Jagannath Prasad Jhalani And ... vs Regional Provident Fund ...
1987 Latest Caselaw 163 Del

JUDGMENT

D.P. Wadhwa, J.

1. This petition under section 633(2) of the Companies Act, 1956 (for short "the Act"), was filed on 4th September, 1984. Earlier, when the petition was filed, the petitioner company was known as M/s. Gedore Tools (India) Pvt. Ltd. The name of the company was changed to M/s. Jhalani Tools (India) Pvt. Ltd. and this new name was registered under section 23 of the Act. It was stated that the change in the name would not affect any prosecution sought to be launched by any of the respondents. In fact, this is what sub-section (3) of section 23 of the Act says. By an order dated 1st December, 1986, on an application (C.A. No. 2518 of 1986), the name of M/s. Jhalani Tools (India) Pvt. Ltd. was allowed to be substituted in place of M/s. Gedore Tools (India) Pvt. Ltd.

2. There are 10 petitioners and respondents are 6 in number. Respondents Nos. 3, 4 and 6 are Income-tax Officers under the charge of Commissioner of Income-tax, Rohtak, and Commissioner of Income-tax, Delhi VI, New Delhi. Respondent No.1 is the Regional Provident Fund Commissioner (Haryana) and respondent No. 2 is the Regional Director, Employees' State Insurance Corporation (ESIC), also of Haryana. Respondent No. 5 is the Registrar of Companies (Delhi & Haryana) but no relief is sought against this respondent. It is stated that petitioners Nos. 1 and 2 are not the working directors of the company and are not responsible for the day to day conduct of the business of the company. The only working directors of the company are stated to be petitioners Nos. 3, 4 and 5. Petitioner No. 6 is the nominee director of the State Industrial and Investment Corporation of Maharashtra, a financial institution from where the company had taken loan. Petitioners Nos. 7 and 8 are alternate directors nominated by two non-resident German directors of the company. It is stated that they are on the board by virtue of their expertise and professional skill. Petitioners Nos. 9 and 10 are respectively the general manager and senior personnel manager of the company and it is stated that they are not responsible for the defaults in respect of payments of statutory dues since they have no authority to make such payments.

3. The defaults for which the petitioners want to be excused from prosecution are falling under three different Acts, namely, the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short "the Provident Fund Act"), the Employees' State Insurance Act, 1948, and the Income-tax Act, 1961.

4. The petitioners state that the company is engaged in the manufacture and sale of hand tools. It has six manufacturing units, four in Haryana and two in Maharashtra. There are about 6,000 employees working in the company. For the last about three years, there was recession of a very serious nature which affected export-oriented companies including the petitioner company and the company was also affected by steep rise in steel prices in India and from February, 1981, steel prices in India were almost double of those prevailing in the international market. The working conditions of the company in its factories at Faridabad also remained disturbed for about a year from March, 1983, to April , 1984, due to inter-union rivalry and this also resulted in lower production. The factory at Kundli also remained closed from March to May, 1984. In July, 1981, the Government announced a scheme called International Price Reimbursement Scheme (IPRS) with a view to pushing up the export of hand tools. Certain guidelines were laid for providing cash subsidy to make up the difference between the international and domestic prices to the exporters of engineering goods retrospectively with effect from 9th February, 1981. Forging quality carbon steel and chrome vanadium steel, the basic raw materials used by the company for manufacturing hand tools were not covered under the scheme and the company, therefore, could not claim any benefit there under. However, the matter was represented to the Government by the company and forging quality carbon steel was included in the scheme with effect from 17th March, 1982. It is stated that chrome vanadium steel is still not covered under the scheme. The company represented to the Government for inclusion of forging quality carbon steel in the scheme with effect from 9th February, 1981, and various representations were made for the purpose. It is stated that it was on 16th July, 1984, that benefits of IPRS were extended to hand tools made from chrome vanadium steel as well. It is then claimed that the total subsidy available to the company for chrome vanadium steel if the scheme is implemented with effect from 9th February, 1981, would be around Rs. 1 crore and that if subsidy is provided for forging quality carbon steel from 9th February, 1981, the total amount of subsidy due to the company would be around Rs. 1,30,00,000. Then, it is stated that because of recession and high steel prices prevailing in the country, the company suffered losses during the two years (1981-82, ending June, 1982, and 1982-83, ending December, 1983), and that after adjusting depreciation and the export incentive received by the company, the losses for these two years were respectively Rs. 1.86 crores and Rs. 6.55 crores. It is then stated that the company being labour intensive having about 6,000 employees wanted to protect as many jobs as it could in the national interest and that with that end in view was trying to manage the situation in the best possible manner and did not take recourse to retrenchment or closure. Financial crisis led to defaults in payment of statutory dues. The aforesaid circumstances, it is claimed, were beyond the control of the petitioners and that payments under the three Acts mentioned above could not be made after March, 1982, or could no be deposited in time. It is stated that prior to February, 1982, the company always deposited the statutory dues within the specified time. In paragraph 15A of the petition which was added after amendment of the petition, it was stated that due to continuous decline in production and rise in cash losses, the T.D.S. (tax deducted at source) for the period April, 1981, and onwards was deposited late. However, it is stated that no statutory dues were payable under the Income-tax Act in respect of the head office of the company at New Delhi up to October, 1984. After October, 1984, statutory dues under the Income-tax Act again could not be deposited because of "adverse economic downfall and circumstances beyond their control". The petitioners, therefore, also seek exemption from prosecution for defaults regarding non-payment of income-tax (tax deducted at source) in respect of the head office as mentioned in the paragraph. Then the petitioners add that the recession is now lifting gradually and conditions in the industry are improving. This is apart from the fact that the company is trying to persuade the Government to implement the scheme (International Price Reimbursement Scheme) retrospectively from 9th February, 1981, and that in case it is done, the company will be having funds to meet all its liabilities immediately thereafter. Then the petitioners make the following statement in paragraph 16 :

