Writ Appeal No. 228 of 2008 · Madrasdated High Court · 2009

J U D G M E N TK.K.SASIDHARAN, J.This writ appeal is directed against the order passed by thelearned Single Judge dated 9.2.2007 in W.P.No.9637 of 2004 whereby theproceedings issued by the first appellant dated 10.4.2002 directingpayment of damages under Section 14 - B of the Employees' ProvidentFund and Miscellaneous Provisions Act, 1952 was set aside with adirection to refix the amount after granting reduction, but withoutinterest under Section 7-Q of the Act.Factual Background:-2. The respondent is an educational institution and theirinstitution is covered under the provisions of the Employees'Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafterreferred to as "E.P.F Act.") The respondent appears to have collectedthe employees share but failed to pay the contribution to the fund aswell as the scheme within the time permitted, which made the firstappellant (hereafter referred as "the Authorised Officer") to pass anorder under Section 14-B of the E.P.F. Act calling upon the respondentto pay damages as well as to pay interest on such damages. The saidorder dated 10.4.2002 was the subject matter of challenge in the writpetition. It was the contention of the respondent before the learnedSingle Judge that there was no basis for levy of damages to themaximum extent as indicated in the statute and recovery at theappropriate rates as indicated in Para 32 of the Scheme would meet theends of justice and as such the Authorised Officer was not justifiedin assessing penal damages at the rate at which it was assessed. Therespondent also disputed the levy of interest on the amount assessedunder Section 14-B, as according to them the amount referred tounder Section 7-Q refers only to the amount payable by way ofcontribution and does not refer to damages and as such there was nojustification in claiming interest on damages. Accordingly they haveprayed for quashing the order dated 10.4.2002 as well as theconsequential recovery notice dated 9.6.2003.3. In the counter affidavit filed on behalf of the AuthorisedOfficer it was contended that sufficient opportunity was given to therespondent to represent their case before assessing damages and theirplea to exempt them from payment was negatived as there was noprovision in the E.P.F. Act to reduce/waive the damages assessed. Theyhave also justified the claim for interest, as according to them thedamages were also a component of the amount due under Section 7Q ofthe Act and as such the same also attracts payment of interest. https://hcservices.ecourts.gov.in/hcservices/

4. The learned Single Judge considered the payment of damagesunder Section14-B as well as the claim of interest under Section 7-Qof E.P.F. Act separately. According to the learned Judge, when adiscretion was given to the Authorised Officer to reduce the damagesby 50%, it should have considered the case of the employer as per themandate of the statute. The learned Single Judge was of the consideredview that Section 32 (b) of the E.P.F. Act permits the Board to reduceor waive the damages under Section 14-B of the Act in relation to anestablishment specified in the Second Proviso under Section 14-B andin other cases depending on merits, reduction on damages up to 50%could be allowed. Since the Authorised Officer has not exercised thediscretion in the manner expected of them as provided under the Act,the learned Judge set aside the order under Section 14-B and directedthe Authorised Officer to grant reduction at 50% and to re-determinethe amount of damages and to deduct the same from the amount alreadydeposited and to refund the balance to the employer. The learnedJudge also considered the scope and ambit of Section 7-Q of the E.P.F.Act and on a comparison of the provisions determining the contributionas well as payment of damages was of the opinion that the term "amountdue" as found in Section 7Q does not cover payment of damagesquantified under Section 14-B of the Act. Accordingly the directionto pay interest on the amount of damage quantified under Section 14-Bwas set aside. Aggrieved by the said order, the writ appeal has beenfiled.5. The learned Standing Counsel appearing on behalf of theappellants contended that though the Authorised Officer was empoweredto levy damages at 100%, it had levied only at 37% and as such thelearned Single Judge was not correct in interfering with the orderpassed by the Authorised Officer. The learned counsel also contendedthat the wording of Section 7-Q is so wide, but clear that it wouldinclude damages also for the purpose of computing the amount inrespect of which, interest is chargeable and as such the learnedSingle Judge was not justified in setting aside the order directingpayment of interest under Section 7-Q of the E.P.F.Act.6. Though notice was served on the respondent and their namewas printed in the cause list, there was no appearance on their behalfand as such we have directed the Registry to print the name of thecounsel, who appeared before the learned Single Judge in the causelist. Even after printing the name of the respondent as well astheir counsel, there was no representation