Karnataka High Court

M/S Scorpion Security Ltd vs The Regional Provident Fund ... on 2 February, 2022

Bench: Alok Aradhe, M.I.Arun

                              1



     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 2ND DAY OF FEBRUARY 2022

                         PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                           AND

           THE HON'BLE MR.JUSTICE M.I. ARUN

             W.P. No.6270 OF 2020 (L-PF)

BETWEEN:

M/S. SCORPION SECURITY LTD.
PALACE COMPOUND
VASANTH NAGAR
BENGALURU - 560 052
REPRESENTED BY ITS DIRECTOR
SMT. KOMALA RAVI.
                                            ... PETITIONER

(BY MR. UDAYA HOLLA, SR. COUNSEL FOR
    MR. VIVEK HOLLA, ADV., )

AND:

1.      THE REGIONAL PROVIDENT FUND COMMISSIONER -II
        (C AND R)
        EMPLOYEES' PROVIDENT FUND ORGANIZATION
        REGIONAL OFFICE
        13, BHAVISYANIDHI BHAVAN
        RAJA RAM MOHAN ROY ROAD
        BENGALURU - 560 025.

2.      THE REGIONAL PROVIDENT FUND COMMISSIONER - II
        (RECOVERY)
        EMPLOYEES' PROVIDENT FUND ORGANIZATION
        REGIONAL OFFICE BENGALURU - 2
        13, BHAVISYANIDHI BHAVAN
                                    2



      RAJA RAM MOHAN ROY ROAD
      BENGALURU - 560 025.

                                                     ... RESPONDENTS

(BY MRS. SHWETHA ANAND, ADV., FOR R1 & R2)
                          ---

     THIS W.P. IS FILED UNDER ARTICLE 226 & 227 OF THE
CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER
DATED 11.02.2020 PASSED BY THE CENTRAL GOVERNMENT
INDUSTRIAL TRIBUNAL-CUM-LABOUR COURT, BENGALURU IN EPF
NO.86/2017   ANNEXURE-M.               QUASH   THE     ORDER     DATED
24/25.02.2015 PASSED BY THE REGIONAL PROVIDENT FUND
COMMISSIONER-II    (C    AND   R)        THE   RESPONDENT        HEREIN
(ANNEXURE-D).     QUASH      THE       PROHIBITION      ORDER    DATED
10.03.2020   PASSED     BY   THE       REGIONAL      PROVIDENT    FUND
COMMISSIONER-II (RECOVERY), THE R-2 HEREIN ANNEXURE-P
AND THE SHOW CAUSE NOTICE DATED 10.03.2020 ISSUED BY
THE REGIONAL PROVIDENT FUND COMMISSIONER-II (RECOVERY)
THE R-2 HEREIN ANNEXURE-N & ETC.,


     THIS W.P. COMING ON FOR PRELIMINARY HEARING IN 'B'
GROUP,   THIS   DAY,    ALOK       ARADHE      J.,    DELIVERED    THE
FOLLOWING:


                             ORDER

In this writ petition, the petitioner has assailed the

validity of the order dated 11.02.2020 passed by the

Central government Industrial Tribunal cum Labour

Court as well as the order dated 24/25.02.2015 passed

by the Regional Provident Fund Commissioner. In order

to appreciate the petitioner's challenge to the impugned

order, few facts need mention, which are stated infra.

2. The petitioner is a company incorporated

under the provisions of Companies Act, 1956 and is

engaged in the business of providing security services as

well as security guards to various industries,

establishments throughout the country. The petitioner

has around 1000 employees on its role. The petitioner

is governed by the provisions of Employees Provident

Fund and Miscellaneous Provisions Act, 1952

(hereinafter referred to as 'the Act' for short) The

petitioner has been making payments towards

Employees Provident Fund Contribution. However, it

appears that there was a delay ranging between 9 days

to 360 days in remitting the amount of Employees

Provident Fund Contribution for a period from March

2003 till September 2013. A show cause notice dated

16.12.2013 was issued to the petitioner, by which the

petitioner was asked to show case as to why penalty

under Section 7Q of the Act as well as damages under

Section 14B of the Act be not imposed on it for the delay

in remitting the amount of provident fund contribution

for a period from 01.04.1996 till 16.12.2013.

