The Commissioner of Income Tax- II vs. M/s. Treasure Island Pvt. Ltd.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN MONDAY, THE 19TH DAY OF AUGUST 2013/28TH SRAVANA, 1935 WA.No. 241 of 2012 () ---------------------- AGAINST THE ORDER/JUDGMENT IN WP(C) 7323/2006 DATED 04-01-2012 APPELLANT(S)/APPELLANT/1ST RESPONDENT IN WPC.: ------------------------------------------ REGIONAL PROVIDENT FUND COMMISSIONER EMPLOYEES PROVIDENT FUND ORGANISATION SUB REGIONAL OFFICE, KOCHI - 682017 BY SENIOR ADVOCATE DR.S.GOPAKUMARAN NAIR STANDING COUNSEL FOR EPF SRI.A.RAJASIMHAN RESPONDENT(S)/WRIT PETITIONER AND RESPONDENTS 2 AND 3 : --------------------------------------------------------- 1. M/S.HARRISONS MALAYALAM LTD BRISTOW ROAD, WILLINGDON ISLAND, COCHIN-682 003 REPRESENTED BY ITS CHIEF MANAGER-LEGAL MR.V.VENUGOPAL. 2. THE EMPLOYEES SPROVIDENT FUND APPELLATE TRIBUNAL 60, SKYLARK BUILDING, 7TH FLOOR NEHRU PALACE, NEW DELHI-110 019. 3. UNION OF INDIA REPRESENTED BY ITS SECRETARY, MINISTRY OF LABOUR NEW DELHI-110 001. R1 BY SENIOR COUNSEL SRI.E.K.NANDAKUMAR SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH SRI.K.JOHN MATHAI R3 BY SRI.P.PARAMESWARAN NAIR,ASG OF INDIA

THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 10-07-2013, ALONG WITH WA. 243/2012, WA. 279/2012, WA. 280/2012, WA. 288/2012, THE COURT ON 19.08.2013 DELIVERED THE FOLLOWING:

WA.No. 241 of 2012 () APPENDIX

PETITIONER(S) EXHIBITS

ANNEXURE A1 TRUE COPY OF THE JUDGMENT IN WPC 33714 OF 2005

RESPONDENTS' EXHIBITS : NIL //TRUE COPY// P.A TO JUDGE

*CR* Manjula Chellur, C.J. & K.Vinod Chandran, J. ------------------------------------------ W.A Nos.241 of 2012, 243 of 2012, 279 of 2012, 280 of 2012 & 288 of 2012 -------------------------------------------- Dated this, the 19th day of August, 2013 J U D G M E N T K. Vinod Chandran, J.: Essentially, these appeals raise a question of law as to the interpretation of Section 14B of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Act) read with Paragraph 32A of the Employees Provident Fund Scheme, 1952 (hereinafter referred to as the 'Scheme'). Whether in imposing penalty under Section 14B of the Act, the adjudicating officer is fettered; in so far as, no discretion is conferred on the officer to waive or reduce the penalty since the rates are clearly determined under the sliding table in paragraph 32A of the Scheme? If not; in exercising such discretion what are the factors that ought to be considered by the adjudicating officer? These would be the questions we are called upon to answer in the above appeals. 2. The brief facts necessary are that the respondent

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 2 Company having been prompt in payment of contribution as provided under the Act and Scheme; prior to 1995 and subsequent to the year 2002, defaulted the same in the intervening period. According to them the default was due to an interim order of stay between 1995 to 1997 and thereafter by reason of severe financial crisis in the plantation industry. The crisis that pervaded the plantation industry; is said to have threatened the very survival of the industry, which was a direct consequence of economic reforms permitting import of goods, creating a surplus of produce within the Country. The labour unrest often leading to militancy and open loot of the produce as also sporadic market conditions brought the plantations to a standstill and there was in fact delay in payment of wages as such. These were the factors that were put across to the adjudicating authority in mitigation; pressing the claim for total waiver of penalty or at least imposition of reduced penalty. The said contentions being rejected; respondent Company was before the Tribunal constituted under the Act.

