Gujarat High Court
Assistant Provident Fund Commissioner vs Sheth B.M.Prathmik Shala on 10 June, 2022
Author: Sonia Gokani
Bench: Sonia Gokani
C/LPA/532/2019 JUDGMENT DATED: 10/06/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/LETTERS PATENT APPEAL NO. 532 of 2019
In
R/SPECIAL CIVIL APPLICATION NO. 21192 of 2017
With
CIVIL APPLICATION (FOR STAY) NO. 2 of 2018
In
R/LETTERS PATENT APPEAL NO. 532 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MR. JUSTICE HEMANT M. PRACHCHHAK
================================================
1 Whether Reporters of Local Papers NO
may be allowed to see the judgment ?
2 To be referred to the Reporter or NO
not ?
3 Whether their Lordships wish to see NO
the fair copy of the judgment ?
4 Whether this case involves a NO
substantial question of law as to
the interpretation of the
Constitution of India or any order
made thereunder ?
=================================================
ASSISTANT PROVIDENT FUND COMMISSIONER
Versus
SHETH B.M.PRATHMIK SHALA & 1 other(s)
=================================================
Appearance:
MR AV NAIR(5602) for the Appellant(s) No. 1
MR PJ MEHTA(467) for the Respondent(s) No. 1
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C/LPA/532/2019 JUDGMENT DATED: 10/06/2022
CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MR. JUSTICE HEMANT M.
PRACHCHHAK
Date : 10/06/2022
ORAL JUDGMENT
(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)
1. This appeal is against the judgment dated 23.11.2017 passed by the learned Single Judge, whereby the learned Single Judge has dismissed the petition preferred by the Appellant.
2. The factual matrix which deserves consideration are as follow:
2.1 The establishment had been brought under the purview of the Employees' Provident Fund and Miscellaneous Provision Act, 1952 ('the Act' hereinafter) with effect from 01.04.1982 under the Schedule Head Educational Institute by the Page 2 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 petitioner through the coverage letter dated 29.11.1995. It failed to pay provident fund contribution, administrative charges, pension fund contribution, employees deposit link insurance scheme contribution and administration charges within the time limit prescribed in the Employees Provident Fund Scheme.
2.2 A notice was issued to the employer on 22.01.2004 for default during the period between April 1982 to May 2003 to show cause as to why the damage under Section 14 B of the Act may not be levied and recovered for the default committed for the said period.
2.3 On 05.07.2004, the reasonable opportunity was given to the establishment Page 3 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 to represent its case by summons dated 05.07.2004 before the Assistant Provident Fund Commissioner. Subsequent to the issuance of show cause notice on 22.01.2004 the hearing of the respondent started on 30.08.2004 and was concluded on 20.02.2008.
Vide order dated 28.02.2008, the Assistant Provident Fund Commissioner levied damages as per provision contained in Section 14B of the Act and guidelines issued by the Government/Employee Provident Fund. It was held that the period from 01.08.1982 to 31.10.1995 will be treated as pre-discovery period and damage will be levied as per guidelines. However, no damage was to be levied from 01.08.1982 to 31.01.1988 as per the general stay granted by the Apex Court and guidelines issued by the Central Board Page 4 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 of Trustees EPFO. The total amount of the damage on provident fund, pension fund, administrative charges, deposit link insurance fund contributions and administrative charges which was payable by the establishments are to the tune of Rs.15,19,013/- & in addition, interest under Section 7Q was to be paid by the respondent-establishment to the tune of Rs.4,08,293/-.
2.4 Aggrieved by the order dated 28.02.2008 passed by the Assistant Provident Fund Commissioner, the establishment preferred an appeal under Section 7 I of the Act before the Employees Provident Fund Appellate Tribunal.
2.5 On 10.11.2016, the said appeal before Page 5 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 the Employees Provident Fund Appellate Tribunal was allowed, whereby the Tribunal modified the order and was pleased to impose 20% of assessed damages on respondent establishment along with the entire assessed interest. Against the order of the EPFAT, the petitioner filed petition.
2.6 The said petition preferred under Article 226 of the Constitution of India by Assistant Provident Fund Commissioner has challenged the said order passed on 10.11.2016 passed by the Employees' Provident Fund Appellate Tribunal whereby the Tribunal has reduced the amount of damages to 20% of the total assessed damage imposed by the authority, essentially on the ground that the Tribunal has no Page 6 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 jurisdiction to entertain the appeal preferred by the respondent.
2.7 It was an argument of the petitioner that as per the Employees' Provident Fund Scheme and particularly paragraph 32 B, the power to reduce the damages is only with Central Board, the Tribunal has no jurisdiction. He, therefore, has requested to allow the petition and to quash the order. 2.8 The learned Single Judge vide its order dated 23.11.2017 examined the
provision of the said Act to hold that the Tribunal has power to modify the order including the reduction of the amount of damage imposed by the authority particularly when the order has been passed Page 7 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 under Section 14B of the Act and accordingly, the petitioner is found merit less. Hence, the original petitioner is before this Court as an appellant seeking to challenge the said order and judgment. 2.9 It is argued before this Court that the learned Single Judge has not taken into consideration that the petitioner has not levied any damage from 01.08.1982 to 31.01.1988 as per the general stay granted by the Apex Court and guidelines issued by the Central Board of Trustees. It has also not taken into consideration that as per para 32 B of the Employees' Provident Fund Scheme, the power to reduce the damage lies with the Central Board. Again, it has been urged that as per the decision of the Apex Court, the habitual defaulters cannot be Page 8 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 allowed to claim any benefit of leniency. Reliance is placed on some of the decisions to substantiate the version.
3. We have heard the learned advocate, Mr.A.V.Nair for the appellant and learned advocate, Mr.P.J.Mehta for the respondent.
4. The authorities pressed into service by the learned advocate, Mr.Nair shall need to be discussed at the outset.
4.1 In case of Regional Provident Fund Commissioner vs. Employees Provident Fund Appellate Tribunal, reported in (2014) 3 GLR 2646 the petitioner was the regional provident fund commissioner who called in question the judgment and order of the Employees Provident Fund Appellate Tribunal. Before the Appellate Tribunal, Page 9 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 the order impugned was the order passed by the petitioner under Section 14 B of the Act, the very maintainability of the petition was challenged when the petition came up for hearing as a preliminary issue. After hearing the parties in extenso on the preliminary issue, the Court dismissed the petition on preliminary issue holding in favour of the respondent and did not enter into any aspects.
