Madras High Court
The Assistant Provident Fund ... vs M/S.Salem Textiles Limited on 23 January, 2025
Author: D.Bharatha Chakravarthy
Bench: D.Bharatha Chakravarthy
2025:MHC:221
W.P.No.14255 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Orders reserved on : 03.01.2025
Orders pronounced on : 23.01.2025
CORAM :
THE HON'BLE MR.JUSTICE D.BHARATHA CHAKRAVARTHY
W.P.No.14255 of 2020
and W.M.P.Nos.8683 of 2024 and 17727 of 2020
The Assistant Provident Fund Commissioner,
Employees Provident Fund Organization,
Sub-Regional Office, S.J.Plaza,
Swarnapuri,
Salem - 636 004. .. Petitioner
Versus
M/s.Salem Textiles Limited,
Rep. by its Director,
Selliampalayam, Narasingapuram,
Attur, Salem District - 636 108. .. Respondent
Prayer : Writ Petition filed under Article 226 of the Constitution of India
praying for a Writ of Certiorari to call for the records relating to the
proceedings of Employees Provident Fund Appellate Tribunal, dated
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1/24
W.P.No.14255 of 2020
02.07.2020 in E.P.F.A.No.38 of 2019 and quash the order passed therein.
For Petitioner : Mrs.R.Meenakshi
For Respondent : Mr.B.Kumarasamy,
for Mr.R.Manoharan
ORDER
A. The Petition:
The Writ Petition is filed by the Employees' Provident Fund
Organisation ('E.P.F.O' for short) aggrieved by the order, dated 02.07.2020
passed by the Employees' Provident Fund Appellate Tribunal in
E.P.F.A.No.38 of 2019. By the said order, the appeal filed by the
respondent, M/s.Salem Textiles Limited was partly allowed. By the said
order, the Tribunal interfered with the quantum of damages levied under
Section 14B of the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952 (hereinafter 'P.F Act').
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B. The case of the Establishment:
2. The respondent is a Textile Yarn Spilling Mill. It is their case that
the mill was started in the year 1967. Its P.F Code Number is TN/6517.
From March 1997, due to the recession, the business went downhill. The
management was not in a position to pay the salaries of the workmen. The
payment of the salary and also P.F contribution to E.P.F.O was delayed. In
the meanwhile, the mill was declared as a sick unit. Subsequently, with
effect from 25.11.2014, the properties of the mill were taken over by its
bankers under the provisions of the SARFAESI Act. The mill made
continuous losses from the year 1997 up to the year 2016. The properties
were sold by the bankers and subsequently, the Asset Reconstruction
Companies. While so, by the order, dated 29.10.2018, a sum of
Rs.8,46,51,183/- was levied as damages and after adjusting a sum of
Rs.1,45,37,782/-, the balance sum of Rs. 7,01,13,401/- was ordered to be
paid, as against which the appeal, is filed. The authorities omitted to take
into account that the entire dues were already recovered. There was a great
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recession in the Textile Industry. The mill was declared as a sick unit and it
made continuous loss. The assets, both immovable and movable properties,
were taken possession of by the creditors and were sold. These facts should
be taken in mind and hence the order leaving damages is liable to be set
aside.
C. The case of the E.P.F.O:
3. The E.P.F.O’s case is that the mill failed to pay the Provident Fund,
Pension Fund, Employees Deposit Linked Insurance Fund Contribution and
the administrative charges as prescribed with the due dates as per para 30 of
the Employees' Provident Funds Scheme, 1952 for the period March 1997 to
October 2016. Thus, it is liable to pay damages as per Section 14B of the
P.F Act. A show cause notice was issued on 31.07.2018. The mill appeared
before the authority for hearings. After providing the details as prayed for
and conducting hearings on various dates, final orders were passed on
29.10.2018 levying damages of Rs.8,46,51,183/- and after adjusting the
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already available sum of Rs.1,45,37,782/-, the balance of Rs.7,01,13,401/-
was ordered to be paid. The object of the provision is to impose exemplary,
punitive damages to prevent employers from making defaults. The rates are
prescribed under para 32A of the Scheme. For the delays exceeding six
months upto 25.09.2018, the quantum was 37% and after the said date, it is
25%. Financial crunch and other difficulties are not reasons for waiving
damages. The damages levied under the Act are unique. It is not a
formality. The provisions of the Act are beneficial in nature. No mens rea
is needed. The damages get attracted once there is a violation of the
statutory obligation. The E.P.F.O is liable to pay interest to the employees
as per the Scheme. Therefore, the appeal was without any merit.
