ORGANO CHEMICAL INDUSTRIES & Anr. v. UNION OF INDIA & Ors.

for his order imposing damages on a.n employer. · Such a guarante'e ensures imply relevant reasons, not rational action by the officer, because reasons capricious ink: and the need for cogency rivets the officer's mind to the pertinent material on r'e~ord. Moreover, once reasons are set down, the order readily ·expoiei itself to the writ jurisdiction of the coun under Art. 226 so that per '·ersity, illiteracy, extra\1eous influence, malafides and other blatant infirmities [71F-G] straight get caught ood corrected.

#6. A high official h'ea.rs and decides. The maximum harm is pecuniary -liability limited by the statute. The writ jUrisdiction is ready to review glaring errors. Under such circumstanc'es the needs of the factual &ituation and the legal milieu are su:h that the absence of app'ellate review in no way militates a.gains-t the justice and reasonableness of the provision. The argument of arbitrariness on thi11 score is untenable. The section is not bad, though action under th'e section can be challenged in writ jurisdiction when infirmities which a.ttract such jurisdit.'1:ion vitiate the order. [71 E~F] E F ·~ • • '

#7. The argument that absent detailed guid'elines, the law is void, is not ·tenable. What is not explicit may still be implicit. What is not articulated at length may be spun out from a single phra~e. Whait is not transparent in particularised provisions n1ay be immanent in the preamble, scheme, purpose or subject-matter of the Act. What is real is not only the gross but also the G subtle. Such a perspective dispels the submission that s. 14B is bad as un· circumscribed and over·broad. [72H-73A]

#8. The word 'damages' under s. 14B ha.<> a wealth of implications and Iimita· conceptual 1ions, sufficient to serve as guideline in fixing the impost. The limitations of 'damages' serve as guideline and barricade the exercise. The Commissioner cannot award anything more than or unrelated "Nor can he go beyond 10070 of without further guidelines are not uncommon in -Oefaults and suppressions. [73B, H. 74A] f!mount defaulted. Such 'damages'. H limitations to penalise taxing laws A U C D F G 64 SUPREME COURT REPORTS [1980] l S.C.R. C.l.T., M.P. v. Radhakrishan, l1979} ,2 SCC 249; P. l'/. Kouslial v . .Union >-- of India, etc., [19781 3 SCC 558; referred to. t >.....

#9. The expression 'damages' is neither vague nor over~wid·e. Its precise import in a given context is \lot difficult to dis.cern. A plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent damages, continuing damages, double damages, excessive dc.mages, exemplary damages, general damages, pros~ pective damages, special damages, speculative damages, substa~1tial damages, unliquidated damages.. But the essentials are (a) detrin1ent to one by the wrong doing of another, (b) repar<!•tion awarded to the injured through Jegal remedies and ( c) its quantum being determined by the dual components of pecuniary compe'ilsation for the Tos-s suffer'ed and often not ahvays a. punitive addition as a deterrent-cum-denunciation by the law, irreparable dama.ges, p·ecuniary damages, [74 B-D]

#10. 'Exemplary dama.ges' are damages on an increased scale, awarded to the plaintiff over and above what will barely compensate him for his prop·erty· loss, \Vhere the wrong done to him was aggrnvated by circumYtances of violence, oppressi1on, malice, fraud or wanton and wicked conduct on the part of th'I! defenda.nt and are intended to solace the plaintiff for mental anguish laceration of his feelings, shame, degradation or other aggravations of the original wrong, or e1s'e to punish the defendant for his evil behaviour or to make an example of him, for Which reason they are ::ilso ca·lled "punitive" or "runitory" damages or "vindictive'' damages, and (vulgarly) "smart-money". [74E-F]

#11. The power conferred to award damages is delimited' by the content and contour of the conc'ept itself and if the Court finds the Commissioner travelling beyond, the blow will fall. Section l4B is therefore good for these reasons. [740]

#12. A policy oriented interpretatio•.1 when a welfare legislation falls for determination, 'especially in the context of a developing aountry. is sanctioned by principle a.nd precedent and is implicit in Art. 37 of the Constitution, since the judicial branch is-, in a sense, part of the State. So it is reasonable to [75E] assig.n to 'damage<;' a largCr. fulfilling meaning.

#14. The composite idea of 'damages· include.s more than pe-;;;uniary com l\.foreover, the injured party is the Board of trustees who administer pensa.tion. the Fund. That Fund not merely loses the interest consequent <~ the noa payrr1ent but receives a shock in that its scarce resources are further f'anlished by employ'ers' default. There is great social injury to the scheme when em ployers default in number. So the lash of the law is deli\'ered when it.s object is frustnited. f\..fore denunciatory is the fact that the employer makes deduc- tiO'.is from th'e poor wa.ges of the workers and divert.9 even those sums for his private purposes by failing to make pro1npt remittances. Thus default in contributio•ns is compounded by 'embezzlement, as it were. Naturally, damages defaulter. [75F-0] take an exemplary character and heavy blow on the inflict a H

#15. The damages are levied under the Act and the Authority levying damages is created by Act and is respons.ible for the collection of contributions It is not possible to dichotomise and hold that a111d damages for the Fund. the contributions go into the Provident Fund but the rest of the damages go ORGANO CHEMICAL INDUSTRIES V. UNION 65 ' into the general revenues. This is not a fine under the criminal law. Nor is ft recovery on beha.Jf of the Government of amounts under a general statute for purposes of revenue. A special statute creating a special fund, empowers special officers to recover speci~lly designated contributions and special damage~ for default. The entire sum belongs to the fund except perhaps the adminis It is wrong therefore trativ'e charges which are usually sepa.rately indicated. to credit the damages into the general revenues. To that extent it is a breach of the statutory scheme and a deprivation of \Vhat belongs to the workers' Pro vident Fu•.id. Tf any Stare is diverting the damages under the Act into its own coffers. it is improper. [76G-77B] A. c: D· E • F the circumstances of the case. 16, 'Dan1ages' as imposed by s. 14B, includes a punitive sum quantified 'exemplary damages' this according to ·constitutionally speaking such a penal levy aggravating clement is prominent. included in damages is perfe..:tly within the ar'ea of implied powers and the Jegis- lature maiy, while eriforcing collections, legitimately and reasonably provide for recnvcry of additional sums in the shape of poo.alty oo as to see that avoiJnnce is obviated. Such a penal levy cnn take the form of dan1agcs. Jn [75H-76B] Per Sen, J. 1. Section 14B of th'c Employees' Provident Funds c.nd l\fiscellan eous ProviskJns Act, 1952 was enacted to deter the employers and to thwart · them fron1 making defaults in carrying out their- statutory oblig2.tions to make payments to the Provident Fund. The object and purpose of th'e Section is to authorise the Regional Provident Fund Con1n1issioner to impose exemplary or punitive damageS> and thereby· to prevent employees from making defaults. The intention in increasing the quantum of da.mages, namely, "not exceeding the amount of arrears" is to invest the Regional Provident Fund Commissioner with power to impose such damages so that the employer would not find it profitable to make defaults in making payments. [82D-G]

#2. The \VOrd "damag'es'' in Section 14Il of the Employees Provident Funds /\ct, 1952 cannot be read in i-:·o!ation nor 1;an anJ ~Iisce!laneous Provi<Jions sectio-;: 14B be read out of confext. The \\'ord has to be given its true meaning in c0nsonance with the objects and purposes of the Legislation. It n1ust take its colour and "..:ontent from its context. The \VOrd 'dnrn<iges' in :;ection 148, in the context in which it appears, means penal dam<iges i.e. a penalty and not n1ercly actual loss to the beneficiaries. Otherwise the very object of the Legis lation \vould be frustrated. f870] • i

