
Commissioner. The respondent complied with the said direction
and deposited the amount.
7. The Tribunal proceeded to hear the appeal in the absence of
the respondent and, by order dated 21 February 2011, dismissed
the appeal. The said order was challenged before this Court in Writ
Petition No. 4519 of 2011. By order dated 10 August 2011, this
Court quashed and set aside the order dated 21 February 2011 and
remanded the matter to the Appellate Authority for fresh
consideration on merits after granting an opportunity of hearing to
both sides. Pursuant to the remand, the petitioner filed its reply
before the Appellate Tribunal. The Tribunal, by order dated 23
January 2014, allowed the respondent's appeal on the ground that
the authority had not applied the law in its proper perspective and
that no inquiry or finding had been recorded to establish that the
respondent had willfully and deliberately withheld the
contributions. The Tribunal further observed that the beneficiaries
were not identifiable. Aggrieved thereby, the petitioner has filed
the present writ petitions.
8. Mr. Mishra, learned counsel appearing for the petitioner,
submits that there is no finding recorded by the Inquiry Officer
establishing any willful default on the part of the appellant in
remitting provident fund dues within the prescribed time. It is
contended that the Tribunal failed to properly appreciate the law
laid down by the Supreme Court in Organo Chemical Industries
and Another v. Union of India (1979) 4 SCC 573, wherein,
particularly in paragraph 22, it was held that the expression
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"default" under Section 14B denotes failure in performance or
failure to act. According to him, the requirement of willful default
is not an essential ingredient for invoking Section 14B. He further
submits that the said principle has been reiterated by the Supreme
Court in Hindustan Times Ltd. v. Union of India, (1998) 2 SCC
242.
9. Learned counsel further submits that the finding recorded by
the Tribunal in paragraph 8 of the impugned order, namely that
damages ought not to be levied in the absence of mens rea on the
part of the appellant, has materially influenced the relief granted
to the respondent. According to him, such a proposition in relation
to imposition of penalty under civil law is contrary to the law laid
down by the Supreme Court in the case of SEBI and subsequently
affirmed in Union of India v. Dharamendra Textile Processors,
2008 (13) SCC 369.
10. It is further submitted that the Tribunal erred in holding that
the beneficiaries were not identified. Learned counsel contends
that beneficiaries are necessarily identified for the purposes of
provident fund and pension contributions, as the company had
deposited contributions along with requisite statutory returns
containing particulars and names of each employee. It is therefore
urged that the finding regarding non-identification of beneficiaries
is factually and legally unsustainable. According to him, in
proceedings under Section 14B, identification of beneficiaries is
not a relevant consideration, except to the extent required for
deposit of contributions.
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11. Learned counsel also submits that although the Tribunal
relied upon the judgment of the Supreme Court in HMT Ltd. v.
Union of India, (2008) 3 SCC 35, the said decision stands
impliedly overruled in view of the subsequent judgment in
Dharamendra Textile Processors, and therefore the reliance placed
by the Tribunal is misplaced. It is further submitted that even in
HMT Ltd., the matter was remanded by the Supreme Court to the
High Court for fresh consideration.
12. Per contra, Mr. D'Souza and Mr. Pai, learned counsel
appearing for the respondent, submit that it is undisputed that the
respondent establishment had been closed down pursuant to an
order passed by the Commissioner of Labour with effect from 20
March 2003. The said closure order was challenged before the
Industrial Tribunal, which set aside the order, and thereafter, in
Writ Petition No. 5046 of 2004 filed before this Court, the dispute
came to be resolved in terms of a Tripartite Memorandum of
Understanding and Settlement dated 11 September 2004. It is
submitted that disputes regarding payment of wages remained
pending before various judicial forums until such settlement was
arrived at, and consequently the liability of the appellant was
neither ascertained nor crystallized during that period. According
to the respondent, entitlement of employees to wages arose only
upon the said settlement. It is further contended that there was a
specific direction issued by this Court for payment of wages, which
was duly complied with by the appellant, and therefore it cannot
be said that wages were intentionally withheld. During the
pendency of litigation following closure of the division, workmen
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were not entitled to wages and, consequently, no provident fund
contributions were payable either by the employer or by the
employees.
