Regional Provident Fund ... vs M/S Bilaspur Spinning Mills And ...
2022 Latest Caselaw 2138 Chatt

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                                                                     AFR

           HIGH COURT OF CHHATTISGARH, BILASPUR

                         WPL No. 177 of 2013

                      Reserved on : 14.02.2022

                      Delivered on : 05.04.2022

      Regional Provident Fund Commissioner Employees' Provident
      Fund Organization Regional Office, Raipur (C.G.)
      Block-D, Scheme No. 32, Indira Gandhi Commercial Complex,
      Pandri, Raipur (C.G.) PIN- 492004.
                                                           ---- Petitioner
                                Versus

1.   M/s Bilaspur Spinning Mills & Industries Ltd., Lalkhadan, Bilaspur
     (C.G.)
2.   Employees' Provident Fund Appellate Tribunal, Scope Minar,
     Core-II, 4th Floor, Laxmi Nagar District Centre, Laxmi Nagar, New
     Delhi- 110092.
                                                       ---- Respondents

For Petitioner : Mr. Sunil Pillai, Advocate. For Respondent No. 1 : Mr. Sourabh Sharma, Advocate.

Hon'ble Shri Justice Narendra Kumar Vyas CAV ORDER

1. The petitioner/Regional Provident Fund Commissioner Employees' Provident Fund Organization has filed the present Writ Petition (L) under Article 226/227 of the Constitution of India challenging order dated 08.09.2009 (Annexure P/1) passed by respondent No. 2 (Employees Provident Fund Appellate Tribunal) in ATA No. 22(8)2008 (M/s Bilaspur Spinning Mills and Industries Ltd. Vs. RPFC, Chhattisgarh).

2. Learned counsel for the petitioner would submit that he has filed application for amendment in the writ petition and would pray that above Regional Provident Fund Commissioner, Central Board of Trustees, EPF be allowed to incorporate. The said amendment is allowed. The petitioner has also filed an

application for taking document on record which was copy of the judgment passed by Coordinate Bench of this Court in WPL No. 5032 of 2011, the same is allowed.

3. The brief facts as reflected from the record are that petitioner issued a notice to respondent No. 1 on 03.01.2007 (Annexure P/4) alleging there is delay in remittance of provident fund dues. The notice was issued for assessment of damages for delay remittance of provident fund dues for the period from March, 1982 to April, 2000. The Respondent No. 1 has submitted reply to the notice contending that due to financial crunch, they were unable to pay arrears of provident fund dues, therefore, Provident Fund Inspector has filed 80 criminal complaints (Annexure P/4) before the Judicial Magistrate First Class-cum

-Labour Court, Bilaspur complaining for prosecution of petitioner company for commission of offences under Paragraph 76 (d) of the Employees' Provident Funds Scheme, 1952 read with Sections 14 (1), 14(1A), 14(2), 14A & 14AA of the Act, 1952 as they defaulted in making payment of provident fund dues for the period July, 1986 to January, 1991. The said offence is punishable under Section 14(1) & 14A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short "the Act, 1952"). The petitioner has entered appearance before the Labour Court, wherein, they have requested the Judicial Magistrate First Class that they may be allowed to deposit Rs. 25,000/- per month towards arrears of payment of provident fund dues. Learned Judicial Magistrate First Class vide its order dated 25.03.1996 (Annexure P/5) fixed the installments Rs. 40,000/- per month and closed the case imposing Rs. 200/- as fine in each case filed by the Provident Fund Inspector.

4. Against that order, the Provident Fund Inspector/Enforcement Officer has filed Criminal Revision No. 741/1996 before High Court of Madhya Pradesh. The petitioner has given under taking before High Court of Madhya Pradesh to deposit an amount of Rs. 60,000/- per month in place of Rs. 40,000/- per month

towards the arrears of provident fund, recoverable from the above Company. Accordingly, the order of the Judicial Magistrate First Class was modified to the above extent by the High Court of Madhya Pradesh.