#3. The in1position of damages under section 14B serves a in dan1nification and also s'erves as a deterrent. Jt results object is to penalise, so that nn employer may be th\\'arted n1aking any further defaults. [87E] two-fold purpose. The prcdominent or deferred from The exprl!ssicn "damages" accruing in Section 14B is, in substance, a penalty imposed on the employer for the brea.ch of the statutory obligation. The object of imposition of pen<tlty ujs 148 is not m'erely "to provide compensation for the employees". The imposition of damages u/s 148 serves both the purposes-. It is meant to penalise defaultit1g emplo~'er as also to provide reparation for the amount of toss suffered by the employees. lt is not only a \Yarning to em requirement of ployers in general not to commit a breach of the ~,t<1tutory section 6 of the Act, but at lhe 512,me time it is meant to provide compensation 66 SUPREME COURT REPORTS (1980] I S.C.R. A or redress to the beneficiaries i.e. to recomp'ense the employees for the loss sustained by them. The damages need not bear any relationship to the loss which is caused to the beneficiaries under the scheme. [87F-GJ B c D E • F

#4. Each word, phrase or sentence must be considered in the light of the general ptifpose of the Act its'elf. A bare mechanical interpratation of the words devoid of concept or purpose will reduce most of legislation to futility. It is a salutary rule well established that the intention of the legislature must be found by reading th'e statute as a whole. [89E] The word "damages" in section 14B is related to the word "default". The words u!Cd in section 14B are "default in the payment of contribution'' and. therefore the word "d'efault" must be construed in the light of Para 36 of the Employees' Provident Fund Scheme, 1952, which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word "defa.ult" in section 14B must mean "failure in performance" or "failure to act". At the saime time the imposition of damages u/s 14B is to provide reparation for the amount of loss :-;uffered by employees. And this is in accord with the intent and purpose of the legislation. [87H-88B]

#5. In assessing the damages, the Regional Provident Fund Commissioner is not only bound to take into account the los:-; to the beneficiaries, but also the occasioned the default by the employ'er in .making his contributions, which infliction of damages. The entire amount of damages awarded under section 14B, except for the amount relata.ble to administrative charge'lo, must nec'es sarily be transferred to the Employees' Provident Fund and the Family Pension Fund. The employees would g'et damages commensurate with their Joss i.e. the amount of interest on delayed payments, but the remaining amount would go to augma1t the 'Fund' constituted under section 5, for implementing the scheme of the Act. [89G-90A]

#6. Sectioo 14B of the Act does not confer unguided or uncontrolled dis· impo9e such cretion upon the Regional Provident Fund Commissioner to damages "as he may think fit", and, is, therefore, not violative of Article 14 of the Constitution. [83G] It cannot be said that there are no guidelines provided for fixing the quantum of damages. The guidelines are provided in the Act and its various provisions, particularly in the word "damages" the liability for- which under "damages" in Section- 14B arises on the 'making of default". The word Section 14B Jays down s.ufficient guidelines for the Regional Provident Fund C·ommissioner to levy damages. [83G-84B]

#7. The power of Regional Provident Fund Commissioner to impose damages under section 14B is quasi-judicial function. It must be ex'ercised after notice. to the defaulter and after giving him a reasonable opportunity of being hen.rd. The discretion to award damages could be exercis'ed within the limits fixed by the statute, by taking into conmderatlon various factors, namely, the number of defaults, the period of delay, the frequ'et.1cy of defaults and the amount in volved. Having regard to the punitive nature of the power exercisable under Section 14B and the consequences that ensu'e therefrom, an order under Section 14B must be a "speaking order" containing the reasons in support of it. H [83H-84A] .'-- f • >.... ; • OR GANO CHEMICAL INDUSTRIES· V. UNION 67 ' \ Con1missioner of Coal Mines Provident Fund, Dhanbad v, J. Lalla & Sons, & [1976] 3 S.C.R. 365; referred to.

#8. 1Jere absence of provision for am appeal in the Employees Provident Fund and Miscellaneous Provisions Act, 1952 does not imply that the Regional Provident Fund Commissioner, invested with arbitrary or uncontrolled power, without any guidelines. [85B] B • ~} The conferral of power to award damages under section 14B is to ensure It is dependent on existenice of certain facts, there the success of the measure. has to be an objective determination, not subjective. [85C] The Regiona.1 Provid'ent Fund Commiooicner has not only to apply his mind to the requirements of Section 14B but is cast with the duty of making a speaking order after conforming to the rules of natural justice. [85C] C The absence of a provision for ap:peal or revision can be of no cons'equence. Where the discretion to apply the provisic~s of a particular statute is left with the Government or one of the highest officers, it will b'e presumed that the dis~ cretion vested in such a high authority will not be abused. The Government or such authority is in a position to have all the relevant and nec'essary infor mation in relation to each kind of establishment, the nature of defaults made D· by the employ~r and the necessity to decid'e whether the damages to be im- posed should be exemplary or not. When the power has to be exercised by one of the highest officers, the fact that no appeal has be'en provided for "is a matter of no moment". There is always a presumption that public officials would discharge, their duties honestly and in accordance with the rules of law. [85G, D-F] Mohammad Ali and Ors. v. Union of India and Anr., [1963] Suppl. 1 SCR 993; K. L. Gupta v, Bombay Municipal Corporation, [1968] 1 SCR 274; Chintr~linga1n and Ors. v. Govt. of India and Ors. [1971] 2 SCR 871 and Pannalal Birijraj v. Union of India. [1957} SCR 233; follo\ved.

