Punjab-Haryana High Court
M/S. Elsons Cotton Mills Ltd. vs Regional Provident Fund Commission, ... on 30 June, 1998
Author: Sarojnei Saksena
Bench: Sarojnei Saksena
JUDGMENT G.S. Singhvi, J.
1. These appeals and writ petitions are being decided by one order because the issues raised by the appellants/petitioners are common to all the cases.
2. At the outset, we consider it necessary to briefly notice the facts of each case.
L.P.A. No 891 of 1986
3. Appellant-M/s Elsons Cotton Mills Ltd., is engaged in the business of manufacturing cotton yarn in its factory at Mathura Road, Faridabad. Proceedings under Section 14B of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Act) were initiated against it vide notice dated 19.8.1983 on the allegation of default in the payment of employees provident fund contributions/family pension fund contributions/insurance fund contributions and administrative/inspection charges into the respective funds on or before due dates for the months of October, 1976 to August, 1978, November, 1978, December, 1978, March, 1979, May and June, 1979, December, 1979, March and May, 1980, June to August, 1981 and September, 1980 to January, 1981, The appellants submitted reply to the show cause notice and pleaded that nothing was recoverable from it because the business had been purchased by the new management on 7.9.1978 and new management was not aware of the delayed deposit of the contributions by the previous management. It challenged to the notice on the ground of delay by placing reliance on the judgment of this Court in Amin Chand and Sons v. State of Punjab, AIR 1965 Punjab 441. The respondent took notice of the various points raised on behalf of the appellant and rejected the same vide his order dated 12.10.1984. The relevant-extract of the said order is reproduced below :
"3. The employer has taken the following grounds for consideration :
i) There are no arrears at the time of issue of notice as contribution had already been deposited.
ii) From 10/76 to 12/76, the company being managed by Shri R.G. Nayar and his brothers who were Directors of the company. The company was running into huge losses on account of financial difficulties arising out of labour trouble, strikes, power shortage and raw materials shortages and depressed conditions in the textile industries. The company was purchased by the new management on 7.9.78 and they were not aware of the late depositing of the contributions by the previous management. After taking over the mill, the new management has reduced the inordinate delay even being in tight financial position in the year 1979 and 1980. After 1981 there is no default in payment and contributions being deposited on due date.
iii) Neither the previous management nor the present management received any notice for the period mentioned in the notice earlier and it was presumed that delay had been condoned. The following cases were quoted in support of this stand.
i. M/s Amin Chand and Sons v. State of Punjab, AIR 1965 Punjab 441 and M/s Allahabad Canning Co. v. RPFC, 1976 Lab. I.C. 476 (Allahabad).
4. I have applied my mind to all relevant facts and have gone into the reasons stated by the employer. My findings on each of the contentions of the employer are as under :-
i) The contention that there was no arrears of provident fund contributions on the date of issue of notice is not in conformity with the correct legal position. Damages U/s 14-B of the Act are leviable not only for arrears but also for belated payments. As ruled by different High Courts, the word default appearing in Section 14B of the Act covers cases where payment had been made before the issue of notice but beyond the prescribed time limit.
ii) The plea taken by the employer that the company was being managed from 10/76 to 12/78 by the previous management and the same was purchased by the management on 7.9.1978 has no merit. Change of management does not affect the liability of an establishment as per provisions of 17-B of the Act. Financial difficulties for whatever reasons such as labour trouble, strike, power shortage, raw material shortage etc. cannot be accepted as legitimate grounds in allowing the employer to shift the time limit laid down by the law for deposits of Provident Fund dues. The deposit of provident fund dues by the stipulated time of 15th of the month following to which the dues relate as provided under para 38 of the E.P.F. Scheme, 1952 is an unqualified absolute statutory obligation of the employer. This obligation cannot be allowed to be diluted by plea of financial constraints and other extraneous factors. It is significant to note that even the employees' share of contributions which had been deducted from the wages of employees and was a money in trust with the employer had not been deposited in lime. Obviously this part of contribution had been misused in meeting other financial needs of the company. This aggravates the nature of default. The Hon'ble Supreme Court in the case of M/s Organo Chemicals and another v. Union of India, 55 FLR 283 has ruled that damages U/s 14-B of the Act are punitive in nature to act as a deterrent for defaulter employer. If the factors, like electricity cut, losses, labour trouble etc. were to be accepted as mitigating factors the very concept of punitive damages would get defeated. The plea of financial hardship has been rejected by Hon'ble High Court of Gujarat in the case of M/s Urbind Mills Ltd. v. R.N. Gandhi, 1982 Lab, I.C. 344 (Gujarat). The following extracts of the judgment deserve reproduction:
"We will be setting at naught the will of the Parliament if we were to say that a mere averment to the effect that the payment could not be made on account of financial hardship is sufficient to mitigate the damages. Even if it was established that the financial position of the company was embarassing, it would not justify taking such a view. In a way every company needs finance and has even to borrow from financial institutions. Even the fact that the company is running in a loss for some years would not justify committing defaults in respect of payment due under the Act and Scheme. Be it realised that the arrears consisted of the deductions made from the wages of the workers as we (well ?)".
The High Court of Kerala in the case Calicut Spinning and Weaving Mills v. K.P.F.C., 1981 LLJ 440, Kerala has ruled that even in case of lock out, strikes, etc. failure to make the contributions resulting in default will have to be visited by damages under Section 14B.
iii) There is no force in the contention of the establishment that neither the previous management nor the present management had received any notice earner and it was presumed that the delay had been condoned. The E.P.F. and M.P. Act, 1952 does not provide any time limit for taking action under Section 14B of the Act As regards judgment in the case of Amin Chand and Sons v. State of Punjab, AIR 1965 Punjab 441, it had been reversed by the same Hon'ble High Court, Punjab through Division Bench on 11.2.69 LPA 9606-1964-LIC 998 (unreported judgment). Similarly the judgment in the case of M/s Allahabad Canning Co, v. RPFC, 1976 Lab. I.C. 476 (Allahabad) had been superseded by the Division Bench ruling an appeal in the case of R.P.F.C. v. Allahabad Canning Co., 1978 LIC 998.
