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2006 DIGILAW 1059 (KAR)

CHINDAN A. RAJAN v. UNION OF INDIA

2006-12-21

H.V.G.RAMESH

body2006
ORDER In this writ petition, the petitioner has sought for to declare Section 8-B(1)(b) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as 'Act' in short), insofar as the same confers unguided and arbitrary power to the Executives, other than a Court of law, to arrest an employer and to detain him in a prison as void and unconstitutional being violative of Article 21 of the Constitution of India; and also sought to declare the act of the fourth respondent in arresting and detaining the petitioner in prison by its order dated 18-10-2002 as unconstitutional and without the authority law. However, the third prayer has become infructuous since this Court has already ordered to release the petitioner. Further, the petitioner has prayed to direct the 4th respondent to pay adequate and appropriate compensation to the petitioner and for such other reliefs. 2. According to the petitioner, he is the Managing Director of M/s. Storacks Limited, a private limited company consists of his family members having its registered office at Saptagiri Complex, Sankey Road, Bangalore-20. He is also a proprietor of M/s. Metallica Pressings having its business at B-192, Peenya II Stage, Bangalore, which is established in the year 1979-80. According to him, he was taking care of both the establishments. As such, his units were brought under the purview of Employees' Provident Funds and Miscellaneous Provisions Act, 1952. According to the petitioner, he has discharged all the statutory and other obligations till 1995-96. Subsequently, because of the market recession slump in the off take, the petitioner was compelled to supply the materials on long credit basis to most of the customers including the public sector undertakings and public limited companies. They have defaulted in making payments. Accordingly, the customers of the petitioner owe about Rs. 15,00,000/- to M/s. Storacks Limited, and about Rs. 5,00,000/- to M/s. Metallica Pressings. Due to lack of funds, the petitioner's interest liability mounted with the non-recovery of the money from his customers, as such he was compelled to defer towards the statutory obligations. Since nothing has materialised, the petitioner has compelled to keep himself struggling to take care of the 18 families and 14 families of these two establishments. According to him, his sundry debtors owe him a sum exceeding Rs. 20 lakhs. Since nothing has materialised, the petitioner has compelled to keep himself struggling to take care of the 18 families and 14 families of these two establishments. According to him, his sundry debtors owe him a sum exceeding Rs. 20 lakhs. In the mean while, the 4th respondent served notice on him dated 3-4-2002 as per Annexure-C, demanding arrears of contribution. The petitioner had personally approached the 4th respondent of the facts. Subsequently, another notice dated 9-8-2002 was got issued by the 3rd respondent vide Annexure-D under Section 7-A of the EPF and Miscellaneous Provisions Act, 1952, calling upon him to appear before him on 28-8-2002 to give evidence and produce the relevant records for determining the dues under the Employees' Provident Funds Contributions, Pension Contribution and Employees' Deposit-Linked Insurance Contribution. Further, the officers of the 4th respondent sent a letter dated 16-8-2002 vide Annexure-E calling upon him to produce the balance-sheets and details of company's assets and liabilities etc. According to the petitioner, he approached the 2nd respondent on 18-10-2002, but the 2nd respondent refused to give in writing but took the petitioner to their custody and sent to Central Jail on 18-10-2002 and the petitioner has been in jail ever since. In that view of the matter, the petitioner has filed this writ petition seeking for an issue of appropriate writ. 3. Heard the learned Counsel appearing for the petitioner and the learned Counsel appearing for the respondents 2 to 4. 4. The Counsel for the petitioner submits that the act of the 4th respondent under Section 8-B(1)(b) of the Act, in confining the petitioner in prison is without the authority of law and violative of fundamental rights guaranteed under Article 21 of the Constitution and also not in consonance with the provisions of Rule 73 of Second Schedule of the Income-tax Act, 1961. Accordingly contended that such an act is held to be illegal. In support of his submission, he has relied upon the decision of the High Court of Bombay in Kanaiyalal Prabhudas Maru and Others v Regional Provident Fund Commissioner, Maharashtra and Goa and Others1, to contend that before proceeding to arrest and detention of defaulters - for neglect or refusal to pay outstanding dues, something more than default should be established. In the said case, warrant of arrest held vitiated for failure to comply with conditions of Rule 73. In the said case, warrant of arrest held vitiated for failure to comply with conditions of Rule 73. Also, he has relied upon the decision of the Calcutta High Court in Vikram Poddar v Regional Provident Fund Commissioner and Others2, to contend that for the purpose of recovery of PF dues, warrant of arrest cannot be issued until conditions as to satisfaction of tax Recovery Officer as to conduct of defaulter are fulfilled and to contend that it is not necessary before passing order under Section 7-A to serve notice upon each and every Director of Company individually - Nor fact that company is sick and referred to BIFR as such there is impediment to recovery of PF dues. He also relied upon the decision of the Gujarat High Court in Vikrambhai Punjabhai Palkhiwala v S.M. Ajbanj, Recovery Officer and Others3. 