D. The findings of the Appellate Tribunal:
4. The Appellate Tribunal held that para 32A of the Scheme cannot
override the discretionary nature of power under Section 14B of the P.F Act.
It gives an element of discretion to impose damages. The authorities could
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have exercised their discretion and imposed a lesser amount. The case of
the appellant needs a sympathetic consideration. The mill was declared as a
sick unit on 30.08.2005. The assets were taken over and sold under
SARFAESI Act. The Enforcement Officer, under the P.F Act sold the
movable properties of the mill for a sum of Rs.4,00,60,001/- and after
adjusting the payable dues, still a balance amount of Rs.1,45,37,782/- was
available which was adjusted towards the damages payable. The Appellate
Tribunal also considered that mens rea is a necessary ingredient as per the
decision of the Hon’ble Supreme Court of India in Employees' State
Insurance Corporation Vs. HMT Ltd. and Anr. . The Tribunal considered
the delay of 24 years in the exercise by relying upon the judgment of the
Hon’ble Supreme Court of India in Regional Provident Fund
Commissioner Vs. K.T.Rolling Mills Private Limited and the judgment of
this Court in Aditya Agro Industries Private Limited Vs. Regional
Provident Fund Commissioner . Thereafter, placing reliance upon the
1 (2008) 3 SCC 35
2 (1995) 1 SCC 181
3 1996 SCC OnLine Mad 569
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judgment of the Hon'ble Supreme Court of India in K.Streetlite Electric
Corporation Vs. Regional Provident Fund Commissioner, Haryana , the
Tribunal held that the amount of Rs.1,45,37,782/-, already recovered, would
be just and adequate and restricted the damages to the said amount and
modified the order accordingly and held that no further amount need be
remitted by the respondent herein. Aggrieved thereby, the Writ Petition is
filed by the E.P.F.O.
E. The Submissions:
5. Mrs.R.Meenakshi, the learned Counsel for the E.P.F.O, would
submit that there is no dispute over the fact that the mill did not pay the
contributions in time. The E.P.F.O therefore had jurisdiction to levy
damages. Though Section 14B of the P.F Act reads as if it is discretionary,
the same is statutorily guided by para 32A of the Scheme. Rates have been
prescribed. Accordingly, the damages are calculated. There is no power of
waiver of damages. Under paragraph 32B, power is vested only in the
4 (2001) 4 SCC 449
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Board. Only if the Company is a sick Company, the entire damages can be
waived. The respondent Company was not a sick Company. It had
furnished false particulars to Board for Industrial and Financial
Reconstruction and had got its petition admitted. However, ultimately, it
was not declared as a sick unit and no scheme for rehabilitation was framed.
Thus, even the Board cannot waive more than 50% of the damages.
Financial difficulties are not grounds to waive damages.
5.1. The Appellate Tribunal erred in holding that mens rea is
necessary. The later judgment of the Hon’ble Supreme Court of India in
Horticulture Experiment Station, Gonikoppal, Coorg Vs. Regional
Provident Fund Organisation has laid down that no mens rea or actus reus
necessary and upon delay in payment of contribution, damages are payable.
The second finding of the Appellate Tribunal relating to delay is erroneous
inasmuch as it is the mill that approached the Board for Industrial and
Financial Reconstruction under the Sick Industrial Companies (Special
5 (2022) 4 SCC 516
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Provisions) Act, 1985 with false particulars to avail the benefit of
moratorium and upon its petition being ultimately dismissed, the delay
cannot be attributed to E.P.F.O. Relying upon other decisions, she would
submit that in this case, when the delay is huge and when the establishment
has willfully chosen not to pay the contributions in time, then the levy of
damages was in accordance with law. The Tribunal has no jurisdiction to
reduce the damages.
5.2. Per contra, Mr.B.Kumarasamy, learned Counsel for the
respondent, relying upon the Full Bench decision in Sun Pressings (P) Ltd.,
Vs. The Presiding Officer, Employees' Provident Fund Appellate Tribunal
and Anr. (W.P.(MD).No.7339 of 2013 etc. (batch cases)), would submit that
still the Appellate Tribunal can consider whether there was mens rea or not.
