ARVIND MILLS LIMITED v. R. M. GANDHI — 1981 DIGILAW 26 (GUJ)

M. P. THAKKAR, R. C. MANKAD, J. ( 1 ) THE legality and validity of an order as per Annexure A dated 31/03/1980 passed by the Regional Provident Fund Com- missioner Gujarat State ordering payment of damages for delayed pay- ment of amount of Provident Fund/family Pension Fund/deposit Linked Insurance Scheme and administrative charges for the period between March 197 3/08/1977 has been challenged by way of the present petition under Art. 227 of the Constitution of India on the ground that it discloses errors apparent on the face of the record. The challenge is made by the Arvind Mills Ltd. which acquired the assets and liabilities of an undertaking known as The Ahmedabad Laxmi Cotton Mills Com- pany Ltd. which was under liquidation pursuant to the sanction accorded by the High Court in Company Petitions Nos. 87 and 88 of 1978 to the proposed Scheme of amalgamation compromise and arrangement. Under the said scheme as per sub-paragraph 4 of paragraph 16 a provision was made that the Arvind Mills Ltd. the petitioner herein shall pay all the arrears due to the Provident Fund Commissioner within one month of the sanction of the scheme. It was also agreed by the petitioner Company that the damages payable to the Provident Fund Commissioner as may be determined by him in respect of the defaults shall be payable by the petitioner-Company. The relevant portion extracted from the Scheme reads as under: arvind shall also pay Provident Fund. E. S. I. and other dues if any for the period after 12/08/1977 and remaining unpaid upto the date of restart of the mills. Besides ARVIND shall pay such sum as may be determined by the Regional Provident Fund Commissioner under sec. 14-B of the Employees Provident Fund Act 1952 for default in payment of the Provident Fund and other dues of LAXMI COTTON by due date. It appears that the arrears of Provident Fund were to the tune of Rs. 4 47 41 per statement at Annexure A annexed to the petition. The arrears were in respect of the period from November 1975 till August 1977 In the background of these facts after hearing the petitioner Company the impugned order as per Annexure A was passed whereby the liability of the petitioner-Company was determined at Rs. 4 40 541 per Appendix D to Annexure A. There were in all 47 defaults. The arrears were in respect of the period from November 1975 till August 1977 In the background of these facts after hearing the petitioner Company the impugned order as per Annexure A was passed whereby the liability of the petitioner-Company was determined at Rs. 4 40 541 per Appendix D to Annexure A. There were in all 47 defaults. In respect of 9 instances payment was not made at all. In respect of the remaining 38 payment was made after delay as mentioned in Appendix D to ann- exure A. In the 9 instances of total non-payment payments were made by the petitioner Company in June 1979 after the Scheme was sanctioned. In respect of 6 out of these instances damages were levied at 100%. In respect of the remaining 3 damages were levied at 32%. In respect of the 33 defaults out of 38 defaults damages were levied at a rate ranging from 1% to 10% in respect of 4 defaults damages were levied at 30% and in respect of one default damages were levied 20 %. It is the impugned order levying damages in the aforesaid manner which has been challen- ged by the way of the present petition. ( 2 ) BEFORE we deal with the submissions urged on behalf of the petitioner we must define the scope of a petition of the present nature. This Court in exercising powers under Article 227 will not convert the proceeding virtually into an appeal against the impugned order. This Court will not substitute its determination in place of the determination made by the competent authority. It is not for this Court to consider to what extent damages would have been levied by this Court if it was exercising the powers which have been exercised by the competent authority in passing the impugned order. In other words this petition cannot be treated as virtually an appeal on merits against the impugned order. So also it is not necessary in order to uphold the order passed by the competent authority that we must agree with each and every of the reasons which weighed with him or agree with every word said by him in his impugned order. So also it is not necessary in order to uphold the order passed by the competent authority that we must agree with each and every of the reasons which weighed with him or agree with every word said by him in his impugned order. It must also be realised that having regard to the law laid down in Organo Chemical Industries v. Union of India (1979) II Labour Law Journal 416 it is open to the competent authority to levy damages to the extent of 100% and that the order determining damages will not become vulnerable merely on the ground that in respect of certain items 100% damages have been imposed. In the present case as mentioned earlier damages have been determined at a very nominal rate ranging between 1% to 10% in respect of 33 defaults. Damages have been levied at the rate of 100 only in respect of 6 out of the 9 items in respect of which there was total non payment for a number of years (the details regarding the extent of delay have been mentioned in Appendix D to Annexure A ). In respect of these dues the Laxmi Cotton Mills Company Ltd. had not made any payment and payments were ultimately made by the petitioner Company in June 1979 after the sanction of the Scheme. It may also be realised that payments were not made