HMT Machine Tools Ltd. v. Employees Provident Fund Appellate Tribunal and Assistant Provident Fund Commissioner

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** **TUESDAY, THE 19TH DAY OF NOVEMBER 2019 / 28TH KARTHIKA, 1941** # **WP(C).No.9660 OF 2011(F)** ## **- PETITIONER :** **HMT MACHINE TOOLS LTD H.M.T.COLONY, KALAMASSERY P.O., ERNAKULAM DISTRICT, REP.BY ITS GENERAL MANAGER (FINANCE).** **BY ADVS. SRI.M.PATHROSE MATTHAI (SR.) SMT.MARIAM MATHAI SRI.SAJI VARGHESE** ## **- RESPONDENTS :** **1 THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL, 4TH FLOOR, CORE-2, SCOPE MINAR, LAKSHMI NAGAR, NEW DELHI - 110 092. 2 THE ASSISTANT PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANIZATION, SUB-REGIONAL OFFICE, 36/685 A, BHAVISHYA NIDHI BHAVAN, PB NO.1895, KALOOR, KOCHI - 682 017. BY ADV. SRI.M.CHANDRA BOSE BY ADV. DR.S.GOPAKUMARAN NAIR SR.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 19.11.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** WP(C).No.9660 OF 2011(F) -: 2 :- ## **JUDGMENT** The petitioner who is a company incorporated under the Companies Act has approached this Court challenging the levy of penalty by Ext.P5 order as also Ext.P10 order issued by the Appellate Authority rejecting the appeal preferred by the petitioner against Ext.P5. Ext.P6 notice with regard to recovery of the amounts found due is also under challenge. 2. Heard the learned counsel for the petitioner and the learned Standing Counsel appearing for the Employees Provident Fund Organisation. 3. It is submitted by the learned counsel for the petitioner that the petitioner was an exempted establishment by the Employees Provident Funds and Miscellaneous Provisions (Amendment) Ordinance, 1995. By this Ordinance, the Family Pension Scheme of 1971 was abolished and the Employees Pension Scheme was framed. It is stated that one of the recognised trade unions filed O.P. No.277/1996 challenging the Amendment and the Pension Scheme framed by the Government. By Ext.P1, the said O.P. was admitted and an interim stay of the Amendment Ordinance as well as the Scheme had been granted. The order of stay had been extended until further orders by WP(C).No.9660 OF 2011(F) -: 3 :- Ext.P2. It is submitted that the Original Petition was finally heard and dismissed in August, 1997. It is stated that in view of the stay granted by this Court, the petitioner did not collect or remit the provident fund contribution and soon after the stay was vacated the contributions had been remitted on 17.11.1997. 4. It is submitted that Ext.P3 show cause notice was issued under Section 14B of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (for short, 'the EPF & MP Act') requiring the petitioner to submit explanations as to why damages shall not be levied for the delay in remitting the contribution. The petitioner submitted Ext.P4 reply pointing out that the Amendment Ordinance itself was stayed by this Court and that the petitioner who was one of the respondents in the above Original Petition was disabled from making any payment in terms of the Amendment and the Scheme. It is stated that thereupon, Ext.P5 order has been passed on 26.3.2007, finding that there was delay on the part of the petitioner in remitting the contribution and that penalty under Section 14B is liable to be charged for the delayed remittances of statutory contribution. It was found that the provision with regard to waiver of the penalty is not applicable to the petitioner and in view of the admitted non-remittance of the contribution in time, the petitioner is duty WP(C).No.9660 OF 2011(F) -: 4 :- bound to pay the damages. An amount of Rs.10,67,824/- was quantified as damages and sought to be recovered. 5. The petitioner submitted a statutory appeal pointing out the factual aspects which also came to be dismissed by Ext.P10 order. The discussion in Ext.P10 is as follows :- “6. The applicability of the Act and default is not questioned. It is also not disputed that the appellant has not deposited to the pension fund and the validity of the Pension Scheme was also upheld. In the case of Grams Sewa Samiit Vs. RPFC reported 1997 Vol.II LLJ at page 1202, the Hon'ble Court of Madhya Pradesh held that “the employer bonafidely disputing applicability of the Act is not absolute from his liability to pay the contribution and consequential damages for its default.” In this case, the dispute was started by the appellant which he lost ultimately. So, the appellant cannot take the benefit of his own act and in the case of Kokkokalai Rice and Oil Mills Vs. RPFC reported in 1960, Vol.II LLJ at page 528, the Hon'ble High Court of Kerala held that “the appellant cannot be allowed to defeat the benefit of fund by his inaction or mistaken proceeding.” No infirmity is noticed in the order of the authority.” 