Allahabad High Court
Nandganj Sihori Sugar Co Ltd Thru Hari ... vs Employees Provident Fund Appellate ... on 7 February, 2020
Equivalent citations: AIRONLINE 2020 ALL 257
Author: Sangeeta Chandra
Bench: Sangeeta Chandra
HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH Reserved on 30.08.2019 Delivered on 07.02.2020 Case :- MISC. SINGLE No. - 25668 of 2016 Petitioner :- Nandganj Sihori Sugar Co Ltd Thru Hari Prasad Exec Director Respondent :- Employees Provident Fund Appellate Tribunal Laxmi Nagar Anr Counsel for Petitioner :- Prakash Kumar Sinha,Akash Sinha Counsel for Respondent :- Rajesh Kumar Verma Hon'ble Mrs. Sangeeta Chandra,J.
1. The petitioner before this Court is a subsidiary mill of U.P. State Sugar Corporation Limited and has two units, one at Daryapur, Raebareli and another at Nandganj, Ghazipur. The petitioner-Company was manufacturing sugar by vacuum pan process and has suffered huge losses, which resulted in a Reference being made to the Board of Industrial and Financial Re-construction, New Delhi in Case No. 601 of 1996. The proceedings of the Board dated 18.03.1996 have been filed as annexure-3 to the petition which show that as per its balance sheet as on 31.10.1992, the Company's accumulated losses aggregated to Rs.4533.33 lakhs and had completely wiped out its net worth of Rs.2311.22 lakhs. The reason indicated by the Company was inadequate availability of sugarcane and higher cane prices fixed by the Government of U.P. The Board considered the Reference for declaration as a Sick Industrial Company in terms of Section 3 (1) (o) of the Sick Industrial Companies (Special Provisions) Act, 1985. The operating agency was appointed, namely, the I.F.C.I. which was to consider the measures specified under Section 18 and 19 of the Sick Industrial Companies Act in relation to the Company and to prepare a Rehabilitation Report keeping in mind the guidelines fixed by the Board. One of the guidelines mentioned was to take into account the reliefs and concessions expected from the State Government, Provident Fund and Employee State Insurance Authority etc., which are covered by the existing policy guidelines of the concerned authorities.
2. The Operating Agency came to a conclusion that the Company could not be revived and the State Government in the light of such conclusion stopped the crushing activity of the industrial unit of the petitioner Company at Daryapur, Raebareli since January, 2009. The Voluntary Retirement Scheme was floated and all the employees, permanent and temporary of Daryapur, Raebareli unit as well as Ghazipur unit which had already closed down in the year 1998 were paid their dues.
3. During the course of the argument, learned counsel for the petitioner has pointed out that Daryapur, Raebareli Unit of the Company has been sold for a sale consideration of Rs.1/- only to the State Government for establishment of the All India Institute of Medical Sciences, Raebareilly.
4. The petitioner has come before this Court challenging the order passed by the respondent no.1 in Appeal filed by the petitioner against the order passed by the Prescribed Authority imposing Damages under Section 14-B of the Employees Provident Fund and Miscellaneous Provisions Act 1958 (hereinafter referred to as "the Act").
5. It has been argued by learned counsel for the petitioner that the petitioner had paid all the dues towards the Provident Fund to its employees prior to March, 1999. Later on, the petitioner received notices of demand relating to the Provident Fund dues of the period starting with effect from 19.04.2001 to 22.04.2002 and in pursuance to such notices, the petitioner has paid the entire amount in installments to the tune of Rs.1,26,14,994/- as also the interest thereon i.e. total of Rs.1,26,82,385/-. The certificate issued by the Bank with regard to the payments made has also been filed as annexure-7 to the petition.
6. It has been submitted that the petitioner having paid all its liability upto January, 2002 along with the interest under Section 7-Q of the Act, 1952, was surprised to receive a notice dated 18.10.2012 under Section 14-B of the Act for imposing Damages for committing default in depositing the Provident Fund dues in time for the period starting with effect from March, 1999 to March, 2011. A notice was issued on 18.10.2012 by the Regional Provident Fund Commissioner- respondent no.2 to impose a liability of Rs.2,26,92,356/- under Section 14-B of the Act and a total interest of Rs.86,75,903/- under Section 7-Q of the Act.