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 3 consideration of the factors put forth by the respondent Company i.e, specifically the claim of financial constraints. The adjudicating officer purportedly relying on Supreme Court decisions refused to consider the financial difficulties projected by the respondent company and in effect reiterated the rejection of the claims put forth by the Company. Before dealing with the propriety of such conduct by the adjudicating officers who are subject to the hierarchy as established by law and constituted by statute; we first look at the question of law projected before us. 4. We have heard the learned Senior counsel Sri. S. Gopakumaran Nair for the appellant Organization and the learned Senior Counsel Sri E.K Nandakumar for the respondent Company. Sri. S. Gopakumaran Nair would seek reversal of the judgment of the learned Single Judge on the ground that it is an established proposition going by the various decisions of the Hon'ble Supreme Court that financial constraints cannot be taken note of as a mitigating circumstance to waive or reduce the penalty mandated under Section 14B of the Act. The contention of the learned Senior Counsel is that the findings of

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 4 the learned Single Judge is misconceived in so far as the amendment relied on in the impugned judgment and the introduction of a sliding scale under Section 32A of the Scheme took away the discretion conferred on the adjudicating officer before the amendment. The binding precedents of the Supreme Court, on an interpretation of pre-amended Section 14 B itself found that financial constraints is not a factor that could be considered in exercising discretion to waive or reduce the penalty stipulated in the Act and the Scheme. It is also argued that the proviso added on amendment of Section 14B makes it abundantly clear that any reduction or waiver is the exclusive premise of the Central Board and that too confined to a sick industrial company which is sanctioned a rehabilitation scheme by the Statutory Board. The learned Senior counsel would also seriously assail the observation made by the learned Single Judge regarding the conduct of the adjudicating officers, who, according to him had only been carrying on their official duties loyally, without any personal benefit and would strenuously urge that the imposition of costs was in any event unwarranted.

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 5 5. The learned Senior counsel for the respondent Company per contra would assert that the interpretation placed on the amendment of Section 14 B and the introduction of 7 Q in the year 1988 is perfectly valid and in consonance with various judgments of this Court, on Section 14B and also; in pari materia provisions of the Employees State Insurance Act, 1948. Sri. Nandakumar would contend that despite these binding precedents having been pointed out to the adjudicating officer and despite there being clear directions by the appellate Tribunal, the adjudicating officer obstinately refused to follow such directions and proceeded on the beaten track that financial constraints ought not to be considered in mitigation of penalty. They found themselves to be helpless and tied down, inspite of a direction by the appellate Tribunal; which direction, the respondent Organization chose not to challenge. The interpretation given to the provisions as also the observations made regarding the conduct of the adjudicating officers, according to the learned counsel are eminently justifiable but the learned Senior counsel also graciously and very fairly submitted

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 6 that they are not insisting on the order of cost to be sustained and that they do not intend to pursue any steps for recovery of the same. 6. The entire issue turns on the amendment brought to Section 14 B of the Act amended by Act 33 of 1988 and brought in to force with effect from 1.9.1991. We quote here the relevant provision before and after amendment:- Before amendment: “S.14-B. Power to recover damages.- Where an employer makes default in 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 provisions of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under Section 17, the Central Provident Fund Commissioner or such other officer as may be 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:

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 7 Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard.” After amendment: 14B: Power to recover damages.- Where an employer makes default in the payment of any contribution to the Fund, the Pension Fund or the Insurance Fund or 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 Insurance 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 Government, by notification in the official Gazette, in this behalf may recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme: Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard: Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 8 respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the Scheme.” 7. Together with the amendment to Section 14B the legislature also brought in Section 7Q providing for imposition of interest for delay in payment of amounts due under the Act which is extracted hereunder:- “7Q. Interest payable by the employer:- The employer shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment: Provided that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled Bank.” 8. Looking at the amendment to Section 14B, it is evident that during the pre-amendment period, what was contemplated

