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2007 DIGILAW 576 (GAU)

Supreme Tyres Pvt. Ltd. v. Union of India

2007-08-28

TINLIANTHANG VAIPHEI

body2007
JUDGMENT T. Vaiphei, J. 1. In this writ petition, the petitioner is questioning the validity of the proceeding and order dated October 22, 2003 under Section 14B of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 ("the Act" for short) issued by the Assistant Provident Fund Commissioner, Sub-Regional Office, Shillong (the respondent No. 3) and of the order dated June 15, 2004 passed by the Regional Provident Fund Commissioner, North Eastern Region, Guwahati, affirming the said proceeding and order of the respondent No. 3. 2. The facts giving rise to this writ petition may be briefly noticed at the very outset. The petitioner is a private limited company, having its registered office at Shillong, and is engaged in the business of retreading motor tyres and is a franchisee of MRF Pretreads with its factory at Umbrang, Sumer, East Khasi Hills. According; to the petitioner, by the letter dated August 2, 1998 (Annexure-1) issued by the respondent No. 3, the firm was brought within the purview of the Act with effect from April 1, 1998 and called upon it to pay the dues under the Act from April 1, 1998 onwards. However, by the letter dated March 24, 1999 (Annexure-2), the respondent No. 3 informed the petitioner that on further inspection of the factory, the coverage for payment of Fund was being shifted to March 1, 1991 instead of April 1, 1998 and accordingly required it to pay all the dues commencing from March 1, 1991 to March 31,1998 within 15 days of the receipt of the letter. It would appear that subsequently, on the prayer of the petitioner, the case was finally decided as evident from the order dated December 15, 2000 whereby the dues were assessed at Rs. 3,36,841/-, which, according to the petitioner, were in the nature of damages and penalty. The petitioner apparently cleared these dues by three instalments, which also included interest payable under Section 7Q of the Act and assessed at Rs. 36,091/-. However, to the misfortune of the petitioner, the matter apparently did not end there as will appear hereafter. 3. When the petitioner thought that his ordeal was over, the respondent No. 3 slapped a fresh liability by the impugned proceeding and order requiring it to pay damages by way of penalty under Section14B of the Act amounting to Rs. 36,091/-. However, to the misfortune of the petitioner, the matter apparently did not end there as will appear hereafter. 3. When the petitioner thought that his ordeal was over, the respondent No. 3 slapped a fresh liability by the impugned proceeding and order requiring it to pay damages by way of penalty under Section14B of the Act amounting to Rs. 2,82,392/- due to its "persistent and continuous default" in remitting the dues payable from March 1, 1991 to March 31, 1998. The petitioner preferred an appeal from this proceeding and order before the respondent No. 2 with a prayer to keep the recovery proceeding in abeyance and recall the earlier orders for realization of the said penalty. When this appeal was dismissed by the respondent No. 2, the petitioner is filing this writ petition. It is the case of the petitioner that in the year 1973, a firm under the name and style of Shillong City Bus Syndicate had challenged the applicability of the Act before this Court in Civil Rule No. 82/1973 contending that the notice memo issued by the Regional Provident Fund Commissioner, NER, alleging non-payment of the Fund was without authority of law and jurisdiction of the ground that the Act was not applicable to the Autonomous District of Khasi Hills; that a Full Bench of this Court upheld the contention of the firm, but the same was overturned by the Apex Court in the decision rendered on March 27,1996 Regional Provident Fund Commissioner v. Shillong City Bus Syndicate (1996) II LLJ 753 SC that it was only, after this decision that the petitioner became liable to pay the dues under the Act and that the decision of the respondent authorities to impose penalty, on the facts and circumstances of the case, is arbitrary, illegal unfair and unjust. The case of the respondents, on the other hand, as evident from the affidavit-in-opposition filed by them, is simple, that is, non-payment of statutory dues within the stipulated time attracts the penal provisions under Section 14B of the Act and due to the failure of the petitioner to make timely deposit of their liabilities, no investment could be made in a profitable fund thereby depriving the Trust Fund to earn interest for payment to the employees of the petitioner, it is the further contention of the respondent that the pendency of the writ petition from 1973 to 1996 questioning the applicability of the Act to this part of the country did not have the effect of wiping out the liability of the petitioner-firm to pay its contribution; the liability to pay was merely postponed and became operative once the Apex Court upheld the applicability of the Act. Being devoid of merit, it is so contended, the writ petition is liable to be dismissed. 