6. The learned counsel for the petitioner would contend that Section 14B of the EPF & MP Act is a provision imposing damages for the delayed payment of statutory contributions and that the wording of the statutory provision makes it clear that there is discretion granted to the assessing authority in the matter of imposition of such damages taking note of the facts and WP(C).No.9660 OF 2011(F) -: 5 :- circumstances of each case. It is further contended that in the matter of the quantum of damages to be levied also, the authority has the discretion since the provision is only to the effect that the damages shall not exceed the amount of arrears as specified in the Scheme. 7. Relying on the decisions of the Apex Court in **Mcleod Russel India Limited** v. **Regional Provident Fund Commissioner, Jalpaiguri and others** [(2014) 15 SCC 263] and **Karnataka Rare Earth and another** v. **Senior Geologist, Department of Mines & Geology and another** [(2004) 2 SCC 783], the learned counsel for the petitioner would contend that it is only where the delay in making the statutory contribution is found to be intentional that the penalty, which is quasi criminal in nature, can be imposed. It is contended that the findings in Ext.P5 to the effect that a delay in making statutory contribution is automatically to be followed by an order inflicting penalty is completely against the legal provisions as well as the settled position of law as expounded by the Apex Court as well as this Court in several reported decisions. With regard to Ext.P10, it is contended that a reading of the discussion in the appellate order would make it clear that the factual aspects of the matter had not been taken into account by the appellate authority at all and that WP(C).No.9660 OF 2011(F) -: 6 :- as such, the same is completely vitiated by want of application of mind. 8. It is contended by the learned Standing Counsel for the Employees Provident Fund Organisation that the pension fund is a self financing fund and that it functions on the contributions as provided in the Scheme. It is contended that to run the Scheme successfully, contributions have to be remitted in time. When remittances are delayed, both the aspects of compensation as well as penalty shall be taken into account, failing which, the delay in making remittances would defeat the very object of the Scheme. It is further contended that Section 14B, as it stood before amendments were effected with effect from 1.7.1997, had a compensatory element as well as a penal element. It is stated that it is only after Section 7Q was enacted with effect from 1.7.1997 and resultant amendments were made in Section 14B that compensatory element was taken out from Section 14B and Section 14B was rendered purely penal in nature. It is contended that since the original order Ext.P5 was with regard to the period from March, 1996 to October, 1997, a portion of the said period also involves the compensatory element of the unamended Section 14B also and that as such, the compensatory element of 12.5% of the defaulted amount is liable WP(C).No.9660 OF 2011(F) -: 7 :- to be realised for the period from March 1996 to September 1997. It is submitted that with regard to September and October, 1997, 7Q interest had been levied from the petitioner and the petitioner had paid the same without demur. It is therefore contended that the amount of damages imposed for the period from March 1996 to September 1997 is liable to be limited as 12.5%, which is the compensatory element. It is further contended that a corrigendum has been issued amending the amount as calculated in Ext.P5 to Rs.30,67,824/- and the said corrigendum is not under challenge. 9. I have considered the contentions advanced. It is the specific case of the petitioner that the petitioner was disabled to make statutory contributions to the pension fund in view of the fact that there was a stay of the Amendment Ordinance, 1995 as well as the Pension Scheme by Ext.P1 interim order of this Court. The petitioner was a respondent in the above proceedings. It is submitted that the stay was vacated in 5[th] of August, 1997 and that the contributions had been made in November, 1997. In respect of the months of September and October, 1997, it is submitted that Section 7Q interest had been paid by the petitioner as demanded by the respondent. WP(C).No.9660 OF 2011(F) -: 8 :- 10. In the facts and circumstances of the instant case, I find that the contention of the petitioner that he was unable to make the statutory contributions due to the interim order of stay passed by this Court has not been considered in its proper perspective in Ext.P5 order. Ext.P5 states that there has been a delay in making the payment and that as such, the Authority proceeds on the basis that the imposition of the penal damages is in the nature of a compulsory levy. This Court as well as the Apex Court has repeatedly held that the levy of damages under Section 14B is to be guided by discretion. The appropriate authority has to consider the factual aspects of each case and to consider the necessity for imposition of the penalty as also the quantum of the same. This aspect is clear from the decisions relied on by the learned counsel for the petitioner. 