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 9 by the statutory provision was recovery of damages for default committed by an employer in payment of any contribution to the Fund. The words “may recover” definitely confers a discretion on the authority to either impose or not to impose any damages. In the event of imposition, the discretion to impose to that extent which would be thought justified and proper by the officer concerned, again is clear from the words “may think fit to impose”. Necessarily the discretion ought to be exercised on the facts and circumstances of each case. That much is evidently declared by Organo Chemical Industries and Another v. Union of India and others (1979 (4) SCC 573). The Hon'ble Supreme Court held that the Commissioner's power under Section 14 B is a quasi-judicial function subject to observance of principles of natural justice and that the order should be a speaking one; of course after reasonable opportunity of hearing is granted to the employer. It was also held that a penalty for default or failure in performance of duty imposed under the Act, takes with in its ambit, the compensation of the loss sustained by the employee. By holding that after giving the employees

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 10 interest on the delayed payment made by the employer, the remaining amount should not go to the Government revenue but should be deposited in the Fund constituted under Section 5; the Court was making it clear that the damages imposed under Section 14 B takes in the interest component accrued in favour of the employee by reason of the default as also the aspect of deterrent penalty. The component of penalty, again, by the said finding, was held to be not an enrichment to the coffers of the Government, but, an augmentation of the fund going by the spirit of the socio-economic context and policy in which the welfare legislation was brought in. While upholding the quasi judicial nature of the proceedings, tested against Article 14; it was also held that “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”.(sic.) 9. In the said case, the default was sought to be explained on grounds, with reference to disputes between partners, power cut of 60% and other financial problems, which according to the employer were beyond their control. The order of the

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 11 Commissioner rejecting the explanation of the employer was upheld by the Supreme Court on the finding that the default could not be linked with financial problems facing the establishment. The finding in the Organos case was quoted with approval in Hindustan Times Ltd., v. Union of India & others ( AIR 1998 SC 688). This later decision of the Supreme Court also, quoted the observation of one of the Judges in the earlier decision, wherein the factors that the authority usually takes into consideration was stated to be the number of defaults, the periods of delay and the frequency of the period and the amounts involved. The issue that arose in the latter case was a question of limitation in invoking the power under section 14B. It was held so in paragraph 28: From the aforesaid decisions, the following principles can be summarised. The authority under Section 14B has to apply his mind to the facts of the case and the reply to the show cause notice and pass a reasoned order after following principles of natural justice and giving a reasonable opportunity of being heard; the Regional Provident Fund Commissioner usually takes into consideration the number of defaults,

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 12 the period of delay, the frequency of default and the amounts involved; default on the part of the employer based on plea of power cut, financial problems relating to other indebtedness or the delay in realisation of amounts paid by the cheques or drafts, cannot be justifiable grounds for the employer to escape liability; there is no period of limitation prescribed by the legislature for initiating action for recovery of damages under Section 14 B. 10. It is very pertinent that even then the Supreme Court was careful to point out the pleas in support of a claim of financial difficulty, which are to be rejected at the threshold itself. In the instant case, we are not concerned with the question of limitation. But the factors which are of significant import in exercising the discretion under Section 14B and those that are to be necessarily excluded in such exercise, have been succinctly stated in the above paragraph. Financial difficulties, hence, always, could not be a mitigating circumstance as per the pre-amended Section 14 B. 11. In the background of the authoritative pronouncement of the Hon'ble Supreme Court, specifically regarding the

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 13 compensatory and penal element in the damages so stipulated; one has to look at the amended provisions; which amendment was brought in along with the introduction of Section 7Q. The amended Section 14B stipulates recovery by way of penalty, such damages not exceeding any arrears as may be specified in the Scheme. The subtle change brought about was in taking away the compensatory element from the scope and ambit of Section 14B and retaining the penalty element only; as liable to be recovered as damages. We also have to take into account the contention that the amendment also took away the discretion cast on the adjudicating officer to impose damages to the extent “thought fit” and for that purpose reference was to be solely made to that specified in the Scheme. This along with the proviso, according to the Organization, fettered any discretion earlier conferred on the officer and mandated imposition of penalty as specified in the scheme; no less or no further. 12. But, before looking into the scheme, one has to necessarily notice that the section definitely retains the discretion on the adjudicating officer to either impose penalty or