5. In the counter, the respondents 2 to 4 have contended that the dues of both these firms were got assessed under Section 7 -A of the Act and all the formalities have been followed. Neither the provision assailed is unconstitutional nor ultra vires. The act of the respondent-Authority in proceeding for recovery of dues is said to be legal. Due notices have been issued as required under Section 7-A of the Act and also in compliance with the Schedule under the Income-tax Act and also submitted that the petitioner despite several notices being issued to him, he has not come forward to make payment. In the circumstances, the mode available for recovery of the arrears has been adopted as has been provided under the aforesaid Act and Income-tax Act which is neither unconstitutional nor ultra vires as such, the petitioner is not entitled for any relief. 6. In the circumstances, the mode available for recovery of the arrears has been adopted as has been provided under the aforesaid Act and Income-tax Act which is neither unconstitutional nor ultra vires as such, the petitioner is not entitled for any relief. 6. Also, the learned Counsel appearing for the respondents 2 to 4, in support of his argument, has relied upon two of the decisions of the Apex Court: (1) M/s. Tiger Hardware and Tools Limited and Others v Union of India and Others1, to contend that the provisions are constitutionally valid and dues under the Act are recoverable by resorting to the process of arrest and detention of the defaulter is concerned contending that it is open for the authorities to recover the arrears by resorting to the process of arrest, and (2) Ram Narayan Agarwal v State of Uttar Pradesh and Others2, to contend that the validity of such provision was assailed in the said case wherein the Apex Court has said that the provision is not ultra vires. 7. In the instant case, it is the specific contention of the petitioner that he has not been served with a notice as required under Rule 73 of the Second Schedule - Part V of the Income-tax Act, 1961. According to the petitioner, he has made sincere efforts to make payment and also made some part payment. Thereafter, he sought for extension of time to clear the remaining dues. In the mean while, when he approached the respondent 4, instead of entertaining him, he was arrested and was kept in the prison under the provisions provided under Section 8-B(1)(b) of the Act. 8. Further, in the instant case, it is noticed that there are shown to have some correspondence insofar as the recovery of the dues towards the contribution to the Employees' Provident Fund Contribution is concerned. Also, several correspondence having taken place between the employer and the respondents. It is noticed that commencing from 13-1-1999 till the date of arrest that is on 18-10-2002 eight notices were got issued from the respondent 3 under Section 7-A of the Act for determination of the dues payable to him. Further, it is noticed that he was given reasonable opportunity by the Assessing Officer to represent his case before the EPF Appellate Tribunal for more than three years. Further, it is noticed that he was given reasonable opportunity by the Assessing Officer to represent his case before the EPF Appellate Tribunal for more than three years. Thereafter, the Assessing Officer has shown to have passed an order under Section 7-A of the Act, for the period commencing from 13-1-1999 to 13-6-2000. It appears the petitioner did not even availed the opportunity to sought for review of the assessment order before the Appellate Tribunal. Since the petitioner did not pay the dues, the respondent-authorities said to have proceeded under Section 8-B(1)(b) of the Act. On perusal of the statement of objections filed by the respondents 2 to 4, it is seen that notices also got issued on 13-1-1999 after determining the dues towards the EPF. Subsequently, there is another order passed on 21-1-2000 to show that such communication being made to the respondent. Even Annexure-R2 notice dated 27-5-1999 has been issued by the Recovery Officer calling upon to pay the dues of Rs. 2,75,206/- from M/s. Storacks (Private) Limited. Similarly, another notice also shown to have been issued on 3-5-2001 for payment of arrears of rent as Rs. 2,09,789/-. On 3-4-2002 another notice Annexure-R6 being issued to the petitioner stating that he has failed to pay the arrears of amount as such he was called upon to appear before the Enquiry Officer and also noticed therein as per Section 70 of the Act and also intimated that it was proposed to execute the warrant of arrest of the petitioner and thereby issued a show-cause notice and committed to civil prison. Thereafter, it appears Annexure-R6 is issued to the petitioner to show cause why a warrant of arrest should not be issued and then the petitioner was taken to prison alleging that there is a due of Rs. 16,26,425/- to be recovered from the petitioner and as such he was taken to custody. Further, in the memo filed by the respondents 2 to 4, even it is seen that several notices were issued. Even show-cause notice was issued to the petitioner, wherein he had to pay the dues or else he would be arrested. 9. Insofar as the challenging of validity of the provision Section 8-B(1)(b) of the Act is concerned, similar situation has been examined by the Apex Court in the case of Ram Naraian Agarwal and also in the case of M/s. Tiger Products Private Limited. 9. Insofar as the challenging of validity of the provision Section 8-B(1)(b) of the Act is concerned, similar situation has been examined by the Apex Court in the case of Ram Naraian Agarwal and also in the case of M/s. Tiger Products Private Limited. While examining the similar aspects in those cases, the Apex Court is of the view that in the contemporary Indian conditions, the process of arrest and detention of a judgment-debtor or a defaulter to enforce payment of the amount due from him is not altogether unreasonable. It cannot be held to be unconstitutional if there are sufficient safeguards, which make the process conform to reasonable standards. 