Punjab-Haryana High Court
M/S Sandhu Security Service vs State Of Haryana on 4 November, 2025
CRM-M-33443-2016 (O&M) 1
120(3)+121(5)
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
CRM-M-33443-2016 (O&M)
Reserved on: 06.08.2025
Date of pronouncement: 04.11.2025
M/S SANDHU SECURITY SERVICE ......... Petitioner
Versus
STATE OF HARYANA ..... Respondent
CORAM: HON'BLE MR. JUSTICE YASHVIR SINGH RATHOR
Present : Mr. R.N. Lohan, Advocate with
Mr. J.S. Maanipur, Advocate and
Ms. Harpreet Kaur, Advocate
for the petitioner.
Ms. Vasundhara Dalal Anand, Sr. DAG, Haryana.
****
YASHVIR SINGH RATHOR, J. (Oral)
1. Prayer in this petition filed under Section 482 of Cr.P.C. is
for quashing of FIR No.377 dated 30.07.2014, registered under Section
406 of IPC at Police Station Camp Palwal, District Palwal and all
subsequent proceedings arising therefrom.
2. The present FIR has been registered on the basis of a
complaint given to the police by the Executive Engineer, Sub Division,
Dakshin Haryana Bijli Vitran Nigam (for short 'DHBVN'), Palwal, with
the allegation that M/s Sandhu Security Services, SCO No. 45-46, First
Floor, Office No. 105 Sector-11, Panchkula, was an approved contractor
for providing skilled manpower under this Division on outsourcing basis
w.e.f. 01.06.2009 to 31.05.2010 and accordingly, work orders were
placed on a monthly basis for the supply of requisite manpower at various
1 of 28
substations. The payment is regulated by multiplying the number of
manpower provided by the firm with approved DC rates, applicable
Employee Provident Fund (for short 'EPF') plus Employee State
Insurance (for short 'ESI') plus service tax plus zero percent premium
thereon. All the payments including EPF/ESI have been made to the firm
through account payee cheques but firm has neither deposited the entire
amount of EPF (both employer and employee share) and ESI (both
employer and employee share) with the concerned authorities nor he has
provided the contract labour with the mandatory EPF and ESI cards
which was obligatory on the part of firm. The firm has, thus, dishonestly
misappropriated the EPF and ESI amounts paid to him and has also
committed breach of trust. The contractor's employees working under the
proprietor have not been paid the EPF amounts even after the termination
of contract of this firm. The firm has not deposited the exact amount
with the EPF/ESI authorities and has embezzled the same. Accordingly,
a prayer was made to investigate the matter after lodging the FIR against
M/s Sandhu Security Services, SCO No. 45-46, First Floor, Office No.
105 Sector-11, Panchkula under appropriate Sections of IPC and initiate
proceedings against him. After registration of FIR, matter was
investigated and after completion of investigation, final report has been
presented in the Court for trial.
3. By way of present petition, petitioner is seeking the quashing
of the FIR. It has been alleged that the FIR has been falsely registered
against the petitioner with an ulterior motive to blackmail him. A bare
perusal of the FIR shows that it is a case of violation of provisions of
Section 39(5a) of the Employees' State Insurance Act, 1948 (for short
2 of 28
'ESI Act') according to which if the contribution payable under this Act
is not paid by the principal employer on the date on which such
contribution was due, he shall be liable to pay simple interest at the rate
of 12% per annum or at such higher rates as may be specified in the
regulations till the date of actual payment as has been provided in Section
39 of the said Act which is reproduced as below:-
"39. Contributions- (1) The contribution payable
under this Act in respect of an employee shall
comprise contribution payable by the employer
(hereinafter referred to as the employer's
contribution) and contribution payable by the
employee (hereinafter referred to as the employee's
contribution) and shall be paid to the Corporation.
(2) The contributions shall be paid at such rates as
may be prescribed by the Central Government.
Provided that the rates so prescribed shall not be
more than the rates which were in force immediately
before the commencement of the Employees' State
Insurance (Amendment) Act, 1989 (29 of 1989).
(3) The wage period in relation to an employee shall
be the unit in respect of which all contributions shall
be payable under this Act.
4) The contributions payable in respect of each wage
period shall ordinarily fall due on the last day of the
wage period and where an employee is employed for
part of the wage period or is employed under two or
more employers during the same wage period, the
contributions shall fall due on such days as may be
specified in the regulations.
5) (a) If any contribution payable under this Act is not
paid by the principal employer on the date on which
such contribution has become due he shall be liable to
3 of 28
pay simple interest at the rate of twelve per cent per
annum or at such higher rate as may be specified in
the regulations till the date of its actual payment:
Provided that higher interest specified in the
regulations shall not exceed the lending rate of
interest charged by any scheduled bank.
b) Any interest recoverable under clause 9(a) may be
recovered as an arrear of land revenue or under
section 45C to section 45-1.