5. Since they are monthly depositing provident fund dues which is no fault of the company but result of the accepting the payment on the basis of an agreed order as per the direction of the Hon'ble Court of Madhya Pradesh at Jabalpur on monthly installments and in view of company's unhealthy financial condition, no source of income, they have submitted the representation for waiver. It has also been contended that mill has closed its production since 1992 and to settle the demand, they will make endeavor for payment of Rs. 47,062/- which has been claimed as damages and would pray for closure of the proceeding.

6. It has also been stated in the application that the Labour Court, Bilaspur has rightly imposed penalty of Rs. 200/- in each case, but it has not imposed any penalty on defaulted amount of dues. There is also no mention of any restriction to levy penal damages under Section 14B and interest under Section 7Q of the Act, 1952 on the belated payment of dues in installments in the said order. Hon'ble High Court, Jabalpur has also not passed any direction while disposing of Criminal Revision No. 741 of 1996 with regard to levy penal damages and interest on dues paid belatedly in installments by respondent No.1. The Assessing Authority Under Section 7A vide impugned order dated 03.01.2007 (Annexure P/4) has imposed penalty to the tune of Rs. 20,32,118/- on respondent No. 1.

7. The respondent No. 1 against that order, has preferred an appeal before respondent No. 2 which is registered as A.T.A. No. 22 (8) 2008. Respondent No.2 after considering the submission made by the parties and considering the law laid down by Hon'ble Supreme Court case in Organo Chemical Industries

& another Vs. Union of India & others 1, and considering various judgments passed by Hon'ble the Supreme Court as well as various High Courts, restricted the damages upto 15% of the arrears of the contribution vide its order dated 08.09.2009 (Annexure P/2). The finding recorded by the learned Tribunal is as under:-

"Therefore, settled law is that for belated remittance of PF dues liability to pay damages does not arise automatically, but the same will have to be decided by the PF authorities by applying mind to the merits of the case and not be resorting to arithmetical calculations. The levy of damages by following the straight jacket formula amounts calculation of damages without application of mind and is illegal and liable to struck down. Also in the case of Organo Chemical Industries and another vs. Union of India & Others (AIR 1979 SC 1803) the Apex Court observed that while fixing the amount of damages the RPFC generally takes into consideration various factors viz a viz the numbers of defaults, the period of delay, the frequency of defaults and the amount involved. Therefore, for levying damages under Section 14B of the Act, the employer has to be given due opportunity of being heard. This hearing would not mean mechanical hearing but has to be construed upon some principles."

8. Learned counsel for the petitioner would submit that the matter involved in this case is related to implementation of social security legislation which relates to the provident fund and pensionary benefit of poor workers of M/s Bilaspur Spinning Mills. The employer filed case with a view to defeat the object of the social security legislation, which provides for a means to the employees on their retirement, so that they can spend their retired life with some element of comfort. In view of the above, it is prayed that the delay occurred due to administration procedure and reasons may kindly be condoned in the interest of justice. Learned Appellate Tribunal without applying its mind and without assigning any reason has committed material illegality apparent on the face of the record in allowing the

1 AIR 1979 SC 1803

appeal. He would refer to the judgment rendered by Hon'ble the Supreme Court in M/s Hindustan Times Ltd. Vs. Union of India2, wherein the financial status of any establishment does not affect the enforcement of Section 14B has been decided. He would also refer to the judgment in M/s Esskay Machinery (P) Ltd. Vs. RPFC3. He would further submit that the impugned order may kindly be quashed.

9. On the other hand, learned counsel for respondent No. 1 would submit that the order passed by Provident Fund Appellate Tribunal is legal, justified and does not warrant any interference by this Court.

10. I have heard learned counsel for the parties and perused the documents placed on record with utmost satisfaction.

11. In this case, respondent No.1 has not filed any reply to the writ petition for the last 9 years, therefore, on the basis of material placed on record, this Court is deciding the matter.

