Allahabad High Court
B.N.S.D. Shiksha Niketan Uchchatar ... vs The Regfional Provident Fund ... on 24 March, 2023
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Reserved On : 18.11.2022 Delivered On : 24.03.2023 Court No. - 80 Case:- WRIT-C No.- 48699 of 1999 Petitioner:- B.N.S.D.Shiksha Niketan Uchchatar Madhyamik Vidyalaya Respondent:- The Regional Provident Fund Commissioner and another Counsel for the petitioner:- Rajesh Tewari Counsel for the respondent:- Nishant Mehrotra,Vijay Kumar Singh Hon'ble Umesh Chandra Sharma.J.
1. Heard Shri Rajesh Tewari, learned counsel for the petitioner and Shri Nishant Mehrotra learned counsel for the respondents.
2. The present writ petition has been filed seeking quashing of the order dated 22.01.1999 passed by the respondent no.1. The petitioner has also sought direction in the nature of mandamus commanding the respondents not to impose the damages upon the petitioner.
3. The learned counsel for the petitioner submitted that the petitioner is an educational institution and is registered under the Society Registration Act and had introduced the Provident Fund Scheme for its employees privately and number of employees working in the institution were less than 10 but for the first time on 04.06.1991 the respondent's authority informed that the petitioner's institution was covered under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 with effect from 01.07.1990. Thereafter the respondents initiated the proceedings under section 7A of EPF & MP Act 1952 for realization of the Provident Fund dues since the date of enforcement of the Act i.e 01.07.1990 then the petitioner deposited the entire amount of the contribution of the period from 1990 to 1995 on 13.10.1995.
4. The counsel for the petitioner further submitted that when the amount of contribution was deposited by the petitioner establishment thereafter it received notice under section 14-B of the Act for levy of damages imposed by the respondent authority as the petitioner has made the delayed payment and defaulted to pay the Employees Provident Fund Contribution on the due date for the period 08/1990 to 06/1996. The submission of the petitioner is that since the petitioner had already deposited entire amount of contribution in 1995 and delay in the depositing the contribution was due to the pendency of the proceedings under 7A of the Act and also the petitioner educational institution is willing to comply the provisions of Provident Fund Scheme in his School, however, the respondent authority while passing the impugned order dated 22.01.1999 had not consider all the aforesaid facts.
5. Per Contra, the learned counsel appeared for the respondents has supported the order passed under section 14-B of the Act and submitted that the petitioner establishment was employing more than 20 employees as on 01.07.1990 and was covered under the EPF & MP Act 1952 with effect from 01.07.1990 vide letter dated 27.03.1991 on the basis of enquiry report dated 24.08.1990 submitted by the Enforcement Officers and therefore the petitioner establishment was directed to comply with provisions of the EPF & MP Act 1952 and scheme frame there under vide letter dt. 04.06.1991. A notice dated 07.02.1992 was issued under section 7A of the Act for determination of the dues. The establishment disputed the applicability of the Act on the ground that they were never employing 20 or more persons. However the establishment started compliance of the provisions of the Act and submitted photocopies of the challans in support of the demand of the dues deposited for the period 08/90 to 01/96 i.e since coverage.
6. The learned counsel for the respondents further submits that petitioner had been covered under the EPF & MP Act 1952 with effect from 01.07.1990 by coverage letter dated 27.03.1991 and at the later stage has accepted the liability and started the compliance of the provisions of the Act and in such circumstances the employer establishment had defaulted for the payment of Provident Fund dues for a long time and for the said reason the establishment is liable to pay the damages levied on the belated payment under the provisions of Section 14B of the EPF & MP Act 1952 because the delay was on the part of the petitioner in depositing the PF contribution, hence the petitioner is liable to pay damages as per Section 14-B of the EPF Act. The EPF Act is social security legislation and is meant for the benefits of the employees. The provisions of Section 14-B and Section 7-Q of the EPF Act have to be strictly construed.
7. I have given my thoughtful consideration to the submissions made by learned counsel for both the parties and have also perused the material on record.
8. Undisputedly, EPF Act is a beneficial piece of legislation. It was passed with an object of making some provisions for the future of the industrial worker after his retirement or for his dependents in the case of his early death. The parliamentarian, after considering various financial and administrative difficulties in old and survival pension"s schemes and gratuity schemes, agreed to introduce the institution of contributory provident fund schemes in which, both the worker and the employer would contribute. Provident fund scheme was considered as a means to encourage the stabilization of a steady labour force in industrial centre. The Parliamentarians were well aware of the fact that with industrial growth, although, the big employers had introduced the scheme of provident fund for the welfare of their workers, but all these schemes until then were private and voluntary and the workers of the small employers remain deprived of the benefits which were provided by big employers. Thus, with an object to provide for compulsory establishment of provident fund by every employer in the industrial concerns for the betterment of his employee, the EPF Act was enacted.
9. The EPF Act under its various sections, encompasses the provisions for establishment of Employees" Provident Fund Schemes, contribution and matters which may be provided for in scheme, determination of money due from the employer, deposit of amount due, mode of penalties, recovery, etc. Section 14-B of the EPF Act provides for the power to recover damages which is material in the present case. Section 14-B of the EPF 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 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 conditions as may be specified in the Scheme."
