1 wp 10102.10.doc K IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 10102 OF 2010 Sinhgad Technical Education Society ..Petitioner. Vs. The Regional Provident Fund Commissioner-II (Damages) ..Respondents. Mr. Rafik Dada, senior counsel with Mr.Nitin S.Dhumal for petitioner. Mr. S.V.Bharucha for respondent. CORAM : K.K.TATED, J. DATED : 15.03.2011. P.C. 1 Heard the learned senior counsel for Petitioner and learned counsel for Respondent. 2 This Petition under Article 226 of the Constitution of India is directed against the order passed by the Presiding Officer, Employees Provident Fund, New Delhi in Appeal which was preferred by the Petitioner-Appellant. Challenge in the Appeal was to an order passed by the authority under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (“the 2 wp 10102.10.doc Act” for the short) and particularly payment of interest and damages for the belated remittance under section 7-Q and 14-B of the Act. 3 A few facts of the matter are as under: The Petitioner is a Public Charitable Trust, registered under the provisions of the Bombay Public Trust Act, 1950 and is also under the Societies Registration Act, 1860. The Petitioner-Society is established with an objective of imparting education in various fields. The Petitioner-Society have institutions which run approximately 70 schools, colleges, institutes etc. in and around Pune region and more than 44,000 students are studying in the various institutions run by the Petitioner. The total staff employed by the Petitioner-Society is more than 5,000. 4 On 13th January, 2006, the Enforcement Officer of the Provident Fund Department from Pune office visited the premises of Petitioner-Society and seized certain records. After scrutinizing seized records, the Regional Provident Fund Commissioner issued show cause notice dated 10th July, 2007 to the Petitioner for payment of interest and damages for the 3 wp 10102.10.doc belated remittance under section 7-Q and 14-B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 regarding the period from 9th September, 1996 to 1st January, 2006. By the said show cause notice, the Respondent officer called upon Petitioner to pay a total sum of ` 8,20,720/- under section 7-Q, ` 17,96,185/- under section 14-B. In this way the Respondent Officer by show cause notice dated 10th July, 2007 called upon Petitioner to pay total sum of ` 26,16,905/-. 5 Pursuant to the said show cause notice, the Petitioner by the letter dated 14th August, 2007 explained the maximum delay in payment of Provident Fund amount. The Regional Provident Fund Commissioner-II, Pune passed an order dated 29th October, 2007 calling upon Petitioner to pay a total sum of ` 17,96,185/- under section 14-B towards damages and interest under section 7Q is ` 8,20,720/-. 6 Being aggrieved by the order dated 29th October, 2007 passed by Regional Provident Fund Commissioner-II, Pune, Petitioner preferred an Appeal No.806 (9) of 2007 before the Employees Provident Fund Appellate Tribunal at New Delhi. Petitioner deposited the entire interest amount including 25% of the demand raised by the Respondent under section 14-B. 4 wp 10102.10.doc 7 After hearing both the sides the Appellate Authority, by its order dated 22nd October, 2010 dismissed the Petitioner’s Appeal. 8 The learned senior counsel appearing on behalf of Petitioner submits that the learned Regional Provident Fund Commissioner failed to appreciate that the Petitioner society was disabled for circumstances beyond its control to pay provident fund contribution and as soon as it was practicable, paid the same. He submits that the power exercisable under section 14-B of the Employees Provident Fund Act and the consequences ensuring therefrom are of personal nature and therefore, the quasi judicial authority should pass speaking order containing reasons. The speaking order must show the application of mind by the authority to the assessment of the actual loss and of penal damages and must show the allocation between the two heads. His contention is that the learned Regional Provident Fund Commissioner failed to point out the actual damages and also the damages imposed as penalty in the order passed under section 14-B of the Employees Provident Funds and Miscellaneous Provisions Act. The impugned order is passed without application of mind in relation to these heads. 5 wp 10102.10.doc 9 He submits that the authorities below passed an order imposing the damages at the maximum possible rate without indicating any reason as to why the highest payable rate of damages is being applied to the Petitioner in addition to penalty under section 7-Q of the Act which is highly unreasonable, irrational and arbitrary, excessive of the power of the authority and therefore liable to be quashed and set aside. 10 He submits that in the order passed by the learned Regional Provident Fund Commissioner, there is no finding recorded that the late payment of provident fund due by the Petitioner was intentional and Petitioner was also not given any opportunity in relation to the rates of damages applied. He submits that the authority below have power to determine damages under section 14-B of the Act is quasi judicial function and therefore, it has to take into account difficulty placed before it by the employer. In the impugned order of the Commissioner failed to take into consideration the reasons for delay in payment of salaries to the employees and resultant delay caused in deduction of provident fund contribution and to make same payments with the office of the Regional Provident Fund Commissioner because of difficulty and inability of the Petitioner. 