"In any case, the company will be in a position to deposit the entire statutory dues within a period of about two years..............."

5. The petitioners claim to have acted always honestly and reasonably and say that, therefore, they are not liable for any contravention of any provision of law as they have been managing the affairs of the company in the best possible manner. It is admitted that prosecutions under sections 406 and 409 of the Indian Penal Code are pending against petitioners Nos. 1 to 5 on account of non-deposit of employees' share of provident fund for the period from March, 1982, to February, 1984. There is no such prosecution against petitioners Nos. 6 to 10 and further that no prosecution is pending against any of the petitioners in respect of non-deposit of employer's share of provident fund for the period from March, 1982, onwards. The petitioners thus say that they apprehend prosecutions by respondents Nos. 1 to 4 and 6. They, therefore, on these allegations pray to be excused and/or relieved from the prosecutions likely to be launched against them.

6. Replies by the Regional Provident Fund Commissioner (Haryana), Regional Director, ESIC (Haryana) and the Income-tax Department have been filed.

7. The Regional Provident Fund Commissioner (RPFC) in his affidavit in reply dated 15th March, 1985, says that the provident fund dues in default amount to Rs. 1,07,55,125.97 though as per statement admittedly filed by the company, the default is to the tune of Rs. 69,38,207.50 only. It is stated that there is nothing on record to show that the financial position of the company was so bad that it could not pay even the wages and if the wages could be paid, the least that could be expected was that employees' share deducted towards provident fund dues was paid and that this amount deducted from the employees' wages was in trust with the company and could not be utilised for its business purpose. It is then said that financial difficulty per se is no excuse for not discharging the statutory obligations under the Provident Funds Act and that the company filed no details whatsoever to show that on any particular date when the provident fund dues were to be paid, it was not in possession of sufficient funds to discharge its obligations. The liability of the company and every person who at the time the offence was committed was in charge of and was responsible to the company for the conduct of its business is absolute as provided under section 14A of the Provident Funds Act. RPFC in his affidavit then states that necessary particulars are lacking in the petition and necessary details to show that the petitioners acted honestly and fairly have not been shown and that vague and general statement of financial difficulties was no ground to seek relief from the discharge of legal obligations. It is denied that the petitioners acted honestly and reasonably and that as per record available with the RPFC, petitioners Nos. 1 to 5 were in charge of and in control of the affairs of the company. In support of this contention, copies of the returns filed by the company in Form No. 5 under the Provident Funds Act and Rules have been placed on record.

8. Somewhat similar is the reply filed by the Regional Director, ESIC (Haryana). The default is stated to be to the tune of about Rs. 73 lakhs apart from interest at the rate of 6% per annum accruing thereon.

9. In his affidavit-in-reply, the Inspecting Assistant Commissioner of Income-tax, Range VIA, has said that the company did not deposit the amount of tax deducted at source from its employees in its office in Delhi for the period relevant to financial years 1981-82 and 1982-83 within the period prescribed and, therefore, a notice to show cause was issued on 16th January, 1986, as to why prosecution be not filed under section 276B of the Income-tax Act, 1961. In reply to this show cause notice, a reply was submitted by the company stating that it had already filed a petition in this court seeking exemption from filing prosecution against directors and managers in respect of the defaults of payment of statutory dues including that of income-tax (TDS). It is further stated in the affidavit that TDS is the amount deducted by the company from salaries of its employees at the time of payment of salaries and the TDS is required to be deposited within 7 days of deduction in terms of rule 30 of the Income-tax Rules, 1962. It is stated that this amount was in fact Government money and was lying in trust with the company. The reasons of the company for not depositing the TDS on the ground that there was recession in the industry and that the company expected to realise from the Government substantial amount as steel subsidy have been stated to be of no relevance.

