M/s.Arcot Textile Mills Ltd. v. The Employees' Provident Fund Appellate Tribunal & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 29.04.2011CORAMTHE HONOURABLE MR.JUSTICE K.CHANDRUW.P.No.21635 of 2010 andM.P.No.2 of 2010M/s.Arcot Textile Mills Ltd.,Rep. By its Managing Director,Nadrajh Annamalai. ...PetitionerVs.1.The Employees' Provident Fund Appellate Tribunal Scope Minar, Core -II, 4th Floor, Laxmi Nagar District Centre, Laxmi Nagar, New Delhi – 110 092.2.The Regional Provident Fund Commissioner, E.P.F.Organisation, Sub-Regional office, Post Box No.588, SREE Complex, 'D' Block, 18, Madurai Road, Tiruchirappalli – 620 008.3.The Enforcement Officer, EPF Organisation, District Office, Cuddalore / Villupuram Districts, No.22, Nethaji Road, Manjakuppam, Cuddalore – 607 001....RespondentsThis writ petition is preferred under Article 226 of theConstitution of India praying for the issue of a writ ofCertiorari, calling for the records on the file of the respondentsrelating to the impugned orders of the first respondent dated31.03.2010 in ATA No.748(13)2003 and that of the second respondentdated 23.07.2003 in No.C6/TN/6091/SDC/SRO/TRY/03 and quash thesame.For Petitioner : Mr.T.Sai Krishnan for M/s.Sai Bharath and IlanFor Respondents : Mr.K.Ramu for R2 and R3 https://hcservices.ecourts.gov.in/hcservices/ O R D E RThe petitioner is a Textile Mill. They have come forwardto challenge an order passed by the Provident Fund AppellateTribunal in ATA No.748(13)2003 dated 31.03.2010.2. When the writ petition came up for admission on22.09.2010, notice was directed to be served on the learnedStanding Counsel for respondents 2 and 3. Accordingly, Mr.K.Ramu,learned Standing Counsel for the Provident Fund appears forrespondents 2 and 3. He also filed a counter affidavit dated28.04.2011 on behalf of the second respondent which was adopted bythe third respondent. He also produced a copy of the order passedunder Section 7A, levying damages under Section 14-B as well aspenal interest under Section 7-Q of the EPF & MP Act, 1952. TheAnnexure to the said order contains the date of payment, delaycaused in respect of the payment and the consequential levy ofdamages. 3. The petitioner challenging the said order filed anappeal under Section 7-I of the Act before the EPF Tribunal, thefirst respondent herein. The Tribunal took up the case as ATANo.748(13)2003. After hearing the parties, the appeal was dismissedby an order dated 31.03.2010. It is as against the said order, thepresent writ petition came to be filed. 4.Pending the writ petition, this Court granted an interimstay of recovery of damages on condition that the petitionerdeposits Rs.15 lakhs within two weeks. Subsequently, anapplication was taken in M.P.No.3 of 2010, seeking to extend thetime granted for depositing the amount of Rs.15,00,000/- and thesame was granted by this Court on 22.12.2010. It is now stated bythe learned counsel for the petitioner that the said amount hasbeen deposited.5. The contention raised by the petitioner in challengingthe order of the Tribunal as reflected in the affidavit filed insupport of the writ petition was that there was non-applicationof mind and the levy of damages for the delay in payment ofcontribution was made after ten years. It was further contendedthat the delay caused was not wilful and in the absence of anyfinding that the delay was wilful, no damages can be levied.6. In the counter affidavit filed by the contestingrespondents, it was stated that the dues for the period from 1992-93 to 2001–02 were paid belatedly, which itself is a ground forlevying damages as provided under Section 14-B of the Act as wellas penal interest under Section 7Q of the Act. When the petitionerwas issued with summons with reference to the show cause notice toappear on 10.06.2003, no one on the side of the petitioner Millappeared and hence, the enquiry was adjourned to 24.06.2003. On24.06.2003, the authorised representative of the petitioner Millappeared for the enquiry and pleaded time to verify the records.Hence, the matter was further adjourned to 15.07.2003. On https://hcservices.ecourts.gov.in/hcservices/

