Telangana High Court
M/S.Galada Power And ... vs Employment Provident Fund Commission on 5 June, 2023
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
WRIT PETITION No.24512 OF 2010
ORDER:
Heard Mr. Challa Gunaranjan, learned counsel for the petitioners and Mr. T. Balaji, learned Standing Counsel appearing for the respondents.
2. This writ petition is filed to declare the action of respondents in demanding outstanding provident fund dues purported to be damages and interest thereon levied under Section - 14B and 7Q of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, pending the rehabilitation of petitioner company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, as illegal and consequently set aside the impugned letter dated 25.09.2010 issued by respondent No.3 and the proceedings dated 12.06.2008 issued by respondent No.2.
3. Petitioner No.1 is a Company deals with manufacture of Aluminum and Aluminum allied products. It has its Unit at Uppal, Hyderabad. It has covered under the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (for short 2 KL,J W.P. No.24512 of 2010 'Act, 1952') and the Scheme, 1952. Petitioner No.2 is a shareholder of petitioner No.1 Company.
4. The petitioners failed to pay contributions for the period from March, 1997 to April, 2000 amounting to Rs.48,10,799/- and, therefore, the respondents Organization initiated recovery proceedings to recover the said amount towards contributions and interest of Rs.9,36,993/- under Section - 7Q of the Act, 1952. Petitioner No.1 had filed a writ petition vide W.P. No.4731 of 2004 challenging the said recovery proceedings. This Court vide order dated 15.03.2004 disposed of the said writ petition permitting it to pay the said amounts in eight (08) equal installments. According to the petitioners, the had paid the said amount.
5. The petitioners again defaulted in paying contributions to the respondent Organization for the period from April, 2002 to January, 2004 to an amount of Rs.33,55,209/-. The respondents have issued prohibitory orders. Aggrieved by the same, petitioner No.1 has filed a writ petition vide W.P. No.17008 of 2004. Vide order dated 22.09.2004, this Court permitted the petitioners to pay the said amount in twelve (12) equal installments. According to the petitioners, the said amount was paid.
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6. The Assistant Provident Fund Commissioner (P.D.) of the respondent organization has passed an order No.AP/5238/P.D. Cell/RO/Hyd/2008/153, dated 12.06.2008, determining an amount of Rs.86,15,175/- towards damages under Section - 14B of the Act, 1952 and Rs.22,56,691/- towards interest under Section - 7Q of the Act, 1952 for the period from April, 1997 to July, 2007. Respondent No.3 vide letter No.AP/5238/EO/HYD CIRCLE-II/Recy/AD/2010, dated 25.09.2010, directed the petitioners to clear the outstanding PF dues within one (01) week, failing which, the respondent Organization shall proceed to recover the said dues by attachment of movable and immovable properties of the Establishment. Challenging the said orders dated 12.06.2008 and letter dated 25.09.2010, the petitioners have filed the present writ petition.
