Central Board of Trustees, Employees Provident Fund through Regional Provident Fund Commissioner, Kannur v Kasaragod Co-operative Educational Society Indira Nagar, Chengala, Kasaragod-671541; Central Government Industrial Tribunal cum Labour Court, Ernakulam

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **MONDAY, THE 15TH DAY OF JUNE 2020 / 25TH JYAISHTA, 1942** ## **WP(C).No.11733 OF 2020(N)** ## **PETITIONER/S:** **CENTRAL BOARD OF TRUSTEES, EMPLOYEES PROVIDENT FUND THROUGH REGIONAL PROVIDENT FUND COMMISSIONER, REGIONAL OFFICE, V.K.COMPLEX, FORT ROAD, KANNUR.** **BY ADV. SRI.K.C.SANTHOSH KUMAR, SC, EMPLOYEES PROVIDENT FUND ORGANISATION** ## **RESPONDENT/S:** - **1 KASARAGOD CO OPERATIVE EDUCATIONAL SOCIETY INDIRA NAGAR, CHENGALA, KASARAGOD-671541** - **2 CENTRAL GOVERNMENT INDUSTRIAL TRIBUNAL CUM LABOUR COURT, KARITHALA-KARSHAKA ROAD, ERNAKULAM682011.** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15.06.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.11733 OF 2020(N)** **2** ## **JUDGMENT** ## **Dated this the 15[th] day of June 2020** The present writ petition arises out of the order dated 8[th] November 2019 passed in appeals No. 146 of 2018, whereby the Central Government Industrial Tribunal cum Labour Court, Ernakulam, has reduced the damages to the extent of 70%. In respect of the proceedings conducted under Section 14 B of the Employees Provident Fund and Miscellaneous Provisions Act 1952 (herein after called '1952 Act'). 2. M/s Kasargod Co-operative Society, Kasargod on account of belated remittance of provident fund contributions for period from 09/2014 to 06/2015 was charged with proceedings under 14B of 1952 Act, which resulted into imposition of the damage ie., Rs.1,11,134/-. It is pertinent to mention that the aforementioned order was passed against educational institution registered under Indian Societies Act and is a Charitable Society. Aggrieved against the aforementioned orders, the appeals, as mentioned above, were preferred before the Tribunal on the **WP(C).No.11733 OF 2020(N) 3** premise that the impugned order issued by the respondent is a mechanical and non-speaking order. There was no intentional delay in remittance of contribution. The damage being a penalty, mens rea is an essential element considering quantum of damage to run the the appellate authority. The fees charged by children are not adequate to run the appellate institution. Also, on issuance of impugned a representative of appellant attended the the 14 B proceedings and pleaded that the remittance was delayed due to financial crisis. The statements of profit and loss accounts were attached along with the memorandum of appeal. Many other grounds were taken when the matter was contested by the petitioner. It resulted into modification of the order appealed against reduction of damages to the extent of 70%. 3. Mr. K.C Santhosh Kumar, learned counsel appearing on behalf of the petitioner submits that there is no provision in the law for reduction of damages as assessed in a proceedings under Section 14B of the Act. There was a failure of remittance of the contribution and as a necessary requirement, statutory provisions of the 1952 Act were **WP(C).No.11733 OF 2020(N)** **4** invoked, in accordance with law. It is settled law that the proceedings under both the provisions of law can be initiated. Respondents failed to place on record any material to substantiate that there was a bonafide error in remittance of contribution. The profit and loss account was not a conclusive evidence enabling the Tribunal to form an opinion in reduction of 70% of the assessed damages. The proceedings are rigorous in nature and in case of failure to pay, the establishments are liable to face the penal consequences and there is hardly any scope for leniency. 4. The Hon'ble Supreme Court in **Organo Chemical** **Industries and another & Union of India and others** **[1979(002) LLJ 0416]** observed that if there was a loss as claimed, it does not justify the delay in deposit of provident fund, which is unqualified statutory obligation. Thus for all intents and purposes, this cannot be linked to the financial position of the establishment over a different point of time and urged this Court for setting aside the order under challenge. 