#9. In the instant case, the petitioners are guilty of suppressio vcri for deli berate concealment of facto;; pertaining to the earlier defaults and the attendant levy of dan1ages under s. 14B. The petitioners instead of m<l.king their contri butions, deliberately ma.de wilful defaults on one pretext or another and have been utilising the amounts deduct'ed from the wages of their employees, includ ing their own contributions as well as admini&trative charges, in running their business. Therefore, this was pre-eminently a fit case for imposition of purlitive [79F, G, SOC] damages to ensure due compliance of the provisions of the Act. . "' ORIGINAL JURISDICTION: Writ Petition No. 4319 of 1978. (Under Article 32 of the Constitution) Bardridas Sharma and K. R. R. Pillai for the Petitioners. Soli !. Sorabjee, Addi. Sol. Genl. of India and A. Subhashini for the Respondents. The followi"ng Judgments were delivered : F G H A B D F G H 68 SUPREME COURT REP,0RTS (1980) l S.C.R. KRISHNA IYER, J.-Having bad the advantage of reading my learn ed brother's judgment I should have stopped mine with a single sen tence, following the example of Diplock, L.J. who in Hughes v. Hughes(') merely said: 'For the rea·sons given by my brother Harman I would dismiss the appeal'. But I respect brother Sen's request that my concurrence notwithstanding I should, in a separate opinion, high light the quintessential aspects and reinforce the legal conclusions which are interpretatively decisive and constitutionally validatory of Section I 4B of the Employees Provident Fnnd and Miscellaneous Provisions Act, 1952 (briefly, the Act). That is the apology for this separate judgment of mine. Why an apology? Because exordiums are opprobriums and socio-economic apercus are anathemas for some judicial psyches; and I should have, for that reason, abandoned my habitual deviance from the orthodox norm idealised by some that a judicial judgment shall be a dry statement of facts, drier presentation of law and logomachy and driest in least communicating to the law abiding community, which is the court's constituency, the glow of life into juristic giving principles rooted in social sciences and translated rules wl:ich legitimate our institution functionally. The last considera tion, in my humble view, is the elan vital of the justicing process and jettisoning it is judicial self-alienation from the nation. Of course, minds differ as rivers differ and habits die hard ! The central issues in this civil appeal are whether Sec. l 4B of the E.P.F. and M.P. Act is unconstitntionul and, if not, what is the seman tic-juristic sweep of the expression 'damages' used therein. Other vital but peripheral matters may be side-s(epped for the nonce, especially because my learned brother has neatly and rightly dealt with them .. The factnal setting of the case, without which the legal confentions mgued lose their luscent relevance, have been stated by my brother Sen, J. but I may project them in a single sentence to help focus on the vires of Sec. 14B and the conceptual width of 'damages' in the given context. Is the imposition by the 'speaking order' of the Regional Provident· Fund Commissioner, Chandigarh, of a heavy penalty of Rs. 94,996.80 by way of damages under Sec. 14B of the E.P.F. and M.P. Act 1952 upon the writ petitioners-employers, for chronic and unjustified defaults in remittances of the provident fund contributions of them selves and their employees legally sustainable, if obviously in excess of the pecuniary loss of interest attributable to the non-payment. Briefly and broadly lopping off this case the scheme of the Act is that each employer and employee the Act do contribute falling within in every aspects unnecessary 'establishment' (1) See Foot~note 49 in Law and Politics by Robert Stevens • >- • • ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.) 69 into a statutory fund a titll!c, viz. 6t % of the wages to swell into a large Fund wherewith the workers who toil to produce the nation's wealth during their physically fit span of life may be provided some retiral benefit which will 'keep the pot boiling' and some source where- from loans to face unforseen needs may be obtained. This social sec- urity measure is a humane homage the State pays to Articles 39 and 41 of the Co_nstitution. The viability of the project depends on the 'emplo yer duly deducting the workers' contribution from their wages, adding his own little and promptly depositing the mickle into the chest consti <utcd by the Act. The mechanics of the system will suffer paralysis if the employer fails to perform his function. The dynamics of this bene funds regularly ficial statute derives its flowing into the statutory till. locomotive power from the A B c The pragmatics of the situation is that if the stream of contributions were frozen by employers' defaults after due deduction from the wages and diversion for their own purposes, the scheme would be damnified by traumatic starvation of the Fund, public frustration from the· failure D of the project and psychic demoralisation of the miserable beneficiaries when they find their wages deducted and the employer get away with it even after default in his own contribution and malversation of the workers' share. 'Damages' have a wider socially semantic connotation than pecuniary loss of interest on non-payment when a social welfare scheme suffers mayhem on account of the injury. Law expands con- cepts to embrace social needs so as to become functionally effectual. E We may wad Sec. 14B and Rule 38 to vivify the discussion: "14B. Power to recover damages: Where an employer makes defaults in the pa, yments of any contribution to the Fund (the Family Fund or the Insurance Fund) or in the transfer of accumulations required to be transferred by him under sub-section (2) of Section 15 [for sub-section (5) of Section 1 7] or in the payment of any charges payable under any other provision of this Act or of (any scheme or Insu rance Scheme) or under any of the conditions specified under Section 17, (the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Gov ernment by notification in the Official Gazette in this behalf) may recover from the employer such damages, not exceeding the amount of arrear, as it may think fit to impose. Provided that before levying and recovering such dama ges, the employer shall be given a reasonable opportunity of being heoard." F G H ... i ... • i • A B c D E F G 70 SUPREME COURT REPORTS [1980] l S.C.R. "38 Mode of payment of contribution-(!) The emplo yer shall, before paying the member his wages in respect of any period or part of period for which contributions are pay the employee's contribution from his wages able, deduct which together with his own contribution as well as an admi nistrative charge of such percenfage of the to!'al employer's and employee's contribution as may be fixed by the Central Govermnent, he shall within fifteen days of the close of every month's pay to ti)e Fund by separate Bank drafts or cheques on account of contributions and administrative charge ..... . (2) The employer shall forward to the Commissioner, within fifteen days of the close of the month, a monthly con solidated statement in such form as the Commissioner may specify showing recoveries made from the wages of each em ployee and the amount contributed by the employer in res pect of each such employee". Counsel for the petitioners has turned the constitutional fusillade on Sec. 14B by charging it with many-sided, in-built arbitrariness and therefore liable to be fat'ally shot down by Art. 14. The provision is simple and the contention is familiar. The offending words of Sec. 14B are that 'the Provident Fund Commissioner may recover from the employer such damages, not exceeding the amount of arrear, as it thinks fit to impose.' Within the limit of 100%, the enforcing agency is vested with naked and unguided power to inflict any quantum cif damages as he fancies and this blanket authority is instinct with discri minatory possibility, a vice to which Art. 14 is very allergic. No rea sons need be given, no appellate or revisional review is prescribed and no judicial qualification is required for the Commissioner. This tiny statutory tyrant must be slain i:£ equal justice under the law were to be runs the argument part of our fundamenpa! rights package. So traditiona!, attractive and near-lethal. Indeed, if executive fiats re leased from legal restraints, were free to run amok, our freedoms would be frothy boasts ! Sedulous scrutiny of this submission of counsel is our solemn duty since I share with him the pensive thought that arrogance of power dressed in little, brief authority is the undoing of our constitu tional order. And yet, here the mini-nero portrait is too naive to meet with approval. H A shower of precedents has rained on. Art. 14 but the cardinal prin ciples have sunk so deep into the constitutional consciousness of the juristic community that recapitulation of cirations is an act of superero gation. 1 desist from it. ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.) 71 The power to affect citizen's rights, especially by way of punitive impost or damages for wrong. doing, is quasi-judicial in character even if exercised by executiv~ echelons. This Court has underscored the im portance of injecting the norms of natural justice when statutory func tionarieii affect the rights of a person. The most recent of the cases which lay bare the elementals of this branch of jurisprudence are : (l)Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India('); (2) Maneka Gandhi v. Union of lndia( 2 ) and (3) Mohinder Singh Gill & Anr. v. The Chief Election Commissioner, New IDelhi and Ors.(') In Siemens' case this Court observed : "It is now settled law that where an authority makes an order in exercise of a quasi-judicial function it must record its reasons in snpport of the order it makes. Every quasi judicial order must be supported by reasons. That has been laid down by a long line of decisions of this Court ending with N. M. Desai v. The Testeels Ltd. & Anr.( 4 )" • Fair play in Administration is a finer juristic facef, at once funda;.. mental and inviolable and natural justice is an inalienable functional component of quasi-judicial acts. Here, it is indubitable that the imposition of damages on a party after a statutory hea; ring is a quasi judicial direction. This Court has impressed the requirements Qf natu ral justice on such jurisdictions and one such desideratum is spelling out reasons for the order made, in other words, a speaking order. Tue inscrutable face of a sphnix is ordinarily incongruous with a judicial or quasi-judicial performance. It is, in my view, an imperative of Sec. 14B that the Commissioner shall give reasons for his order posing damages on an employer. The constitutionality of the power, tested on the .anvil of Articles 14 and 19, neceiisitates this prescrip tion. Such a guarant'ee ensures rational action by the officer, because reasons imply relevant reasons, not capricious ink and the need for cogency rivets the officer's mind to the pertinent material on record. Moreover, once reasons are set down, the order readily exposes itself to the writ jurisdiqlion of the court under Article 226 so that perver sity, illiteracy, extraneous infinence, malafides and other blatant in firmities straight get caught and corrected. Thus, viewing the situa- (1) [19761 Supp. S.C.R, 499. (2) [1978] 2 S.C.R. 621. (3) [1978] 2 S.C.R. 272. (4) C.A. 245 of 1970 decided on 17th December, 1975_by S.C. o-475 SCI/79 A B c D E F G 72 SUPREME COURT REPORTS [1980] 1 S.C.R. A B c D E F tion from the conspectus of requirements and statutory agencies may be inhibited and the scare of arbitrary behaviour allayed once reasons are required to be given. remedies, Nor is the plea of absence of guidelines or appell•ate review sound enough to subvert the validity of Sec. 14B. It is attractive to hear the argument that an order passed by an authority, which becomes infallibly final in the absence of an appeal or revision, is apt to be arbitrary and bad. An appeal is a desirable corrective but not an indispensable imperative and while its presence is an extra. check on wayward orders its absence is not a sure index of arbitrary potential. 