Karnataka High Court
The Assistant Provident vs M/S. Bombay Rayon Fashions Ltd on 8 August, 2023
Author: G.Narendar
Bench: G.Narendar
-1-
NC: 2023:KHC:27847-DB
WP No. 10935 of 2023
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF AUGUST, 2023
PRESENT
THE HON'BLE MR JUSTICE G.NARENDAR
AND
THE HON'BLE MR JUSTICE VIJAYKUMAR A. PATIL
WRIT PETITION NO. 10935 OF 2023 (L-PF)
BETWEEN:
THE ASSISTANT PROVIDENT
FUND COMMISSIONER
Digitally signed REGIONAL OFFICE, PEENYA
by YAMUNA K L
NO.62, INDUSTRIAL SUBURB,
Location: High
Court of YESHWANTHPUR 2ND STAGE,
Karnataka BANGALORE- 560022
...PETITIONER
(BY SRI. VENKATARAMANA K S., ADVOCATE)
AND:
M/S. BOMBAY RAYON FASHIONS LTD.,
UNIT NO.02, NO.16,17,35 AND 36
KIADB APPAREL PARK,
DODDABALLAPUR,
BANGALORE-561203
...RESPONDENT
THIS WP IS FILED UNDER ARTICLE 227 OF THE
CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT IN THE
NATURE OF CERTIORARI QUASHING THE ORDER DATED
14/09/2020 IN EPF NO.34/2018 PASSED BY THE CENTRAL
GOVERNMENT INDUSTRIAL TRIBUNAL-CUM-LABOUR COURT AT
BANGALORE, VIDE ANNEXURE-H ETC.
THIS PETITION, COMING ON FOR PRELIMINARY
HEARING, THIS DAY, G.NARENDAR J., MADE THE FOLLOWING:
-2-
NC: 2023:KHC:27847-DB
WP No. 10935 of 2023
ORDER
Heard the learned counsel for the petitioner.
2. Petitioner is before this Court being aggrieved by the order dated 14.09.2020 rendered in EPF No.34/2018. Primarily, the writ petition is vitiated by delay and laches. The order impugned is dated 14.09.2020 and the writ petition impugning the same is filed into this Court on 25.05.2023 i.e. after a passage of nearly three years. Be that as it may, we have also examined the impugned order on merits. It is the contention of the petitioner that the damages have been calculated in terms of Para 32A of The Employees' Provident Funds Scheme, 1952 (for short 'EPF Scheme, 1952'), which reads as under:-
"[32A. Recovery of damages for default in payment of any contribution:- [(1) Where a employer makes default in the payment of any contribution to the Fund, or in the transfer of accumulations required to be transferred by him under sub-section (2) of Section 15 or sub-section -3- NC: 2023:KHC:27847-DB WP No. 10935 of 2023 (5) of Section 17 of the Act or in the payment of any charges payable under any other provisions of the Act or the Scheme or under any of the conditions specified under section 17 of the Act, the Central Provident Fund Commissioner or such 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, damages at the rates given in the table below:-
TABLE S.No. Period of default Rates of damages (percentage of Arrears per annum) (1) (2) (3)
(a) Less than 2 months Five
(b) Two months and above Ten but less than four months
(c) Four months and above Fifteen but less than six months
(d) Six months and above Twenty Five.] (2) The damages shall be calculated to the nearest rupees, fifty paise or more to be counted as the nearest higher rupee and fraction of a rupee less than fifty paise to be ignored."
3. It is imperative to reproduce Section 14B of The Employees' Provident Funds and Miscellaneous Provisions -4- NC: 2023:KHC:27847-DB WP No. 10935 of 2023 Act, 1952 (for short 'the Act') and the same reads as under:-
"[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 sub-section (2) of section 15 [or sub-section (5) of section 17] or in the payment of any charges payable under any other provision of this Act or of [any Scheme or Insurance Scheme] or under any of the conditions specified under section 17, [the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this 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 -5- NC: 2023:KHC:27847-DB WP No. 10935 of 2023 for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) subject to such terms and conditions as may be specified in the Scheme.]
(i) Levy of damages and interest for default in E.P.F. dues not justified when the employer suffered continuous losses; Regional Provident Fund Commissioner - II and Recovery Officer v. Elysium Pharmaceuticals Limited, 2013 LLR 199 (Guj HC).
(ii) For levying damages under section 14-B of the E.P.F. & M.P. Act, there must be a mens rea;
solidaire India Limited v. The Employees Provident Fund Appellate Tribunal 2012 LlR 704 (Mad HC).