10. Parties were allowed to lead evidence by means of affidavits. At the time of admission of the petition, it was directed that no further prosecutions would be filed. By order dated 15th January, 1986, it was directed that the current dues as required under the statute should be regularly paid from January, 1986, onwards without fail and if these were not paid, the stay would automatically stand vacated. There was some controversy between the parties whether this order pertained to the dues under the Provident Funds Act only or under the Employees' State Insurance Act and the Income-tax Act as well. During the course of these proceedings, it was submitted by Mr. R. C. Chawla, learned counsel for the Regional Provident Fund Commissioner, that this order had not been complied with. The petitioners were, therefore, directed to file a detailed affidavit giving the particulars of the payments made after 15th January, 1986, unit-wise and date-wise. An affidavit was also required to be filed in respect of payments of dues to the Employees' State Insurance Corporation. On 24th November, 1986, the following order was passed :

"I have heard the arguments. Meanwhile, I would direct the petitioner to file balance-sheets of the company for the subsequent years, i.e., after 1982-83. The petitioner will also file an affidavit to bring on record all the payments due to the Regional Provident Fund Commissioner as well as to the Employees' State Insurance Corporation and to the Income-tax Department. The petitioner will state as to how it is intended to clear these arrears inasmuch as it is stated by Mr. Bhandare, learned counsel for the petitioner, that in pursuance of court's order dated 15th January, 1986, the payment of provident fund and Employees' State Insurance Corporation's contribution has been paid though there might be slight delay here and there. As regards income-tax (TDS) for this year, Mr. Bhandare says that payment will be made within one week. I will note that Mr. Sat Pal, learned counsel for the Income-tax Department, has brought on record an affidavit showing the amount of salary paid to the various employees of the companies including some of the petitioners and the tax deducted at source for the year 1986. The petitioner will also indicate in the affidavit if any certificate has been issued to any of the employees including the petitioners in respect of tax deducted at source as provided in section 203 of the Income-tax Act, 1961. The petitioner will then state if there are entries in the contribution cards of the employees in respect of both the employer's and employee's contribution to the provident fund as well as the Employees' State Insurance Corporation and also whether proper books of accounts in respect of provident fund and Employees' State Insurance Corporation contributions have been maintained. The affidavit will be filed within one week from today.

List this case for directions on 1st December, 1986. If any further arguments are to be heard, another date will be fixed."

11. It was stated that the affidavit filed subsequent to this order by the petitioners was not in terms of the order. Thereafter, further arguments were heard.

12. Mr. R. C. Chawla, learned counsel for the RPFC, said that section 633(2) of the Act would not be applicable to a default on non-payment of contributions as required under section 6 of the Provident Funds Act. He doubted the correctness of the decisions of this Court in In re Beejay Engineers Pvt. Ltd. [1983] 53 Comp Case 918. This judgment was rendered by the Division Bench. One of the question raised therein was if while exercising powers under section 633 of the Act, the court had jurisdiction to grant relief against prosecution under other Acts. In that case, a petition had been filed under section 633(2) of the Act for being relieved/excused from proceedings which were likely to be launched for alleged contravention of the Provident Funds Act, Central Excises and Salt Act, Employees' State Insurance Act, Sales Tax Act and Income-tax Act with reference to tax deducted at source. The court held that the section would apply to all legal proceedings, civil, criminal or otherwise, so long as the liability of an officer of a company arose from negligence, default, breach of duty, misfeasance or breach of trust and he could be relieved from such liability on account of his having acted honestly, namely, in good faith and if he had justifiable reason to escape from such liability. It was held that the words "any proceeding" appearing in section 633 were emphatic words and the same ought not to be constructed in a narrow sense. The court observed that the language of the section was clear and explicit and that effect had to be given to it whatever the consequences. It, however, struck a note of caution by saying that "we may, at the same time, make it abundantly clear that if the provisions of any particular statute under which liability is sought to be fastened on an officer of a company are in any way inconsistent with or have overriding effect over the provisions of this section, the court exercising power under this section will have to take due notice of the same before granting relief from the liability". After examining the various provisions of the Act and some other Acts, it appears to me that perhaps this decision needs reconsideration. Section 633 of the Act cannot be a panacea for all the ills, i.e., defaults/offences committed in respect of various other enactments, those already in force and those which came on the statute book at a subsequent date. An act may not have been an offence when the Companies Act was enforced and it is, therefore, difficult to see how the Companies Act could become applicable in that case and when particularly the other Act defining the offence itself provides punishment for offences/defaults committed by the companies. To illustrate, section 276C was introduced in Chapter XXII relating to offences and prosecutions in the Income-tax Act, 1961, with effect from 1st October, 1975. willful attempt to evade tax has now been made an offence and is punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 3 years and is also punishable with fine. Section 278B in this chapter prescribes as to how companies are to be held liable for the offences committed under the Income-tax Act. Relevant provisions of section 278B are as under :

"278B. (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly :

Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly."