7. The petitioner filed its reply on 20.12.2012 bringing to the notice of the respondent no.2 that payments had been made up to April, 2002 and even thereafter although with some delay, and there was no reason to impose Damages under Section 14-B of the Act. The Company referred to a Circular dated 29.05.1990, where all cases of Damages were to be concluded within a period of three months from the date when the default initially occurred. It was also pointed out that Interest @ 12% per annum was already included in the Damages upto September, 2008 as has been held by a Full Bench decision of Delhi High Court in Roma Henny Security Services Private Limited Vs. Central Board of Trustees, E.P.F. Organization Through Assistant P.F. Commissioner, Delhi (North), reported in 2012 (135) FLR 799.
8. It has been argued that under Section 7-Q of the Act, the Interest @ 12% on delayed payment became payable and was paid with effect from 01.07.1997 as part of the Damages payable under Section 14-B of the Act. It is only after the circular dated 26.09.2008 that the Damages under Section 14-B of the Act was segregated from Interest under Section 7-Q of the Act i.e. up to 26.09.2008, the respondent had no right to charge Interest under Section 7-Q of the Act additionally as it was included in the rate of Damages.
9. It has also been argued by learned counsel for the petitioner that although the respondent no.2 fixed several dates for hearing the matter but due to the fact that the factory/ establishment was closed and all the employees had taken voluntary retirement, the relevant vouchers were not readily available. Ultimately, the respondent no.2 passed the order dated 18.06.2013 imposing a liability of Rs.3,13,68,559/- on the Company. Feeling aggrieved by the order passed by the respondent no.2, the petitioner preferred an Appeal before the respondent no.1 registered as A.T.A. No.509 (14) of 2013 under Section 7 (i) of the Act.
10. The respondent no.1 considered the matter in detail and disposed it of on 04.03.2016 by observing that although the respondent no.2 had wrongly calculated the rate of Damages including the liability of payment of Interest twice and on such account the order challenged in Appeal was liable to be set aside, it nevertheless arbitrarily directed that the Company should pay at least 40% of the damages so imposed by the respondent no.2.
11. It has been argued by Sri P.K. Sinha, learned counsel for the petitioner, that respondent no.1 has failed to appreciate that the order passed by respondent no.2 was non-speaking and un-reasoned. Under Section 14-B of the Act, only a discretion has been granted to the Competent Authority to levy Damages as the word used in the language of the Section is 'may' instead of 'shall'. In view of the difficult financial situation being faced by the petitioner-company which is a wholly owned subsidiary of U.P. State Sugar Corporation Ltd., a Government Company and had closed down in the year 2009 after being declared Sick by the Board of Industrial and Financial Re-construction in the year 1996 and its assets having been taken over by the Department of Medical Education and Training, Government of U.P., such mitigating circumstances ought to have been considered by the Competent Authority and even by the Appellate Tribunal before passing the order impugned.
12. It has also been submitted that the weak financial position of the Company was the main reason for delay in making payments of Provident Fund dues and not any culpable intention in withholding the accumulations of Provident Fund and other contributions for personal gain. The lack of mens rea in the delayed payment of provident fund accumulations ought to have been considered as the liability imposed under Section 14-B of the Act related to the Damages which is a penal provision. For a penal provision to be operating against the petitioner-company, the mens rea or the culpable intention to withhold accumulations for earning profits for the company being lacking, the same could not have been imposed.
13. It has also been submitted that Appellate Tribunal- respondent no.1 was apprised during the arguments in the Appeal of the fact that the respondent no.2 had given no reason at all and no finding regarding absence of mens rea, regarding poor financial condition of the petitioner-company, and regarding incorrect application of rate of Damages under Section 14-B of the Act. It was also convinced and gave a specific finding that the rate of Damages was incorrectly applied by the respondent no.2 and the order was liable to be set aside, yet in the operative portion, the respondent no.1 has imposed the liability of payment of 40% of the amount determined by the respondent no.2 on the petitioner-company.