1~ depends on the nature of the subject matter, other available correc tives, possible harm flowing from wrong orders and a wealth of other factors. If a death sentence is allowed to become conclusive without so much as a single appeal, Articles 14 and 21 may imperil such a pro vision but if a fine of Rs. 5 /- imposed for a minor offence in a sum mary trial by a First-Class Magistrate is imparted a finality, subject, of course, to a constitutional remedy in the event of perverse or patent illegality we may still uphold that provision with an easy constitutional conscience. In the present case, a hearing is given to the affected party. Reasons !rave to be recorded in the order awarding damages. The writ jurisdiction is ready to review glaring errors. The maximum harm is pecuniary liability limited by the statute. A high official hears and decides. Under such circumstances the needs of the fac tual situation and the legal milieu are such that the absence of appel late review in no way militates against the justice and reasonableness of the provision. The argument of arbitrariness on this score is untenable. The section is not bad. Maybe, action under the section may be challenged in writ jurisdiction provided infirmities which attract such jurisdiction vitiate the order. G B The bogie of absence of guidelines in the provision and consequen tial possibility of the authority running berserk or acting hubristicaUy does not frighten. Of course, the more bereft of explicit guidelines a statutory power is, the more searching must be the judicial invigilation to discover hidden injustice and masked mala fides. Even so, let us examine the ground that, ·absent detailed guidelines, the Jaw is void. What is not explicit may still be implicit. What is not articulated at length may be spun out from a single phrase. What is not transparent in particularised provisions may be immanent in the preamble, scheme; purpose or subject-matter of the Act: What is real is not only the gross but also the subtle, if I may strike a deeper note. Such a pers- • >- + .. • • J ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.) 7 3 pective dispels the submission that s. 14B is bad as uncircumscribed and over-broad . A impost. The power under the Section permits award of 'damages' and that to serve In Arvinder Singh's case(') this word has a wealth of implications and !imitations, sufficient as guideli11e in fixing the Court upheld au otherwise unbridled power to Jevy tax by importing a B variety of factors gathered from the statute and relied on many prece dents. Likewise, in Radhakrishan' s case (2) this Court rejected plea that a power in the Commissioner to choose one of the two reme dies was invalid in the absence of guidelines and observed, on a review of the case-law: c "When power is conferred on high and responsible officers they are expected to act with caution and impar tiality while discharging their duties and the circumstances under which they will choose either of the remedies available should be left to them. The vesting of discretionary power in the state or public authorities or an officer of high stand ing i; treated as a guarantee that the power will be used fairly and with a sense of responsibility. It has been held by the Privy Cowi.cil in Provl'nce of Bombay v. Bombay Municipal Corporation ( 3 ), that every statute must be supposed to be for public good at least in intention and therefore of few Jaws can it oo said that the law confers unfettered discretionary power since the policy of law offers guidance for the exercise of discretionary power". Although our democratic ethos is incongruous with the assumptio~ that highly paid officials are more responsible than low-paid minions, the jurisprudence of power must be applied workably and not untouch ed by reality. More to the point is the decision in Kaushal's case('). There this Court accepted the submission that the seemingly naked power under Sec. 59 of the Punjab Excise Act was guided by requirement that it was to be exercised for control of consumption of intoxicants. (The whole scheme of the statute proclaims its purpose of control in time and space and otherwise observed the Court). Here the conceptual limitations of 'damages' serve as guideline and barricade (I) [1979] I S.C.C. 137. (2) [1979] 2 s.c.c. 249. (3) 73 I.A. 271: AIR 1947 P.C. 34. (4) [IJ73] 3 s.c.c. 558. D E F G H • > • • 74 SUPREME COURT REPORTS [1980] 1 S.C.R. the exercise. The Commissioner cannot award anything more than or unrelated to 'damages'. Nor can he go beyond 100% of the amount defaulted. Such limitations without further guidelines are not uncommon in taxing laws to penalise defaults and suppressions. What do we mean by 'damages' ? The expression 'damages' is neither vague nor over-wide. It has more than one signification but the precise import in a given context is 'not difficult to discern. A plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent damages, continuing damages, double damages, excessive damages, exemplary damages, groeral damages, irreparable damages, pecuniary damages, prospective damages, special damages, speculative damages, substantial damages, unliquidated damages. But the essentials are (a) detriment to one by the wrong-doing of another (b) raparation awarded to the injured through legal remedies and ( c) its quantum being determined by the dual components of pecuniary compensatiO'Jl for the loss suffered and often, not always, a punitive addition as a deterrent-<:um-denunciation by the law. For instance, 'exemplary damages. are damages on an increased scale, awarded to the plaintiff over and above what will barely compensate him for his property loss, where the wrong done to him was aggravated by circumstances of violence, oppression, malice, fraud, or wanton and wicked conduct on the part of the defendant, and are intended to solace the plaintiff for mental anguish, laceration of his feelings, shame, degradation, or other aggravations of the original wrong, or else to punish the defendant for his evil behavior or to make an example of him, for which reason they are also called "punitive" or "punitory" damages or "vindictive" damages, and (vulgarly) "smart-money". (See Black's Law Dictionary, 4th Edition p. 467 / 468). It is sufficient for our present purpose to state that the povrer conferred to award damages is delimited by the content and contour of the concept itself and if the Court finds the Commissioner trawlli'ng beyond, the blow will fall. Sec. 14B is good for these reasons. A B c D E F G The further submission is that damages being compensatory character could not exceed the interest the amount defaulted would have carried during the period of delay. The respondent has gone beyond the mere quantum of ihterest and has rounded it off to a sum Is this excess an illegal extrava gance or a legal levy? This turns on what is 'damages' in the setting of th~ Act. D equal to the defaulted contribution. .r ) ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.) 75 ·- filled by The measure was enacted for the support of a weaker sector viz. the working class during the superannuated winter of their life. . The financial reservoir for the distribution of b~'nefits is employer collecting, by deducting from the workers' wages, completing it with his own equal share and duly making over the gross sums to the Fund. If the employer neglects to remit or diverts the moneys alien purposes the Fund gets dry and the retirees are denied the meagre support when they most need it. This prospect of destitution demora lises the working class and frustrate-3 the hopes of the community itself. The whole project gets stultified if employers thwart contributory res ponsibility and this wider fall-out must colour the concept of 'damages' when the court seeks to define its content in the special setting of the Act. For, judicial interpretation must further the purpose of a statute. In a diffurent context and considering a Europeah Court of Human· Rights, in the Sunday Times Case, obser fundamental treaty, "The Court must interpret them in a way that reconciles them as far as possible and is most appropriate in order to realise the aim and achi·~ve the object of the treaty". A policy-oriented interpretation, when a welfare legislation falls for determination, especially in the context of a developing country, is sanction~d by pri'nciple and precedent and is implicit in Art. 37 of the Constitution since the judicial branch is, in a sense, part of the State. So it is reasonable to assign to 'damages' a larger, fulfilling meaning. What are the strands which make the fabric of 'damages' nnder the Article ? I have stated earlier that the composite idea of 'damages' i.ncludes more than pecuniary compensation. Moreover, the injured party is the Board of Trustees who administer the Fund. That Fund the non-payment but not merely loses the interest consequent on receives a shock in that its scarce resources are further famished by employers' default. There is great social injury to the scheme when employers default in numbers. So thoe lash of the Jaw is delivered when its object is frustrated. What is more denuciatory is the fact that the employer makes deductions from the poor wages of the workers (and makes them suffer to that extent) and diverts even those sums for his private purposes by failing to make prompt remittances. Thus, default in contributions is compounded by embezzlement, as it were, Naturally, damages will take an exemplary character and i'nflict a heavy blow on the shady defaulter. I am clearly of the view that 'damages', as imposed by Section 14B., included a punitive sum quantified according to the circumstances of A B c D E F G H 76 SUPREME COURT REPORTS (1980) 1 S.C.R. A B In 'exemplary damages' this aggravating element is promi the case. nent. , Constitutionally speaking, such a penal damages is perfectly within the area of implied powers and the legis lature may, while enforcing collections, legitimately and reasonably provide for recovery of additional sums in the shape of penalty so as to see that avoidance is obviated. Such a penal levy ca'n take the form of damages because the reparation for the injury sulfured by the default is more thlln the narrow computation of interest on the contri bution. included • c This Court has in R. S. Joshi, Sales Tax Officer, Gujarat ami the consti judges in that Others v. Ajit Mills Limited and Another(') considered tutionality of a penal forfeiture and a bench of seven case has upheld it. D E F G H A Patna decision where the levy of damages was attacked as vio lative of Article 20(2) has taken the view the amount of damages imposed under Section 14B is penal in character. Of course, the learned judges repelled the application of Article 20(2) of Constitution to this situation but made some observations which are misleading. The Court there took the view that the damages imposed under Section 14B are transferred to the general revenues of appropriate goverrunent and went on to observe : "In other words, the infliction of the damages under section 14B is not meant to pro vide compensation or redress to the employees whose interest may be It is not mea'nt to provide reparation to such employees and injured. the quantnm of damages imposed has no relation to the amount of I consider that the infliction of the lo~s suffered by the employees. damages under section 14B is penal in its nature. It is a warning to employers in general not to commit a breach of the statutory rule". 