15.07.2003, there was no representation for the petitioner Mill.Therefore, the earlier provisional order came to be confirmed bythe second respondent.7. The Tribunal before which the appeal was filed recordedthe argument of the petitioner that the company has become sickunder the provisions of the Sick Industrial Companies (SpecialProvisions) Act and it was referred to BIFR was not a valid ground.After referring to the judgment of the Kolkata High Court in VikramPoddar v. RPFC reported in 2001 Vol II 578 had held that a merereference to BIFR is not a sufficient ground.8. The learned counsel for the petitioner referred to thejudgment of the Supreme Court in M/s.Hindustan Steel Ltd., v. TheState of Orissa reported in AIR 1970 SC 253 for contending thatlevy of penalty emphasis a statutory obligation as a result ofquasi-criminal proceeding and penalty should not be ordinarilylevied unless the party obliged either acted deliberately indefiance of law or was guilty of conduct contumacious or dishonestor acted in conscious disregard of its obligation. In that case,the Supreme Court was dealing with the provisions of the Sales TaxAct and after referring to Section 25(1)(a) r/w 9(1) of the OrissaSales Tax Act, 1947, the Court held that mere liability to paypenalty does not arise upon the proof of default in registering theestablishment as a dealer.9. In the present case, Section 14-B of the EPF Act clearlystipulates that if an employer defaults in the payment of anycontribution, the Authorised Officer can recover from the Employerby way of penalty such as damages, not exceeding the amount ofarrears, as may be specified in the Scheme. Further, under Section7-Q, an Employer is liable to pay simple interest at the rate of12% per annum as specified in the Scheme on any amount due from himunder the Act from the date on which the amount has become payable.Under the Employees' Provident Funds Scheme, part 32A clearly givesa tabular column, within which, it was stated the rate of damagesto be paid with reference to delay and in respect of differentperiod of delay, different rates have been prescribed. The secondproviso to Section 14-B provides power to the Central Board toreduce or waive damages only in case where there is a Scheme forrehabilitation framed by the BIFR or by the AAFIR as the case maybe. In the present case, it is fairly admitted that though areference was made to the BIFR, no Scheme has been framed tilldate. Therefore, the question of the petitioner relying upon thejudgment of the Supreme Court in Hindustan Steel Ltd case (citedsupra) which arose under the Commercial Tax Act has no relevance tothe present case. 10. The learned counsel also placed reliance upon thejudgment of this Court in South India Flour Mills (P) Ltd., v.Regional P.F.Commissioner, Madras reported in 1978 I LLJ 101 forcontending that even if the liability to pay contribution may bestatutory, but merely on account of delay, automatic levy ofdamages will not follow. https://hcservices.ecourts.gov.in/hcservices/

11. On the contrary, a reference was made to the judgmentof the Supreme Court in Hindustan Times Ltd. v. Union of Indiareported in (1998) 2 SCC 242. The Supreme Court after analysing therelevant provisions relating to levy of damages in paragraphs 25,26and 29 held as follows:25. The Gujarat High Court in Gandhidham Spg. & Mfg.Co. Ltd. v. R.P.F. Commr.17 (to which one of usMajmudar, J. was a party), laid down a principlethat “prejudice” on account of delay could arise ifit was proved that it was “irretrievable”. There itwas observed that for purposes of Section 14-B,there is no period of limitation prescribed and thatfor any negligence on the part of the Department intaking proceedings the employees, who are thirdparties, cannot suffer. It was further observed:“The only question that would really survive is theone whether on the facts and circumstances of agiven case, the show-cause notice issued after lapseof time can be said to be issued beyond reasonabletime. The test whether lapse of time is reasonableor not will depend upon the further fact whether theemployer in the meantime has changed his position tohis detriment and is likely to be irretrievablyprejudiced by the belated issuance of such a show-cause notice.” (emphasis supplied)It was also stated that such a defence ofirretrievable prejudice on account of delay, was tobe pleaded and proved in the reply to the show-causenotice. We may add that if such a plea is rejectedby the Department, it cannot be raised in the HighCourt unless specifically pleaded. The aboveprinciple of prejudice laid down by the Gujarat HighCourt in Gandhidham Spg. & Mfg. Co. Ltd.17 (Guj) hasbeen followed by the Bombay High Court in SaonerTaluka Ginning, Pressing and Dal Mill Prakriya v.R.P.F. Commr.20; Super Processors v. Union of India21.26. A different aspect of prejudice was referred toin Sushma Fabrics (P) Ltd. v. Union of India22 by alearned Single Judge of the Bombay High Court. Itwas stated that in some cases there could be seriousprejudice on account of abnormal delay in takingproceedings under Section 14-B, either because therecords or accounts of the defaulter are lost or onaccount of the personnel concerned acquainted withthe facts of a bygone period no longer beingavailable for unearthing the facts. But such pleasmust be raised before the Department and strictlyproved. In case such facts are proved it is possiblein some cases that there is irretrievable prejudice. https://hcservices.ecourts.gov.in/hcservices/