Explanation- In this sub-section, "scheduled bank"
means a bank for the time being included in the
Second schedule to the reserve Bank of India Act,
1934 (2 of 1934)."
4. It is further submitted that the penal provisions under the
above mentioned Act are contained in Section 85 of the Act, according to
which, if any, persons fails to pay any contribution which under this Act
he is liable to pay, he shall be punished with imprisonment for a term
which may extend to 03 years and the relevant provision contained in
section 85 of the Act is reproduced as below:-
"85. Punishment for failure to pay contributions, etc.
If any person.
a) fails to pay any contribution which under this Act
he is liable to pay, or
b) deducts or attempts to deduct from the wages of an
employee the whole or any part of the employer's
contribution or
c) in contravention of section 72 reduces the wages or
any privileges or benefits admissible to an employee,
or
d) in contravention of section 73 or any regulation
dismisses, discharges, reduces or otherwise punishes
4 of 28
an employee, or
e) fails or refuses to submit any return required by the
regulations, or makes a false return, or
f) obstructs any Inspector or other official of the
Corporation in the discharge of his duties, or
g) is guilty of any contravention of or non-compliance
with any of the requirements of this Act or the rules or
the regulations in respect of which no special penalty
is provided,
he shall be punishable-
i) where he commits an offence under clause 9a), with
imprisonment for a term which may extend to three
years but-
a) which shall not be less than one year, in case of
failure to pay the employee's contribution which has
been deducted by him from the employee's wages and
shall also be liable to fine of ten thousand rupees;
b) which shall not be less than six months, in any other
case and shall also be liable to fine of five thousand
rupees: Provided that the court may, for any adequate
and special reasons to be recorded in the judgment,
impose a sentence of imprisonment for a lesser term;
ii) where he commits an offence under any of the
clauses (b) to (g) (both inclusive), with imprisonment
for a term which may extend to one year or with fine
which may extend to four thousand rupees, or with
both and shall also be liable to fine which may extend
to two thousand rupees, or with both."
5. It is further submitted that the prosecution under this Act is
instituted in accordance with provisions of Section 86 of the Act which is
reproduced as under:-
"86. Prosecutions. (1) No prosecution under this Act
5 of 28
shall be instituted except by or with the previous
sanction of the Insurance Commissioner or of such
other officer of the Corporation as may be authorized
in this behalf by the Director General of the
Corporation.
2) No court inferior to that of a metropolitan
Magistrate or judicial Magistrate of the First Class
shall try any offence under this Act.
3) No court shall take cognizance of any offence under
this Act except on a complaint made in writing in
respect thereof."
6. It is further alleged that as per Section 75 of the ESI Act, all
the matters are to be decided by the Employees Insurance Court and, if
any, question or dispute arises as to any other matter which is in dispute
between a principal employer and the Corporation, or between a principal
employer and the Corporation, or between a principal employer and an
immediate employer or between a person and the Corporation, or
between an employee and a principal or immediate employer, in respect
of any contribution or benefit or other dues payable or recoverable under
this Act, or any other matter required to be or which may be decided by
the Employees' Insurance Court under this Act, such question or dispute
subject to the provisions of sub-section (2A) shall be decided by the
Employees' Insurance Court in accordance with the provisions of this
Act. The relevant provisions i.e. Sections 75 and 76 of the Act are
reproduced as below:-
"75. Matters to be decided by Employees' Insurance
Court.- (1) If any question or dispute arises as to-
a) whether any person is an employee within the
6 of 28
meaning of this Act or whether he is liable to pay the
employee's contribution, or
b) the rate of wages or average daily wages of an
employee for the purposes of this Act, or
c) the rate of contribution payable by a principal
employer in respect of any employee, or
d) the person who is or was the principal employer in
respect of any employee, or
e) the right of any person to any benefit and as to the
amount and duration thereof, or
ee) any direction issued by the Corporation under
section 55A on a review of any payment of dependants'
benefit, or
g) any other matter which is in dispute between a
principal employer and the Corporation, or between a
principal employer and an immediate employer,
between a person and the Corporation or between an
employee and a principal or immediate employer in
respect of any contribution or benefit or other dues
payable or recoverable under this Act or any other
matter required to be or which may decided by
Employees' Insurance Court under this Act,
such question or dispute subject to the provisions of
sub-section (2A)) shall be decided by the Employees'
Insurance Court in accordance with the provisions of
this Act.
