M/S SCORPION SECURITY LTD vs. THE REGIONAL PROVIDENT FUND COMMISSIONER -II

4 16.12.2013 was issued to the petitioner, by which the petitioner was asked to show case as to why penalty under Section 7Q of the Act as well as damages under Section 14B of the Act be not imposed on it for the delay in remitting the amount of provident fund contribution for a period from 01.04.1996 till 16.12.2013. 3. The petitioner thereupon submitted detailed objections on 02.12.2014 and 19.12.2014 disputing the demand. In the objection it was inter alia pleaded that show cause notice issued by the respondent for a period from April 1996 to December 2013 is belated and has been issued after unreasonable delay in issuing the same. It was also pointed out that there was some delay in remitting the provident fund contribution due to severe financial difficulty and delay in payment by the customers to the petitioner and therefore, the delay in remitting the provident fund contribution is unintentional. However, the Regional Provident Fund Commissioner by an order dated 24/25.02.22015

5 passed an order levying damages to the extent of Rs.79,29,768/- as per Section 14B of the Act and by an interim order passed on the same date levying interest under Section 7Q of the Act to the tune of Rs.41,40,013/-. The petitioner admittedly has deposited the amount of interest levied under Section 7Q of the Act to the extent of Rs.41,40,013/-. 4. Being aggrieved, the petitioner filed an appeal before the Employees Provident Fund Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The Tribunal by an order dated 11.02.2020 dismissed the appeal preferred by the petitioner. In the aforesaid factual background, this writ petition has been filed. 5. Learned Senior counsel for the petitioner submitted that show cause notice dated 16.12.2013 was issued to the petitioner after inordinate delay of 17 years. It is urged that even though no limitation has

6 been prescribed for initiation of the proceedings in respect of the default, which may be committed by the employer, it is argued that such power should be exercised within a reasonable time. It is further submitted that the orders passed by the Regional Provident Fund Commissioner as well as the Tribunal are cryptic and suffer from the vice of non application of mind. It is also urged that the authorities ought to have appreciated that there was delay in remitting the amount of provident fund contribution was due to reasons beyond the control of the petitioner and delay in remitting the amount of provident fund contribution was unintentional and bonafide. In this connection, learned Senior counsel has invited the attention of this court to the list of sundry debtors / customers of the petitioner for the period from 2008 to 2011 in support of his contention that the payments were due to the petitioner. It is also urged that under Section 14B of the Act, the Authority has discretion either to levy or not to levy such

7 penalty / damages by taking into account the facts and circumstances of the case. In support of aforesaid submissions, reliance has been placed on decisions of Supreme Court in 'MOHAMAD KAVI MOHAMAD AMIN VS. FATMA BAI IBAHIM', (1997) 6 SCC 71, 'M/S HINDUSTAN STEEL LTD. VS. STATE OF ORISSA', 1969 (2) SCC 627, and decisions of this court in 'COMMISSIONER OF INCOME TAX VS. A.ALBUQUERQUE AND SONS', MANU/KA/0278/1991 (DB), 'THE REGIONAL PROVIDENT FUND COMMISSIONER VS. JAMIYYATUL FALAH AND ORS.', MANU/KA//0744/2009, 'THE REGIONAL PROVIDENT FUND COMMISSIONER VS. KAYTEE SWITCHGEAR LTD.', MANU/KA/1815/2012, 'THE REGIONAL PROVIDENT FUND COMMISSIONER, BANGALORE VS. M/S ANJALI SILKS AND GARMENTS, BANGALORE', ILR 2014 KAR 1223 and 'M/S KIRLOSKAR ELECTRIC CO. LTD., VS. THE