13. Similarly, section 17 of the Prevention of Food Adulteration Act, 1954, deals with offences by companies. So is section 10 of the Essential Commodities Act, 1955, and also section 14A of the Provident Funds Act. The list appears to be endless. If the words "any proceeding" are of wide amplitude, then perhaps Chapter XXI of the Income-tax Act dealing with penalties imposable for various defaults committed under that Act would also be within the ambit of section 633(2) of the Act. This does not stand to reason. I need not, however, say anything further on the question thus posed by Mr. Chawla as he himself said that he would proceed on the basis of the law as laid in the aforesaid decision of this Court and would still submit that the provisions of section 633(2) of the Act could not apply to a case of default in depositing the employees' contribution deducted from his wages. In this connection he referred to Explanation I to section 405 of the Indian Penal Code which was introduced by Act No. 40 of 1973. Similar Explanation was introduced with respect to deduction made by an employer from the wages payable to the employees for credit to the Employees' State Insurance Fund. Section 405 of the Indian Penal Code with the Explanations added read as under :

"405. Criminal breach of trust. - Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates, or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits `criminal breach of trust'.

Explanation 1. - A person, being an employer, who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.

Explanation 2. - A person, being an employer, who deducts the employee's contribution from the wages payable to the employee for credit to the Employees' State Insurance Fund held and administered by the Employees' State Insurance Corporation established under the Employees' State Insurance Act, 1948, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid."

14. Mr. Chawla thus said that the liability of the employer was absolute and he would be deemed to have dishonestly used the amount of employees' contributions from the wages payable to the employee in case of non-deposit of the same as required under the Provident Funds Act. The law presumed that at least the employees' contribution lying with the employer was in trust with him. I think Mr. Chawla is correct. The Explanations to section 405 of the Indian Penal Code call for no exceptions. Even otherwise, the contentions raised by the petitioners that there was terrific recession all over the world in respect of hand tools manufactured by the company or non-receipt of subsidy from the Central Government or labour unrest in some of the manufacturing units of the company and suffering of huge losses by the company are no answer when it comes to non-deposit of the employees' contributions deducted from the wages of the employees themselves. Explanations to section 405 of the Indian Penal Code apply with full rigour and it cannot be said that the petitioners either acted honestly and reasonably.

15. It was then the submission of Mr. Chawla that financial stringency was no ground for not complying with the provisions of the Provident Funds Act which was a social legislation. In this connection, he referred to a decision of the Supreme Court in Organo Chemical Industries v. Union of India, [1979] 55 FJR 283 ; AIR 1979 SC 1803. In this case, there was a challenge to the provisions of section 14B of the Provident Funds Act which authorised the Central Provident Fund Commissioner or such other officer as might be authorised by the Central Government to recover damages not exceeding the amount of arrears where the employer made default in payment of any contribution under the Provident Funds Act. The court repelled the contention that the provisions of section 14B were unconstitutional. The court observed that the reason for enacting section 14B was that employers be deterred and thwarted from making defaults in carrying out statutory obligations to make payments to the provident fund and that the object and purpose of the section was to authorise the Regional Provident Fund Commissioner to impose exemplary and punitive damages and thereby to prevent employers from making defaults. Krishna Iyer, J., dealt with the scheme of the Provident Funds Act and observed (p. 1804 of 1979 AIR) (p. 287 of 55 FJR) :

"Briefly and broadly and lopping off aspects unnecessary for this case, the scheme of the Act is that each employer and employee in every `establishment' falling within the Act do contribute into a statutory fund a title, viz., 6 1/4% of the wages to swell into a large fund wherewith the workers who toil to produce the nation's wealth during their physically fit span of life may be provided some retiral benefit which will `keep the pot boiling' and some source wherefrom loans to face unforeseen needs may be obtained. This social security measure is a humane homage the State pays to articles 39 and 41 of the Constitution. The viability of the project depends on the employer duly deducting the workers' contribution from their wages, adding his own little and promptly depositing the fickle into the chest constituted by the Act. The mechanics of the system will suffer paralysis if the employer fails to perform his function. The dynamics of this beneficial statute derives its locomotive power from the funds regularly flowing into the statutory till.

The pragmatics of the situation is that if the stream of contributions were frozen by employers' defaults after due deduction from the wages and diversion for their own purposes, the scheme would be damnified by traumatic starvation of the fund, public frustration from the failure of the project and psychic demoralisation of the miserable beneficiaries when they find their wages deducted and the employer got way with it even after default in his own contribution and malversation of the workers' share."