29. From the aforesaid decisions, the followingprinciples can be summarised: The authority under Section 14-B has to apply hismind to the facts of the case and the reply to theshow-cause notice and pass a reasoned order afterfollowing principles of natural justice and giving areasonable opportunity of being heard; the RegionalProvident Fund Commissioner usually takes intoconsideration the number of defaults, the period ofdelay, the frequency of default and the amountsinvolved; default on the part of the employer basedon plea of power-cut, financial problems relating toother indebtedness or the delay in realisation ofamounts paid by the cheques or drafts, cannot bejustifiable grounds for the employer to escapeliability; there is no period of limitationprescribed by the legislature for initiating actionfor recovery of damages under Section 14-B. The factthat proceedings are initiated or demand for damagesis made after several years cannot by itself be aground for drawing an inference of waiver or thatthe employer was lulled into a belief that noproceedings under Section 14-B would be taken; meredelay in initiating action under Section 14-B cannotamount to prejudice inasmuch as the delay on thepart of the Department, would have only allowed theemployer to use the monies for his own purposes orfor his business especially when there is noadditional provision for charging interest. However,the employer can claim prejudice if there is proofthat between the period of default and the date ofinitiation of action under Section 14-B, he haschanged his position to his detriment to such anextent that if the recovery is made after a largenumber of years, the prejudice to him is of an“irretrievable” nature; he might also claimprejudice upon proof of loss of all the relevantrecords and/or non-availability of the personnel whowere, several years back in charge of these paymentsand provided he further establishes that there is noother way he can reconstruct the record or produceevidence; or there are other similar grounds whichcould lead to “irretrievable” prejudice; further, insuch cases of “irretrievable” prejudice, thedefaulter must take the necessary pleas in defencein the reply to the show-cause notice and mustsatisfy the authority concerned with acceptablematerial; if those pleas are rejected, he cannotraise them in the High Court unless there is a clearpleading in the writ petition to that effect. " https://hcservices.ecourts.gov.in/hcservices/

12. If it is seen in this angle and also on the referencemade to the second proviso, certainly, the ingredients for eitherwaiving or reduction of the damages do not arise merely because areference was made to the BIFR. In the present case, thepetitioner was given sufficient opportunities to appear before theDepartment and they were at default. As held by the Supreme Court,if the authorities are not satisfied with the explanation offeredby the petitioner, this Court cannot order either reduction orwaiver of such damages.13. In the light of the above, there is no case made out bythe petitioner. Accordingly, the writ petition stands dismissed. Nocosts. Consequently, connected miscellaneous petition standsclosed.Sd/-Asst.Registrar/True Copy/Sub.Asst.RegistrarsvkiTo1.The Employees' Provident Fund Appellate Tribunal Scope Minar, Core -II, 4th Floor, Laxmi Nagar District Centre, Laxmi Nagar, New Delhi – 110 092.2.The Regional Provident Fund Commissioner, E.P.F.Organisation, Sub-Regional office, Post Box No.588, SREE Complex, 'D' Block, 18, Madurai Road, Tiruchirappalli – 620 008.3.The Enforcement Officer, EPF Organisation, District Office, Cuddalore / Villupuram Districts, No.22, Nethaji Road, Manjakuppam, Cuddalore – 607 001.+ 1 cc to M/s. Sai, Bharath and Ilan, Sr.30634+ 1 cc to M/.s. K. Ramu, Sr.30629W.P.No.21635 of 2010RSI(CO)Eu 13.6.11