Employees Provident Fund Organisation Regional Office, Pattom, Thiruvananthapuram v. M/s Sree Chithira Thirunal Residential School, Kunathukkal, Karakkonam, Thiruvananthapuram - 695 115; and The Hon'ble Employees Provident Fund Appellate Tribunal, Scope Minar, New Delhi

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V** **TUESDAY, THE 04TH DAY OF FEBRUARY 2020 / 15TH MAGHA, 1941** ## **WP(C).No.14448 OF 2014(E)** ## **PETITIONER:** **THE EMPLOYEES PROVIDENT FUND ORGANISATION REGIONAL OFFICE, PATTOM, THIRUVANANTHAPURAM, REPRESENTED BY THE ASSISTANT PROVIDENT FUND COMMISSIONER (LEGAL), THIRUVANANTHAPURAM.** **BY ADVS.** **SRI.N.N.SUGUNAPALAN (SR.) SMT.T.N.GIRIJA SC EPF ORGANISATION** ## **RESPONDENTS:** **1 M/S.SREE CHITHIRA THIRUNAL RESIDENTIAL SCHOOL KUNNATHUKKAL, KARAKKONAM P.O., THIRUVANANTHAPURAM - 695 115.** **2 THE HON'BLE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL SCOPE MINAR, IVTH FLOOR, CORE-2, LAXMI NAGAR, NEW DELHI - 110 092, REPRESENTED BY ITS REGISTRAR.** **R1 BY ADV. SRI.HARISH R. MENON R1 BY ADV. SRI.K.T.SHYAMKUMAR** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 04.02.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** WP(C).No.14448 OF 2014 2 ## **JUDGMENT** The Employees Provident Fund Organization has preferred this Writ Petition seeking to quash Ext.P4 order passed by the Employees Provident Fund Appellate Tribunal, New Delhi in ATA No.54(7)2010. By the said order, the Appellate Tribunal interfered with the order of assessment passed by the Assistant Provident Fund Commissioner, Thiruvananthapuram under Section 14 B of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 ( “EPF Act” for the sake of brevity ) and restricted the damages at 10% per annum on the arrears of contribution. 2. Brief facts necessary to be stated for adjudicating the issues raised in this petition are that the 1[st] respondent M/s Sree Chithira Thirunal Residential Central School, Thiruvananthapuram is an establishment covered under the EPF Act, 1952. The 1[st] respondent failed to pay the dues in time for the period from 3/1997 to 8/2002. A show cause notice was issued pursuant to which the 1[st] respondent appeared before the assessing authority. Materials were placed before the authorities to show that the establishment is a School registered as a charitable society and is running on a ‘No profit - No loss’ basis. The society incurred huge capital expenditure in construction and purchase of various items and was WP(C).No.14448 OF 2014 3 financially in the doldrums which led to some delay in making remittances. The assessing officer considered the submissions and came to the conclusion that as there is no provision for waiving the statutory penal damages demanded under Section 14B of the EPF Act, the employer is bound to pay the amount which was demanded. 3. The said order was challenged before the Appellate Tribunal. The Tribunal came to the conclusion that the power to impose damages under Section 14B confers a discretion upon the Provident Fund Commissioner to impose damages not exceeding the amounts of arrears within the ceiling that is imposed by the Statute. It was held that the nature of powers being quasi judicial, the exercise of the discretion must be on sound and objective considerations. It was held that though there has been a default on the part of the 1[st] respondent attracting action under Section 14B of the EPF Act, some consideration ought to have been given to the situation which led to the default in remittance of the dues and the reason which were offered for such delay. The Appellate Tribunal concluded that the Commissioner while conducting the enquiry under Section 14B failed to follow the law in correct perspective and have just concluded that there is no provision to waive the statutory penal damages. The failure of the assessing officer to conduct a proper enquiry to ascertain as to whether the 1[st] respondent had willfully and deliberately withheld the PF contribution was also found fault WP(C).No.14448 OF 2014 4 with. After considering all these aspects, the Appellate Tribunal went on to hold that the case was an appropriate one warranting restriction of damages to 10% per annum on the arrears of contribution. 4. Smt T.N.Girija, the learned counsel appearing for the EPF Organization, submitted that the order passed by the Appellate Tribunal cannot be sustained. According to the counsel, the Tribunal failed to consider the fact that there was no option on the part of the assessing authority to reduce the damages except as per the provisions of para 32B of the Provident Fund Scheme. It is further submitted that admittedly there was gross delay on the part of the 1[st] respondent and in that view of the matter, the officer who is authorised to levy penal damages had no other go but to apply the provisions of the law in its letter and spirit. The learned counsel has referred to the decision of the Apex Court in **Organo Chemical Industries v Union of India[1]** and in **Hindustan Times Ltd V Union of India[2]** to bring home her point that financial issues faced by the establishment is not a reason to avoid liability for damages. 5. Per Contra, Sri.K.T. Syam Kumar, the learned counsel appearing for the 1[st] respondent submitted that the Appellate Tribunal took note of all the relevant aspects and came to the conclusion that the order of assessment passed by the assessing officer cannot be sustained. He would - 1 (1979 (4) SCC 573) > 2 **[** 1998 (1) LLJ 682] WP(C).No.14448 OF 2014 5 further contend that there were materials which showed no uncertain terms that the 1[st] respondent being a charitable educational institution running on a no profit no loss basis was suffering huge financial problems which prevented them from effecting payment of the installments in time. According to the learned counsel, the assessing authority has clearly erred in concluding that there is no provision for waiving the statutory penal damages. The interest due under section 7Q of the Act was duly paid by the 1[st] respondent and all that they had sought was for reducing the quantum of damages. 