4.2 It was urged before the Court that it was covered under the provision of EPF Act and was liable to pay the amount of pension fund, deposit link insurance fund and administrative charges for the period from November 2002 to February 2010. The department was of the view that the belated payment attracted damages under Section 14 Page 10 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 B of the Act. The establishment was asked by the notice to pay the substantial amount towards the damages under Section 14 B of the Act towards interest under Section 7Q of the Act.
4.3 The representatives of the establishment appeared before the authority and stated that establishment had paid the substantial amount as per Section 7 Q of the Act. However, the establishment had failed to make payment within the time given as a result the Regional Provident Fund Commissioner directed the establishment to pay the amount of damage and interest. The order was passed under Section 14 B of the Act, which was carried in appeal before the Employees Provident Fund Appellate Tribunal. The Tribunal Page 11 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 restricted the damage up to 5% of the actual amount of damage and the order of the Regional Provident Fund Commissioner came to be modified. It was the case of establishment that PF dues could not be remitted in time because of the financial constraints and adverse business condition.
While interfering with the order of Regional Provident Fund Commissioner, the Appellate Tribunal took view that delayed payment of contribution would not ipso facto invite damages if the employer had sufficient cause. It also held that the observations made by the Regional Provident Fund Commissioner proceeded on erroneous presumption that the employer was obligated to pay damage, irrespective of the fact that it had suffered the heavy losses. Page 12 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022
C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 4.4 The Court considered Section 14 B of the Act under which the Regional Provident Fund Commissioner passed the order. It also had taken into consideration the provision of Section 7-I and various decisions to allow the contention of the respondent.
5. The decision of the Apex Court rendered in case of Mohtesham Mohd. Ismail vs. Special Director, Enforcement Directorate and another, is reported in (2007) 8 SCC
254. According to the Apex Court, the authority had clinched the issue, which categorically provides that an Adjudicating Authority exercises a quasi judicial power and discharges judicial functions. When its order had been set aside by the Board, ordinarily in absence of any power to Page 13 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 prefer an appeal, it could not so do it. The reasonings of the High Court that he had general power was held to be fallacious. For the purpose of exercising the functions of the Central Government, the officer concerned must be specifically authorised according to the Apex Court and only when the officer is so specifically authorised, he can act on behalf of the Central Government and not otherwise. Ordinarily, a quasi judicial authority, according to the Apex Court, cannot prefer an appeal being aggrieved by and dissatisfied with the judgment of the Appellate Authority, whereby and where under its judgment has been set aside.
Therefore, in absence of any power conferred upon it by the Central Page 14 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Government, the Adjudicating Authority could not prefer an appeal against the order passed by the Appellate Board.
6. We notice that the Notification dated 17.04.2002 under Section 14 B of the Act provides that in exercise of powers conferred by Section 14 B of the Act and in super-session of the Notification No.S.O.548 (E) dated 17.10.1973, issued in this regard, the Central Government authorizes the officers mentioned in Column (2) of the Schedule mentioned below to exercise the powers to recover from the employers by way of penalty. The damages under the said Act for the respective areas mentioned in Column (3) of the said Schedule in relation to factories/establishment covered under the Page 15 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 provisions of the said Act. The schedule provides at Column (2) the designation of the officer and at Clause (8) the Officers designated are Regional Provident Fund Commissioner/Assistant Provident Fund Commissioners working in Gujarat region of the Employees' Provident Fund Organisation and Column (3) under the area in relation to which jurisdiction to be exercised, the State of Gujarat and Union Territories of Dadra and Nagar Haveli and Daman and Diu.
It thus makes it clear that both the Regional Provident Fund Commissioners and the Assistant Provident Fund Commissioners working in Gujarat region of the Employees' Provident Fund Organisations have been given the powers for the entire State of Gujarat and Union Territories of Dadra and Page 16 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Nagar Haveli and Daman and Diu to recover the damages by way of penalty from the employers under the said Act in relation to the factories/establishment covered under the provisions of the Act.
7. It is Required to refer here the Resolution dated 04.04.1989, which provides for the delegation of the powers to Law Officers, Regional Provident Fund Commissioners and all Assistant Provident Fund Commissioners (Legal) to institute, file, conduct, execute and defend all legal proceedings by or against the Central Board of Truestees, Employers' Provident Fund. This provides that the Board had specified that the time to time the Officials through whom it would act for certain purposes and manner in which and condition subject to Page 17 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 which such acts would be performed. It gives the history as to how on 07.01.1960 it is resolved that the plaint, written statements, subsequent pleadings etc. where the Central Board of Trustees of the Employees' Provident Fund is a party shall be signed and verified on behalf of the Board by the Central Commissioners and original Provident Fund Commissioners. Thereafter, since the organization was advised by the Ministry, it specifically authorizes the Central Provident Fund Commissioner and Regional Provident Fund Commissioner to conduct, prosecute, institute, etc. any Civil or Criminal Suits, the Resolution dated 21.05.1961 had been passed, which had authorized Central Provident Fund Commissioner and/or the Page 18 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 regional Provident Fund Commissioner to institute, file, conduct, prosecute and defend all Civil and Criminal proceedings. 7.1 After the Legal Cell was set up in the Central and Regional Offices of the Employees' Provident Fund Organisation, the legal work including the court cases was being looked after by the Law Officer and Assistant Provident Fund Commissioner (Legal). In the bigger regions, the Legal Cells have been placed under the Administrative Control of Regional Commissioner.
7.2 After gaining the experience in this field, it was felt that the presentation of such cases by Departmental Officers having requisite legal qualifications and Page 19 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 expertise along with the empaneled advocates would be a better and proper conduct of these cases and therefore, an enabling provision was made empowering the Law Officers, Regional Provident Fund Commissioner and Assistant Provident Fund Commissioner (Legal) to act and appear before the Courts, Tribunals and other judicial and quasi judicial authority wherever it is felt necessary. The Resolution for that purpose was passed on 04.04.1989, which had modified the Resolution dated 21.05.1961.
8. We notice the order of this Court dated 21.01.2022 in Civil Application No.1 of 2021 in Letters Patent Appeal No.1261 of 2012. The prayer of amendment was sought by Page 20 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 substituting the name of the appellant who was the original petitioner. The Letters Patent Appeals were filed by the Regional Provident Fund Commissioner (2) and Recovery Officer. The challenge was made to the order of Employees' Provident Fund Appellate Tribunal, New Delhi, Camp at Jaipur, which was confirmed by the learned Single Judge. The Tribunal had remanded the case to the Competent Authority to assess the liability including the rate of interest annually and reducing the quantum of damages under Section 14 B and interest under Section 7 Q of the said Act.