8 REGIONAL PROVIDENT FUND COMMISSIONER, BANGALORE', ILR 2014 KAR 3184. 6. On the other hand, learned counsel for the respondent submitted that the Act is a social welfare legislation and in view of 2nd proviso to Section 14B of the Act, the adjudicating authority has no discretion to levy less damages. It is submitted that the damages have been levied in accordance with para 32A and para 38 of the Employees Provident Fund Scheme, 1952. It is submitted that the adjudicating authority under the Act is a quasi judicial body and it is bound to assign reasons for its orders. It is also submitted that financial hardship is not a ground to waive the damages under Section 14B of the Act. In support of aforesaid submission, learned counsel for the respondents has placed reliance on decision of the Supreme Court in 'M/S HINDUSTAN TIMES LIMITED VS. UNION OF INDIA AND OTHERS', 1998 (2) SCC 242.

9 7. We have considered the submissions made on both sides and have perused the record. Before proceeding further, it is apposite to take note of the relevant statutory provision viz., Section 14B of the Act, which reads as under: 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

10 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 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, subject to such terms and conditions as may be specified in the Scheme. 8. Thus, from perusal of Section 14B of the Act, it is evident that levy of damages under Section 14B of the Act is discretionary and is not imperative in all situations. A division bench of this court in 'COMMISSIONER OF INCOME TAX VS. ALBUQUERQUE AND SONS', MANU/KA/0278/1991 while considering the nature of levy under Section 14B

11 of the Act has held that levy of damages under Section 14B of the Act is predominantly a penal levy which has to be imposed by the adjudicating authority in the facts and circumstances of each case. It has further been held that there is no compulsion that in each and every case of default there should be a levy under Section 14B of the Act and a judicial discretion has been conferred on the statutory authority. The Supreme Court in M/s Hindustan Times Limited supra while considering the scope and ambit of power under Section 14B of the Act, has held that Authority under Section 14B of the Act has to apply its mind to the facts of the case as well as to the facts stated in reply to show cause notice and pass a reasoned order after giving a reasonable opportunity of being heard to the employer. It has further been held that Regional Provident Fund Commissioner usually takes into consideration the number of defaults, the period of delay, the frequency of the default and the amount involved. The adjudicating authority is also

12 required to ascertain whether there was any mens rea for the delay in remitting the amount of provident fund contribution. [See: 'EMPLOYEES STATE INSURANCE CORPORATION VS. HMT LTD.,', (2008) 3 SCC 35]. It has further been held that no period of limitation is prescribed for exercise of powers under Section 14B of the Act. 9. In the backdrop of aforesaid well settled legal principles, we may advert to the facts of the case in hand. There was a delay in remitting the contribution towards provident fund by the petitioner for a period from March 2003 till September 2013. However, proceeding under Section 14B of the Act were initiated on 16.12.2013. Thus, there was an unexplained delay of 5 years in initiating the proceeding insofar as it pertains to period from March 2003 till September 2008. The delay in issuing notice for levy of damages under Section 14B of the Act can only be a mitigating factor in assessing damages but cannot be a ground to claiming

13 immunity from liability for the payment of damages as no period of limitation is prescribed. [See: M/S S.H SALVEKADAM & CO. VS. REGIONAL PROVIDENT FUND COMMISSIONER, 1981 (LIC) 568 (KARNATAKA HIGH COURT (DB))] 10. The power under Section 14B of the Act to levy damages has to be exercised on well defined parameters i.e., whether there was any element of mens rea in delay in depositing the amount of provident fund contribution, period of delay, frequency of default as well as the amount involved. In the instant case, the damages to the extent of Rs.79,29,768/- have been imposed without taking into account the aforesaid relevant criteria. The relevant extract of the order dated 24.02.2015 passed by the Regional Provident Fund Commissioner reads as under: 8. The establishment has not remitted the Provident Fund Contributions and other dues within due dates for the period stated