5. For the above reasons and after taking into account the sequence of duration of default, I, K.L. Lamba, Regional Provident Fund Commissioner, Haryana in exercise of the powers conferred on me by Section 14B of the Act, think fit and accordingly order that the damages for the delayed payment of :-
i) the Provident Fund Contributions;
ii) the Family Pensions Fund Contributions;
iii) the Administrative charges of EPF Scheme, 1952/EDLI Scheme, 1976;
iv) The Insurance Fund Contributions;
for the period 10/76 to 8/78, 11/78, 12/78, 3/79, 5/79, 6/79, 12/79, 3/80, 5/80, 6/81, 7/81, Supp. 9/80 to 1/81, totalling Rs. 1,97,169.94 be recovered as indicated in the statement enclosed, from employer in relation to the above establishment M/s Elson Cotton Mills (P) Ltd., Ballabgarh bearing code No. PN/2800. This includes a loss of Rs. 2009.60 caused to the statutory Fund on account of interest payment to the beneficiaries from the due date irrespective of delay in deposit of dues by the employer. The balance amount of Rs. 1,95,160.34 represents the penal part of the damages to serve as deterrent against defaults in payment.
I further order that the amount of damages should be paid by the aforesaid employer within the 15 days of receipt of the order, failing which further action be taken as provided under the Act and the Scheme framed thereunder.
The damages should be deposited in the different account Nos. mentioned below :-
Nature of damages Amount A/c Nos.
P.F. Contributions Rs. 1,59,283.70 1 E.P.F. Rs.4,307.94 10 Administrative charges Rs. 27,252,95 2 E.D.L.I. Contributions Rs. 5,450.55 21 E.D.L.1 Admn. charges Rs. 87480 22 Total Rs. 1,97,169.94 The appellant challenged the order passed by the respondent in C.W.P. No. 3331 of 1985 which has been dismissed by the learned Single Judge along with C.W.P. Nos. 5198, 5199 of 1985, 920, 1214 and 4121 of 1986. The main judgment has been recorded in C.W.P. No. 1214 of 1986 M/s Alka Printed Products Pvt. Ltd., Faridabad v. Regional Provident Fund Commissioner. A perusal of that order shows that the learned Single Judge has dealt with all the four grounds on which the petitioners challenged the notices issued by the Regional Provident Fund Commissioner as well as the orders passed by him under Section 14B of the Act.
The appellant has challenged the correctness of the order of the learned Single Judge on those very grounds which were raised in the writ petition. It has assailed the order of the Regional Provident Fund Commissioner on the ground of arbitrariness, non-application of mind and violation of the principles of nature justice.L.P.A. No. 892 of 1986
4. The appellant was served with show cause notice dated 5.7.1985 issued by the Regional Provident Fund Commissioner, Faridabad under Section 14B of the Act proposing levy of damages due to its failure to pay the employees provident fund contributions etc. for the period from May 1976 to July, 1984. The appellant contested the notice on the ground of bar of limitation and also on the ground that damages cannot be imposed in excess of 20% of the contributions payable by it. These objections were rejected by the respondent who passed a detailed order on 8.10.1985 imposing damages amounting to Rs. 92,049.55 due to the appellant's failure to deposit P.P. contributions, administrative charges, C.W.P. No. 1214 of 1985 tiled by the appellant has been dismissed by the learned Single Judge. The appellant has challenged the same on grounds which are similar to the grounds raised in L.P.A.No. 891 of 1986.L.P.A. No. 893 of 1986
5. Notice dated 26.10.1984 was issued to the appellant under Section 14B of the Act proposing levy of damages due to its failure to deposit the employees' as well as employer's share of employees provident fund and family pension fund contributions and the share of the insurance fund contributions together with administrative/inspection charges. The appellant challenged the notice on the ground that it is time barred and also on the ground that no damages can be levied upon it. The respondent considered the various points raised by the appellant and passed the order dated 31.3.1985 for levy of damages upon the appellant, C.W.P. No. 5199 of 1985 filed by the appellant has been dismissed by the learned Single Judge.L.P.A.No. 894 of 1986
6. The appellant which has a factory at Mathura Road, Faridabad was served with notice dated 27.11.1984 under Section 14B of the Act for levy of damages due to its failure to deposit employees' share as well as its own share under the employees provident fund and family provident fund apart from the employer's share of insurance fund contributions together with administrative/inspection charges payable under Section 17(F) of the Act. The appellant filed reply to the show cause notice. After considering the same, the respondent passed order dated 2.9.1985 for levy of damages amounting to Rs. 3,97,396.23. The relevant portion of the order passed by the Regional Provident Fund Commissioner in the appellant's case reads as under :-
"3. The contentions of the employer are that :-
i). the dates of deposits as mentioned in the notice and its source are doubtful.
ii). the amount for the period of notice has not been assessed under Section 7A of the Act as far though the dues were paid by the employer at their own.
iii). the notice has not been sent for the period prior to 5/80 and after 9/82.
iv) there is a repetition of the period on the notice i.e. 3/81 to 12/81.
v) the notice has been issued at the belated stage.
vi) the establishment is lying closed since 1983 and before that there had been strikes and closures, which affected the financial position of the Co.
vii) there has been no loss to the department, therefore, the damages be restricted to the interest paid to the members.
viii) the damages proceedings may be stayed as the company is already under liquidation proceedings in the Calcutta High Court and it had been declared as a relief undertaking by the West Bengal Govt.