He would rely upon Section 7L of the P.F Act to contend that the Appellate
Tribunal has been conferred with express powers to modify the orders also.
When the Board has powers to waive, when the authorities have powers to
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levy, certainly the Tribunal, while sitting on appeal over the decisions of the
Organisation, has powers to reduce, modify or annul the damages. In this
case, apart from the actual contributions, a huge sum of 17% of damages is
also realised. Therefore, there need not be any interference in the order of
the Tribunal. Relying upon certain judgments of this Court, he would
submit that in cases where the Company was a sick Company as that of the
mill herein, reduction even up to 100% was also allowed by this Court.
Therefore, when discretion is exercised by the Tribunal in accordance with
law, the same does not call for any interference.
F. The points for consideration :
6. Upon considering the arguments and perusing the material records,
the following points arise for determination:
1. Whether mens rea and actus reus to be considered vis-à-vis
damages under 14B of the P.F Act?
2. Whether the exercise of jurisdiction by the Appellate Tribunal is in
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order?
G. Point No. 1:
7. Section 14B of the P.F Act is extracted hereunder for ready
reference:-
"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,
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subject to such terms and conditions as may be specified
in the Scheme."
7.1. It is true that in Employees' State Insurance Corporation (cited
supra) and certain other cases, earlier the Hon’ble Supreme Court of India
had held that unless it is established that failure to contribute was
attributable to mens rea on the part of the employer, levying of damages
does not arise. The same was also held in the case dealing with the
Provident Fund. This position later stood altered in view of the judgment of
the Hon’ble Supreme Court of India in Horticulture Experiment Station,
Gonikoppal, Coorg (cited supra), whereby it is held that these judgments
did not take into account the earlier authoritative pronouncements and held
that mens rea and actus reus are not relevant considerations for levy of
statutory damages in these beneficial enactments. Under these
circumstances, the matter has been dealt with in detail and answered by the
Full Bench of this Court in Sun Pressings (P) Ltd., (cited supra). The Full
Bench, speaking through Hon’ble Justice S.S.Sundar, framed the questions
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in paragraph No.5 and it is useful to extract the same as follows:-
"5.This Court, having regard to the scope of
Section 14-B, the relevant provisions of the Act, the EPF
Scheme, and the arguments on either side relying upon
several precedents, found it appropriate to frame the
following issues for consideration :
(a) Whether an element of mens rea or actus reus is
essential for levy of damages under Section 14-B of the
Act or whether the default or delay in payment of the EPF
contributions by the employer attract levy of damages
under Section 14-B of the Act without an element of mens
rea ?
(b) Whether levy of damages is compulsory in all
cases even if it is held that mens rea is not essential ? In
what cases levy of damages should be avoided ?
(c) What are the principles to be followed while
determining the quantum of damages under Section 14-B
of the Act ?"
7.2. After considering all the relevant decisions in detail, the Hon’ble
Full Bench answered the questions and it is relevant to extract paragraph
Nos.38 and 39 which read as follows:-
"38.In Para 32-B of the Employee-s Provident
Funds Scheme, 1952, the Central Board has authorised to
reduce or waive damages. In respect of sick companies,
100% of the damages can be waived. Similarly, waiver of
damages upto 100% can be allowed as per the
recommendations of the Board of Industrial and Financial
Reconstruction (BIFR). There may be situations and
variety of reasons which would justify the non-payment of
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contribution within the prescribed time by the employer.
There cannot be a discrimination between a sick company
and sick industry which does not fall under SICA. After
the SARFAESI Act, to save the industry, an employer
may be forced to pay huge amounts by accepting OTS
proposals. There may be similar circumstances where the
employer has no option but to borrow money from private
financiers. A decision of a private employer to save the
industry will instantly save the employment of seizable
number of employees. For variety of reasons, there may
be default, despite an employer has always been honest
but unable to pay the Provident Fund dues. There may be
cases where the industrial operation is suspended
temporarily or permanently due to power cut or labour
strike or other valid reasons. In the absence of surplus
funds available with the employer, it is quite possible that
an employer is put to helpless situations. Therefore, there
cannot be a straight jacket formula or a table which should
be prescribed for levying damages under Section 14-B of
the Act.