3. The petitioner thereupon submitted detailed

objections on 02.12.2014 and 19.12.2014 disputing the

demand. In the objection it was inter alia pleaded that

show cause notice issued by the respondent for a period

from April 1996 to December 2013 is belated and has

been issued after unreasonable delay in issuing the

same. It was also pointed out that there was some

delay in remitting the provident fund contribution due to

severe financial difficulty and delay in payment by the

customers to the petitioner and therefore, the delay in

remitting the provident fund contribution is

unintentional. However, the Regional Provident Fund

Commissioner by an order dated 24/25.02.22015

passed an order levying damages to the extent of

Rs.79,29,768/- as per Section 14B of the Act and by an

interim order passed on the same date levying interest

under Section 7Q of the Act to the tune of

Rs.41,40,013/-. The petitioner admittedly has deposited

the amount of interest levied under Section 7Q of the

Act to the extent of Rs.41,40,013/-.

4. Being aggrieved, the petitioner filed an

appeal before the Employees Provident Fund Appellate

Tribunal (hereinafter referred to as 'the tribunal' for

short). The Tribunal by an order dated 11.02.2020

dismissed the appeal preferred by the petitioner. In the

aforesaid factual background, this writ petition has been

filed.

5. Learned Senior counsel for the petitioner

submitted that show cause notice dated 16.12.2013 was

issued to the petitioner after inordinate delay of 17

years. It is urged that even though no limitation has

been prescribed for initiation of the proceedings in

respect of the default, which may be committed by the

employer, it is argued that such power should be

exercised within a reasonable time. It is further

submitted that the orders passed by the Regional

Provident Fund Commissioner as well as the Tribunal are

cryptic and suffer from the vice of non application of

mind. It is also urged that the authorities ought to have

appreciated that there was delay in remitting the

amount of provident fund contribution was due to

reasons beyond the control of the petitioner and delay in

remitting the amount of provident fund contribution was

unintentional and bonafide. In this connection, learned

Senior counsel has invited the attention of this court to

the list of sundry debtors / customers of the petitioner

for the period from 2008 to 2011 in support of his

contention that the payments were due to the petitioner.

It is also urged that under Section 14B of the Act, the

Authority has discretion either to levy or not to levy such

penalty / damages by taking into account the facts and

circumstances of the case. In support of aforesaid

submissions, reliance has been placed on decisions of

Supreme Court in 'MOHAMAD KAVI MOHAMAD AMIN

VS. FATMA BAI IBAHIM', (1997) 6 SCC 71, 'M/S

HINDUSTAN STEEL LTD. VS. STATE OF ORISSA',

1969 (2) SCC 627, and decisions of this court in

'COMMISSIONER OF INCOME TAX VS.

A.ALBUQUERQUE                   AND                  SONS',

MANU/KA/0278/1991           (DB),     'THE     REGIONAL

PROVIDENT        FUND          COMMISSIONER             VS.

JAMIYYATUL           FALAH            AND            ORS.',

MANU/KA//0744/2009,              'THE          REGIONAL

PROVIDENT FUND COMMISSIONER VS. KAYTEE

SWITCHGEAR LTD.', MANU/KA/1815/2012, 'THE

REGIONAL PROVIDENT FUND COMMISSIONER,

BANGALORE VS. M/S ANJALI SILKS AND

GARMENTS, BANGALORE', ILR 2014 KAR 1223 and

'M/S KIRLOSKAR ELECTRIC CO. LTD., VS. THE

REGIONAL PROVIDENT FUND COMMISSIONER,

BANGALORE', ILR 2014 KAR 3184.

