Gujarat High Court
Employees Provident Fund Organization ... vs Tensile Steel Ltd on 29 June, 2017
Author: K.M.Thaker
Bench: K.M.Thaker
C/SCA/2970/2010 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 2970 of 2010
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE K.M.THAKER Sd/-
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1 Whether Reporters of Local Papers may be allowed YES
to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy of NO
the judgment ?
4 Whether this case involves a substantial question of NO
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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EMPLOYEES PROVIDENT FUND ORGANIZATION THROUGH THE
ASST....Petitioner(s)
Versus
TENSILE STEEL LTD....Respondent(s)
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Appearance:
MR NK MAJMUDAR, ADVOCATE for the Petitioner(s) No. 1
MR K.M. PATEL, SENIOR COUNSEL WITH MR JIGAR M PATEL,
ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE K.M.THAKER
Date : 29/06/2017
ORAL JUDGMENT
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1. Heard Mr.N.K. Majmudar, learned advocate for the petitioner and Mr.K.M. Patel, learned senior counsel with Mr.J.M. Patel, learned advocate for the respondent.
2. In present petition, the petitioner Provident Fund Organization has challenged order dated 15.6.2009 passed by the learned Provident Fund Appellate Tribunal ('the learned Tribunal' for short) in Appeal ATA No.266(5)/2007 whereby the learned Tribunal set aside the order dated 14.5.2008 passed by the Provident Fund Commissioner who, in light of section 14B of the Act, imposed damages on account of delay caused by the respondent company in depositing provident fund contribution.
3. So far as factual background is concerned, it has emerged from the record that the respondent company is 'covered establishment' under provisions of the Employees' Provident Funds and Page 2 of 16 HC-NIC Page 2 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT Miscellaneous Provisions Act, 1952 ('the Act' for short). It has also emerged from the record that during certain part of the period of coverage, the company committed default in depositing the provident fund contribution. Consequently, the Provident Fund Organization initiated proceedings against the respondent company. The orders under Sections 7A and 7Q of the Act came to be passed. It is claimed that the respondent company subsequently paid the amount of contribution and also paid the amount determined by the authority under Sections 7A and 7Q of the Act.
Subsequently, the proceedings came to be instituted for recovering damages under Section 14B. After hearing the parties, the Assistant Provident Fund Commissioner passed order dated 14.5.2008 and quantified the amount payable towards damages under section 14B of the Act (interest plus damages), the Assistant Provident Fund Commissioner quantified the amount at Rs.84,60,910/. Feeling aggrieved by the said decision by the Regional Provident Fund Page 3 of 16 HC-NIC Page 3 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT Commissioner, the respondent department filed appeal (under Section 7I of the Act) before the learned Tribunal. The appeal was registered as Appeal ATA No.266(5)/2007. After hearing the parties, the learned Tribunal passed the order dated 15.6.2009 and set aside the section 14B order in its entirety.
4. Mr.Majmudar, learned advocate for the petitioner submitted that the learned Tribunal has failed to appreciate factual aspects viz. that the company had undsiputedly committed default in depositing provident fund contribution and therefore, the company, under the provisions of the Act, was liable to pay interest and damages in accordance with the provisions contained under Section 7Q and Section 14B of the Act. He further submitted that the company preferred appeal against the order passed under Section 14B of the Act. Learned advocate for the Provident Fund Organization submitted that when the cause of action i.e. cause for imposing Page 4 of 16 HC-NIC Page 4 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT damages in accordance with Section 14B read with relevant provisions under the Scheme / Rules (i.e. the cause for delay in depositing provident fund contribution) is not in dispute, then there was no justification to set aside the order passed under Section 14B of the Act. He submitted that the Provident Fund Commissioner reached to the conclusion that the company is liable to pay damages in accordance with Section 14B in view of undisputed fact that the company had committed default in depositing amount towards contribution. Therefore, the company was, undisputedly, liable to pay damages in accordance with Section 14B of the Act which is statutory obligation. He also submitted that the Provident Fund Commissioner passed order in accordance with the formula prescribed under the Scheme / Rules framed under the Act and the order dated 14.5.2008 is in consonance with the provisions under Section 14B of the Act. Even if the learned Tribunal reached to the conclusion that the quantification was on higher side and/or that the Page 5 of 16 HC-NIC Page 5 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT circumstances which caused delay had not been taken into account by the Commissioner and the factors which contributed to the delay in depositing the amount should have been taken into consideration, then the learned Tribunal could have itself determined appropriate amount or could have directed the Provident Fund Commissioner to redetermine the amount, however, there is no justification in learned Tribunal's order whereby the learned Tribunal set aside the order in entirety and there is also no justification in not levying any damages, under and in accordance with Section 14B of the Act, despite undisputed default / delay in depositing the contribution.