14. Learned counsel for the respondent no.2 on the other hand has relied upon the counter affidavit filed on 28.11.2016. It has been submitted that respondent no.2 has passed a reasoned and speaking order on 18.06.2013, whereby an amount of Rs.86,75,903/- has been imposed as interest for delayed payment for the period starting from March, 1999 to March, 2011, under Section 7-Q of the Act, and an amount of Rs.2,26,92,356/- has been imposed as Damages under Section 14-B of the Act for the same period.
15. It has also been submitted that the orders have been passed after following due procedure including issuance of notice and fixing of dates for personal hearing and examination of records, and it does not need any interference from this Court in writ jurisdiction.
16. Learned counsel for the respondent no.2 has submitted that the Gujarat High Court in New Commercial Mills Company Limited and another Vs. Union of India and others, 1998 (3) LLJ. Suppl.334, has held that financial hardship is not sufficient for default in payment of Provident Fund contributions. Similar observations have been made by the Madras High Court also in Lakshmi Machine Works Limited Vs. Union of India and others, 2011 (131) FLR 899.
17. The argument regarding initiation of proceedings for imposing of Damages under Section 14-B of the Act being delayed by several years, has also been countered by referring to several judgments from various High Courts which say that since the language of the Act does not provide any limitation during which action against an erring employer can be taken for delayed deposit under the Act, no requirement on a notification by any Board could read a limitation of three years into the said Section.
18. Referring to Hon'ble Supreme Court judgement in Organo Chemical Industries and another Vs. Union of India and others, reported in AIR 1979 SC 1803, learned counsel for the respondent no.2 has argued that the power to recover Damages under Section 14-B of the Act is not only to penalise the defaulting employers but also to provide reparation for the amount of loss suffered by the employees. It also serves as a warning to the employers in general not to commit any breach of the statutory requirement. The Damages imposed cannot be restricted only to the loss of interest to individual employees caused by non-deposit or late deposits of the contributions by the employer, but damages being penal in nature, serve as a deterrent. With regard to the calculation of the rate of Damages, it has been submitted by respondent no.2 that the rate of Damages was revised with effect from 26.09.2008 and the revised rate of Damages has been mentioned in the order dated 18.06.2013, as per the Government notification issued on 26.09.2008.
19. It has also been submitted by learned counsel for the respondent that the second proviso of Section 14-B of the Act has specifically laid down the procedure to be followed in relation to an establishment which has been declared Sick within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985 and the Central Board has been vested with the power of waiving or reducing dues of damages under the said proviso. Therefore, the respondent no.1 has reduced the Damages imposed by the respondent no.2 and directed payment of only 40% of the demand raised. It has been submitted further that the Hon'ble Supreme Court in K. Streetlite Electric Corporation Vs. Regional Provident Fund Commissioner, Haryana, 2001 4 SCC 499, has already settled that delay in initiating proceedings under section 14-B of the Act will not be a ground for setting aside the order imposing Damages. Moreover, levy of Damages in addition to interest for delayed payment of contribution is not unconstitutional.
20. Learned counsel for the petitioner-company in rejoinder has submitted that the bare perusal of the order dated 18.06.2013 would show that it has been passed without considering any fact mentioned in the representation of the company dated 20.12.2012. The respondent no.2 has not considered the Sickness of the company, and taking over of the entire campus of Darya Ganj Mill at Raebareilly for a better public purpose by the Department of Medical Education and Training for establishment of AIIMS, Raebareilly. The respondent no.2 has also not considered the absence of mens rea in delayed contributions of Provident Fund and other dues by the employer. The Company has been closed down with effect from 24.06.2009. Reference has been made to a judgment rendered by the Orissa High Court in Forest Development Corporation Vs. Regional Provident Fund Commissioner, reported in 1995 (1) LLI 936 filed as annexure-3 to the rejoinder affidavit where in similar circumstances, the Orissa High Court has quashed the entire Damages imposed by the Provident Fund Commissioner. Reference has also been made to Hon'ble Supreme Court judgment rendered in the case of Employees State Insurance Corporation Ltd. Vs. H.M.T. Ltd. and others, reported in 2008 (3) SCC 35, wherein the Court has set aside the order of the Tribunal as well as the competent authority on the ground of sickness of the Company. Reference has also been made to the decision of Madras High Court in M/s Solidaire India Ltd Vs. the Employees Provident Fund Appellate Tribunal and another, the judgment and order dated 11.01.2008 has been filed as annexure-5 to the rejoinder affidavit.