4. I have applied my mind to all the relevant facts and have gone into the reasons stated by the employer. My findings on each of the contentions of the employer are as under :-
i) The dates of deposits as mentioned in the notice have been taken from the report of the Provident Fund Inspector at the time of inspection. These were shown to the counsel. He could not point out any specific error beyond expressing a vague doubt. He also could not produce the records of the establishment to indicate the date of deposit as different from these mentioned in the notice. Thus the plea of a doubt about accuracy of the dates of deposits stated in notice is devoid of merit.
ii) The plea that dues have not been assessed under Section 7A of the Act is also not tenable. The damages relate to any delay in deposit and not the determination of Provident Fund Dues payable.
iii) The plea that there is no mention of the period prior to 5/80 and after 9/82 in the notice is totally irrelevant. The proceedings will confine only to the period mentioned in the notice.
iv) The repetition of the period in notice was found to have been typographical omission and has been corrected.
v) The plea that the notice has been issued at the belated stage is not tenable. The Act does not provide any time limit for taking action under Section 14B. This has been ruled by Allahabad High Court in the case of Allahabad Canning Company v. R.P.F.C., 1978 LIC 998.
vi) The general and vague plea of the strikes, closures and financial constraints cannot be accepted as mitigating factors, and is of no avail to the employer. The plea of strikes etc. has already been rejected by the Kerala High Court in the case of Calicut Spinning and Weaving Mills v. R.P.F.C., 1981 LLJ 440 (Kerala) in the following words: "Even in case of lock out and strike, the failure to make the contributions resulting in default will have to be visited but (with ?) damages under section 14B".
The plea of financial difficulties has also been rejected by the Hon'ble High Court of Gujarat in the case of Urbind Mills v. R.N. Gandhi and others, 1982 Lab IC Cases 344 (Gujarat), in the following words :
"We will be setting at naught the will of the Parliament if we were to say that a mere averment to the effect that the payment could not be made on account of financial hardships is sufficient to mitigate the damages. Even if it was established that the financial position of the company was embarrassing it would not justify taking such a view. In a way every company needs finance and has even to borrow from financial institutions. Even the fact that the company is running at a loss for some years would not justify committing defaults in respect of payment due under the Act and Scheme. Be it realised that the arrears consisted of the deductions made from the wages of the workers as well."
vii) There is no force in the contention that the department has not suffered any loss due to late payment and damages be restricted to the interest paid to the members. Repelling this argument, the Supreme Court in the case of M/s Organo Chemicals Industries v. Union of India and others, 55 FJR 283, ruled that the damages under Section 14B of the Act are penal in character, intended to serve as a deterrent to the chronic defaulter as in this case.
5. for the above reasons and taking into account the facts and circumstances of the case, I, K.L. Lamba, Regional Provident Fund Commissioner, Haryana in exercise of the powers conferred on me by Section 14B of the Act, think fit and accordingly order that the damages for the delayed payment of:
i) the Provident Fund contributions;
ii) the Family Pension contributions;
iii) the Insurance Fund contributions;
iv) the Administrative charges of EPF Scheme, 1952/EDLI Scheme 1976;
for the period 5/80 to 9/82 totalling Rs. 3,97,396.23 (Rs. Three lacs ninety seven thousand three hundred ninety six and paise twenty three only) be recovered as indicated in the statement enclosed from employer in relation to the above establishment M/s Bengal National Textiles, Faridabad bearing Code No. PN/2959. This includes a loss of Rs. 69,065.20 caused to the statutory fund on account of interest payable to the beneficiaries from the due date irrespective of the delay in the deposit of dues by the employer. The balance amount of Rs. 3,28,331.03 represents the penal part of the damages to serve as deterrent against defaults in payment. I further order that the amount of damages should be paid by the aforesaid employer within the 15 days of receipt of the order, failing which further action be taken as provided under the Act and Scheme framed thereunder.
The damages should be deposited in the different Account Nos. mentioned below :
Nature of damages Amount (Rs).
A/c Nos.
P.F.Contributions Rs. 3,23,291.39 1 Administrative Charges Rs. 4,907.00 2 F.P.F. Contributions Rs. 52,124.59 10 E.D.L.I. Contributions Rs. 14,342.00 21 E.D.L.l, Adnm. charges Rs. 2,731.25 22 Total Rs.
397396.23 This order was challenged by the appellant in C.W.P. No. 5386 of 1985 which stands dismissed by the learned Single Judge vide order dated 24.9.1996.L.P.A.No. 15 of 1987
7. Aggrieved by the order dated 11.9.1986 passed by the learned Single Judge dismissing C.W.P. No. 920 of 1986 filed by it, M/s Hada Steel Products Ltd., Faridabad has preferred this appeal under Clause X of the Letters Patent. The facts of this case shows that notice dated 14.9.1984 was issued by the respondent proposing levy of damages on the appellant under Section 14B of the Act due to its failure to comply with the provisions of the Act and the Schemes framed thereunder for the period from June, 1980 to November, 1983. The appellant filed a detailed representation dated 18.2.1985. Thereafter the respondent heard the representatives of the department and the appellant and passed the order dated 14.4.1985 for levy of damages amounting to Rs. 1,16,503.95 due to the appellant's failure to pay P.F. contributions, P.P.F contributions, Administrative charges, E.D.L.I. contributions and Admn. charges. This is the background in which the appellant has preferred the present appeal.L.P.A. No. 44 of 1987
8. C.W.P No. 5199 of 1985 filed by the appellant for quashing the order dated 9.2.1985 passed by the respondent for levy of damages under Section 14B of the Act due to the former's failure to pay P.F., P.P.F., E.L.D.I. contributions and administrative/EDLI administrative charges for the period November, 1973 to September, 1974, November, 1975, January, 1976 to June, 1977, April 1980 and July, 1982 has been dismissed by the learned Single Judge on 11.9.1986. That order has been challenged by the appellant on the grounds which are similar to the one raised in L.P.A. Nos. 891 and 892 of 1986.C.W.P. No. 3766 of 1987
9. M/s Makharia Traders, Bhiwani has challenged the order dated 2.6.1985 passed by the Regional Provident Fund Commissioner, Faridabad under Section 14B of the Act. The facts incorporated in the writ petition shows that the notice dated 30.8.1984 was issued to the petitioner due to its failure to pay the employees' provident fund contributions/family pension fund contributions/administrative/insuranee fund contributions and administrative charges/inspection charges into the respective funds on or before the due dates for the months of February, 1978 to September, 1979. November, 1979 to August, 1980, October, 1980 to January, 1981, March, 1981 to November, 1981 and January, 1982. The petitioner contested the notice primarily on the ground of delay. It pleaded that no proceedings can be initiated after more than six years of the alleged defaults. The petitioner also challenged the proposed levy of damages on the ground that no loss had been suffered by the employees. The respondent considered the various objections raised by the petitioner and negatived the same while imposing damages to the tune of Rs. 14,720/- vide order dated 2.6.1986. The petitioner has challenged the correctness of the said order on the ground that in view of the instructions issued by the Government of India vide circulars dated 27.10.1975, 3.11.1982 and 13.5.1983 100% damages cannot be levied in lieu of the default in the payment of contributions/administrative charges.C.W.P. No. 3838 of 1987
10. M/s Shree Textiles, Bhiwai has challenged the order dated 19.2.1985 passed by the respondent for levy for damages to the tune of Rs. 5655.80 due to the petitioner's failure to make timely payment of the contributions towards P.P., Family Pension Fund and Administrative charges for the period from June, 1977 to October 1980, December, 1980, January, 1981, March, 1981, April, 1981, June, 1981 to July, 1981, September, 1981, January, 1982, April, 1982 to July, 1983, November, 1983 to May, 1984, October, 1984, November, 1984 and March, 1985.
