Delhi District Court
Sh. K.K.Sharma vs (1) State on 1 August, 2013
IN THE COURT OF SHRI VIJAY KUMAR DAHIYA
ADDITIONAL SESSIONS JUDGE
DWARKA COURTS : DELHI
In the matter of :
CR No. 41/13
Sh. K.K.Sharma,
Managing Director of
M/s AIMIL Pharmaceuticals (I) Limited,
B34, New Multlan Nagar,
Surya Enlcave,
Rohtak Road,
New Delhi.
...Petitioner
VERSUS
(1) State
(Through Addl. PP)
(2) The Addl. Commissioner
Employees Provident Fund Organisation,
Ministry of Labour, Govt. of India,
Regional office, Delhi (North),
28, Community Centre,
Wazir Pur Industrial Area,
Delhi110052
... Respondent
CR No. 41/13
Date of Institution: 25.02.2013
Reserved for orders on: 26.07.2013
Judgment announced on: 01.08.2013
JUDGMENT
1. Vide this order, I shall dispose of the present revision petition CR No. 41/13 1 01.08.2013 preferred against the impugned order 21112012.
2. Stating briefly as per complaint, petitioner is the Managing Director of M/s Aimil Pharmaceuticals (I) Ltd. doing the business of manufacturing and trading of pharmaceutical items and the strength of staff of the company at the relevant time was 793 employees. It is further alleged that Regional Provident Fund Commissioner made a complaint against the company of the petitioner on 08062010 to the Additional Commissioner of Police ( South West) to register a case u/s 406/409 IPC stating therein that employer/ company of the petitioner deducted the employee's share of Provident Fund contribution from the salaries of the employees for the period of May, 2009 to January, 2010 but did not deposit it in EPF account as per para 30 and 32 of the Employees Provident Fund Scheme and an offence u/s 406 IPC is made out against the petitioner. It is further alleged that employer/ petitioner deposited the deducted PF amount of the employees share after filing of the complaint with the police vide separate deposit challans on 26062009, 25072009, 15112009, 1222010, 1532010, 1732010 and 1832010 but despite the said deposit being made by the company of the petitioner, the case was registered. It is further alleged that matter was fixed for arguments on charge and the Ld. Trial Court has framed CR No. 41/13 2 01.08.2013 the charge u/s 406/409 IPC against the petitioner.
3. Feeling aggrieved by the said impugned order dt.21112012, the present revision has been preferred.
4. It has been contended that Ld. Trial Court has failed to appreciate that employee's share amounting to the tune of Rs. 35,58,377/ from the period from May, 2009 to January, 2010, which was employee's share of EPF deductions, was deposited with the EPF commissioner prior to the lodging of FIR. It is further contended that Ld. Trial Court has failed to appreciate that it is only a case of delay in depositing the Provident Fund with the EPF commissioner and not the case of misappropriation of the funds and admittedly there was delay in depositing the EPF contribution to the concerned department and there is no iota of evidence on record to infer that the said EPF contribution of the employee's share was misappropriated by the petitioner at any point of time, therefore, no offence u/s 406/409 IPC is made out against the petitioner and Ld. Trial Court has wrongly framed the charge against the petitioner.
5. It is further contended that petitioner being Managing Director of CR No. 41/13 3 01.08.2013 the company cannot be held responsible for the day to day affairs of the company, particularly when the said company had appointed specific Managers to deal with the accounting system of the company, who alone were responsible for making deposits of EPF with the concerned authority, therefore, at least Section 409 IPC is not attracted to the facts of the present case. It is further contended that there was no dishonest intention to commit any act of criminal breach of trust and only because there is some delay in depositing the EPF with the EPF department, no dishonest intention can be attributed to the petitioner and the Ld. Trial Court has failed to appreciate the fact that at the relevant time, the company was suffering from financial constraints and has not paid salaries to their maximum number of employees and in this regard a dispute is also pending before the Ld. Labour Court. It is further contended that case laws relied upon by the petitioner has not been appreciated by the Ld. Trial Court and in a mechanical manner charge has been framed the charge. Ld. Counsel for the petitioner has contended that petitioner being MD of the company is not liable in his personal capacity for any matter pertaining to the EPF of the employee's share and the petitioner deserves to be discharged. It is further contended that Ld. Trial Court has failed to consider the ratio of case law 2007 (11) SCALE 318 Maqsood Syed Vs. State of Gujarat & CR No. 41/13 4 01.08.2013 others. Therefore, impugned order suffers material illegality and perversity which is writ large in the order and as such the same is liable to be set aside.