on behalf of therespondent.7. The Employees' Provident Fund Act was enacted with alaudable object of making suitable provision for the retirement lifeof the employees. The Act requires compulsory payment of contributionby the employer as well as employee. This social security https://hcservices.ecourts.gov.in/hcservices/ legislation was amended time and again after taking into account theworking and practical difficulties. The provisions regarding recoveryof damages for delayed payment was brought on the statute book as perAct 37 of 1953 on account of the absence of penal provisions to ensuretimely payment of contribution.8. The Honourable Supreme Court in Organo Chemical Industriesv. Union of India, (1979) 4 SCC 573 referred to the reasons which madethe parliament to insert Section 14-B on the statute book thus:- "10. In its working, theauthorities were faced with certainadministrative difficulties. An employercould delay payment of Provident Funddues without any additional financialliability. Parliament, accordingly,inserted Section 14-B for recovery ofdamages on the amount of arrears. Thereason for enacting Section 14-B is thatemployers may be deterred and thwartedfrom making defaults in carrying outstatutory obligations to make payments tothe Provident Fund. The object andpurpose of the section is to authorisethe Regional Provident Fund Commissionerto impose exemplary or punitive damagesand thereby to prevent employers frommaking defaults. Section 14-B, asoriginally enacted, provided forimposition of such damages, not exceeding25% of the amount of arrears. This,however, did not prove to be sufficientlydeterrent. The employers were stillmaking defaults in making contributionsto the Provident Fund, and in themeanwhile utilising both their owncontribution as well as the employees’contribution, in their business. Theprovision contained in Section 14-B forrecovery of damages, therefore, proved tobe illusory. Accordingly, by Act 40 of1973, the words “twenty-five per cent of”were omitted from Section 14-B and thewords “not exceeding the amount ofarrear” were substituted. The intentionis to invest the Regional Provident FundCommissioner with power to impose suchdamages that the employer would not findit profitable to make defaults in making https://hcservices.ecourts.gov.in/hcservices/ payments."9. The scope of adjudication of penalty proceedings was alsoindicated in Organo Chemical Industries case cited supra by theHonourable Supreme Court thus:-"13. .............The power of theRegional Provident Fund Commissioner toimpose damages under Section 14-B is a quasi-judicial function. It must be exercised afternotice to the defaulter and after giving hima reasonable opportunity of being heard. Thediscretion to award damages could beexercised within the limits fixed by thestatute. Having regard to the punitive natureof the power exercisable under Section 14-Band the consequences that ensue therefrom, anorder under Section 14-B must be a “speakingorder” containing the reasons in support ofit. The guidelines are provided in the Actand its various provisions, particularly inthe word “damages” the liability for which inSection 14-B arises, on the “making ofdefault”. While fixing the amount of damages,the Regional Provident Fund Commissionerusually takes into consideration, as he hasdone here, various factors viz. the number ofdefaults, the period of delay, the frequencyof defaults and the amounts involved. Theword “damages” in Section 14-B lays downsufficient guidelines for him to levydamages." 10. Even though Section 14-B of the E.P.F. Act permits theauthorised officers to levy damages not exceeding the amount ofarrears, the respondent was called upon to pay only at the rate of 37%as indicated in Section 32A of the E.P.F. Act. There was nodiscretion vested in the Authorised Officer to reduce or waive thedamage levied under Section 14-B. The Central body is found to be theauthority to reduce/waive the penalty. The learned Single Judgedirected the appellants to reduce the levy by 50% by invoking thediscretionary power conferred upon the Board under Section 32-A of theAct. However the fact remains that the Authorised Officer has noright to reduce or waive the damage levied under Section 14-B and assuch we are of the opinion that the learned Single Judge was notjustified in reducing the damages by 50%. Therefore the saiddirection to re-calculate the amount after reducing the penalty by 50%is set aside. However we grant liberty to the respondent to make a https://hcservices.ecourts.gov.in/hcservices/ request to the Central Board as provided under para 32-B of theEmployees' Provident Fund Scheme to reduce the penalty and we hopethat in the event of making such application by the respondent, thesame would be considered by the Central Board on merits.11. The next question is regarding payment of interest on theamount of damages as provided under Section 7-Q of the E.P.F. Act. Itis found from the impugned order that the Authorised Officer has alsolevied interest under Section 7-Q of the Act on the amount quantifiedas damages. The learned Single Judge was of the view that thecharacterstics of the "amount due" under Section 7-A cannot be equatedwith the characteristic of the damages recoverable under Section 14-Bof the Act and accordingly the direction to levy of interest was setaside. 