C.W.P. No.-3839 of 1987
11. M/s Shree Saraswati Spinning Mills, Bhiwani has challenged the order dated 2.12.1986 passed by the respondent for levy of damages to the tune of Rs.
1,72,334.75 due to its alleged failure to pay the contributions towards employees provident fund, family pension fund, insurance fund and administrative/inspection charges for the months of August, 1975 (DLI only), September, 1976 to March, 1978, September, 1978 to December, 1978, March, 1979 to June, 1979, October, 1979, December, 1979, January, 1980, and March, 1979 to September, 1979.
C.W.P. No. 3840 of 198712. M/s Makharia Traders, Bhiwani has filed this petition for challenging the order dated 2.12.1986 passed by the respondent for levy of damages to the tune of Rs. 44,313.60 due to its alleged failure to pay the contributions towards the provident fund, F.P.F., E.D.L.I and Administrative Charges for the period from April, 1982 to May, 1984, June, 1984, August, 1984 to December, 1984, (Supp) August, 1984 to October, 1984, and February, 1985.
C.W.P. No. 3841 of 198713. The petitioner has while questioning the levy of 100% damages under Section 14B of the Act, challenged the constitutional validity of the instructions issued by the Central Provident Fund Commissioner for levy of damages. It has pleaded that the Regional Provident Fund Commissioner has gravely erred in imposing 100% damages ignoring the reply submitted in response to the show cause notice issued after the decision of C.W.P. No. 6387 of 1985. The petitioner has averred that the instructions issued by the Central Provident Fund Commissioner are discriminatory inasmuch as the damages are leviable at the flat rate of 25% in respect of the default committed prior to September, 1982 whereas in respect of the subsequent periods 100% damages are leviable and there is no rhyme or reason to subject similarly situated persons to discriminatory treatment.
C.W.P. No. 8538 of 198714. The petitioner has prayed for quashing the order dated 7.7.1987 passed by the respondent for levy of damages on it to the tune of Rs. 41,152.63 due to its failure to pay contributions towards employees provident fund, family pension, insurance fund and the administrative charges etc. within the prescribed time limit for the months of August, 1975, December, 1975, February, 1976, April, 1976, August 1976, September, 1976, February 1977; March, 1977, January, 1979, April, 1979 to June, 1981, November, 1981, July 1980 to October, 1980. The petitioner has pleaded that in spite of the directions given by the High Court on 25.11.1986 in R.S.A. No. 2832 of 1986, the Regional Provident Fund Commissioner did not consider the points raised by it in a correct perspective and levied 100% damages ignoring the reasons for default. It has also challenged the levy of damages on the ground of violation of the instructions issued by the Central Provident Fund Commissioner.
C.W.P. No. 9528 of 198715. The petitioner has prayed for quashing the order dated 5.10.1987 issued by the Regional Provident Fund Commissioner for levy of damages on account of its failure to comply with the provisions of the Act. The principal ground on which the petitioner has challenged the correctness of the order passed by the respondent is the violation of the guideline issued by the Central Provident Fund Commissioner. It has also raised the plea of the violation of the principle of natural justice and non-application of mind.
The respondent has contested the writ petition by stating that the impugned order has been passed after giving reasonable opportunity of hearing to the representative of the petitioner and that levy of damages is justified in view of the various pronouncements of the Supreme Court and the High Courts.
C.W.P. No. 2770 of 198816. The petitioner-Union has prayed for quashing of the show cause notice dated 10.3.1987 issued under Section 14B of the Act and the order dated 6.10.1987 passed under that section by the Regional Provident Fund Commissioner for levy of damages amounting to Rs. 1,17,345/- due to its failure to comply with the provisions of the Act and the schemes framed thereunder in respect of the provident fund contributions, family pension contributions, administrative charges and the employees deposit linked insurance contributions for the months of May, 1977, June, 1977, August, 1977, September, 1977, January 1978, February 1978, September, 1979 to March, 1981, February 1982 to August, 1982 and October, 1982.
17. The questions of law which are required to be answered in these appeals and writ petitions are :-
(a) Whether the notices issued by the respondent under Section 14B of the Act can be quashed on the ground of delay or the bar of limitation ?
(b) Whether the guidelines issued by the Central Provident Fund Commissioner for imposition for damages are binding on the respondent and the impugned orders which have been passed ignoring such guidelines are liable to be invalided on the ground of arbitrariness ?
(c) Whether the guidelines issued by the Central Provident Fund Commissioner are discriminatory and violative of Article 14 of the Contribution.;
(d) Whether the impugned orders are vitiated due to arbitrariness and non- application of mind ?
18. Before dealing with the contentions urged by the learned counsel, we consider it appropriate to notice the relevant provisions of the Act and the decision of the Supreme Court in Organo Chemical Industries v. Union of India, AIR 1979 SC 1803.
