@JUDGMENTTAG-ORDER
K. Chandru, J.@mdashThe Petitioner Trust has filed the present writ petition, challenging an order passed by the Employees''Provident Fund Appellate Tribunal made in ATA No. 680(13)2008 dated 28.01.2011. The Tribunal heard the appeal filed by the Petitioner Trust at its camp sitting at Coimbatore and dismissed the appeal. Challenging the same, the writ petition came to be filed.
2. When the matter came up on 07.07.2011, this Court directed notice to be issued to the learned Standing Counsel for the second Respondent. Accordingly, Mr. K. Gunasekaran, learned Standing Counsel for the PF Department appears. He had also filed a counter affidavit dated 20.07.2011.
3. Heard the arguments of Ms. Narmadha Sampath, learned Counsel for the Petitioner and Mr. K. Gunasekaran, learned Standing Counsel for the second Respondent PF Department.
4. It is the stand of the Petitioner that the Trust was earlier exempted u/s 17(2-A) of the Employees'' Provident Funds and Miscellaneous Provisions Act, 1952 (for short PF Act) for the period from 01.04.1990 to 31.03.1993. Subsequently, during the year1994, the Trust had appointed staff on contract system and dispensed with the Provident Fund (for short PF) recovery with effect from 01.01.1994. The Trust had also sent a letter dated 02.06.1994 to the Department expressing their intention to close the account and settle the amount in respect of seven employees in whose case the PF amounts were deducted until then. It was also informed that the staff had opted to join the contract system to which the PF Act will not apply and they are voluntarily withdrawing the contribution towards PF. Subsequent to this, all the staffs employed directly by the Trust had got back their PF holdings.
4.a) Despite there being no employees having PF contribution, the Department was sending notices fromtime to time demanding PF contribution. The last such notice sent by the authorities was dated 09.09.1998. The Petitioner Trust sent a reply dated 11.11.1998. It was stated that the Petitioner Trust convened a meeting on27.10.2001, wherein it had decided to cover the staff working in Chennai and Ranchi offices under the PF Scheme and to recover 12% on Basic plus DA towards PF. When this decision was informed to the PF authorities, it was informed by them that the action of the Trust that there was a change in the policy since April 1994 was not in order and fresh coverage ignoring the earlier one was not possible. Thereafter, the Petitioner Trust under the understanding that their proposal was accepted remitted a sum of Rs. 23,66,593/-to the PF Department towards arrears for the period from April 1994 to December 2003and accordingly filed the returns. Even thereafter the Trust is continuing to file returns on time. They were also receiving the annual account slips up to the year2007-2008 from the Respondent and they are yet to receive the slips for the year 2008-2009 and 2009-2010. It was informed that due to computerisation, there was a delay.
4.b. In the mean while, the Petitioner Trust received a Show Cause Notice dated 09.07.2008 from the second Respondent asking the Petitioner to remit a sum of Rs. 17,55,569/- towards penal damages and Rs. 6,71,635/towards interest for the delayed payment of dues for the year 1994-1995 to 2004-2005. The Trust officials met the second Respondent on 23.07.2008 and explained their position. During the meeting, the second Respondent informed that he had no power to cancel the order and also informed that the Petitioner will have to approacheither the Appellate Tribunal at Delhi or the Central Board of Trustees, Delhi. The second Respondent had also issued proceedings dated 28.07.2008 demanding damages in terms of Section 14-B and interest u/s 7-Q of the PF Act. The damages worked out to Rs. 17,55,569/-and the interest worked out to Rs. 6,71,635/-.
4.c. Aggrieved by the levy of damages and interest, the Petitioner Trust preferred an appeal to the first Respondent Tribunal u/s 7-I of the PF Act. In the memo of appeal grounds, the Petitioner had stated that the Trust is a non-profitable organisation. Most of its employees were doing voluntary work on contract basis. They themselves had discontinued the coverage under the PF Act and that the impugned order came to be passed after a period of 14 years without considering their genuine hardship and difficulties. Along with the memo of appeal, they had also enclosed acopy of the Trust Deed dated 04.12.1992 as Annexure B.
