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2024 DIGILAW 1586 (KER)

Dy. Director v. P. D. Vijayakumar

2024-12-03

SYAM KUMAR V.M.

body2024
JUDGMENT : The prime question that comes up for consideration in this appeal is whether the breach of civil obligations or liabilities by the employer is the sine qua non for imposition of penalty/damages under a welfare statute or whether the presence of mens rea or actus reus is an essential element in the said respect. 2. This appeal is filed challenging the judgment dated 14.02.2013 of the Employees Insurance Court, Alappuzha, in I.C.No.76 of 2012. The appellant herein was the respondent (hereinafter referred to as “the Corporation”) and the respondent herein was the applicant (hereinafter referred to as “the applicant”) in the said case. 3. Applicant’s establishment, Indira Motors is situated at Nagampadam, Kottayam. It is covered by the Employees State Insurance Act, 1948 (hereinafter referred to as “the ESI Act”). The applicant had earlier challenged the coverage of his establishment under the ESI Act, which was turned down by the E.I.Court. The said finding of the E.I.Court was later affirmed by this Court. During the period when the said litigation challenging coverage was pending, no demands were made and the applicant did not pay the contributions under the ESI Act. However, once the coverage was upheld, the Corporation demanded from the applicant payment of the statutory contributions due for the relevant period. He challenged the said demand before the E.I.Court. Though the demand was set aside by the said Court, Corporation preferred an appeal and this Court reversed the finding of the E.I.Court, inter alia holding that the claim by the Corporation is not barred by limitation and further directing the Corporation to determine the contribution payable by the applicant for the period from 01.01.1987 to 31.12.1988 and 01.01.1994 to 30.06.2002 after affording the applicant an opportunity of being heard. Pursuant thereto, the amount of contribution payable was duly computed at Rs.1,21,588/- and applicant was called upon to pay the same. Applicant had earlier deposited Rs.60,000/- before the E.I. Court as part of the former proceedings and the balance amount of Rs. 61,588/- was paid by him belatedly on 29.06.2009. The contribution payable to the Corporation was thus paid by the applicant, albeit with considerable delay. In view of the delay that had occasioned in paying the contribution, the Corporation invoking Section 85 B of the ESI Act, imposed on the applicant as penalty, damages for an amount of Rs.83,573/-. 61,588/- was paid by him belatedly on 29.06.2009. The contribution payable to the Corporation was thus paid by the applicant, albeit with considerable delay. In view of the delay that had occasioned in paying the contribution, the Corporation invoking Section 85 B of the ESI Act, imposed on the applicant as penalty, damages for an amount of Rs.83,573/-. Vide order dated 13.09.2011, he was called upon to remit the same. The applicant challenged the said order before the E.I.Court by filing I.C.No.76 of 2012, which led to the order impugned herein. Proceedings before the E.I.Court : 4. The Corporation entered appearance and filed a detailed written objection. The E.I. Court drew up the point for consideration and the parties proceeded to tender evidence. Exts.P1 to P6 were marked from the applicant's side, and the Corporation marked Exts.D1 to D10. No witnesses were examined by either side. The E.I.Court, after hearing both sides vide its judgment dated 14.02.2013, set aside the order dated 13.09.2011 which imposed penalty on the applicant inter alia holding that the non payment of contribution lacked any ‘willful omission or any contumacious conduct’ on the part of the applicant, there was ‘no mens rea to commit default and thereby defeat the provisions of law’ and hence penalty would not lie. Reliance was placed inter alia on the decision of the Supreme Court in Employees State Insurance Corporation v. HMT Ltd. and another [ 2008 (1) LLJ 814 ]. Aggrieved by the said judgment of the E.I.Court, the Corporation has filed this appeal. 5. Heard Sri.T.V.Ajaya Kumar, learned counsel appearing on behalf of the appellant-Corporation and Sri.P.S.Gireesh, learned counsel appearing on behalf of the respondent-applicant. Contentions in brief: 6. On behalf of the Corporation, the learned counsel submitted that the judgment of the E.I.Court setting aside the order imposing penalty dated 13.09.2011 (produced as Ext.P5 before the E.I.Court) is erroneous and unsustainable in law. The learned Judge had overlooked the fact that in the said order, the amount of Rs.4,62,294/- originally payable as damages, had been duly reduced to Rs.83,573/- by excluding therefrom the period expended in litigation. Thus the penalty imposed was strictly for the period of delay, excluding the litigation period. The learned Judge had overlooked the fact that in the said order, the amount of Rs.4,62,294/- originally