Andhra Pradesh High Court - Amravati
M/S Reddy Enterprises vs Union Of India on 4 March, 2024
Author: Ninala Jayasurya
Bench: Ninala Jayasurya
IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI
THE HON'BLE SRI JUSTICE NINALA JAYASURYA
WRIT PETITION No.39455 of 2022
Between:-
M/s. Reddy Enterprises, rep. by its Prop.Smt. M. Jayamma
.... Petitioner
And
Union of India and others
..... Respondents
Counsel for the petitioner : Mr.M.V.J.K. Kumar
Counsel for the respondents : Mr. Venna Hemanth Kumar for R1
Mr.T.Balaji, Standing Counsel for EPFO
ORDER:
The present Writ Petition is filed aggrieved by the orders dated 13.07.2022 of the 3rd respondent (i) levying penal damages under Section 14 (B) and (ii) levying penal interest under Section 7 (Q) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, (for short 'the Act') on the petitioner, an establishment covered under the provisions of the said Act.
2) Mr.M.V.K.Murthy, learned counsel representing the counsel for the petitioner made detailed submissions with reference to the provisions of the Act. He submits that the determination of penal damages and levy of interest thereon was not preceded by appropriate show cause notices, therefore, the impugned orders 2 NJS,J WP_39455_2022 are not sustainable in law. Referring to the summons dated 06.01.2022 (Ex.P10) issued to the petitioner, learned counsel submits that it cannot be treated as a show cause notice, but an intimation to produce the information/ material. He also submits that the summons were issued by one Officer, whereas the impugned proceedings / orders were passed by another Officer. Learned counsel submits that Section 7A of the Act empowers the competent authority to determine the contributions / amount of monies due from the employer / petitioner and only after determination of the same, orders either under Section 7Q or Section 14 B of the Act, can be passed. He submits that as Section 7A(3) of the Act provides for a reasonable opportunity before passing an order, issuance of show cause notice is mandatory and in the present case no such show cause notice was issued nor an order determining the amount due from the petitioner was passed. He submits that in the absence of an order ascertaining the amounts due from the petitioner in terms of Section 7A of the Act, initiation of further proceedings under Section 14B or Section 7Q of the Act are not tenable in law.
3) Referring to the Circular instructions of the E.P.F. Organization dated 15.05.2020 (Ex.P3), learned counsel further submits that the said Circular was issued taking into 3 NJS,J WP_39455_2022 consideration the prevailing situation at that relevant point of time i.e., imposition of lockdown due to operational and economic reasons. He submits that during the said period the petitioner could not deposit the contributions, without any fault on its part, in view of the Covid pandemic and despite the said circular instructions, the 3rd respondent had calculated the damages during the relevant period of Covid and the determination of damages, without taking into consideration of the relevant factors, amounts to non-application of mind and is not sustainable in law. He submits that no reasons are stated in the impugned order as to why the said Circular instructions are not binding on the 3 rd respondent.
4) Drawing the attention of the summons dated 06.01.2022, the learned counsel contends that it is a composite summon and as is evident from the same, the damages as well as the interest are sought to be calculated simultaneously. While stating that simply because there was some delay in remittance of contributions, the same cannot be treated as default and imposition of damages thereof is not just, he submits that the collection of damages and levy of interest for the period of delay in remittance of contributions amounts to double jeopardy. Referring to the impugned order under section 14 B of the Act, the 4 NJS,J WP_39455_2022 learned counsel submits that even according to the 3rd respondent remittances were made belatedly for some months and contends that there are no arrears even as per the impugned proceedings and in such an event, there shall be no charge of damages since the levy of damages is in respect of amount of arrears that may subsist as on the date of initiation of proceedings under Section 14B of the Act and where there were no arrears, the levy of damages much less interest thereon would not arise at all.
