CENTRAL BOARD OF TRUSTEES EMPLOYEES PROVIDENT FUND v PERFECT BOARDS AND DOORS KATTAMPALL

## **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.11732 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.SANTHOSHKUMAR** ## **RESPONDENT/S:** **1 PERFECT BOARDS AND DOORS KATTAMPALL, P.O, NARATH, KANNUR-670603** **2 CENTRAL GOVERNMENT INDUSTRIAL TRIBUNAL CUM LABOUR COURT, KARITHALA-KARSHAKA ROAD, ERNAKULAM682011** ## **OTHER PRESENT:** ## **SRI PAUL ABRAHAM VAKKANAL GP** **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.11732 OF 2020(N)** **2** ## **JUDGMENT** ## **Dated this the 15[th] day of June 2020** The petitioner is respondent in the Appeal No. 203/2018 and the said appeal is filed by respondent herein by challenging the order dated 19/09/2016 levied under Section 14 B of the Employees Provident Fund and Miscellaneous Provisions Act for belated remittance of the Provident Fund Contribution for the period of 02/04/2012 to 01/04/2015. The Central Government Industrial Tribunal cum Labour Court, Ernakulam, in the aforementioned appeal 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 Perfect Board and Doors, Kannur on account of belated remittance of provident fund contributions for period of 02/04/2012 to 01/04/17 was charged with imposition of damages under Section 14B amounting to Rs. 2,41,071/-. Aggrieved against the aforementioned orders, the appeal was preferred before the Tribunal on the premise that the **WP(C).No.11732 OF 2020(N) 3** appellant (Respondent in this Writ Petition) being a partnership firm with 23 employees engaged as on 01/04/2013, out of these, 8 employees left on 01/06/2013; and thereafter in June 2015 appellant employed 15 new employees, making total strength of the factory to 30 employees. Thereafter, appellant applied for the Provident Fund Code Number in July 2015 and respondent allowed the same to appellant with effect from 23/07/2015. Appellant duly paid the contribution in respect of employees as well as employers’. Appellant received notice from the respondent alleging delay in remittance of the contribution from 01/04/2012. Authorised representative attended the hearing and explained the position of to the respondent. Without considering the representation of the appellant the impugned order were issued. It was contended that there was no intentional delay in the remittance of contribution. The communication allowing aforesaid code number from 2012 was received on 23/02/2015 and thereafter the appellant paid all the contributions thereafter, duly on time. Therefore on the finding of absence of the mens rea on the part of appellant the Appellate Tribunal reduced the damage under **WP(C).No.11732 OF 2020(N)** **4** Section 14 B of the Act to 70%, and the proceeding under Section 7Q were dismissed. 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. It is over and above the interest liable to be paid on account of default in terms of provisions of Section 7Q of the Act. There was a failure of remittance of the contribution and as a necessary requirement, statutory provisions of the 1952 Act were invoked, in accordance with law. It is settled law that the proceedings under both the provisions of law can be initiated. It is contended that 1st Respondent tried to make profit out of their own default, and further, in proceedings before the the Appellate Authority respondent 1 had admitted to delayed payment attributed the same to human error . No doubt, the interest under Section 7Q is to the extent of 12% but the proceedings under Section 14 B are totally independent and not correlated. The proceedings are rigorous in nature and in case of failure to pay, the establishments are liable to face the penal consequences and **WP(C).No.11732 OF 2020(N)** **5** there is hardly any scope for leniency; also, the Appellate authority after holding the non enrolment of the eligible employees to provident fund scheme is statutory violation, however, proceeded to hold, as per the pleadings of appellants, that non-payment was not intentional and such that the appellant is entitled to relief hence reduction of damage to 70%. 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 force and merit in the submission. The Tribunal not only examined the profit and loss account but also found that the 1st respondent had no mens rea. The argument that the **WP(C).No.11732 OF 2020(N) 6** 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 impose”. Necessarily the discretion ought to be exercised on the facts and circumstances of each case. That much is **WP(C).No.11732 OF 2020(N) 7** 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 the fund going by the spirit of the socioeconomic context and policy in which the welfare legislation was brought in. While **WP(C).No.11732 OF 2020(N) 8** 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 periods of delay and the frequency of the period and the amounts involved. The issue that arose in the latter case was **WP(C).No.11732 OF 2020(N)** **9** 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 in our view the only fetter. It does not, according to us provide any further shackles on the discretion to reduce the quantum of **WP(C).No.11732 OF 2020(N)** **10** 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 with the penal element; compensation aspect having been taken out of S. 14B and placed at S. 7Q, necessarily the **WP(C).No.11732 OF 2020(N)** **11** 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. 10. We find strength; in taking such a view on the question of discretion, as also the principle underlining the **WP(C).No.11732 OF 2020(N)** **12** 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 % is the most appropriate, equitable and just as the delay in remittance was neither intentional nor wilful. Thus the mens rea was conspicuously absent. Even otherwise, economy of the country including of the State, at this point of time ie., on account of COVID-19 Pandemic has considerably been affected. The Tribunal or Court cannot set as a mute **WP(C).No.11732 OF 2020(N)** **13** 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. The writ petition is accordingly dismissed. ## **Sd/-** sab **AMIT RAWAL JUDGE** **WP(C).No.11732 OF 2020(N)** **14** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF THE APPEAL MEMORANDUM DATED 04.11.2016 BEARING APPEAL NO.203/2018 FILED BEFORE THE 2ND RESPONDENT EXHIBIT P2 TRUE COPY OF THE COUNTER AFFIDAVIT DATED 21.12.2016 FILED BY THE PETITIONER HEREIN** **EXHIBIT P3 TRUE COPY OF THE ORDER DATED 02.01.2020 IN APPEAL NO.203/2018 ON THE FILE OF THE CENTRAL GOVERNMENT INDUSTRIAL TRIBUNAL CUM LABOUR COURT, ERNAKULAM**