'Ihe above observations, in my view, are unsound and I am happy to record that my learned brother takes the same view, although in his I separate judgment this aspect has not been expressly considered. speak for both of us. The damages are levied under the Act. The authority levying penal damages is created by the Act and is respon sible for the collection of contributions and damages for the Fund. It is not possible to dichotomise and hold that the contributions go into the Provident Fund but the rest of the damages go into the general re venues. This is not a fine under the criminal law. Nor is it recovery, on behalf of the Government of amounts under a general statute for purposes of revenue. A special statute creating a special fund, em- (!) [1977] 4 s.c.c. 98. -· ORGANO CHEMICAL INDUSTRIES v. UNION (Sen, J.) 7 7 powers special officers to recover specially designated contribntions and special damages for default. The entire sum belongs to the Fund except perhaps the administrative charges which are usually (as in this In our view, case) separately indicated. therefore, it is wrong to credit the damages into the general revenues. To that extent it is a breach of the statutory scheme and a deprivation· of what belongs to the Indeed, employees are a needy community workers' Provident Fund. and· if the Fund is replenished by damages the scheme can be improved and the benefits augmented. We, therefore, express the view that if any State is diverting damages under the Act into its own coffers, it is improper. Lazarus can ill-afford to lose even a little. State and citizen alone is subject to the rule of law. I am in full agreement with the concluding statement regarding the disposition of the damages made in my learned brother's judgment : The learned Additional Solicitor G;meral was fair enough to con cede that the entire amount of damages awarded under Section 14B except for the amount relatable to administration charges must neces sarily re transferred to the Fund constituted under the Act. We hope that those charged with administering the Act will keep this in view while allocating the damages under Section 14B of the Act to different heads. Tho employees would, of course, get damages commensurate with their loss, that is, the amount of interest oh delayed payment but the remaining amount should go to augment the Fund constituted under Section 5 for implementing the schemes under the Act. In this view I direct the appropriate Government to credit sums allocable to the Fund so that the damages may reach where it belongs. I wholly agree with my learned brother, for the reasons I have given. The Writ Petition deserves to be dismissed with costs. SEN, J.-This is a petition under Article 32 of the Constitution by M/s. Organo Chemical Industries, Sonepat directed against an order of the Regional Provident Fund Commissioner, Chandigarh, dated October 12, 1977, by which he imposed a penalty of Rs. 94,996.80 on the petitioners as damages under s. 14B of the Em ployees' Provident Funds and Miscellaneous Provisions Act, 1952, for delayed remittances of the Employees' Provident Fund, Family Pen sion Scheme including their own contributions, and the administrative charges thereon. . contributions of their employees, Organo Chemical Industries, an 'establishment' within the meaning· of section 1 (3) of the Employees' Provident Funds and Miscellaneous A B c D E r G H ·- A B C ·n F G B 78 SUPREME COURT REPORTS [1980] 1 S.C.R. Provisions Act. 1952 (hereinafter referred to as 'the Act') to which the Act applies, committed defaults in payments of Provident Fund and Family Pension Scheme dues for the period from March to October 1975 and again for the period from December 1975 to November 1976 to the extent of Rs. 92,687.00 and of administrative charges amounting to Rs. 2,309.80 i.e. Rs. 94,996.80 in all. The accordingly, Regional Provident Fund Commissioner, Chandigarh, issued a show cause notice dated June 7, 1977 requiring the peti tioners to show cause why damages should not be levied under s. 14B of the Act. The notice was accompanied by a statement showing a break-up of the various amounts in arrears and the extent of delay in respect of each payment and the details of damages proposed to be imposed on the belated payments. The period of delay in payment of the amounts remitted varied from a few months to a year. It was proposed to levy damages at a uniform rate of hundred per cent on each of the amounts in arrears. In response to the notice, the peti- tioners tried to explain away the delay by alleging that it was due to difficulties beyond their control and, therefore, the payments could not be made in time viz., the facts that there were disputes between there was a loss of firm as a result of which, the partners of the Rs. 1,40,165.15, there was a power cut of 60% by the Haryana Elec tricity Board w.e.f. May 6, 1974, which compelled the petitioners to purchase a Generating set to tide over the difficulties and that the esta blishment had borrowed huge sums from the Haryana Financial Cor poratio'n and in payment of which it had defaulted for want of financ It was, accordingly, contended that the default, cial resources etc. if any, was not wilful as they had no intention to commit a default. The Regional Provident Fund Commissioner after giving to the peti- tioners the opportunity of a hearing by his reasoned order dated August 16, 1977 considered in detail each of the grounds taken in mitigation of the defaults and came to the conclusion that none of the grounds alleged furnished a legal justification for the delay in making contributions in time. As regards the alleged dispute among the. part ners leading to a loss of Rs. 1,40,165.15, he observed : "Even if it is assumed that there was a loss as claimed it does not justify the delay in deposit of Provident Fund money which is in unqualified statutory obligation and cannot be allowed to be linked with the financial position of the esta blishment, over different points of time. Besides 50% of the contributions deposited late employees' share which had been deducted from the employees wages and was a trust money with employer for deposit in the' statutory fund. The delay i_n the deposit of this part of the represented the ORGANO CHEMICAL INDUSTRIES V. UNION (Sen, J.) 79 contribution amounted to breach of trust and does not entitle the employer to any consideration for relief." With respect to the plea that the petitioners had been subject to a power-cut of 60% w.e.f. May 6, 1974 by the Haryana Electricity Board, he negatived the plea by observing that this restriction was not exclusive to them and further that no cause had been shown as to bow this prevented them from depositing the provident fund dues in time. Even if the power-cut had resulted in any substantial loss, it would have reduced the liability on the amount of provident fund dues also. He went on to observe that where an employer can pay wages, it is not conceivable why it cannot pay the provident fund dues. As re gards the stand taken that the establishment had borrowed huge sums from the Haryana Financial Corporation and in repayment of which it had default, he held that even if it were so, the fact did not absolve the establishment of its statutory obligation for deposit of provident fund dues in time. Similarly, the other reasons furnished like the purchase of a new generating plant or internal dispute among the partners and the dissolution of the partnership firm etc. did not cons titute sufficient cause beyond the control of the petitioners to justify the late deposit of provident fund dues. He, accordingly, concluded that the petitioners had failed to carry out their obligation to contri bute to the Employees' Provident Fund and Family Pension scheme within the time limit provided therefor; and that no convincing case had been made out to justify the delay in making the deposits. He also on the material on record found, as a fact, that the petitioners, having regard to their past record, were 'habitual defaulters' and had, therefore, to be severely dealt with, and should be visited wit)l the maximum penalty. A B c D E The petitioners are guilty of suppressio veri and this, by itself, was sufficient to dismiss the writ petition; but, since it involves a point of importance which was argued at length, we will have to deai with the same. There can be no doubt that the petitioners have been habitual defaulters in the matter of making contributions to the Employees' Provident Fund, Family Pension Scheme and payment of administra tive charges from the very inception. They have deliberately conceal ·ed the facts pertaining to the earlier defaults and the attendant levy of damages under s. 14B of the Act. For the period between Novem ber 1970 and January 1971, again for the period between October 1971, February 1972, March and April 1973, August to October, 1973, January and February 1974, then again for the period March 1974, May to August 1974, October and December 1974, and F G H _.i , " - • L SUPREME COURT REPORTS (1980] 1 S.C.R. A B January 1975, they made delayed payments of the Employees' Pro vident Fund and Family Pension Scheme Contribution and conse quently the Regional Provident Fund Commissioner after notice to them under s. 14B, and after considering the objections raised and hear ing the petitioners, to Rs. 223.35, Rs. 2,452.40 and Rs. 15,214.05 for the periods in question respec tively, which they deposited on February 17, 1972, September 25,. 