4. Mr. HS Thangkhiew, the learned Counsel for the petitioner, submits that the respondent authorities have completely overlooked the vital facts that there was no refusal or negligence on the part of the petitioner to satisfy their liabilities imposed by the Act; in fact, they promptly cleared all the dues outstanding against them once the law in this behalf was made clear by the Apex Court. The learned Counsel admits that the power to impose penalty by the respondent No. 3 under Section 14B of the Act is a discretionary power, but contends that this discretionary power like any other discretionary power must be exercised rationally and not arbitrarily. According to the learned Counsel, the respondent No. 3 misdirected himself in law in ignoring the peculiar facts of this case and has in the process acted arbitrarily resulting in gross injustice to the petitioner-firm. On the other hand, Mr. R. Choudhury, the learned Counsel for the respondents, supports the impugned order and proceeding and maintains that the petitioner has no legitimate grievance to make, particularly, when it is normally expected of it, as prudent business enterprise, to prepare for its statutory liabilities under Act should the decision of this Court be reversed by the Apex Court by depositing appropriate funds in a financial institution: having not done sot it has only to blame itself. According to the learned Counsel, the so-called peculiar circumstances harped upon by the petitioner in this case are entirely irrelevant and cannot be taken into account by the respondent No. 3 of waiving the penalty. He, therefore, strenuously urges this Court not to interfere with the impugned decisions, which are otherwise perfectly in order. 5. Before proceeding further, it will be beneficial to refer to the provisions of Section 14B of the Act which read thus: 14-B; Power to recover damages- Where an employer makes default in the payment of any contribution to the Fund (the (Pension) Fund or the Insurance Fund) or Section 15 (for Sub-section (5) of Section 17) or in the payment of any charges payable under any other provision of this Act or of (any Scheme or Insurance Scheme) or under any of the conditions specified under Section 17, (the Central Provident Fund Commissioner or such other officer as may be authorized by the Central Government, by notification in the Official Gazette, in this behalf) may recover (from the employer such damages, not exceeding (***) the amount of arrears, as it may thinks fit to impose:) (Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard): (Provided further that the Central Board may reduce or waive the damages levied under this Section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985(1 of 1986), subject to such terms and conditions as may be specified in the Scheme.) 6. The scope and extent of the power of the Central Provident Fund Commissioner and other authorized officers such as the respondent Nos. 2 and 3 herein under Section 14B of the Act came up for consideration before the Apex Court in Regional Provident Fund Commissioner v. SD College (1997) II LLJ 55 SC. In that case, the respondent educational institution had been depositing the amounts of provident fund with the University under a scheme framed by the University. The provision of the Act was applied to the educational institution by a notification. In that case, the respondent educational institution had been depositing the amounts of provident fund with the University under a scheme framed by the University. The provision of the Act was applied to the educational institution by a notification. The Apex Court while restrained the levying of damages under Section 14B of the Act should (sic) the institution complied with the said direction. However, the respondent- institution continued to deposit the amounts with the university and not with the Provident Fund Commissioner. It was only after about two years and a half long years that the respondent-institution withdrew the amounts deposited with the University with the latter's permission and then re-deposited the same with the Regional Provident Fund Commissioner. Holding that the act of re-depositing the amounts with the permission of the University could not afford protection against the consequences of non-deposit of the amount in the fund, the Apex Court ruled that levy of damages under such circumstances, was proper. With regard to the power to levy damages, the Apex Court further held that while the Commissioner cannot totally waive the penalty, he cannot reduce it. This is what the Apex Court says at paragraphs 7 and 8 of the judgment 1997-II-LLJ-55 at pp. 57 and 58: 7. A reading of Section 14B of the Act would indicate that the employer is under an obligation under the statute to comply with payment of the amount. In the event of his committing default in the payment of the contribution to the fund or in the payment of any charges payable under any other provisions of the Act or any scheme or insurance scheme or any of the conditions specified in Section 17, the Central Provident