13. Learned counsel for the respondent submits that a perusal of
the impugned order demonstrates that the authority conducting
the inquiry under Section 14B failed to apply the correct legal
principles. It is urged that no inquiry was conducted and no
finding of fact was recorded to establish that the appellant had
willfully and deliberately withheld provident fund contributions. In
the absence of such findings, the delay in remittance cannot be
treated as deliberate.
14. It is further submitted that the impugned order reflects non-
application of law in its proper perspective, as no finding exists to
show deliberate or willful withholding of provident fund
contributions. According to the respondent, in the absence of
identifiable beneficiaries claiming the provident fund dues
deposited by the establishment, damages levied would not enure
to the benefit of any beneficiary, and therefore levy of damages is
unwarranted. It is also contended that since the appellant is not a
willful defaulter, damages cannot be imposed in view of the
decision in HMT Ltd. On these grounds, the Tribunal set aside the
impugned order and allowed the appeal.
15. Learned counsel for the respondent further submits that
during the period commencing from the setting aside of the
closure order until the settlement, no wages were payable to the
employees. Inviting attention to Section 2(b) of the Employees'
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Provident Funds Act, it is contended that liability to pay basic
wages arises only when an employee is on duty. Since the
employees were not on duty during the relevant period, basic
wages were not payable and they were required to be treated as
being on leave. Reliance is also placed on Clause 29 of the
Employees' Provident Fund Scheme, 1952, to contend that liability
to pay contributions arises only when wages are payable. It is
further submitted that the amount paid under the settlement was
in the nature of compensation and not wages.
16. Relying upon the judgment in Organo Chemicals Industries
Ltd., learned counsel submits that while determining damages
under Section 14B, the authority is required to consider relevant
factors such as the number of defaults, the period of delay,
subsequent compliance, and the quantum involved. It is contended
that unless such factors are duly considered, an order imposing
damages cannot be sustained. According to the respondent, the
order passed by the petitioner suffers from non-consideration of
these material factors.
Reasons and analysis
17. The facts placed by the respondent need very careful
examination. This is not a case of delay without background. Here,
first there was a closure. Then that closure was challenged. After
that, there was litigation before different forums. Finally, the
matter ended in a settlement.
18. When a factory is closed and later the closure is set aside,
many questions arise. Were the workers working during that time.
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Were they entitled to wages. Was the employer under a clear duty
to pay wages month by month. If wages themselves were under
dispute and the matter was pending before a Court or Tribunal,
then the liability to pay provident fund contributions may also
remain uncertain for that period.
19. If there is a real and genuine dispute about whether wages
are payable, the employer may say that contribution cannot be
calculated until wages are decided. This type of dispute, if it is
bona fide and not created as an excuse, becomes a relevant factor.
The authority under Section 14B cannot ignore this background. It
must see whether the dispute was genuine and whether the
employer acted honestly during that period.
20. Section 2(b) defines basic wages. It connects wages with
duty or leave with wages. It may require determination first.
Therefore, in such a case, the authority must clearly decide from
which date wages became legally payable and from which date
contribution became due.
21. Now coming to the question of mens rea. The Tribunal held
that since there was no finding of willful and deliberate
withholding, damages could not be imposed. In other words, the
Tribunal treated absence of bad intention as enough to cancel
damages. The Act does not say that Section 14B requires proof of
bad intention in every case. The word used in the section is
"default", not "willful default". However, that does not mean
intention is totally irrelevant. If there is delay, default is made out
in principle. But while deciding whether to impose damages and
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how much, the authority must look at conduct. Was he deliberately
avoiding payment. Or was he facing genuine legal uncertainty.
These matters are important when fixing damages. So intention is
not a legal requirement, but conduct is a relevant circumstance.