6 wp 10102.10.doc 11 He submits that the authority below failed to exercise discretionary jurisdiction vested in him while assessing the damages under section 14-B read with paragraph No.32-A. The plain language of the paragraph No.32-A shows that the word used therein is “may” and therefore, discretion in the matter is very much available. However, the authority is in wrong impression that it has no discretionary jurisdiction to levy damages lesser than the prescribed. He further submits that even the appellant authority failed to consider the grounds of appeal at the time of passing the impugned order dated 22nd October, 2010 in ATA No.806(9) of 2007. 12 In support of his submission the learned senior counsel appearing on behalf of the Petitioner relied on judgments in the matter of South India Flour Mills (P) Ltd. vs. Regional P.F. Commissioner, Madras reported in 1 LLJ 101 (Madras), in the matter of Bhatkuli Taluka Co-operative Agricultural Sale and Purchase Society Ltd. Amravati vs. Regional Provident Fund Commissioner reported in 2007 (2) Mh.L.J. 810 and order dated 31st January, 2011 in Writ Petition No.2370 of 2010. On the basis of these decisions, learned counsel appearing on behalf of Petitioner submits that this is a fit case to set aside the impugned order dated 22nd October, 2010 passed 7 wp 10102.10.doc by the Employees Provident Fund Appellate Tribunal, New Delhi in ATA No.806 (9) of 2007 and order dated 29th October, 2007 passed by the Regional Provident Fund Commissioner (II), Pune. 13 The learned counsel appearing on behalf of Respondent submits that in the present Writ Petition, the Petitioner is challenging the quantum of damages imposed by authority under section 14-B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. There is efficacious alternate remedy available to the Petitioner to challenge the same before the Central Board which is empowered to reduce or waive damages levied under section 14-B. Therefore, the present Writ Petition is not maintainable. 14 After going through the Appeal Memo filed by Petitioner before the Employees’ Provident Fund Appellate Tribunal at New Delhi and the reply dated 14th August, 2007 to the show cause notice, it is crystal clear that the Appellate Authority failed to consider the objections raised by Petitioner. Without considering those objections the Appellate Authority passed impugned order dated 25th March, 2010. It is to be noted that the Madras High Court in the matter of South India Flour Mills (P) Ltd. vs. Regional P.F. Commissioner, Madras 8 wp 10102.10.doc reported in 1 L.L.J. 101 (Madras) held that merely because there is a belated payment, liability to pay damages does not automatically arises, what is require is an application of mind to the merits of each case and not mere arithmetical computation of damages. In paragraph 5, the Madras High Court observed as under: “The scope of this power is undoubtedly, as the section itself will clearly disclose, to levy damages. Damages, it is well-known is totally different from penalty. Where a statute enjoins a person to do a particular thing and when he fails to do so he becomes liable to be penalised; in other words, the imposition of penalty arises in such cases. The Parliament, in its wisdom, under S.14B has clothed the authority to levy damages. Therefore, it is incumbent upon the authority to find how the beneficiaries of this Provident Fund contribution have been damnified by the belated payment of the contributions. No doubt, the liability to contribute may be statutory, but nevertheless, merely because there is a delay or merely because there is a belated payment, it does not follow automatically that the liability for damages gets 9 wp 10102.10.doc attracted. That would be a wooden or rigid way of constructing the section. This aspect has come up for consideration in Fernandes vs. state of Mysore, (1969-II L.L.J. 442), wherein it was held: “Section 14B of the Employees’ Provident Funds Act, 1952, does not compel-recovery of damages in each case in which there is a default, nor does it specify the amount of damages to be recovered. It confers on the appropriate Government the power not only to decide whether in the circumstances of the case any damages should be recovered from the employer and to further decide how much should be recovered from him. When it reaches the conclusion that the case is one in which damages should be recovered, the quantification of the damages should be made on the materials before it and having regard to all relevant circumstances and facts of the case”. 15 In similar way, our High Court in the matter of Bhatkuli Taluka Co-operative Agricultural Sale And Purchase Society Ltd. Amravati vs. Regional Provident Fund Commissioner reported in 2007(2) Mh.L.J. 810 held that at 10 wp 10102.10.doc the time of assessing the damages under section 14-B read with paragraph No.32-A, the discretion in the matter is very much available with the authority. Authority writing an order is obliged to point out the actual damages and also the damages imposed as penalty. The paragraph 6 of the judgment is as under: “6. The question raised is that the rate of damages applied by the respondent in the case of petitioner is maximum. The respondent has also not disputed that they have charged damages at the maximum rate prescribed in paragraph No.32-A. On the other hand stand of respondent is that it is the only rate at which the damages can be levied. Perusal of provisions of paragraph No.32-A shows that it uses the word “may recover from employer by way of penalty, damages at the rates given below”. Thereafter the table has been given and table is in two