5. The Tribunal took up the appeal as ATA No. 680(13)2008 and after due notice to the second Respondentheard the appeal in its Camp Sitting at Coimbatore. The appeal was rejected on the following grounds:
a. The applicability of the Act was not in dispute.
b. The term "Employee" includes an employee employed through a Contractor.
c. The dominant feature of the definition was that the person engaged by the contractor in connection with the work of the establishment are also employees of the Petitioner Trust.
d. Since the coverage u/s 7A of the Act was not in dispute, no further challenge can be made u/s 14-B of the Act. For this purpose, the Tribunal placed reliance upon the judgment of the Supreme Court in Amarjit Singh v. Devi Rattanam reported in 20101 SCC L&S 1108,wherein, it was held that challenging the consequential order without challenge to the basic order is not permissible. As no exemption under the Act was given, the Petitioner cannot seek any exemption under the Act.
6. After the dismissal of the appeal by an orderdated 28.01.2011, the second Respondent sent a notice interms of Section 8-F of the PF Act. Under the circumstances, the Petitioner had approached this Court.
7. Ms. Narmadha Sampath, learned Counsel for thePetitioner Trust contended that the persons who are undercontract of employment cannot be said to be an employeefor the purpose of the PF Act. Therefore, theRespondents were wrong in covering them under the Act. When the Trust voluntarily decided to cover the employees in view of the changed policy and had also paid arrearsin respect of their contribution, it would not be open tothe Respondent to demand damages and also interest on thealleged delayed payment. The delay is neither willfulnor wanton. The Petitioner Trust being a charitableorganisation should not be mulcted with such heavypayments. She had also produced the Activity Report 2010published by the Trust to show their nature ofactivities. She had also submitted that merely becausethey have not challenged the coverage and the subsequentpayment, that does not preclude them from challenging thecoverage when there is challenge made regarding levy ofdamages and interest u/s 14-B and Section 7-Q of the PF Act. Without prejudice to the said submission,she had submitted that since u/s 7-I of the PF Act, an appeal is maintainable against the order passedunder Section 14-B, the Tribunal ought to have consideredtheir appeal and should have given waiver of damages andinterest.
8. In the counter affidavit filed by the secondRespondent, it was stated that the Act provides anobligation on the part of the employer to deposit thecontributions payable for this month before the 15th of the next month. The Petitioner Trust came voluntarily for a coverage u/s 1(4) of the PF Act and havinggot themselves covered and if there is any delayedpayment, certainly, damages and interest for the delayedpayment can be levied. u/s 14B r/w Section 7-Q of the PF Act, it is also mandatory on the part of theRespondent to levy damages in case of delayed payment.
9. Before proceeding to deal with the merits ofthe rival contentions, it is necessary to look into theactivities of the Petitioner Trust which may have somebearing on the relief to be granted. The printed bookletcontaining the Activity Report 2010 (January-December) inits introductory remarks, reads as follows:
Introduction
Damien Foundation India Trust (DFIT) is aCharitable Non-Governmental Organisationinvolved in Leprosy and TB controlactivities in India supported by DamienFoundation Belgium. It offers Leprosy andTB related services either directlythrough its own projects or through localNGO projects. It is also involved in strengthening Leprosy and TB Control Programmes of the Government through various support activities like capacity building. The organisation started itschapter of leprosy control activities in avillage in South India in 1955, TB controlin 1996 and now covers a population of112,159,849 in 8 states. The maincharacter of Damien Foundation is thequality of services, which are deliveredin close partnership with the communityand the Government.
Damien Foundation India Trust supports 13 local Non Governmental Organisations (NGO)including 3 owned by DFIT for providingpatient care in the hospital and filed indefined populations in 7 states. Totalpopulation covered is 3,243,532. Inaddition, there are 38 DistrictConsultancy Teams each consisting of afield team of experienced medical and nonmedical personnel providing support to T Bcontrol done by the Government healthsystem. Total population covered by suchteams is 108916317. A total of 386 staffprovide patient care services (Leprosy andTuberculosis).
10. Thus, it is seen that the Trust is involvedin the eradication of Leprosy and Tuberculosis and theyare working in Tribal areas bordering Tamilnadu andKerala. These facts were very much within the knowledgeof the second Respondent. When the appeal was filedbefore the first Respondent, in the Annexure B, a copy ofthe Trust Deed was also enclosed and the Tribunal hadfailed to look into the activities of the PetitionerTrust before deciding the levy of damages. Certainly, thelevy of damages by the Respondent cannot be same inrespect of Non Profitable Organisations and that ofCommercial Organisations, which run on wholly profitmotive.