payable as damages, had been duly reduced to Rs.83,573/- by excluding therefrom the period expended in litigation. Thus the penalty imposed was strictly for the period of delay, excluding the litigation period. The E.I. Court ought to have noted that the damages as envisaged under Section 85B were liable to be imposed on the applicant and the same had been computed strictly in compliance with and as mandated under Section 85B, after duly excluding the litigation period. The court ought to have appreciated that the applicant was bound to pay the penalty amount as damages duly envisaged in law. The finding of the E.I.Court that the delay that had occasioned on the part of the applicant in remitting the contribution was neither a willful omission nor a contumacious conduct is incorrect. The further conclusion arrived at by the E.I.Court that there was no mens rea on the part of the applicant to commit delay and thereby, to defeat the provisions of law, militates against the settled legal position. The finding that the delay involved in payment of the contribution is excusable and the order imposing damages is liable to be declared unsustainable, overlooks the mandatoriness of the penalty as imposed under law. As regards the insistence on mens rea, it is contended by the learned counsel that it is not an essential element for imposing a penalty for breach of civil obligations or liabilities. Mere contravention of the provisions of the Act or default in complying with its mandates, as regards the civil liabilities concerned are sufficient enough to attract the penalty of damages. While imposing damages under Section 85B of the ESI Act, mens rea or actus reus need not be considered contends the learned counsel basing on the dictum of the Supreme Court in Horticulture Experiment Station, Gonikoppal, Coorg v. Regional Provident Fund Organisation [ (2022) 4 SCC 516 )]. Reliance placed in the impugned judgment on the dictum in HMT Ltd. (supra) is termed as erroneous. 7. Per contra the learned counsel for the applicant submits that the judgment of the E.I.Court has been rendered correctly appreciating the law and facts and hence calls for no interference. Reliance placed in the impugned judgment on the dictum in HMT Ltd. (supra) is termed as erroneous. 7. Per contra the learned counsel for the applicant submits that the judgment of the E.I.Court has been rendered correctly appreciating the law and facts and hence calls for no interference. Since Section 85B of the ESI Act specifically mentions that the penalty is to be imposed as damages prescribed, the learned Judge was right in concluding that there cannot be a penalty unless mens rea or contumacious conduct accompanied the alleged act of defiance. Since the non-payment of contribution during the period when the litigations were pending has been well explained and no willful default or refusal to pay could be proved, the finding of the E.I.Court is valid and justified. As a corollary, it is contended that Section 85B only states that the Corporation ‘may’ recover damages from the employer for failure to pay contributions and that it was not mandatory to have imposed the full amount that has been found liable to be paid as damages and the discretion thus vested in the concerned officer of the Corporation ought to have been properly exercised in favour of the applicant. To buttress this contention, reliance is placed on the judgment of this Court in Central Board of Trustees v. Bake 'N’ Joy Hot Bakery [ 2024 (2) KHC 87 ]. Discussion and finding: 8. Admittedly the applicant’s establishment was covered under the ESI Act with effect from 06.06.1986. As per Section 40 of the ESI Act, read with Employees State Insurance (General) Regulations, 1950 the contribution for each wage period is to be remitted within the specified number of days of the last day of each calendar month. The liability under Section 40 of the ESI Act being statutory, failure to remit the contribution within the stipulated time period attracts the penal consequence of levy of damages as laid down in Section 85B of the ESI Act. Section 85B reads as follows: “85B. The liability under Section 40 of the ESI Act being statutory, failure to remit the contribution within the stipulated time period attracts the penal consequence of levy of damages as laid down in Section 85B of the ESI Act. Section 85B reads as follows: “85B. Power to recover damages :- (1) Where an employer fails to pay the amount due in respect of any contribution or any other amount payable under this Act, the Corporation may recover from the employer by way of penalty such damages not exceeding the amount of arrears as may be specified in the regulations: Provided that before recovering such damages, the employer shall be given a reasonable opportunity of being heard: Provided further that the Corporation may reduce or waive the damages recoverable under this section in relation to an establishment which is a sick industrial company 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 regulations. (2) Any damages recoverable under sub-section (1) may be recovered as an arrear of land revenue or under section 45C to section 45-I. (emphasis added)” Thus when the employer fails to pay the amounts due towards contribution or any other amount due or payable under the Act, the Corporation has the power and authority to recover from the employer, by following the prescribed mandate, by way of penalty such damages not exceeding the arrears as specified in the relevant provision of the Regulation. 