12. The learned counsel for the appellants by placing reliance onthe judgment ofa learned Single Judge of the Karnataka High Court inTATAGUPPA PLYWOOD PRODUCTS (P) LTD., v. W.P.F.A.T.(2006(2) LLN 253would contend that the expression "amount due" would necessarilyinclude dues determined as damages under Section 14-B read with para32-A of the Scheme. 13. Section 7-Q provides that an employer shall be liable topay simple interest at the rate of twelve per cent per annum or atsuch higher rate as may be specified in the Scheme "on any amount due"from him under the Act. The question as to whether damage is also acomponent which would be taken into account for determining the"amount due" under the Act, so as to levy interest under Section 7-Qvery much depends on the nature of damages levied. A plain reading ofSection 14-B along with other sub-provisions of Section 14 would makethe position clear that damage is essentially penal in character.This provision as well as other provisions as contained in Section 14of the E.P.F.Act compels the employer to make payment on time. Sincethe levy of damage is essentially penal in character there is noexpress provision in the Act to levy interest on such damages. Theamount due as referred to in Section 7-Q deals only with the amountof contribution as indicated in Section 6 and determined under Section7-A of the Act. 14. The Honourable Supreme Court in Organo ChemicalIndustries case cited supra while considering the scope and ambit ofSection 14-B of the Act referred to the concept of damages as found inSection 14-B and observed thus:-"21. The traditional view of damages asmeaning actual loss does not take into accountthe social content of a provision like Section14-B contained in a socio-economic measure like https://hcservices.ecourts.gov.in/hcservices/ the Act in question. The word “damages” hasdifferent shades of meaning. It must take itscolour and content from its context, and itcannot be read in isolation, nor can Section14-B be read out of context. The very object ofthe legislation would be frustrated if the word“damages” appearing in Section 14-B of the Actwas not construed to mean penal damages. Theimposition of damages under Section 14-B servesa two-fold purpose. It results in damnificationand also serves as a deterrent. The predominantobject is to penalise, so that an employer maybe thwarted or deterred from making any furtherdefaults.22. The expression “damages” occurring inSection 14-B is, in substance, a penaltyimposed on the employer for the breach of thestatutory obligation. The object of impositionof penalty under Section 14-B is not merely “toprovide compensation for the employees”. We areclearly of the opinion that the imposition ofdamages under Section 14-B serves both thepurposes. It is meant to penalise defaultingemployer as also to provide reparation for theamount of loss suffered by the employees. It isnot only a warning to employers in general notto commit a breach of the statutoryrequirements of Section 6, but at the same timeit is meant to provide compensation or redressto the beneficiaries i.e. to recompense theemployees for the loss sustained by them. Thereis nothing in the section to show that thedamages must bear relationship to the losswhich is caused to the beneficiaries under theScheme. The word “damages” in Section 14-B isrelated to the word “default”. The words usedin Section 14-B are “default in the payment ofcontribution” and, therefore, the word“default” must be construed in the light ofPara 38 of the Scheme which provides that thepayment of contribution has got to be made bythe 15th of the following month and, therefore,the word “default” in Section 14-B must mean“failure in performance” or “failure to act”.At the same time, the imposition of damagesunder Section 14-B is to provide reparation forthe amount of loss suffered by the employees. https://hcservices.ecourts.gov.in/hcservices/

23. The construction that we have placed onthe word “damages” appearing in Section 14-B ofthe Act, is in accord with the intent andpurpose of the legislation. It was brought onthe statute book by Act 37 of 1953. The objectsand reasons so far material, read: “There are also certainadministrative difficulties to beset right. There is no provisionfor inspection of exemptedfactories nor is there anyprovision for the recovery of duesfrom such factories. Anemployer ... can delay payment ofProvident Fund dues without anyadditional financial liability. Nopunishment has been laid down forcontravention of some of theprovisions of the Act.”