1975 and December 13, 1976. imposed damages amounting It would thus be manifest that the petitioners instead of making their contributions, deliberately made wilful defaults on one pretext or another and have been utilising the amounts deducted from the C wages of their employees, including their own contributions as well as. administrative charges, in running their business. The Regional Pro vident Fund Commissioner, therefore, rightly observed that the peti tioners having regard to their past record must be visited with the maximum penalty. D E Taking an overall view, the Regional Provident Fund Commis- sioner, by his reasoned order dated October 12, 1977, adverted to the therefore, fact that the petitioners were habitual defaulters and, deserve to be dealt with sternly so as to bring home the deterrent effect of damages under s. 14B of the Act and, accordingly, directed recovery of Rs. 94,996.80 at the rate of hundred per cent i.e. equiva- lent to the amount in arrears, for the delayed payment of contributions to the Employees' Provident Fund, the Family Pension Fund and ad ministrative charges, as detailed below : - F G H (1) Damages on delayed payment of provident fund and family pension fund contributions required to be deposi~ ted u/s. 6 .. (2) Damages on delayed payment of administrative charges Rs. 92,687 ·00 2,309 ·80 94,996 ·80 This was pre-eminently a fit case for imposition of punitive damages to ensure due compliance of the 'provisions of the Act. Before stating the contentions raised by learned counsel for the petitioners, we think it convenient to set out the scheme of the Act and the relevant provisions thereof having a bearing on the question to be determined. It would be relevant to take into account some of the provisions of the Provident Funds Act which have since its incep tion in 1952, been subjected to various amendments. The Provident Fund Act, 1952 as originally enacted, provides for the institution of factories and other compulsory provident funds for employees in ORGANO <j!EMICAL INDUSTRIES v. UNION (Sen, J.) 8 I establishments. It applies to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed and to any other establishment employing twenty or more persons or class of such establishments which the Central Government may specify in that behalf by Notification in the Official Gazette. Under s. 4, the Central Government framed Employees' Provident Funds Scheme, 1952 by S.R.O. 1509, dated Svjltember 2, 1952. Section 6 of the Act enjoins on evlery employer to make contribution to the Employees' Provident Fund at the rate of 6t% of the basic wages, dearness allowance, retaining allowance, if any, for the time being payable to each of the employees and the employees' contribution shall be equal to the contribution by the employer in respect of him. The employee at his option may, how ever, increase the contribution to the extent of 8-1/3%. The initial responsibility for making payment of the contribution of the employer as well as of the employee, lies on the employer. Para 30 of the Scheme makes it incumbent on the employer that he shall, in the first instance, pay both the contribution payable by him self and also on behalf of the member employed by him. Under para 38, the employer is authorised before paying the member employee his wages in respect of any period or part of period for which contri butions are payable, to deduct the employee's contribution from his It further provides that the deposit of such contribntion shall wages. be made by the employer within fifteen days of the close of every month, i.e., a contribution for a particular month has got to be deposited by the 15th day of the month following. A breach of any of these requirements is made a penal offence. Section 14 of the Act provides for penalties. Failure to comply with the requirements of -s. 6 is punishable with various terms of imprisonment which may extend to a period of six months, or with fine which may extend to one thousand to two thousand rupees, under the provisions of s. 14, depending upon the nature of the breach, viz., failure to pay the con tributions, or failure to submit the necessary returns, or failure to pay administrative charges. Section 14A provides for offences by com panies and other corporate bodies. Para 76 ·of the Scheme provides for punishment for failure to pay contributions etc., and in particular by cl. ( d), every employer guilty of contravention or of non-compli ance with the requirements of the Scheme, shall be punishable with imprisonment which may extend to six months or with fine of Rs. 1,000/-. Parliament amended the Act by Act No. 16 of 1971, and it was re-entitled as the 'Employees' Provident Funds and Miscellaneous A B c D E F G B • .. 82 SUPREME COURT REPORTS ,. .. [1980] 1 S.C.R. It inserted s. 6A in the Ai;t for the establish Provisions Act, 1952'. ment of the Family Pension Fund. In exercise of the powers confer red by s. 6A, the Central Government framed the Employees' Family Pension Scheme, 1971 by G.S.R. 315, dated March 4, 1971. Under Para 4 of the Scheme, every employee who is a member of the Em ployees' .Provident Fund, is given the option to join the Family Pension Scheme. Para 9 created the Family Pension Fund and provides that from and out of the contributions payable by the employer and em ployees in each month under s. 6 of the Act, a part of the contribu tion, representing 1-1/6% of the employees' pay along with an equi valent amount of 1-1/6% from out of the employer's contribution, shall be remitted by the employer to the Family Pension Fund. B c • • In its working, the authorities were faced with certain administra tive difficulties. An employer could delay payment of Provident Fund dues without any additional financial liability. Parliament, accord ingly, inserted s. 14B for recovery of damages on the amount of arrears. The reason for enacting s. 14B is that employers may be deterred and thwarted from making defaults in carrying out statutory obligations to make payments to the Provident Fund. The object and purpose of the section is to authorise the Regional Provident Fund Commissioner to impose exemplary or punitive damages and thereby • to prevent employers from making defaults. Section 14B, as original ly enacted, provided for imposition of ~uch damages, not exceeding 25% of the amount of arrears. This, however, did not prove to be sufficiently deterrent. The employers were still making defaults in making contributions to the Provident Fund, and in the meanwhile utilising both their own contribution as well as the employees' contri- bution, in their business. The provision contained in s. 14B for recovery of damages, therefore, proved to be illusory. Accordingly, 'twenty-five per cent of' were by Act No. 40 of 1973, the words omitted from s. 14B and the words the amount of arrear' were substituted. The intention is to invest the Regional Pro vident Fund Commissioner with power to impose such damages that the employer would not find it profitable to make defaults in making payments. 'not exceeding D E F G In support of the petition, learned counsel for the petitioners assails the impugned order on two grounds, namely, (i) s. 14B of the Act is violative of Article 14 of the Constitution as it confers un guided, uncontrolled and arbitrary power on the Regional Provident B Fund Commissioner to impose damages which may be to the extent of 100 % i.e., equal to the amount of arrears. The conferral of such unguided, uncanalised and arbitrary power on the Regional Provident < _j - ORGANO CHEMICAL INDUSTRIES v. UNION (Sen, J.) 83 • Fund Commissioner to arrive at a decision, without any guide-Jines whatsoever, makes s. 14B constitutionally invalid as offending against Article 14, and (ii) s. 14B deals with the power to recover damages. in s. It is not the power to impose penalties. The word 'damages' 14B must, therefore, be understood in the legal sense. Damages must have some correlation with the loss suffered as a result of delay~d payments. The authority imposing the penalty or damages must, therefore, apply its riiind to this aspect of the matter. The defaulting employer under s. 14B is, accordingly, liable to pay damages which represents the loss to the beneficiaries of the scheme, such as recovery of interest; but not anything more, as such recovery would amount to is no penalty, and that is not permitted under the section. There substance in any of the contentions. Section 14B of the Act reads as follows : "14B. Power to recovrer damages :-Where an employer makes defaults in the payment of any contribution to the Fund (the Family Fund or the Insurance Fund) or in the transfer of accumulations required to be transferred by him under sub-section (2) of Section 15 (or 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 Insu rance Scheme) or under any of the conditions specified under Section 17, (the Central Provident Fund Commis sioner, or such other officer as may be authorised 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 arrear, as it may think fit to impose. Provided that before levying and recovering such dam ages, the employer shall be given a reasonable opportunity of being heard." The contention that section 14B confers unguided and uncontrolled discretion upon the Regional Provident Fund Commissioner to impose such damages 'as he may think fit' is., therefore, violative of Article 14 of the Constitution, cannot be accepted. Nor can it be accepted that there are no guide-lines provided for fixing the quantum of damages. The power of the Regional Provident Fund Commissioner It must to impose. damages ·under s. 14B is a quasi-judicial function. be exercised after notice to the defaulter and after giving him a rea sonable opportunity of being heard. The discretion to award damages could be exercised within the limits fixed by the Statute. Having regard to the punitive nature of the power exercisable under s. 14B B- c ]} E F G D 84 SUPREME COURT REPORTS (1980] 1 S.C.R. and the consequences that ensue therefrom, an order under s. 14B must be a 'speaking order' containing the reasons in support of it. The guide!-lin<;s are provided in the Act and its various prov'isious, parti cularly in the word 'damages' the liability for which under s. 14B arises on the 'making of default'. While fixing the amount of dam- ages, the Regional Provident Fund Commissioner usually takes into consideration, as he has. done _here, various factors viz. the number of defaults, the period of delay, the frequency of defaults and the amounts involved. The word 'damages' in s. 14B lays down sufficient guide lines for him to levy damages. B • • c D E F G Learned counsel for the petitioners, however, contends that in the instant case, the period of arrears varies from less than one month to more than 12 months and, therefore, the imposition of damages at the flat rate of hundred per cent for all the defaults irrespective of their duration, is not only capricious but arbitrary. The submission is that if the intention of the legislature was to make good the loss caused by default of an employer, there could be no rational basis to quantify the damages at hundred per cent in case of default for a period less than It is urged one month and those for a period more than 12 months. that the fixation of upper limit at hundred per cent is no guide-line. If the object of the Legislation is to be achieved, the guide-lines must specify a uniform method to quantify damages afrer considering all essentials like loss or injury sustained, the circumstances under which the default occurred, negligence, if any, etc. It is said that the damages under s. 14B which is the pecuniary reparation due must be correlated to all these factors. In support of his contention, he drew our atten tion to s. 1 OF of the Coal Mines Provident Fund and Bonus Schemes Act, 1958, which uses the words 'damages not exceeding twenty-five per cent' like section 14B of the Act, and also to a tabular chart provi ded under that Act itself showing that the amount of damages was correlated to th~ period of arrears. We regret, we cannot appreciate this line of reasoning. Section lOF of the. Act of 1958 came up for consideration before this Court in Commissioner of Coal Mines Provi- dent Fund, Dhanbad v. J. Lalla & Sons.