2) Subject to the provisions of sub-section (2A), the
following claims) shall be decided by the Employees'
Insurance Court, namely:-
a) claim for the recovery of contributions from the
principal employer;
b) claim by a principal employer to recover
contributions from any immediate employer;
d) claim against a principal employer under section
7 of 28
68;
e) claim under section 70 for the recovery of the value
or amount of the benefits received by a person when
he is not lawfully entitled thereto; and f) any claim for
the recovery of any benefit admissible under this Act.
(2A) If in any proceedings before the Employees'
Insurance Court a disablement question arises and the
decision of a medical board or a medical appeal
tribunal has not been obtained on the same and the
decision of such question is necessary for the
determination of the claim or question before the
Employees' Insurance Court, that court shall direct
the corporation to have the question decided by this
Act and shall thereafter proceed with the
determination of the claim or question before it in
accordance with the decision of the medical board or
the medical appeal tribunal, as the case may be,
except where an appeal has been filed before the
Employees' Insurance Court under sub-section (2) of
section 54A in which case the Employees' Insurance
Court may itself determine all the issues arising before
it.
2B) No matter which is in dispute between a principal
employer and the Corporation respect of any
contribution or any other dues shall be raised by the
principal employer in the Employees' Insurance Court
unless he has deposited with the Court fifty per cent.
Of the amount due from him as claimed by the
Corporation: Provided that the court may, for reasons
to be recorded in writing, waive or reduce the amount
to be deposited under this sub-section.
3) No civil Court shall have jurisdiction to decide or
deal with any question or dispute as aforesaid or to
adjudicate on any liability which by or under this Act
8 of 28
is to be decided by 5[ a medical board, or by a
medical appeal tribunal or by the Employees'
Insurance Court."
"76. Institution of proceedings, etc.- (1) Subject to the
provisions of this Act and any rules made by the State
Government, all proceedings before the Employees'
Insurance Court shall be instituted in the court
appointed for the local area in which the insured
person was working at the time the question or dispute
arose.
2) If the Court is satisfied that any matter arising out
of any proceeding pending before it can be more
conveniently dealt with by any other Employees'
Insurance Court in the same State, it may, subject to
any rules made by the State Government in this behalf
order such matter to be transferred to such other
Court for disposal and shall forthwith transmit to such
other court the records connected with that matter.
3) The State Government may transfer any matter
pending before any Employees' Insurance Court in the
State to any such Court in another State with the
consent of the State Government of that State.
4) The court to which any matter is transferred under
sub-section (2) or sub-section (3) shall continue the
proceedings as if they had been originally instituted in
it."
7. It is further alleged that the aforesaid provisions make it
clear that in case of any violation of the provisions of this Act, the proper
procedure is to file a complaint before the Employees' Insurance Court
by the concerned authority under the Act and no prosecution can be
launched by way of registration of FIR by the Police. The ESI Act is a
9 of 28
special Statute and the provisions of the said Act shall prevail over the
provisions of the Criminal Procedure Code. As per Section 75 of the ESI
Act, if any, question or dispute arises, the same has to be decided by the
Employees' Insurance Court in accordance with provisions of this Act.
According to sub-section (2) of Section 75, claim for recovery of
contributions from the principal employer or claim by a principal
employer to recover contributions to immediate employer are to be
decided by the Employees' Insurance Court and according to Section 76
of the said Act, all proceedings under Employees' Insurance Court shall
be instituted in the Court appointed for the local area in which the insured
person was working at the time when the question or dispute arose. As
per Section 77 of the Act, the proceedings before the Employees'
Insurance Court have to be instituted within a period of three years from
the date on which the cause of action arose. Same is the case regarding
EPF and Family Pension Act. If EPF is not deposited within time, the
matter is to be dealt with under Section 14 to 14B of the EPF Act. Under
Section 14, penalties have been prescribed and a person avoiding the
payment due under the act may be punished with imprisonment for a term
which may extend to 6 months or with fine. As per Section 14AA, if a
person commits the same offence as mentioned in Section 14, he may be
imprisoned for term which may extend to one year and fine. Under
Section 14AB of the Act, all such offences have been made cognizable.
As per Section 14AB, no Court shall take cognizance of any offence
punishable under this Act except on a report in writing with the previous
sanction of Central Provident Fund Commissioner by an Inspector
appointed under the Act and Section 14AC is reproduced as below:-
10 of 28
"14AC. Cognizance and trial of offences.
(1) No court shall take cognizance of any offence
punishable under this Act, the Scheme or the Family
pension Scheme except on a report in writing of the
facts constituting such offence made with the previous
sanction of the Central Provident Fund Commissioner
or such other officer as may be authorized by the
Central Government, by notification in the official
Gazettee, in this behalf, by an Inspector appointed
under section 13.
