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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF MARCH, 2021
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.10079/2016(L- PF)
BETWEEN
DR.S.S.RAMESH S/O LATE S.V.SRINIVASAIAH AGED ABOUT 66 YEARS MANAGING DIRECTOR OF SRINIVASA CARDIOLOGY CENTRE PRIVATE LIMITED RESIDING AT NO.224 16TH CROSS, MCR LAYOUT VIJAYANAGAR BENGALURU- 560040 (NOW IN CIVIL PRISON) REPRESENTED BY HIS ADVOCATE ... PETITIONER
(BY SRI. UDAY SHANKAR.R.M., ADVOCATE (VIDEO CONFERENCING)
AND
ASSISTANT PF COMMISSIONER AND RECOVERY OFFICER
REGIONAL OFFICE, BHAVISHYA NIDHI BHAVANA
NO.13, RAJA RAM MOHAN ROY ROAD
BENGALURU- 560025.
REGIONAL PF COMMISSIONER
REGIONAL OFFICE, BHAVISHYA NIDHI BHAVANA
NO.13, RAJA RAM MOHAN ROY ROAD
BENGALURU- 560025.
2 3. SUPERINTENDENT OF CENTRAL PRISON
PARAPAN AGRAHARA
BENGALURU- 560100.
SRINIVASA CARDIOLOGY CENTRE PRIVATE LIMITED
HAVING REGISTERED OFFICE AT NO.8
MILLERS TANK BUND ROAD
BENGALURU- 560009
REPRESENTED BY ITS DIRECTOR ...RESPONDENTS
(BY SMT. B .V.VIDYULATHA, ADVOCATE FOR R- 1, (VIDEO CONFERENCING), SMT. NALINI VENKATESH, ADVOCATE FOR R- 2, RESPONDENT NOS.3 & 4 SERVED & UNRERPESENTED)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ARREST WARRANT DTD: 15.02.2016 IN EPF.C.P.-26 ISSUED BY THE R-1 AND CONSEQUENTLY DECLARE THAT THE EXECUTION OF ARREST WARRANT DTD.15.2.2016 BY DETAINING THE PETITIONER IN CIVIL IMPRISONMENT AS PRODUCED IN ANNEXURE- A IS ARBITRARY, UNCONSTITUTIONAL AND ILLEGAL.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 28.01.2021, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING :-
ORDER
The petitioner in this writ petition calls in question the arrest warrant dated 15-02-2016 issued by the 1st respondent/Assistant Provident Fund Commissioner
3 and Recovery Officer, Bengaluru in No.BG/BNG/RO/Recovery/24777/2015-16 and has consequently sought for declaration that the execution of arrest warrant is arbitrary and unconstitutional.
Brief facts leading to the present petition, as borne out from the pleadings, are as follows:-
The petitioner is a practicing Doctor, Chairman and Managing Director of Srinivasa Cardiology Centre Private Limited (hereinafter referred to as ‘the Centre’ for short). The petitioner received a notice on 18-06-2014 from the 2nd respondent alleging dues from the Centre in a proceeding to be initiated under Section 7A of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as ‘the Act’ for short). On receipt of the notice and proceedings, the 2nd respondent passed an order against the petitioner that the Centre was in due of provident fund payments and the petitioner being the Chairman of the Centre was
4 responsible for the alleged dues. On receipt of this order dated 25-09-2014, the petitioner submitted a detailed reply on 7-10-2014 seeking time to pay outstanding dues. When default continued, on 31-10-2014, the 2nd respondent issued an order of attachment. Subsequently, the 1st respondent based upon the order of attachment and order passed by the 2nd respondent issued a demand notice on 18.03.2015 after which, the petitioner claims to have met the 1st respondent and explained that the Centre incurred heavy losses and that he would be personally responsible to pay the demanded amount and sought indulgence to pay in installments in a sum of Rs.2,00,000/- every month as interest and made a down payment of Rs.10,00,000/- on that day.
On 6-10-2015, a show cause notice was sent to the petitioner calling upon him to show cause as to why he should not be arrested on account of breach of
5 orders that were passed against him. Thereafter, the petitioner again remitted certain amounts aggregating to Rs.16,00,000/-. In spite of the same, the 1st respondent issued arrest warrant against the petitioner on 15-02- 2016 for enforcement of payment of provident fund dues being Rs.1,12,70,542/-.