(') This Court observed, firstly, that the determination of damages is hot 'an inflexible application of a rigid formula', and secondly, tire words 'as it may think fit to impose' show that the authority is required to apply its mind to the facts and circumstances of the case. The contention that in the absence of any guide-lines for the quantification of damages, s. 14B is violative of Article 14 of the Constitution, must, therefore, fail II Tu this connection, it was also urged that the absence of any pro- vision for appeal, leaves the defaulting employer with no remedy. The (I) [1976] 3 scR. 365. -~·--..., ) • _J • • ORGANO CHEMICAL INDUSTRIES v. UNION (Sen, J.) 85 conferral of arbitrary and uncontrolled powers on the Regional Provi dent Fund Commissioner to quantify damages, it is said, without a corresponding right of appeal or revision, makes the provision con tained in s. 14B per se void and illegal and it is liable to be struck down on that ground. We are afraid, the contention is wholly devoid of substance. Mere absence of provision for an appeal does not imply that the Regional Provident Fund Commissioner is invested with arbitrary or uncontrolled power, without any guideclines. The con furral of power to award damages under s. l 4B is to ensure the success of the measure. It is dependent on existence of certain facts, there hns to be an objective determination, not subjective. The Regional Provident Fund Commissioner 1has not only to apply his mind to the l"<quirements of s. 14B but is cast with the duty of making a "speaking order", after conforming to the rules of natural justice. This Court has repeatedly laid. it down that where the discretion to apply the provisions of a particular statute is left with the Govermnent or one of the high·~st officers, it will be presumed that the discretion vested in such high authority will hot be abused. The Govermnent or such authority is in a position to have all the relevant and neces sary information in relation to each kind of establishment, the nature of defaults made by the employer, and the necessity to decide whether the damages to be impo&~d should be exemplary or not : Mohmedalli It was stated in K. L. Gupta v. & Ors. v. Union of India & Anr.(') Bombay Municipal Corporation( 2 ) that when power as to be exercised by one of the highest officers, the fact that no appeal has been provi ded for 'is a matter of no moment'. The same view was reiterated in Chinta Lingam & Ors. v. Government of India & Ors. ( 3} There is always a presumption that public officials would discharge duties honestly and in accordance with the rules of law. This was emphasised in Pannalal Binjraj v. Union of lndia,(4) stress being laid on the power b~ing vested not in any minor official but in to]H"anking authority. In the circumstances, the absence of a provision for appeal or revision can be of no consequence. Turning now to the main question, the contention is that s. 14B of the Act rloes not authorise levy of any penal damages, i.e., a penalty or fine but deals with the power to recover damages. power to impose a penalty on the defaulting employer though the It is 'not (1) [19631 Suppl. I SCR 993. (2) [1968] I SCR 274. (3) [1971]2 SCR 871. (4) [1957J SCR 233. A B c D E F G H A B c D E F G 86 SUPREME COURT REPORTS [1980] 1 S.C.R. maximum amount of damages that cau be recovered has been indicated in the section, it is submitted that the damages must have some cor relation with the loss suffered as a result of delayed payments and the authority imposing damages must apply its mind to this aspect of the matter. The defaulter under s. 14B is, therefore, liable to pay damages which represents the actual loss, hut not anything more, as such re" covery would amount to penalty and that is not permitted under the to certain section. authorities. In support of his submissions, he has referred It is argued that the damages referred to in s. 14B is different from penalty or fine and is intended to compensate the loss to the benefi It has only the ordinary legal meaning of the ciaries of the Scheme. term 'damages' viz. actual loss as in Jaw of Contract or Tort. Thus the award of damages under s. 14 B must be, in essenre, the pecuniary reparation for Joss or injury sustained by one person through the fault or negligence of another. · There is a conflict of opinion between different High Courts as to the meanfog of the word 'damages' ins. 14B of the Act. According to some of the High Courts, the word 'damages' ins. 14B means actual Joss to the beneficiaries. The view is that s. 14B clearly indicates that ah employer is liable to pay damages, if he has made defaults in payment of the contribution. Any delay in paying the amount under s. 6 causes Joss to the beneficiaries of the Scheme, such as loss of the interest and the like. This is the Joss that is sought to be recovered from the dafaulting employer for the purpose of beneficiaries of the Scheme, namely, the employees to the extent of the loss suffered by them. The defaulter u/s 14B is, therefore, liable to pay damages which represent the loss, but hot anything more, as such recovery would amount to penalty, and that is not permitted under the section. It is, therefore, held by these High Courts that the damages to be imposed u/s 14B should have correlation with the Joss suffered and that damages u/ s 14 B are intended to compensate the loss to the beneficiaries of the Scheme. With respect, these High Courts have obviously fallen into an error in reading the word 'damages' in s. 14B in isolation, by trying to construe the word in a purely legalistic sense. These High Courts have overlooked that we are not concerned in inter preting what damages means in the realm of Contract or Tort but the word had to be given its true meaning, in consonance with the objects and purpose of the Legislation. indemnifying R The learned Additional Solicitor General brought to our notice the conflict of opinion between the different High Courts on the construc tion of the word 'damages' used in s. 14B, and submitted that this has ' 1"--. , • • , > • ORGANO CHEMICAL INDUSTRIES v. UNION (Sen, !.) 87 given rise to confusion in the mind of those charged with the duty of administering the Act. He wants that the co'nflict should be resolved by placing a proper construction on the word 'damages' in s. 14B, in the lar~r public interest, as the question is one of frequent occurrence. He rightly contends that the word 'damages' in s. 14B must, in the context ih which it appears, means penal damages i.e. a penalty and not merely actual loss to the beneficiaries. He submits that if the word 'damages' appearing therein, were to mean actual loss to the benefi ciaries and not anything more, as some of the High Courts have held, it would make the Act unworkable. He also points ant that some of the High Courts have taken a view to the contrary. According these High Courts, the expression 'datnag;!s' is, in substance, a pehalty imposed on the employer for the breach of the statutory obligation. The object of the Legislature in enacting s. 14B is clearly to punish the recalcitrant employers. The traditional view of damages as meaning actual loss, does not take into account the social content of a provision like s. 14B coh tained in a socio-economic measure like the Act in question. The word 'damages' has different shades of meaning. colour and content from its context, and it canhot be read in isolation, nor can s. 14B be read out of context. The very object of the Legis lation would be frustrated if the word 'damages' appearing in s. 14B of the Act was not construed to mean penal damages. The imposition It results in damni of damages n/s. 14B serves a two-fold purpose. fication and also serves as a deterrent. The predominent object is to penalise, so that an employer may be thwarted or deterred makiug any further defaults. It must The expression 'damages' occurring in s. 14B is, in substance, a p~nalty imposed on the employer for the breach of the statutory obli gation. The object of imposition of penalty u/s 14B is not merely 'to provide compensation for the employees'. We are clearly of the opinion that the impositioh of damages u/s 14B serves both It is meant to penalise defaulting employer as also to pro purposes. vide reparation for the amount of loss suffered by the employees. It is not only a warning to employers in general not to commit a breach of the statutory requirements of s. 6, but at the same time it is meant to provide compensation or redress to the beneficiaries i.e. to recom pe'nce the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the Joss which is caused to the beneficiaries under the Schemes. The word 'damages' in s. 14B is related to the word 'default'. The words used in s. 14B are 'default in the payment o! contribution' and therefore ' ' 7-475 SCI/79 B c D E F G R ·• A B ' .c "D E ·G ·H - • 88 SUPREME COURT REPORTS [1980] 1 S.C.R. the word 'default' must be construed in the light of Para 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month a'nd, therefore, the word 'default' in s. 14B must mean 'failure in performance' or 'failure to act.' At the same time, the imposition of damages u/s 14B is to pro" vide reparation for the amount of loss suffered by the employees. the word The construction that we have placed on 'damages' appearing ins. 14B of the Act, is in accord with the intent and purpose of the Legislation. It was brought o'n the statute book by Act 37 of 19 53, the objects and reasons so far material, read :- "There are also certain administrative difficulties to be set right. There is no provision for ins~ction of exempted factories nor is there any provision for the recowry of dues from such factories. An employer . . . can delay payment of Provident Fund dues without any additional financial liability. Na punishment has been laid down for contraven tion of some of the provisions of the Act." (Emphasis sup plied). The object and purpose of the section is to authorise the Regional impose exemplary or punitiw Provident Fund Commissioner to damages a'nd thereby prevent employers from making defaults. The provision for imposition of damages at twenty-five per cent of amount of arrear, however, did not prove to be effective. Accord ingly, by Act 40 of 1973, the words 'not exceeding the amount of arrear' wore substituted, for the words 'twenty·five per cent'. The necessity for making this change is brought out in the objects and reasons, a material pqrtion of which reads :- "STATEMENT OF OBJECTS AND REASONS (Act 40 of 1973) The working of the Employees' Provide.~t Fund and Family Pension Fund Act, 1952 and the Employees' Provi dent Fund Scheme has revealed that the present provisions of the Act and the Scheme are not effective in preventing defaults in payment of contributions to the Employees Provi dent Fund or in recovery of the dues on that account. The result is that the amount of Provident Fund arrears recover able from the employers has been streadily increasing. In 1959-60, the arrears which amounted to Rs. 3.65 crores, rose to Rs. 5.96 crores as on the 31st March 1967. The arrears stood at Rs. 14.6 crores on 31st March, 1970 and they have been rise'n to Rs. 20.65 crores as on the 31st March, 1972. , • • ORGANO CHEMICAL INDUSTRIES v. UNION (Sen, J.)