39.Therefore, following the principles reiterated by
the Hon-ble Supreme Court and different High Courts
including our High Court in similar circumstances, this
Court hold that Section 14-B of the Act is an enabling
provision and it does not envisage any compulsion to levy
damages in all cases, and is inclined to frame the
following guidelines:-
(i)Before levying damages in terms of Section 14-
B of the Act, every authority is required to follow
principles of natural justice. The particulars of the default,
period, etc., and every adverse information that may be
relied upon for levying damages should be indicated or
furnished to the employer and a fair opportunity should be
given to the employer to put forth his case in defence to
the proposed action.
(ii)The authority, while exercising power under
Section 14-B, shall keep in mind that the liability as per
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the table given in Para 32A of the Scheme, should be
treated as upper limit within which damages can be levied
for the delay in making contributions by the employer.
(iii) In appropriate cases where the employer is
able to provide sufficient reasons or cause justifying the
delay with verifiable materials, the authority is competent
to waive or fix the quantum of damages less than what is
shown in the table under Para 32A of the Scheme.
(iv)When an employer is not in a position to make
payment in order to save the industry from closure or on
account of protecting the industry or establishment from
being put to face proceedings under the SARFAESI Act or
other inevitable circumstances which compels the
employer to divert the funds only to save the industry and
the employees, there cannot be a levy of damages.
(v)The authority under the Act has to consider all
the mitigating circumstances including financial
difficulties projected by the employer and pass a reasoned
order.
(vi)When the employer is able to produce all the
documents or verifiable material within his reach to
substantiate any mitigating circumstance, the authority
exercising power under Section 14-B has to pass orders
giving reasons, if he is unable to find truth or bona fides in
the claim of the employer.
(vii)There shall be proper application of mind
objectively on the merits of each case and in any case, the
authority cannot resort to the arithmetical calculation or
for levying damages as per Para 32A of the Scheme
without considering the mitigating circumstances.
(viii)While assessing the quantum of damages, the
past and present conduct of the employer also should be
taken note of. For example, there can be levy of damages
as per Para 32-A of EPF Scheme in every case when the
employer is a chronic defaulter despite having surplus
funds or found to have diverted funds.
(ix) There may be variety of circumstances to
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which the employer is put to while managing an industrial
establishment or a factory within the purview of the Act.
The proviso to Section 14-B gives a special power to the
Board to waive damages when a rehabilitation scheme is
pending before the BIFR. There may be similar
circumstances for the employer of any industry to save the
industry from the clutches of private/public financial
institutions and the employer might be facing proceedings
under the SARFAESI Act. Whenever the employer is
forced to make huge amounts by mobilizing funds from
other resources to save the industry from closure or to
avoid similar situations, such payment need not be
considered as an act to avoid payment of provident fund
dues.
(x)The delay in payments by profit making
establishments has to be seriously viewed and every profit
making employer is bound to pay the provident fund
contributions promptly, unless there are strong reasons or
circumstances that prevent the employer from making the
payment on the due dates. If there is an element of willful
negligence in payment of Provident Fund dues, the
Assistant Provident Fund Commissioner or the competent
authority can levy damages exercising his discretion.
(xi)Though mens rea is not an essential ingredient,
there cannot be levy of damages at the maximum limit
merely because there is a default. Before levying damages,
there must be definite finding or reason, after considering
the explanation or reasons given by the employer for the
delay in payment of dues and other mitigating
circumstances. The discretion vested with the Assistant
Provident Fund Commissioner or the competent authority
shall be exercised judiciously in tune with the settled
principles of law and keeping in mind the interest of the
employees concerned."
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7.3. Thus, it can be seen that the legal position as it holds today is that
mens rea or willfulness is not an essential ingredient for invoking Section
14-B and levying damages. However, the same can be a relevant factor as a
mitigating circumstance while deciding on the exercise or quantum. It is
stated that S.L.P.(Civil) No.25548 of 2024, is said to be pending before the
Hon’ble Supreme Court of India. Since there is no interim order, this Court
is bound by the authoritative pronouncement of the Hon’ble Full Bench.
H. Point No. 2:
8. There is no dispute that the establishment can file an appeal under
Section 7-I of the P.F Act as against the levy of damages. Section 7L of the
P.F Act reads as follows :
"7L. Orders of Tribunal.—(1) A Tribunal may
after giving the parties to the appeal, an opportunity of
being heard, pass such orders thereon as it thinks fit,
confirming, modifying or annulling the order appealed
against or may refer the case back to the authority which
passed such order with such directions as the Tribunal
may think fit, for a fresh adjudication or order, as the case
may be, after taking additional evidence, if necessary.
