IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN WEDNESDAY, THE 16TH FEBRUARY 2011 / 27TH MAGHA 1932 WP(C).No. 19336 of 2005(B) --------------------- PETITIONER : --------------------- KERALA STATE CIVIL SUPPLIES CORPORATION LTD., REPRESENTED BY ITS REGIONAL MANAGER, REGIONAL OFFICE, THIRUVANANTHAPURAM. BY ADVS. SRI.T.L.SREERAM SRI.BLAZE K. JOSE RESPONDENT(S): -------------------------- 1. ASSISTANT PROVIDENT FUND COMMISSIONER, EPFO, BHAVISHIYA NIDHI BHAVAN, PATTOM, THIRUVANANTHAPURAM. 2. THE RECOVERY OFFICER, PROVIDENT FUNDS, BHAVISHYA NIDHI BHAVAN, P.B.NO.1016, PATTOM PALACE P.O., THIRUVANANTHAPURAM. 3. THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL, NEW DELHI. R1 & R2 BY ADV. SRI.N.N. SUGUNAPALAN (SENIOR), SC, P.F. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16/02/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn ...2/- WP(C).No. 19336 of 2005(B) APPENDIX PETITIONER'S EXHIBITS: EXT.P1 : COPY OF THE NOTICE NO. KR/TVM/CIRCLE II/ DAMAGES/ KR/ 16227/ CA/ DATED 24.09.2004 OF THE 1ST RESPONDENT. EXT.P2 : COPY OF THE NOTICE NO. KR/TVM/CIRCLE II/ DAMAGES/ KR/ 16227/ CA/ DATED NIL OF THE 1ST RESPONDENT. EXT.P3 : COPY OF THE ORDER NO. KR/16227/RO/TVM/PD/B/NS/03 DATED 16.12.2004 OF THE 1ST RESPONDENT. EXT.P4 : COPY OF THE LETTER FROM THE STATE BANK OF INDIA, M.G. ROAD BRANCH, THIRUVANANTHAPURAM DATED 8.1.2005 TO THE PETITIONER. EXT.P5 : COPY OF THE JUDGMENT IN W.P(C) 871/2005 DATED 10.1.2005 OF THE HON'BLE HIGH COURT. EXT.P6 : COPY OF THE ORDER IN APPEAL NO. ATA 75 (7)/2005 DATED 31.03.2005. RESPONDENT'S EXHIBITS - NIL //TRUE COPY// P.S. TO JUDGE Mn K.SURENDRA MOHAN, J. ------------------------------------------- W.P.(C) No.19336 of 2005 ------------------------------------------- Dated this the 16th February, 2011 JUDGMENT The petitioner, a statutory Corporation under the State of Kerala has filed this Writ Petition challenging the levy of damages on them by the first respondent under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the 'Act' for short). 2. The petitioner, the Kerala State Civil Supplies Corporation Limited is constituted for and engaged in the business of supplying consumer goods to the public at large, at reduced fair prices through its outlets all over the State. The petitioner has been remitting provident fund contributions in respect of its employees without delay or default, at all times. However, during the period from November 1997 to April 1998, March 1999 to December 1999, January 2000 to October 2001 and from November 2001 to December 2002, it is alleged that there was delay in remitting the provident fund contributions. For the WPC No.19336/2005 2 delay in making payments, the Employees' Provident Fund Organization has levied interest under Section 72 of the Act as well as damages under Section 14B thereof. According to the petitioner, the delay was neither wilful nor deliberate, but, was caused due to circumstances beyond its control. Therefore, when the first respondent issued Ext.P1 notice demanding a total amount of Rs.4,72,102/-, the petitioner objected to the demand. Thereupon, the demand was modified and Ext.P2 proceedings were issued. As per Ext.P2, the amount of interest was reduced to Rs.68,536/- and the damages was reduced to Rs.1,89,623/-. Thus, a total amount of Rs.2,58,159/- was demanded. 3. The petitioner filed objections to Ext.P2. According to the petitioner, the delay from November 1997 to April 1998 was solely due to the fact that an account code number for remittance of the provident fund contributions had not been allotted. A provisional code number was allotted on 9.3.1998 and only thereafter the petitioner could remit the contribution. The contribution for the period from March 1999 to December 1999 was delayed for the WPC No.19336/2005 3 reason that the wage report from the supermarket godown at Kollam for the period in question was received only in December 2000. Similarly, for the period from January 2000 to October 2001, a labour dispute was pending between the labour unions and the petitioner. It was only as per the decision of the District Labour Officer, Thiruvananthapuram dated 15.11.2002 that the packing workmen accepted their wages. Therefore, the entire wages of the workmen could be disbursed together only during December 2002. For the period from November 2001 to December 2002 also, the provident fund contributions were not remitted because the workmen had not accepted their wages because of the pendency of the labour dispute as stated above. They received their wages only after settlement of the dispute as stated above. For the above reasons, due to no fault on the part of the petitioner, the provident fund contributions were not remitted. 