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 14 order complete waiver. The amended Section 14B also stipulated that Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government “may recover from the employer by way of penalty such damages”. Even if we accept the contention of the Organisation that the sliding table provided in paragraph 32A of the Scheme effectively fetters discretion; that is not to say that the discretion conferred under Section 14B to waive completely, the damages, is taken away. In such circumstances, while the officer would have the discretion to either impose or not to impose damages, when a decision to impose is made, then, necessarily, it can be only at the rates provided in the scheme, would be the natural deduction, is the contention. Hence even if we accept the contention of the Organization, then also, an officer authorised by the Central Government under Section 14B would have the discretion to look into the facts and circumstance of each case and decide total waiver of penalty. Would it not be far fetched to say that an officer while having discretion to totally waive the damages cannot at all in a given case take mitigating

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 15 circumstances to reduce the damages specified under the Scheme? Are we not then enjoined upon to ferret out “hidden injustices and masked malafides” falling back upon the dictum of Organo Chemical Industries (supra)? 13. To answer that we will have to look at paragraph 32A of the Scheme wherein sliding table is also provided, which we extract hereunder:- “32A Recovery of damages for default in payment of any contribution:- (1) Where an employer makes default in the payment of any contribution to the 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 of the Act or in the payment of any charges payable under any other provisions of the Act or Scheme or under any of th e conditions specified under Section 17 of the Act, the Central Provident Fund Commissioner or such officer as may be authorised by the Central Government, by notification in the Official Gazette in this behalf, may recover from the employer by way of penalty, damages at the rates given below: Period of Default Rates of damages (0% of arrears per annum) (a) Less than two months 17 (b) Two months and above but less than four months 22 (c) Four months and above but less than six months 27

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 16 (d) Six months and above 37” 14. Again, we have to notice that though section 14B made a reference to the extent specified in the Scheme i.e, paragraph 32A, where such specification is made under the Scheme, that provision too provides that the authorised officer… “may recover from the employer by way of penalty, damages at the rates given in the table”. The rates of damages which could be recovered is with reference to the period of default and the percentage is to be worked out per annum. On a reference back to Section 14B, it is to be emphasised that there is a clear prohibition in imposing damages, exceeding the amount of arrears. Hence looking at a hypothetical situation of default in payment extending a period of ten years the rate to be applied, being that for a period of default of six months and above; would be 25%. After imposing 25% for 4 years there can be no further imposition since then, it would exceed the arrears itself. That is a fetter on the authority of the authorised officer provided by the provisions of the Act and Scheme itself, and in our view the only fetter. It does not,

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 17 according to us provide any further shackles on the discretion to reduce the quantum of damages, since, mitigating circumstance may exist in an year and not in the next. When the officer finds that there is no circumstance which compels reduction of the damages to be imposed in an year it cannot be taken as an automatic mandate to impose penalty on all subsequent or earlier periods in which the default occurred and continued. It cannot also be said that the circumstance in an year, warranting imposition of damages at a lower rate; while that in another year at higher rate, cannot be taken note of. The fetter as we can see in Section 14B and Section 32A is only in so far as providing that the penalty imposed cannot at any stage exceed the amount of arrears and further can be only up to the rates of damages specified in the sliding table with reference to the period of default. That is to say, if the period of default is less than two months the authorised officer ... “may recover from the employer by way of penalty of damages at 5% of the arrears per annum;” and so on and so forth. 15. The contention based on the proviso to the amended

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 18 Section 14B is only to be noticed to be rejected. Legislature thought it fit to confer on the Central Board the discretion to waive or reduce the penalty when an industry which is declared “sick” under an enactment is also sanctioned a “rehabilitation scheme” by the Statutory Board constituted under the enactment. The Central Board is an authority superior to the authorised officer and such sick industries, were found to be entitled for favourable consideration and were relieved from the procedural and adjudicatory hierarchy provided under the Act. The alone cannot be a ground to find the discretion conferred on the authority under Section 14B to have been totally taken away, going by the plain words employed in the amended Section 14B. 16. As rightly noticed by the learned Single Judge, we are fortified in the said view by various decisions of this Court in 1988 1 KLT 28 SN case No.24 ESI Corporation v. Bhaskaran, 2007 2 KLT 666 E S I Corporation v Premanandan, 2009 1 LLJ 56 Regional Director, E S I Corporation v. Managing Director, Qetcos Ltd. Bhaskaran (supra) held that no damages under Section 85B of the ESI Act,