12. Learned counsel for the petitioner would submit that the imposition of penalty by the authorities in the impugned order is legal, justified and should have not been interfered by the Tribunal by allowing the appeal. Learned counsel for the petitioner would further submit that for imposition of damages under Section 14B of the Act, 1952, it is not necessary for the Provident Fund Organization to consider to mens rea of the employer for imposing the damages for breach of civil obligation/liability. He would refer to the judgment of Hon'ble Supreme Court in case of Horticulture Experiment Station Gonikoppal, Coorg Vs. The Regional Provident Fund Organization4 and would refer to paragraph 13, 16 & 17 of the judgment, which read as under:-

"13. Taking note of the exposition of law on the subject, it is well-settled that mens rea or actus reus is not an essential element for imposing penalty or damages for breach of civil obligations

2 (1998) 2 SCC 242 3 (1998) Lab IC 2258 4 Civil Appeal No. 2136 of 2012 (Decided on 23.02.2022)

and liabilities.

16. Learned counsel for the appellant(s) further placed reliance on the judgment of this Court in Mcleod Russell India Ltd. (supra), wherein the question emerged for consideration was as to whether the damages which has been charged under Section 14B of the Act 1952 would be recoverable jointly or severally from the erstwhile as well as the current managements. At the same time, the judgment relied upon in Assistant Provident Fund Commissioner, EPFO and Another (supra) was decided placing reliance on the judgment of this Court in Mcleod Russell India Ltd. (supra), which may not be of any assistance to the appellant(s).

17. Taking note of three-Judge Bench judgment of this Court in Union of India and Others v.

Dharmendra Textile Processors and others (supra), which is indeed binding on us, we are of the considered view that any default or delay in the payment of EPF contribution by the employer under the Act is a sine qua non for imposition of levy of damages under Section 14B of the Act 1952 and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligations/liabilities." Therefore, the learned Tribunal should have dismissed the appeal.

13. On the other hand, learned counsel for respondent No. 1 would submit that the provident fund dues were paid on installment basis in view of the under taking given before the High Court. It has been further submitted that there is no source of income and financial position of the company was on bad shape, therefore, the order passed by the learned Tribunal is legal, justified and does not warrant any interference by this Court.

14. Before adverting to the facts of the case, it is expedient for this Court to extract 14B of the Act, 1952, which reads as under:-

"14B. Power to recover damages.--Where an employer makes default in the payment of any contribution to the Fund [, the [Pension] Fund or the Insurance Fund] or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 [or sub-section (5) of section 17] or in the payment of any charges payable under any other provision of this Act or of

5[any Scheme or Insurance Scheme] or under any of the conditions specified under section 17, [the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf] may recover 7[from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:] [Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard:] [Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the Scheme.]"

15. From bare perusal of the order dated 03.01.2007 (Annexure P/4) passed by learned Regional Provident Fund Commissioner, Raipur, it is quite vivid that the authority while passing the impugned order has not taken into consideration the relevant circumstances namely number of defaults, the period of delay, frequency of default and the amount involved, before imposing damages to the extent of 100%. The learned Tribunal has also recorded the finding that the petitioner while imposing huge penalty damages has not exercised its discretions, viz a viz the actual reason for delay in remittance of provident fund dues, as such, the orders suffer from reason and the circumstances in which the default in remittance of provident fund dues occurred, has restricted the damages to the tune of 15% only. The non- consideration of the circumstances, facts as mentioned above, vitiate the order as it is against the law laid down by Hon'ble the Supreme Court in Organo Chemical (Supra), wherein Hon'ble the Supreme Court has held at paragraph 14 & 15 as under:-

"14. The contention that section 14B confers unguided and uncontrolled discretion upon the Regional Provident Fund Commissioner to impose

such damages 'as he may think fit' is, therefore, violative of Article 14 of the Constitution, cannot be accepted. Nor can it be accepted that there are no guide-lines provided for fixing the quantum of damages. The power of the Regional Provident Fund Commissioner to impose damages under s.