6. It has been further contended that petitioner being Managing Director of the company is not the principal employer u/s 40 of the ESI Act and is not falling within the purview of explanation 2 appended to Section 405 of IPC and under the ESI Act, the company is principal employer and not its director as in the absence of the definition of principal employer incorporated in IPC the term 'employer' in explanation 2 appended to 405 IPC must be understood as in ordinary parlance and in the ordinary parlance, if the company which is employer and not its Directors singly or collectively. In this regard, he has relied upon AIR 1998 Supreme Court 2676 Employees State Insurance Corporation Vs. S.K. Aggarwal and others and 2009 LLR 259 Satish Kumar Jhunjhunwala Vs. State of West Bengal.
7. It has been further contended that no offence u/s 406/409 IPC is made out and there is no question of any vicarious liability of the Director/ MD for any offence committed by the company as the petitioner has never shared any common intention with any of the CR No. 41/13 5 01.08.2013 persons at the helms of affairs of the company. In this regard, he has relied upon (2010) 10 Supreme Court Cases 660 titled as Asoke Basak Vs. State of Maharashtra and others and AIR 2008 Supreme Court 1731 S.K. Alagh Vs. State of UP & Others.
8. It has been further contended that no entrustment of the amount of EPF contribution of the employees of the company was there as alleged to be embazzled / misused by the petitioner for making a case for criminal breach of trust against the petitioner and it is prerequisite of the offences that the prosecution must prove that the accused/ petitioner was entrusted with some property or entrusted with dominion over property and there should have been dishonest misappropriation or conversion of the same to its own use or disposal of that property and such misappropriation or conversion, use or disposal should be in violation of a direction of law or of any legal contract which the accused had made prescribing the mode in which such trust is to discharged. In this regard, he has relied upon AIR 1953 SC 478 titled as Chelloor Mankkal Narayan Ittiravi Nambudiri Vs. State of Travancore Cochin.
9. On the other hand, Ld. Counsel for the respondent/ complainant has contended that, prima facie, offence u/s 406/409 IPC is made out CR No. 41/13 6 01.08.2013 against the petitioner being the MD of the company and provision of ESI Act are not pari matria with provision of EPF & MP Act, 1952 and section 14(A) of the EPF & MP Act provides that Director/MD or a person responsible to the company for the conduct of the business of the company shall be deemed to be guilty for the offence under the said Act. In this regard, he has relied upon Sushil Kumar Bagla Vs. State 2004 Cr. L.J. 171.
10. It has been further contended that non payment of amount of EPF contribution by the employer to Provident Fund Commissioner at the relevant time but payment of the same at the subsequent stage will attract the offence u/s 406/409 IPC and prima facie offence is made out against the petitioner, in this regard he has relied upon Unknown Vs. S.K. Aggarwal passed by Calcutta High Court in CRR 128/2005, Ram Prasad Sao vs State of Bihar 2008(1) JCR 131 Jharkhand.
11. I have heard Ld. Counsel for the parties and with their assistance have gone through the record and the case law relied upon by the counsel for the parties.
12. The only question involved in the present petition is whether the CR No. 41/13 7 01.08.2013 petitioner being MD can be held responsible for not depositing the provident fund contribution deducted from the salary of the employees by the company under the penal provisions of IPC as well as under the EPF & MP Act, 1952.
13. Ld. Counsel for the petitioner has relied upon S.K. Aggarwal (supra) in order to contend that u/s 40 of the Employees State Insurance Act, the principal employer shall pay in respect of every employee the contribution of provident fund to the Provident Fund Commissioner and the term "Principal Employer" has been defined u/s 2(17) of the ESI Act and Section 2(17) of the Employees' State Insurance Act defines the "Principal employer" in a factory as the owner or occupier of the factory. "Occupier" of a factory is defined in Section 2 (15) as having the same meaning assigned to it in the Factories Act, 1948 and Section 2 (n) of the Factories Act, 1948 defined an "Occupier" to mean the person who has ultimate control over the affairs of the factory. Section 100 of the Factories Act dealt with the determination of occupier in certain cases. Under subsection (2) where the occupier was a company any directors thereof could be prosecuted and punished for any offence for which the occupier was liable, therefore, the company will be the principal employer under section 40 of ESI Act.