Heard Sri R.M.Uday Shankar, learned counsel for the petitioner and Smt. B.V.Vidyulatha and Smt. Nalini Venkatesh, learned counsel for respondents No.1 and 2.
The learned counsel appearing for the petitioner would submit that the petitioner took responsibility on himself to pay provident fund dues of the Centre as it was running huge losses and could not fulfill the commitment of making payment of the dues immediately, though substantial payment close to Rs.73,00,000/- was made. In spite of assurances given to the authorities, arrest warrant came to be issued
6 against the petitioner. It is the case of the petitioner that the 1st respondent has not followed proviso to Rule 73, Para-4 of Schedule-II of the Income Tax, 1961 which has similar powers which mandates that the Recovery Officer should first arrive at a finding that the petitioner had willfully and dishonestly concealed or transferred or sold his properties which would result in difficulty of recovery of arrears or that there should be a reason to believe that the petitioner is likely to abscond from the jurisdiction of the 1st respondent. It is only after recording such satisfaction, the 1st respondent could have directed issue of arrest warrant against the petitioner and arresting a person should be a last resort after exhausting all other modes of recovery.
He would in this regard place reliance upon the judgments of this Court in the cases of (i) KAREEM SILK INTERNATIONAL LIMITED v. ASSISTANT PROVIDENT FUND COMMISSIONER AND
7 AUTHORISED OFFICER (W.P.No.11624 of 2014 decided on 24th July 2014), (ii) R.VIJAYENDRA BABU v. K.NARAYANA (Writ Petition No.3174 of 2020 decided on 08-06-2011) and (iii) Judgment of the High Court of Bombay in KANAIYALAL PRABHUDAS MARU v. REGIONAL PROVIDENT FUND COMMISSIONER(O.O.C.J. W.P.No.1609 of 2001 decided on 23-07-2001) to contend that the procedure stipulated in the Income Tax Act is not followed.
On the other hand, Smt. B.V.Vidyulatha, learned counsel appearing for respondents 1 and 2 vehemently refutes by contending that the authorities were left with no choice but to issue warrant of arrest, as the petitioner failed to pay the amount as was promised and was still due in several lakhs and would contend that the judgments relied on by the learned counsel for the petitioner are inapplicable to the facts of the case.
This Court while issuing notice to the respondents has granted an interim order of stay of the order impugned by order dated 23-02-2016 directing the petitioner to deposit a sum of Rs.10,00,000/- with the 1st respondent and the interim order so granted is in operation even as on date.
I have given my anxious consideration to the rival submissions and perused the material on record.
The proceedings instituted against the 4th respondent/Srinivasa Cardiology Centre Private Limited were in terms of Section 7A of the Act by issuing a notice on 18.06.2014. An order was passed by the 2nd respondent/Regional Provident Fund Commissioner holding that the Centre was in due of the Provident Fund in a sum of Rs.1,35,73,659/- and directed the Centre and the person controlling it to remit dues and if
9 they fail, action for prosecution as contemplated under Section 14/14A of the Act would be initiated against the Centre after which, the petitioner gave an undertaking that he would make payment by himself as the Centre had run into huge losses and sought clarification with regard to certain amounts which were in excess added. Finally, the amount that the petitioner had to pay came down to Rs.1,26,00,000/-. Notwithstanding the aforesaid proceedings between the petitioner and the 1st respondent, a demand notice was issued on 18-03-2015 directing payment of dues and subsequently a show cause notice dated 6-10-2015 to show cause as to why the petitioner should not be arrested for the total dues as on 6-10-2015 at Rs.1,16,70,542/- was issued. When the petitioner failed to pay the dues, arrest warrant was issued and executed resulting in putting the petitioner in civil prison.
The issue now that falls for my consideration is, as to whether the arrest of the petitioner was carried out in accordance with law.