8.1 The Letters Patent Appeals were filed by the Appellate Regional Fund Commissioner (2) and Recovery Officers after they were Page 21 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 admitted, it was noticed by the Head Office that there was a technical question in preferring the petition and thereafter the appeal in the name of Regional Provident Fund Commissioner. The Regional Provident Fund Commissioner was the adjudicating authority and preferring the petition or appeal would bring about the situation where he would be filing appeal against the order of the Tribunal. Therefore, it was decided that it should be filed in the name of Central or the State Board. Accordingly, it was prayed that the name of the appellant may be permitted to be substituted to be mentioned as Central Board of Trustees, EPF through the Assistant Provident Fund Commissioner (Legal).
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C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 8.3 This amendment was sought in the title after about nine years. The order impugned in Special Civil Application was passed by the Regional Provident Fund Commissioner and Recovery Commissioner in capacity of Adjudicating Authority under the provisions of Employees' Provident Fund and Misc. Provision Act in exercise of quasi judicial powers. The Court rejected this amendment by holding that the authority which has adjudicated the lis and passed an order in exercise of quasi judicial powers would not be entitled to challenge such order before the Higher Courts. Neither such authority has locus standi nor it can be said to have litigative interest to call in question the order, where the dispute was adjudicated by Page 23 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 itself exercising quasi judicial powers. Citing various decisions of the Apex Court and this Court, the same had been summarily dismissed.
"5.1 In Mohtesham Mohd. Ismail v. Special Director, Enforcement Directorate [(2007) 8 SCC 254], the Supreme Court dealt with the issue of maintainability of an appeal by the Special Director with reference to Sections 4, 9 and 54 of the Foreign Exchange Regulation Act, 1973. Special Director under the Act had preferred appeal before the High Court against order passed by the Foreign Exchange Regulation Appellate Board. There was a Notification providing for the purpose of exercise of the Central Government, the officer must be specially authorised, however in absence of such Notification giving authorisation, it was held that the Director was not empowered to prefer appeal on behalf of the Central Government.
5.1.1 The underlying principle highlighted was that the Special Director was an Adjudicating Authority exercising quasi judicial power and in absence of specific power and authorisation, appeal could not have been preferred by him with such capacity. In that case, the question was raised before the High Court with regard to maintainability of appeal at the instance of the respondents on the premise that it was the Central Government who should prefer appeal and not the Adjudicating Authority itself. The High Court opined that as Page 24 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 the respondent Special Director was appointed under the Act and in terms of the provisions under the Act he was authorised to enforce the statutory provisions, appeal at his instance would be maintainable.
5.1.2 The Supreme Court specifically ruled that Adjudicating Authority would not be entitled to prefer appeal.
"An adjudicating authority exercises a quasi-judicial power and discharges judicial functions. When its order had been set aside by the Board, ordinarily in absence of any power to prefer an appeal, it could not do so. The reasonings of the High Court that he had general power, in our opinion, is fallacious. For the purpose of exercising the functions of the Central Government, the officer concerned must be specifically authorised. Only when an officer is so specifically authorised, he can act on behalf of the Central Government and not otherwise. Only because an officer has been appointed for the purpose of acting in terms of the provisions of the Act, the same would not by itself entitle an officer to discharge all or any of the functions of the Central Government. Even ordinarily a quasi-judicial authority cannot prefer an appeal being aggrieved by an dissatisfied with the judgment of the appellate authority whereby and whereunder its judgment has been set aside. An adjudicating authority, although an officer of the Central Government, should act as an impartial tribunal. An adjudicating authority, therefore, in absence of any power conferred upon it in this behalf by the Central Government, could not prefer any appeal against the order passed by the Appellate Board." (para 13) Page 25 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 5.2 While holding as above, the Supreme Court referred to and relied on the decision of the Madras High Court in Director of Enforcement, Madras v. Rama Arangannal [AIR 1981 Madras 80] wherein the Madras High Court held thus, "4. On the question as to the maintainability of the appeal, it is seen that the Explanation to Section 54 of the Foreign Exchange Regulation Act 1973 treats only the Central Government as an aggrieved party for the purpose of filing an appeal to the High Court in respect of orders passed by the Foreign Exchange Regulation Appellate Board under that section. Therefore, only the Central Government can file and prosecute an appeal against the order of the Appellate Board, and not any other authority, In this case, the appeal has been filed by the Director of Enforcement, who Is the initial authority who passed the adjudication order against the respondents and whose order has been set aside by the Appellate Board on an appeal filed by them. Therefore, the Director of Enforcement cannot be said to be aggrieved by the order of the Appellate Board merely because the Appellate Board has set its order of adjudication aside."
5.3 In District Collector v. Bagathi Krishna Rao [(2010) 6 SCC 427], the Apex Court laid down that appeal filed by the District Collector, Revenue Officer and District Forests Officer as against judgment in the suit would not be said to be maintainable and that the State of Andhra Pradesh was the Page 26 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 necessary party. Decision of Mohtesham Mohd. Ismail (supra) was relied on by the High Court of Andhra Pradesh in Assistant Provident Fund Commissioner, Visakhapatnam v. Employees' Provident Fund Appellate Tribunal [2013 (2) LLJ 82], to rule that Assistant Provident Fund Commissioner could not have called in question the order passed in appeal which was against its own order.
5.4 The Bombay High Court in Assistant Provident Fund Commissioner v. Nirmitee Holidays Private Limited [2011 LLJ (2) 469] reiterate the proposition in the context of the Employees' Provident Fund & Miscellaneous Provisions Act, 1952 to hold that Assistant Provident Fund Commissioner could not have challenged the order passed by the Employees' Provident Fund Appellate Tribunal, New Delhi in an appeal against the order which had exercised quasi judicial function in passing the order under Section 7A of the Act. 5.5 All the above decisions came to be considered by this Court in Regional Provident Fund Commissioner v. Employees Provident Fund Appellate Tribunal [2014 (3) GLR 2646] to hold that Regional Provident Fund Commissioner lacked the locus standi to challenge the order passed by the Appellate Tribunal which interfered in the order passed by the Regional Provident Fund Commissioner, as the Regional Provident Fund Commissioner functions in passing the order as Adjudicatory Authority under Section 14B of the Act. He could not be, therefore, treated as 'aggrieved person' within the concept of Section 7I of the Act.