5. Per contra, Mr.K.M. Patel, learned senior counsel for the respondent company submitted that the learned Tribunal has taken into account the fact that the company had undergone financial difficulties which is the cause for default and having regard to said aspect, the learned Page 6 of 16 HC-NIC Page 6 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT Tribunal passed the order which does not warrant any interference. He submitted that the learned Tribunal relied on the decision by Hon'ble Apex Court and in light of the said decision, the learned Tribunal reached to the conclusion that the order passed by the Provident Fund Commissioner deserved to be set aside. According to Mr.K.M. Patel, learned senior counsel for the respondent company, the order does not warrant any interference. Learned advocate for the respondent company relied on the decision in case of Employees' State Insurance Corporation vs. HMT Ltd. [AIR 2008 SC 1322].
6. I have considered submissions by learned advocate for the Provident Fund Organization and the respondent company. I have also taken into account order passed by the Assistant Provident Fund Commissioner as well as impugned order passed by the learned Tribunal.
7. Learned advocate for the Provident Fund Organization is justified in his submission that Page 7 of 16 HC-NIC Page 7 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT undisputedly the company had caused default and delay in depositing provident fund contribution and said fact is the cause for statutory action and the authority is obliged to take action in accordance with section 14B of the Act.
8. The decision relied on by learned senior counsel for the company does not lay down complete and absolute principle of law and proposition that in case where financial difficulty is pleaded it should be mechanically accepted - even if no evidence to support such claim is shown and even if facts are not proved - and in all cases of financial difficulties damages should not be imposed. The purport of the submission by learned senior counsel and the understanding of learned Tribunal - with reference to the decision by Apex Court - is that in case of financial difficulty damages to any extent should not be imposed and it should be waived completely.
9. It was not and it is not the case even of the Page 8 of 16 HC-NIC Page 8 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT company that default in depositing the contribution did not occur and it had not caused default in paying the contribution. Undisputedly, the company caused default in depositing the provident fund contribution. Therefore, by its own action, the company invited consequences (for default and delay caused in depositing the provident fund contribution) in accordance with the provisions contained under the Act read with Scheme / Regulation. Consequently, the orders under Section 7Q and Section 14B came to be passed.
10. Thus, the consequences in accordance with section 7Q and/or section 14B should follow. Of course as held by Apex Court the cause and circumstance which caused default and whether there was mens rea or not, must be taken into account. However, the employer (a) should not only plead but should also satisfactorily prove, with cogent evidence, financial crisis; and that
(b) it had no intention to avoid the payment;
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(c) even wages were not paid and therefore deduction from wages was not made; (d) or that worker's contribution was deposited and default occurred only in respect of employer's contribution which could not be deposited due to financial crisis and for want of funds. In absence of sufficient and cogent evidence e.g. profit and loss account, balancesheet, income tax returns, etc. Commissioner or Tribunal cannot and should not mechanically believe and accept such plea. Only if relevant facts are proved, the Commissioner or the Tribunal can take into account and/or give benefit of such plea.