columns. The first column is period of damages and the next column is prescribing rate of damages in percentage. The rate of damages increases if the period of default is more. In this connection when the judgment on which Advocate 11 wp 10102.10.doc Gordey, has placed reliance i.e. AIR 1979 SC 1803, Organo Chemical Industries and another vs. Union of India and others, is perused, the said judgment upholds the constitutional validity of section 14-B. The challenge before the Hon’ble Apex Court to validity was on the ground that section 14-B confers arbitrary powers in favour of the Authority levying damages. The same has been negated by the Hon’ble Apex Court and the observations of the Hon’ble Apex Court in paragraph Nos. 12, 13, 38 and 40 are important. The Hon’ble Apex Court has stated that the word “damage”, itself is very significant and after describing the various types of damages in paragraph No.13, the Hon’ble Apex Court has in paragraph No.38 found that the said argument cannot be accepted. The Hon’ble Apex Court has noticed that the guidelines are provided for fixing quantum of damages and the power of the Regional Provident Fund Commissioner to impose damages under section 14-B is quasi-judicial function. The wealth of employment and limitations of word “damages” is itself found to be sufficient to serve as guidelines in fixing the import. In 12 wp 10102.10.doc paragraph No.38 it has been also noticed that the quasi-judicial function has to be exercised by the Regional Provident Fund Commissioner, after giving reasonable opportunity of being heard to all the defaulters and the discretion to award damages can be exercised within the limits fixed by the statute. It has been observed that having regard to the punitive nature of the powers exercisable under section 14-B and the consequences that ensure therefrom, an order under section 14-B must be a speaking order, containing the reasons in support of it. In paragraph No.40 the Hon’ble Apex Court has also rejected the contentions that because of absence of remedy like appeal, the said provisions under section 14-B was liable to be declared as void or illegal. Advocate Sundaram has invited attention to paragraph No.18 and 47 of this judgment to state that this judgment only contemplates an opportunity to the defaulter to show cause. He has argued that this judgment nowhere states that the damages prescribed at maximum rate should not be levied. He has further stated that the judgment delivered is prior to coming into force of paragraph 13 wp 10102.10.doc No.32-A. Perusal of paragraph No.18 shows that the Hon’ble Apex Court has noticed that section 14-B may include a punitive sum quantified according to the circumstances of the case and in exemplary damages, aggravating element is prominent. In paragraph No.47 the Hon’ble Apex Court has noticed that purpose of section 14-B is not merely to provide compensation to employees, but it serves two purposes. It has been noticed that it is meant to penalize defaulting employer as also to provide reparation for the amount of loss suffered by the employees. It is not only a warning to employers in general not to commit a breach of the statutory requirements of section 6, but at the same time it is meant to provide compensation or redress to the beneficiaries i.e. to recompense the employee for loss sustained by them.” 16 It is crystal clear from the authority that the duty is cast upon the authority to consider the grounds and submissions raised by employer for delay in payment of provident fund before passing and or imposing damages under section 14-B of the Act. 14 wp 10102.10.doc 17 After going through the impugned order passed by the Appellate Authority, it is crystal clear that the Appellate Authority without considering the grounds raised by Appellant in their Appeal Memo decided the Appeal just relying on two to three judgments of High Court that also without discussing how same are applicable in view of the grounds raised by the Petitioner in their Appeal Memo. 18 The objections raised by the learned counsel appearing on behalf of respondent about alternate remedy to approach the Central Board is not maintainable in view of facts and circumstances of the present case. Central Board is empowered to reduce or waive damages under section 14, where the Board of Industrial and Financial Reconstructions recommends such reductions or on other grounds as explained in provisions to that effect. In the present case, those facts are not available to the Petitioner and therefore, the objection raised by the learned counsel appearing on behalf of Petitioner is not maintainable. 19 In the instant case, finding that the Appellate Authority has failed to apply its mind to certain vital and material aspect of the matter, there is no alternative but to quash and set aside its order. 15 wp 10102.10.doc 20 The impugned order dated 25th March, 2010 passed by the Employees’ Provident Funds Appellate Tribunal at New Delhi in Appeal No.806 (9) of 2007 is quashed and set aside. The Appeal is restored to the file of Appellate Authority for disposal afresh on merits in accordance with law. 21 The Appeal be disposed of as expeditiously as possible but after hearing both the sides. 22 All contentions of both sides are kept open. 23 It is to be noted that I have not expressed any final opinion on the grounds raised by Petitioner in their Appeal before Appellate Tribunal. The Appellate Authority is apprised only with the legal requirement to consider the objections raised by the petitioners before passing the order. 24 Rule is made absolute in above terms. 25 No order as to costs. (K.K.Tated, J.)