9. Does Section 85 B mandate that while proceeding to impose a penalty under the above Section, the concerned authority is under an obligation to examine and confirm the existence of mens rea or a willful intent or contumacious conduct in the person? Should the authority scrutinize the justification, if any, tendered, and ascertain the existence of the above elements before proceeding to pass the order imposing penalty? Would it be sufficient to confine the examination to the question of whether there has been a violation of the mandate and if found so, without any further scrutiny into the mental element, can the authority proceed to impose a penalty following Section 85 B? Would it be sufficient to confine the examination to the question of whether there has been a violation of the mandate and if found so, without any further scrutiny into the mental element, can the authority proceed to impose a penalty following Section 85 B? Counsel for the Corporation points to the judgment of the Supreme Court, in Horticulture Experiment Station, Gonikoppal, Coorg v. Regional Provident Fund Organisation (supra) for possible answers to these questions and submits that HMT Ltd. (supra) relied on by the E.I.Court is no longer good law. 10. In Horticulture Experiment Station (supra) while considering the question of imposition of damages under Sections 7A and 14B of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), the Supreme Court held that mens rea is not an essential element for imposing penalty or damages for breach of civil obligations and liabilities. It is relevant to note that Section 85B of the ESI Act is in pari materia with Section 14B of the EPF Act. The Supreme Court in Horticulture Experiment Station (supra) as well as this Court in E.S.I.Corporation v. Premanandan [ 2007 (2) KLT 666 )], has held that the said two legislations are in pari materia as far as the question of imposition of damages for delayed payment of contributions is concerned, and the decision in one can be applied in respect of matters arising under the other Act regarding imposition of damages. After a survey of the earlier judgments on the point, it was held that delay or default in payment of Employees Provident Fund Contributions by the employer under the EPF Act is a sine qua non for imposition of levy of damages under Section 14B of the EPF Act. 11. ‘Mens rea’ is a Latin term that literally translates to "guilty mind". The relationship between penalty and mens rea depends on the type of law and the circumstances of the case. Mens rea may be a necessary component of a crime. However, when it comes to penalty proceedings under civil laws, mens rea may not be as relevant or relevant at all. For instance, it is trite that in taxation law and in welfare legislation, penalties can be imposed regardless of intent. Mens rea may be a necessary component of a crime. However, when it comes to penalty proceedings under civil laws, mens rea may not be as relevant or relevant at all. For instance, it is trite that in taxation law and in welfare legislation, penalties can be imposed regardless of intent. Similarly, with respect to the categories of offenses generally termed as ‘social welfare offenses’ that are often found embedded within welfare statutes, non-compliance with the mandates incorporated in such statutes with social welfare objectives in mind, could be visited with penalties. In such circumstances, the sine qua non to attract a penalty would be the mere contravention of the provision and mens rea or willful intent are irrelevant. It would be a strict liability offence, usually punishable only with fine/damages and may carry no stigma with it. While dealing with such a social welfare legislation that incidentally penalises a particular conduct or omission, the court cannot read in mens rea into it as a requirement for imposition of penalty. Being a strict liability offence, omission or commission of the statutory breach is itself the offence. As quoted by the Supreme Court in Horticulture Experiment Station (supra) “The classical view that ‘no mens rea no crime’ has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where offences have been defined to exclude mens rea. In view of the said specific dictum as laid down in Horticulture Experiment Station (supra), reliance placed by the E.I. Court in the impugned judgment on the dictum in HMT Ltd. (supra) cannot be sustained. 