Telangana High Court

M/S.Sri Chaitanya Etechno School vs The Assistant P.F Commissioner on 28 June, 2022

Bench: G.Radha Rani

         THE HON'BLE Dr. JUSTICE G. RADHA RANI

                    Writ Petition No.3040 of 2021

ORDER:

This writ petition is filed by the petitioner-School challenging the

order dated 03-12-2020 passed by the 1st respondent-Organization under

Section 14-B of the Employees' Provident Funds and Miscellaneous

Provisions Act, 1952 (for short 'EPF & MP Act') and the

consequential Prohibitory Order dated 29.12.2020 passed under Section

8-F of the EPF & MP Act as illegal, arbitrary, without jurisdiction and

unenforceable in law.

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

Standing Counsel for the respondents.

3. The learned counsel for the petitioner submitted that petitioner

was running a school under the name and style "M/s. Sri Nalanda

Educational Society", Vasavi Colony, Warangal, and the same was

covered under the E.P.F. Act vide Code No.AP/SID/59093; that the

petitioner-School had been remitting the P.F. contributions regularly

without any default; that the present management had taken over the

management of the school in the year 2013; that as per the agreement Dr.GRR,J ::2:: WP No.3040 of 2021

between the parties, the statutory amounts had to be paid by the

erstwhile management including P.F.; that the erstwhile management

had assured the petitioner-School that they had paid all the dues

including P.F. contributions; when the petitioner-School came to know

about the P.F. dues, it paid the pending contributions to the 1st

respondent-Organization; but, inspite of the same, the 1st respondent

initiated proceedings against the petitioner-School; that a farce enquiry

was conducted, that the officials of the petitioner-School were forced to

admit the claim of the 1st respondent-Organization's Inspector by falsely

creating an impression that they had to admit the claim by the Inspector

under the garb of statutory provisions; the petitioner-School was never

given an opportunity of hearing; the delay in payment of the

contribution was neither willful nor wanton; that the above impugned

orders were passed without giving the petitioner-School an opportunity

of hearing; that the 1st respondent-Organization had passed the

impugned orders mechanically without considering the merits and the

material placed on record; though the petitioner-School had paid the

contribution immediately upon coming to know the alleged dues, the 1st

respondent-Organization had issued the impugned orders directing the

petitioner-School to pay a sum of Rs.11,08,044/-; on account of COVID Dr.GRR,J ::3:: WP No.3040 of 2021

pandemic situation, the petitioner-School suffered financial loss in the

business, and this fact was also brought to the notice of the 1st

respondent-Organisation; and therefore prayed that the order dated 03-

12-2020 passed under Section 14-B of the Employees' Provident Funds

and Miscellaneous Provisions Act, 1952 (for short 'EPF & MP Act')

and the consequential Prohibitory Order dated 29.12.2020 passed under

Section 8-F of the EPF & MP Act be set aside and the Writ Petition

might be allowed.

4. On 10.02.2021, vide Interlocutory Application No.1 of 2021,

this court granted interim stay of the proceedings issued by the Assistant

Provident Fund Commissioner, dated 03.12.2020, subject to the

condition of petitioner depositing 50% of the amount within a period of

four (04) weeks.

5. The learned Standing Counsel for the respondents submitted

that default under Section 7Q of the EPF & MP Act read with 14B

would occur whenever there was delay in payment. The Act and the

scheme framed under the Act imposed an obligation on the employer to

make the stipulated payments within the stipulated time. The petitioner-

School was under a statutory obligation to remit EPF contributions in Dr.GRR,J ::4:: WP No.3040 of 2021

time in respect of the employees working in its institution. The delay in

disbursement of wages would not justify the delay in EPF remittances.