7. Vide order dated 08.10.2010, this Court granted interim stay as prayed for.
8. The petitioners challenged the said order dated 12.06.2008 issued by the Assistant P.F. Commissioner (P.D.), Regional Office at Hyderabad under Sections - 14B and 7Q of the Act, 1952 and recovery proceedings dated 25.09.2010 of respondent No.3 on the following grounds:
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(i) Petitioner No.1 Company became sick;
(ii) Vide order dated 27.07.2007, the Board for Industrial and Financial Reconstruction (BIFR) recommended petitioner No.1 Company be wound up;
(iii) Feeling aggrieved by the said order, the petitioners had preferred an appeal under Section - 25 of the Sick Industrial Companies Act (SICA), 1985 with the appellate Authority i.e., Appellate Authority for Industrial and Financial Reconstruction (AAIFR);
(iv) Vide order dated 12.11.2007, the Appellate Authority stayed the operation of the impugned order dated 27.07.2007 of BIFR recommending petitioner No.1 Company be wound up;
(v) During pendency of the said proceedings, the Assistant P.F. Commissioner (P.D.) had issued the aforesaid order dated 12.06.2008 under Sections - 14B and 7Q of the Act, 1952 claiming damages and interest. Therefore, the petitioner company had filed an Interlocutory Application vide M.A. No.233 of 2008 in Appeal No.298 of 2007, and the AAIFR stayed recovery of damages pursuant to 5 KL,J W.P. No.24512 of 2010 the notice dated 31.07.2008 vide its order dated 19.09.2008;
(vi) Thereafter, vide order dated 13.05.2010, AAIFR dismissed the aforesaid appeal No.298 of 2007 filed by the petitioners;
(vii) Feeling aggrieved by the said order, the petitioners had filed a writ petition vide W.P. No.18833 of 2010 and this Court vide order dated 03.08.2010 granted interim stay as prayed for. The said writ petition is pending and the interim order is subsisting;
(viii) The amounts claimed by the respondent Organization shall be part of rehabilitation scheme since the same relates to the period from 1997 to 2003;
(ix) Rehabilitation Scheme is ye to be sanctioned and once the scheme is sanctioned in due course, the damages and interest are required to be waived completely as per paragraph No.32B of the Employees Provident Fund Scheme, 1952 (for short 'Scheme 1952');
(x) The petitioner Company is not due and liable to pay any amount to the respondent Organization.
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KL,J W.P. No.24512 of 2010 With the aforesaid submissions, the petitioners sought to set aside the order dated 12.06.2008 and recovery proceedings dated 25.09.2010 of respondent No.3.
9. Whereas, respondents would submit that pendency of the aforesaid proceedings either before the BIFR/AAIFR or this Court is nothing to do with recovery of dues under the Act, 1952. Considering the submissions made by the petitioners vide the aforesaid order in the aforesaid two writ petitions, this Court granted installments. Without considering the said facts, this Court granted blanket order. If the petitioners are aggrieved by the order passed by the Assistant P.F. Commissioner (P.D.), dated 12.06.2008, the petitioners have to prefer an appeal in terms of Section - 7I of the Act, 1952. Therefore, the present writ petition is not maintainable.
10. It is not in dispute that W.P. No.18833 of 2010 filed by petitioner No.1 challenging the order dated 13.05.2010 passed by the AAIFR dismissing the appeal filed by the petitioner company is pending and the interim order dated 03.08.2010 granted by this Court is subsisting. There is no stay granted by this Court in the said writ petition with regard to recovery proceedings initiated by the respondent Organization.
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11. During the course of hearing, it is brought to the notice of this Court with regard to the order dated 14.08.2019 passed by the National Company Law Tribunal (NCLT), Hyderabad Bench, Hyderabad in a petition vide CP (IB) No.384/7/HDB/2018 filed under Section - 7 of the Insolvency and Bankruptcy Code, 2016 (for short 'Code, 2016') read with Rule - 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for short 'Rules, 2016'). Learned counsel for the petitioners has also filed copy of the said order. Vide the aforesaid order, the learned NCLT declared moratorium in terms of Section - 14 of the Code, 2016. The said period was over and the petitioner Company is under liquidation. The said facts are not disputed by learned Standing Counsel appearing for respondent Organization.
12. In view of the aforesaid facts, it is relevant to note that if the petitioners are aggrieved by the order dated 12.06.2008 passed by the Assistant P.F. Commissioner (P.D.), Regional Office, Hyderabad, under Sections - 14B and 7Q of the Act, 1952, they have to prefer an appeal in terms of Section - 7I of the Act, 1952 with Employees Provident Fund Tribunal, Hyderabad. It is also relevant to note that it is a composite order passed by the Assistant P.F. Commissioner, both 8 KL,J W.P. No.24512 of 2010 under Sections - 14B and 7Q of the Act, 1952. Therefore, appeal under Section - 7I of the Act, 1952 is maintainable, and the said principle was also laid down by the Hon'ble Supreme Court in Arcot Textiles Mills Ltd. v. Regional Provident Fund Commissioner1. Thus, if the petitioners are aggrieved by the said order, dated 12.06.2008 and recovery proceedings dated 25.09.2010 issued by respondent No.3, they have to prefer an appeal in terms of Section - 7I of the Act. 1952.