(emphasissupplied)The object and purpose of the section isto authorise the Regional Provident FundCommissioner to impose exemplary or punitivedamages and thereby prevent employers from makingdefaults. The provision for imposition of damagesat twenty-five per cent of the amount of arrear,however, did not prove to be effective.Accordingly, by Act 40 of 1973, the words “notexceeding the amount of arrear” were substituted,for the words “twenty-five per cent”. Thenecessity for making this change is brought out inthe objects and reasons, a material portion ofwhich reads: “Statement of Objects and Reasons (Act40 of 1973)The working of the Employees’Provident Fund and Family Pension FundAct, 1952 and the Employees’ ProvidentFund Scheme has revealed that thepresent provisions of the Act and theScheme are not effective in preventingdefaults in payment of contributions tothe Employees’ Provident Fund or inrecovery of the dues on that account. https://hcservices.ecourts.gov.in/hcservices/ The result is that the amount ofProvident Fund arrears recoverable fromthe employers has been steadilyincreasing. In 1959-60, the arrearswhich amounted to Rs 3.65 crores, roseto Rs 5.96 crores as on March 31, 1967.The arrears stood at Rs 14.6 crores onMarch 31, 1970 and they have risen toRs 20.65 crores as on March 31, 1972. 2.The National Commission onLabour has recommended that in order tocheck the growth of arrears, penaltiesfor defaults in payment of ProvidentFund dues should be made more stringentand that the default should be madecognisable. In its 116th Reportpresented to Parliament in April 1970,the Estimates Committee has endorsedthe recommendations made by theNational Commission on Labour and hasfurther suggested that Governmentshould consider the feasibility ofproviding compulsory imprisonment forcertain offences under the Act.Accordingly, it is proposed to amendthe Act so as to render the penalprovisions more stringent and to makedefaults cognisable offences. Provisionis also being made for compulsoryimprisonment in cases of non-payment ofcontributions and administration orinspection charges. As recommended bythe Estimates Committee, a furtherprovision is being made to enable levyof damages equal to the amount ofarrears from a defaulting employer.”(emphasis supplied) Each word, phrase or sentence is to beconsidered in the light of general purposeof the Act itself. A bare mechanicalinterpretation of the words “devoid of-concept or purpose” will reduce must oflegislation to futility. It is a salutaryrule, well established, that the intentionof the legislature must be found by readingthe statute as a whole." https://hcservices.ecourts.gov.in/hcservices/

15. The contention of the appellants that damages also carryinterest under Section 7Q of the E.P.F. Act is devoid of merits.Mr.Justice V.R.Krishna Iyer in His Lordship's inimitable styleindicated the legal position with regard to the penal nature of levyof damages, in Organo Chemical Industries case (1979 (4) SCC 573)thus:- "40. The measure was enacted for thesupport of a weaker sector viz. theworking class during the superannuatedwinter of their life. The financialreservoir for the distribution of benefitsis filled by the employer collecting, bydeducting from the workers’ wages,completing it with his own equal share andduly making over the gross sums to theFund. If the employer neglects to remit ordiverts the moneys for alien purposes theFund gets dry and the retirees are deniedthe meagre support when they most need it.This prospect of destitution demoralisesthe working class and frustrates the hopesof the community itself. The whole projectgets stultified if employers thwartcontributory responsibility and this widerfall-out must colour, the concept of“damages” when the court seeks to defineits content in the special setting of theAct. "43. I am clearly of the view that“damages”, as imposed by Section 14-B,includes a punitive sum quantifiedaccording to the circumstances of the case.In “exemplary damages” this aggravatingelement is prominent. Constitutionallyspeaking, such a penal levy included indamages is perfectly within the area ofimplied powers and the legislature may,while enforcing collections, legitimatelyand reasonably provide for recovery ofadditional sums in the shape of penalty soas to see that avoidance is obviated. Sucha penal levy can take the form of damagesbecause the reparation for the injurysuffered by the default is more than thenarrow computation of interest on thecontribution. https://hcservices.ecourts.gov.in/hcservices/

48. ..........The employees would,of course, get damages commensurate withtheir loss, that is, the amount ofinterest on delayed payment but theremaining amount should go to augment theFund constituted under Section 5 forimplementing the schemes under the Act." 16. The Honourable Supreme Court in Hindustan Times Ltd. v.Union of India, (1998 ( 2) SCC 242), while considering theprinciples governing payment of damages under Section 14-B clearlyindicated that there is no provision in the E.P.F. Act for charginginterest thus:- "29. The authority under Section 14-B has to apply his mind to the facts of thecase and the reply to the show-cause noticeand pass a reasoned order after followingprinciples of natural justice and giving areasonable opportunity of being heard; theRegional Provident Fund Commissioner usuallytakes into consideration the number ofdefaults, the period of delay, the frequencyof default and the amounts involved; defaulton the part of the employer based on plea ofpower-cut, financial problems relating toother