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 19 1948, could be imposed if there is no contumacious conduct on the part of the employer in not paying the contribution prescribed under Regulation 31. Premanandan (supra), also under the ESI Act, upheld the above proposition and further held that Regulation 31C would only be guidelines in the matter of imposition of damages and the percentage fixed is not absolute. Managing Director Qetcos (supra) upheld the waiver made by the E S I Court on the ground of financial difficulties, finding that the non-payment was not mala fide. Though all the above decisions are under the provisions of the E S I Act, 1948, we have to notice that Section 85B of the said Act and Regulation 31C of the Employees State Insurance (General) Regulations, 1950 are in pari materia with the provisions of Section 14B of the Act and paragraph 32A of the Scheme. 17. Having noticed the substantial differences brought about by the amendment of 1998 and having considered the effect of such amendment, we once again come to the question whether, financial difficulties are an extenuating circumstance. As we noticed earlier, Organo Chemicals and Hindustan

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 20 Times dealt with the pre-amended Section 14B and found that the damages contemplated under the Section included the element of a compensation as also the element of a deterrent penalty. While compensation was to be necessarily credited to the employee's account; the deterrent penalty also was directed to be applied in augmenting the Fund. The compensation element, hence was with respect to the interest getting accrued in the account of the employee, if the contribution had been made at the stipulated time itself. The Provident Fund Organisation a creature of welfare legislation cannot be mulcted with such liability since necessarily the employee on retirement would be entitled to the interest on his contribution and the employer's component from the period in which it is to be deposited. 18. While taking away the compensatory element from Section 14B, Legislature alertly included 7Q making the employer liable to pay simple interest at 12% per annum or at specified higher rates from the date on which the amount became due, till its actual payment. The wisdom of the

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 21 legislature is self evident, since before amendment Section 14B conferred absolute discretion on the authorised officer either to impose penalty or not to impose at all; in the later event of which there would be no compensation at all provided to the Organisation, which would be mulcted with the liability of interest to the employee from the date of actual dues. That, definitely, was not to be left to the discretion of the authorized officer since it does not call for any adjudication and accrual of interest in the employees account is liable to be compensated by the employer who caused the delay. Hence, Section 7Q is automatically imposed, on any delay, without any reference to mitigating circumstances; but with reference only to the period of delay, and the rates specified. Even the previous and subsequent conduct of the employer in making prompt remittance of contribution will not be relevant in imposition of 7Q. Can it be then gainsaid that by the amendment, what was intended is to make Section 14B more rigorous by disrobing the authorised officer of all discretion? If that is the case, what is the purpose for a due opportunity for hearing provided under

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 22 Section 14B, which is blatantly absent under Section 7Q? 19. Having found that the amended Section 14B deals only with the penal element; compensation aspect having been taken out of Section 14B and placed at Section 7Q, necessarily the rigours of imposing a penal consequence, follows. The learned Single Judge has rightly referred to Hindustan Steel Ltd. v State of Orissa AIR 1970 SC 253, which decision rendered under the Orissa Sales Tax Act held that the liability to pay penalty under that Act does not arise merely upon proof of default. The proceedings for imposition of penalty were held to be quasi judicial proceedings, in which imposition is not automatic and would depend on whether the party obliged under the enactment acted either “deliberately or in defiance of law and is guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation”(sic). The penalty was held to be not a natural consequence of the availability of a provision to impose it and was held to be a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. The same was the dictum in

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 23 Regional Director, E.S. I Corporation v. Sakthi Tiles (1988 2 KLT 280) where again, Section 85B of the ESI Act 1948 was considered. 20. We find strength; in taking such a view on the question of discretion, as also the principle underlining the imposition of penalty, by yet another decision of the Hon'ble Supreme Court reported in 2008(1) KLJ 184 ESI Corporation v. HMT Ltd and another. Again, Section 85 B of the ESI Act came up for consideration and the issue was whether damages specified in Regulation 31C of the Regulation of 1950 was imperative in character or not. Hindustan Times was quoted (specifically the paragraph we have extracted above) and it was held that it was in the fact situation obtaining in the said case that the said observations were made. Section 85B was held to be an enabling provision wherein a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages, which provision was held to be liable to be construed strictly. 21. Prestolite (India) Ltd. v. Regional Director and Another 1994 Supplementary 3 SCC 690 was relied on to

