Karnataka High Court
The Regional Provident Fund ... vs M/S.Kle Societys Law College on 1 June, 2017
Author: Vineet Kothari
Bench: Vineet Kothari
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 01ST DAY OF JUNE 2017
BEFORE
THE HON'BLE DR. JUSTICE VINEET KOTHARI
WRIT PETITION No.64110 OF 2010 (L-PF)
BETWEEN:
THE REGIONAL PROVIDENT FUND
COMMISSIONER-II
EMPLOYEES PROVIDENT FUND ORGAINSATION
SUB-REGIONAL OFFICE
IV FLOOR SRINATH COMPLEX
NEW COTTON MARKET
HUBLI - 580 029
... PETITIONER
(By Sri. P.V. GUNAJAL, ADV.)
AND:
M/S.KLE SOCIETY'S LAW COLLEGE
VIDYANAGAR, HUBLI
REPRESENTED BY ITS PRINCIPAL
SRI G.B.PATIL
... RESPONDENT
(By Sri. KUSHAL BOLAMAL &
SRI VINAY S. KOUJALAGI ADVS. ABSENT)
THIS WP IS FILED UNDER ARTICLES 226 & 227 OF
CONSTITUTION OF INDIA PRAYING TO:
I. CALL FOR RECORDS ON THE FILE OF
EPF APPELLATE TRIBUNAL IN
2
Date of Order: 01.06.2017
WP No.64110/2010
The Regional Provident Fund
Vs.
M/s KLE Society's Law College
APPEAL NO.ATA.469(6)/2004 AND
ISSUE A WRIT OF CERTIORARI AND
SET ASIDE THE ORDER
DATED:12/03/2009 (ANNEXURE-D).
II. DECLARE THAT THE EPF APPELLATE
TRIBUNAL HAS NO AUTHORITY TO
REDUCE THE PENAL DAMAGES
IMPOSED U/S.14-B OF THE ACT BY
THE PETITIONER U/S.7-1 OF THE ACT.
THIS PETITION COMING ON FOR PRELIMINARY
HEARING IN 'B' GROUP THIS DAY, THE COURT MADE
THE FOLLOWING:
ORDER
Mr.P.V.Gunjal, Adv. for petitioner.
1. The Regional Provident Fund Commissioner, Hubballi, has filed the present Writ Petition aggrieved by the order passed by the Employees Provident Funds Appellate Tribunal, New Delhi, in ATA No.469(6) of 2004, M/s.KLE Society's G.K.Law College, Vidyanagar, Hubli Vs. Assistant Provident Fund Commissioner, in which the learned Tribunal by the impugned order dated 12th March 2009 had set aside the imposition of penalty / damages under Section 14B of the 3 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College Employees' Provident Funds & Miscellaneous Provisions Act, 1952 (for short 'the Act') for the delayed payments of Provident Fund dues in respect of the employees of the said KLE Society's GK Law College.
2. The reasons assigned by the learned Tribunal in the impugned order for setting aside the levy of said damages under Section 14B of the Act are quoted below for ready reference:
"4. Heard the Representatives for the parties. The main issue arises for consideration is whether the action of the respondent to initiate the proceedings for recovery of damages for was justified. It is not disputed that the appellant had deposited the dues in the Corporation Bank and Post Office and had not utilized the deposited monies for any personal or business purpose. It is also admitted that the appellant had earned a good return as interest on the amount deposited in the Corporation Bank. It is not the case of the respondent that it had 4 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College suffered any loss either to the PF Organization or the employees concerned. In such a situation how an employer can be said a defaulter under the Act. The Hon'ble Supreme Court of India in the case of ESIC Vs. HMT, 2008 (1) SCALE 341, has held that the existence of mens rea or actus reus to contravene a statutory provision must aslo be held to be a necessary ingredient for levy of damages. The Hon'ble Apex Court has also held that 'only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations'. In the instant matter, employer cannot be termed as defaulter unless mens rea on his part is established. In other words, in this case there are no findings by the Enquiry Officer that the appellant had acted in the manner prejudicial to the scheme of the Act and have caused loss to the Fund. Therefore, the appellant in this case, cannot be sued as a defaulter and is liable for damages under the Act. The impugned Order is accordingly quashed. The Appeal is allowed. File be 5 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College consigned to the record room. Copy of the order be sent to both the parties.
Sd/-
(R.L. Koli) Presiding Officer, EPFAT"
3. This Court in Writ Petition No.67510/2010 (L-PF), The Belgaum Co-operative Cotton Spinning Mills Limited, Vs. The Regional Provident Fund Commissioner, Hubli, disposed of on 06th April 2017, has already held that imposition of damages/Penalty under Section 14B of the Act is a matter of discretion and imposition of damages/penalty under Section 14B of the Act is not automatic and cannot be compared with the fiscal liability like interest on delayed payment which automatically flows merely on account of the delay in deposit of the Provident Fund dues in respect of the employees.
