S. Jameela Beevi vs Employees Provident Fund Appellate Tribunal, New Delhi; Assistant Provident Fund Commissioner, EPFO Sub Regional Office, Kollam; Recovery Officer, EPFO Sub Regional Office, Kollam

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN WEDNESDAY, THE 21ST DECEMBER 2011 / 30TH AGRAHAYANA 1933 WP(C).No. 30576 of 2011(V) -------------------------- PETITIONER(S): --------------- S.JAMEELA BEEVI, PROPRIETRIX, M/S.J.S.CASHEW EXPORTERS, AYATHIL, KOLLAM. BY ADV. SRI.T.M.CHANDRAN SRI.S.SUJITH SRI.V.A.SASIDHARAN SRI.JOSEPH ALBIN NEDUNTHALLY RESPONDENT(S): --------------- 1. THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL, NEW DELHI-110 092. 2. THE ASSISTANT PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANISATION, SUB REGIONAL OFFICE, CHINNAKKADA, KOLLAM-692 001. 3. THE RECOVERY OFFICER, EMPLOYEES PROVIDENT FUND ORGANISATION, SUB REGIONAL OFFICE, CHINNAKKADA, KOLLAM-692 001. BY SRI.V.V.SURESH, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 21/12/2011, ALONG WITH WPC NO. 30577 OF 2011 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P(C)No.30576/2011 ## APPENDIX ## PETITIONER'S EXHIBITS: EXHIBIT P1- TRUE COPY OF ORDER DATED 3.1.2007 PASSED BY RESPONDENT NO.2. EXHIBIT P2- TRUE COPY OF CHALLAN DATED 15.2.2007. EXHIBIT P3- TRUE COPY OF ORDER DATED 24.6.2008. EXHIBIT P4-TRUE COPY OF STATEMENT. EXHIBIT P5-TRUE COPY OF ORDER DATED 28.11.2008. EXHIBIT P6-TRUE COPY OF APPEAL ATA 909(7)/2008 WITHOUT ANNEXURES. EXHIBIT P7-TRUE COPY OF ORDER DATED 14.6.2011. EXHIBIT P8-TRUE COPY OF DEMAND NOTICE 28.9.2011. / TRUE COPY / P.S.TO JUDGE ## **P.N.RAVINDRAN, J.** ## **----------------------------------------W.P(C).No.30576 and 30577 of 2011 ----------------------------------------Dated this the 21[st] day of December, 2011** ## **JUDGMENT** The common petitioner in these writ petitions challenges the separate orders passed by the Assistant Provident Fund Commissioner, Kollam, levying damages under section 14B of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Act for short) in respect of two different periods covered by a common order of determination under section 7A of the Act and also the orders passed by the Employees Provident Fund Appellate Tribunal dismissing the appeals filed therefrom. These writ petitions were therefore heard together and are being disposed of by this common judgment. 2. The petitioner is the proprietrix of a cashew factory, an establishment covered under the provisions of the Act and the scheme framed thereunder. An enquiry under section 7A of the Act was held in respect of the petitioner's establishment for the period from April 2004 to March 2006. After the enquiry with notice to the petitioner, Ext.P1 order produced in W.P.(C) **W.P(C).No.30576 & 30577 of 2011** ## -:2:- No.30576 of 2011 was passed whereby the second respondent directed the petitioner to remit the sum of Rs.56,458.85 towards contribution to the employees provident fund. Such an order was passed finding that the wages paid to a large number of employees was not taken into account for the purpose of remitting the employer's share of contribution to the employees provident fund. Ext.P1 order was not challenged and it attained finality. The petitioner remitted the entire amount covered by the said order on 17.2.2007. More than a year thereafter the second respondent initiated proceedings against the petitioner under section 14B of the Act. Two separate notices, one dated 12.12.2007 relating to the period from April, 2004 to February 2005 and another notice dated 10.6.2008 relating to the period from March 2005 to February 2006 were issued calling upon the petitioner to show cause why damages as stipulated under section 14B of the Act and other enabling provisions should not be levied and recovered from her. 3. As per the first of the said notices, the petitioner was called upon to appear before the second respondent on 27.12.2007. On that day there was no response from the **W.P(C).No.30576 & 30577 of 2011** -:3:- petitioner. However, the second respondent thought it fit to grant a further opportunity to the petitioner and the enquiry was adjourned to 22.1.2008. On 22.1.2008 the Manager of the petitioner's establishment appeared before the second respondent and sought an adjournment. That request was granted and the enquiry was adjourned to 29.1.2008. On that day the Manager once again appeared and sought one month's further time on the ground that the Accountant is not in station. The second respondent declined to grant that request and consequently passed Ext.P1 order dated 29.1.2008, produced in W.P.(C) No.30577 of 2011, levying the sum of Rs.22,012/- as damages under section 14B of the Act. As per the second of the two notices the petitioner was called upon to attend the enquiry that was scheduled to be held on 24.6.2008. None appeared on behalf of the petitioner and consequently Ext.P3 order produced in W.P. (C)No.30576 of 2011 was passed on 24.6.2008 levying the sum of Rs.30,150/- as damages in addition to the sum of Rs.9,779/- by way of interest under section 7Q of the Act. 4. The petitioner filed separate appeals challenging the said orders. Both the appeals were dismissed. Ext.P3 order produced ## **W.P(C).No.30576 & 30577 of 2011** -:4:- in W.P.(C)No.30577 of 2011 and Ext.P7 order produced in W.P.