6. On the other hand, learned counsel for the

respondent submitted that the Act is a social welfare

legislation and in view of 2nd proviso to Section 14B of

the Act, the adjudicating authority has no discretion to

levy less damages. It is submitted that the damages

have been levied in accordance with para 32A and para

38 of the Employees Provident Fund Scheme, 1952. It

is submitted that the adjudicating authority under the

Act is a quasi judicial body and it is bound to assign

reasons for its orders. It is also submitted that financial

hardship is not a ground to waive the damages under

Section 14B of the Act. In support of aforesaid

submission, learned counsel for the respondents has

placed reliance on decision of the Supreme Court in

'M/S HINDUSTAN TIMES LIMITED VS. UNION OF

INDIA AND OTHERS', 1998 (2) SCC 242.

7. We have considered the submissions made

on both sides and have perused the record. Before

proceeding further, it is apposite to take note of the

relevant statutory provision viz., Section 14B of the Act,

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 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 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, subject to such terms and conditions as may be specified in the Scheme.

8. Thus, from perusal of Section 14B of the Act,

it is evident that levy of damages under Section 14B of

the Act is discretionary and is not imperative in all

situations. A division bench of this court in

'COMMISSIONER OF INCOME TAX VS.

ALBUQUERQUE AND SONS', MANU/KA/0278/1991

while considering the nature of levy under Section 14B

of the Act has held that levy of damages under Section

14B of the Act is predominantly a penal levy which has

to be imposed by the adjudicating authority in the facts

and circumstances of each case. It has further been held

that there is no compulsion that in each and every case

of default there should be a levy under Section 14B of

the Act and a judicial discretion has been conferred on

the statutory authority. The Supreme Court in M/s

Hindustan Times Limited supra while considering the

scope and ambit of power under Section 14B of the Act,

has held that Authority under Section 14B of the Act has

to apply its mind to the facts of the case as well as to

the facts stated in reply to show cause notice and pass a

reasoned order after giving a reasonable opportunity of

being heard to the employer. It has further been held

that Regional Provident Fund Commissioner usually

takes into consideration the number of defaults, the

period of delay, the frequency of the default and the

amount involved. The adjudicating authority is also

required to ascertain whether there was any mens rea

for the delay in remitting the amount of provident fund

contribution. [See: 'EMPLOYEES STATE INSURANCE

CORPORATION VS. HMT LTD.,', (2008) 3 SCC 35].

It has further been held that no period of limitation is

prescribed for exercise of powers under Section 14B of

the Act.

9. In the backdrop of aforesaid well settled legal

principles, we may advert to the facts of the case in

hand. There was a delay in remitting the contribution

towards provident fund by the petitioner for a period

from March 2003 till September 2013. However,

proceeding under Section 14B of the Act were initiated

on 16.12.2013. Thus, there was an unexplained delay of

5 years in initiating the proceeding insofar as it pertains

to period from March 2003 till September 2008. The

delay in issuing notice for levy of damages under

Section 14B of the Act can only be a mitigating factor in

assessing damages but cannot be a ground to claiming

immunity from liability for the payment of damages as

no period of limitation is prescribed. [See: M/S S.H

SALVEKADAM & CO. VS. REGIONAL PROVIDENT

FUND COMMISSIONER, 1981 (LIC) 568

(KARNATAKA HIGH COURT (DB))]

10. The power under Section 14B of the Act to

levy damages has to be exercised on well defined

parameters i.e., whether there was any element of mens

rea in delay in depositing the amount of provident fund

contribution, period of delay, frequency of default as

well as the amount involved. In the instant case, the

damages to the extent of Rs.79,29,768/- have been

imposed without taking into account the aforesaid

relevant criteria. The relevant extract of the order dated

24.02.2015 passed by the Regional Provident Fund

Commissioner reads as under:

8. The establishment has not remitted the Provident Fund Contributions and other dues within due dates for the period stated

earlier. The benefit provided for under the EPF Act and the schemes are intended to provide social security cover to the members which depends on the regular and prompt compliance on the part of the employer. This suffers a setback when the remittances are delayed. The prompt remittance would have been allowed the Organization to earn interest by investment, which would in turn allow funds to provide enhanced benefits. All belated remittances cause loss of interest on investment and also lead to excess administrative expenses, thus causing pecuniary loss. The damages are, therefore, required to be levied as provided under law in case of any delay in such compliance.