10. Section 14-B of the EPF Act was inserted with an object to act as a deterrent measure on the employer to prevent them from not carrying out their statutory obligations to make payments to the provident fund. The damages under Section 14-B EPF Act are penal in nature. This section authorizes the Central Provident Fund Commissioner or such other officer as may be authorized to impose exemplary or punitive damages and thereby prevent the employer from making defaults. In the absence of such a provision, the employer could deliberately default in the payment of their provident fund contributions and in the meanwhile utilize both their contributions as well as that of employees" in their business. In such a case, an employer could delay the payment of provident fund dues without any genuine reasons on his part for doing so and may escape from his liability to make payment without undergoing any additional financial liabilities. To prevent this, the said section was made a part of the EPF Act and also the words "damages not exceeding 25% of amount of arrears" were amended to "not exceeding the amount of arrears" under the said section.
11. The Hon'ble Supreme Court in Organo Chemical Industries and Anr. vs. UOI & Ors., (1979) 4 SCC 573, referred to the reasons which made the Parliamentarian to insert Section 14-B on the statute book and observed: -
"10. In its working, the authorities were faced with certain administrative difficulties. An employer could delay payment of Provident Fund dues without any additional financial liability. Parliament, accordingly, inserted Section 14-B for recovery of damages on the amount of arrears. The reason for enacting Section 14-B is that employers may be deterred and thwarted from making defaults in carrying out statutory obligations to make payments to the Provident Fund. The object and purpose of the section is to authorise the Regional Provident Fund Commissioner to impose exemplary or punitive damages and thereby to prevent employers from making defaults. Section 14-B as originally enacted, provided for imposition of such damages, not exceeding 25% of the amount of arrears. This, however, did not prove to be sufficiently deterrent. The employers were still making defaults in making contributions to the Provident Fund, and in the meanwhile utilizing both their own contribution as well as the employees' contribution, in their business. The provision contained in Section 14-B for recovery of damages, therefore, proved to be illusory. Accordingly, by Act 40 of 1973, the words "twenty-five per cent of" were omitted from Section 14-B and the words "not exceeding the amount of arrear" were substituted. The intention is to invest the Regional Provident Fund Commissioner with power to impose such damages that the employer would not find it profitable to make defaults in making payments."
The Hon'ble Supreme Court speaking through Sen, J. in Organo Chemical's case (supra) discussed the scope of "damages" under Section 14-B of the EPF Act and observed as under: -
"22. The expression "damages" 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". 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 warning to employers in general not to commit a breach of the statutory requirements of Section 6, but at the same time it is meant to provide compensation or redress to the beneficiaries i.e. to recompense the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the loss which is caused to the beneficiaries under the Scheme. The word "damages" in Section 14-B is related to the word "default". The words used in Section 14-B are "default in the payment of contribution" and, therefore, the word "default" must be construed in the light of Para 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word "default" in Section 14-B must mean "failure in performance" or "failure to act". At the same time, the imposition of damages under Section 14-B is to provide reparation for the amount of loss suffered by the employees."
In the same judgment, concurring with Sen J., Krishna Iyer J., with regard to damages observed as under: -
"38. What do we mean by "damages"? The expression "damages" is neither vague nor over-wide. It has more than one signification but the precise import in a given context is not difficult to discern. A plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent damages, continuing damages, double damages, excessive damages, exemplary damages, general damages, irreparable damages, pecuniary damages, prospective damages, special damages, speculative damages, substantial damages, unliquidated damages. But the essentials are (a) detriment to one by the wrongdoing of another, (b) reparation awarded to the injured through legal remedies, and (c) its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often, not always, a punitive addition as a deterrent-cum-denunciation by the law. For instance, "exemplary damages" are damages on an increased scale, awarded to the plaintiff ever and above what will barely compensate him for his property loss, where the wrong done to him was aggravated by circumstances of violence, oppression, malice, fraud, or wanton and wicked conduct on the part of the defendant, and are intended to solace the plaintiff for mental anguish, laceration of his feelings, shame, degradation, or other aggravations of the original wrong, or else to punish the defendant for his evil behavior or to make an example of him, for which reason they are also called "punitive" or "punitory" damages or "vindictive" damages, and (vulgarly) "smart-money". [ See Black's Law Dictionary, 4th Edn., pp. 467-648] It is sufficient for our present purpose to state that the power conferred to award damages is delimited by the content and contour of the concept itself and if the Court finds the Commissioner travelling beyond, the blow will fall. Section 14-B is good for these reasons."