10. It is the argument of the learned Counsel for the petitioner, that enough safeguards are not provided under the Act under challenge. Of course it is seen that as noticed, under Section 8-G of the Act, the provisions of Section 61 of the Income-tax Act is also shown to be made applicable with such necessary modifications and if the said provision and the rules referred to the arrears of amount mentioned in Section 8 of the Act instead of the Income-tax Act i.e., the provisions of Sections 2 and 3 of the Income-tax Act as in force from time to time shall apply with necessary modifications. If the said provision and the rules referred to in for the recovery of arrears of the amount mentioned under; Section 8 of this Act, as safeguard the provision provided under Section 189 i.e., procedure to be followed to the Third Schedule to the Income-tax Act, 1961, of course Part V of the Second Schedule to the Income-tax Act, 1961. It is provided under Rule 73, notice to show cause i.e., no order for the arrest of defaulter shall be made unless a Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him and to show cause as to why he should not be committed to the civil prison unless the Tax Recovery Officer has recorded his reasons as satisfied. The provision was sought to be followed as per Section 8-G of the Act. The provision was sought to be followed as per Section 8-G of the Act. Even it appears as per the correspondence made by the respondent-authority and the Annexures furnished by them, depicts that before proceeding to arrest the petitioner he was called upon by a notice dated 3-4-2002 as similar notices were issued to the petitioner as is contemplated under Rule 73 of the Second Schedule of Income-tax Act, 1961 and under the EPF Act to follow the procedure contemplated under Third Schedule to the Income-tax Act, 1961 by inserting a provision under Section 8-G of the Act. Might be that the Section 8-B(1)(b) provides for arrest and detention in the simplest terms by virtue of Section 8-G of the Act, it has provided enough safeguards before proceeding to arrest and detention in prison and such a safeguard is provided under Section 11 of the Income-tax Act has to be followed and it appears a perusal of the records and the annexures furnished by the respondent-authority, the respondent-authority shown to have made correspondence with the petitioner and was given sufficient opportunity to pay the arrears of the Provident Fund Contribution and also after the assessment order is passed, it appears the petitioner neither approached the Appellate Tribunal as provided under the Act expressing his grievance. His grievance is only that when he was making efforts to pay the dues as he has been arrested arbitrarily without following the procedure. But the grievance of the petitioner cannot be accepted in view of the fact that there is sufficient correspondence by the respondent-authority by way of issuing show-cause notice dated 3-4-2002. Subsequently, for non-payment, on 18-4-2002 he was arrested. In view of the decisions of the Apex Court in the cases of Ram Narayan Agarwal and M/s. Tiger Hardware and Tools Limited, the provision under Section 8-B(1)(b) of the Act is neither ultra vires nor unconstitutional. Enough safeguard is also provided under the Act. Moreover the respondent-authority have proceeded to arrest the petitioner under Section 8-B(1)(b) of the Act. In view of the decisions of the Apex Court in the cases of Ram Narayan Agarwal and M/s. Tiger Hardware and Tools Limited, the provision under Section 8-B(1)(b) of the Act is neither ultra vires nor unconstitutional. Enough safeguard is also provided under the Act. Moreover the respondent-authority have proceeded to arrest the petitioner under Section 8-B(1)(b) of the Act. Of course, under Section 8-B of the Act, there are three modes of recovery of the dues by the employer: (a) attachment and sale of the moveable or immovable property of the establishment or, as the case may be, the employer; (b) arrest of the employer and his detention in prison; (c) appointing a receiver for the management of the moveable or immovable properties of the establishment or, as the case may be, the employer. Although in similar circumstance, the Bombay High Court has observed that something more than default should be established with respect to neglect or refusal to pay their outstanding dues. Since 1999, several correspondences have been made by the respondent-authority directing the petitioner to make payment towards the dues. It is seen that the petitioner on the ground that he could not recover the amount which is due to him from his creditors, he went on postponing the payment. As such, the respondent-authority has proceeded to arrest for non-payment, cannot be held to be illegal. From 1999 onwards till April 2002 and even during October 2002 in the 1st week, sufficient notices have been given asking the petitioner to pay the amount despite that he could not make payment as such, the judgment referred to by the petitioner that something more than default should be established, cannot be accepted. It is seen throughout that all such assessment orders have been made had been intimated to the petitioner, despite that he did not come forward to make payment towards the arrears of the contribution, it is needless to say that something more has been done by the respondent-authority by giving sufficient opportunity to make good payment and thereafter, proceed to arrest the petitioner, as such the act of the respondent-authority cannot be found fault with. It appears subsequently, the petitioner shown to have made some payment, towards the arrears of contribution. 11. It appears subsequently, the petitioner shown to have made some payment, towards the arrears of contribution. 11. For the foregoing reasons, the prayer of the petitioner to declare Section 8-B(1)(b) of the Act as unconstitutional is without any basis and further the act of the respondent-authority in issuing arrest warrant and arresting him and detaining him in civil prison cannot held to be illegal having regard to the facts and circumstances of the case. Accordingly, the writ petition is dismissed as devoid of merits.