4. Though the above objections were raised before the first respondent, the said authority passed Ext.P3 proceedings confirming the levy of interest and damages on WPC No.19336/2005 4 the petitioner. Aggrieved by Ext.P3, the petitioner approached the third respondent Appellate Tribunal challenging the same. The Appellate Tribunal also without specifically considering the merits of the objections raised by the petitioner, found that the levy of damages and interest on the petitioner was justified. Therefore, as per Ext.P6 order, Ext.P3 has been confirmed. The petitioner has filed this writ petition challenging the said action and seeking a writ of certiorari quashing the said proceedings. 5. A counter affidavit has been filed on behalf of respondents 1 and 2 contending that the provident fund authorities were well within their rights in levying interest and damages in accordance with the relevant provisions of the Act. According to respondents 1 and 2, the delay in remitting contributions in the present case has occurred solely due to the delay caused by the administrative machinery of the petitioner, for which, no one, but the petitioner can be blamed. The petitioner cannot contend that the said delay was caused due to circumstances beyond its control. Therefore, the contention of the petitioner is liable to be rejected. It is also contended that the WPC No.19336/2005 5 objections of the petitioner were duly considered and rejected by the first respondent as per Ext.P3 and that the said order has been confirmed by the Appellate Authority in appeal. The said proceedings do not call for any interference by this Court. Therefore, they pray for dismissal of this writ petition. According to the counsel for the petitioner, though specific objections were raised as detailed in paragraph-10 of the Writ Petition, neither Ext.P3 nor Ext.P6 has considered the objections on the merits. In fact, the authorities have proceeded on the assumption that the delay was caused due to administrative lacunae for which, the petitioner alone was to be blamed. Since the objections of the petitioner have not been considered by both the authorities, it is pointed out that Exts.P3 and P6 are liable to be set aside. 6. It is the further contention of the counsel for the petitioner that Section 14B of the Act does not mandate that in all cases damages can be levied irrespective of the reason for the delay in remitting contributions. Particular reference is made to the use of the word 'may' in the provision which indicates that levy of damages is within the WPC No.19336/2005 6 discretion of the authority concerned and that there should be application of mind to the facts of each case. The counsel has also referred to Section 32A of the Employees' Provident Fund Scheme, 1952 to contend that the damages levied in the present case being 100% was violative of the said provision and ultra vires the provisions of the scheme. The levy of interest is submitted to be excessive and confiscatory in nature. 7. The counsel for respondents 1 and 2 on the other hand submits that the objections of the petitioner have been considered and found to be merely on account of administrative lapses. Therefore, the petitioner was responsible for the same and the delay on account of administrative lapses on the part of an establishment could not be condoned as a justifiable ground for the delay in the remittance of contributions. It is therefore pointed out that there are no grounds to interfere with the impugned proceedings. 8. I have heard Mr.Blaze K.Jose, the learned counsel for the petitioner and the Senior counsel Sri.N.N.Sugunapalan for respondents 1 and 2. I have been WPC No.19336/2005 7 taken through the records of the case in detail. I have also considered the rival contentions of the parties, anxiously. 9. It is the specific case of the petitioner in paragraph-10 of the writ petition that the delay in remitting the provident fund contributions was not wilful or deliberate, but, due to circumstances beyond its control. As already noticed above, the reasons for the delay during the different periods have been set out in paragraph-10 of the writ petition. The complaint of the petitioner is that though the reasons had been put forward elaborately in the form of objections before the first respondent as well as the third respondent, they have not been considered either in Ext.P3 or in Ext.P6. A reading of Ext.P3 shows that the said objections were put forward before the first respondent also. However, except for making a bald statement that the authority has applied its mind to all the relevant facts and gone into the reasons stated by the employer at the time of hearing, no such consideration is borne out from the said order, Ext.P3. The order further makes it clear that the authority has proceeded to issue Ext.P3 on the assumption that the petitioner had already deducted employees' share WPC No.19336/2005 8 from their salaries/wages, but, had not remitted the same to the first respondent. It is the specific case of the petitioner that the wages of the workmen were not paid at the usual time because of the existence of a labour dispute and that the wages were paid only after the disputes were settled, in a lump. The merits of the above contention has not been considered by the first respondent in Ext.P3. 