11. With reference to the contention raised byMs. Naramadha Sampath, learned Counsel for the PetitionerTrust that the persons engaged by them work on contract cannot be accepted in the light of the decision taken bythe Trust to cover the employees once again and had alsopaid the arrears of dues for the period from April 1994to December 2003. Therefore, the Tribunal was right instating that if there is a voluntary coverage and thereis no dispute about such coverage, the said questioncannot be reagitated in a challenge made towards therecovery of damages and interest. This leaves out thesecond question viz, whether the second Respondent wasjustified in levying damages and interest. As can beseen from the provisions of Section 7-I of the PF Act, anappeal is also available against the levy of damagesunder Section 14-B. Therefore, when the Petitioner Trusthad filed an appeal against the demand of damages, it isincumbent upon the Tribunal to have considered thatissue. A perusal of the order impugned in the writpetition does not show that there was any application ofmind on the part of the Tribunal on the said issue raisedby the Petitioner Trust. In fact, in the grounds ofappeal, the Petitioner Trust had stated that the Trustwas non-profit able charitable organisation and they havevoluntarily covered their employees in the Trust underthe PF Act and they have never given room for anycomplaint whatsoever in the past and the levy of damagesand interest was an erroneous act on the part of the second Respondent.
12. With reference to nature of power vested u/s 14B of the Act for levy of damages and the scope for levying such damages came to be considered elaborately in the judgment of the Supreme Court in
15. In Commr. of Coal Mines Provident Fund v. J.P. Lalla & Sons3, interpreting Section 10-F of the Coal Mines Provident Fund andBonus Scheme Act, 1948, it was stated bythis Court that by the use of the words "maylevy damages", in case of default in paymentof contribution, and the words "as it maythink fit to impose", it was clear that thedetermination was not based on theinflexible application of a rigid formulaand that by these words, the authoritieswere to apply their mind to the facts andcircumstances of the case. As a duty wasjudicially imposed on the authority,principles of natural justice were implied. In Organo Chemical Industries v. Union of India4 where the vires of the Act wereupheld, this Court laid down that whilepassing orders u/s 14-B, theauthority was acting in a "quasi-judicial"capacity and was bound to give reasons forits orders. The levy was not necessarily proportionate to the loss incurred by the employee inasmuch as it was partly compensatory and partly penal.
17. As to the manner in which theauthority concerned could arrive at the"damages", A.P. Sen, J. stated that theauthority usually takes into consideration, - as was done in that case - the number of defaults, the period ofdelay, the frequency of defaults and theamounts involved. The damages were to becompensatory and penal as well and henceprinciples of estimation of damages underthe law of contract or torts, were not applicable.
13. The Supreme Court ruled out that if there was any long delay in making the claim by the Department also cannot come to the rescue of the employer and there cannot be any limitation in such circumstances. In the very same judgment, in paragraphs 22, 24 and 25 these issues have also been dealt with:
22. The reason is that while in the abovecases decided by this Court the exerciseof powers by the authority at a verybelated stage was likely to result in thedeprivation of property which rightly andlawfully belonged to the person concerned,the position u/s 14-B of the Actof an employer is totally different. Theemployer who has defaulted in making overthe contributions to the Trust Fund had,on the other hand, the use of monies whichdid not belong to him at all. Such asituation cannot be compared to the aboveline of cases which involve prolongedsuspense in regard to deprivation ofproperty. In fact, in cases u/s 14-B if the Regional Provident FundCommissioner had made computations earlierand sent a demand immediately after theamounts fell due, the defaulter would nothave been able to use these monies for hisown purposes or for his business. In ouropinion, it does not lie in the mouth ofsuch a person to say that by reason ofdelay in the exercise of powers u/s 14-B, he has suffered loss. On the other hand, the defaulter has obviouslyhad the benefit of the "boon of delay"which "is so dear to debtors", as pointedout by the Privy Council in Nagendranath De v. Sureshchandra De10. In that case, itwas observed that equitable considerationswere out of place in matters of limitationand the strict grammatical constructionalone was the guide. Sir Dinshaw Mullastated:
Nor in such a case as this is thejudgment-debtor prejudiced. He mayindeed obtain the boon of delay,which is so dear to debtors, and ifhe is virtuously inclined there isnothing to prevent his paying whathe owes into court.