11. The respondent company would contend that due to financial crunch and difficulty, the petitioner company could not deposit the provident fund contribution within prescribed time limit. It is claimed that the company was passing through financial difficulty and therefore, it had not deposited the provident fund contribution. However, on reading Page 10 of 16 HC-NIC Page 10 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT Commissioner's order and Tribunal's order it comes out that except bald and unsubstantiated claim any cogent and satisfactory evidence e.g. profit and loss account or balancesheet or income tax retruns (of relevant period) were not placed on record to prove and justify the claim. It was also not shown or clarified whether workers' contribution and employer's contribution were not paid or only employer's contribution was not paid and whether workers' contribution was deducted while payment of wages, or not. Unfortunately, while passing order in favour of employer, the Tribunal did not even care to find out whether such evidence is available on record or not and whether relevant facts are proved or not. The Tribunal has not addressed these issues and not recorded the findings in light of proper evidence.
12. While the submission that the financial circumstance is one of the circumstances required to be taken into account by the authority that Page 11 of 16 HC-NIC Page 11 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT while quantifying the damages, cannot be denied or rejected, at the same time, the need for relevant evidence about alleged financial difficulties cannot be discounted and the fact that the employer deducted contribution amount from the wages of the employees (at the time of payment of salary) and employer retained the amount so deducted from the wages and did not deposit said amount within time prescribed under the Act, also cannot be ignored (unless employer proves that contribution from wages was not deducted). The cases where the employer establishes compelling circumstances on account of financial difficulty or such other similar circumstances in not depositing employer's contribution would stand on a different footing, from the cases where the employer does not even deposit the amount deducted from the wages of the employees. The learned Tribunal is expected to distinguish such two types of cases when the employer pleads financial circumstances (as the cause for not depositing the amount within Page 12 of 16 HC-NIC Page 12 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT prescribed time) and should treat and decide such two types of cases by applying different criteria and standard.
13. If, in present case, on examination of the appeal filed by the respondent company, the learned Tribunal found that the Provident Fund Commissioner had not taken into account relevant circumstances or facts while quantifying the amount of damages or if the learned Tribunal was of the opinion that the amount quantified by the Provident Fund Commissioner was on higher side, then the learned Tribunal itself could have undertaken the process of quantifying the damages if any material was available on record.
14. However, from the facts of the case, more particularly the fact that the default / delay in depositing the amount is an undisputed fact, there was no justification for the learned Tribunal to completely set aside the order of Provident Fund Commissioner in its entirety and which would result in total waiver of damages / Page 13 of 16 HC-NIC Page 13 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT interest, more particularly in absence of cogent evidence in support of the allegation about financial difficulties.
15. The learned Tribunal has not discussed any factual aspects and the learned Tribunal has not examined whether the company had placed any material on record to establish its claim about financial crisis and that it was so severe that entire provident fund contribution could not be paid and whether profit and loss account balance sheet for relevant period were available on record, or not. The learned Tribunal passed the order without dealing with such aspects.
16. Any of these aspects has not been discussed or taken into account by the learned Tribunal and without applying mind to the relevant factors, the learned Tribunal has passed impugned order whereby the company is allowed escape route without paying damages under Section 14B, despite undisputed fact that the company had caused default in depositing the provident fund Page 14 of 16 HC-NIC Page 14 of 16 Created On Sun Aug 20 08:48:59 IST 2017 C/SCA/2970/2010 JUDGMENT contribution.
17. Under the circumstances, the order cannot be sustained. The matter deserves reconsideration by the learned Tribunal who should take into account the relevant facts and circumstances before passing final order.
18. Therefore, following order is passed:
Impugned order dated 15.6.2009 is set aside. The matter is remanded to the learned Tribunal for reconsideration. The learned Tribunal will allow opportunity of hearing to both sides and after taking into account relevant facts and circumstances, pass appropriate afresh order. Learned Tribunal shall pass fresh reasoned and speaking order in accordance with law and without being influenced by order challenged in this petition. It is clarified that all contentions of both sides - based on evidence on record - are kept alive and open.
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With the aforesaid observations and directions, the petition is partly allowed. Rule is made absolute to the aforesaid extent.
Sd/-
(K.M.THAKER, J.) Bharat Page 16 of 16 HC-NIC Page 16 of 16 Created On Sun Aug 20 08:48:59 IST 2017