5. I have heard the learned counsel for the petitioner , appraised the paper book and of the view that there is no **WP(C).No.11733 OF 2020(N)** **5** force and merit in the submission. The Tribunal has examined the profit and loss account. The argument that the respondents did not place on record any accounts statement is false ploy. On plain and simple reading of the observation of the Tribunal as well as the grounds referred to, they were part and parcel of the records and examined in extenso. The similar proposition was came up for ponderation by the Division Bench of this Court in **Regional Provident Fund Commissioner vs. Harrisons Malayalam Ltd. (W.A. No. 241 of 2012 and connected cases) dated 19th August 2013,** wherein paragraph 7, 8, 14, 19 and 20 held as under: 6 **.** Looking at the amendment to S. 14B, it is evident that during the preamendment period, what was contemplated by the statutory provision was recovery of damages for default committed by an employer in payment of any contribution to the Fund. The words “may recover” definitely confers a discretion on the authority to either impose or not to impose any damages. In the event of imposition, the discretion to impose to that extent which would be thought justified and proper by the officer concerned, again is clear from the words “may think fit to **WP(C).No.11733 OF 2020(N)** **6** impose”. Necessarily the discretion ought to be exercised on the facts and circumstances of each case. That much is evidently declared by Organo Chemical Industries v. Union of India ((1979) 4 SCC 573). The Hon'ble Supreme Court held that the Commissioner's power under S. 14 B is a quasi judicial function subject to observance of principles of natural justice and that the order should be a speaking one; of course after reasonable opportunity of hearing is granted to the employer. It was also held that a penalty for default or failure in performance of duty imposed under the Act, takes with in its ambit, the compensation of the loss sustained by the employee. By holding that after giving the employees interest on the delayed payment made by the employer, the remaining amount should not go to the Government revenue but should be deposited in the Fund constituted under S. 5; the Court was making it clear that the damages imposed under S. 14 B takes in the interest component accrued in favour of the employee by reason of the default as also the aspect of deterrent penalty. The component of penalty, again, by the said finding, was held to be not an enrichment to the coffers of the Government, but, an augmentation of **WP(C).No.11733 OF 2020(N)** **7** the fund going by the spirit of the socioeconomic context and policy in which the welfare legislation was brought in. While upholding the quasi judicial nature of the proceedings, tested against Art. 14; it was also held that “the more bereft of explicit guidelines a statutory power is, the more searching must be the judicial invigilation to discover hidden injustice and masked mala fides“. (sic.) 7. In the said case, the default was sought to be explained on grounds, with reference to disputes between partners, power cut of 60% and other financial problems, which according to the employer were beyond their control. The order of the Commissioner rejecting the explanation of the employer was upheld by the Supreme Court on the finding that the default could not be linked with financial problems facing the establishment. The finding in the Organo's case was quoted with approval in Hindustan Times Ltd. v. Union of India ((1998) 2 SCC 242 : AIR 1998 SC 688). This later decision of the Supreme Court also, quoted the observation of one of the Judges in the earlier decision, wherein the factors that the authority usually takes into consideration was stated to be the number of defaults, the **WP(C).No.11733 OF 2020(N) 8** periods of delay and the frequency of the period and the amounts involved. The issue that arose in the latter case was a question of limitation in invoking the power under S. 14B. 8. Again, we have to notice that though S. 14B made a reference to the extent specified in the Scheme i.e., paragraph 32A, where such specification is marie under the Scheme, that provision too provides that the authorised officer… “may recover from the employer by way of penalty, damages at the rates given in the table”. The rates of damages which could be recovered is with reference to the period of default and the percentage is to be worked out per annum. On a reference back to S. 14B, it is to be emphasised that there is a clear prohibition in imposing damages, exceeding the amount of arrears. Hence looking at a hypothetical situation of default in payment extending a period of ten years the rate to be applied, being that for a period of default of six months and above; would be 25%. After imposing 25% for 4 years there can be no further imposition since then, it would exceed the arrears itself. That is a