8.9

#2. The National Commission on Labour has recommen- ded that in order to check the growth of arrears, penalties for defaults in payment of Provident Fund dues should be made more stringent and that the default should be made In its ll 6th Report presented to Parliament in ·cognizable. April 1970, the Estimates Committee has endorsed recommendations made by the National Commission on Labour and has further suggested that Government should . consider the feasibility of providing compulsory imprison ment for certain offonces under the Act. Accordingly, it is proposed to amend the Act so as to render the penal provi sions more stringent and to make defaults cognizable offen ces. Provision is also being made for compuh; ory imprison ment in cases of non-payment of contributions and adminis tration or inspection charges. As recommended by Estimates Committee, a further provision is being made to enable levy of damages equal to the amount of arrears from a defaulting employer." (Emphasis supplied). , ' .. ., light of '.Each word, phrase or sentence is to b~ considered in the general purpose of the Act itself. A bare mechanical interpretation of the words devoid of concept or purpose will reduce most of legis It is a salutary rule, well established, that the inten lation to futility. tion of the legislature must be found by reading the statute as a whole. _, rnere. appears to be a misconception that the object of impositi0n ·O.f penalty under s. 14B is not 'to provide compensation for the em ployoes' whose interest may be i'njured, by loss of interest and the like. There is also a misconception that the damages imposed under ~. 14B are not transferred to the Employees' Provident Fund and the Family Pension Fund, of the employees who may be adversely affected. but the amount is transferred to the General Revenues of the appro priate Government. We find that this assumption is wholly un In assessing the damages, the Regional Provident Fund warranted. Commissioner is not only bound to take into account the loss to the beneficiaries but also the default by the employer in making his contri butions, which occasions the infliction of damages. The learned Addi tional Solicitor General was fair enough to concede that the entire amount of damages awarded under s. 14B, except for the amount relatable to administrative charges, must necessarily be transferred to the Employees' Provident Fund and the Family Pension Fund. We hope that those charged with administering the Act will keep this in • • A B c D E F G R 90 SUPREME COURT REPORTS' (1980] 1 S.C.R'.. A view while allocating the damages under s. 14B of the Act to differen• heads. The employees would, of course, get damages co=ensurate with their loss i.e., the amount of interest on delayed payments; but the remaining amount should go to augment the 'Fund' constituted under s. 5, for implementing the Scheme under the Act. II The result, therefore, is that this writ petition fails and is dismissed. - with costs. N.V.K. Petition dismissed. •