ISmart Business Solutions Private Limited v Employees' Provident Fund Appellate Tribunal and Others

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.HARILAL** **FRIDAY, THE 8TH DAY OF JANUARY 2016/18TH POUSHA, 1937** **WP(C).No. 12204 of 2011 (A) ----------------------------** **PETITIONERS:** - **-----------** **ISMART BUSINESS SOLUTIONS PRIVATE LIMITED, IT PARK, PLOT NO.16A, 'B' BLOCK, CSEZ, KAKKANAD, KOCHI-682 037, REPRESENTED BY ITS CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY MR.D.K.SUNDARAM.** **BY ADVS.SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH** **RESPONDENTS:** **------------** **1. EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL, SCOPE MINAR, CORE II, 4TH FLOOR, LAXMI NAGAR DISTRICT CENTRE, LEXMI NAGAR, NEW DELHI-110 092.** **2. THE ASSISTANT PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANIZATION, SUB REGIONAL OFFICE, BHAVISHYANIDHI BHAVAN, KALOOR, KOCHI-682 017.** **3. SOFT SYSTEMS LIMITED, IT PARK, PLOT NO.16A, 'B' BLOCK, CSEZ, KAKKANAD, KOCHI-682 037.** **R2 BY ADV. DR.S.GOPAKUMARAN NAIR (SR.) ADV. SRI.M.CHANDRA BOSE** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 08-01-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **WP(C).No. 12204 of 2011 (A)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXT.P1 - TRUE COPY OF THE CERTIFICATE OF INCORPORATION DATED 27TH MAY 2004 ISSUED BY THE REGISTRA OF COMPANIES, MAHARASHTRA, MUMBAI.** **EXT.P2 - TRUE COPY OF THE BUSINESS PURCHASE AGREEMENT DATED 14TH JULY 2004.** ## **EXT.P3 - TRUE COPY OF THE NOTICE DATED 9/8/2005 ISSUED BY THE 2ND RESPONDENT.** **EXT.P4 - TRUE COPY OF THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT OF THE 3RD RESPONDENT M/S SOFT SYSTEMS LIMITED FOR THE PERIOD 2001-2002 DATED 4/9/2002.** **EXT.P5 - TRUE COPY OF THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT OF THE 3RD RESPONDENT M/S SOFT SYSTEMS LIMITED FOR THE PERIOD 2003-2004 DATED 5/7/2007.** **EXT.P6 - TRUE COPY OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE ACCOUNTING YEAR 2004-05.** **EXT.P7 - TRUE COPY OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE ACCOUNTING YEAR 2005-06.** **EXT.P8 - TRUE COPY OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE ACCOUNTING YEAR 2006-07.** **EXT.P9 - TRUE COPY OF THE ORDER DATED 28/10/2005 PASSED BY THE 2ND RESPONDENT.** **EXT.P10 - TRUE COPY OF THE ORDER DATED 28/10/2005 PASSED BY THE 2ND RESPONDENT.** **EXT.P11 - TRUE COPY OF THE REPRESENTATION MADE BY THE PETITIONER ON 23/12/2005 TO THE 2ND RESPONDENT.** **EXT.P12 - TRUE COPY OF THE ORDER DATED 26/12/2005 WRITTEN BY THE 2ND RESPONDENT TO THE PETITIONER.** **EXT.P13 - TRUE COPY OF THE APPEAL (WITHOUT ITS ANNEXURES) DATED 13/4/2006 FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT.** **EXT.P14 - TRUE COPY OF THE ORDER DATED 20/1/2011 PASSED BY THE 1ST RESPONDENT.** **EXT.P15 - TRUE COPY OF THE ORDER OF THE TRIBUNAL IN ATA.NO.752(7)2003 FILED BY ANOTHER ESTABLISHMENT DATED 22/10/2010.** **RESPONDENTS' EXHIBITS:** **EXT.R2(a) - TRUE COPY OF LETTER DATED 28/12/2005.** **EXT.R2(b) - TRUE COPY OF LETTER DATED 29/12/2005. EXT.R2(c) - TRUE COPY OF LETTER DATED 4/8/2004.** **EXT.R2(d) - TRUE COPY OF LETTER DATED 17/8/2004.** **EXT.R2(e) - TRUE COPY OF ANNEXURE-4 FORMING PART OF PURCHASE AGREEMENT.** **EXT.R2(f) - TRUE COPY OF ANNEXURE-9 FORMING PART OF THE PURCHASE AGREEMENT.** **EXT.R2(g) - TRUE COPY OF JUDGMENT IN W.A.NO.2182/2006 DATED 28/8/2008.** **EXT.R2(h) - TRUE COPY OF LETTER DATED 4/7/2005.** //true copy// P.S. to Judge ## **K. HARILAL, J. -----------------------------------------------------W.P. (C) No. 12204 of 2011-A -----------------------------------------------------Dated this the 8[th] day of January, 2016** ## **JUDGMENT** The petitioner is a transferee establishment under Sec.17B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short 'the Act'). The petitioner, with effect from 01/04/2004, tookover the establishment of the 3[rd] respondent, by way of a business purchase agreement. At the time of the said agreement, around `35 lakhs was pending due to the 1[st] respondent, as arrear of contribution and subsequently, the petitioner has paid the entire arrear with interest of `4,74,452/- and, at present, no amount is due from the petitioner to the 1[st] respondent. Now, the challenge, in this writ petition, is confined to the arbitrariness and unreasonableness **W.P. (C) No. 12204 of 2011** -: 2 :- in quantifying the damages in Ext.P15 order passed by the 1[st] respondent, under Sec.14B of the Act. It is the case of the petitioner that Exts.P4 to P8 reveal that the predecessor and the petitioner continue to suffer a heavy loss before and after takeover and accumulated loss as on today is `343.36 lakhs. After takeover, the 2[nd] respondent issued a notice under Sec.7A of the Act and the petitioner accordingly paid an amount of `35,19.267/- towards contribution and `4,74,452/- towards interest. Again, the 2[nd] respondent issued a notice claiming damages alleging delay in payment of contribution during the period 2002-2004. Though the petitioner explained that it tookover the Unit only in 2004 and both the predecessor and the petitioner have been suffering heavy loss, the 2[nd] respondent passed an order levying damages at the maximum rate i.e., `13,05,230/- vide Ext.P9. Though the petitioner challenged the order by filing an appeal before the 1[st] respondent, the 1[st] respondent dismissed the appeal without going into **W.P. (C) No. 12204 of 2011** -: 3 :- the merits and the circumstances whereby the predecessor defaulted in payment of contribution. Thus, the imposition of maximum penalty is arbitrary, unreasonable and thereby, liable to be quashed invoking the writ jurisdiction of this Court under Art.226 of the Constitution of India. 