notwithstanding the fact that actual deductions were made from the wages of the workmen from time to time. In other words the ded- uctions from the wages of the workmen were also retained by the Laxmi Cotton Mills Company Ltd. apart from the fact that it did not deposit the amount which was required to be deposited on its part as per the requirements of the relevant provisions of the land the Scheme. ( 3 ) IT is next argued by the petitioner Arvind Mills Ltd. which has taken over the business of the Ahmedabad Laxmi Cotton Mills Company Ltd. (in liquidation) under the Scheme of amalgamation that the ques- tion regarding damages requires to be resolved in the context of the financial position of the Laxmi Cotton Mills which had committed the default at the material time between 1974 and 1977 and that the fact that the petitioner Company itself is in a very sound financial condition is not relevant. It is contended that the Laxmi Cotton Mills was in serious financial difficulties at the material time between 1974 and 1977 and that is why it had not been able to make the payments due under the Act and the Scheme. Be it realised that the arrears consisted of the deductions made from the wages of the workers as well. The competent authority has himself taken the view that it is not the financial position of the Petitioner-Company which matters but it is the financial position of the Laxmi Cotton Mills at the material time which matters in case in is a valid argument for mitigating damages. The competent authority has however taken the view that no material has been produced to show that at the time when the payments became due the financial position of the Company was such that these payments could not have been made from its resources then. No material has been produced even before us show- ing its financial position at the point of time of the individual defaults. It could have been shown as to what amount was available with the Laxmi Cotton Mills its Bank Accounts and what resources it had at the material time when the payment became due. No effort has been made to produce material having an eye on the relevant point of time when the individual default occurred. We do not think that merely because the Company was experiencing financial hardship it was justified in refusing to pay its dues under the Act and the Scheme including the deductions made from the wages of the workers The very concept of punitive damages which was been recognised by the Supreme Court in Organo Chemical Industries Case (supra) would be defeated if this were considered to be a legitimate ground for shutting ones eyes to the defaults or taking a lenient view of the defaults. The anxiety of the Parlia- ment to deter employers from committing such duffels is made manifest in secs. 14 14 14 14 and 14ac. The offence has been made cogni- zable. Enhanced punishment is provided for every subsequent offence and a minimum jail sentence is able contemplated. The anxiety of the Parlia- ment to deter employers from committing such duffels is made manifest in secs. 14 14 14 14 and 14ac. The offence has been made cogni- zable. Enhanced punishment is provided for every subsequent offence and a minimum jail sentence is able contemplated. We will be setting at naught the will of the Parliament if we were to say that a mere averment to the effect that the payment could not be made an account of financial hardship is sufficient to mitigate the damages Even if it was established that the financial position of the Company was embarrassing it would not justify taking such a view. In a way every Company needs finances and has even to borrow from financial institutions. Even the fact that the Company is running at a loss for some years would not justify co- mmitting defaults in respect of the payments due under the Act and the Scheme. Under the circumstances we do not think that the competent authority has committed any error much less an error apparent on the face of the record in holding that there was no justification for taking a lenient view in respect of the damages. Be it realised that in respect of delayed payments the competent authority has taken a very lenient view and has determined damages at a rate ranging between 1% and 10%. Only in regard to defaults in the context of total non-payment for a number of years has a serious view been taken. We do not think that any error has been committed in doing so which requires to be rectified by us in exercise of powers under Art. 227 of the Constitution. ( 4 ) A point was then made that if the Regional Provident Fund Commissioner were to take a strict view it would deter Companies from presenting Schemes for amalgamation in the course of liquidation procee- dings in respect of sick units. We do not think that a potential liability of Rs. 4 lacs would have made any difference when the Company was proposing to take over a sick concern involving taking over of assets and liabilities running into approximately Rs. 34 crores. Besides the petitioner Company was clearly given to understand that it would have to meet the obligation in respect of the damages and it had undertaken to do so with open eyes. 34 crores. Besides the petitioner Company was clearly given to understand that it would have to meet the obligation in respect of the damages and it had undertaken to do so with open eyes. It may also be mentioned that really speaking the damages determined by the competent authority at Rs. 4 lacs have already stood abated to a considerable extent by reason of the fact that the damages which were payable at the material time do