14 earlier. The benefit provided for under the EPF Act and the schemes are intended to provide social security cover to the members which depends on the regular and prompt compliance on the part of the employer. This suffers a setback when the remittances are delayed. The prompt remittance would have been allowed the Organization to earn interest by investment, which would in turn allow funds to provide enhanced benefits. All belated remittances cause loss of interest on investment and also lead to excess administrative expenses, thus causing pecuniary loss. The damages are, therefore, required to be levied as provided under law in case of any delay in such compliance. 9. I, K.ARAVINDAN, Regional Provident Fund Commissioner - II (C & R), RO, Bengaluru, therefore in exercise of the powers conferred on me vide Notification No.S.O.1553 dated 17.04.2002 under Section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act,

15 1952 order that the establishment is liable for payment of damages for the period March 2003 to June 2013. After considering the relevant facts of the case, I order that in the interest of justice and equity, it will be reasonable and just and fit to levy damages for the period March 2003 to June 2013 at the rates provided under Para 32A of Employees' Provident Fund Scheme, 1952, Para 5 of Employees' Pension Scheme 1995 and para 8A of Employees' Deposit Linked Insurance Scheme 1976 totaling Rs.79,29,768/- (Rupees Seventy Nine Lakh Twenty Nine Thousand Seven Hundred and Sixty Eight Only), as detailed below: Particulars Amount Period 1. The Employees Provident Fund Contributions, in Account No.1 3940207 March 2003 to June 2013 2. The Administrative /Inspection Charges, in Account No.2 438637 March 2003 to June 2013 3. The Family / Employees' Pension Fund Contributions, in Account No.10 3346549 March 2003 to June 2013 4. Employee's Deposit Linked Insurance Fund Contributions, in Account No.21 200399 March 2003 to June 2013 5. Employees' Deposit Linked Insurance Fund 3976 March 2003 to June 2013

16 Administrative / Inspection Charges, Account No.22 Total 79,29,768/-

The Establishment had participated in the enquiry and had made submissions with regard to the delay. However, without taking note of the nature of the submission under the proposition that financial difficulties cannot be a ground for making contribution belatedly, and in the light of the judgment of the Apex Court in M/s Hindustan Times supra and also since there was repeated defaults to the credit of the appellant, the learned Commissioner has levied the damages. 7. There is no gain say to the position of law has laid down by the judgments of the Higher Courts relied by the appellant. Still, before applying the principles to the given case on hand we

17 have to first go through the facts. It is true that a service Provider's Business entirely depends upon the quality of service rendered through his employees and the prompt payments by the customers against the bills raised. It is highly possible that very often issues are sure to occur between the Establishment and the customers resulting in irregular payment of bills thereby choking timely disbursal of wages and also statutory payments. That could be one of the reasons for the establishment to make belated payment, as could be noticed from the table annexed to the summons, there is continuous default on the part of the establishment and on certain occasions it was beyond one year also. 12. Thus, from perusal of the relevant extract of the orders passed by the adjudicating authority as well as by the Tribunal, it is evident that the orders are cryptic and suffer from vice of non application of mind. The discretion to levy damages under Section 14B of the Act has not been exercised on the relevant criteria

18 referred to supra and in a cryptic and cavelier manner. Ordinarily, we would have remitted the matter to the tribunal for re-consideration. However, in the peculiar facts of the case and taking into account the fact that the petitioner has already deposited the interest payable under Section 7Q of the Act to the extent of Rs.41,40,013/- as well as the period of delay in remitting the amount of provident fund contribution, which in most of the cases varies from 9 to 104 days as well as the deficit of the amount of provident fund which ranges from Rs.32,418/- to Rs.2,44,627/- as well as delay in initiating the proceeding under Section 14B of the Act which is a mitigating factor, we reduce the quantum of damages to 50% of the amount i.e., Rs.79,29,768/-. Thus, the petitioner is held liable to pay a sum of Rs.39,64,884/- as damages under Section 14B of the Act. To the aforesaid extent, the order passed by the Regional Provident Fund Commissioner as well as the Tribunal is modified.

19 In the result, the petition is disposed of. Sd/- JUDGE Sd/- JUDGE SS