(iii) Levy of damages for delayed deposit of Provident Fund contributions, without ascertaining its frequency, not proper, Damien Foundation India Trust, rep. by Mr. L. Camillus Rajkumar, Chennai v. Presiding Officer, Employees' Provident Fund Appellant Tribunal, Coimbatore, 2011 LLR 1156 (Mad HC).
(iv) The delay in making payments should not prejudice the employees for whose benefit the fund is created. Where "default" is found, but no apparent "fault", the quantum of damages should be compensatory rather then penal in nature; Shanti Garments Pvt. Ltd. V. Regional Provident Fund Commissioner, 2003 LLR 256 (Mad).
-6-
NC: 2023:KHC:27847-DB WP No. 10935 of 2023
(v) Delay in initiating proceedings under section 14B of the Act will not be a ground for setting aside an order imposing damages on account of belated deposit of amount by employer towards provident fund unless specific pleas of prejudice is raised before the Provident Fund Commissioner; K. Streetlite Electric Corporation v. Regional Provident Fund Commissioner, Haryana, AIR 2001 SC 1818.
(vi) Where the amount due towards provident fund has already been deposited and an interim order of relief to the extent of 75% of damage is sought to be recovered and the rest 25% had already been directed to be deposited, it is appropriate to confine the damage to the extent of 25% of the total amount of damage; K. Streetlite Electric Corporation v. Regional Provident Fund Commissioner, Haryana, 2001 LLR 712 SC.
(vii) Though section 14B of the Act does not provide for any limitation for initiation of proceedings for levy damages, but the power should be exercised within a reasonable period. What is reasonable period would depend upon facts and circumstance of each case; Orissa Forest Development Corporation v. Regional Provident Fund Commissioner, (Orissa), Sub-Regional Office, Rourkela, 1995 LLR 930.
(viii) Delay in issuing the show cause notice by itself cannot vitiate the proceeding for levy of -7- NC: 2023:KHC:27847-DB WP No. 10935 of 2023 damages under section 14B; Mathur Alloy Steels Pvt. Ltd. V. Union of India, 1993 LLR 886.
(ix) The Provident Fund Commissioner must take not of several relevant circumstances before imposing damages for delayed payment. These are the number of defaults, the period of delay, the frequency of defaults and the amount involved; Star of Gujarat Textile Mills Ltd. V. Regional Provident Fund Commissioner, Ahmedabad, 1993 LLR 210."
4. On a reading of Section 14B of the Act, it is apparent that the penalty by way of damages that may be recovered from the employer for belated remittance cannot exceed the amount of arrears as may be specified in the Scheme. Apparently, the Scheme pertains to Para 32A of the EPF Scheme, 1952. Para 14 of the Act has been interpreted by the Hon'ble Apex Court in Mcleod Russel India Limited vs. Regional Provident Fund Commissioner, Jalpaiguri and Others1 and has been followed by the Hon'ble Apex Court in Assistant Provident Fund Commissioner, EPFO and another Vs. The Management of RSL Textiles India Private Limited through 1 (2014) 15 SCC 263 -8- NC: 2023:KHC:27847-DB WP No. 10935 of 2023 its Director in Civil Appeal Nos.96-97/2017 wherein, the presence and absence of mens rea/actus reus has been held to be a determining factor for imposing damage under Section 14B of the Act. On an independent reading of Para 32A of the EPF Scheme, 1952 it gives the picture and one would easily deduce that the damages by way of penalty are to be recovered at a particular rate mentioned in Column - (3) of the Table in Para 32A of the EPF Scheme, 1952. But Section 14B of the Act clearly mandates that the maximum amount that may be recovered as penalty by way of damages cannot exceed the sum due. In fact, a Co-ordinate Bench of this Court to which, one of us is a Member has been pleased to appreciate the provisions of Section 14B of the Act in the light of the rulings the Hon'ble Apex Court reported in AIR 1994 SC 521, (1979) 4 SCC 573 and (2014) 15 SCC 263 and in Para 10, the Co-ordinate Bench has been pleased to observe as under:-
"10. From a plain reading of the above rulings cited by the Tribunal, it is apparent that either mens -9- NC: 2023:KHC:27847-DB WP No. 10935 of 2023 rea or actus reus are not a sine qua non for incurring the liability under Section 14B of the Act, 1952 but the elements of mens rea and actus reus do have a mitigating role to play in the matter of fixation of the quantum of liabilities and as held by Hon'ble Apex Court, it need not necessarily be 100% of the sum due as arrears. Thus, it can be safely concluded that the authorities are clothed with the discretionary power in the matter of deciding the quantum to be imposed as damages under the provisions of Section 14B of the Act, 1952."