22. On the question of identification of beneficiaries, the
Tribunal held that beneficiaries were not identified. But the record
shows that statutory returns were filed and names of employees
were given. Once returns are filed and deposits are made with
employee details, beneficiaries are normally identifiable. The law
does not say that identification of beneficiaries is a condition
before Section 14B can be applied. The purpose of damages is to
ensure timely compliance and protect the Fund. Therefore, the
reasoning that damages cannot be levied because beneficiaries are
not identified is not legally correct. At the same time, in a
particular case, if there is some practical difficulty in crediting
amounts to beneficiaries, that may be considered while exercising
discretion. But it cannot be treated as a complete bar to levy
damages.
23. Next is the question of inquiry. The record shows that the
order under Section 14B does not discuss in detail the effect of
closure, the pending litigation, or the settlement. The order does
not clearly explain why the delay is treated as blameworthy
despite these facts. The Act requires not only hearing, but also
reasoning. The employer must be given an opportunity to explain.
But the authority must also show in its order that it has considered
that explanation properly. A fair inquiry means more than issuing
notice and passing an order. The authority must analyse the facts.
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It must state reasons. It must show why it accepts or rejects the
employer's explanation.
24. Before imposing damages under Section 14B, certain factors
must be kept in mind. These include the number of times default
occurred. The total period of delay. The reasons for delay. Whether
the employer acted in good faith. Whether contributions were
ultimately deposited and how quickly. Whether beneficiaries can
be clearly identified. The financial position of the establishment,
especially if it is sick or under rehabilitation. These are guiding
factors.
25. When we read the judgments together, the position becomes
clear. Organo explains what default means. HMT and later cases
held that mitigating circumstances are important. Recent
judgments hold that civil penalties do not always need mens rea.
But they also hold that discretion must be used properly. So the
combined effect is this. Default creates liability in principle. But
damages and their amount must be decided after careful and
reasoned consideration of facts.
26. Applying these principles to the present case, it becomes
clear that both sides have arguable case. The Tribunal made two
mistakes. First, it treated absence of mens rea as a complete bar to
damages. Second, it accepted the finding that beneficiaries were
not identified, even though records show otherwise. At the same
time, the authority who imposed damages also failed in its duty. It
did not properly examine the effect of closure. It did not analyse
the pending industrial disputes. It did not clearly state why the
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delay after settlement should still attract damages without
reduction. There is no detailed reasoning.
27. In such a situation, the proper course is to send the matter
back for fresh decision. The Tribunal's legal conclusions on mens
rea and identification cannot be upheld. But the original order
imposing damages also cannot be confirmed because it lacks
proper reasoning.
28. Therefore, the matter must go back to the competent
authority for fresh consideration. The officer must record clear
findings on the relevant points. Reasons must be given. Relevant
judgments must be considered. Only after such careful exercise can
a decision on damages be made.
ORDER
(i) The impugned order dated 23 January 2014 passed
by the Provident Fund Appellate Tribunal in ATA Nos.
672(09) and 673(09) of 2007 is hereby quashed and
set aside.
(ii) The order passed by the competent authority under
Section 14B of the Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 imposing damages
is also set aside.
(iii) The proceedings are remanded to the competent
authority under Section 14B for fresh adjudication in
accordance with law.
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(iv) The parties shall appear before the competent
authority on 16 March 2026 at 11.00 a.m. without
awaiting any further notice.
(v) The authority shall reconsider the matter afresh
after granting reasonable opportunity of hearing to
both parties. The authority shall record clear findings
on the issue of default, the period of delay, the reasons
for delay including the effect of closure and subsequent
settlement, the entitlement of employees to wages
during the relevant period and the quantum of
damages, if any.
(vi) The authority shall pass a reasoned order dealing
with all material submissions and relevant factors
within a period of four months from the date of receipt
of this order.
(vii) Till the fresh decision is taken, no coercive steps
shall be initiated for recovery of damages pursuant to
the earlier order.
(viii) All contentions of both parties are kept open for
consideration before the competent authority.
29. The writ petitions stand disposed of in the above terms. No
order as to costs.
(AMIT BORKAR, J.)