16. Krishna Iyer, J., further observed (p. 1808 of 1979 AIR) (p. 292 of 55 FJR) :

"The measure was enacted for the support of a weaker sector, viz., the working class during the superannuated winter of their life. The financial reservoir for the distribution of benefits is filled by the employer collecting, by deducting from the workers' wages, completing it with his own equal share and duly making over the gross sums to the fund. If the employer neglects to remit or diverts the moneys for alien purposes, the fund gets dry and the retirees are denied the meagre support when they most need it. This prospect of destitution demoralises the working class and frustrates the hopes of the community itself. The whole project gets stultified if employers thwart contributory responsibility and this wider fall-out must colour the concept of `damages' when the court seeks to define its content in the special setting of the Act. For, judicial interpretation must further the purpose of a statute. In a different context and considering a fundamental treaty, the European Court of Human Rights, in the Sunday Times case, observed :

`The Court must interpret them in a way that reconciles them as far as possible and is most appropriate in order to realise the aim and achieve the object of the treaty'."

17. It was then contended by Mr. Chawla that the provident fund dues were payable by the 15th of the next month in relation to wages/salaries paid to the employees for the preceding month. Admittedly, these were not paid. He said the petitioners had in any case to show that within that period of 15 days the financial condition of the company was such that dues could not be paid and that financial loss in the business of the company shown at the end of the year had no relevancy and further that financial difficulties per se were no ground for not depositing the statutory dues under the Provident Fund Act. By order dated 24th November, 1986, reproduced above, I had directed the petitioners to file a detailed affidavit. In the affidavit filed in pursuance thereto it was said that provident fund dues for the two factories at Faridabad for the period from April, 1982, to December, 1985, and in respect of the Kundli factory for the period from November, 1983 to December, 1985, amounted to Rs. 1,17,95,901.10. In respect of Employees' State Insurance dues, the figure mentioned is Rs., 63,00,359.60. Apart from this, there are no further details except a general statement that up to date entries in the contribution cards of the employees in respect of both the employees' and employer's contributions towards provident fund existed in respect of the units at Faridabad but contribution cards for the employees working at Kundli factory were not complete for the period from March, 1984, onwards. Somewhat similar was the statement with respect to Employees' State Insurance contribution cards. Defaults are staggering. The Schemes under the Provident Funds Act and Employees' State Insurance Act are bound to go haywire to the extreme disadvantage of the employees and such a state of affairs cannot be permitted. To my mind, non-deposit of contributions in respect of each employee would be a distinct default and the employer would become liable to punishment. The default will terminate only when deposit is made. I will have to say more on this subject when I deal with the defaults committed under the Income-tax Act. Nevertheless, by order dated 24th November, 1986, I did call upon the petitioners to indicate as to how they intended to clear the payments under the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act. They did not give any positive answer except their assertion that they had every earnest desire to make the payments. But then, the petitioners themselves in the petition, which was filed on 4th September, 1984, had said that they wanted only a period of about two years for them to clear all the statutory dues. They have defaulted even in payment of current statutory dues regularly in spite of specific order dated 15th January, 1986.

18. Mr. K. N. Kataria, learned counsel for Employees' State Insurance Corporation generally supported the submissions of Mr. Chawla. He said it was impossible to act on the ESI scheme in the absence of due contributions from the petitioners and this was all to the detriment of the workmen. He said the petitioners did not act honestly and reasonably and that they were not entitled to the relief claimed. He said various benefits have to be provided to workmen and various hospitals/dispensaries are run under the Scheme but the Scheme could be put into operation successfully only if contributions were received on time. He said the commitments made by the petitioners for payment of arrears of Employees' State Insurance contributions were not met and as of date an amount of Rs. 72,99,748 was due with interest at the rate of 6% per annum and further damages were also leviable. The arrears, Mr. Kataria said, were from 1982 to 1985 which included the period during which the present petition had been pending.

19. Then, it was also the contention of Mr. Satpal, learned counsel for the Income-tax Department, that the petitioners were not entitled to any relief for the offences committed under the Income-tax Act. Under section 192 (falling in Chapter XVII-B) of the Income-tax Act, any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment. deduct income-tax on the amount payable. Under section 200, the person deducting any sum in accordance with the provisions of section 192 is to deposit the same within the prescribed time to the credit of the Central Government. Under rule 30 of the Income-tax Rules, 1962, this amount is to be deposited within 7 days from the date of deduction. It is called tax deducted at source (TDS). Under section 203, every person so deducting the tax would furnish to the person a certificate for the tax deducted. Under section 204, "person responsible for paying", in the case of a company, means the company including the principal officer thereof. Under section 205, where tax has been deducted under section 192 as aforesaid from the salary of the employee, he is not to be called upon to pay the tax himself to the extent to which the tax has been deducted from his salary. Section 276B in Chapter XXII provides for punishment when there is failure to deduct or pay tax. It reads as under :-

"276B. Failure to deduct or pay tax. - If a person, without reasonable cause or excuse, fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of sub-section (9) of section 80E or Chapter XVII-B, he shall be punishable, -

(i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."