10. Ext.P6 order also notices the objections of the petitioner in paragraph-2 thereof. However, the Tribunal too has proceeded on the assumption that the delay was caused entirely due to administrative lapses on the part of the petitioner, though there are no circumstances to warrant such a conclusion. Therefore, it follows that both the authorities have not considered the merits of the objections raised on behalf of the petitioner. Though it is contended before me that the petitioner had not produced necessary documents to substantiate the genuineness of his objections either before the first respondent or the third respondent, there is no finding either in Ext.P3 or in Ext.P6 to the said effect. Therefore, it has to be held that the objections of the petitioner were not considered by either WPC No.19336/2005 9 the first respondent or the third respondent while issuing Exts.P3 and P6. 11. It is the further contention of the counsel for the petitioner that Section 14B of the Act does not mandate that levy of damages in all cases shall be automatic wherever there has been delay in remitting the contributions. Section 14B of the Act reads as follows: 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 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 arrears, as it may thinks fit to impose: 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 WPC No.19336/2005 10 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.” 12. It is clear from a reading of the above provision that the levy of damages is not automatic in every case where there is delay in remitting the contributions. It is clear from the provision that, in first place, there has to be a default on the part of the employer in payment of contribution to the fund. Every delay in remittance of contribution cannot be characterised as 'default'. The term 'default' pre-supposes a mental element, of wilful non- remittance, which ingredient would have to be found by the authority to support a levy of damages. Secondly, the use of the words 'may recover' confer a discretion on the authority to decide whether to recover or not to recover damages in a given case. Depending on the facts and circumstances of each case, the authority can, within its discretion decide whether to levy or not to levy damages in a particular case. There is a further stipulation in the provision that the competent authority can determine the quantum of the WPC No.19336/2005 11 damages, in its discretion. The words 'as it may thinks fit to impose' confer the necessary discretion on the authority to determine the quantum with the only limitation that it shall not exceed the amount of arrears. Therefore, the power conferred on the authority under Section 14B is hedged in by the various conditions stipulated by the provision itself. Exercise of the power under Section 14B is not to be a mechanical exercise. It has to be done with proper application of mind, after adverting to all the relevant circumstances. Paragraph-32A of the Scheme sets out the rate of damages that is permissible to be levied by the authority. The said provision is to act as a guideline in exercise of the discretion under Section 14B of the Act. 13. In the decision reported in Cannanore Shop v Regional P.F.Commr. (1992(2) KLT 95), this Court had to consider a similar issue, as the award of damages in the said case was without stating any reasons. Though the reasons were sought to be supplied by filing an affidavit before this Court, the same was not accepted. This court has considered the issue in the following words: “But by Ext.P1, penalty was imposed at 80%. WPC No.19336/2005 12 There is no reason mentioned in Ext.P1 why this quantum is fixed. It is only stated that exemplary damages are inflicted on the establishment to ensure such defaults are not repeated in future and the dues are deposited in time. Under S.14B of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, penalty can be imposed. The authority has to consider relevant facts. Whether the employer is in the habit of making payment regularly, nature, number and frequency of the defaults, the period of the delay involved, the amounts involved and all other consideration have to be taken into account. The authority is required to apply its mind on the facts and circumstances of the case. But there was no consideration of the same in Ext.P1. Of course, an attempt has been made by counter affidavit to supply the reason. The reason given in counter-affidavit cannot be read into Ext.P1.” A similar issue has been considered in Puthiyara Tile Works v Union of India (2003(3) KLT S.N.101 page 74). Considering the scope of the discretion under Section 14B of the Act, this Court has held as follows: “The words “may recover” occurring in S.14B will clearly show that the authority under the Act is vested with the discretion to decide whether damages are liable to be recovered from the defaulter, and if so to what extent. Penalty would not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised WPC No.19336/2005 13 judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial reach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Though the quantum of damages that can be levied has been indicated in the statute, the question as to whether any recovery of damages has to be made by way of penalty is entirely at the discretion of the authority which proposes to impose such a penalty. The said discretionary power vested in the authority has to be exercised in a fair, reasonable and just manner. If the authority which is vested with the discretionary power as indicated in S.14B does not act with an open mind, the entire adjudicatory process will lose its authenticity and judicial approval.” The provision has been considered again by this Court in Indian Telephone Industries Ltd. v Asstt.P.F.Commnr. and others 2006(3) KLJ 698. After considering the various decisions on the point, this Court has held as follows:- “In this connection, I have to dispose of the contention of the counsel for the first respondent that in view of the words “as may be specified in the Scheme” now occurring in Section 14-B and the new clause 32A of the Employees Provident Funds Scheme, the first respondent has no discretion in the matter WPC No.19336/2005 14 except to apply the formula in clause 32A for quantification of damages also. I think that this is a myopic view of the said provisions. If, while deciding the quantum of damages under Section 14-B the reasons for the delay has to be taken into account, then the damages cannot be as per any strait-jacketed formula. At the best, clause 32A would only serve as a guideline. In fact, the words used in clause 32A is that “may recover from the employer by way of penalty damages at the rates given below”, which would also suggest that the same is intended as a guideline. Here, it may work the other way also. The clause takes into account only the period of delay, but does not take into account the number of delays, which also may be a factor in favour of imposition of higher damages. Further, when Section 14-B envisages a maximum damages equal to the amount of arrears, the maximum envisaged by clause 32A is only 37%. Therefore, Clause 37A is purely in the nature of guidelines and not a structured formula of invariable application in all circumstances without reference to the reasons for delay. I am of opinion that merely because there is belated payment of contributions, liability to pay damages does not automatically arise, but the same shall be decided by applying mind to the merits of each case and not by resorting to mere arithmetic calculation of damages. Even though liability to pay contributions is statutory, to hold that delay automatically attracts damages would be too rigid a way of construing the Section, especially since the imposition of damages is punitive in nature. There must be application of mind taking into account the reasons for delay and whether the delay could have been avoided by WPC No.19336/2005 15 ordinary diligence by the employer. For this, one cannot with any amount of certainty say what are the circumstances which would mitigate the damages and which would not. The same would differ from case to case, which requires exercise of judicial discretion by the authority imposing damages by application of mind to the circumstances pleaded and proved by the defaulting employer.” 14. The counsel for respondents 1 and 2 has contended that labour unrest, financial problems or administrative lapses cannot be the grounds for justifying delay in remitting provident fund contributions. He has relied on a decision of a Division Bench of the Allahabad High Court in Unitech Engineers (P) Ltd. v Regional Provident Fund Commissioner, Meerut and another 2000-1-LLJ 620. Particular reliance is placed on paragraph-12 of the said decision wherein it has been held relying on two decisions of the Apex Court that industrial unrest cannot be considered as a mitigating circumstance while fixing the damages. In fact, there is no quarrel on the above proposition at all and it is not industrial unrest that is put forward as a mitigating circumstance in the present case. It is the fact that the workmen were not WPC No.19336/2005 16 paid any wages during the relevant period for the reason that they had refused to receive their wages because of the subsisting industrial dispute. The case of the petitioner is that the wages were paid only in a lump after settlement of the disputes. The question as to whether the provident fund contribution had to be paid even before the wages were paid also is a question that would arise in the present case. I do not want to consider the above aspect of the matter for the reason that I have already found that the authorities had not considered the objections of the petitioner as required by Section 14B of the Act. 15. In view of the above, Exts.P3 and P6 are quashed. The first respondent is at liberty to consider the matter afresh in the light of the objections raised by the petitioner to Ext.P2. This writ petition is allowed on the above terms. No costs. K.SURENDRA MOHAN, JUDGE css/