5) Learned counsel submits that due to prohibitory orders issued pursuant to the impugned orders the petitioner could not comply with the interim orders dated 07.12.2022 and that huge amounts of more than Rs.3 Crores is due and payable to the petitioner by the A.P. Mineral Development Corporation, apart from substantial sums, which are due from Swatch Andhra Corporation. He submits that due to non-receipt of said amounts the petitioner could not remit the contributions. Be that as it may. He submits that on 08.01.2024 the A.P. Mineral Development Corporation Ltd., released an amount of Rs.1,18,99,576/- to the Provident Fund authorities towards the dues and prior to that Swatch Andhra Corporation paid an amount of Rs.70,49,349/- vide D.D. dated 04.12.2023. He submits that due to prohibitory orders issued to the banks, 5 NJS,J WP_39455_2022 pursuant to the orders impugned in the present Writ Petition, the petitioner is subjected to serious prejudice and is finding it difficult to make payments to its employees. He submits that as the impugned orders on the bereft of reasons, violative of principles of natural justice and vitiated by non-consideration of the relevant factors, the same are liable to be set aside.
6) Mr.T. Balaji, learned counsel appearing on behalf of the respondents 2 and 3 while refuting the said contentions made elaborate submissions inter alia that the petitioner establishment had remitted EPF contributions belatedly during the period from 01.08.2017 to 30.11.2021 and in the said circumstances, an enquiry under Section 14B and Section 7Q of the Act was initiated to recover the penal damages and interest respectively. He submits that before passing the orders impugned in the writ petition, the 3rd respondent had adhered to the procedure of issuing summons dated 06.01.2022 to the petitioner and along with the same the particulars with regard to the calculation of damages and interest duly furnishing the Wage Month, number of days delayed and the proposed amount of Damages and interest payable thereof etc., were furnished. He submits that the petitioner was afforded reasonable opportunity to submit its reply / objections, the matter was adjourned on several occasions at the 6 NJS,J WP_39455_2022 instance of the petitioner and in the said circumstances the contention advanced on behalf of the petitioner that the impugned orders are violative of principles of natural justice is not sustainable. Learned counsel further submits that during the course of enquiry, necessary clarifications were made and the petitioner's representative being satisfied with the same agreed for making payments, but however sought installments. In so far as the contention with regard to the lock down period, learned counsel submits that the petitioner had not sought any relief or relaxation during the relevant period of lockdown i.e., two months due to Covid pandemic and in view of the same, the damages imposed during the said period cannot be found fault with. Contending that the writ petition is not maintainable as the petitioner is having an effective alternative remedy of statutory appeal, the learned counsel seeks to dismiss the writ petition. He also placed reliance on the decisions of Horticulture Experiment Station v. Provident Fund Organization1, and Arcot Textile Mills Ltd. v. Regl. Provident Fund Commr.,2. 1 (2022) 4 SCC 516 2 (2013) 16 SCC 1 7 NJS,J WP_39455_2022 CONSDIERATION BY THE COURT:
7) This Court has considered the submissions and perused the material on record. For appreciating the contentions raised by the counsel on both sides, it may be appropriate to refer to the relevant provisions of the Act.
8) Section 7A of the Act deals with Determination of moneys due from employers. As per Section 7A (1)(b) the Central Provident Fund Commissioner, any Additional Central Provident Fund Commissioner, any Deputy Provident Fund Commissioner, any Regional Provident Fund Commissioner, or any Assistant Provident Fund Commissioner may, by order, determine the amount due from any employer under any provision of this Act, the Scheme or the Pension Scheme or the Insurance Scheme, as the case may be and for any of the purposes mentioned in Section 7 A (1)(a) & (b), may conduct such enquiry as he may deem necessary.
9) Section 7A (3) of the Act stipulates that no order shall be made under sub-section (1), unless the employer concerned is given a reasonable opportunity of representing his case.
10) Section 7B contemplates Review of the orders passed under Section 7A. Whereas, Section 7-I(1) contemplates that any person 8 NJS,J WP_39455_2022 aggrieved by a Notification issued by the Central Government, or an order passed by the Central Government or any authority, under the proviso to sub-section (3), or sub-section (4) of Section- 1, or Section 3, or sub-section (1) of Section 7A, or Section 7B [except an order rejecting an application for review referred to in sub-section (5) thereof] or Section 7C, or Section 14B, may prefer an appeal to a Tribunal against such notification or order.