not carry interest and have not been paid till now by reason of the unconditional interim stay obtained by the petitioner Company. Taking into considera- tion the present rate of interest at about 15% per annum the damages virtually stand abated to the extent inasmuch as the petitioner Company has secured an unwarranted gratuitous advantage of utilising the funds for its own purposes without having to pay interest on it. This advantage on a rough calculation would work out at about Rs. 60 0 and the penalty therefore stands abated to this extent as a matter of fact. We therefore do not see any reason to interfere with the order passed by the competent authority. ( 5 ) IT was also argued that the petitioner Company had come forward as a good Samaritan for salvaging a sick unit and was performing social service. We do not wish to enter into any elaborate discussion in the context of this argument. Suffice it to say that one would be turning ones face away from the realities of life and shutting ones eyes to the pragmatism of the world of business if we were to accept at its face value this platitudinous utterance that a hard headed business concern was entering into this arrangement for only ethical or altruistic motive. The petitioner Company has entered into the amalgamation scheme pre- sumably and evidently on business consideration as it considered the same to be a good sound and promising business proposition having regard to all the circumstances such as the following: (1) It was getting the advantage of setting off carry forward losses amounting to approximately 3. 36 crores against its large scale curr- ent profits which would result in considerable saving in its tax liability. 36 crores against its large scale curr- ent profits which would result in considerable saving in its tax liability. (2) It was also being enabled to take over another textile unit and enlarge its economic empire without any objection on the part of the Monopolies Commission which had waived its objection in order to salvage the sick unit. (3) There are several other similar advantages which were secured in the course of the Scheme which we need not recount. We therefore opt out of the good Samaritan school of thought. Besides it has do relevance to the question raised in this petition having regard to the fact that the competent authority had to consider the circumstances in which the default was committed by the Laxmi Cotton Mills and not the reasons why the petitioner company entered into the Scheme of amalgamation. ( 6 ) IT was then argued that it could not be said that the default committed by the Laxmi Cotton Mills was a wilful default. To buttress such a submission the content of the expression wilful default in such a situa- tion must be examined with a purposeful eye (and not with an indulgent eye or with a what does it matter attitude) so that the object of the Act is not defeated and the Court does not unwittingly encourage defaults which defaults are viewed with such seriousness that a sentence of impri- sonment for such defaults has been enjoined by the Parliament (which represents the collective will and weal of the people ). We can visualize a situation where an employer was unable to pay the dues in time because (1) there was some agitation or unrest in the city and it was not possible to make arrangement for depositing the necessary amount in the Bank or (2) a case where there was a strike on the part of the Bank employees and it was not possible to pay the dues on account of the resultant situ- ation. (3) One may well ask was it inadvertent? (4) On account of outside circumstances beyond its control ? (5) On account of the defalcation on the part of the Clerk entrusted with the monies? or (6) on account of negli- gence on his part? (7) Was there the will to pay which was thwarted by some outside agency? (3) One may well ask was it inadvertent? (4) On account of outside circumstances beyond its control ? (5) On account of the defalcation on the part of the Clerk entrusted with the monies? or (6) on account of negli- gence on his part? (7) Was there the will to pay which was thwarted by some outside agency? If that was so it could have been urged with some credibility that it was not wilful default. But if from 1974 to 1977 the Laxmi Cotton Mills could carry on its business and meet its other com- mitments and yet failed to pay its dues under the Act it cannot be said that the default was not wilful. It is obvious that the amount which should or could have been utilised for discharge of the obligation under the Act and the Scheme was utilised for some other purpose. What that purpose was we do not know because the month to month resources and utilisation statements with an eye on the point of time of default from time to time as it fell due (in the context of total non-payment) have not been pro- duced before the competent authority or before us. Under the circumsta- nces we are unable to accede to the argument that respondent No. 1 has committed any error apparent on the face of the record in determining the damages as per the impugned order at Annexure A. We therefore see no substance in the petition. ( 7 ) THE petition fails and is rejected. Rule is discharged with costs Interim orders are vacated forthwith. ( 8 ) THE learned counsel for the petitioner applies for a certificate of fitness to appeal to the Supreme Court of India. In our opinion the ma- tter does not involve any substantial question of law of public importance which needs to be decided by the Supreme Court of India. The certificate is therefore refused. .