2. Heard the learned counsel for the petitioner and the learned Standing Counsel appearing for the respondents. 3. The learned counsel for the petitioner fairly confined his arguments challenging the quantum of penalty imposed on the petitioner only. The sum and substance of the arguments is that the imposition of maximum penalty can no way be justified in view of the circumstances in which the predecessor defaulted payment of contribution in time. In support of the arguments, the learned counsel pressed Exts.P4 to P8 into service. Though the imposition of penalty would come under the discretionary jurisdiction under Sec.14B of the Act, the 2[nd] respondent has not **W.P. (C) No. 12204 of 2011** -: 4 :- exercised the jurisdiction and power vested in him and without adverting to the facts and circumstances whereby the predecessor defaulted payment of contribution, the petitioner is mulcted with maximum penalty. In support of the above arguments, the learned counsel cited the decision reported in Regional Provident Fund Commissioner v. Harrisons Malayalam Ltd., [2013 (3) KLT 790] and according to the learned counsel, in the light of the above decision, it can be held that the 2[nd] respondent could have exercised his discretionary jurisdiction. But, instead of that, the 2[nd] respondent passed Ext.P9, in a perfunctory manner, without application of mind to the facts and circumstances narrated by the petitioner and thereafter, the 1[st] respondent also affirmed the same, by Ext.P15. 4. Per contra, the learned standing counsel for the respondents advanced arguments to justify the imposition of the maximum penalty against the petitioner. According to the respondents, under **W.P. (C) No. 12204 of 2011** -: 5 :- Sec.14B of the Act, there is no room for exercising discretion and where there is a default, it is incumbent upon the authority under the Act to impose the maximum penalty. As against the decision cited by the learned counsel for the petitioner, the learned Standing Counsel submits that a Special Leave Petition is also filed against the said judgment and the same is pending before the Supreme Court. 5. It stands admitted that no amount is due from the petitioner either under Sec.7A or under Sec.7Q of the Act. It is the case of the petitioner that the predecessor and the petitioner continued to suffer heavy loss before and after takeover and the loss accumulated as on today is at `343.36 lakhs. Going by the statutory mandate under Sec.14B of the Act, this Court noticed that the legislature consciously employed the modal auxiliary verb 'may' before the word 'recover' and the maximum limit alone is fixed. Needless to say, minimum is not consciously left out. In my view, the legislature itself in its wisdom **W.P. (C) No. 12204 of 2011** -: 6 :- provided a room for exercising discretion by fixing the limit of maximum alone, while imposing penalty under Sec.14B of the Act. This view is supported by the decision of this Court in Regional Provident Fund Commissioner v. Harrisons Malayalam Ltd., [2013 (3) KLT 790] . 6. Coming to the instant case, the petitioner had produced Exts.P4 to P8 before the 2[nd] respondent to substantiate the claim that the petitioner and the predecessor continued to suffer heavy loss before and after the takeover and accumulated a loss at `343.36 lakhs and there was no wilful default or contumacious circumstances in not remitting the contribution in time. But, the 2[nd] respondent has not adverted to those documents or reasons and circumstances, projected by the petitioner; whereby the petitioner and the predecessor could not pay the contribution in time. In my view, in the matter of imposing penalty or damages, fairness, the principles of equity and proportionality are to be observed by the **W.P. (C) No. 12204 of 2011** -: 7 :- authorities. But, in the instant case, the 2[nd] respondent has not considered any of the relevant aspects, which were required to be considered, while considering imposition of damages. In the above view of the matter, Exts.P8 to P9 will stand quashed and the matter is remitted back to the 2[nd] respondent for fresh consideration in the light of the decision of this Court in Regional Provident Fund Commissioner v. Harrisons Malayalam Ltd., [2013 (3) KLT 790]. This writ petition is disposed of accordingly. Sd/- ## **(K. HARILAL, JUDGE)** ## **Nan/** //True copy// P.S. to Judge