20. Section 278B of the Income-tax Act, which I have already reproduced above, provides for offences by companies.

21. Again, it would appear that when a person responsible for paying has not paid the tax to the credit of the Central Government as required by law, he will be deemed to have committed an offence punishable under section 276B of the Income-tax Act, if non-deposit was without reasonable cause or excuse. It would appear to be a continuing offence and would terminate only when the deposit of the tax deducted is made. Non-payment of tax in accordance with law deducted from the salary of every employee each month would be a distinct offence. Reference, in this connection, may be made to a decision of the Supreme Court in Maya Rani Punj v. Commissioner of Income-tax, [1986] 157 ITR 330.

22. Reference may now be made to the two affidavits filed by Mrs. V. Amar, Income-tax Officer, TDS (Salary), Circle I, New Delhi, and the assessment records of the petitioners Nos. 3 and 4, but before that it may be noted that under section 80C of the Income-tax Act, in computing the total income of an assessed, certain deductions are provided in respect of life insurance premia, contributions to provident fund, etc. Then section 140A of the Income-tax Act provides for payment of tax on the basis of self-assessment before furnishing the return of income. Let me reproduce this section in full :

"140A. Self-assessment. - (1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 148, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessed shall be liable to pay such tax before furnishing the return and the return shall be accompanied by proof of payment of such tax.

(2) After a regular assessment under section 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment.

(2) If any assessed fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), the Income-tax Officer may direct that a sum equal to two per cent, of such tax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the default continues :

Provided that before levying any such penalty, the assessed shall be given a reasonable opportunity of being heard."

23. For the assessment year 1986-87 (previous year ending on 31st March, 1986), Prakash Chand Jhalani, petitioner No. 3, filed his return of income on 22nd October, 1986, showing an income of Rs. 78,428. Along with the return he filed a certificate dated 16th June, 1986, issued by the company under the signature of an accountant showing that an amount of Rs. 25,344 had been deducted at source as income-tax and surcharge and that rebate on the sums paid by the employee towards provident fund (Rs. 6,240) and life insurance premia (Rs. 31,927) had been allowed. The certificate would show that Prakash Chand Jhalani had been paid salary totalling Rs. 78,000, house rent allowance Rs. 27,300 and was also provided with a car and a driver. Along with the return of income, Prakash Chand Jhalani filed a statement of total income wherein he claimed refund of a sum of Rs. 4,722. This was on the basis that as per his return of income, the amount of tax would be Rs. 22,622 while a sum of Rs. 25,344 had been deducted as tax deducted at source as per the certificate. Admittedly, tax of Rs. 25,344 stated to have been deducted from the salary of Prakash Chand Jhalani had not been paid to the credit of the Central Government. On the basis of the certificate, Prakash Chand Jhalani did not deposit the self-assessment tax while filing his return of income as required under section 140A. He also claimed deduction for payment towards provident fund when the provident fund amount had not been deposited. On top of this, he is claiming refund of tax stated to have been deposited in excess when in fact the tax was not deposited as claimed. I think, in the circumstances, this was the most dishonest thing to do. I will outright reject the argument of Mr. Bhandare, learned counsel for the petitioners, that deposit of tax was the responsibility of the company and the petitioners could not be blamed. The company as well as the principal officer is responsible for deducting the tax and then paying the same to the credit of the Central Government.

24. In the case of petitioner, Rajinder Prasad Jhalani, for the assessment year 1986-87 (previous year ending on 31st March, 1986), he filed his return of income on 9th October, 1986, showing an income of Rs. 1,12,540. Along with the return he filed a certificate dated 16th June, 1986, showing that an amount of Rs. 31,044 had been deducted at source as income-tax and surcharge. Along with the return he also filed a challan showing payment of Rs. 4,500 towards advance tax on 23rd April, 1986. In the statement of total income filed along with the return, the income-tax payable was calculated at Rs. 35,520 while what had been stated to have been deposited as tax was Rs. 31,044 as tax deducted at source - a sum of Rs. 896 towards tax on interest income and an advance tax of Rs. 4,500, totalling Rs. 36,440. Rajinder Prasad Jhalani, therefore, claimed a refund of Rs. 920. The certificate dated 16th June, 1986, also shows that rebate was calculated on the amount of Rs. 6,240 stated to have been paid by the assessed towards provident fund. It could not be said that Rajinder Prasad Jhalani was unaware of the fact that tax deducted at source had not been deposited and so also the contribution towards provident fund. Nevertheless, he claimed benefits and even claimed refund of the tax when in fact no tax had been deposited. In the affidavit dated 1st February, 1986, of Prakash Chand Jhalani, it has been mentioned that income-tax dues as regards Faridabad factories for the period from April 1984, to December, 1985, are Rs. 2,68,402 and in respect of head office, the income-tax arrears are Rs. 1,08,256. There are, however, no particulars as to how these figures have been arrived at. Argument as given by Mr. Chawla in the case of provident fund contributions would also apply in respect of income-tax deductions and the petitioners must show in respect of each and every employee as to why the tax which had been deducted could not be deposited in accordance with law. A general submission that the company was facing financial crisis is no answer as tax is deducted when salaries are paid as provided in section 192 of the Income-tax Act.