indebtedness or the delay inrealisation of amounts paid by the chequesor drafts, cannot be justifiable grounds forthe employer to escape liability; there isno period of limitation prescribed by thelegislature for initiating action forrecovery of damages under Section 14-B. Thefact that proceedings are initiated ordemand for damages is made after severalyears cannot by itself be a ground fordrawing an inference of waiver or that theemployer was lulled into a belief that noproceedings under Section 14-B would betaken; mere delay in initiating action underSection 14-B cannot amount to prejudiceinasmuch as the delay on the part of theDepartment, would have only allowed theemployer to use the monies for his ownpurposes or for his business especially whenthere is no additional provision forcharging interest." https://hcservices.ecourts.gov.in/hcservices/ (emphasis supplied) 17. The judgment in Hindustan Times Ltd. case cited supra wasfollowed in M/S. STEETLITE ELECTRIC CORPN. v. REGIONAL PROVIDENT FUNDCOMMISSIONER, HARYANA (AIR 2001 SC 1818) and in the said decision theSupreme Court confirmed the legal position that there is no provisionto levy interest on damages.18. The proceedings contemplated by Section 7A is the primaryproceedings and this is for determining the contribution from theemployer. The authorities competent to determine the dues are alsospecified in the said provision. The contribution so determined bythe statutory authorities are termed as the amount due from theemployer. On the other hand, proceedings under Section 14-B isentirely different. It is only when the employer makes default in thepayment of contribution that the Act gives liberty to the authoritiesmentioned in Section 14-B, to initiate proceedings for recovery ofdamages. The damages cannot be termed to be the amount due. In factthe damages are in the nature of penalty. This provision in additionto the other penal provisions as contained in Section 14 of the E.P.FAct, is to compel the employer to pay the dues determined by thestatutory authorities. Therefore under the threat of imposing damages,the authorities would be in a position to realise the dues from theemployer.19. The authorities empowered to take action to recover damagesunder Section 14-B are different from the authorities constituted forthe purpose of determining the dues under Section 7A of the Act. It isonly when the employer fails to pay the amount determined by theauthorities, the statutory authorities empowered under Section 14-Btakes re-course to the penalty proceedings. The levy of damage servesas a deterrent. As observed by Mr.Justice V.R.Krishna Iyer in OrganoChemical Industries case (1979 (4) SCC 573) , E.P.F. Act is a specialstatute creating a special fund, empowers special officers to recoverspecially designated contributions and special damages for default.20. The observation of the Supreme Court in Organo ChemicalIndustries case that the employees would get damages commensurate withtheir loss (i.e.) the amount of interest on delayed payment, alsothrows light on the issue that what was sought to be recovered underSection 14-B was not the amount due within the meaning of Section 7Qof the Act. When the employees are compensated by the award ofdamages commensurate with their loss, being the amount of interest onsuch delayed payment, there is no question of payment of interest oninterest. In fact, there is no express provision in the E.P.F. Act tocharge interest on such damages. Since the recovery of damages isessentially penal in nature, there is no question of levying such https://hcservices.ecourts.gov.in/hcservices/ interest on assumption.21. Since the payment of damages under Section 14-B has nothingto do with the contribution due from the employer so to make themliable to pay interest under Section 7-Q of the E.P.F. Act, we are ofthe considered opinion that the appellants were not justified incharging interest on the amount quantified as damages and as such theorder of the learned Single Judge in respect of levy of interest doesnot call for interference.22. In the result, the direction of the learned Single Judgefor re-computation of the amount after giving 50% reduction is setaside and the finding with regard to payment of interest under Section7Q is confirmed. Since the respondent has already deposited a sum ofRs.2,25,000/- out of the total damages quantified at Rs.2,65,913/-, wedirect the respondent to pay the balance amount within a period oftwelve weeks from the date of receipt of a copy of this order and onsuch payment, the respondent is given liberty to approach the Boardunder Para 32-B of the Employees' Provident Fund Scheme as indicatedabove.23. The writ appeal is allowed in part subject to the aboveobservation. Consequently, the connected MP is closed. No costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.Tr/To1. The Regional Provident Fund Commissioner – II Employees' Provident Fund Organisation No.20, Royapettah High Road Chennai-600 014.2. The Recovery Officer & Assistant Provident Fund Commissioner Employees' Provident Fund Organisation No.20, Royapettah High Road Chennai-600 014.W.A.NO.228 OF 2008SR(CO)EM/16.2