Page 27 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 5.5.1 The Court observed thus, "6. The contention that quasi judicial authority would not have locus to challenge the appellate order which considered its own order, has substance. The said principle is well recognised. Apart the said aspect, the very language of Section 14B signify that petitioner was only a delegatee of the Central Government while exercising powers under the said provision. As could be seen from Section 14-B of the Act, the powers exercisable under the said provision are conferred on Central Provident Fund Commissioner. In the alternative, such powers could be vested in an officer who may be specified by the Central Government in the Notification in Official Gazette. When the Central Government names the authority by way of Notification, such authority or officer acts as an delegatee of the Central Government. In such case, the repository of powers would be the Central Government. As a delegatee, the specified authority cannot claim an independent status."
5.5.2 Applying the principles in Mohtesham Mohd. Ismail (supra) it was finally laid down, "7.2 The above principle applies squarely in the present case. The petitioner-Regional Provident Fund Commissioner was an authority specified by the Central Government and functioning accordingly for the purpose of exercising powers under Section 14B of the EPF Act could not have a locus standi to challenge the order of Page 28 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 the EPF Appellate Tribunal, which considered his order. The petitioner Authority was an adjudicatory authority who exercised power of quasi judicial nature to determine the lis. He himself could not have claimed any lis in the subject matter. For the petitioner Authority, no locus standi is available to challenge the order of the Appellate Tribunal. The petitioner Authority cannot fall within the purview of "any person aggrieved" at the instance of whom appeal under Section 7I would lie."
5.5.3 The proposition of law was stated as under. "8. A person may have a locus standi to challenge any decision of any Forum or Court of law, or he may not have such locus standi. A person may have locus standi without having any litigative interest. There is a subtle distinction between "to have a locus standi" and "to have a litigative interest". For instance, in the matters of Public interest litigation the petitioner is perceived in law to have been clothed with a locus standi eventhough, a public interest litigant cannot be said to have a litigative interest stricto sensu. The statutory Authority which functions as Adjudicating Authority and discharge quasi judicial powers, cannot claim for itself either a locus standi or a litigative interest to challenge the order of the Appellate Forum/Court which considers its own order."
9. In the High Court of Judicature at Patna in Letters Patent Appeal No.543 of Page 29 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 2015 the Assistant Provident Fund Commissioner had sought the quashing of the order passed by the Employees' Provident Fund Appellate Tribunal in the Writ Petition, whereby the order passed by the Regional Provident Fund Commissioner was quashed awarding damage under Section 14 B of the Act. The Tribunal set aside the imposition of damages on the ground that there was no willful default on the part of the appellant and he was availing the legal remedies available to it.
9.1 The Regional Provident Fund Commissioner initially issued the notice under Section 7A of the Act for assessment of Provident Fund dues for the period from June 1977 onwards. Such proceedings were challenged by the appellant before the Page 30 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Patna High Court. The Writ Application was dismissed holding that the provisions of the Act are applicable in respect of Home Workers engaged in rolling of bidis of the appellant establishment through contractors.
9.2 The appellant challenged the order passed by the Patna High Court before the Apex Court by way of a Special Leave Petition, where the Court granted the stay of the operation of the assessment order till the identification of the workers is made. In the meantime, the Regional Provident Fund Commissioner determined the amount due from the appellant towards employer's and employees' contribution from July 1977 to August 1986. The appellant was further called upon to pay some substantial Page 31 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 amount and he challenged both the demands through separate Writ Applications, they were dismissed. In the Letters Patent Appeal, it was argued that the Assistant Provident Fund Commissioner, who filed the Writ Applications before the Court had no competence. The decision was relied upon of Mohtesham Mohd. Ismail (supra) and other decisions. The Patna High Court did not find any merit in the submission. The order imposition of the damage was of the Regional Provident Fund Commissioner and not of the Assistant Provident Fund Commissioner. Therefore, factually, the Writ Application had not been filed by the Adjudicating Authority. In terms of Sub- Section (3) of Section 5 D of the Act the Assistant Provident Fund Commissioner and Page 32 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 others named therein had been appointed under Sub-Section (3) of Section 5 D of the Act and in exercise of such powers, the Central Board of Trustees on 04.04.1989 approved the Resolution regarding delegation of powers of Law Officers, Regional Provident Fund Commissioner and all Assistant Provident Fund Commissioners (Legal) to institute, file, conduct execute and defend all legal proceedings by or against the Central Board of Trustees, Employees' Provident Fund. In terms delegation, the Assistant Provident Fund Commissioner is authorized and empowered to institute, file, conduct, prosecute and defend all Civil and Criminal proceedings and on the strength of such Resolution, the Appeal or Writ Application had been filed, Page 33 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 but the Assistant Provident Fund Commissioner, who is a distinct officer other than the Adjudicating Authority. Therefore, the Assistant Provident Fund Commissioner, who did not exercise the quasi judicial functions at the stage of the proceedings. The Court held that it was not the Adjudicating Authority which had taken the steps to dispute the order of the Appellate Tribunal. The well-versed decisions have also been considered to hold that in view of such statutory provisions and Resolution, the Assistant Provident Fund Commissioner is the person authorized by the Central Board to institute proceedings for and on behalf of the Central Board of Trustees, who represent the statutory body. The Court also held Page 34 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 that the purpose and object of the Act had been explained in Organo Chemical Industries and another vs. Union of India and others, reported in (1979) 2 SCC 573, which upheld the provision of Section 14 B of the Act and such provisions have been again restated in a Three Judges Bench's decision rendered in case of Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner and other, reported in (2009) 10 SCC 123. The provisions of the Act since are for the benefit of the employees and that imposition of damages is also for benefit of the employees, therefore, the Court held that the action of imposition of damages has to be examined in the light of intent and object of the Statue.
Page 35 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 "14. On the other hand, learned counsel for the respondents refers to a Supreme Court judgment reported as Ogano Chemical Industries and another Vs. Union of India and others, (1979) 4 SCC 573 wherein, the legality of insertion of provisions of Section 14B of the Act was upheld and it was held that since the object and purpose of Section 14B is to authorize the Regional Provident Fund Commissioner to impose exemplary or punitive damages and thereby prevent employers from making defaults, therefore, the provision of Section 14B of the Act cannot be said to be illegal. The Court concluded as under:-
"21. The traditional view of damages as meaning actual loss does not take into account the social content of a provision like Section 14-B contained in a socio-economic measure like the Act in question. The word „damages ‟ has 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 14-B be read out of context. The very object of the legislation would be frustrated if the word „damages‟ has appearing in Section 14-B of the Act was not construed to mean penal damages. The imposition of damages under Section 14-B 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.Page 36 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022
C/LPA/532/2019 JUDGMENT DATED: 10/06/2022
22. The expression " damages‟ has occurring in Section 14-B is, in substance, a penalty imposed on the employer for the breach of the statutory obligation. The object of imposition of penalty under Section 14-B is not merely "to provide compensation for the employees‟ has. We are clearly of the opinion that the imposition of damages under Section 14-B 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 wearing 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‟ has in Section 14-B is related to the word „default ‟ has. The words used in Section 14-B are „default in the payment of contribution‟ has and, therefore, the word „default‟ has 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 ‟ has in Section 14-B must mean „failure in performance ‟ has or „failure to act‟ has. At the same time, the imposition of Page 37 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 damages under Section 14-B is to provide reparation for the amount of loss suffered by the employees.
