M/S. The Aga Khan Academy vs Assistant Pf Commissioner
2022 Latest Caselaw 2320 Tel

           THE HON'BLE Dr. JUSTICE G. RADHA RANI

                   WRIT PETITION No.1121 OF 2022

ORDER:

This writ petition is filed by the employer aggrieved by the orders

passed under Section 7-C of the Employees Provident Fund &

Miscellaneous Provisions Act, 1952, dated 12.11.2021 by the Assistant

Provident Fund Commissioner (C-IV) Employees Provident Fund

Organization, Regional Office I, Hyderabad, who determined an amount of

Rs.15,21,834/- as contribution in respect of an international worker namely

Mrs. Leigh Fisher (Respondent No.2) as arbitrary, illegal ultra vires,

without jurisdiction and violative of rights guaranteed under Article 14 of

the Constitution of India.

2. Heard the learned counsel for the petitioner and learned Standing

Counsel for the respondent No.1 as well as learned counsel for the

respondent No.2.

3.1 The learned counsel for the petitioner submitted that the petitioner

namely M/s. Aga Khan Academy was a not-for-profit charitable institution

which was set up as a Centre for Excellence, providing financial assistance

to more than 50% of the students. Dr. Geoffrey Fisher was the Head of the

Academy (CEO), handling day to day affairs of the academy at the Dr.GRR,J

relevant period. During his tenure he engaged his wife namely Mrs. Leigh

Fisher as Consultant for the period from 28.02.2015 to 31.10.2015 and as

an employee for the period from 01.11.2015 to 30.11.2018. Mrs. Leigh

Fisher was a citizen of Australia. As a consultant, she was a freelancer.

She had expertise in the specific field for which she was engaged. As per

the provisions of Employees Provident Funds Act, a consultant was not an

employee, as such, not covered under the Employees Provident Funds &

Miscellaneous Provisions Act, 1952. Mrs. Leigh Fisher on the request of

Dr. Geoffrey Fisher, visited India on business visa and her consultancy was

renewed till October, 2015. Thereafter, she was employed as Manager-

CSR, (External Relations and Partnership) with effect from 01.11.2015.

Her services were terminated under the agreement of termination w.e.f.

30.11.2018.

3.2 Learned counsel for the petitioner further submitted that the first

respondent initiated 7-A enquiry for the period from April, 2013 to June,

2015 and passed an order on 12.03.2018 determining the contributions

payable as Rs.52,72,451/- in respect of domestic and international workers.

Accordingly, the petitioner has paid the entire contributions as ordered by

the Department. The 7-A order became final. While things stood thus, the

2nd respondent lodged a complaint with the 1st respondent alleging that the Dr.GRR,J

PF contributions were not paid from 01.02.2015 to 01.11.2019. Basing on

the said complaint, a show cause notice was issued by the 1st respondent on

14.01.2021. The petitioner gave reply to the show cause notice on

03.03.2021 and 30.03.2021. Thereafter, the 1st respondent commenced

proceedings under Section 7-A of the EPF Act vide summons dated

19.03.2021. The petitioner submitted his objections on 23.06.2021

followed by a representation dated 05.07.2021. The Enforcement Officer

submitted a detailed report dated 05.07.2021 and requested for conclusion

of enquiry under Section 7-A r/w 26-B of EPF Scheme, 1952. But

surprisingly the 1st respondent passed order under Section 7-C of EPF Act

dated 12.11.2021.

3.3 He further submitted that the Impugned Order was passed without

jurisdiction and ultra vires the provisions of EPF & MP Act, 1952. The

issues 1 and 2 framed and determined by the authority would squarely fall

within the scope and ambit of para 26-B of the Employees Provident Fund

Scheme 1952. Para 26-B would mandate that the determination should be

by the Regional Commissioner, but in the present case, the proceedings

were decided by the Assistant Provident Fund Commissioner.

Dr.GRR,J

3.4 Issue No.3 would indicate that the enquiry concerned the nature and

quantum of wages, on which the complainant was eligible for EPF. It

would indicate that the determination sought to be made was first of its

kind, whereas Section 7C of the EPF Act provided for determination of

escaped amount which escaped determination of the dues under Section

7A. Likewise, the issue No.3 also would indicate that the enquiry

concerned fixation of quantum of EPF dues which was also sought to be

determined by the authority for the first time, but not the escaped amount.