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 24 hold that if the regulations have prescribed general guidelines and the upper limits at which the imposition of damages are also specified; it cannot be contended that in no case mitigating circumstances can be taken into consideration by the adjudicating authority in finally deciding the matter and it is bound to act mechanically in applying the uppermost limit of the table. Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Another( 2007) 6 SCC 329 was quoted:- “40. Thus, it appears that there is distinct line of authorities which clearly lays down that in considering a question of penalty, mens rea is not a relevant consideration. Even assuming that when the statute says that one is liable for penalty if one furnishes inaccurate particulars, it may or may not by itself be held to be enough if the particulars furnished are found to be inaccurate is anything more needed but the question would still be as to whether reliance placed on some valuation of an approved valuer and, therefore, the furnishing of inaccurate particulars was not deliberate, meaning thereby that an element of mens rea is needed before penalty can be imposed, should have received serious consideration in the light of a large number of decisions of this Court. “

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 25 and ESI Corporation v. HMT Ltd. and another (supra) held so: 20. We agree with the said view as also for the additional reason that the subordinate legislation cannot override the principal legislative provisions. The statute itself does not say that a penalty has to be levied only in the manner prescribed. It is also not a case where the authority is left with no discretion. The legislation does not provide that adjudication for the purpose of levy of penalty proceeding would be a mere formality or imposition of penalty as also computation of the quantum thereof became a foregone conclusion. Ordinarily, even such a provision would not be held to providing for mandatory imposition of penalty, if the proceeding is an adjudicatory one or compliance of the principles of natural justice is necessary thereunder. 21. Existence of mens rea or actus reus to contravene a statutory provision must also be held to be a necessary ingredient for levy of damages and / or the quantum thereof” 22. We are of the definite opinion that the amendment definitely provided substantial changes in the scope and content of Section 14B and the decision in Organo's case (supra) and Hindustan Times (supra) will not strictly apply. The decision

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 26 in HMT Limited (supra) has distinguished the decision in Hindustan Times(supra) to come to the above conclusion. In such circumstances, we find that what has been effectively intended by the amendment to Section 14B is to take out the compensatory element and disrobe the authority of any discretion with respect to that and provide automatic imposition of interest by Section 7Q. Under Section 14B, the authorised officer necessarily has a discretion to impose damages, by way of penalty or not to impose it altogether. In the circumstance of a finding that penalty has to be imposed, then, the authorised officer has to go to the Scheme; more specifically paragraph 32A of the sliding table provided thereunder, which is in the manner of guidelines. 23. Going by the specific words employed in paragraph 32A again, the officer has to exercise his discretion while looking at the mitigating circumstances, which includes financial difficulties projected by an employer and the quantum to be imposed has to be decided. The only fetter is on the upper limit of rates provided in Section 14B and the table under paragraph

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 27 32A. The discretion granted by the enactment under Section 14B to the authorized officer to either levy or not to levy penalty cannot be fettered by a provision in the subordinate legislation, (ESI Corporation v. HMT Limited). We also notice that while the sliding table under paragraph 32A provided for the rate of damages for various periods as 17, 22, 27 and 37 the same was amended with effect from 26.9.2008, reducing it to 5,10, 15 and 25. This reduction by 12 is again a confirmation of the intention of the legislature of compensatory element being taken out of Section 14B. Though higher rates were provided under paragraph 32A initially, latter it was noticing the automatic levy of 12% under Section 7Q, that, the reduction was brought in. 24. On the strength of the above discussion we look at the facts of the above case. The reason stated as we have noticed is the severe financial crisis, the plantation industry as such, faced, during the period subsequent to 1998-99. The earlier period of default being 1995-97, as has been placed on record by the respondent company, was period in which this Court had stayed the payment of contribution. This aspect was not taken into