6. I have considered the submissions advanced and have gone the materials made available. ## 7. Section 14 B of the EPF Act reads as follows: 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 subsection (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 WP(C).No.14448 OF 2014 6 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. 8. In **Provident Fund Commr. v. S.D. College[3]** , the Hon'ble Supreme Court had occasion to consider the question as to whether the Assessing officer under Section 14B of the EPF Act can altogether waive the penalty or could only reduce the same. It was held as follows in para 10 and 11 of the report. 10. A reading of Section 14-B of the Act would indicate that the employer is under an obligation under the statute to comply with the payment of the amount. In the event of his committing default in the payment of the contribution to the fund or in the payment of any charges payable under any other provisions of the Act or any scheme or insurance scheme or any of the conditions specified in Section 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government may, by notification in the Official Gazette in this behalf, recover from the employer, by way of penalty, such damages, not exceeding the amount of arrears, as may be specified in the scheme. The second proviso only lifts the embargo in the event of the industry becoming sick and it was reconstructed under the provisions of Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 subject to such terms and conditions as may be specified in the scheme of rehabilitation. In other words, the Act envisages the imposition of damages for delayed payments. The Act is a beneficial welfare legislation to ensure health and other benefits to the employees. The employer under the Act is under a statutory obligation to deduct the specified percentage of the contribution from the employee's salary and matching contribution, the entire amount is required to be deposited in the fund within 15 days after the date of the collection, every month. 11. Thereby the employer is under a statutory obligation to 3 [(1997) 1 SCC 241] WP(C).No.14448 OF 2014 7 deposit the amount to the credit of the fund every month. In the event of any default committed in that behalf, Section 14-B steps in and calls upon the employer to pay damages by way of penalty, the maximum of which is the accumulated arrears. The Regional Provident Fund Commissioner is given discretion only to reduce a percentage of damages and he has no power to waive penalty altogether. ( emphasis supplied) 9. Thus there cannot be any doubt that a discretion is vested on the Commissioner to reduce the percentage of damages in appropriate cases and he is expected to consider the cause of belated remittances and may reduce the percentage of penalty. 10. In **Regional Provident Fund Commissioner V Harrisons Malayalam Ltd.[4]** , a Division bench of this Court after surveying the decisions of the Apex Court in **Organo** ( supra), **Hindustan Times** (supra) had laid down as follows : 23. We are of the definite opinion that the amendment definitely provided substantial changes in the scope and content of S. 14B and the decision in Organo's case (supra) and Hindustan Times (supra) will not strictly apply. The decision in H.M.T. Limited (supra) has distinguished the decision in Hindustan Times (supra) to come to the above conclusion. In such circumstances, we find that what has been effectively intended by the amendment to S. 14B is to take out the compensatory element and disrobe the authority of any discretion with respect to that and provide automatic imposition of interest by S. 7Q. Under S. 14B, the authorized officer necessarily has a discretion to impose damages, by way of penalty or not to impose it altogether. In the circumstance of a finding that penalty has to be imposed, then, the authorized officer has to go to the Scheme; more specifically paragraph 32 A of the sliding table provided thereunder, which is in the manner of guidelines. 4 [2013 (3) KLT 790] WP(C).No.14448 OF 2014 8 24. Going by the specific words employed in paragraph 32A again, the officer has to exercise his discretion while looking at the mitigating circumstances, which includes financial difficulties projected by an employer and the quantum to be imposed has to be decided. The only fetter is on the upper limit of rates provided in S. 14B and the table under paragraph 32A. The discretion granted by the enactment under S. 14B to the authorized officer to either levy or not to levy penalty cannot be fettered by a provision in the subordinate legislation, (E.S.I. Corporation v. H.M.T. Limited). We also notice that while the sliding table under paragraph 32A provided for the rate of damages for various periods as 17, 22, 27 and 37 the same was amended with effect from 26.9.2008, reducing it to 5, 10, 15 and 25. This reduction by 12 is again a confirmation of the intention of the legislature of compensatory element being taken out of S. 14B. Though higher rates were provided under paragraph 32A initially, latter it was noticing the automatic levy of 12% under S. 7Q, that, the reduction was brought in. ## In **McLeod Russel India Ltd. v. Regl. Provident Fund Commr** .