The authority commenced the proceedings by way of a show cause notice

dated 14.01.2021. Thereafter, summon was issued on 19.03.2021 referring

the proceedings to be under Section 7A. Thereafter, about 15 hearings

were conducted by the respondent treating it as 7A proceedings and Diary

No.82/2021 was allotted. The 1st respondent never gave an impression that

the proceedings were under Section 7C of the Act. However, the

respondents converted the 7A proceedings into 7C proceedings on

13.09.2021 by mentioning it as typographical error. The said procedure

which was adopted by the respondent was illegal. The proceedings under

Section 7A and 7C were dealing with two different legal aspects. 7C

proceedings could be invoked only to determine the escaped amount.

However, the impugned order would not speak about what was the Dr.GRR,J

omission or failure on the part of the employer to make any document or

report available, or to disclose, for determining the correct amount due. In

the absence of any such allegation, the provisions of Section 7C could not

be invoked. A detailed order under Section 7A was already passed on

12.03.2018 and no review application was filed and it was not challenged

before the Central Government Industrial Tribunal (CGIT) or before the

High Court. As such, the present application seeking review of 7A order

was not maintainable. No application for review was filed within (45) days

as mandated under Sec.7-B of the PF Act. Therefore, the respondent

authority ought not to have received the complaint and ought to have

rejected the same.

3.5 He further contended that Mrs. Leigh Fisher was a citizen of

Australia and the Indian Government was having Social Security

Agreement (SSA) with the said country. As per EPF scheme, an

international worker would not needed to be covered under EPF Act if

such international worker was originating from a country with whom

Indian Government was having SSA. The Enforcement Officer admitted

the same in his cross examination and inspite of the same, the 1st

respondent passed impugned order observing that the employer had not

furnished the Certificate of Coverage (COC). It was the duty of the Dr.GRR,J

employee to produce the COC or in the alternative the respondent

department had to summon those details from the concerned authorities.

When once such objection was raised by the employer, the burden would

lie on the other parties to prove their case and the employer was not

expected to prove the case of the employee. The order passed by the

respondent was contrary to the established basic principles of law and was

liable to be set aside.

3.6 He further contended that Dr. Geoffrey Fisher, Head of Academy

(CEO) after discussion with all the international workers employed by the

academy decided to bifurcate the gross salary into basic pay and HRA with

their consent. Accordingly, PF contributions were paid in the same

manner. The complainant had not raised any objection in that matter and

had withdrawn the amount without any protest. Hence, her complaint

alleging that the salary was illegally bifurcated was devoid of any merit.

The respondent authority ought not to have conducted any kind of enquiry.

An application was filed by the petitioner seeking permission to cross

examine Mrs. Leigh Fisher and also the Enforcement Officer and requested

to summon both of them. But the 1st respondent had refused to grant

permission to cross examine Mrs. Leigh Fisher vide proceedings dated Dr.GRR,J

27.09.2021. As the impugned order was passed without examining the

complainant, it was liable to be set aside on the said ground also.

3.7 He further contended that the complaint was vague and was

entertained without any proper investigation. The 1st respondent ignoring

all the basic requirements acted contrary to the instructions of the

department's guidelines. The investigation officer verified the records of

the appellant on the basis of the complaint filed by Mrs.Leigh Fisher and

submitted a report dated 05.07.2021 arriving the dues payable by appellant

for an amount of Rs.8,55,025/- for the period from November, 2015 to

November, 2018 and suggested to conclude the enquiry under Section 7A

r/w Para 26 (b) of EPF & MP Act, 1952. In his report the Enforcement

Officer had not considered the period from February, 2015 to October,

2015 wherein the claimant worked as consultant, whereas the respondent

while passing order had ignored the said report and unilaterally arrived at

huge dues amount without any basis and hence the said order was not

sustainable and liable to be quashed. The respondent authority also had not

considered the amount paid towards administrative charges. The

complainant claimed EPF contribution on net salary. The special

allowance paid by the employer was non-monetary perquisite equal to the Dr.GRR,J

PF contribution, Professional Tax and Income Tax to be paid by the

employee.

3.8. As per the judgment of the Hon'ble Apex Court in the case of

Regional Provident Commissioner, West Bengal Vs. Vivekananda

Vidyamandir, the professional developmental allowances/expenses would

not fall under the definition of wages, as such there was no further liability

on the part of the academy. Professional development allowances/expenses

were not paid to all the employees universally. Section 2-B (ii) of EPF Act

excludes the House Rent Allowance (HRA). HRA would differ from

company to company and employee to employee as such, it would not

attract EPF contribution as it was a variable allowance.