Fund Commissioner or such other officer as may be authorized by the Central Government may, by notification in the Official Gazette in this behalf, recover from the employer, by way of penalty, such damages, not exceeding the amount of arrears, as may be specified in the scheme. The second proviso only lifts the embargo in event of the industry becoming sick and it was reconstructed under the provisions of Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 subject to such terms and conditions as may be specified in the scheme of rehabilitation. In other words, the Act envisages the imposition of damages for delayed payments. In other words, the Act envisages the imposition of damages for delayed payments. The Act is a beneficial welfare legislation to ensure health and other benefits to the employees. The employer under the Act is under a statutory obligation to deduct the specified percentage of the contribution from the employee's salary and matching contribution, the entire amount is required to be deposited in the fund within 15 days after the date of the collection, every month. 11. Thereby the employer is under a statutory obligation to deposit the amount to the credit of the fund every month. In the event of any default committed in that behalf, Section 14B steps in and calls upon the employer to pay damages by way of penalty, the maximum of which is the accumulated arrears. The Regional Provident Fund Commissioner is given discretion only to reduce a percentage of damages and he has no power to waive penalty altogether. In this case, admittedly, after the judgment, there was no reason for the respondent to deposit the amount with the University. We can understand that since there was a scheme framed by the University and the respondent was under an obligation to comply with the scheme, they can have a feeling of doubts as to whether they should abide by the scheme framed by the University or under the Act. Since they had filed the writ petition in this Court, this Court gave direction on January 29, 1988 directing the respondent to deposit the contribution with the appellant. Thereby the respondents have a statutory obligation to deposit the amount from February 1988 onwards. Therefore, there is no justification whatsoever to deposit and keep depositing the amount in the University account after the judgment of this Court. The mere fact that the University has given permission to redeposit the amount with the appellant does not enable the respondents to take shelter thereunder for non-deposit of the amount in the fund. 7. Since the legal position that the Provident Fund Commissioner has no power to totally waive the penalty, is no longer res integra. the sole question which now falls for consideration in this case is as to whether the damages amounting to Rs. 2,82.392/- imposed by the respondent authorities upon the petitioner by way of penalty is just or excessive on the facts of this case. the sole question which now falls for consideration in this case is as to whether the damages amounting to Rs. 2,82.392/- imposed by the respondent authorities upon the petitioner by way of penalty is just or excessive on the facts of this case. The contention of the respondents that the non-deposit of the amounts of the fund in time deprived the trust fund to earn interest cannot be said to entirely irrelevant. However, in the instant case, there is another factor, which cannot be held to be entirely irrelevant, namely, the delay in initiating action under Section 14Bof the Act for about 8 years due to the pendency of the writ petition filed by Shillong City Bus Syndicate which ultimately ended the controversy regarding the applicability of the Act in the Khasi Hills Autonomous District by the decision of the Apex Court referred to earlier. It was only on August 20, 1998 that respondent No. 3 issued the impugned proceeding and order. The Apex Court in Hindustan Times Ltd. v. Union of India [1998] 1 SCR 4, held that delay in initiating action under Section 14B of the Act cannot amount to prejudice inasmuch as the delay on the part of the Department, would have only allowed the employer to use the monies for his own purposes or for his business especially where there is no additional provision for charging interest. The Apex Court therein, after reviewing earlier decisions, summarized the legal position of paragraph 26, which reads at p. 689 of LLJ: 26. From the aforesaid decisions, the following principles can be summarized: The authority under Section 14B has to apply his mind to the facts of the case and the reply to the show-cause notice and pass a reasoned order after following principles of natural justice and giving a reasonable opportunity of being heard; the Regional Provident Fund Commissioner usually takes into consideration the number of defaults, the period of delay, the frequency of default and the amounts involved; default on the part of the employer based on plea of power-cut, financial problems relating to other indebtedness or the delay in realization of amounts paid by the cheques or drafts, cannot be justifiable grounds