19. The Provident Funds Act, 1952 as originally enacted, provides for the institution of compulsory provident funds for employees in factories and other establishments. It applies to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed and to any other establishment employing twenty or more persons or class of such establishment which the Central Government may specify in that behalf by Notification in the Official Gazette. Under Section 4, the Central Government framed the Employees' Provident Funds Scheme, 1952 by S.R.O. 1509 dated September 2, 1952. Section 6 of the Act enjoins on every employer to make contribution to the Employees Provident Fund at the rate of 6-1/4% of the basic wages, dearness allowance, retaining allowance, if any for the time being payable to each of the employees and the employees contribution shall be equal to the contribution but the employer in respect of him. The employee at his option may, however, increase the contribution to the extent of 8-1/3%.
The initial responsibility for making payment of the contribution of the employer as well as of the employee, lies on the employer. Para 30 of the Scheme makes it incumbent on the employer that he shall, in the first instance, pay both the contribution payable by himself and also on behalf of the member employed by him. Under para 30, the employer is authorised before paying the member employee his wage in respect of any period or part of period for which contribution are payable, to deduct the employee's contribution from his wages. It further provides that the deposit of such contribution shall be made by that employer within fifteen days of the close of every month, i.e., a contribution for a particular month has got to be deposited by the 15th day of the month following. A breach of any of these requirements is made a penal offence. Section 14 of the Act provides for penalities. Failure to comply with the requirement of Section 6 is punishable with various terms of imprisonment which may extend to a period of six months, or with fine which may extend to one thousand to two thousand rupees, under the provisions of Section 14, depending upon the nature of the breach, viz. failure to pay the contributions, or failure to submit the necessary returns, or failure to pay administrative charges. Section 14A provides for offences by companies and other corporate bodies. Paragraph 76 of the Scheme provides for punishment for failure to pay contributions etc., and in particular by clause (d) every employer guilty of contravention or of non-compliance with the requirements of the Scheme shall be punishable with imprisonment which may extend to six months or with fine of Rs. 1000/-.
Parliament amended the Act by Act No. 16 of 1971, and it was re-entitled as the Employees Provident Funds and Miscellaneous Provisions Act, 1952. It inserted Section 6A in the Act for the establishment of the Family Pension Fund. In exercise of the powers conferred by Section 6A, the Central Government framed the Employees Family Pension Scheme, 1971 by G.S.R. 315, dated March 4, 1971. Under para 4 of the Scheme, every employee who is a member of the Employees Provident Fund, is given the option to join the Family Pension Scheme. Para 9 created the Family Pension Fund and provides that from and out of the contributions payable by the employer and employee in each month under Section 6 of the Act apart of the contribution, representing 1-1/6% of the employee's pay along with an equivalent amount of 1-1/6% from out of the employer's contributions, shall be remitted by the employer to the Family Pension Fund.
In its workings, 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 14B for recovery of damages on the amount of arrears. The reason for enacting Section 14B 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 14B, as originally enacted, provided for imposition of such damages, not exceedings 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 14B for recovery of damages, therefore, proved to be illusory, Accordingly, by Act No. 40 of 1973, the words "twenty-five per cent of were omitted from Section 14B and the words "not exceeding of the amount on arrears" were substituted.
20. Challenge to constitutional validity of Section 14B of the Act was examined by the Supreme Court in Organo Chemical Industries v. Union of India, AIR 1979-SC 1803. Their Lordships of the Supreme Court made reference to the provisions of the Act and the Scheme as well as the statements of objects and reasons for the insertion of Section 14B and upheld the validity of Section 14B. Some of the observations made in the decision, which are relevant to the subject matter of these appeals and writ petitions are extracted below :-
"The traditional view of damages as meaning actual loss, does not take into account the social content of a provision like Section 14B contained in a socio-economic measure like the Act in question. The word 'damages' has different shades of meaning. It must take its colour and content from its context, and it cannot be read in isolation, nor can Section 14B be read out of context. The very object of the legislation would be frustrated if the word 'damages' appearing in Section 14B of the Act was not construed to mean penal damages. The imposition of damages under Section 14B serves a two-fold purpose. It results in damnification and also serves as a deterrent. The predominant object is to penalise, so that an employer may be thwarted or deterred from making any further defaults.
The expression 'damages' occurring in Section 14B is, in substance, a penalty imposed on the em-
ployer for the breach of the statutory obligation. The object of imposition of penalty under Section 14B is not merely to provide compensation for the employees. We are clearly of the opinion that the imposition of damages under Section 14B serves both the purposes. It is meant to penalise defaulting employer as also to provide reparation for the amount of loss suffered by the employees. It is not only a warning to employers in general not to commit a breach of the statutory requirements of Section 6, but at the same time it is meant to provide compensation or redress to the beneficiaries i.e. to recompense the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the loss which is caused to the beneficiaries under the Scheme. The word 'damages' in Section 14B is related to the word 'default'. The words used in Section 14B are 'default' in the payment of contribution and, therefore, the word default must be construed in the light of Para 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word default in Section 14B must mean failure in performance or failure to act. At the same time, the imposition of damages under Section 14B is to provide reparation for the amount of loss suffered by the employees."
Re: (a)
21. Shri A.P. Bhandari strenuously urged that the impugned notices should be quashed solely on the ground of bar of limitation. Learned counsel submitted that in the absence of any statutory prescription of limitation, the Court must hold that the action initiated under Section 14B of the Act for recovery of damages after 3 years from the date the appellants/petitioners were required to deposit the amount in respective funds is barred by limitation. Learned counsel further submitted that even if limitation of 3 years is not to be invoked by the Court, complete absence of explanation by the respondent(s) must be treated as sufficient to vitiate the proceedings initiated against the appellants/petitioners because they have suffered grave prejudice due to the long passage of time. Learned counsel relied on the following decisions :-
1. Amin Chand and Sons v. State of Punjab, AIR 1965 Punjab 441.
2. State of Gujarat v. P. Raghav, AIR 1969 SC 1269.
3. S.B. Gurbax Singh v. Union of India, AIR 1970 SC 1115.
4. BisheshwarLal v. Income Tax Officer, 1970 (75) ITR 698.
5. M/s Sushma Fabrics Pvt. Ltd. v. Union of India, 1991 Lab.I.C. 1046.
6. K.T. Rolling Mills Ltd. v. R.M. Gandhi, 1993 Lab.I.C. 1466.
7. Orissa Forest Development Corporation v. Regional Provident Fund Commissioner, 1994 Lab.I.C. 2510 : 1995(2) SCT 425 (Orissa) (DB).