(2) No court inferior to that of a Presidency
Magistrate or a Magistrate of the first class shall try
any offence under this Act or the Scheme or Family
Pension Scheme."
8. That similarly as per Section 76 of the Service Tax Act,
delayed payment of Service Tax, simple interest not below 10% and not
exceeding 36% per annum shall be imposed. In case of failure to pay
service tax benefits, penalty provisions have been provided in Section 76
of the Service Tax Act. Section 76 of the Service Tax Act is reproduced
as below:-
"76 Penalty for failure to pay service tax. Any person,
liable to pay service tax in accordance with the
provisions of section 68 or the rules made under this
Chapter, who fails to pay such tax, shall pay, in
addition to such tax and the interest on that tax
amount in accordance with the provisions of section
75, a penalty which shall not be less than two hundred
rupees for every day during which such failure
continues or at the rate of two per cent of such tax, per
month, whichever is higher, starting with the first day
after the due date till the date of actual payment of the
11 of 28
outstanding amount of service tax:
"Provided that the total amount of the penalty payable
in terms of this section shall not exceed the service tax
payable."
9. The State has filed reply to the petition through Suresh
Kumar, HPS, Deputy Superintendent of Police, Palwal and petition has
been opposed preliminary on the ground of maintainability and that
petitioner has not come to the Court with clean hands.
10. It is submitted that the complaint was submitted by XEN
(OP) Divin. DHBVN, Palwal, regarding embezzlement of EPF amount of
Rs.11,75,778/- and ESI contribution of Rs.2,94,271/- by the petitioner in
respect of the manpower provided by the petitioner during the period
01.06.2009 to 31.05.2010. During investigation, copies of various work
orders for providing technical workers by the petitioner to DHBVN,
Palwal were seized and as per clause-XII of the terms and conditions of
the same, the firm was to submit the documents relating to the
compliance of EPF and ensure that EPF deducted from the salary of
skilled employee was being deposited with the concerned department
regularly. Since the aforesaid amount was not deposited by the petitioner
after having deducted the same, he has embezzled it. Final report has
been presented before the Trial Court on 16.04.2012. The petitioner has
committed an offence under Section 406 of the IPC and has rightly been
challaned as the offence committed by him falls within the definition of
criminal breach of trust. It has been denied that the FIR was registered
with malal fide intention and dismissal of the petitioner has been sought.
11. I have heard learned counsel for the parties and have gone
12 of 28
through the material on record with the able assistance.
12. Learned counsel for the petitioner contended that the FIR in
question has been lodged by HVPNL with the allegations that he was
engaged to provide manpower on outsourcing basis and work orders
were placed on a monthly basis for providing the manpower. The
department had paid him its share of EPF as well as ESI be sides service
tax but he has not deposited the same in the account of the
employees/contract labour and he has also not provided them with EPF
and ESI cards which was obligatory. He has thus misappropriated the
contribution paid to him and has committed the breach of trust. Learned
counsel contended that both the ESI Act and EPF are a complete code in
itself which provide for payment of contribution, penal provisions,
obtaining of prior sanction before prosecution is launched and the
complaint has to be instituted by an authorized person, whereas in the
present case, FIR has been got registered under Section 406 of IPC by
Executive Engineer, HVPNL, which is not sustainable and is an abuse of
process of law. Learned counsel further contended that as per Section 35
sub-section 5(a) of the ESI Act, contribution not deposited by the
contractor can be recovered with interest @ 12% per annum or any
other rate of interest to be decided by the authority. Section 85 contains
penal provisions which prescribe punishment in case of non-deposit of
the contribution. Section 86 of the Act deals with prosecution for which
previous sanction of the Insurance Commissioner is required and
cognizance can be taken only on the basis of a complaint to be made in
writing before the ESI Court. Learned counsel further contended that the
ESI Act is a special statute and it prevails over the Code of Criminal
13 of 28
Procedure (for short, 'Cr.P.C.').
