Kingsway Rubber Products Pvt. Ltd. v Employees' Provident Fund Organisation

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** **FRIDAY, THE 20TH DAY OF DECEMBER 2019 / 29TH AGRAHAYANA, 1941** ## **WP(C).No.18313 OF 2010(L)** ## **PETITIONER:** **KINGSWAY RUBBER PRODUCTS PVT.LTD KELACHANDRA NAGAR, CHINGAVANAM, KOTTAYAM-686531,, REPRESENTED BY ITS DIRECTOR JOSEPH THOMAS.** **BY ADVS. SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.P.GOPINATH (SR.) SRI.K.JOHN MATHAI** ## **RESPONDENTS:** |**1**|**EMPLOYEES PROVIDENT FUND APPELLAGE TRIBUNAL**| |---|---| ||**SCOPE MINAR, CORE II, 4TH FLOOR,, LAXMI NAGAR**| ||**DISTRICT CENTRE, LAXMI NAGAR,, NEW DELHI-110 092.**| |**2**|**THE ASSISTANT PROVIDENT FUND**| ||**COMMISSIONER, EMPLOYEES PROVIDENT FUND,**| ||**ORGANIZATION, SUB REGIONAL OFFICE,, CHALAKUZHY**| ||**BUILDINGS, C.M.S.COLLEGE ROAD,, KOTTAYAM-686 001.**| ||**R1 BY SRI.JOY THATTIL ITOOP, SC, EPF ORGANISA**| **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16.10.2019, THE COURT ON 20.12.2019 DELIVERED THE FOLLOWING:** W.P.(C).No.18313/10 2 ## **JUDGMENT** ## **Dated this the 20[th] day of December 2019** 1. This writ petition is filed challenging Exts.P4 order dated 29.4.2002 of the 2[nd] respondent imposing penalty under Section 14B of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 (hereinafter referred to as the “Act”) and Exhibit P6 order dated 29.04.2010 of the 1[st] respondent dismissing the appeal preferred by the petitioner. - 2.Heard the learned counsel for the petitioner and learned Standing Counsel appearing for the Employees Provident Fund Organisation. - 3.It is submitted that the petitioner is a private limited company registered under the Companies Act and is engaged in the business of manufacturing of rubber slippers. The company had a small scale industrial unit and had acquired the James India Rubber & Tyre Company in the year 1991. The said unit was registered as a sick unit with the District Industries Centre, Kottayam. W.P.(C).No.18313/10 3 4.It is submitted that Exhibit P2 show cause notice was issued on 26.02.2002, directing the petitioner to show cause why penal damages shall not be imposed. Ext.P3 reply was submitted stating that the delay in remittance of provident fund contributions was neither willful nor deliberate and that it was occasioned due to financial difficulties and reasons beyond the control of the petitioner. It was held in Exhibit P4 order as follows:- “Section 14B of the Employees' Provident Fund Act imposes penalty on the defaulters not only to recoup the loss of interest sustained by the Organisation but also by way of penalty to deter the employer from committing default to the funds. Paragraph 32(A) of the EPF Scheme prescribes rate of damages leviable for the default period. The reasons for default submitted by the employer does not justify the default and if default is committed the establishment is liable to pay damages imposed by statute. I, therefore, do not find any reason to deviate from levying damages at the prescribed rates for the default period 5/92 to 2/2000. However, in the interest of justice certain leniency is required for the pre-discovery period 6/92 to 7/93, where the damages may be restricted to 12% per annum.” 5. The petitioner submitted Ext.P5 statutory appeal before the 1[st] respondent which was disposed of by Ext.P6 order. It was specifically averred in Ext.P5 appeal that the non remittance occurred due to financial constraints faced by the petitioner at W.P.(C).No.18313/10 4 the relevant time. The Tribunal, however, confirmed Ext.P4 order and stated that financial difficulty is not a ground to exonerate the default in payments and the appeal was dismissed. 6. The learned counsel for the petitioner submits that, the petitioner had been prompt and regular in the payment of Provident Fund dues during prior periods. It was only on account of the crisis faced by the rubber industry in the State that the petitioner was unable to meet its statutory commitments. It is further contended that, the levy of penalty is discretionary in nature and the mechanical act of the respondents in having levied the maximum penalty even in spite of the admitted position that the petitioner was facing financial difficulties during the relevant time was completely unsustainable. Learned counsel placed reliance on a decision of the Division Bench of this Court in Regional Provident Fund Commissioner v. Harrisons Malayalam Ltd. [2013 (3) KLT 790] to contend that financial difficulties and the unintentional nature of the delay in payment of contribution are relevant aspects to be taken into consideration, while considering the issue of imposition of the penalty under Section 14B. W.P.