The power of arrest is a drastic power which is vested with the authorities under the Act. The power of arrest has to be executed strictly in accordance with law, since it affects personal liberty guaranteed to the citizen under Article 21 of the Constitution of India. Section 8 of the Act provides that any amount which is due from the employer in relation to a Establishment/Centre and in respect of any contribution payable is recoverable by imposition of damages under Section 14B of the Act. Under Section 8B of the Act, upon issuance of recovery certificate, the Recovery Officer may proceed to recover the amount specified from the establishment/Centre or the employer. The modes of recovery indicated in Section 8B are as follows:
11 “8B. Issue of certificate to the Recovery Officer.— (1) Where any amount is in arrear under section 8, the authorised officer may issue, to the Recovery Officer, a certificate under his signature specifying the amount of arrears and the Recovery Officer, on receipt of such certificate, shall proceed to recover the amount specified therein from the establishment or, as the case may be, the employer by one or more of the modes mentioned below:
“(a) attachment and sale of the movable or immovable property of the establishment or, as the case may be, the employer;
(b) arrest of the employer and his detention in prison;
(c) appointing a receiver for the management of the movable or immovable properties of the establishment or, as the case may be, the employer.”
Section 8G provides as follows:- “8G. Application of certain provisions of Income Tax Act:- The provisions of the Second and Third Schedules to the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962, as in force from time to time, shall apply with necessary modifications as if the said provisions and the rules referred to the arrears of the amount
12 mentioned in Section 8 of this Act instead of to the Income Tax;
Provided that any reference in the said provisions and the rules to the “assessed” shall be construed as a reference to an employer as defined in this Act”
In exercise of powers conferred as indicated hereinabove for effecting recovery under Section 8B, the provisions contained in the Income Act, 1961 have been specifically made applicable. Rule 73 of Part V, Schedule-II to the Income Tax Rules, 1962, which provides for arrest and detention of defaulters needs to be noticed and is accordingly extracted herein for the purpose of quick reference:
“73. Notice to show cause – (1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied –
(a) That the defaulter, with the object or effect of obstructing the execution of the certificate, has, after (the drawing up of the certificate by the Tax Recovery Officer), dishonestly transferred, concealed, or removed any part of his property, or
(b) that the defaulter has, or has had since (the drawing up of the certificate by the Tax Recovery Officer), the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.
(2) Notwithstanding anything contained in sub-Rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer.”
The power of arrest, therefore, has to be exercised only in terms of Rule 73, which mandates issuance of show cause notice to the defaulter and Rule 74 provides that when the defaulter appears before the Tax Recovery Officer, he has to be granted opportunity of showing
14 cause as to why he should not be committed to the civil prison. The power of arrest and detention can be exercised under sub-rule (1) of Rule 73 in two contingencies – where the defaulter after the drawing up of the recovery certificate dishonestly transferred, concealed or removed any part of his properties and where a defaulter has after drawing up of the certificate refused or neglects to pay arrears or some substantial part thereof and sub-rule (2) of Rule 73 indicates that if the defaulter is likely to abscond or leave the local limits it is then only the arrest warrant should be executed subject only to the authority coming to conclude earlier that the defaulter has not paid any amount pursuant to the demand or the defaulter has dishonestly concealed and sold the property or is likely to abscond from the jurisdictional limits.
None of the situations as contemplated in Rule 73 of the Income Tax Rules are arrived at by the 1st
15 respondent before directing arrest of the petitioner, exist. Here it is apposite to refer to the judgment of the Co-ordinate Bench of this Court in the case R.Vijayendra Babu (supra) wherein this Court has held as follows:- “6. The question for decision making is:
Whether in the facts and circumstances, the 2nd Respondent was justified in issuing the warrant of arrest and detention of the Petitioner in civil prison, by the order impugned?
Power to arrest a person is a drastic power vested with the recovery Officer under the Act by recourse to Rule 73 of schedule II to the Income Tax Act, 1961 as enabled by Section 8(G) of the Act. It is needless to state that the power of arrest is required to be strictly in accordance with law as it affects personal liberty enshrined under Article 21 of the Constitution as held by the Apex Court in Jolly George Varghese and Anr. V. The Bank of Cochin MANU/SC/0014/1980: (1980) 360. There can be no dispute that Sections 8(B) to
16 8(G) provide for methods of recovery of the contribution determined under Section 74 of the Act. Section 8(B) empowers the recovery officer, on the issue of a certificate to deploy one or more of the modes prescribed under Rule 73 of Part V to Schedule II to the Income Tax Act, 1961 (for short ‘Rules’) which reads thus:
73 (1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied-
a. that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after (the drawing up of the certificate by the Tax Recovery Officer) dishonestly transferred,
17 concealed, or removed any part of his property, or
b. that the defaulter has, or has had since (the drawing up of the certificate by the Tax Recovery Officer) the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. (2) Notwithstanding anything contained in Sub- rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer. (3) Where appearance is not made in obedience to a notice issued and served under Sub- rule(1), the Tax Recovery Officer may issue a warrant for the arrest of the defaulter.