14B is a quasi-judicial function. It must be exercised after notice to the defaulter and after giving him a reasonable opportunity of being heard. The discretion to award damages could be exercised within the limits fixed by the Statute. Having regard to the punitive nature of the power exercisable under s. 14B and the consequences that ensue therefrom, an order under s. 14B must be a 'speaking order' containing the reasons in support of it. The guide-lines are provided in the Act and its various provisions, particularly in the word 'damages' the liability for which under s. 14B arises on the 'making of default'. While fixing the amount of damages, the Regional Provident Fund Commissioner usually takes into consideration, as he has done here, various factors viz. the number of defaults, the period of delay, the frequency of defaults and the amounts involved. The word 'damages' in s. 14B lays down sufficient guidelines for him to levy damages.

15. Learned counsel for the petitioners, however, contends that in the instant case, the period of arrears varies from less than one month to more than 12 months and, therefore, the imposition of damages at the flat rate of hundred per cent for all the defaults irrespective of their duration, is not only capricious but arbitrary. The submission is that if the intention of the legislature was to make good the loss caused by default of an employer, there could be no rational basis to quantify the damages at hundred per cent in case of default for a period less than one month and those for a period more than 12 months. It is urged that the fixation of upper limit at hundred per cent is no guide-line. If the object of the Legislation is to be achieved, the guide-lines must specify a uniform method to quantify damages after considering all essentials like loss or injury sustained, the circumstances under which the default occurred, negligence, if any, etc. It is said that the damages under s. 14B which is the pecuniary reparation due must be correlated to all these factors. In support of his contention, he drew our attention to s. 10F of the Coal Mines Provident Fund and Bonus Schemes Act, 1958, which uses the words

'damages not exceeding twenty-five per cent' like section 14B of the Act, and also to a tabular chart provided under that Act itself showing that the amount of damages was correlated to the period of arrears. We regret, we cannot appreciate this line of reasoning. Section 10F of the Act of 1958 came up for consideration before this Court in Commissioner of Coal Mines Provident Fund, Dhanbad v. J. Lalla & Sons.(1) This Court observed, firstly, that the determination of damages is not 'an in flexible application of a rigid formula', and secondly, the words 'as it may think fit to impose' show that the authority is required to apply its mind to the facts and circumstances of the case. The contention that in the absence of any guide-lines for the quantification of damages, s. 14B is violative of Article 14 of the Constitution, must, therefore, fail."

16. It is quite vivid from the records placed on record by the petitioner Annexure A/3 i.e. order of Hon'ble High Court of Madhya Pradesh that the petitioner himself agreed to payment of provident fund dues on installments and there is no mentioning about imposition of damages and the amount has been paid and considering the fact that company has stopped its production, imposition of damages to the tune of 15% is legal, justified and in accordance with the law laid down by Hon'ble the Supreme Court in case of Regional Provident Fund Commissioner, West Bengal & another Vs. Delta Jute and industries Ltd. & another5, wherein it has been held at paragraph 3 & 4 as under:-

"3. Although it appears to us that the order passed by the learned trial Judge was not couched in such a manner for which it can be inferred that it is a consent order, but it appears to us that after considering the facts and circumstances of the case and presumably after keeping in view the provision of Section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, the learned trial Judge passed the order for making payment of arrear dues in installments with a direction that no interest or damages should be charged.

4. In the facts of the case and also considering the fact that after a scheme was prepared by this 5 (1997) 10 SCC 384

Court, the respondent Company, which was a sick industry, has revived and has paid both the current and arrear dues of provident fund contribution in instalments without any default. In the special facts of the case, it will not be desirable to direct for payment of interest and damages as claimed so that the process of revival is again put to jeopardy. Considering the provisions of Section 14-B of the said Act and also the facts of the case, we do not intend to interfere with the impugned order. This appeal is accordingly disposed of without any order as to costs."