(emphasis supplied)
The position of the employer in case of default u/s 14-B is no different.
24. We shall now refer to the judgments ofsome of the High Courts to cull out somebroad guidelines. The Orissa High Court in Orissa Forest Development Corpn. Ltd. v. R.P.F. Commr.13 and a Single Judge of thePunjab & Haryana High Court in Amin Chand& Sons v. State of Punjab14 have held likethe Single Judge of the Bombay High Courtin K.T. Rolling Mills case11, that if therewas undue delay in initiating action underSection 14-B which the Court thought wasunreasonable, on that sole ground thedemand could be struck down. With greatrespect, this view is, as already stated,clearly wrong. The judgment of this Courtin K.T. Rolling Mills case12 having beenreversed by this Court, the above view isno longer good law. In fact, the Punjabjudgment was rightly reversed in appeal in State of Punjab v. Amin Chand & Sons15. Theview taken by the learned Single Judge ofthe Punjab & Haryana High Court in 1965has also been rightly dissented by theDelhi High Court in Birla Cotton Spg. & Wvg. Mills Ltd. v. Union of India16; by theGujarat High Court in Gandhidham case17;the Patna High Court in Inter StateTransport Agency v. R.P.F. Commr.18 and the Allahabad High Court in Northern India Press Works v. R.P.F. Commr.19
25. The Gujarat High Court in Gandhidham Spg. & Mfg. Co. Ltd. v. R.P.F. Commr.17 (towhich one of us Majmudar, J. was a party),laid down a principle that "prejudice" onaccount of delay could arise if it wasproved that it was "irretrievable". Thereit was observed that for purposes ofSection 14-B, there is no period oflimitation prescribed and that for anynegligence on the part of the Departmentin taking proceedings the employees, whoare third parties, cannot suffer. It wasfurther observed:
The only question that would reallysurvive is the one whether on thefacts and circumstances of a givencase, the show-cause notice issuedafter lapse of time can be said tobe issued beyond reasonable time. The test whether lapse of time isreasonable or not will depend uponthe further fact whether theemployer in the meantime has changedhis position to his detriment and islikely to be irretrievablyprejudiced by the belated issuanceof such a show-cause notice."
(emphasis supplied)
It was also stated that such a defence ofirretrievable prejudice on account ofdelay, was to be pleaded and proved in thereply to the show-cause notice. We may addthat if such a plea is rejected by theDepartment, it cannot be raised in theHigh Court unless specifically pleaded. The above principle of prejudice laid downby the Gujarat High Court in GandhidhamSpg. & Mfg. Co. Ltd.17 (Guj) has beenfollowed by the Bombay High Court in Saoner Taluka Ginning, Pressing and Dal Mill Prakriya v. R.P.F. Commr.20; Super Processors v. Union of India21.
14. The Supreme Court also held that if an employer wants relief, necessary pleadings must be raised before the Department and must be strictly proved as found in paragraph 26 of the same judgment, which is as follows:
26. A different aspect of prejudice wasreferred to in Sushma Fabrics (P) Ltd. v. Union of India22 by a learned Single Judgeof the Bombay High Court. It was statedthat in some cases there could be seriousprejudice on account of abnormal delay intaking proceedings u/s 14-B, either because the records or accounts ofthe defaulter are lost or on account ofthe personnel concerned acquainted withthe facts of a bygone period no longerbeing available for unearthing the facts. But such pleas must be raised before theDepartment and strictly proved. In casesuch facts are proved it is possible insome cases that there is irretrievableprejudice.