21. Learned counsel for the petitioner has also argued that the respondent no.2 has not considered the fact that the petitioner-company having closed down altogether in 2009 and assets being taken over by the Government for establishment of AIIMS Raebareilly, was seriously prejudiced by the delayed initiation of proceedings for imposition of damages under Section 14-B of the Act. The proceedings were initiated after the delay of 3 to 12 years from the date when the initial liability arose.
22. It has also been argued by learned counsel for the petitioner that at the time when the writ petition was heard as fresh for admission, this Court had passed a detailed interim order directing the company to deposit Rs.40 lakhs in pursuance of the order impugned and that it has also given Bank Guarantee of Rs.75 lakhs to avail the benefit of conditional interim order staying the operation of order impugned.
23. This Court has heard learned counsel for the petitioner- company and the respondent no.2 at length and has perused the record carefully. It is evident from the same that the respondent no.2 had issued show-cause notice requiring it to deposit the Interest as well as Damages under Sections 7-Q and 14-B of the Act respectively, due to delayed payment of Provident Fund contribution in E.P.F. (Account no.I), the P.F. Adminstration Charges in EPF (Account no.II), Pension contribution in E.P.F. (Account No.X), Deposit linked Insurance contribution in E.P.F. (Account No.XXI) and Deposit linked insurance administration charges in E.P.F. (Account No.XXII). A detailed break-up of the period for which delay had occurred in making contributions under each of the accounts as mentioned and the Interest accrued thereon and the Damages proposed to be imposed was also given in the said show-cause notice. The charts attached along with the show-cause notice show that the delay in making contributions ranges from 8 days to 1261 days in some cases. The fact that the contribution was made with the delay was not disputed by the petitioner in its reply to the show-cause notice. The only ground taken for waiving off the liability to pay the Interest and Damages was poor financial condition of the Company, the absence of mens rea, and the delayed initiation of the proceedings for imposing Damages having caused serious prejudice to the Company due to non-availability of records as all respondents-employees had already been given Voluntary Retirement.
24. The respondent no.2 has noted this fact that the representative of the employers had accepted the delay having been caused but had given explanation and reasons therefor, which the respondent no.2 has brushed aside in the order impugned saying that the fact that it had admitted delay in payment of contributions, would automatically result in imposition of damages. It was observed that the Employees Provident Fund and Miscellaneous Provisions Act is a social welfare legislation. The successful working of the social security Scheme depending upon the prompt compliance of the obligations caused upon the employer. The remittance of Provident Fund and allied dues being statutory in nature should have been made within the prescribed time frame i.e. within 15 days from the close of every month. Therefore, the liability to pay Damages could not be avoided by the employer. The rate of Damages as revised with effect from 26.05.2008 were then mentioned in the order dated 18.06.2013 and also the liability to pay Interest under Section 7-Q of the Act, and a break-up regarding the total amount of Damages and Interest under each of the accounts referred to in the show-cause notice was thereafter mentioned imposing a total liability of Rs.3,13,68,259/-.
25. The Appellate Tribunal referred to the reasons/ mitigating circumstances referred to by the petitioner-company in its Appeal and also the law settled by the Full Bench of the Delhi High Court in Roma Henny Private Security Limited (supra) wherein it was held that Interest before 26.09.2008 was included in Damages and after 26.09.2008 it had been segregated and should be separately charged. It also observed that "in the case in hand the entire period of assessment is before 26.09.2008, so the respondent was supposed to assess the dues on the basis of the earlier table, which included the element of interest under Section 7-Q of the Act. Admittedly, the respondent passed the impugned order (order dated 16.06.2013) not on the basis of the earlier table it continued to governing the assessment. The respondent calculated the dues applying maximum rates of 17%, 22%, 27% and 37%. Further, the respondent already assessed and recovered interest under Section 7-Q of the Act, so the respondent was duty bound to apply the rates applicable of 5%, 10%, 15% and 25%. As the respondent did not carry out its obligation within the declared line, so the impugned order of the respondent is to go. It is noted that the appellant establishment is a statutory undertaking and its officials would not gain anything from the delayed remittances. In the case in hand, no mens rea for delayed payment proved on the case filed.........".