18 8. A bare reading of the aforesaid Rule makes it abundantly clear that the exercise of power of arrest must strictly comply with the mandate by issue and service of a notice on the defaulter to appear before the Tax recovery Officer and show cause as to why he should not be committed to civil prison. The Recovery officer may order the arrest and detention in civil prison, the defaulter, by recording reasons and on being satisfied:
(a) the defaulter with the object of obstructing the execution of the certificate dishonestly transferred, concealed or removed or any part of his property or (b) the defaulter has or has had since drawing up of the certificate, means to pay the arrears or some substantial part thereof and refuses or neglects to pay the same. The non abstante clause in Sub- Rule 2 mandates the Recovery Officer to be satisfied by affidavit or otherwise, that with the object of delaying the execution of the certificate
19 the defaulter is likely to abscond or leave the local limits of the jurisdiction of the recovery officer then and then alone by recording reasons in writing an order of arrest and detention in civil prison of the defaulter is permissible.
Having regard to the factual matrix and an examination of Annexure - F order impugned, it is needless to state that the order suffers from an error apparent on the face of the record for non compliance with Rule 73. The order does not animate reasons over satisfaction of the recovery officer as required by Clause (a) and (b) of Sub- Rule 1 of Rule 73 of Rules.
Recording of reasons over satisfaction of the recovery officer is a condition precedent to exercise the power of arrest. More over the Recovery Officer’s satisfaction by affidavit or otherwise with the object or effect of delaying the execution of the certificate the Petitioner is likely to abscond or leave the local limits of the jurisdiction of the officer is not forthcoming from the order. Thus
20 there is non compliance of Sub Rule (2) of Rule 73 of the Rules.
In my considered opinion absence of reasons in Annexure - F vitiates the exercise of power of arrest, calling for interference in exercise of extraordinary writ jurisdiction under Article 226 and 227 of the Constitution of India.
The question supra is answered in the negative. In other words, the 2nd Respondent was not justified in directing issue of warrant of arrest and detention of the Petitioner in civil prison. Identical is the view of the High Court of Bombay in Kanaiyalal Prabhudas Maru’s case supra.
Although Learned Counsel for the Petitioner submits that since the proceeding is to be remanded for consideration of the contention that the Respondent could recover the amounts under the certificates by attachment and sale of assets of the Company, so also the Respondent be directed to consider the contention that the Petitioner not being a director and the assets sold to Hemanth
21 Kumar, the same be recovered from the said person, I am afraid the second part of the contention is unacceptable. I say so because Petitioner having admittedly failed to place relevant material constituting substantial evidence of the fact of resignation from directorship and the sale of the assets of the Company, following which it is held that the explanation offered by the petitioner was justifiably rejected by the Respondent, Petitioner cannot be permitted to have a second bite at the cherry.”
Further the judgment in the case of Kareem Silk International Limited (supra) this Court has held as follows:- “3. He submits that the attachment and sale of the property and the arrest of the employer and his detention in prison cannot be resorted to simultaneously. He submits that only if the attached and sold properties are found to be insufficient to meet the liability under the said Act, the question of committing the employer to civil prison would arise. In support of his
22 submissions, he relies on the decision of the Andhra Pradesh High Court in the case of D.R.VENKATESH v. THE REGIONAL PROVIDENT FUND COMMISSIONER reported in (2004) III LLJ 952 (AP). Paragraph No.9, read out by him, is as follows: “9. When the establishment or the employer fails to pay the PF arrears under the Act, the properties of the establishment can be attached and brought to sale. Even after selling the property, it is found that sale proceeds are insufficient for recovering the whole amount of arrears, the properties of the employer can be attached and brought to sale. In such a case, after bringing the properties of the employer, the funds are sufficient for recovering the PF arrears, no further action need to be taken. The legislature
makes
the
employer personally liable for paying the PF arrears only in the event of the properties of the establishment being insufficient. The personal liability, therefore, is not straightaway attracted. Such being the