9. I, K.ARAVINDAN, Regional Provident Fund Commissioner - II (C & R), RO, Bengaluru, therefore in exercise of the powers conferred on me vide Notification No.S.O.1553 dated 17.04.2002 under Section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act,

1952 order that the establishment is liable for payment of damages for the period March 2003 to June 2013. After considering the relevant facts of the case, I order that in the interest of justice and equity, it will be reasonable and just and fit to levy damages for the period March 2003 to June 2013 at the rates provided under Para 32A of Employees' Provident Fund Scheme, 1952, Para 5 of Employees' Pension Scheme 1995 and para 8A of Employees' Deposit Linked Insurance Scheme 1976 totaling Rs.79,29,768/- (Rupees Seventy Nine Lakh Twenty Nine Thousand Seven Hundred and Sixty Eight Only), as detailed below:

     Particulars            Amount        Period
1.   The    Employees       3940207   March 2003 to
Provident        Fund                 June 2013
Contributions,       in
Account No.1
2. The Administrative        438637   March 2003 to
/Inspection Charges,                  June 2013
in Account No.2
3.   The    Family    /     3346549   March 2003 to
Employees'     Pension                June 2013
Fund Contributions, in
Account No.10
4. Employee's Deposit        200399   March 2003 to
Linked Insurance Fund                 June 2013
Contributions,       in
Account No.21
5. Employees' Deposit         3976    March 2003 to
Linked Insurance Fund                 June 2013




    Administrative        /
    Inspection     Charges,
    Account No.22
             Total             79,29,768/-

11. The relevant extract of the order dated

11.02.2020 reads as under:

6. With the above all in the back ground, I have gone through the order impugned. The Establishment had participated in the enquiry and had made submissions with regard to the delay. However, without taking note of the nature of the submission under the proposition that financial difficulties cannot be a ground for making contribution belatedly, and in the light of the judgment of the Apex Court in M/s Hindustan Times supra and also since there was repeated defaults to the credit of the appellant, the learned Commissioner has levied the damages.

7. There is no gain say to the position of law has laid down by the judgments of the Higher Courts relied by the appellant. Still, before applying the principles to the given case on hand we

have to first go through the facts. It is true that a service Provider's Business entirely depends upon the quality of service rendered through his employees and the prompt payments by the customers against the bills raised. It is highly possible that very often issues are sure to occur between the Establishment and the customers resulting in irregular payment of bills thereby choking timely disbursal of wages and also statutory payments. That could be one of the reasons for the establishment to make belated payment, as could be noticed from the table annexed to the summons, there is continuous default on the part of the establishment and on certain occasions it was beyond one year also.

12. Thus, from perusal of the relevant extract of

the orders passed by the adjudicating authority as well

as by the Tribunal, it is evident that the orders are

cryptic and suffer from vice of non application of mind.

The discretion to levy damages under Section 14B of the

Act has not been exercised on the relevant criteria

referred to supra and in a cryptic and cavelier manner.

Ordinarily, we would have remitted the matter to the

tribunal for re-consideration. However, in the peculiar

facts of the case and taking into account the fact that

the petitioner has already deposited the interest payable

under Section 7Q of the Act to the extent of

Rs.41,40,013/- as well as the period of delay in

remitting the amount of provident fund contribution,

which in most of the cases varies from 9 to 104 days as

well as the deficit of the amount of provident fund which