Learned counsel next contended that Sections 14 to 14B of
the EPF Act are also identical to that of the ESI Act. Section 14 of the
said Act prescribes penalties and Section 14AB provides that no
cognizance can be taken of an offence under the said Act except on a
report in writing with the previous sanction of the Central Provident Fund
Commissioner, on the basis of a complaint to be instituted by the
Inspector. Learned counsel lastly contended that since both the Acts are
special statutes, the same will prevail over the Code of Criminal
Procedure and continuation of the present proceedings arising out of this
FIR is an abuse of the process of law and learned counsel prayed that the
FIR in question be quashed. In support of his contentions, learned
counsel has relied upon judgment dated 11.09.2015 passed by a
Coordinate Bench of this Court in CRM-M-29708-2014 titled Ajay
Kumar Sandhu Vs. State of Haryana, CRM-M-15719-2005 titled 'Dhan
Raj Jain and another Vs. State of Haryana and another', judgment of
Supreme Court in Criminal Appeal No.2039 of 2012 titled 'Anju
Chaudhary Vs. State of U.P. and another', Criminal Appeal No.179 of
2008 titled 'Suresh Nanda Vs. C.B.I', Criminal Appeal No.1133, 1134
of 2009 titled 'Jeewan Kumar Raut Vs. Central Bureau of
Investigation', Criminal Appeal No.569 of 2003 titled 'Saumindra
Bhattacharya Vs. State of Bihar and another' and Privy Council Appeal
No.11 of 1936 titled 'Nazir Ahmad Vs. King Emperor'.
13. On the other hand, learned State counsel argued that the
petitioner was paid the employees' contribution to the provident fund and
ESI by HVPNL, but he did not pay the same to the contractual staff and
14 of 28
has misappropriated the same, thereby committing breach of trust.
Learned State counsel further contended that Act No. 40 of 1973 inserted
an explanation to Section 405 IPC, which defines the offence of criminal
breach of trust punishable under Section 406 IPC, so as to specifically
include deduction of the employees' contribution from wages and default
in payment of such contribution to the fund as ingredients of the offence,
imposing the required mens rea for the offence by way of a deeming
fiction. Learned State counsel further contended that mens rea is sine qua
non for attracting the offence under Section 406 IPC and to attract this
offence, the offender has to dishonestly misappropriate or convert the
property involved for his own use or dispose of the same in violation of
the trust imposed upon him, whereas to attract the offence under Sections
14 and 14AA of the EPF Act as well as Section 85 of the ESI Act, mens
rea is not a necessary ingredient. Therefore, the offences under Section
406 of IPC and the offences under Sections 14 and 14AA of the EPF Act
and Section 85 of the ESI Act are distinct and different and when the
ingredients are not identical and the offences are distinct, there is no
question of double jeopardy as embodied in Article 20(2) of the
Constitution being applicable. Learned State counsel lastly contended
that since the petitioner has committed default in payment of such
contribution to the EPF and ESI fund of the contractual staff, he shall be
deemed to have dishonestly used the amount as required to constitute the
offence of criminal breach of trust punishable under Section 406 of IPC
and he can be prosecuted in the present FIR as well. Learned State
counsel prayed that the petition in hand be dismissed. In support of her
contention, learned State counsel has cited judgment dated 22.10.2024
15 of 28
passed by the Kerala High Court in Criminal Revision Petition No. 790
of 2024 titled 'S. Mohammed Nowfal vs. State of Kerala', 2023 INSC
710 titled 'Dhanraj N Asawani Vs. Amarjeetsingh Mohindersingh Basi
and others' 2004(3) RCR (Criminal) 796 titled 'M/s Rita Agencies Vs.
Enforcement Officer, Employees' Provident Fund Organization and
another', 2007 LLR 1172 'Ram Prasad Sao and other Vs. State of
Bihar and others', Law finder Id# 2225117 titled 'Dhirendra Kumar
Rajak Vs. State of Haryana and another'.
14. After hearing learned counsel for the parties and on going
through the material on file, I am of the considered opinion that petition
in hand is devoid of merits and thus, deserves to be dismissed for the
reasons discussed hereinafter.
15. Before proceeding further, Section 405 of IPC which defines
the criminal breach of trust is reproduced 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 wilfully suffers any other person so to
do, commits "criminal breach of trust".
Explanation 1.-- A person, being an employer of an
establishment whether exempted under section 17 of
the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952 (19 of 1952), or not who deducts
16 of 28
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 employees' 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 (34 of
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."
16. While interpreting Section 405 of IPC and relevant
provisions of EPF Act, Kerala High Court in S. Mohammed Nowfal
(supra) has observed as under:-
"9. Various penal sections were inserted in
the Principal Act by way of the Amendment Act
40 of 1973..
10. Sub-section (1A) was inserted in Section
14 of the Principal Act, making defaults in
complying with the provisions of Section 6
punishable with imprisonment for a term which
17 of 28
may extend to six months but which shall not
be less than three months in case of default of
payment of the employees' contribution
deducted by the employer from their wages
(enhanced to three years and one year
respectively by way of the Amendment Act 33
of 1988). The amendment further provided
provision (Section 14-AA) for imprisonment,
which may extend to one year, which shall not
be less than three months in case of repeated
offences (enhanced to five years and two
years, respectively by way of the Amendment
Act 33 of 1988). Section 14-AB was inserted,
making the offence relating to default in
payment of contribution by the employer
cognizable.