8. National Marketing Corporation v. Regional Provident Fund Commissioner, 1994(2) LLJ 1177.
9. R.P.F.C. v. K.T. Rolling Mills Pvt. Ltd., 1995(3) RSJ 64.
22. Shri Rajesh Bindal countered the submissions of Shri Bhandari by arguing that in the absence of statutory prescription of the period of limitation, provisions of the Indian Limitation Act, 1963 cannot be invoked by implication and an action initiated under Section 14B of the Act cannot be struck down as barred by limitation. Shri Bindal further argued that the impugned action taken by the respondent(s) cannot also be nullified on the ground of unreasonable delay in the initiation of proceedings. He pointed out that except in one or two cases, the delay in the initiation of proceedings cannot be held to be unreasonable looking to the fact that the appellants/petitioners are guilty of having acted in complete violation of the provisions of the Act and the schemes framed thereunder by having failed to deposit the employees' share as well as their own share towards provident fund contributions, family pension contributions etc. even though each one of them had knowledge of the statutory requirement to deposit the amount by a particular date. Shri Bindal relied on M/s A van Scale Co. v. R.P. F. C. for the State of Haryana, 1992(1) PLR 408
23. We have thoughtfully considered the submissions of the learned counsel.
24. Admittedly, there is no period of limitation prescribed under Section 14B of the Act within which action for recovery of damages can be initiated against the defaulter. It is to be realised that the amounts of provident fund dues consist of deductions made from wages of the workers as well. If an employer deducts these contributions from wages of the employees and sits tight over them, he as a trustee is liable to account for the same at any time. It is no defence for him to say that he is ceased to be accountable after a fixed period. The Legislature has advisedly not prescribed any period of limitation for issuing show cause notice against such' defaulting trustees- employers. It is also to be noted that the Act is a beneficial piece of legislation meant for the welfare of weaker and disadvantageous section of the society, namely, the employees, who do not have any control over the acts and omissions of the authorities constituted under the Act. If any such authority out of negligence or otherwise fails to take prompt action against the defaulting employer, there is no rhyme or reason why innocent beneficiary employees should suffer. This view of ours is supported by the following decisions :-
1. M/s Sham Glass Works v. State, AIR 1979 Allahabad 19.
2. Divisional Engineer, A.P.S.E. Board v. Regional Provident Fund Commissioner, Hyderabad, 1979 Lab.I.C. 187.
3. M/s U.S.U.T. Bhandar Ltd. v. Union of India, 1981 Lab.I.C. 285.
4. S.H. Salve Kadam and Co. v. R.P.F. Commissioner, Bangalore, 1981 Lab.I.C. 568.
5. Mary George v. R.P.F. Commissioner, 1983 Lab.I.C.133.
6. Gandhidham Spinning and Mfg. Co. Ltd. v. Regional Provident Fund Commissioner and another, 1987 Lab.I.C. 659.
7. M/s A.S. Pvt. Ltd. v. Union of India, 1993(67) F.L.R. 1029.
8. M/s Mathur Alloy and Steel Ltd. and another v. Union of India, 1993(2) LLJ 471.
25. The decisions of the Supreme Court in Stale of Gujarat v. P. Raghav (supra) and S.B. Gurbax Singh v. Union of India, (supra) relied upon by the Shri Bhandari do not have any bearing on the interpretation of Section 14B of the Act. In Gujarat's case, their Lordships of the Supreme Court held that the power of revision vested in the Commissioner under Section 65 should be exercised within a reasonable time. In the second case, similar view has been expressed with reference to the provisions of the Bengal Sales Tax Act, 1941. Basheshwar Lal's case (supra) involved interpretation of the penalty notice issued under Section 28(1)(c) of the Income Tax Act, 1922. In our opinion, while interpreting a welfare legislation like the Act (of 1952) decisions rendered with reference to the taxing statutes can have no relevance.
26. Some of the other decisions relied upon by Shri Bhandari do support his contention that proceedings initiated under Section 14B of the Act can be quashed on the ground of unreasonable delay. In R.P.F.C. v. K.T. Rolling Mills Pvt. Ltd. (supra), their Lordships of the Supreme Court upheld the action initiated by the Regional Provident Fund Commissioner under Section 14B of the Act after delay of 12 years, but while doing so, an observation came to be made that power under Section 14B is to be exercised within reasonable time. In M/s Flour Millers Engineering Corporation, Nagpur v. R.P.F.C., 1992(1) Lab.I.C. 1125, M/s Sushma Fabrics Pvt. Ltd. v. Union of India (supra), K.T. Rolling Mills v. R.M. Gandhi (supra) and National Marketing Corporation v. Union of India (supra), three learned Single Judges of Bombay High Court quashed the proceedings on the ground of delay. In M/s Orissa Forest Development Corporation Ltd.'s case (supra), a Division Bench of Orissa High Court ruled that proceedings initiated after lapse of 20/22 years were grossly belated and were liable to be quashed. With great respect, we are unable to share the views expressed in the decisions relied upon by Shri Bhandari. We may have dealt with these judgments in detail but in view of the recent decision of the Supreme Court in M/s Hindustan Times Ltd. v. Union of India, JT 1998(1) SC 18 : 1998(2) SCT 256 (SC), these decisions cannot be regarded as laying down correct law. While expressly disapproving most of the above mentioned decisions on which reliance has been placed by Shri Bhandari, the Apex Court laid down the following principles :-
1. The Act does not contain any provision prescribing a period of limitation for assessment or recovery of damages. The monies payable into the Fund are for the ultimate benefit of the employees but there is no provision by which the employees can directly recover these amounts. The power of computation and recovery are both vested in the Regional Provident Commissioner or other officer as provided in Section 14B.
2. It is not the legislative intention to prescribe any period of limitation for computing and recovering the arrears. As the amounts are due to the Trust Fund and the recovery is not by suit, the provisions of the Indian Limitation Act, 1963 are not attracted.
3. The position under Section 14B of the Act of an employer is totally different. The employer who has defaulted in making over the contributions to the Trust Fund had, on the other hand, the use of monies which did not belong to him at all.