3.9. The observation of the respondent that PF contributions were to be

paid on HRA was totally illegal and unconstitutional. Apart from HRA,

the contribution was also arrived on consultancy charges. The head of the

academy and Mrs. Leigh Fisher being husband and wife lodged complaint

after leaving the services of the petitioner academy. The complainant had

not approached the respondent with clean hands and prayed to set aside the

impugned proceedings issued by the 1st respondent under Section 7C of

EPF & MP Act, 1952.

Dr.GRR,J

4.1 Learned Standing Counsel for the 1st respondent submitted that the

complaint was received from 2nd respondent, a citizen of Australia, who

was engaged as an employee of the petitioner stating that the petitioner

establishment defaulted in remitting the EPF contribution in respect of the

complainant as per the provisions of the Act for the period from

01.02.2015 to 01.11.2018. Basing on the complaint, a show cause notice

was served on the petitioner on 14.01.2021. In order to ascertain the dues,

an inquiry under Section 26(b) of the EPF Scheme, 1952 r/w Section 7A

was initiated and summons dated 19.03.2021 were sent to the petitioner.

The case was initially allotted Diary No.82 of 2021 and later after noticing

that a typographical error had taken place, with due approval of the

competent authority, the inquiry was converted to Section 7C r/w Para 30

and 36 of the Act, 1952 and a new Dairy No.142 of 2021 was allotted.

During the course of enquiry, the representatives of the petitioner

establishment as well as complainant appeared. As per the principles of

natural justice, the petitioner establishment was given sufficient

opportunity at every stage of enquiry.

4.2 Having gone through the evidences adduced during the enquiry and

the depositions submitted by the Area Enforcement Officer and by taking Dr.GRR,J

into consideration the material facts and the documents available on

record, the enquiry was concluded and the impugned order dated

12.11.2021 was passed by the authority under Section 7C of the Act,

determining the escaped amount due from the petitioner. The enquiry

conducted by the authority would hold good. It was conducted as per the

rules laid down by the Act, 1952 and schemes framed there under.

4.3 Section 7C would refer to the payment of the escaped amount within

a period of 5 years from the date of communication of the order passed

under Section 7A or Section 7B. As such, the question of lack of

jurisdiction would not arise. The determination of escaped amount due

from the petitioner was made clear and it was justified. When Section 7A

proceedings were not questioned, raising any doubt on the entitlement or

induction of the respondent into the EPF scheme could not be raised now.

The petitioner had not made out any valid grounds during the course of

enquiry. The impugned order was passed after elaborate arguments and

after considering various factual and legal propositions and prayed to

dismiss the writ petition.

5. Learned counsel for the 2nd respondent contended that Section 7A

proceedings were passed by the 1st respondent on 12.03.2018, no questions Dr.GRR,J

were raised since then by the petitioner on the jurisdiction of the

respondent in passing orders under Section 7A. Since section 7C would

refer to payment of the escaped amount, the question of lack of jurisdiction

would not arise. She was engaged by the petitioner not because of Dr.

Geoffrey Fisher, but because of her qualification and rich experience. Her

services were utilized notwithstanding the nomenclature of

post/designation of her shown. Lesser contributions were paid and the

amounts were erroneously computed in the proceedings under Section 7A.

As such, further proceedings for payment of escaped amount were

initiated. The visit of 2nd respondent to India on a business visa would not

have any bearing on the present lis. There was no illegality in passing of

the impugned order. The core issue was whether all the components of the

salary were included for the computation of the PF contribution or not,

which was ultimately decided by the impugned proceedings. The petitioner

had an effective and an alternative remedy to file an appeal in the EPFA

Tribunal under Section 7(1) of the Act. However, Rule 7 (2) of the EPFAT

Rules would postulate depositing of 75% of the awarded amount. In order

to avoid the same, the present petition was filed stating that the impugned

orders were ultra vires the provisions of the Act and prayed to dismiss the

writ petition.

Dr.GRR,J

6. Perused the record.

7. The record would disclose that 7A enquiry was conducted by the 1st

respondent for the period from April, 2013 to June, 2015 and an order was

passed on 12.03.2018 determining the contribution payable as

Rs.52,72,451/- and that the petitioner paid the entire contribution as

ordered by the department. Subsequently, the 2nd respondent lodged a

complaint alleging that the PF contributions were not paid from

01.02.2015 to 01.11.2018 and basing on the said complaint, a show cause

notice was issued by the 1st respondent to the petitioner on 14.01.2021 and

summons under Section 7A of the EPF Act were issued to the petitioner on

19.03.2021. The show cause notice would disclose that if the petitioner

failed to remit the dues and set right the omissions pointed out within 10

days, enquiry under Section 7A of the Act would be initiated to assess the

dues under EPF & MP Act, 1952 and schemes framed there under. The

petitioner filed his objections to the proceedings under Section 7A of EPF

Act, 1952 vide his letter dated 05.07.2021 contending that the application

filed by the 2nd respondent seeking review of Section 7A order was not

maintainable as it had to be challenged within 45 days, as per the

provisions of 7B of PF Act and the same was also not in the format

prescribed under the Act. He also contended that as per the guidelines for Dr.GRR,J