Another Co-ordinate Bench to which, one of us is a Member has in para 8, has been pleased to observe as under:-
"8. In that view of the matter, we are of the considered opinion that the calculations need to be revisited in accordance with the law. That apart, the quantification of damages also need to be appreciated in the background of settled law, that the motive assumes significance for the purpose of quantification of the damages. The fact remains that levy of damages is not optional, but in respect of quantum of damages to be levied, a discretion is vested in the Authority."
- 10 -
NC: 2023:KHC:27847-DB WP No. 10935 of 2023 and the said orders appear to be attained finality.
5. The learned counsel for the petitioner would endeavor to convince this Court that the calculation of damages imposed by way of penalty has been done strictly in accordance with Para 32A of the EPF Scheme, 1952 and in this regard he would take the Court through Annexure-C, the show cause notice. We have perused the show cause notice. Though it refers to the percentage at which the penalty has to be levied, the show cause notice and the calculation thereunder are immensely silent about the actual dues and it is seen that the Authority has also imposed interest on the amount of damages.
6. A bare perusal of the show cause notice would reveal that the petitioner-Authority has not only invoked Section 7Q of the Act to impose interest on the arrears but has further proceeded to impose interest even under Section 14B of the Act. Section 7Q of the Act reads as under:-
- 11 -
NC: 2023:KHC:27847-DB WP No. 10935 of 2023 "[7Q. Interest payable by the employer.- The employer shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment:
Provided that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank.]"
7. On a reading of Section 7Q of the Act it leaves no doubt in the minds of this Court that the Authority is empowered under Section 7Q of the Act to levy simple interest at the specified rate on "any amount due from him under this Act from the date on which the amount has so become due till the date of its actual payment". The use of the words "amount due" is relatable to the Scheme as envisaged under Section 5 of the Act and the contributions as envisaged under Section 6A of the Act and would also relate to the amount that may be determined under Section 7A of the Act, in the event of a dispute with regard
- 12 -
NC: 2023:KHC:27847-DB WP No. 10935 of 2023 to the contribution to be made by the employer. Another notable facet-of Section 7Q of the Act is that the proviso places a cap on the rate of interest that can be imposed.
8. From a reading of Section 7Q of the Act, it is apparent that the provision speaks of only amounts due or which in other words, are to be interpreted and read as amounts that are statutorily due by way of contributions from the employers.
9. That apart, on a reading of Section 14B of the Act, it is apparent that the provisions do not enable levy of interest, as it is an indeterminate amount. It cannot be gainfully argued that the establishment becomes due to pay interest which is an indeterminate amount till the date of its quantification and levy.
10. The damages, as imposed under Section 14B of the Act, are by themselves described as penalty, implying thereby that the Act intends the penalty to be punitive and as a punishment to the failure of the establishment to
- 13 -
NC: 2023:KHC:27847-DB WP No. 10935 of 2023 comply with the statutory mandate, which requires the contributions to be deposited with the Authority or in the account of the Board within a specified date. The non deposit of the statutorily fixed amount results in imposition of interest for the delayed period and over and above that the non adherence to the specified date is further penalized by way of recovery of damages by way of penalty. If that be the scheme of the Act, it is, in our considered opinion, beyond the intendment of the Act to double the punishment on the employer, with levy of interest on the penal amount. Enforcement of punitive measures in the absence of statutory backing is illegal. In that view, the entire imposition or levying of interest, under Section 14B of the Act appears to be wholly erroneous and without jurisdiction.
11. In that view of the matter, we deem it necessary to set-aside both the impugned order and the order of the Original Authority and remand it back to the Original Authority i.e. the petitioner herein, for
- 14 -
NC: 2023:KHC:27847-DB WP No. 10935 of 2023 appreciation and determination in the light of the provisions of the law and in the light of the observations made hereinabove.
12. The petitioner shall communicate this order to the respondent and shall issue notice of hearing and thereafter, proceed to assess the damages in the manner hereinabove noted.
In the event if the respondent is aggrieved by the order, we reserve liberty to the respondent to approach the Court by way of a review.
Sd/-
JUDGE Sd/-
JUDGE CHS List No.: 1 Sl No.: 1