(2) A Tribunal may, at any time within five years
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from the date of its order, with a view to rectifying any
mistake apparent from the record, amend any order passed
by it under sub-section (1) and shall make such
amendment in the order if the mistake is brought to its
notice by the parties to the appeal:
Provided that an amendment which has the effect
of enhancing the amount due from, or otherwise
increasing the liability of, the employer shall not be made
under this sub-section, unless the Tribunal has given
notice to him of its intention to do so and has allowed him
a reasonable opportunity of being heard.
(3) A Tribunal shall send a copy of every order
passed under this section to the parties to the appeal.
(4) Any order made by a Tribunal finally disposing
of an appeal shall not be questioned in any court of law."
8.1. Paragraph 32A of the Scheme is extracted hereunder:
32A. Recovery of damages for default in payment of
any contribution
(1) Where an employer makes default in the payment of
any contribution to the 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 of the Act or in the payment of any charges payable
under any other provisions of the Act or Scheme or under
any of the conditions specified under section 17 of the
Act, the Central Provident Fund Commissioner or such
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, damages at
the rates given below: —
S.No. Period of default Rates of Damages
(1) (2) (percentage of
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arrears per annum)
(a) Less than two months Five
(b) Two months and above but Ten
less than four months
(c) Four months and above but Fifteen
less than six months
(d) Six months and above Twenty-five
(2) The damages shall be calculated to the nearest rupee,
50 paise or more to be counted as the nearest higher rupee
and fraction of a rupee less than 50 paise to be ignored.
8.2. Paragraph 32B of the Scheme reads as follows :
"32B. Terms and conditions for reduction or waiver of
damages
The Central Board may reduce or waive the
damages levied under section 14B of the Act in relation to
an establishment specified in the second proviso to section
14B, subject to the following terms and conditions,
namely: —
(a) in case of a change of management including
transfer of the undertaking to workers' co-operative and in
case of merger or amalgamation of the sick industrial
company with any other industrial company, complete
waiver of damages may be allowed;
(b) in cases where the Board for Industrial and
Financial Reconstruction, for reasons to be recorded in its
schemes, in this behalf recommends, waiver of damages
up to 100 per cent may be allowed;
(c) in other cases, depending on merits, reduction
of damages up to 50 per cent may be allowed."
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8.3. The Hon’ble Full Bench, in paragraph No.38 of its judgment, has
considered the same and there cannot be any distinction between a declared
sick company and a company which is also otherwise sick on account of
financial difficulty etc., in respect of 100% waiver of damages. In view
thereof, it cannot be said that the Appellate Tribunal exceeded its
jurisdiction or that there was any statutory bar for the Tribunal to reduce the
damages to 17% of the damages originally levied. On the facts, it can be
seen that though initially, the mill’s claim was rejected on the ground of
manipulation of accounts, the matter went on appeal before the AIFR and
ultimately it was declared as a sick unit by an order dated 30.08.2005.
However, periodical orders were subsequently passed and an Assets Sales
Committee was formed with an operational agency and further directions
were periodically issued which can be seen from the proceedings of the
Board for Industrial and Financial Reconstruction in Case No.252 of 1998
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dated 14.09.2011. It is also to be noted that there was no any express orders
regarding waiver. In that factual position, it can be seen that the petitioner is
a declared sick unit. However, there were no orders of waiver of damages
or dues and the assets were directed to be sold through the Assets Sales
Committee. In such a scenario, it can be seen that the delay happened due to
these proceedings also. Further, their matter was not in the hands of the
management alone after the initiation of the BIFR proceedings. The
financial difficulty pleaded cannot be said to be a false or make-believe
affair. In that background, I hold that the exercise of jurisdiction by the
Appellate Tribunal is in tune with the dictum laid down by the Hon’ble Full
Bench and as such does not call for any interference.
I. The Result:
9. The Writ Petition stands dismissed. There shall be no order as to
costs. Consequently, connected miscellaneous petitions are closed.
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23.01.2025
Neutral Citation : yes
grs
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D.BHARATHA CHAKRAVARTHY, J.
grs
and W.M.P.Nos.8683 of 2024 and 17727 of 2020
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23.01.2025
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