11. The Act 40 of 1973, inserted an
explanation to Section 405 of the Indian Penal
Code, which defines the offence of criminal
breach of trust punishable under Section 406
IPC, so as to specifically include the
deductions from the employees' contribution
from the wages and default in payment of such
contribution to the fund as ingredients to the
offence, imposing the required mens rea for the
offence by way of a deeming fiction.
12. By way of Act 40 of 1973, the Parliament
also inserted Section 14-AC by which sanction
of the Central Provident Fund Commissioner
was made mandatory for taking cognizance of
any offence punishable under the EPF Act and
the schemes thereunder.
13. Section 14-AC reads thus:-
14-AC - Cognizance and trial of offences;-
18 of 28
(1) No court shall take cognizance of any
offence punishable under this Act, the Scheme
or the Pension Scheme or the Insurance
Scheme except on a report in writing of the
facts constituting such offence made with the
previous sanction of 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,
by an Inspector appointed under section 13.
(2) No court inferior to that of a Presidency
Magistrate or a Magistrate of the first class shall
try any offence under this Act or the Scheme or
the Pension Scheme or the Insurance Scheme.
14. As per Section 14-AC, the
cognizance of any offence punishable under the
EPF Act shall be on a report in writing made
with the previous sanction of the Central
Provident Fund Commissioner.
15. I have discussed above the objects and
reasons for enacting Act 40 of 1973. The
legislature had taken note of the vast arrears
due to the Provident Fund due to the defaults
in payment of contributions. The legislature
provided stringent punishment for the offence
related to default in the contributions to the
EPF. Section 14-AC was inserted as
protection from frivolous prosecution of the
offences under the Act with the enhancement of
punishment for various offences.
16. It is pertinent to note that Explanation 1
was inserted into Section 405 of the IPC by way
of Act 40 of 1973 itself.
17. Section 405 reads thus:-
19 of 28
"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 wilfully sufiers any
other person so to do, commits "criminal breach
of trust".
2. Explanation 1.--A person, being an
employer of an establishment whether
exempted under section 17 of the Employees'
Provident Funds and Miscellaneous Provisions
Act, 1952 (19 of 1952), or not 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 for 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.
18. Mens rea is a sine qua non for attracting
the offence under Section 406 r/w 405 of IPC.
To attract this offence, the offender has to
dishonestly misappropriate or convert the
property involved for his own use or dispose of
20 of 28
the same in violation of the trust reposed on
him.
19. To attract the offences under Sections 14
and 14-AA mens rea is not a necessary
ingredient. Therefore, the offence under
Section 406 r/w 405 IPC and the offences
under Sections 14 and 14-AA of the EPF Act
are distinct and different. When ingredients
are not identical, and the offences are distinct,
there is no question of the rule as to double
jeopardy as embodied in Article 20(2) of the
Constitution being applicable. [vide: State of
Bombay v. S.L. Apte and Another (AIR 1961
SC 578)].
20. With the insertion of the Explanation, the
required mens rea for the offence of criminal
breach of trust, as I mentioned above, has been
imposed by way of deeming fiction to the effect
that an employer who deducts the employees'
contribution from the wages payable to the
employees for credit to a Provident Fund or
Family Pension Fund shall be deemed to have
been entrusted with the amount and if he
makes default in the payment of such
contribution to the fund, shall be deemed to
have dishonestly used the amount of the said
contribution in violation of the direction of
law. Therefore, deduction of the contribution
from the wages of the employees for credit to a
Provident Fund shall be deemed to have been
entrusted within the meaning of the term
'entrustment', and when he commits default in
the payment of such contribution to the fund,
he shall be deemed to have 'dishonestly' used
21 of 28
the amount as required to constitute the
offence of criminal breach of trust under
Section 406 IPC.
22. The intention of the legislature to make
the act of default on the part of the
employers in contributing the amounts
deducted from the wages of the employees a
separate and distinct offence from the
offences under the EPF Act is vivid with the
insertion of the Explanation 1 to Section 405
IPC. The legislature consciously wanted to
permit prosecution of this offence without the
sanction as provided in Section 14-AC of the
Act.