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 28 account either by the appellate Tribunal or the authorised officer. We would have normally send it back for consideration to the authorised officer but for the passage of time and the futility in remanding for 'de novo' consideration the imposition of penalty relating to a decade back. It is not in dispute that the respondent company had been prompt in the earlier periods and such promptness was displayed after the company came out of its financial travails. That was held to be a mitigating circumstance even in the pre-amendment period as is clear from the extracted paragraph (supra) of Hindustan Times Limited's case. We also notice that the respondent company has paid the contributions as also discharged its liability under Section 7Q of the Act. Learned Senior counsel appearing for the respondent company also points out that the penalty imposed on them, as is evident from the calculation of damages provided by the Organisation, is at the earlier higher rates stipulated in the sliding table under paragraph 32A of the scheme. 25. In the circumstances we are of the opinion that the judgment of the learned Single Judge confining imposition of

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 29 penalty to 25% of the damages levied under Section 14 B of the Act, would eminently satisfy the mandate under Section 14B, which amount has already been remitted by the respondent company in compliance to the conditions imposed by this Court. 26. We are now left with the judicial propriety or lack of it which was highlighted by the learned Single Judge, with reference to the various authorised officers acting under Section 14B, ignoring the specific directions of the Tribunal. We cannot, but, notice that the observations made by the learned Single Judge are appropriate and apposite in the circumstance. Judicial action should be tempered with discipline not only to law established but also to the binding precedents. The law as is revealed from the statute itself recognises a hierarchy of Courts. If a superior forum is not respected by lower ones, and its directions not scrupulously followed, then, as the learned Single Judge observed, it leads to judicial anarchy. The officers who act under various enactments have to understand the principle and purport of the enactment and comprehend the true import and spirit of the adjudicatory powers conferred on them and train

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 30 themselves to judiciously follow the principles underlining an adjudicatory process, without any extraneous consideration. The adjudicatory authority under an enactment, be it a welfare legislation or otherwise, does not stand in the shoes of a recovery officer nor are the functions aimed at achieving financial targets. 27. In the present case, the welfare legislation intends to provide succour to employees after superannuation in the form of lump sum Provident Fund payment; the contributions to which are statutorily prescribed to be made from the side of the employee as also the employer, during the course of the service period of the employees; the former as deduction from the salary payable. The welfare State has come forward to provide such succour to its citizens in the eve of their lives to ensure security on retirement, which event divests them of a steady earning and disables them from any further employment by reason only of age. The adjudicating officer, conferred powers under such an enactment, to impose penalty as a measure of deterrence on defaulting employers cannot be concerned solely with augmenting or enriching the coffers of the fund alone. The

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 31 employer may have reasons beyond his control which led to the default. That is why the prior and subsequent conduct of the employer becomes a significant aspect. Financial difficulties are not always of ones own making. An establishment crippled with financial difficulties cannot be burdened with penal consequences by way of damages, so as to sound the death knell of the establishment itself. The survival of the employer and the establishment is equally important for the employee too. 28. We are constrained to place on record, our deep anguish at the manner in which adjudicating officers brushed aside the directions of the superior Tribunal. If the Organisation was aggrieved by the findings of the Tribunal, then it was for them to have challenged it. Individual officers, conferred with adjudicating powers, cannot impose their own will or wile or even import one's sense of righteousness or indignation into the adjudicatory process. We quote Benjamin Cardozo:- “The Judge even when he is free, is not wholly free. He is not to innovate at pleasure. He is not a knight-errant roaming at will in pursuit of his own ideal of beauty or of goodness. He is

Writ Appeal Nos. 241, 243, 279 280 & 288/2012 32 to draw inspiration from consecrated principles. He is not to yield to spasmodic sentiment, to vague and unregulated benevolence.” (Nature of the Judicial Process - Lecture - III) It requires no further elaboration. However, on the fair submissions made by the learned Senior counsel for the respondent Company, and only by reason of such grace, we vacate the order imposing costs. Writ Appeals are partly allowed as above.

Manjula Chellur, Chief Justice

K.Vinod Chandran, jma/ . Judge.