11. The Apex Court in **Karnataka Rare Earth's case** supra specifically held that an order imposing penalty for failure to carry out the statutory obligation is the nature of quasi criminal proceeding and penalty will not ordinarily be imposed unless the party obliged has either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation. Referring to the judgment in **Consolidated Coffee Ltd.** v. **Agricultural ITO** WP(C).No.9660 OF 2011(F) -: 9 :- [(2001) 1 SCC 278] with regard to penalty for non-payment of tax under the Karnataka Agricultural Income Tax Act, 1957, it was held as follows :- “............ This Court held that interest is compensatory while penalty is penal i.e.punishing in character. Where delay in payment of tax was attributable to the order of stay passed by the Court, it was held that the order of stay placed the demand for the tax in abeyance and, therefore, during the period of stay the assessee cannot be said to be in default and hence no penalty can be imposed on the assessee on the stay being vacated.” ## In **Mcleod Russel India Limited's case** supra it was found that the imposition of penalty under Section 14B is discretionary and that the existence of mens rea and actus reus to contravene a statutory provision are necessary ingredients for levy of damages. It was held that Section 14B is complete in itself so far as the computation of damages is concerned and in the event of default or neglect of the employer is contumacious and contains the requisite mens rea and actus reus, another exercise of computation has to be undertaken under Section 14B apart from the computation of the amount due under Section 7A. 12. In the instant case, the Assistant Provident Fund Commissioner in Ext.P5 appears to have lost sight of the legal position as provided in the statute. The findings in Ext.P5 would WP(C).No.9660 OF 2011(F) -: 10 :- go to show that the appropriate authority has proceeded on the basis that there is no discretion in the matter of imposition of damages, in case there is a delay in the remittance of the statutory contribution. The impression appears to be that it is only when there is a claim for waiver under the 2[nd] proviso to Section 14B that there can be any reduction of the amount of penal damages leviable as per Section 14B. Going by the binding decisions of this Court and in the factual aspect of this case where the petitioner was disabled from making the statutory contribution, I am of the opinion that the finding in Ext.P5 was unsustainable. 13. The petitioner had submitted statutory appeal against Ext.P5 order which had been decided in Ext.P10. It is clear from a reading of Ext.P10 that the factual aspects have not been properly considered in the said order and that the rejection was on the basis that the petitioner had challenged the provisions of the Amendment Ordinance, which is factually incorrect. The contention raised by the learned counsel for the respondent to the effect that the compensatory portion of the damages imposed for the period from March 1996 to September 1997 is to be permitted to be imposed cannot also be sustained in view of the fact that the petitioner has clearly established that the delay in WP(C).No.9660 OF 2011(F) -: 11 :- making the statutory contributions was not on account of any willful act of the petitioner and was only due to the orders of interim stay passed by this Court by Ext.P1, which stood extended by Ext.P2 until further orders and which was in force till August 1997. In view of the fact that the petitioner had remitted the interest in respect of the months of September and October, 1997, I am of the opinion that the levy of penal damages as per Ext.P5 as upheld in Ext.P10 were completely unsustainable. The impugned orders are therefore set aside. The writ petition is ordered accordingly. **Sd/ANU SIVARAMAN JUDGE** Jvt/28.11.2019 WP(C).No.9660 OF 2011(F) -: 12 :- ## **APPENDIX** ## **' - PETITIONER S EXHIBITS :** **EXHIBIT P1 TRUE COPY OF ORDER DATED 5.3.1996 IN C.M.P.No.429/96 IN O.P.No.277/96 OF THE HON'BLE HIGH COURT OF KERALA.** **EXHIBIT P2 TRUE COPY OF ORDER DATED 3.7.1996 IN C.M.P.No.429/96 IN O.P.No.277/96 OF THE HON'BLE HIGH COURT OF KERALA.** **EXHIBIT P3 TRUE COPY OF NOTICE DATED 13.11.2006 ISSUED BY THE 2ND RESPONDENT.** **EXHIBIT P4 TRUE COPY OF REPLY DATED 8.1.2007 BY THE PETITIONER BEFORE THE 2ND RESPONDENT. EXHIBIT P5 TRUE COPY OF ORDER DATED 11.1.2007 ISSUED BY THE 2ND RESPONDENT. EXHIBIT P6 TRUE COPY OF RECOVERY NOTICE DATED 16.4.2007 ISSUED BY THE 2ND RESPONDENT. EXHIBIT P7 TRUE COPY OF APPEAL FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 5.5.2007. EXHIBIT P8 TRUE COPY OF COUNTER AFFIDAVIT FILED BY THE 2ND RESPONDENT 30.8.2007. EXHIBIT P9 TRUE COPY OF REJOINDER FILED BY THE APPELLANT BEFORE THE 1ST RESPONDENT DATED 30.6.2010. EXHIBIT P10 TRUE COPY OF ORDER DATED 4.2.2011 IN ATA No.366(7) 2007 OF THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL CAMP HEARING AT KOCHI.** //TRUE COPY// P.A. TO JUDGE