23. The construction that we have placed on the word „damages‟ has appearing in Section 14-B of the Act, is in accord with the intent and purpose of the legislation. It was brought on the statute book by Act 37 of 1953. The objects and reasons so far material, reads: There are also certain administrative difficulties to be set right. There is no provision for inspection of exempted factories nor is there any provision for the recovery of dues from such factories. An employer... can delay payment of Provident Fund dues without any additional financial liability. No punishment has been laid down for contravention of some of the provisions of the Act. (emphasis supplied).
24. There appears to be a misconception that the object of imposition of penalty under Section 14-B is not "to provide compensation for the employees‟ has whose interest may be injured, by loss of interest and the like. There is also a misconception that the damages imposed under Section 14-B are not transferred to the Employees‟ has Provident Fund and the Family Pension Fund, of the employees who may be adversely affected, but the amount is transferred to the General Revenues of the appropriate Government.Page 38 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022
C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 We find that this assumption is wholly unwarranted. In assessing the damages, the Regional Provident Fund Commissioner is not only bound to take into account the loss to the beneficiaries but also the default by the employer in making his contributions, which occasions the infliction of damages. The learned Additional Solicitor-General was fair enough to concede that the entire amount of damages awarded under Section 14-B, except for the amount relatable to administrative charges, must necessarily be transferred to the Employees‟ has Provident Fund and the Family Pension Fund. We hope that those charged with administering the Act will keep this in view while allocating the damages under Section 14-B of the Act to different heads. The employees would, of course, get damages commensurate with their loss i.e., the amount of interest on delayed payments; but the remaining amount should go to augment the „Fund‟ has constituted under Section 5, for implementing the Schemes under the Act."
15. Learned counsel for the respondents also argues that the judgment reported as Mohtesham Mohd. Ismail (Supra) is not applicable to the facts of the present case as the Adjudicating Authority has not filed writ application before this Court but an Assistant Regional Provident Fund Commissioner (Legal) in terms of the delegation of powers Page 39 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 has filed a writ application. Therefore, the said judgment has no applicability. Similarly, the Andhra Pradesh, Kerala and Calcutta High Courts were not apprised of the delegation of powers conferred by the Central Board to the Assistant Regional Provident Fund Commissioner (Legal). Therefore, the said judgments are not applicable to the facts of the present case.
16. It is also contended that the Hon‟ hasble Supreme Court in the judgment reported as S.K. Nasiruddin Beedi Merchant Ltd. Vs. Central Provident Fund Commissioner and another, (2001) 2 SCC 612 has recorded a categorical finding in the case of the appellant itself that the dispute raised by the appellant from September, 1985 cannot be said to be bona fide at all. It was held as under:-
"7. Inasmuch as the appellant is protected for the period of coverage by the general stay order given by this Court on the applicability of the Act to the industry in question till the date of the final judgment, otherwise steps would have been taken in terms of the formal notice issued to the appellant in 1977 itself. Thus in respect of period from June 1977 to September 1985 there was waiver of the liability by reason of the clarification issued by the Government under para 78 of the Scheme. On the disposal of the matter by this Court in September Page 40 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 1985 the liability to deposit the employees‟ has contribution became very clear. Though in law the respondents were entitled to recover even for the period from June 1977 in view of the directions issued by the Government but that was not demanded. For period up to September 1985 and for subsequent period there is no manner of doubt and the dispute raised by the appellant cannot be stated to be bona fide at all. In the circumstances, we fail to understand as to how the appellant can rely upon his own laches in not deducting the wages from 1985 onwards to enable him to make employees‟ has contribution to the fund."
17. We have heard learned counsel for the parties and find no merit in the present Letters Patent Appeal.
18. The Central Board is constituted under Section 5A of the Act. Such Central Board is to administer the Fund vested in it in such manner as may be specified in the Scheme. The Board shall perform such other functions as it may be required to perform by or under any provisions of the Scheme, the Pension Scheme and the Insurance Scheme. Section 5D of the Act empowers the Central Board to appoint a Central Provident Fund Commissioner and also the Additional Central Provident Fund Commissioners, Deputy Provident Fund Commissioners, Regional Provident Fund Commissioners and Assistant Provident Fund Commissioners. The Central Board has been empowered in Page 41 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 terms of Section 5E of the Act to delegate any of its functions to any of its officers. Sections 5D and 5E reads as under:-
"5D. Appointment of Officers.- (1) The Central Government shall appoint a Central Provident Fund Commissioner who shall be the Chief Executive Officer of the Central Board and shall be subject to the general control and superintendence of that Board.
(2) The Central Government may also appoint a Financial Adviser and Chief Accounts Officer to assist the Central Provident Fund Commissioner in the discharge of his duties.
(3) The Central Board may appoint, subject to the maximum scale of pay, as may be specified in the Scheme, as many Additional Central Provident Fund Commissioners, Deputy Provident Fund Commissioners, Regional Provident Fund Commissioners, Assistant Provident Fund Commissioners and such other officers and employees as it may consider necessary for the efficient administration of the Scheme, the Pension Scheme and the Insurance Scheme.
XXX XXX XXX XXX 5E. Delegation.- The Central Board may delegate to the Executive Committee or to the Chairman of the Board or to any of its officers and a State Board may delegate to its Chairman or to any of its officers, subject to such conditions and limitations, if any, as it may specify, such of its powers and functions under this Act as it may deem necessary for the efficient administration of the scheme, the Pension Scheme and the Insurance Scheme."