4. In cases under Section 14B if the Regional Provident Commissioner has made computations earlier and sent demand immediately after the amount fell due, the defaulter would not have been able to use these monies for his own purposes or for his business. In our opinion, it does not lie in the mouth of such a person to say that by reason of delay in the exercise of powers under Section 14B, he has suffered loss.
5. There is no period of limitation prescribed by the legislature for initiating action for recovery of damages under Section 14B. The fact that proceedings are initiated or demand for damages is made after several years cannot by itself be a ground for drawing an inference of waiver or that the employer was lulled into a belief that no proceedings under Section 14B would be taken; mere delay in initiating action under Section 14B cannot amount to prejudice inasmuch as the delay on the part of the department, would have only allowed the employer to use the monies for his own purposes or for his business especially when there is no additional provision for charging interest. However, the employer can claim prejudice if there is proof that between the period of default and the date of initiation of action under Section 14B, he has changed his position to his detriment to such an extent that if the recovery is made after a large number of years, the prejudice to him is of an retrievable nature.
The judgment of the learned Single Judge in Amin Chand v. State of Punjab (supra), has been reversed by the Division Bench in State of Punjab v. Amirn Chand, 1964(3) FJR 92.
On the basis of the above, we hold that there is no bar of limitation for initiation of such proceedings under Section 14B of the Act and the delay in initiation of such proceedings cannot be made a ground to quash the order passed by the competent authority imposing damages on the employer who is found to have defaulted in the compliance of the provisions of the Act and the Schemes framed thereunder. We also hold that mere delay cannot lead to an inference that the employer has been prejudiced. Only in a case of positive proof of prejudice to the employer which is irretrievable in nature, the competent authority can take into consideration the factor of delay while imposing damages.
27. Before concluding this aspect of the matter, we deem it appropriate to mention that the intention of the Legislature not to prescribe any period of limitation for initiation of action under Section 14B of the Act is clearly discernible from the fact that by the Employees State Insurance Amendment Act No. 29 of 1989, Section 77(1)(b) of the Principal Act has been amended and five years have been prescribed as period of limitation for recovery of contributions (including interest and damages) by the Employees State Insurance Corporation, but no such amendment has been made in Section 14B of the Act (of 1952) incorporating the period of limitation for recovery of damages. If at all the Legislature wanted to incorporate the period of limitation in section 14B, nothing prevented it from inserting appropriate provision to this effect by amending the Act (of 1952). Since that has not been done, it is reasonable to draw an inference that the Parliament had designedly refrained from prescribing the period of limitation for initiation of proceedings under Section 14B.
Re. (b) and (c)
28. Shri Bhandari and Shri Arun Jain valiantly argued that in view of the instructions issued by the Central Provident Fund Commissioner, the respondent(s) could not have levied 100% damages while exercising power under Section 14B. In order words, argument of the learned counsel is that the instructions issued by the Central Provident Fund Commissioner are binding on the respondent(s) and the orders passed by them ignoring the instructions issued by the superior authority should be invalidated. An additional argument urged by Shri Bhandari is that the instructions issued by the Central Provident Fund Commissioner are discriminatory and violative of Article 14 of the Constitution inasmuch as different rates of damages have been prescribed vide circular No. E.11/17/(5)81-Damages dated 13.5.1983. Shri Rajesh Bindal argued that the instructions issued by the Central Provident Fund Commissioner can at best be treated as administrative guidelines which can be relied upon by the Regional Provident Fund Commissioners while awarding damages but they cannot be constructed as having binding force. Shri Bindal submitted that functions of the Regional Provident Fund Commissioner are quasi-judicial and no authority including the Central Provident Fund Commissioner can interfere with the exercise of judicial discretion vesting in them. He pointed out that Section 20 of the Act has been substituted by the Amending Act No. 33 of 1988 conferring power upon the Central Government to give direction to the Central Board for the efficient administration of the Act and such directions may be binding on the Central Board, but in the absence of any provision vesting such power in !he Central Government or the Central Provident Fund Commissioner, the instructions issued by the latter cannot be treated as binding on the respondents.
29. We have thoughtfully considered the respective submissions and are inclined to agree with Shri Bindal that the instructions issued by the Central Provident Fund Commissioner specifying the quantum of damages to be levied on the defaulting employer are merely administrative guidelines and the same cannot be made basis for quashing the impugned orders passed by the competent authority under Section 14B of the Act. Any other interpretation of these instructions, in our opinion, will render them ultra vires to the powers of the Central Provident Fund Commissioner. In K.P.F. Commissioner, T.N. v. South India Four Mills Pvt. Ltd., 1986 Lab.I.C. 650, J.E.L., Bombay v. U.I. and another, 1983(2) LLJ 436 and Gandhidham Spinning and Mng. Co. Ltd v. R.P.F. Commissioner (supra), Bombay, Gujarat and Madras High Courts have held that the Central Provident Fund Commissioner cannot issue administrative instructions or directions so as to curb the discretion vesting in the Regional Provident Fund Commissioner to impose darn-ages in exercise of his power under Section 14B of the Act. We respectfully agree with these decisions and express our inability to follow the decisions of the learned Single Judge of Bombay High Court in M/s Super Processors v. Union of India, 1992 Lab.I.C. 808 and M/s Floor Mills Engineering Corp. v. R.P.F. Commissioner, 1992 Lab.I.C. 1125, relied upon by the other side. In the first of these two cases, the learned Single Judges appears to have Proceeded on the assumption that the guidelines issued by the Central Provident Fund Commissioner have force of law and are binding on the Regional Provident Fund Commissioners. In the second case, the learned Single Judge held that the administrative instructions cannot be overlooked by the Regional Provident Fund Commissioners. In neither of these decisions, the learned Single Judges of Bombay High Court examined the issue in the context of the absence of any statutory provisions empowering the Central Provident Fund Commissioner to issue administrative instructions for regulating exercise of discretion by the Regional Provident Fund Commissioners. Thus, we do not agree with the learned counsel for the appellants/petitioners that the orders passed by the respondent(s) are vitiated due to the violation of the instructions issued vide circulars dated 24.1.1975, 3.11.1982 and 13.5.1983.