13. Learned counsel for the petitioners would submit that the delay caused in paying contributions is neither willful nor wantorn but due to the reasons that petitioner No.1 Company became sick. The reasons were specifically explained. Therefore, there is no mens rea in paying contributions to the respondent Organization with delay. The said aspects were not considered by the Assistant P.F. Commissioner in the order dated 12.06.2008.
14. It is relevant to note that the Apex Court in Horticultural Experiment Station, Gonikoppal, Coorg v. Regional Provident Fund Organization2 referring to its earlier judgments held that mens
1. (2013) 16 SCC 1
2. (2022) 4 SCC 516 9 KL,J W.P. No.24512 of 2010 rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. In paragraph No.13 of the said decision, the Apex Court also extracted paragraph No.35 of the decision in SEBI v. Cabot International Capital Corpn. [(2005) 123 Comp Cas 841 (Bom)], which is as under:
".........
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.10
KL,J W.P. No.24512 of 2010 Hence once the contravention is established then the penalty is to follow."
[Emphasis Supplied].
In paragraph No.19 of the decision, the Apex Court held as under:
"19. 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."
15. Thus, the petitioners cannot raise the said ground in the present writ petition. However, liberty is granted to the petitioners to raise the said ground in an appeal to be filed under Section - 7I of the Act, 1952, and it is for the learned Tribunal to consider the said ground.
16. It is not in dispute that petitioner No.1 Company is under liquidation. Section 36(4) of the Code, 2016 provides that workmen's 11 KL,J W.P. No.24512 of 2010 dues like provident funds cannot be part of the liquidation estate and has to be paid in full. Merely because a company is undergoing liquidation does not absolve it or the liquidator from paying the provident fund dues. The Supreme Court in Sunil Kumar Jain v. Sundaresh Bhatt3 held as follows:
"24. Now so far as the dues of the workmen/employees on account of provident fund, gratuity and pension are concerned, they shall be governed by Section 36(4) IBC. Section 36(4)(iii) IBC specifically excludes "all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund", from the ambit of "liquidation estate assets". Therefore, Section 53(1) IBC shall not be applicable to such dues, which are to be treated outside the liquidation process and liquidation estate assets under the IB Code. Thus, Section 36(4) IBC has clearly given outright protection to workmen's dues under provident fund, gratuity fund and pension fund which are not to be treated as liquidation estate assets and the Liquidator shall have no claim over such dues. Therefore, the workmen/employees concerned shall be entitled to provident fund, gratuity fund and pension fund from such funds which are specifically kept out of 3 . (2022) 7 SCC 540 12 KL,J W.P. No.24512 of 2010 liquidation estate assets and as per Section 36(4) IBC, they are not to be used for recovery in the liquidation.
*** 25.2. Considering Section 36(4) IBC and when the provident fund, gratuity fund and pension fund are kept out of the liquidation estate assets, the share of the workmen's dues shall be kept outside the liquidation process and the workmen/employees concerned shall have to be paid the same out of such provident fund, gratuity fund and pension fund, if any, available and the Liquidator shall not have any claim over such funds."
Thus, the respondent Organization has to follow the said procedure in recovery of the dues payable by the petitioner Company under the Code, 2016.
17. In view of the aforesaid discussion, this writ petition is dismissed granting liberty to the petitioner to prefer an appeal in terms of Section - 7I of the Act, 1952 challenging the order dated 12.06.2008 passed by the Assistant P.F. Commissioner (P.D.) under Sections - 14B and 7Q of the Act, 1952. Liberty is also granted to the respondent Organization to recover the dues from the petitioners by 13 KL,J W.P. No.24512 of 2010 following the procedure laid down the Code, 2016. In the circumstances of the case, there shall be no order as to costs.
As a sequel, the miscellaneous petitions, if any, pending in the writ petition shall stand closed.
_________________ K. LAKSHMAN, J 5th June, 2023 Mgr