25. The question that now arises is, if the petitioners acted honestly and reasonably, and, having regard to all the circumstances of the case, they ought fairly to be excused. It is said that Rooplal Chaganlal Sohani (petitioner No. 6), V. Sagar (petitioner No. 7) and R. K. Talwar (petitioner No. 8) are in no way connected with the day to day functioning of the company and are not responsible for the conduct of the affairs of the company in any way. Sohani is the nominee director of the State Industrial and Investment Corporation of Maharashtra while Sagar and Talwar are the alternate directors nominated on the board by the two non-resident German directors. I do not find any denial of this averment in the affidavits filed by any of the respondents. They cannot, therefore, be saddled with any liability for any default under any of the three Acts, namely, the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act. They are, therefore, to be relieved wholly from any liability arising for any defaults under those Acts. I order accordingly. But this cannot be said about the other petitioners. The words "honestly and reasonably" are words of common use and have to be understood as such. To be relieved of their liability is has to be seen whether the petitioners are not lying or cheating or hiding facts and have acted sensibly. There should be no element of deception in their conduct and then the court has to see whether it is just and right that they be relieved of the liability in respect of the defaults committed by them. For non- payment of statutory dues, the petitioners have said that the company became sick for reasons beyond their control because of recession, high prices of steel, high overhead costs and late/inadequate reimbursement under International Price Reimbursement Scheme. They also say that the Ministry of Commerce in one of their reports have said that the company is a sick industrial company and is under process of rehabilitation. It is also said that the Reserve Bank of India has issued guidelines laying certain parameters for providing reliefs and concessions to sick industrial companies by the banks and other concerned agencies of the Central Government and the State Government and the guidelines include deferment of payment of outstanding statutory dues like provident fund, Employees' State Insurance Corporation contributions, income-tax, waiver of penalties and collection of statutory dues after suitably rephrasing the industrial unit. An affidavit of P. C. Jhalani was also filed on 5th August, 1985, by way of evidence. In this it is said that earlier there were 7,334 employees in the company as on 1st January, 1981, and the staff situation as on 30th November, 1984, was that there were 5,650 employees working and that the reduction was mainly on the strength of two factories at Faridabad and one at Aurangabad. It is also stated that the company could not pay even the carry-home wages to the workers in time during the relevant period and that the actual wages were either paid in Installments or delayed, but then there are no particulars whatsoever. In this affidavit it is said that it is the Engineering Export Promotion Council (EEPC) which suggested in its report dated 10th June, 1985, submitted to the Ministry of Commerce that there should be a moratorium of three years to enable the company to clear backlog of statutory dues. It is also said on affidavit that there is no default of statutory dues under the Income-tax Act as on date. Obviously, this is a wrong statement. What EEPC said in its report is now sought to be projected as having been said by the Ministry of Commerce and the Reserve Bank of India.