initiation of enquiry under Section 7A of the Act issued by the EPF

Organization, New Delhi, dated 14.02.2020, the Enforcement Officer had

to investigate the case of any complaint on the basis of admissible

evidence gathered during investigation.

8. As per Section 13 (1) of EPF Act and extracted clauses 2 and 3 of

the guidelines, it was stated that "any enquiry or legal proceedings

initiated without prima facie case is of the nature of fishing and roving

enquiry and the same was impermissible. The minimum standard of

evidence for commencement of any legal proceedings is "existence of a

prima-facie case" and a mere complaint in itself would not constitute

prima facie evidence sufficient to initiate an enquiry under Section 7A as

complaint was only a source of information and not a legal proof of the

allegations."

It was also extracted that "the tendency to initiate inquiries on the

basis of complaints alone is legally untenable and must be avoided as it

would lead to surpassing the investigations required under law before

initiation of any inquiry."

9. Thus, a show cause notice was issued by the 1st respondent under

Section 7-A of the Act and the petitioner also gave his reply by way of Dr.GRR,J

objections for initiating enquiry under Section 7A once again, as an

enquiry was conducted under Section 7A once on 12.03.2018 and the same

became final. The 1st respondent without issuing any notice under Section

7C converted the proceedings under Section 7A into 7C by making an

observation in the impugned order that a typographical error took place. As

such, 7A enquiry is converted to enquiry under Section 7C r/w Para 30 and

36 of the EPF & MP Act, 1952 by allotting a new diary No.142 of 2021.

10. Section 7C pertains to determination of escaped amount. Section 7C

of EPF & MP Act reads as follows :

7C. Determination of escaped amount.--Where an order determining the amount due from an employer under section 7A or section 7B has been passed and if the officer who passed the order--

(a) has reason to believe that by reason of the omission or failure on the part of the employer to make any document or report available, or to disclose, fully and truly, all material facts necessary for determining the correct amount due from the employer, any amount so due from such employer for any period has escaped his notice;

(b) has, in consequence of information in his possession, reason to believe that any amount to be determined under section 7A or section 7B has escaped from his determination for any period notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the employer, he may, within a period of five years from the date of communication of the order passed under section 7A or section 7B, re-open the case and pass appropriate orders re-determining the amount due from the employer in accordance with the provisions of this Act:

Provided that no order re-determining the amount due from the employer shall be passed under this section unless the employer is given a reasonable opportunity of representing his case.

Dr.GRR,J

11. Thus, Section 7C could be invoked only to determine the escaped

amount. But the impugned order would not disclose what was the omission

or failure on the part of the employer for determining correct amount due.

The impugned order also would not disclose framing of any issue with

regard to the escapement of any amount. Four issues were framed by the

Assistant Provident Fund Commissioner who passed the impugned order

on 12.11.2021.

12. The first issue was with regard to whether Mrs. Leigh Fisher was

eligible for enrollment into Provident Fund under the EPF and MP Act

1952 being an international worker? The second was with regard to what

was the period for which the employer was liable to pay EPF dues in

respect of the complainant, Mrs. Leigh Fisher? The third issue was with

regard to what were the wages/salary/remuneration on which the

complainant was eligible for EPF calculation? and the fourth issue was

with regard to what was the quantum of EPF dues payable by the

establishment, if due ?

Thus, all these issues would indicate that the determination sought to

be made was first of its kind and would not indicate any escapement of

amount which was already determined.

Dr.GRR,J

13. The Proviso to Section 7C would say that no order redetermining the

amount due from the employer should be passed under this section unless

the employer was given a reasonable opportunity of representing his case.

14. Though learned counsel for the respondent Nos.1 and 2 contended

that the petitioner was given reasonable opportunity of representing his

case at all stages, the show cause notice was issued under Section 7A of

EPF and MP Act and all the proceedings were conducted giving him an

impression that it was an enquiry conducted under Section 7A and no

notice was issued to him under Section 7C of the Act. It was in violation of

the proviso to Section 7C and also in violation of principles of natural

justice. The issues framed and determined by the authority also would

clearly fall within the scope and ambit of Para 26-B.