(C).No.18313/10 5 7.In the said decision a Division Bench of this Court after considering the contentions raised on either side had also taken into account the earlier judgments of the Apex Court in Organo Chemical Industries v. Union of India [(1979) 4 SCC 573] as well as in Hindustan Times Limited v. Union of India [1998 (1) LLJ 682] and the decision of this Court to held that the power to impose penalty under Section 14B is clearly discretionary in nature and that the financial stringency faced by the employer is an issue which have to be considered by the appropriate authority while considering the necessity to impose damages as also the quantum of such damages. It was held that the action of the appropriate authorities under the Act in ordering payment of penalty in all cases of delay without exercising any discretion in spite of repeated directions from the jurisdictional High Courts as well as the Apex Court is an abuse of judicial power and the orders imposing costs on the adjudicating and appellate authorities was vacated only due to the submissions of the counsel appearing for the employer company. The learned counsel also places reliance on the decision in Assistant Provident Fund W.P.(C).No.18313/10 6 Commissioner, EPFO and Another v. Management of RSL Textiles India Pvt,Ltd. [2017 KHC 6030]. 8.It is submitted by the learned standing counsel appearing for the respondents that there was absolutely no material before the respondent authority or the appellate authority to substantiate the contention of financial difficulty urged by the petitioner as a reason for the delay in remitting the Provident Fund dues. It is stated that in view of the specific provisions of the Act and the Employees Provident Fund Scheme, 1952, the respondents are duty bound to consider the factual aspects and to impose penalty wherever there is willful default in the matter of remittance of the dues thereunder. A decision of this Court in Calicut Modern Spinning and Weaving Mills Limited v. RPFC reported in [1982 (1) LLJ 440] is relied on to contend that the Provident Fund dues are to be paid promptly for every month irrespective of the fact whether wages have been paid or not. A decision of the Gujarat High Court in Aravind Mills v. R.M.Gandhi [1982 Lab.I.C344 Guj] and of the Apex Court in Organo Chemical Industries v. Union of India [(1979) 4 SCC 573] as well as in Hindustan Times Limited v. W.P.(C).No.18313/10 7 Union of India [1998 (1) LLJ 682] are relied on to contend that power cut and financial problems related to indebtedness or delay in realisation of amount paid by cheque or draft are not relevant explanations to avoid liability for damages. - 9.In the instant case, it is stated that the fact that M/s.James India Rubber and Tyre Company, which was not covered under the Act was facing financial problems and had been declared as sick industrial unit would not absolve the petitioner of liability to pay contributions in respect of M/s.Kingsway Rubber Products Pvt.Ltd. which is a covered establishment from 30.4.1992. It is therefore contended that the imposition of penalty was completely in order going by the factual circumstances and that the writ petition is only liable to be dismissed. - 10.I have considered the contentions advanced on either side. It is stated in Ext.P4 that financial constraints are not a reason for delayed payment of Provident Fund contributions. The contention regarding absence of intention has not been considered in the appellate order as well. The only reason W.P.(C).No.18313/10 8 stated is that financial difficulty is not a sufficient ground to explain the default in making payments under the Act within time. I am of opinion that the non-consideration of the aspects of financial constraints and the absence of mens rea by the original authority and the appellate authority renders the orders passed bad in law for want of application of mind. 11.In the above view of the matter, the levy of penalty under Section 14B, that too, at the maximum rate permissible is completely unjustified. In the above view of the matter, I am of the opinion that Ext.P4 and P6 orders cannot be sustained. Exts.P4 and P6 orders are set aside. It submitted by the learned counsel for the petitioner that Rupees One Lakh had been deposited as a condition for grant of stay in this writ petition. The amounts already remitted by the petitioner, however, need not be refunded. The writ petition is ordered accordingly. Sd/- **Anu Sivaraman, Judge** sj W.P.(C).No.18313/10 9 ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1** **TRUE COPY OF THE CERTIFICATE OF REGISTRATION AS SICK UNIT DATED 8.7.1991 ISSUED BY THE GENERAL MANAGER OF THE DISTRICT INDUSTRIES CENTRE.** **EXHIBIT P2** **TRUE COPY OF THE NOTICE DATED 26.2.2002 ISSUED TO THE PETITIONER.** **EXHIBIT P3** **TRUE COPY OF THE STATEMENT DATED 26.3.2002 SUBMITTED BY THE PETITIONER TO THE 2ND RESPONDENT.** **EXHIBIT P4** **TRUE COPY OF THE ORDER DATED 29.4.2002 PASSED BY THE 2ND RESPONDENT.** **EXHIBIT P5** **TRUE COPY OF THE APPEAL PETITION ATA NO. 647 (7)/2002 (WITHOUT ITS ANNEXURES) DATED 29.6.2002.** **EXHIBIT P6** **TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 29.4.2010 IN ATA NO.647(7)/2002** **True copy** **PS to Judge**