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19. In terms of the powers conferred under Section 5D read with Section 5E of the Act, the Central Board of Trustees in its 119th meeting held on 4th of April, 1989 delegated its powers to Law Officers, Regional Provident Fund Commissioners and all Assistant Provident Fund Commissioners (Legal) to institute, file, conduct and defend legal proceedings. Relevant resolution reads as under:-
"Resolved that the Law Officer, the Regional Provident Fund Commissioner, and the Assistant Provident Fund Commissioner (Legal) are hereby authorised and empowered to institute, file, conduct, prosecute and defend all Civil and Criminal Proceedings whether original appellate or revisional, instituted or launched by or against the Central Board of Trustees, Employees Provident Fund and/or Central Provident Fund Commissioner and/or any Regional Provident Fund Commissioner to act and appear in all the aforesaid proceedings for and on behalf of the Central Board of Trustees, Central Provident Fund Commissioner, or as the case may be, Regional Provident Fund Commissioner, to conduct and prosecute the same and all proceedings that may be taken in respect of any application connected with the same or any decree or order passed therein, including proceedings in taxation and applications for review, to file and obtain return of the Central Board of Trustees, Central Provident Fund Page 43 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Commissioner or as the case may be, Regional Provident Fund Commissioner in all petitions and in applications for review and to represent them jointly or singularly and to take all necessary steps on behalf of them in all matters in case of need, to engage, appoint and instruct pleaders, advocates, barristers and attorneys to file and take back documents from courts, administrative tribunal and all other Tribunals, authorities to withdraw from or abandon wholly or partly the suit/ appeals/ revision/ claim/ defence/ proceedings against all or any defendants/ respondents/ appellants/ plaintiffs/ opposite parties, to enter into any agreement, settlement or compromise whereby the suit/ appeal proceedings is/are wholly or partly adjusted to refer all or any matter or matters arising or in dispute therein, to arbitration, to withdraw or deposit any money for and on behalf of the Central Board of Trustees, Employees Provident Fund from or in any court or before any officer or authority and generally to do all that is necessary and proper for the aforesaid purpose including assigning and verifying pleadings, petitions, applications, appeals and complaints."
20. In view of such statutory provisions and the resolution, the Assistant Provident Fund Commissioner (Legal) is the person authorized by the Central Board to institute proceedings for and on behalf of the Central Page 44 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Board of Trustees who represent the Statutory Body. Therefore, the writ application has been filed not by the Adjudicating Authority but by a delegatee of the Central Board of Trustees, which is, thus, a competent writ application.
21. The judgments referred to by learned counsel for the appellant are distinguishable and have no applicability to the facts of the present case as the provisions of the Act and the delegation conferred in favour of Assistant Provident Fund Commissioner (Legal) was not brought to the notice of the High Courts, whereas the judgment of the Hon‟ hasble Supreme Court is under different Statute, where there was no pari materia provisions of delegation of powers brought to the notice of the Court, if any. Therefore, it cannot be said that the writ application filed by the Assistant Provident Fund Commissioner (Legal) was not a properly constituted petition.
22. The purpose and object of the Act has been explained in Organo Chemical Industries and another (supra) which upheld the provisions of Section 14B of the Act as amended. Such provisions have been again restated in a three Bench judgment reported as Maharashtra State Cooperative Bank Limited Vs. Assistant Provident Fund Commissioner and others, (2009) 10 SCC 123. The Court has said to the following Page 45 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 effect:-
"18. Soon after enforcement of the Constitution, the Government of India promulgated the Employees‟ has Provident Funds Ordinance on 15-11- 1951, which was replaced by the Act, which belongs to the family of legislations enacted by Parliament in furtherance of the mandate of Articles 38 and 43 of the Constitution and is intended to give social security to the workers employed in the factories and other establishments. The Act provides for institution of provident funds, pension fund and deposit-linked insurance fund in factories and other establishments. It requires the employers of the factories and specified establishments to deduct certain amount from the wages payable to the employees and also make contribution to various funds, which are administered by the Central and Regional Provident Fund Commissioners."
23. Therefore, the provisions of the Act are for the benefit of the employees and that imposition of damages is for benefit of the employees. Therefore, the action of imposition of damages has to be examined in the light of intent and object of the Statute."
10. The decision of the Apex Court in Civil Page 46 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Appeal No.2136 of 2012 and allied matters in the case of Horticulture Experiment Station Gonikoppal, Coorg vs. The Regional Provident Fund Organization is pressed into service, which has been delivered on 23.02.2022. These appeals have been directed against the common judgment and order passed by the Division Bench of the High Court of Karnataka at Bangalore. The Division Bench observed while setting aside the judgment of the learned Single Judge that once the employer has failed to deposit the contribution of EPF or committed default as mandated under the provisions of the Act and having failed to do so after determination under Section 7A by the competent authority, levy of damages is a sine qua non and the Division Bench Page 47 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 had upheld the order for recovery of damages in the proceedings initiated under Section 14 B of the Act.
10.1 It was undisputed that the establishment of the appellant was covered under the provisions of the Act. The appellant before the Apex Court had failed to comply with the provisions of the Act from January 1875 to October 1988. For non-compliance of the mandate of the Act, proceedings were initiated under Section 7 A of the Act and dues towards the contribution of EPF for the intervening period of 01.01.1975 to 31.10.1988 amounting to Rs.74,288/- assessed by the competent authority after adjudication were paid by the establishment to the office of EPF.
Page 48 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 10.2 The authorities thereafter issued a notice under Section 14B of the Act to
charge damages for the delayed payment of provident fund amount which was levied for the period stated above and the amount of damage quantified was Rs.85,548/-. The High Court had held that once the default in payment of contribution is admitted, the damages as being envisaged under Section 14B of the Act are consequential and the employer is under an obligation to pay the damages for delay in payment of contribution of EPF. The Act provided the social security to the employees working in any establishment and engaging 20 or more persons on any day and casts an obligation upon the employer to make compulsory deduction for provident fund and to deposit Page 49 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 in the workers' account in the EPF office.
The provision which is pari materia to recover damages under Section 85 B of the Act, provides for insurance and pensionary benefits to the employees, has been referred to by the Apex Court. Section 14 B which is pari materia to Section 85 B of the Act has also been reproduced and taking note of the various decisions of the Apex Court as also the decision of the Three Judges Bench in case of Union of India and others vs. Dharmendra Textile Processors and others, the Apex Court held that any default or delay in the payment of EPF contribution by the employer under the Act is a sine qua non for imposition of levy of damages under Section 14B of the Act and mens rea or actus reus is not an essential Page 50 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 element for imposing penalty/damages for breach of civil obligations or liabilities.
"5. Section 14B of the Act 1952 which is pari materia to Section 85B of the Act, 1948 is reproduced hereunder:
"14B. Power to recover damages.-Where an employer makes default in the payment of any contribution to the Fund , the Pension Fund or the Insurance Fund or in the transfer of accumulations required to be transferred by him under subsection (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 behalf may recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme: Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard: Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of Page 51 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 1986), subject to such terms and conditions as may be specified in the Scheme."