[5] , the Hon'ble Supreme Court had occasion to consider as to whether the requirement of mens rea/ actus reus is a determining factor for imposing and quantifying damages under section 14 B of the Act. In paragraph 11 off the report, the Apex Court had occasion to observe as follows :- In ESI Corpn V HMT Ltd 2008 (3) SCC 35 this Court noted the beneficial nature of the ESIC Act; that subordinate legislation must conform to the provisions of the parent Act. Despite giving due regard to the use of the words “may recover damages by way of penalty”, and mindful that mens rea and actus reus to contravene a statutory provision are necessary ingredients for levy of damages, this Court set aside the interference of the High Court vis-á-vis the imposition of damages and further held that imposition of damages by way of penalty was not mandated in each and every case. The dispute was remitted back to the High Court for fresh consideration i.e. to proceed on the premise that the levy of penalty under the Act was not a mere formality, a 5 [(2014) 15 SCC 263] WP(C).No.14448 OF 2014 9 foregone conclusion or an inexorable imposition; and that the circumstances surrounding the failure to deposit the contribution of the employees concerned would also have to be cogitated upon. This decision does not prescribe that damages or penalties cannot or ought not to be imposed. Further, the presence or absence of mens rea and/or actus reus would be a determinative factor in imposing damages under Section 14-B, as also the quantum thereof since it is not inflexible that 100 per cent of the arrears have to be imposed in all the cases. Alternatively stated, if damages have been imposed under Section 14-B it will be only logical that mens rea and/or actus reus was prevailing at the relevant time. We may also note that this Court had yet again reiterated the well known but oft ignored principle that High Courts or any appellate authority created by a statute should not substitute their perspective of discretion on that of the lower adjudicatory authority if the impugned order does not otherwise manifest perversity in the process of decision taking. HMT Ltd. [ESI Corpn. v. HMT Ltd., (2008) 3 SCC 35 : (2008) 1 SCC (L&S) 558] does not proscribe imposition of damages; that would negate the intent of the legislature. The submission of the petitioner before us is that the liability was of the erstwhile management and since the petitioner was not the “employer” at the relevant time, default much less deliberate and wilful default on the part of the petitioner was absent. However, it seems to us that once these damages have been levied, the quantification and imposition could be recovered from the party which has assumed the management of the establishment concerned. 11. It was held that the presence or absence of mens rea and/or actus reus would be a determinative factor in imposing damages under Section 14-B, as also the quantum thereof since it is not inflexible that 100 per cent of the arrears have to be imposed in all the cases. The said view was follows in **Provident Fund Commissioner V RSL Textiles ( India)** ## **(P) Ltd[6]** 6 **[** 2017 (3) SCC 110] WP(C).No.14448 OF 2014 10 12. As has been laid down, going by the specific words employed in Section 14B of the EPF Act and 32A of the Scheme, imposition of damages by way of penalty was not mandated in each and every case. The circumstances surrounding the failure to deposit the contribution of the employees concerned will also have to be cogitated upon. The authority 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 by giving a reasonable opportunity of being heard to the parties concerned. The Regional Provident Fund Commissioner may have to take into consideration the number of defaults, the period of delay, the frequency of default and the amounts involved etc. Further, the presence or absence of mens rea and/or actus reus would also be a determinative factor in imposing damages under Section 14-B, as also the quantum thereof since it is not inflexible that 100 per cent of the arrears have to be imposed in all the cases. 13. I find that in the instant case, the Appellate Authority has considered the entire facts in its proper perspective and have properly exercised the discretion in accordance with the statutory mandate. The appellate authority was convinced that, in the facts and circumstances, the belated remittances were due to sufficient cause and was not deliberate. It WP(C).No.14448 OF 2014 11 was held that conduct on the part of the 1[st] respondent was not contumacious. Furthermore, I take not of the fact that the interest under Section 7 Q was remitted by the 1[st] respondent and if that be the case the reduction of percentage of damages as ordered does not suffer from any infirmity. As the Appellate authority has exercised its discretion in accordance with the statutory mandate as explained by the Apex Court, no interference is warranted in exercise of extraordinary jurisdiction conferred on this Court under Article 226 of the Constitution. This Writ Petition fails and the same will stand dismissed. There will be no order as to costs. **Sd/-** ## **RAJA VIJAYARAGHAVAN V** ## **JUDGE** IAP WP(C).No.14448 OF 2014 12 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF THE PROCEEDINGS DATED 04.11.09 OF THE ASSISTANT PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANISATION, THIRUVANANTHAPURAM.** **EXHIBIT P2 TRUE COPY OF THE APPEAL MEMORANDUM REFERRED BY THE ESTABLISHMENT BEFORE THE 2ND RESPONDENT.** **EXHIBIT P3 TRUE COPY OF THE COUNTER AFFIDAVIT FILED BY ASSISTANT PROVIDENT FUND COMMISSIONER.** **EXHIBIT P4 TRUE COPY OF THE ORDER DATED 01.10.2012 IN A.T.A NO.54(7) 2010 OF THE 2ND RESPONDENT APPELLATE TRIBUNAL.** ## **RESPONDENTS' EXHIBITS:NIL** **//TRUE COPY//** **P.A TO JUDGE** WP(C).No.14448 OF 2014 13