(C) No.30576 of 2011 are the orders thus passed by the Appellate Tribunal. Hence these writ petitions challenging the orders levying damages under section 14 B of the Act and the orders passed by the Appellate Tribunal rejecting the appeals. The main contention raised by the petitioner is that before the orders levying damages were passed, the petitioner was not afforded a reasonable opportunity to show cause why damages should not be levied. It is also contended that there is no finding in any of the impugned orders that there was willful and deliberate delay on the part of the petitioner in remitting the contribution payable and therefore damages being punitive in nature, the impugned orders should not have been passed. 5. I heard Sri.T.M.Chandran, learned counsel appearing for the petitioner in both the writ petitions and Sri.V.V.Suresh, learned standing counsel appearing for the Employees Provident Fund Organization. I have also gone through the pleadings and the materials on record. Sri.T.M.Chandran, learned counsel appearing for the petitioner contended with reference to W.P.(C) No.30577 of 2011 that pursuant to the show cause notice dated ## **W.P(C).No.30576 & 30577 of 2011** -:5:- 12.12.2007 the Manager of the petitioner's establishment attended the enquiry and sought an adjournment for the purpose of verifying the details furnished in the show cause notice. But only one week's time was granted, which was insufficient for filing a reply and therefore, yet another request was made for adjournment of the enquiry on 29.1.2008. The learned counsel contended that the second respondent however declined that request and consequently passed Ext.P1 order produced in W.P. (C)No.30577 of 2011 holding that non-compliance with the statutory provisions attracts levy of damages by way of penalty and therefore damages are levied as detailed therein. With reference to W.P.(C)No.30576 of 2011, the learned counsel for the petitioner contended that Ext.P3 order levying damages was passed merely for the reason that on the first posting date no one appeared on behalf of the petitioner after holding that noncompliance with the statutory requirements attracts levy of damages by way of penalty. The learned counsel contended that the second respondent has in both the orders levying damages held that damages are levied on the basis that in the absence of any explanation from the employer he is left without any option ## **W.P(C).No.30576 & 30577 of 2011** -:6:- except to levy damages. The learned counsel for the petitioner contended relying on the decisions of this Court in _**Indian Telephone Industries Ltd. v. Asstt. P.F.Commissioner**_ , 2006 (3) KLJ 698 and in _**Puthiyara Tile Works v. Union of India**_ , 2003 (3) KLT SN 74 (Case No.101), that an order levying damages cannot be passed mechanically and without application of mind and that damages being punitive in nature and not compensatory; the compensatory part being taken care of by levy of interest under section 7Q of the Act, the second respondent should have afforded the petitioner another opportunity to show cause why damages should not be levied. 6. Per contra Sri.V.V.Suresh, learned counsel appearing for the Employees Provident Fund Organization, submitted that in both the cases the petitioner received notices in time, but did not show cause why damages should not be levied and therefore, in the absence of any explanation the officer had no other option, but to levy damages. The learned counsel contended that the petitioner who received the notices well before the date fixed for hearing but did not choose to file written objections in reply to the show cause notices and to state why damages should not be **W.P(C).No.30576 & 30577 of 2011** -:7:- levied, cannot be heard to contend that the order passed under section 7A of the Act suffers from an infirmity and therefore, the orders levying damages should not have been passed. 7. I have considered the submissions made at the Bar by the learned counsel appearing on either side. I have also gone through the pleadings and the materials on record. Ext.P1 produced in W.P.(C)No.30577 of 2011 and Ext.P3 produced in W.P.(C)No.30576 of 2011 are the orders levying damages passed by the original authority, namely, the second respondent. These orders relate to the periods covered by Ext.P1 order produced in W.P(C)No.30576 of 2011 which was passed after an enquiry under section 7A of the Act was held. In both the orders the second respondent has proceeded to levy damages merely for the reason that no reply was forthcoming from the petitioner to the show cause notices. The second respondent has also proceeded on the basis that non-compliance with the statutory requirements attracts levy of damages by way of penalty under section 14B of the Act. A learned single Judge of this Court has in _**Puthiyara Tile Works v. Union of India**_ (supra), interpreting section 14B of the Act, held that even if a minimum penalty is prescribed, the ## **W.P(C).No.30576 & 30577 of 2011** -:8:- authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. It was held that though the quantum of damages that can be levied has been indicated in the statute, the question whether damages should be levied by way of penalty is entirely at the discretion of the authority which proposes to impose such penalty, but the said discretionary power vested in the authority has to be exercised in a fair, reasonable and just manner. The learned Judge proceeded to hold that if the authority which is vested with the discretionary power as