6. So far as the constitutional validity of Section 14B of the Act 1952 is concerned, the same has been upheld by the judgment of this Court in Organo Chemical Industries and another v. Union of India and others.
7. Learned counsel for the appellant(s) submits that the justification tendered by the appellant(s) for which the contribution of EPF could not have been deposited has not been looked into by the authority and the element of mens rea or actus reus is one of the essential elements which has not been taken note of by the authority while imposing damages under Section 14B of the Act 1952. In support of his submissions, counsel for the appellant(s) has placed reliance on the judgments of this Court in Employees State Insurance Corporation v. HMT Ltd. and another , Mcleod Russell India Ltd. v. Regional Provident Fund Commissioner, Jalpaiguri and others and Assistant Provident Fund Commissioner, EPFO and another v. The Management of RSL Textiles India Private Limited through its Director.
8. Per contra, learned counsel for the respondent(s) in support of submissions, submitted that mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities and mere contravention of the provisions of the Act or default in making compliance of the mandate of law as Page 52 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 regards the civil liabilities are concerned, mens rea or actus reus is not the requirement of law to be considered, while imposing damages like,in the instant case, under Section 14B of the Act 1952. In support of submissions, learned counsel has placed reliance on a twoJudge Bench judgment in Chairman, SEBI v. Shriram Mutual Fund and Another which has been relied upon by a three-Judge Bench judgment of this Court in Union of India and Others v. Dharmendra Textile Processors and others.
9. The question that emerges for our consideration in the instant appeals is that what will be the effect and implementation of Section 14B of the Act 1952 and as to whether the breach of civil obligations or liabilities committed by the employer is a sine qua non for imposition of penalty/damages or the element of mens rea or actus reus is one of the essential elements has a role to play and the authority is under an obligation to examine the justification, if any, being tendered while passing the order imposing damages under the provisions of the Act 1952.
10. Undisputedly, the establishment of the appellant(s) was covered under the provisions of the Act 1952, but still failed to comply with the same and for such non-compliance of the mandate of the Act 1952, initially the proceedings were initiated under section 7A and after adjudication was made in reference to contribution of the EPF which the appellant was under an obligation to pay and for the contravention of the Page 53 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 provisions of the Act 1952, the appellant(s) indeed committed a breach of civil obligations/liabilities and after compliance of the procedure prescribed under the Act 1952 and for the delayed payment of EPF contribution for the period January 1975 to October 1988, after affording due opportunity of hearing as contemplated, order was passed by the competent authority directing the appellant(s) to pay damages as assessed in accordance with Section 14B of the Act 1952.
11. A two-Judge Bench of this Court in Chairman, SEBI (supra), while examining the scope and ambit of Section 15-D of SEBI (Mutual Funds) Regulations, 1996 regarding imposition of penalty for certain defaults in case of mutual funds, examined the question as to whether mens rea is an essential element for imposing penalty for breach of civil obligations and taking note of the binding precedent of this Court held that mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. Relevant paras 33 and 35 of the judgment are reproduced as under:
"33. This Court in a catena of decisions has held that mens rea is not an essential element for imposing penalty for breach of civil obligations: (a) Director of Enforcement v. MCTM Corpn. (P) Ltd. [(1996) 2 SCC 471 "8. It is thus the breach of a 'civil obligation' which attracts 'penalty' under Section 23(1)(a), FERA, 1947 and a finding that the delinquent has contravened the provisions of Section 10, FERA, 1947 that would immediately attract the levy of 'penalty' under Section Page 54 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 23, irrespective of the fact whether the contravention was made by the defaulter with any 'guilty intention' or not. Therefore, unlike in a criminal case, where it is essential for the 'prosecution' to establish that the 'accused' had the necessary guilty intention or in other words the requisite 'mens rea' to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement, in cases of contravention of the provisions of Section 10 of FERA, would be discharged where it is shown that the 'blameworthy conduct' of the delinquent had been established by wilful contravention by him of the provisions of Section 10, FERA, 1947. It is the delinquency of the defaulter itself which establishes his 'blameworthy' conduct, attracting the provisions of Section 23(1)(a) of FERA, 1947 without any further proof of the existence of 'mens rea'. Even after an adjudication by the authorities and levy of penalty under Section 23(1)(a) of FERA, 1947, the defaulter can still be tried and punished for the commission of an offence under the penal law,....
***
12. In Corpus Juris Secundum, Vol. 85, at p. 580, para 1023, it is stated thus: 'A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.'
13. We are in agreement with the aforesaid view and in our Page 55 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 opinion, what applies to 'tax delinquency' equally holds good for the 'blameworthy' conduct for contravention of the provisions of FERA, 1947. We, therefore, hold that mens rea (as is understood in criminal law) is not an essential ingredient for holding a delinquent liable to pay penalty under Section 23(1)(a) of FERA, 1947 for contravention of the provisions of Section 10 of FERA, 1947 and that penalty is attracted under Section 23(1)(a) as soon as contravention of the statutory obligation contemplated by Section 10(1)(a) is established. The High Court apparently fell in error in treating the 'blameworthy conduct' under the Act as equivalent to the commission of a 'criminal offence', overlooking the position that the 'blameworthy conduct' in the adjudicatory proceedings is established by proof only of the breach of a civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under Section 23(1)(a) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention." (emphasis in original).
(b) J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers (1996) 6 SCC 665:
"42. The offences under the Act are not a part of general penal law but arise from the breach of a duty provided in a special beneficial social defence legislation, which creates absolute or strict liability without proof of any mens rea. The Page 56 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 offences are strict statutory offences for which establishment of mens rea is not an essential ingredient. The omission or commission of the statutory breach is itself the offence. Similar type of offences based on the principle of strict liability, which means liability without fault or mens rea, exist in many statutes relating to economic crimes as well as in laws concerning the industry, food adulteration, prevention of pollution, etc. in India and abroad. 'Absolute offences' are not criminal offences in any real sense but acts which are prohibited in the interest of welfare of the public and the prohibition is backed by sanction of penalty."
(c) R.S. Joshi v. Ajit Mills Ltd. (1977) 4 SCC 98 "Even here we may reject the notion that a penalty or a punishment cannot be cast in the form of an absolute or no- fault liability but must be preceded by mens rea. The classical view that 'no mens rea, no crime' has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. Therefore, the contention that Section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty."
(d) Gujarat Travancore Agency v. CIT (1989) 3 SCC 52 "It is sufficient for us to refer to Section 271(1)(a), which Page 57 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 provides that a penalty may be imposed if the Income Tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to Section 276-C which provides that if a person wilfully fails to furnish in due time the return of income required under Section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of Section 276-C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved Page 58 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 before penalty can be levied under that provision."