11) Section 7Q and Section 14 B, with reference to which the impugned orders have been passed are reproduced hereunder:
Section 7Q: Interest payable by the employer.--The employer shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment:
Provided that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank.
14B. Power to recover damages.--Where an employer makes default in the payment of any contribution to the Fund 3[, the 2[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, 6[the Central Provident Fund Commissioner or such other officer as may be authorized 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:] 9 NJS,J WP_39455_2022 Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard:
Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, subject to such terms and conditions as may be specified in the Scheme.
12) Thus, a reading of the above referred provisions of the Act make it clear that before passing an order under Section 7A of the Act determining the amount due from an employer under any provisions of the Act, and before levying and recovering damages under Section 14B, the employer shall be given a reasonable opportunity of being heard. In the present case, no material is filed to show that an order under Section 7A of the Act determining the moneys due from the petitioner under any of the provisions of the Act was passed. An order under Section 7A of the Act determines the liability and then the other provisions i.e., Section 14B and Section 7Q of the Act would come into play. In the present case, the material on record would go to show that the 3rd respondent straightaway invoked the Section 14B of the Act, which deals with power to recover damages. In the absence of an independent order determining the amounts due from the petitioner under Section 7A of the Act by affording an opportunity, 10 NJS,J WP_39455_2022 in the considered opinion of this Court, further proceedings are not legally sustainable.
13) Even assuming that proceedings for recovery of damages and levy of interest can be initiated irrespective of an order under Section 7A of the Act, this Court is of the view that the same are not sustainable for more than one reason. The summons issued by the 3rd respondent though would go to show that an opportunity of being heard before the damages are levied was afforded to the petitioner, it appears that as a mere formality, the same was granted. In this regard, it may be appropriate to extract the relevant portion of summons (EX.P.10) dated 06.01.2022 which reads as follows:
"Summons to appear for hearing u/s 14B of the PPF and MP Act, 1952 (and order for payment of interest U/s 7Q) for belated remittance made during the period 01.08.2017 to 30.11.2021".
14) From a reading of the summons, it would appear as though the 3rd respondent had already arrived at a conclusion to impose damages and levy interest also on it, but however afforded an opportunity of hearing to the petitioner. Such an approach amounts to predetermination of the matter and post decision hearing is nothing but an empty formality, amounts to violation of principles of natural justice. Further, imposition of damages is 11 NJS,J WP_39455_2022 penal in nature. In such circumstances, the benefit, if any, should go in favour of the employer. It is not in dispute that during the outbreak of Covid 19, lock down was imposed and keeping in view the circumstances prevailing at that time, circular instructions dated 15.05.2020 were issued, the relevant portion of which reads thus:
"Considering the difficulty faced by the establishments in timely deposit of contributions during the period of lockdown due to operational and economic reasons, it is evident that such delays are without mens rea of the employer. Thus, the delay in deposit of contributions during the period of lockdown announced in terms of the Disasters Management Act, 2005 cannot be attributed to any culpable state of mind of the employer and will not, therefore, attract the provisions of section 14B of the EPF Act.
Therefore, for any delay in payment of any contributions or administrative charges due for any period during the lockdown, no proceeding should be initiated for levy of penal damages in such cases."
15) In the light of the above categorical position, even in the absence of any request made by the petitioner, the 3 rd respondent is not supposed to calculate or impose any damages during the lock down period. However, the 3rd respondent without taking this relevant factor into consideration passed the order under Section 14 B and it is accordingly vitiated. It appears, from a reading of the impugned order, the 3rd respondent is justifying his action on 12 NJS,J WP_39455_2022 the basis of the Apex Court's decision in Horticulture Experiment Station referred to supra.