26. But, that is not material for the case in hand. Mr. Bhandare said that the petitioners admitted defaults but he pleaded that "cake" had to be distributed according to the priorities, these being payment of wages and salaries, buying of raw material, payment of electricity bills, freight, etc. He said that the basic thing was that the company should run and that was ultimately for the benefit of the industry and the workers and thus for the country. He also said that provident fund dues of the workers would become due to them after many years as the average age of the workers of the company was 38 years, the retirement age being 58 years. There is, thus, no denying the fact that the contributions to the provident fund both of employees and employer and also contribution to the Employees' State Insurance Corporation and the amounts of income-tax deducted at source have been used by the company for its business purposes. If the argument of Mr. Bhandare is to be accepted, it is difficult to comprehend how any legislation for the benefit of the workers can be successfully put into operation and how ever a Government can run starved of its revenue if the payments of the provident fund, ESIC contribution and the income-tax dues are to be dependent on the financial condition of a company. Rather the argument of Mr. Bhandare would show that the act of non-deposit of these statutory dues was deliberate. The petitioners cannot, therefore, be heard to say that they acted honestly and reasonably when knowingly they violated the provisions of law to the detriment of the workers and to the State revenue. The argument of Mr. Bhandare, therefore, lacks substance. There was no justification for wholesale non-deposit of statutory dues for years together though entries were being made in the records of the company showing deduction of the statutory dues from the wages of the workers. If the petitioners were honest and were acting reasonably, the least that was expected of them was to deposit some dues from time to time. Even today the petitioners have no clear cut answer and cannot make a positive statement as to when the statutory dues would be deposited when all this time they are utilising the money for the business of the company. With the affidavit dated 5th August, 1985 of Prakash Chand Jhalani (petitioner No. 3), a statement of receipts and expenditure of the company for the period from 1982 to 1984 has been filed to show that except for a short period from January to June, 1984, when the company made some profits, it has been running into deficit. There are various heads of receipts shown in this statement and these would include sale proceeds, sale of scrap, cash assistance and duty drawback, steel subsidy, other miscellaneous receipts and loans/limits/deposits/ packing credits. Similarly, there are many heads of expenditure as well. Thus, while the company has income and is also incurring expenditure on the basis of the priorities set by the petitioners, the casualty is the statutory dues which it is duty bound to pay. In the circumstances, therefore, the petitioners cannot escape penalty for the defaults committed by them. I agree with Mr. Chawla, learned counsel for Regional Provident Fund Commissioner, that financial stringency per se cannot be a ground for non-deposit of statutory dues. This would be so particularly when it comes to deposit of the contributions of the employees which had been deducted from their wages and the tax deducted at source from the salaries of the employees of the company. As I have observed above, non-deposit of the contributions of provident fund as well as Employees' State Insurance Corporation contribution in respect of each employee every month is a distinct default in itself and so also non-deposit of the TDS from the salary of an employee every month is a distinct default. The petitioners will, therefore, have to explain with reference to each and every default if they acted honestly and reasonably and a general statement that the company is passing through financial crisis or is a sick industry is certainly no answer. The court has to relieve the petitioners in respect of each default on its satisfaction that the petitioners acted honestly and reasonably. The petitioners gave no particulars and led no evidence for the court to relieve them of the liability incurred thereby. Further, there are different considerations for the defaults committed under different Acts. As regards the Provident Fund and the Employees' State Insurance Corporation, I have already reproduced some observations of the Supreme Court in Organo Chemical Industries, AIR 1979 SC 1803 ; 55 FJR 283. As regards income-tax, it is a revenue of the State. Payment of tax deducted at source cannot be withheld by advancing a plea that the company is expecting some subsidy from a retrospective date or is passing through bad days. It is not the case of the petitioners that tax was not deducted from the salaries of the employees of the company.

27. Provisions of section 633(2) of the Act are exceptional as these relieve an officer of the company from the consequences of a default, whether penal or otherwise, before he is asked to face the proceedings of either levying penalty or of prosecution. The court, therefore, has to be cautious in its approach before exercising discretion has to be a judicial one. Before exercising any such discretion, the court has to be reasonably satisfied that the requirements of the section have been met. In this case, I do not think that this has been done. Petitioners Nos. 9 and 10 are the senior officers of the company as their designation in the title of the petition would show. These petitioners have merely stated that they are not responsible for the defaults in payment of certain statutory dues since "they have no authority to make such payments". This is too general a statement. No evidence has been brought on record to show as to what are their duties. It is also not stated if any notice was ever issued to these petitioners Nos. 9 and 10 in respect of any default under any of the three enactments mentioned above. That being so, I cannot exercise my discretion in their favor as well. I see no reason, however, as to why the authorities should prosecute them or levy any penalty if they are not to perform any functions under either of the three Acts which are the subject-matter of these proceedings.

28. I would, therefore, hold that the petitioners, except petitioners Nos. 6, 7 and 8, have not acted honestly and reasonably and rather the facts of the case point to the contrary. These petitioners want to use the process of the court to perpetuate their defaults. I have already mentioned above as to how the benefits have been availed of under the provisions of sections 80C and 140A of the Income-tax Act without depositing provident fund dues and the income-tax (tax deducted at source) and not only that, refund has been claimed from the Government for excess deposit of tax when admittedly no tax (tax deducted at source) was deposited. I would, therefore, relieve the petitioners, Rooplal Chaganlal Sohani, V. Sagar and R. K. Talwar (petitioners Nos. 6, 7 and 8 respectively), of any liability that they might have to incur in respect of the defaults under the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act as mentioned in the petition, and as regards the other petitioners, the petition is dismissed with costs. Counsel's fee Rs. 1,000 each for the Regional Provident Fund Commissioner, Employees' State Insurance Corporation and the Income-tax Department.