17. The contention of learned counsel for the petitioner that the quashing of the proceeding under Section 14B of the Act, 1952 on account of delayed initiation is not permissible in view of judgment rendered by Hon'ble the Supreme Court in Hindustan Times Ltd. (Supra). This proposition is no more res integra but Hon'ble the Supreme Court again insists the authorities while conducting the proceeding under Section 14B of the Act, 1952 to apply its mind to the facts of the case and pass reasoned order. Hon'ble the Supreme Court at paragraph 29 & 30 has held as under:-

"29. From the aforesaid decisions, the following principles can be summarised:

The authority under Section 14-B has to apply his mind to the facts of the case and the reply to the show cause notice and pass a reasoned order after following principles of natural justice and giving a reasonable opportunity of being heard; the Regional Provident Fund Commissioner usually takes into consideration the number of defaults, the period of delay, the frequency of default and the amounts involved; default on the part of the employer based on pleas of power cut, financial problems relating to other indebtedness or the delay in realisations of amounts paid by the cheques or drafts, cannot be justifiable grounds for the employer to escape liability; there is no period of limitation prescribed by the legislature for initiating action for recovery of damages under section 14B. The fact that proceedings are initiated or demand for damages is made after several years cannot by itself be a ground for drawing an inference of waiver or that the employer was lulled into a belief that no proceedings under section 14B would be taken;

mere delay in initiating action under section 14B cannot amount to prejudice inasmuch as the delay on the part of the department, would have only allowed the employer to use the monies for his own purposes or for his business especially when there is no additional provision for charging interest. However, the employer can claim prejudice if there is proof that between the period of default and the date of initiation of action under section 14B, he had changed his position to his detriment to such an extent that if the recovery is made after a large number of years, the prejudice to him is of an "irretrievable" nature: he might also claim prejudice upon proof of loss of all the relevant records and/or non-availability of the personnel who were, several years back in charge of these payments and provided he further establishes that there is no other way he can reconstruct the record or produce evidence; or there are other similar grounds which could lead to "irretrievable" prejudice; further, in such cases of "irretrievable" prejudice, the defaulter must take the necessary pleas in defence in the reply to the show cause notice and must satisfy the concerned authority with acceptable material; if those pleas are rejected, he cannot raise them in the High Court unless there is a clear pleading in the writ petition to that effect.

30. In the present case before us, no doubt there is delay of 14 years in initiating action and the damages are levied because of the delay in realisation of the amounts paid by cheque where the amounts were credited into the accounts of the department beyond the grace period of 5 days. The plea of strike, even assuming it to be relevant, was not proved. The plea of the appellant that the department must be deemed to have dropped the proceedings in 1971 did not also have any legs to stand. There is no plea of any irretrievable prejudice either in the reply to the show cause or in the writ petition."

18. From the facts and material placed on record by the petitioner, it is quite clear that no such compliance has been made by the petitioner, therefore, there is no illegality in reducing the damages to the extent of 15% by the learned Tribunal.

19. From the above stated legal position, in case of Horticulture (Supra), it is quite vivid that mens rea is not an essential element for imposing penalty/damages for breach of civil

obligation/liabilities by the Provident Fund authorities. But it is incumbent upon the authorities while imposing damages should consider the other relevant factors namely number of defaults, the period of delay, frequency of default and the amount involved, reason for delay remittance of provident fund contribution, which are paramount duty of the authority while imposing damages which the authority has failed to discharge, therefore, considering these aspects of the matter, the learned Tribunal has passed the impugned order.

20. Learned tribunal has assigned reason for reducing the damages and also considered the financial strain suffered by the petitioner which was not rebutted by the department either in the writ petition or before the tribunal. Therefore, the finding recorded by the learned tribunal reducing the damages to the extent of 15%, is just and proper and does not warrant any interference by this Court. Even otherwise, the petitioner is unable to point out any illegality or irregularity in the impugned order or in the proceeding of the learned Tribunal, which warrants interference.

21. Accordingly, the instant writ petition is liable to be and is hereby dismissed.

Sd/-

(Narendra Kumar Vyas) Judge

Arun