The argument of Shri Bhandari that the instructions issued vide circular dated 13.5.1983 are discriminatory also merits rejection in view of our conclusion that these instructions do not have the force of law and are not binding on the Regional Provident Fund Commissioners.
Re. (d)
30. Learned counsel for the appellants/petitioners urged that the respondents have arbitrarily levied the penalty. They submitted that the respondents have ignored paras 30, 32-A and 32-B of the Employees Provident Fund Scheme, 1952 as well as the factors like the strikes in the factories and financial constraints faced by the employers. In our opinion, the submission made by the learned counsel is wholly without merit. The applicability of paras 32-A and 32-B of the 1952 Scheme is ruled out because they have been inserted vide notification dated 16.8.199J whereas the impugned orders were passed in the years 1985, 1986 and 1987. All other factors including para 30 of the Scheme on which reliance has been placed by the learned counsel for the appellant/petitioners have been considered by the Regional Provident Fund Commissioners while passing the impugned orders. The learned Single Judge has rejected the various contentions urged on behalf of the appellants as would appear from a reading of the following portion of the impugned judgment :
"As regards ground No. (1), the matter is squarely covered by a judgment dated 4.12.1984 of S.S. Kang, J. in C.W.P. No. 2813 of 1984 (M/s Precision Stamping, Faridabad v. Regional Provident Fund Commissioner). After an elaborate discussion, it was observed therein that the circular dated 3.11.1982 Annexure P.6 provides levy of damages at the maximum to the extent of 100% of the amount of delayed contribution. However, the Central Provident Fund Commissioner had erroneously drawn a distinction between pendency or otherwise of the cases of delayed contribution. The Central Board of the Fund in its decision had not drawn any such distinction. This anomaly was ultimately removed by way of clarification issued vide instructions dated 13.5.1985 Annexure P.7. It was, therefore, held that there was no bar against the issuance of this clarification nor could it be styled as unauthorised as it only complied with the actual decisions taken by , the Central Board. L.P.As. Nos. 42 to 44 of 1985 filed against the aforesaid judgment, which disposed of the connected petitions also, were dismissed in limine by a Division Bench of this Court on 6.2.1985.
As regards ground No. (2), the matter is again concluded by a Division Bench judgment of this Court in M/s. T.C.M. Woollen Mills (Pvt.) Ltd., Ludhiana v. The Regional Provident Fund Commissioner for Punjab and Haryana, Himachal Pradesh and another, 1981 Lab.I.C. 261, wherein it has been held that in case of levy of damages for delayed payments under Section 14B of the Act, it cannot be contended either that the arrears have been deposited before the issue of the notice under the section and as such no damages can be levied or that the arrears having been paid damages-beyond the prescribed time are irrecoverable. The learned counsel for the respondent has also placed reliance on The Bombay Gas Co. Ltd. v. Gopal Bhiya and others, AIR 1964 SC 752, which has been followed by a Division Bench of the Allahabad High Court in The Regional Provident Fund Commissioner, U.P. v. M/s Allahabad Canning Co. Bamraull, 1973 Lab.I.C. 998, and again in Mrs. Mary George v. Regional Provident Fund Commissioner, Trivandrum, 1983 Lab.I.C. 133. In the tatter two judgments, it has been held that Section 14B of the Act does not provide any limitation during which action against an erring employer can be taken for delayed deposits under the Act. In the absence of any bar or limitation, there is no principle of law which debars the Regional Provident Fund Commissioner from exercising the statutory powers available to him under Section 14B of the Act. I find no reason to differ with the view taken in the aforementioned authorities.
Now coming to ground No. (3), it is again squarely met with by a Division Bench judgment of this Court in Provident Fund Inspector v. Ram Ku-mar and others, 1982 P.L.R. 295. It has been held therein that the employer is under a legal obligation to deposit the employer's and the employees' share of contribution to the Fund within the time prescribed the moment the Act and the scheme become applicable to him. No intimation or notice of any kind in this respect is necessary to be issued to him by the authorities concerned. I am bound to follow this judgment. There is, therefore, no force in this ground also.
As regards ground No. (4), the learned counsel for the petitioner relied on para 111(h) of the instructions contained in Annexure P.5. The learned counsel for the respondent, on the other hand made specific reference to the calculation sheet attached to Annexure P.3 brought out that with respect to the delayed contributions for the period preceding January, 1978, in case the delayed payment had been made by the end of the same month, damages had been calculated at one-half of the prescribed rate. He, however, pointed out that as per instructions contained in para 168(iii) of Chapter VII of the Manual of Accounting Procedure, Vol. I of Employees Provident Fund Organisation with effect from January, 1978 levying damages at half the rates in case where the employer had paid the dues after the grace period but before the end of the same month is not applicable. Thus, levy of damages at full rate from January, 1978 onwards is quite consistent with the instructions and guidelines issued by the Central Board from time to time."
In M/s Organo Ltd. v. Union of India (supra), their Lordships held that while fixing the amount of damages, the Regional Provident Fund Commissioner shall take into consideration various factors, viz. number of defaults, the period of delay, the amount involved etc. Similarly, their Lordships held that the factors like financial difficulties faced by the employer due to strike of the employees or otherwise cannot be made ground for relieving the employer of its obligation to deposit the employees share as well as its own share of contributions as required by the Act and the Scheme framed thereunder. Thus, the exercise of dis-
cretion by the respondents cannot be held vitiated on the ground that they failed to take into consideration the financial difficulties faced by the employers and such tike factors.
A careful analysis of the orders passed by the Regional Provident Fund Commissioners, the extract of which have been reproduced hereinabove, shows that the appellants/petitioners are habitual defaulters. They have, without any rhyme or reason, failed to discharge their statutory duty of depositing the amount in terms of the Act and the Scheme framed thereunder. We find it reasonable to presume that they utilised this money for furtherance of their business interest. Thus, the impugned orders cannot be invalidated on the ground of arbitrariness or non-application of mind.
For the reasons mentioned above, the appeals and the writ petitions are dismissed.
31. Appeals/Petition dismissed.