23. The Parliament inserted Explanation 1
to Section 405 to make the act of default in
paying contributions by the employers after
deducting the same from the wages of the
employees an offence cognizable and non-
bailable. The legislature wanted to dilute the
procedural rigours like the report of the
competent officer and previous sanction from
the Central Provident Fund Commissioner in
the prosecution of that offence. The Parliament
wanted that the offence of default in
contributions to the Employees' Provident
Fund by the employers after deducting the
same from their wages is to be taken out of the
rigour of Section 14-AC of the Act. A literal
interpretation of Section 14-AC of the EPF Act
makes it clear that sanction is contemplated
only for prosecuting the offences under the
EPF Act, and no sanction is required for
prosecuting the offence under Section 406 r/w
22 of 28
405 IPC."
17. A Coordinate Bench of this Court in Dhirendra Kumar
Rajak (supra) has also held that the prosecution under Section 406 IPC
can be pursued independently without requiring prior sanction under
Section 14-AC of the Employees Provident Fund and Misc. Provisions
Act, 1952, as both these offences are distinct offences.
18. Coming to the facts of the present case, the first grievance of
the petitioner is that Section 14 of the EPF Act prescribes penalties and
Section 14-AB provides that no cognizance can be taken of an offence
under the said Act except on a report in writing with the previous
sanction of the Central Provident Fund Commissioner on the basis of a
complaint to be instituted by the Inspector. However, in S. Mohammed
Nowfal (supra) as well as in Dhirendra Kumar Rajak (supra), it has been
held that the sanction is contemplated only for prosecuting the offences
under the EPF Act and no sanction is required for prosecuting the offence
under Section 406 of IPC. It is pertinent to mention that the provisions
contained in the ESI Act are pari materia with the provisions of the EPF
Act, which also provide for penalties, the requirement of previous
sanction by the Insurance Commissioner under Section 86 of the said Act
and taking of cognizance only on a complaint in writing by an authorized
person by the ESI Court and the reasoning and findings given in S.
Mohammed Nowfal's case (supra) will apply to the present case as well
and the petitioner can be prosecuted on the basis of FIR registered by the
concerned Department for the offence under Section 406 of IPC as well for
not depositing the contribution to the EPF and ESI in view of Explanation I
and II of Section 405 of IPC.
23 of 28
19. Another contention raised by the petitioner is that
proceedings under the Indian Penal Code cannot continue as the provisions
contained in the EPF Act and ESI Act are special Acts which shall prevail
over the general law and he can only be prosecuted under the EPF and
ESI Act. However, in S. Mohammed Nowfal's case (supra), it has been
held that mens rea is a necessary ingredient for attracting the offence under
Section 406 of IPC whereas mens rea is not a necessary ingredient for the
offences under Sections 14 and 14-AA of the EPF Act. Both the offences
are distinct and different and proceedings under both the IPC as well as
the EPF Act can continue. It is pertinent to mention that the provisions
contained in the ESI Act are pari materia with the provisions of the EPF
Act, which also provide for penalties, the requirement of previous sanction
by the Insurance Commissioner under Section 86 of the said Act and taking
of cognizance only on a complaint in writing by an authorized person by the
ESI Court and the reasoning and findings given in S. Mohammed Nowfal's
case (supra) will apply to the present case as well and the
petitioner can be prosecuted in an FIR got registered by the concerned
department for the offence under Section 406 of IPC.
20. The case law cited by learned counsel for the petitioner is
not applicable to the facts of the case in hand and there is also no force in
the contention raised by learned counsel for the petitioner that the EPF
and ESI Acts being special statutes, the same will prevail over the
provisions of Cr.P.C. In view of Explanation-I and Explanation-II of
Section 405 IPC, which specifically provide that whosoever deducts and
does not pay employees' contribution of the provident fund and ESI shall
be deemed to have committed the offence under Section 405 of IPC.
24 of 28
Hon'ble Supreme Court in Dhanraj N. Asawani's case (supra) has held
that Section 4 Cr.P.C. provides that all offences under the IPC shall be
investigated, inquired into and tried according to the provisions of
Cr.P.C. Section 4(2) structures the application of Cr.P.C. in situations
where a special procedure is prescribed under any special enactment, as
held in (1994) 3 SCC 299 titled State of Punjab Vs. Balbir Singh. It has
been further held that Section 4(2) lays down that the provisions of
Cr.P.C. shall apply to all offences under any other law apart from IPC.
However, the application of the Cr.P.C. will be excluded only where a
special law prescribes special procedures to be dealt with in the
investigation, inquiry or the trial of the special offence. As already
discussed above, in the present case, misappropriation of contribution to
the EPF and ESI has been made punishable under Section 406 of IPC as
well, in view of Explanation-I and Explanation-II of Section 405 of IPC,
which defines criminal breach of trust. Besides this, in Dhanraj N.