15. Para 26-B of the Employees Provident Fund Schemes, 1952 reads as

under:

26B. Resolution of Doubts - If any question arises whether an employee is entitled or required to become or continue as a member, or as regard the date from which he is so entitled or required to become a member the decision thereon of the Regional Commissioner shall be final.

16. Para 26-B mandates that the determination thereof shall be by the

Regional Commissioner. In the present case, the authority who passed the Dr.GRR,J

impugned order was the Assistant Provident Fund Commissioner. As

such, the order passed was also without jurisdiction and ultra vires the

provisions of EPF and MP Act, 1952. It is well settled that statutory

remedies were applicable to the orders passed intra vires the statute only

but not applicable to the orders passed ultra vires the statute.

17. Though the learned counsel for 2nd respondent contended that the

orders passed under Section 7C was appealable under Section 7I, but as the

order was passed ultra vires, the statute, the writ petition under Article 226

of Constitution is maintainable.

18. Learned counsel for the petitioner contended that impugned order

should be read as it was and it should not be supplemented by any counter

affidavit etc., The word escape was not used in the entire order. The order

also would not disclose any fresh notice issued to the petitioner under

Section 7C of the Act. The date and stage at which the typographical error

was committed was not indicated in the order and relied on the judgment

of the Hon'ble Apex Court in Mohinder Singh Gill and another vs. Chief

Election Commissioner, New Delhi and others reported in (1978) 1

Supreme Court Cases 4051, wherein it was held that :

(1978) 1 SCC 405 Dr.GRR,J

"8....when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to Court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose, J. in Gordhandas Bhanji: Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. Orders are not like old wine becoming better as they grow older."

19. He also relied upon the judgment of the Hon'ble Apex Court in

Nawabkhan Abbaskhan vs. The State of Gujarat reported in (1974) 2

Supreme Court Cases 1212 wherein it was held that :

"14. Where hearing is obligated by a statute which affects the fundamental right of a citizen, the duty to give the hearing sounds in constitutional requirement and failure to comply with such a duty is fatal. May be that in ordinary legislation or at common law a Tribunal, having jurisdiction and failing to hear the parties, may commit an illegality which may render the proceedings voidable when a direct attack is made thereon by way of appeal, revision or review, but nullity is the consequence of unconstitutionality and so without going into the larger issue and its plural divisions, we may roundly conclude that the order of an administrative authority charged with the duty of complying with natural justice in the exercise of power before restricting the fundamental right of a citizen is void ab initio and has no legal efficacy. The duty to hear manacles his jurisdictional exercise and any act is, in its inception, void except when performed in accordance with the conditions laid

(1974) 2 SCC 121 Dr.GRR,J

down in regard to hearing. May be, this is a radical approach, but the alternative is a travesty of constitutional guarantees, which leads to the conclusion of post-legitimated disobedience of initially unconstitutional orders. On the other hand law and order will be in jeopardy if the doctrine of discretion to disobey invalid orders were to prevail..."

20. The Hon'ble Apex Court held that when a fundamental right of the

petitioner was encroached upon without due hearing, legal result was that

the accused was never guilty of flouting an order which never legally

existed. It observed that the order in violation of natural justice was void.

21. The Hon'ble Apex Court further observed that :

"...An order is null and void if the statute clothing the administrative tribunal with power conditions it with the obligation to hear, expressly or by implication. Beyond, doubt, an order which infringes a fundamental freedom passed in violation of the audi alteram partem rule is a nullity. When a competent court holds such official act or order invalid, or sets it aside, it operates from nativity, i.e. the impugned act or order was never valid..."

22. In the present case also Section 7C mandates that the employer shall

be given reasonable opportunity of representing his case before

redetermining the amount due from him. The word used is "shall". But, as

seen from the record, no opportunity was provided to the petitioner for

representing his case before issuing proceedings under Section 7C of the

Act. He was not given an opportunity to submit his objection with regard

to initiation of proceedings under Section 7C of the Act. As such, it is Dr.GRR,J

considered fit to set aside the impugned proceedings issued by the 1st

respondent under Section 7C of EPF & MP Act, 1952 as illegal,

unauthorized, without jurisdiction and ultra vires the provisions of the EPF

& MP Act, 1952 and violative of the petitioner's rights.

23. As such, the writ petition is allowed by setting aside the impugned

proceedings dated 12.11.2021. No order as to costs.

24. Miscellaneous Petitions pending, if any, shall stand closed.

_____________________ Dr. G. RADHA RANI, J June 06, 2022 PSSK