26. However, the Tribunal taking into account the mitigating circumstances came to the conclusion that the appellant-establishment was not entitled for waiver of entire Damages. It observed that interest of justice would be meet by imposing Damages and Interest assessed at 40% of the alleged demand which was to be paid by the appellant. It set aside the impugned order passed by the Regional Provident Fund Commissioner, and allowed the Appeal, but directed the respondent no.2 to recover 40% of the alleged payment from the appellant-establishment in pursuance of the impugned order.
27. The question to be considered by this Court is whether the liability to pay Damages under Section 14-B of the Act is a liability which cannot be waived of at all? and whether the interest payable under Section 7-Q of the Act having already been paid up to 26.09.2008, the petitioner was entitled to benefit of the judgment rendered by Delhi High Court in its Full Bench decision in Roma Henny Private Securities Ltd. (supra)?
28. The relevant extract of Section 14-B of the Act is being quoted hereinbelow:-
"14-B. Power to recover damages:- Where an employer makes defaults in the payment of any contribution to the Fund (the Family Fund or the Insurance Fund) or in the transfer of accumulations required to be transferred by him under sub-section (2) of Section 15 (or sub-section (5) of Section 17) or in the payment of any charges payable under any other provision of this Act or of (any Scheme or Insurance Scheme) or under any of the conditions specified under Section 17, (the Central Provident Fund Commissioner, or such other officer as may be authorised by the Central Government, by notification in the Official Gazette in this behlaf) may recover from the employer such damages, not exceeding the amount of arrear, as it may think fit to impose.
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard."
29. From a perusal of the second proviso to Section 14-B of the Act, it is evident that in case of sick industrial Company being declared so by the Board of Industrial and Financial Re-construction, New Delhi, the Board of Trustees, (in this case the Appellate Tribunal) could consider waiver or reduction in the Damages so quantified. The Hon'ble Supreme Court while considering Section 14-B of the Act in the judgment rendered in Organo Chemical Industries and another (supra) also considered the Statement of Objects and Reasons for introducing the amendment in the Act.
30. The Employees' Provident Fund and Miscellaneous Provisions Act 1958 as originally enacted, provided for the deduction of compulsory Provident Fund for employees in factories and other establishments. It applied to every establishment in which 20 or more persons were employed or class of establishment which the Central Government could notify by a notification. Section 6 of the Act enjoined every employer to make contribution to the provident fund @ 6¼% of the basic wages, dearness allowance, retaining allowance, if any, for the time being payable to each of the employees, and the employees' contribution would be equal to the contribution made by the employer or may even be increased to the extent of 8⅓ %. The initial responsibility of making payment of contribution of the employer as well as of the employee, lay with the employer. The deposit had to be made by the 15th day of every month by the employer and the employer was authorized, before paying the employees wages, to deduct the employees' contribution from the same. A breach of these requirements under law was made a penal offence.
31. Section 14-B of the Act provided for penalties. Failure to comply with the requirements of Section 6 was punishable with various terms of imprisonments and/or with fine, which would depend upon the nature of the breach. The Family Pension Scheme was also introduced by way of amendment by the Act No.16 of 1971 and every employee who was the member of the Employees' Provident Fund was given option to join Family Pension Scheme. The contribution of the employer and the employee each month were similarly to be paid by the employer and later on deducted from the wages of the employee.