23 case, I am not able to agree with the submission that the attachment and arrest can be simultaneous. In Mohan vs. R.P.F. Commissioner (supra) the Punjab High Court held that the three modes of recovery mentioned in Section 8B(1) of the Act are not exclusive of each other and alternative modes. It was laid down that it is for the recovery officer to resort to any one of the modes. There is no dispute on this aspect. The question, however, would be whether a recovery officer having resorted to the first mode of recovery, namely, attachment, could have legitimately issued a notice for arrest? This aspect of the matter was directly fell for consideration before the Division Bench of this Court in an unreported judgment in Targot Pure Drugs Limited vs. R.P.F. Commissioner (supra). Their Lordships laid down as under:- ‘10. The learned counsel for the respondent - department states that apart from passing of the
24 order of attachment, the department is also at liberty to arrest the employer and detain him in prison. We are unable to countenance the said submission. The proviso clearly says that the attachment and sale of any property under this section shall first be effected against the properties of the establishment and where such attachment and sale is insufficient, for recovering the whole of the amount of arrears specified in the certificate, the Recovery Officer may take such proceedings against the property of the employer for recovery of the whole or any part of such arrears. As already noticed, the property of the management has already been attached. The department is at liberty to proceed with the sale of the property attached and if the sale proceeds are not sufficient to discharge the amount mentioned in the certificate, the department is at liberty to initiate proceedings against the property of the employer for recovery of the whole or any part of such arrears. Arrest of the employer and his detention in prison cannot at all be made in view of the proviso to Section 8B(1) of the Act.’ ”
25 4. Sri Hemanth Raj submits that under Section 8 D(2) of the said Act, only the clerical errors can be corrected. The said provisions do not enable or empower the provident fund authorities to enhance the interest liability of the defaulting employees. He brings to my notice that as per the impugned notice, dated 03.02.2014, the petitioner’s liability is shown as `8,20,304/-. Suddenly in the next notice, dated 12.02.2014 the amount demanded are `8,20,304/- + `1,03,463/-.
The last submission of the learned counsel is that the proceedings in respect of the petitioner Company were initiated under the Sick Industrial Companies (Special Provisions) Act, 1985. The orders of the BIFR and the appellate authority are challenged before this Court in W.P.No.34927/2013. The orders passed by the BIFR in Case No.467/2002 and Appeal No.91/2012 are stayed by this Court. In view of the interim order granted by this Court, Section 22 of the said Act is attracted to the facts of this case. Consequently, all the
26 legal proceedings against the petitioner Company stand suspended.
Smt. Sumangala A. Swamy, the learned counsel for the respondents has raised a threshold objection to the maintainability of these petitions. She submits that what are impugned are only the show cause notices. She submits that if the petitioner shows the cause or submits the reply, the same would be considered in accordance with law and thereafter necessary orders would be passed.
Keeping all the contentions open, I dispose of these petitions.
At this juncture, Sri Hemanth Raj, the learned counsel for the petitioner submits that he has already filed objections to the impugned show cause notices.
These petitions are disposed of with a direction to the respondent No.1 to consider the petitioner’s objections in accordance with law and pass appropriate orders thereafter. It is
27 made clear that if the order to be passed by the respondent No.1 goes adverse to the interests of the petitioner, the petitioner would have the liberty of challenging the same in appropriate proceedings.”
In the light of the aforementioned judgments of the Co- ordinate Bench and the finding that I have arrived at with regard to violation of sub-rules (1) and (2) of Rule 73 of the Income Tax Rules, which is specifically made applicable to Section 8G of the Act, the warrant of arrest issued against the petitioner was unwarranted.
It is also an undisputed fact that the petitioner has been paying provident fund dues diligently though periodically. The impugned warrant of arrest is issued in violation of the provisions of law as indicated hereinabove, as also, the order passed by the Co- ordinate Bench. The learned counsel appearing for the petitioner has also submitted that petitioner would undertake to clear all the dues which he has been doing
28 throughout in a phased manner. In the result, the following:
ORDER (i) The Writ Petition is allowed in part.
(ii) The arrest warrant bearing No.BG/BNG/RO/Recovery/24777/2015-16 dated 15-02-2016 issued by the 1st respondent/Assistant Provident Fund Commissioner and Recovery Officer is hereby quashed and the proceedings are remitted back to the respondents/authorities for consideration of the matter afresh for initiating proceedings in accordance with law, bearing in mind that the petitioner has been paying the amount.
(iii) The authorities/respondents within their discretion allow the petitioner to remit dues in a time limit.
Sd/- JUDGE bkp CT:MJ