for the employer to escape liability; there is no period of limitation prescribed by the legislature for initiating action for recovery of damages under Section 14B. The fact that proceedings are initiated or demand for damages is made after several years cannot by itself be a ground for drawing an inference of waiver or that the employer was lulled into a belief that no proceedings under Section 14B would be taken; mere delay in initiating action under Section 14B cannot amount to prejudice inasmuch as the delay on the part of the Department, would have only allowed the employer to use the monies for his own purposes or for his business especially when there is no additional provision for charging interest. However, the employer can claim prejudice if there is proof that between the period of default and the date of initiation of action under Section 14B, he has changed his position to his; detriment to such an extent that if the recovery is made after a large number of years, the prejudice to him is of an "irretrievable" nature; he might also claim prejudice upon proof of loss of all the; relevant records and/or non-availability of the personnel who were, several years back in charge of these payments and provided he further established that there is no other way he can reconstruct the record or produce; evidence; or there are other similar grounds which could lead to "irretrievable" prejudice; further, in such cases of "irretrievable" prejudice, the defaulter must take the necessary pleas in defence in the; reply to the show-cause notice and must satisfy the authority concerned with acceptable material; if those pleas are rejected, he cannot raise them in the High Court unless there is a clear pleading in the, writ petition to that effect. 7.1. As noted earlier, in this case, the demand for payment of the amount for the provident fund was made by the respondent No. 3 only on August 20, 1998 vide Annexure-1. This demand was for the period between April 1, 1998 to March 31, 1999. However, on production of record by the petitioner-firm, it was found that the firm was all along having; thirty-three employees with effect from March 1, 1991 whereupon the respondent No. 3 revised the coverage period for payment of the amounts under the fund from March 1, 1991 to April 1, 1998. Thus, the petitioner was made liable to pay the fund with effect from March 1, 1991 to March 31, 1998 vide the letter dated March 24, 1999. Thus, the petitioner was made liable to pay the fund with effect from March 1, 1991 to March 31, 1998 vide the letter dated March 24, 1999. The liability payable assessed at Rs. 3,36,841/- was paid by the petitioner in three instalments on December 23, 2000. March 7, 2001 and March 30, 2001 respectively. Subsequently, the respondent No. 3 issued the notice under Section 14B of the Act, which culminated in the impugned proceeding and order holding that there was persistent and continuous default in the payment of the fund. The petitioner was thus required to pay damages of Rs. 2,82,392/- by way of penalty. In my judgment, on the undisputed facts set out heretofore, the respondent No. 3 has clearly erred in law in holding that the petitioner was guilty of "persistent and continuous default" in not paying its contribution when demand for the payment of the same was made by him for the first time only in 1999. The respondent No. 3 has also completely overlooked the glaring fact that the petitioner promptly cleared the outstanding dues for the period between March 1, 1991 to April 1, 1998 and also for the subsequent years. The respondent No. 3 also appeared to have ignored the equally crucial fact that no payment of the dues was made by the petitioner earlier due to the pendency of the writ petition, which was apparently the reason for his own inaction earlier. For all these reasons, I have no alternative but to hold that the respondent No. 3 and the respondent No. 2, who upheld the decision of the respondent No. 3, have acted arbitrarily in slapping the penalty of Rs. 2,82,392/- (sic) upon the petitioner. Nevertheless, in view of the legal position that the entire penalty cannot be waived, in my opinion, the ends of justice will be met if the petitioner is directed to pay damages of Rs. 25,000/- by way of penalty. 8. The net result of the foregoing discussion is that this writ petition is partly allowed. The impugned letters dated October 22, 2003 (Annexure-6), dated April 30, 2004 (Annexure-8 and dated June 15, 2004) Annexure-10) are hereby quashed. However, the petitioner-firm is directed to pay Rs. 25,000/- (Rupees Twenty five thousand) only as damages to the respondent authorities towards the fund within one month from today. The impugned letters dated October 22, 2003 (Annexure-6), dated April 30, 2004 (Annexure-8 and dated June 15, 2004) Annexure-10) are hereby quashed. However, the petitioner-firm is directed to pay Rs. 25,000/- (Rupees Twenty five thousand) only as damages to the respondent authorities towards the fund within one month from today. But, on the facts and circumstances of the case, there shall be no order as to costs.