12. The ESI Act is a social security legislation enacted to ensure the welfare of employees. It mandates the employer to pay contributions stipulated therein and provides for imposition of penalty by way of damages for violation of such mandates. A finding that the delinquent had contravened the relevant provisions would immediately attract the levy of ‘penalty’ irrespective of the fact whether the contravention was made by the defaulter with any ‘guilty intention’. Mens rea is thus not at all an essential element for imposing penalties for breach of civil obligations or liabilities under the Act. A finding that the delinquent had contravened the relevant provisions would immediately attract the levy of ‘penalty’ irrespective of the fact whether the contravention was made by the defaulter with any ‘guilty intention’. Mens rea is thus not at all an essential element for imposing penalties for breach of civil obligations or liabilities under the Act. In the judgment impugned, the E.I.Court erred in insisting that mens rea or contumacious conduct are necessary corollaries that must be proved to exist in the person before proceeding to impose on him a penalty by way of damages under Section 85 of the ESI Act. 13. Following the dictum in Horticulture Experiment Station (supra) it is to be thus held that any default or delay in payment of ESI contribution by the employer under the ESI Act is a sine qua non for imposition of levy of damages as per the mandates of Section 85B of the said Act and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligation/liabilities under the said Section. 14. Now I proceed to consider the ancillary contention put forth by the learned counsel for the applicant that Section 85B of the ESI Act only states that the Corporation ‘may’ recover damages from the employer for failure to pay contributions and that it was not mandatory on the part of the concerned officer to have imposed the full amount of penalty that has been found liable to be paid as damages and the discretion vested on the concerned officer of the Corporation ought to have been properly exercised in favour of the applicant. Reliance is placed on the dictum of this Court in Bake N’ Joy Hot Bakery (supra) wherein it had been held that Horticulture Experiment Station (supra) does not hold that 100% damages must be invariably imposed and that the said decision is not an authority for the proposition that the circumstances that led to the default cannot be considered while deciding the quantum of damages to be imposed. It is seen specifically stated in the written objection filed before the E.I.Court in the case at hand that the amount of Rs.4,62,294/- originally payable as the penalty had been after a hearing conducted based on the representation preferred by the applicant been reduced to Rs.83,573/- by excluding therefrom the period expended in litigation. It is seen specifically stated in the written objection filed before the E.I.Court in the case at hand that the amount of Rs.4,62,294/- originally payable as the penalty had been after a hearing conducted based on the representation preferred by the applicant been reduced to Rs.83,573/- by excluding therefrom the period expended in litigation. This reveals that there has been an application of mind by the concerned authority while issuing order dated 13.09.2011 on the applicant and the penalty had not been imposed mechanically or without proper application of mind. Further, though financial stringency is pointed out, the applicant has no case that he did not pay wages to the employees for the period in question and that he has not deducted the contribution from the wages. This Court had in Employees State Insurance Corporation v. State Farming Corporation of Kerala [2014 (1) KLT Suppl. 98 (Ker.)] held as follows: “It is the statutory duty of an employer to deduct contributions from the wages of the employees and to pay the same to the Corporation along with the employers' contributions within the time stipulated in the Regulations. Perhaps financial difficulties may be an absolute defence for delay in payment of employers' contributions. But, when the statute prescribes that the contributions deducted from the employees' wages have to be paid to the Corporation within a limited period the respondents cannot totally avoid payment of damages since there is at least some default on their part. Here in this case the respondents have no case that they did not pay wages to the employees for the period in question and that they have not deducted the contribution from the wages. Therefore there is some fault on the part of the respondents in not paying the deducted contributions to the Corporation.” (emphasis added) What follows from the above is that the Insurance Appeal is to be allowed. It is accordingly done so. Consequently the judgment dated 14.02.2013 of the Employees Insurance Court, Alappuzha, in I.C.No.76 of 2012 is hereby set aside. The Corporation will be entitled to realise from the applicant the amounts due as per order dated 13.09.2011, in accordance with law.