32. In the working of the Scheme, the authorities were faced with certain administrative difficulties. An employer could delay the payment of provident fund dues without any additional financial liability. The Parliament, accordingly inserted Section 14-B for recovery of damages on the amount of arrears. The reasons for enactment of Section 14-B of the Act have been discussed in paragraph-35 of the judgment rendered by Hon'ble Supreme Court in Organo Chemical Industries and another (supra), which is being quoted herein below:-
"In its working, the authorities were faced with certain administrative difficulties. An employer could delay payment of Provident Fund dues without any additional financial liability. Parliament, accordingly, inserted Section 14-B for recovery of damages on the amount of arrears. The reason for enacting Section 14-B is that employers may be deterred and thwarted from making defaults in carrying out statutory obligations to make payments to the Provident Fund. The object and purpose of the section is to authorise the Regional Provident Fund Commissioner to impose exemplary or punitive damages and thereby to prevent employers from making defaults. Section 14-B, as originally enacted, provided for imposition of such damages, not exceeding 25% of the amount of arrears. This, however, did not prove to be sufficiently deterrent. The employers were still making defaults in making contributions to the Provident Fund, and in the meanwhile utilising both their own contribution as well as the employees' contribution, in their business. The provision contained in Section 14-B for recovery of damages, therefore, proved to be illusory. Accordingly, by Act 40 of 1973, the words "twenty-five per cent of" were omitted from Section 14-B and the words "not exceeding the amount of arrear" were substituted. The intention is to invest the Regional Provident Fund Commissioner with power to impose such damages that the employer would not find it profitable to make defaults in making payments."
(emphasis supplied)
33. The Hon'ble Supreme Court further observed in its judgment that the power of the Regional Provident Fund Commissioner to impose Damages under Section 14-B of the Act is quasi judicial in nature. It must be exercised after notice to the defaulter and after giving him reasonable opportunity of being heard. The discretion was to be exercised within the limits fixed by the Statute and the order imposing such liability must be speaking order containing the reasons in support of it. The Hon'ble Supreme Court has observed in paragraph-38 that the various factors that were to be taken into account by the Regional Provident Fund Commissioner were for example, the number of defaults, the period of delay, the frequency of defaults and the amount involved.
34. At the time when the judgment of Hon'ble Supreme Court was rendered in Organo Chemical Industries and another (supra) i.e. on 23.07.1979, the second proviso to the Section had not been added. It came into existence by way of amendment in the year 1981. The second proviso refers to sick industrial units and the discretion to waive or to reduce the liability of payment of Damages otherwise occurring on the employer. The petitioner is undoubtedly a Sick Industrial unit which had closed down completely after efforts to revive it by the Board of Industrial and Financial Re-construction had failed. The Company was also a Government Company and its assets i.e. its campus at Raebareilly has been taken over by the Government for establishment of the AIIMS Raebareilly, an avowed public purpose. The Directors of the Company or its promoters could not have derive any personal gain in withholding the Provident Fund and other dues of its employees. There were admittedly no profits being generated since a longtime, or at least since 1996 when the Board of Industrial and Financial Re-construction had declared it Sick. The Company would not have withheld its statutory contributions, had it not been in such dire straits. Still, it is admitted that it paid all its dues, along with the interest due thereon, although belatedly. Such circumstances, coupled with lack of mens rea, would make it obligatory on the Competent Authority and the Tribunal to consider complete waiver of Damages.
35. Since Section 14-B of the Act is a penal provision, the absence of mens rea and the several mitigating circumstances mentioned in the Appeal before the Appellate Tribunal ought to have been considered.
36. This Court finds that the order dated 18.06.2013 was even otherwise found by the Tribunal to be vitiated as it had wrongly calculated the amount of Interest and Damages against the law settled by the Full Bench of the Delhi High Court in Roma Henny Securities Pvt. Ltd. (Supra). It has set aside the order but inexplicably, also imposed the liability of payment of 40% of the Damages imposed by the order dated 18.06.2013 which it had already set aside.
37. The quantification of Damages having been found to have been wrongly done and it having been observed by the Tribunal that because of such error the order of the respondent no.2 was liable to go in its entirety and having set it aside, there was no reason for the Tribunal to then impose 40% of the Damages which admittedly were quantified and imposed wrongly on the employer to be paid by it.
38. The order dated 04.03.2016 passed by the Appellate Tribunal is set aside. The Appellate Tribunal shall consider the mitigating circumstances of the absence of mens rea on the part of the employer again as also the fact of wrong quantification of Damages in terms of Gazette notification dated 26.09.2008, and pass appropriate orders in accordance with law, within a period of three months from the date a certified copy of this order is produced before it.
39. Any amount deposited by the petitioner-company in pursuance of the interim order passed by this Court dated 26.10.2016 shall be adjusted in the ultimate liability to be imposed by the Tribunal.
40. Writ Petition is allowed.
Order Date:07/02/2020 Rahul [Justice Sangeeta Chandra]