CR No. 41/13 8 01.08.2013
14. It may be noted here that in para 5 and 8 of S.K. Aggarwal (supra), it has been observed as under:
Para 5. The provisions of Section 40 in the light of these definitions have been considered by various High Courts in order to decide whether a director of a limited company can be considered as the principal employer liable to pay contribution under Section 40. A Division Bench of the Bombay High Court in the case Suresh Tulsidas Kilachand V. Collector of Bombay, 1984 Lab IC 1614, held that a director of a company by virtue of being a director is not principal employer contemplated by Section 2(17) of the Employees State Insurance Act. He is not personally liable to pay employer's contribution under the Act. In the context of Section 2(17) read with Section 2(15) the Court held that whether a person is occupier or not has to be ascertained with reference to whether he is in ultimate control CR No. 41/13 9 01.08.2013 over the factory. When the definition of principal employer in Section 2(17) refers to the "owner" or "occupier" of a factory, the principal employer can be either the owner or the occupier depending upon the facts of each case. When there is an owner of the factory that owner must be considered as the principal employer liable for contribution. Para 8. In the case of Employees' State Insurance Corporation, Chandigarh V. Gurdial Singh, 1991 Lab IC 52: (AIR 1991 SC 1741), this Court held that the directors of a private limited company were not personally liable to pay contributions under the "Employees' State Insurance Act, 1948. The Court was considering a case where a private limited company was the owner of the factory and the occupier of the factory had been duly named under the Factories Act, 1948. The Court said that the directors did not come within the definition of clause 1 of Section 2(17) of the CR No. 41/13 10 01.08.2013 Employees' State Insurance Act. This Court also disapproved of the decision of a single Judge of the Bombay High Court which has been subsequently overruled by the Division Bench of the Bombay High Court in the case of Suresh Tulsidas Kilachand V. Collector of Bombay, (1984 Lab IC 1614) (supra).
15. It may be noted herein that under EPF & MP Act 1952, the legislature has not issued the terms 'principal employer' so far as liability under this Act is concerned. Otherwise, under the provision of this Act even Director or MD or Secretary can be held liable for non payment of EPF contribution of the employees of a company and for ready reference, I would like to reproduce the relevant provisions as under:
Section 14A Offences by Companies (1) If the person committing an offence under this Act, the Scheme or the Pension Scheme or the Insurance Scheme is a company, every person, who at the time the offence was committed was in charge of, and was responsible to, the CR No. 41/13 11 01.08.2013 company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly;
Provided that nothing contained in this sub section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in Sub Section (1) where an offence under the Act or the scheme or the pension scheme or the insurance scheme has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any Director or Manager, Secretary or other officer of the company, such Director, Manager, Secretary or other officer shall be CR No. 41/13 12 01.08.2013 deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Section 14AB: Notwithstanding anything contained in the Code of Criminal Procedure 1898 (5 of 1898) an offence relating to default in payment of contribution by the employer punishable under the said Act shall be cognizable.
16. Therefore, in terms of Section 14A of EPF & MP Act, the director MD/Secretary of a company can be prosecuted for non deposit of EPF's contribution of the employees of the company with the EPF Commissioner. The company being a juristic person is incapable of having a particular state of mind, namely mens rea as required u/s 405 IPC, therefore, it is incapable of having such state of mind hence the company cannot be proceeded u/s 406/409 IPC. Therefore, there is no substance in the contention of the Ld. Counsel for the petitioner that it is only the company which can be punished for the offence u/s 406/409 IPC. Even in Sushil Kumar Bagla (Supra) it has been observed in para CR No. 41/13 13 01.08.2013 no.16 and 17 as under:
Para 16: However, Mr.Panja referred to a decision to the Apex Court in Employees' State Insurance Corporation V. S.K. Agarwal, In the said decision it was held that in view of the definition of 'principal employer' as provided under Section 2(17) r.w.S. 40 of the Employees' State Insurance Act and explanation II to Section 405 IPC, it is the company alone which can be proceeded against the offences u/s 406/409 and not its Director. But EPF and MP Act does not contain any such provision as Section 2(17) and Section 40 of Employees' State Insurance Act. However, Section 2(e) of EPF and MP Act defines the term "Employer" which provides that "employer" means
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a Manager of the factory under Clause (f) of CR No. 41/13 14 01.08.2013 Subsection (1) of Section 7 of the Factories Act, 1948 (63 of 1948), the person so named;
and
(ii) in relation to any other establishment, the person who, or the authority which has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a Manager , Managing Director or Managing Agent, such Managers, Managing Director or Managing Agent.
Para 17. As the EPF and MP Act does not contain any such provision similar to Sections 2(17) and 40 of the Employees' State Insurance Act, there is no justification to apply the decision of the Apex Court reported in Employee's Statement Insurance Corporation Vs. S.K. Aggarwal (supra). That apart this decision does not answer the question as to how a juristic person like a company can be prosecuted in respect of an offence under the Penal Code where mens era or particular state CR No. 41/13 15 01.08.2013 of mind is an essential ingredient of such an offence. Otherwise, many decisions of the Apex Court on this point will be rendered devoid of any application. One can understand that in respect of offences where mens rea or particular state of mind is not an essential ingredient like those under the provisions of Employees' State Insurance Act or EPF & MP Act , it may be possible to prosecute a company. A company being not a natural person cannot have a mind and hence it can not have any particular state of mind or mens era.