Asawani's case (supra), while interpreting Jeewan Kumar Raut's case
(supra) relied upon by learned counsel for the petitioner, Hon'ble
Supreme Court observed in para Nos. 25 and 26 of the said judgment as
under:-
"25. Appellant No. 2 having arrested on 10.02.2008
and Appellant No. 1 having surrendered on
17.02.2008 as also the complaint petition having been
filed on 29.04.2008, the requirement of Sub-section (2)
of Section 167 of the Code stands satisfied.
In Sanjay Dutt v. State Through C.B.I., Bombay (II)
[(1994) 5 SCC 410], this Court held:
"53(2)(b) The 'indefeasible right' of the accused
to be released on bail in accordance with
25 of 28
Section 20(4)(bb) of the TADA Act read with
Section 167(2) of the CrPC in default of
completion of the investigation and filing of the
challan within the time allowed, as held in
Hitendra Vishnu Thakur is a right which enures
to, and is enforceable by the accused only from
the time of default till the filing of the challan
and it does not survive or remain enforceable
on the challan being filed. If the accused applies
for bail under this provision on expiry of the
period of 180 days or the extended period, as
the case may be, then he has to be released on
bail forthwith. The accused, so released on bail
may be arrested and committed to custody
according to the provisions of the CrPC. The
right of the accused to be released on bail after
filing of the challan, notwithstanding the default
in filing it within the time allowed, is governed
from the time of filing of the challan only by the
provisions relating to the grant of bail
applicable at that stage."
Only because the court itself took a long time in
taking cognizance of the offence, i.e., after the expiry
of the period of 90 days, the same would not mean that
any new right would be created in favour of the
appellants thereby.
26. A distinction between a remand of an accused at
pre-cognizance stage vis-à-vis the post-cognizance
stage is apparent. Whereas the remand at a pre-
cognizance stage is to be made in terms of Sub-section
(2) of Section 167 of the Code, an order of remand of
an accused at post-cognizance stage can be effected
only in terms of Sub-section (2) of Section 309 thereof.
This aspect of the matter has been considered by this
26 of 28
Court recently in Mithabhai Pashabhai Patel and
others v. State of Gujarat [2009 (7) SCALE 559]."
21. As such, the issue in Jeewan Kumar Raut's case (supra) was
whether the provisions of the Transplantation of Human Organs Act bar
the applicability of Section 167(2) of Cr.P.C. pertaining to grant of
default bail. Section 22 of the TOHO Act prohibits taking cognizance by
Courts except on a complaint made by an appropriate authority. It was
held in Jeewan Kumar Raut's case (supra) that the TOHO Act is a
special statute and will override the provisions of Cr.P.C. so far as there
is any conflict between the provisions of the two enactments and filing of
a police report in terms of Section 173 Cr.P.C. was held to be forbidden
by necessary implication under the TOHO Act whereas in the present
case, the offence under Section 406 of IPC and the offence under Section
85 of the ESI Act and the offence under Section 14 of the EPF Act are
distinct and different and there is no conflict between the provisions of
these two enactments. Rather, misappropriation of the contribution
towards ESI and provident fund have been specifically held to be
punishable under Section 406 of IPC. As such, Jeewan Kumar Raut's
case (supra) cannot be of any help to the petitioner. Likewise, judgment
passed by a Coordinate Bench of this Court in Ajay Kumar Sandhu's
case (supra) is also not applicable to the facts of the case in hand, as the
dispute in that case pertained to non-payment of Service Tax under the
Finance Act, 1994. Non-payment of service tax by the petitioner in Ajay
Kumar Sandhu's case (supra) would not fall under Explanation-I and
Explanation-II to Section 405 of IPC, which relate to default in payment
of contribution to EPF and ESI fund and the non-payment of service tax
27 of 28
is not covered under Section 405 of IPC, which defines criminal breach
of trust. Even otherwise, in that case, the petitioner had deposited the
entire service tax during the pendency of the petition and on this ground
also, the Coordinate Bench of this Court was pleased to quash the
proceedings.
22. As a result of the aforesaid discussion, I am of the
considered opinion that a prima facie case punishable under Section 406
of IPC is made out against the accused, as the department of HVPNL had
paid EPF and ESI contributions to the petitioner, which were to be further
paid to the contractual employees by the petitioner along with his own
share, which was obligatory upon him. However, he dishonestly
misappropriated the contribution paid to him by HVPNL and has thereby
committed breach of trust punishable under Section 406 of IPC and no
ground to interfere or to quash the FIR is made out and the petition in
hand is ordered to be dismissed.
23. Pending misc. application (s), if any, shall also stand
disposed of.
(YASHVIR SINGH RATHOR)
JUDGE
04.11.2025
Ali
Whether speaking/reasoned Yes/No
Whether Reportable Yes/No
28 of 28