In the same context the Apex Court in Hindustan Times Ltd. Vs U.O.I and Others , (1998) 2 SCC 242, held: -
"29. From the aforesaid decisions, the following principles can be summarised:
The authority under Section 14-B has to apply his mind to the facts of the case and the reply to the show- cause notice and pass a reasoned order after following principles of natural justice and giving a reasonable opportunity of being heard; the Regional Provident Fund Commissioner usually takes into consideration the number of defaults, the period of delay, the frequency of default and the amounts involved; default on the part of the employer based on plea of power-cut, financial problems relating to other indebtedness or the delay in realisation of amounts paid by the cheques or drafts, cannot be justifiable grounds for the employer to escape liability; there is no period of limitation prescribed by the legislature for initiating action for recovery of damages under Section 14-B. The fact that proceedings are initiated or demand for damages is made after several years cannot by itself be a ground for drawing an inference of waiver or that the employer was lulled into a belief that no proceedings under Section 14-B would be taken; mere delay in initiating action under Section 14-B cannot amount to prejudice inasmuch as the delay on the part of the Department, would have only allowed the employer to use the monies for his own purposes or for his business especially when there is no additional provision for charging interest. However, the employer can claim prejudice if there is proof that between the period of default and the date of initiation of action under Section 14-B, he has changed his position to his detriment to such an extent that if the recovery is made after a large number of years, the prejudice to him is of an "irretrievable" nature; he might also claim prejudice upon proof of loss of all the relevant records and/or non- availability of the personnel who were, several years back in charge of these payments and provided he further establishes that there is no other way he can reconstruct the record or produce evidence; or there are other similar grounds which could lead to "irretrievable" prejudice; further, in such cases of "irretrievable" prejudice, the defaulter must take the necessary pleas in defence in the reply to the show-cause notice and must satisfy the authority concerned with acceptable material; if those pleas are rejected, he cannot raise them in the High Court unless there is a clear pleading in the writ petition to that effect."
12 Further, under Section 14-B of EPF Act the authority concerned is empowered to impose a penalty up to a maximum limit, i.e., "such damages, not exceeding the amount of arrears, as may be specified in the Scheme" however, it is not mandatory that the competent authority must always impose the maximum cap of damages provided under the said section as a matter of routine or as a mechanical exercise. Rather, the authority concerned is expected to pass an order that would sub- serve the purpose of introduction of Section 14-B in the scheme of the EPF Act.
13. Therefore, it becomes obligatory on the concerned authority that once it makes up its mind to impose penalty it should also decide the quantum of damages which it seeks to impose on the erring party. Here too the competent authority is under an obligation to decide the quantum of damages only after consideration of proper facts and circumstances of the case.
14. Also, the provisions of the E.P.F. and M.P. Act is applicable to the educational institutions in India as provided in Para 1 (3) (b) (xcvi) of The Employee's Provident Fund Scheme, 1952 ("...as respects the educational, scientific, research and training institutions specified in the notification of the Government of India in the Ministry of Labour No. S.O. 986, dated the 19th February 1981, published in Part II, Section 3, sub-section (ii) of the Gazette of India, dated the 6th March 1982").
15. The Hon'ble Apex Court in the matter of M/s D.A.V. College and Others Vs. Regional Provident Fund Commissioner and others, [1988 (Suppl) SCC 518] held as under :-
" Shri S.K. Bagga, learned Counsel appears for the petitioners. We do not find any substance in the contention of the petitioners in these cases that the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as 'the Act') has no application to the educational institutions who are petitioners in these cases. We, therefore, dismiss all these cases."
16. In the present case, initially the establishment disputed the applicability of the Act on the ground that they were never employing 20 or more persons and the delay had caused due to pendency of 7-A proceeding under the Act however the establishment started compliance of the provisions of the Act subsequently and deposited the dues amount in compliance of the demand notice for the period 08/90 to 01/96 i.e since coverage.
17. The learned counsel for the petitioner also did not dispute the contention of the respondent Counsel that the petitioner had been covered under the EPF & MP Act, 1952 with effect from 01.07.1990 by coverage letter dated 27.03.1991 and at the later stage has accepted the liability and started the compliance of the provisions of the Act. Once the petitioner had admitted the applicability of the Act from the date of coverage then the institution is liable to pay penal damages for the delayed compliance.
18. Learned counsel for the respondent nos. 1 & 2 has placed reliance on the judgment passed in Horticulture Experiment Station Gonikoppal, Coorg Vs. Regional Provident Fund Organization, (2022) 4 SCC 516, wherein following observation has been made;
"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."
19. In such circumstances of the case it transpires that the Petitioner establishment had defaulted for the payment of Provident Fund dues for a long time and for the said reason it is liable to pay the damages levy on the belated payment under the provisions of Section 14B of the EPF & MP Act 1952 because the delay was on the part of the petitioner in depositing the Provident Fund contribution and hence the petitioner is liable to pay damages as per Section 14-B of the EPF Act. The damages 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". 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 warning to employers in general not to commit a breach of the statutory requirements of Section 6, but at the same time it is meant to provide compensation or redress to the beneficiaries i.e. to recompense the employees for the loss sustained by them.
20. In the light of aforesaid discussion, this Court is of the opinion that the respondent no.1 has rightly passed the impugned order dated 22.01.1999 under section 14-B of the EPF & MP Act, 1952. Therefore, the writ petition lacks merit and is liable to be dismissed.
21. Accordingly, the writ petition is dismissed. Stay order, if any, shall stand vacated.
Order Date :- 24.3.2023 S.Verma {Umesh Chandra Sharma, J.}