(e) Swedish Match AB v. SEBI (2004) 11 SCC 641 "The provisions of Section 15-H of the Act mandate that a penalty of rupees twenty-five crores may be imposed. The Board does not have any discretion in the matter and, thus, the adjudication proceeding is a mere formality. Imposition of penalty upon the appellant would, thus, be a forgone conclusion. Only in the criminal proceedings initiated against the appellants, existence of mens rea on the part of the appellants will come up for consideration."
(f) SEBI v. Cabot International Capital Corpn. (2005) 123 Comp Cas 841 (Bom) "47. Thus, the following extracted principles are summarised: (A) Mens rea is an essential or sine qua non for criminal offence.
(B) A straitjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case. (C) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The Page 59 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 word 'penalty' by itself will not be determinative to conclude the nature of proceedings being criminal or quasi- criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravenor and the delinquency.
(D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. (E) There can be two distinct liabilities, civil and criminal, under the same Act.
52. The SEBI Act and the Regulations, are intended to regulate the securities market and the related aspects, the imposition of penalty, in the given facts and circumstances of the case, cannot be tested on the ground of 'no mens rea, no penalty'. For breaches of provisions of the SEBI Act and Regulations, according to us, which are civil in nature, mens rea is not essential. On particular facts and circumstances of the case, proper exercise of judicial discretion is a must, but not on foundation that mens rea is essential to impose penalty in each and every breach of provisions of the SEBI Act.
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54. However, we are not in agreement with the Appellate Authority in respect of the reasoning given in regard to the necessity of mens rea being essential for imposing the Page 60 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 penalty. According to us, mens rea is not essential for imposing civil penalties under the SEBI Act and Regulations." (emphasis in original)
35. In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of Section 15-D(b) and Section 15-E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow." [Emphasis Supplied]
12. The three-Judge Bench of this Court in Union of India v. Dharmendra Textile Processors and others (supra) while examining the scope and ambit of Section 271(1)(c) of the Income Tax Act, 1961 held that as far as the penalty inflicted under the provisions is a civil liability is concerned, mens rea Page 61 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 or actus reus is not an essential element for imposing civil penalties and overruled the two-Judge Bench judgment in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Another and approved the view expressed by a two-Judge Bench of this Court in Chairman, SEBI (supra) and held in paras 18 and 20 as under:
"18. The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff case [(2007) 6 SCC 329] has not considered the effect and relevance of Section 276-C of the IT Act. Object behind enactment of Section 271(1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276-C of the IT Act.
20. Above being the position, the plea that Rules 96-ZQ and 96- ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff case [(2007) 6 SCC 329] was not correctly decided but SEBI case [(2006) 5 SCC 361] has analysed the legal position in the correct perspectives. The reference is answered. The matter shall now be placed before the Division Bench to deal with the matter in the light of what has been stated above, only so far as the cases where challenge to vires of Rule 967-Q(5) are concerned. In all other cases the orders of the High Court or the Tribunal, as the case may be, are quashed and the matter remitted to it for disposal in the light of present judgments.Page 62 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022
C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 Appeals except Civil Appeals Nos. 3397 & 3398-99 of 2003, 4096 of 2004, 3388 & 5277 of 2006, 4316, 4317, 675 and 1420 of 2007 and appeal relating to SLP (C) No. 21751 of 2007 are allowed and the excepted appeals shall now be placed before the Division Bench for disposal."
13. Taking note of the exposition of law on the subject, it is wellsettled that mens rea or actus reus is not an essential element for imposing penalty or damages for breach of civil obligations and liabilities.
14. The judgment on which the learned counsel for the appellant(s) has placed reliance i.e. Employees State Insurance Corporation(supra), the Division Bench in ignorance of the settled judicial binding precedent of which a detailed reference has been made, while examining the scope and ambit of Section 85B of the Employees State Insurance Corporation Act, 1948 which is pari materia to Section 14B of the Act 1952 placing reliance on the judgment of Division Bench of this Court in Dilip N. Shroff (supra) held that for the breach of civil obligations/liabilities, existence of mens rea or actus reus to be a necessary ingredient for levy of damages and/or the quantum thereof.
15. It may be noticed that Dilip N. Shroff(supra) on which reliance was placed has been overruled by this Court in Union of India and Others v. Dharmendra Textile Processors and others (supra). For the aforesaid reasons, the view expressed by this Court in Employees State Insurance Corporation (supra) may not be of binding precedent on the Page 63 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 subject and of no assistance to the appellant(s). [
16. Learned counsel for the appellant(s) further placed reliance on the judgment of this Court in Mcleod Russell India Ltd. (supra), wherein the question emerged for consideration was as to whether the damages which has been charged under Section 14B of the Act 1952 would be recoverable jointly or severally from the erstwhile as well as the current managements. At the same time, the judgment relied upon in Assistant Provident Fund Commissioner, EPFO and Another (supra) was decided placing reliance on the judgment of this Court in Mcleod Russell India Ltd. (supra), which may not be of any assistance to the appellant(s).
17. Taking note of three-Judge Bench judgment of this Court in Union of India and Others v. Dharmendra Textile Processors and others (supra), which is indeed binding on us, we are of the considered view that any default or delay in the payment of EPF contribution by the employer under the Act is a sine qua non for imposition of levy of damages under Section 14B of the Act 1952 and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligations/liabilities."
11. From the discussion above, we are of the firm opinion that the mens rea is not Page 64 of 65 Downloaded on : Sat Dec 24 18:32:30 IST 2022 C/LPA/532/2019 JUDGMENT DATED: 10/06/2022 an essential element for imposing the penalty or damages for breach of civil obligation decision of the apex court is binding to all the authorities. Any default or delay in making the payment of EPF by the employer would attract the damages and the breach of the civil obligation/liabilities may not necessitate considering the intent of the employer and therefore also, no interference was required on the part of the Tribunal and hence also, the order impunged deserves interference. 11.1 From the decision above, it is being concluded that so far as the challenge to the powers of Tribunal in reduction of damage is concerned, we agree with the reasonings of the learned Single Judge and to that extent, no indulgence is needed. In other words, while recognizing the entitlement of Tribunal to reduce the damages, from the material adduced, reduction was surely not warranted.
12. Resultantly, this Appeal is allowed with consequential relief.
(MS SONIA GOKANI, J) (HEMANT M. PRACHCHHAK,J) M.M.MIRZA-
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