4. In the present case, the Code Number was allotted to the employer-KLE Society only in the year 2000 and the said Society was covered under the provisions of the Act with 6 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College retrospective effect from 06th March 1982. Damages imposed under Section 14B of the Act pertain to the said retrospective period. Obviously, no penalty for the alleged delay in payment of the dues could be imposed with retrospective effect for the said period.
5. The relevant portion of the aforesaid judgment is quoted below for ready reference:
"6. Section 14B of the Act 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 7 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College 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 1986), subject to such terms and condition as may be specified in the Scheme. "
7. A bare perusal of the provisions of the said Section 14B of the Act indicates that the Provident Fund Commissioner or the appellate body / Tribunal have the discretion while deciding the cases under Section 14B of the Act which empowers the respondent Department to recover the damages on account of delay in payment of the Provident Fund contributions to recover such penalty by way of 8 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College damages or not. This is not recovery of the provident fund contribution itself, but "damages" to be recovered in the form of penalty on account of the delayed payments as per the provisions under Clause 32A of the Employees' Provident Funds Scheme, 1952 (for short 'the Scheme') read with Section 14B of the Act, which is also quoted below for ready reference:
" 32A. Recovery of damages for default in payment of any contribution: (1) Where an 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 (5) of section 17 of the Act or in the payment of any charges payable under any other provisions of the Act or 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 9 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College notification in the Official Gazette in this behalf, may recover from the employer by way of penalty, damages at the rates given below:--
TABLE . .
Sl. Period of default Rate of damages
No. (percentage of
. arrears per annum) .
.(1) (2) (3) .
(a) Less than 2 months Five
(b) Two months and above
but less than four months Ten
(c) Four months and above
but less than six months Fifteen
. (d) Six months and above Twenty Five "
8. Clause 32A of the Scheme thus provides for the graded rates of damages to be recovered on the delayed payment of the provident fund contributions giving the periods of such delay in different slabs.
9. While the guideline about the grading of the rates of 'damages' or penalty under Clause 32A of the Scheme is not in dispute, the very fact whether such 'damages' are liable to be recovered 10 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College or not, depends upon the fair exercise of discretion vested in the authorities under the Act and the appellate body, namely the Tribunal or Central Board. It is only after the conclusion to levy the penalty or damages under Section 14B of the Act is fairly arrived, discussing the relevant reasons and the defences that for determining only the quantum of such damages, Clause 32A of the Scheme should be applied. But, 32A of the Scheme is not a charging provision in itself. It does not mandate the levy of damages itself. It is only a guideline for quantification to avoid varied levy of damages by different authorities. Clause 32A of the Scheme can neither override nor it does the basic statutory provisions of Section 14B of the Act itself.
10. A perusal of the above extracted portions of the impugned order shows that the said Tribunal has mechanically held that the reasons in the form of 'financial crunch' is not sufficient reasons to waive the levy of damages under Section 14B of the Act. It has not even discussed the effect of the 11 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College petitioner undertaking being declared as 'Relief Undertaking' under the special statute, nor the details of the reasons resulting in such financial crunch rendering the payment of provident fund contributions along with the contributions of the employer also, are discussed. The order of the Appellate Authority cannot be held to be sufficiently meeting with the principles of natural justice and does not reflect a fair exercise of the discretion vested in the higher appellate body. The impugned order of the Tribunal, therefore, is liable to be set aside.
11. The Writ Petition is accordingly allowed and setting aside the impugned order dated 24th August 2010 passed by the Employees' Provident Fund Appellate Tribunal, New Delhi, Annexure 'H', the matter is remanded back to the learned Tribunal for decision afresh in accordance with law.
12. The petitioner-Society will also be at liberty to furnish appropriate details with relevant evidence during the course of such rehearing of the 12 Date of Order: 01.06.2017 WP No.64110/2010 The Regional Provident Fund Vs. M/s KLE Society's Law College appeal by the Tribunal and the said Tribunal is expected to discuss all such reasons in detail and then pass appropriate orders according to law, within a period of six months from today.
The petitioner may appear before the Tribunal, in the first instance, on 24th April 2017 (Monday)."
6. In view of the aforesaid decision, there is no merit in the present petition filed by the Provident Fund Commissioner and the same is accordingly dismissed. No order as to costs.
The pending IA's stand disposed of in view of the aforesaid order.
Sd/-
JUDGE RK/-