fetter on the authority of the authorised officer provided by the provisions of the Act and Scheme itself, and **WP(C).No.11733 OF 2020(N) 9** in our view the only fetter. It does not, according to us provide any further shackles on the discretion to reduce the quantum of damages, since, mitigating circumstance may exist in an year and not in the next. When the officer finds that there is no circumstance which compels reduction of the damages to be imposed in an year it cannot be taken as an automatic mandate to impose penalty on all subsequent or earlier periods in which the default occurred and continued. It cannot also be said that the circumstance in an year, warranting imposition of damages at a lower rate; while that in another year at higher rate, cannot be taken note of. The fetter as we can see in S. 14B and S. 32A is only in so far as providing that the penalty imposed cannot at any stage exceed the amount of arrears and further can be only up to the rates of damages specified in the sliding table with reference to the period of default. That is to say, if the period of default is less than two months the authorised officer...“may recover from the employer by way of penalty of damages at 5% of the arrears per annum;” and so on and so forth. 9 **.** Having found that the amended S. 14B deals only **WP(C).No.11733 OF 2020(N) 10** with the penal element; compensation aspect having been taken out of S. 14B and placed at S. 7Q, necessarily the rigours of imposing a penal consequence, follows. The learned Single Judge has rightly referred to Hindustan Steel Ltd. v. State of Orissa ((1969) 2 SCC 627 : AIR 1970 SC 253), which decision rendered under the Orissa Sales Tax Act held that the liability to pay penalty under that Act does not arise merely upon proof of default. The proceedings for imposition of penalty were held to be quasi judicial proceedings, inwhich imposition is not automatic and would depend on whether the party obliged under the enactment acted either “deliberately or in defiance of law and is guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation”(sic). The penalty was held to be not a natural consequence of the availability of a provision to impose it and was held to be a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. The same was the dictum in Regional Director, E.S.I. Corporation v. Sakthi Tiles (1988 (2) KLT 280) where again, S. 85B of the E.S.I. Act 1948 was considered. **WP(C).No.11733 OF 2020(N)** **11** 10. We find strength; in taking such a view on the question of discretion, as also the principle underlining the imposition of penalty, by yet another decision of the Hon'ble Supreme Court reported in (2008 (1) KLJ 184) E.S.I. Corporation v. H.M.T. Ltd Again, S. 85 B of the E.S.I. Act came up for consideration and the issue was whether damages specified in Regulation 31C of the Regulation of 1950 was imperative in character or not. Hindustan Times was quoted (specifically the paragraph we have, extracted above) and it was held that it was in the fact situation obtaining in the said case that the said observations were made. S. 85B was held to be an enabling provision wherein a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages, which provision was held to be liable to be construed strictly.” I am of the view that the finding of the Tribunal in reducing the damages to the extent of 70% is the most appropriate, equitable and just as the delay in remittance was neither intentional nor willful. Thus the mens rea was conspicuously absent. Even otherwise, economy of the country including of the State, at this point of time ie., on **WP(C).No.11733 OF 2020(N) 12** account of COVID-19 Pandemic has considerably been affected. The Tribunal or Court cannot set as a mute spectator by simply applying the statutory provisions. For the reason aforementioned, I do not find neither error nor irrationality in the order of Tribunal which do not fall within the realm of judicial review to form different opinion while exercising the power under Article 226 of the Constitution of India. These writ petitions are accordingly dismissed. **Sd/-** sab **AMIT RAWAL JUDGE** **WP(C).No.11733 OF 2020(N)** **13** ## **APPENDIX** **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF THE APPEAL MEMORANDUM DATED 26.09.2016 BEARING APPEAL NO.146/2018 FILED BEFORE THE 2ND RESPONDENT** **EXHIBIT P2 TRUE COPY OF THE COUNTER AFFIDAVIT DATED 10.11.2016 FILED BY THE PETITIONER HEREIN** **EXHIBIT P3 TRUE COPY OF THE ORDER DATED 08.11.2019 IN APPEAL NO.146/2018 ON THE FILE OF THE CENTRAL GOVERNMENT INDUSTRIAL TRIBUNAL CUM LABOUR COURT, ERNAKULAM**