indicated in section 14B of the Act does not act with an open mind, the entire adjudicatory process will lose its authenticity and judicial approval and though this Court, in exercise of its discretionary jurisdiction under Article 226 of the Constitution of India, will not go into the question of the quantum of damages proposed to be levied in terms of the statutory mandate, the decision making process, especially with reference to the exercise of the discretionary power vested with the authority which takes the ## **W.P(C).No.30576 & 30577 of 2011** -:9:- decision, can always be subjected to judicial scrutiny. In _**Indian Telephone Industries Ltd. v. Asstt. P.F.Commissioner**_ 's _**,**_ case (supra) another learned single Judge of this Court, interpreting the very same provision, held that merely because there is belated payment of contribution, liability to pay damages does not automatically arise, but the same has to be decided by applying mind to the merits of each case and not by resorting to mere arithmetical calculation of damages. The learned Judge held that even though the liability to pay the contribution is statutory, to hold that delay automatically attracts damages would be too rigid a way of construing the section, especially since the imposition of damages is punitive in nature. It was also held that there must be application of mind taking into account the reasons for delay and whether the delay could have been avoided by ordinary diligence by the employer. It was further held that one cannot with any amount of certainty say what are the circumstances which would mitigate the damages and which would not, that it would differ from case to case, which requires exercise of judicial discretion by the authority imposing damages by application of mind to the circumstances pleaded and proved by the defaulting employer. ## **W.P(C).No.30576 & 30577 of 2011** ## -:10:- 8. In the instant case, the second respondent passed the impugned orders merely for the reason that non payment of contribution within time attracts levy of damages under section 14B of the Act. One of the contentions which the petitioner had raised in the appeals before the appellate authority was that she was under the bona fide belief that she was not liable to pay contribution in respect of excluded employees, namely, pensioners who were formerly employees of another establishment. The appellate authority rejected the said contention holding that when the order under section 7A of the Act has not been challenged by putting forward a contention that the employer is not liable to pay contribution in respect of excluded employees, the order levying damages cannot be challenged on that ground. In my considered opinion the view taken by the Employees Provident Fund Appellate Tribunal cannot be sustained. As noticed earlier a learned single Judge of this Court has in _**Puthiyara Tile Works v. Union of India**_ (supra), held that the bona fide belief of the offender (the employer) that he is not liable to act in the manner prescribed by the statute in the case of a section of employees is certainly a reason which should be taken into account for the purpose of ## **W.P(C).No.30576 & 30577 of 2011** ## -:11:- deciding whether damages should be levied or not. Such an opportunity was however, not available to the petitioner for the reason that she could not put forward such a plea before the second respondent. The order under section 7A of the Act was passed by a different officer and does not disclose the contentions put forward by the petitioner or the grounds on which they were rejected. All that the order discloses is that the remittances made do not tally with the wages register for the relevant period. In such circumstances as the officer who passed the orders levying damages was not the person who passed the order under section 7A of the Act, I am of the opinion that the second respondent should have afforded the petitioner one more opportunity to file a reply to the show cause notice. That having not been done, I am of the opinion that the impugned orders should be set aside and the petitioner afforded an opportunity to put forward her contentions before the second respondent. I accordingly allow the writ petitions and quash the impugned orders. Consequently the second respondent shall pass revised orders in the matter after affording the petitioner a reasonable opportunity of being heard. The petitioner shall within ## **W.P(C).No.30576 & 30577 of 2011** **==> picture [28 x 9] intentionally omitted <==** one month from the date of receipt of a certified copy of this judgment, file her written reply to the show cause notices explaining the reason why damages should not be levied on her. The respondents shall thereupon consider the same, hear the petitioner or her authorised representative and pass appropriate orders thereon within one month from the date of receipt of the written explanation. It is clarified that if within the time limit of one month stipulated above, the petitioner does not file a written reply to the show cause notices, the second respondent will be free to pass appropriate orders on the basis that the petitioner has no explanation to offer to the show cause notices. **P.N.RAVINDRAN, Judge.** **ahg.** **P.N.RAVINDRAN, J. --------------------------W.P(C).No.30576 and 30577 of 2011 ----------------------------** ## **JUDGMENT** **21[st] December, 2011**