For all offences under the Penal Code, mens rea is always invariable an essential ingredient and hence for such offences none except natural persons can be prosecuted. That a juristic person like a company cannot have mind is an undeniable fact of natural science and, therefore, on the strength of (sic) aforesaid decision of the Apex Court reported in Employees' State Insurance Corporation v.
CR No. 41/13 16 01.08.2013 S.K. Agarwal (supra), I cannot be asked to deny this basic proposition of natural science. Even in judgment Unknown vs S.K.Agarwal (supra), it has been observed as under:
In the case of Sajjar Kumar Jhunjhunwala & Ors. Vs. State of W.B. 1999 C Cr. LR (Cal) 255 it was held that in a case under the Act as provided under Section 14A of the said Act, maintainability of the case is not affected in absence of the company, as the section provides that if the person committed an offence under this Act, the scheme or the Family Pension Scheme or Insurance Scheme, is a company, every person who at the time the offence was committed was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Non inclusion of the company, therefore, does not affect the case in any way and the directors if they were in CR No. 41/13 17 01.08.2013 charge of the company can be prosecuted independent of inclusion or non inclusion of the company in the prosecution. Admittedly, the present petitioners are and also were in the relevant time of default the directors of the company. As the directors they having been held in the helm of the administration of the company, prima facie it may be presumed that they were responsible to and for discharging the business of the company, and as held by the Supreme Court, the Trustee of the company. The question whether they were actually in charge of the business or someone else, like the manager, was in the helm of the administration is a manner of evidence and cannot be thrashed out at this stage without full scale evidence before the trial court. The law provides that the onus is upon the petitioners to show that they were not responsible for the business and somebody else were in charge of the administration.
17. Therefore, keeping in view the ratio of Sushil Kumar Bagla (Supra), I am of the opinion that provisions of CR No. 41/13 18 01.08.2013 Employee State Insurance Act are not pari materia with those of EPF & MP Act, and the director/MD can be proceeded against for the offence punishable u/s 406/409 IPC and ratio of S.K.Agarwal (supra) is distinguishable as observed above by Calcutta High Court to the provisions of EPF & MP Act as that judgment pertains to ESI Act and not to the provisions of EPF & MP Act.
18. Similarly, in view of the mandate of law as laid down in Unknown Vs. S.K. Aggarwal (Supra) that non payment of EPF contribution by the employer is continuing offence and even though said contributions are accepted by the Provident Fund Commissioner but that will not constitute condonation of the offence fully but if the trial court ultimately finds that the amount of contribution which was due and on account of prosecution which was lauched has been finally paid before lodging of the prosecution the trial court may pass minimum sentence. In this regard, I found support from Ram Prasad Sao (supra).
19. It may be noted here that the petitioner who is the MD of the CR No. 41/13 19 01.08.2013 company is the employer in the terms, it is understood in the clause (e) of section 2 or an occupier of the factory as provided in clause (k) of section 2, which means that the person concerned must be the owner or occupier of the factory including agent of such occupier or owner. Unless it is proved by cogent evidence that the affairs of control of the company was entrusted with some other persons, a director cannot but be held to be the occupier of the company or by implicating the employer in respect of the employees. The fact that the petitioners had eventually deposited the entire arrears of their dues towards the PF contribution would not absolve them from the liability. They may at best considered as mitigating circumstances in respect of the gravity of the offence and, otherwise also, subsequent payment of EPF contribution can be appreciated after going through the evidence and at this stage, it cannot be decided.
20. In view of the above discussion, I am of the opinion that petitioner being director/MD of the company is covered u/s 14A of EPF and MP Act and as such he can be held responsible for non payment of EPF contribution to the concerned authorities and hence, I am of the opinion that impugned order does not suffer from any illegality. Ld. Counsel for the petitioner has failed to point out any illegality or CR No. 41/13 20 01.08.2013 perversity in the impugned order, therefore, this revision is devoid of merit and is hereby dismissed and disposed of accordingly.
21. Needless to say that nothing stated herein shall tantamount to an expression of my opinion on the merits of the case.
22. TCR and copy of the order be sent to the Ld. Trial Court for information and compliance.
23. File be consigned to Record Room.
Announced in the open court (Vijay Kumar Dahiya)
on the 1st Day of August 2013 ASJ/ Dwarka Courts
New Delhi
CR No. 41/13 21 01.08.2013