16) In the said case, the Hon'ble Supreme Court was dealing with an appeal filed against the order of a Division Bench of the Karnataka High Court. While setting aside the order of the learned Single Judge, the Division Bench observed that once the employer has failed to deposit the contribution of EPF or committed default, having failed to do so after determination under Section 7-A by the competent authority, levy of damage is sine qua non and upheld the order of recovery of damages covering the period from 01.01.1975 to 31.10.1988. The Hon'ble Supreme Court while dismissing the appeal inter alia held 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 14- B of the 1952 Act and mensrea or actus reus is not an element for imposing penalty/damages for breach of Civil obligations/liabilities." The 3rd respondent misapplied the said decision of the Hon'ble Supreme Court to the facts of present case. The order imposing damages impugned in the present writ petition covers a period during which lock down was in force and no damages could have been levied, much less interest on the same, as delay or default is beyond the control of the petitioner and 13 NJS,J WP_39455_2022 cannot be attributed to it. Furthermore, as mentioned earlier, the E.P.F., organization took note of the impact of Covid 19 pandemic and issued circular guidelines dated 15.05.2020, and the petitioner is entitled to the benefit of the same. The Hon'ble Supreme Court in the above referred judgment distinguished the ratio laid down in Mc.Leod Russel (India) Ltd., v. Regional Provident Fund Commissioner3 and Provident Fund Commissioner V. RSL Textiles (India) (P) Ltd.,4 in the attending facts and circumstances of the case. The ratio laid down by the Hon'ble Supreme Court, therefore is not attracted to the case on hand.
17) One more aspect which deserves a specific reference is that Section 14 B of the Act stipulates recovery from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the scheme. In the present case, as seen from the summons there is no mention about the arrears, without which the question of imposing penalty by way of damages or verifying as to whether the same is not exceeding the amount of arrears does not at all. The summons as issued and the subsequent order under Section 14 B of the Act in the considered opinion of this Court are violative of principles of natural justice, contrary to the provisions of the Act and in such circumstances, 3 (2014) 15 SCC 263 4 (2017) 3 SCC 110 14 NJS,J WP_39455_2022 the alternative remedy of appeal is not a bar and the writ petition is maintainable.
18) With regard to the order under Section 7 Q is concerned, as noted earlier, no separate notice much less a separate summon was issued to the petitioner. The summon dated 06.01.2022 is a composite summon. Though Section 7 Q contemplates that the employer shall be liable to pay interest as mentioned in the said section on any amount due from him, it is an independent provision / section and does not provide for an opportunity of being heard. In such an event, the levy of interest shall be done without any errors in computation even with regard to period also as it leads to adverse consequences and causes prejudice to the employer. Irrespective of the request or otherwise of the petitioner seeking installments for payment, the 3rd respondent is under a legal obligation not to levy any interest in respect of the amounts which are due during Covid pandemic. In the present case, levy of interest in the light of the circular instructions dated 15.05.2020 is not sustainable for the reasons set out in the preceding paragraphs in respect of imposition of damages.
19) Considering the matter in its entirety, while this Court in the light of the scheme of the Act is not inclined to subscribe to the contention that the imposing damages and levy of interest for the 15 NJS,J WP_39455_2022 delay if any in the statutory remittances constitutes double jeopardy, is however, for the reasons and conclusions arrived at supra hold that the impugned orders are not sustainable. Accordingly the same are set aside.
20) This Order, however, would not preclude the competent authority, to take action in the matter afresh, by strictly adhering to the provisions of the Act and duly taking into consideration, the Circular instructions dated 15.05.2020 and pass appropriate orders thereon in accordance with Law, after affording opportunity of being heard to the petitioner.
21) The amounts remitted/deposited towards the statutory dues of the petitioner during the pendency of the writ petition shall be subject to the orders to be passed by the competent authority.
22) The writ petition is accordingly allowed with the directions as indicated above. No orders as to costs.
As a sequel, pending miscellaneous petitions, if any, shall stand closed.
_______________________ NINALA JAYASURYA, J Date: 04.03.2024 SSV/BLV 16 NJS,J WP_39455_2022 THE HON'BLE SRI JUSTICE NINALA JAYASURYA W.P.No.39455 of 2022 Date: 04.03.2024 SSV/BLV