Once the establishment was covered, it was statutorily bound to comply

the provisions of the Act. When the establishment was remitting the

contributions for its employees, it would lose its locus standi to deny the

workers as its employees. If the employer would make the payment

according to his convenience, the same would enable him to pay at his

whims or at his will, which was not justifiable, as such he could not be

allowed to plead that the contribution would become payable only when

the wages were paid. The establishment was a chronic defaulter and was

paying each and every remittance belatedly. Financial constraints were

no bar for levying damages on belated remittances especially when the

default was associated with bad administrative practice. The petitioner

had right of appeal under Section 7I of EPF & MP Act, but it was not

provided anywhere that the respondents would wait till the petitioner

availed the alternative remedy of appeal. It would not prevent the

respondents from proceeding with recovery action especially when there

was no communication from the petitioner-School regarding filing of

any appeal and grant of stay. The petitioner-School was advised to remit

the referred amount within 15 days of receipt of the order. On failure of Dr.GRR,J ::5:: WP No.3040 of 2021

compliance, the department would proceed with recovery action on

lapse of time allowed in the order.

6. He further contended that mens rea was not an essential

element for imposing penalty for breach of civil obligations or liabilities

and relied upon the judgment of the Hon'ble Apex Court in

Horticultural Experiment Station Gonikoppal, Coorg v. Regional

Provident Fund Organization1 and prayed to vacate the interim stay

granted on 10.02.2021 in Interlocutory Application No.1 of 2021 in Writ

Petition No.3040 of 2021.

7. Submissions of the learned counsel have received due

consideration by the Court. Perused the record.

8. The EPF & MP Act, 1952 is a legislation for providing

social security to the employees working in any establishment engaging

20 or more persons on any day. It provides for compulsory deduction of

Provident Fund from the employees and contribution from the employer

which is to be deposited to the employee's account maintained in the

EPF office. The Provident Fund has to be deposited by the employer by

the 15th day of closure of the month in which the employee worked in

1 2022 SSC OnLine SC 223 Dr.GRR,J ::6:: WP No.3040 of 2021

the establishment. The dues would become payable to him as the

employee already performed the employment till the last working day of

the previous month. The contributions have to be deposited by the

employer only after the beneficiary worker had already worked and

earned the amount in terms of the contract of employment and the

provisions of the Act. The EPF & MP Act is a social security legislation

which provides for a lump sum payment to the employees on their

retirement so that they can spend their retired life with some element of

comfort. The Act is a welfare legislation made by the Government. The

remittance of EPF contribution is a compulsive requirement under the

provisions of the Act framed by the Parliament. The provisions of the

Act warrants timely remittance of dues.

9. The Hon'ble Apex Court in Horticultural Experiment

Station Gonikoppal, Coorg's case (1 supra) by referring to its various

judgments pronounced earlier held that mens rea is not an essential

element for imposing penalty for breach of civil obligations or liabilities

and referred to the judgment in SEBI v. Cabot International Capital

Corpn.2 Para No.35 of the said decision is reproduced hereunder:

(2005) 123 Comp Cas 841 (Bom) Dr.GRR,J ::7:: WP No.3040 of 2021

"35. In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of Section 15-D(b) and Section 15-E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow."

[Emphasis Supplied]

17. Taking note of three-Judge Bench judgment of this Court in Union of India and Others v. Dharmendra Textile Processors and others (supra), which is indeed binding on us, we are of the considered view that any default or delay in the payment of EPF contribution by the employer under the Act is a sine qua non for imposition of levy of damages under Section 14B of the Act 1952 and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligations/ liabilities."

10. The learned counsel for the petitioner relied upon the

judgment of the Hon'ble Apex Court in Union of India Vs. M/s

Rajasthan Spinning & Weaving Mills3 wherein while interpreting

Section 11AC of the Central Excise Act for imposition of penalty held

that:

Civil Appeal 3527 of 2009 dated 12-5-2009 Dr.GRR,J ::8:: WP No.3040 of 2021

"21. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that section 11 AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application."

11. The judgment of Union of India v. Dharamendra Textiles

Processors4 (a three-judge bench of Hon'ble Apex Court) was

considered by the Hon'ble Apex Court in Horticultural Experiment

(1 supra) (a two-judge bench) while making the above observations and

the same, being a latter judgment, is a binding precedent. Hence, the

observation of the Hon'ble single judge in Union of India (3 supra)

relied by the learned counsel for the petitioner need not be considered.

The single bench judgment is with regard to the penalty under Section

11AC of the Central Excise Act but the judgment in Horticultural

Experiment (1 supra) is under Section 14B of EPF & MP Act which is

directly relevant.

12. Hence, this court does not find any merit in the contention of