15. The judgment in Hindustan Times''s case (cited supra) came to be quoted with approval in the subsequent judgment in
4...... The High Court adverted to thedecision of this Court in Hindustan Times Ltd. v. Union of India1 to reach thisconclusion. In that case, this Courtexamined the scheme of the provisions ofthe Act in relation to delay in passing ofthe order. It was stated that the merefact that the proceedings are initiated ordemand for damages is made after severalyears cannot, by itself, be a ground fordrawing an inference of waiver or that theemployer was lulled into a belief that no proceedings u/s 14-B would betaken and mere delay in initiating suchaction cannot amount to prejudice inasmuchas such delay would result in allowing theemployer to use the monies for his ownpurposes or for his business especiallywhen there is no additional provision forcharging interest on such amount. However,the employer can claim prejudice if thereis proof that between the period ofdefault and the date of initiation ofaction u/s 14-B he has alteredhis position to his detriment to such anextent that if the recovery is made aftera large number of years, the prejudice tohim is of an irretrievable nature, andsuch prejudice can also be established bystating reason of non-availability ofrecords of the personnel by which evidenceit could be established that there wassome basis for delay in making thepayments. Therefore, this Court was of theopinion that such delay, by itself, wouldnot result in any prejudice. In thepresent case, the High Court found that nosuch prejudice was either pleaded orproved. Hence the first contention standsrejected.
16. At the same time, in the Streetlite Electric Case (cited supra), the Supreme Court also interfered with an order passed by the PF Authorities mechanically by levying damages u/s 14B of the Act based upon a Central Government''s circular. While setting aside the order passed by the authorities, the Supreme Court did not remit the matter for fresh consideration. On the other hand, on an overall consideration, the Court itself reduced the damages to 25% of the amounts claimed. In paragraph 5, the Supreme Court held as follows:
5. The second contention need not beexamined in the view we propose to take inthe matter. Even if we hold that theCentral Government instructions issuedunder Section 20 of the Act are notbinding on the Respondent, still inassessing the damages it will be necessaryfor us to take note of the manner in whichthe amounts of damages have been leviedand appropriately consider as to whatwould be the correct rate of damages to beimposed u/s 14-B of the Act. Thestatement of calculation prepared by theRespondent regarding delay in paymentsdiscloses that the Respondent has imposeddamages at different rates, for example,for the month of July 1976 the rate ofdamages is 50% whereas the period ofdefault is over a month, while in case ofDecember 1976 the damages imposed upon theAppellant are at the rate of 20% thoughthe period of delay is over two months, inthe case of delay for April 1988 damagesimposed are at the rate of 30% though theperiod of delay is only one month. Incertain cases, even for a delay of below15 days, like October 1977, damages at therate of 85% have been imposed, while foranother period though the delay is for sixmonths 65% damages have been levied. Therefore, it is not possible to discernthe rationale adopted by the Respondent inthe matter of imposition of penalty. Inthe circumstances, therefore, it wouldhave been appropriate for us to set asidethe order and remit the matter to theRespondent, but we do not think that suchan exercise is necessary after such a longperiod. In this case, the amount duetowards provident fund has already beendeposited and this Court, by order dated18-12-1998, granted an interim relief tothe extent of 75% of the amount of damagessought to be recovered, while out of thedisputed amount of damages (that is,Rs.88,731.25) 25% had already beendirected to be deposited. In that view of the matter, we think, it is appropriate toconfine the damages leviable in this caseon an overall consideration to the extentof 25% of the total damages imposed.
17. In this context, it is necessary to refer tothe second proviso to Section 14B of the PF Act wherein,the Central Board was given power to reduce or waive thedamages levied u/s 14B of the PF Act if it is asick industrial company and in respect of which a schemefor rehabilitation was sanctioned by the BIFR. Theparliament did not stop with giving power only to CentralPF Board alone in dealing with the question of damages. By the amendment introduced by the Central Act 33/1988also clothed the power on the EPF Tribunal to entertainappeals against the order levying damages u/s 14B of the Act. The Tribunal was not only given anappellate power but also u/s 7(2), it was alsoentrusted with the same power which are vested with theofficers u/s 7A of the PF Act. Further, underSection 7L(1) of the PF Act, the Tribunal has also beengiven power either to determine, modify or annul theorder appealed against. It can also refer the case backto the authority which passed the order for freshadjudication.
18. If it is seen in this context, it must beheld that the Tribunal has the power to go into allaspects of an appeal including the power to modify theorders passed by the authorities in levying damages. Thequestion in this writ petition is whether the Tribunalhad discharged its duty vested u/s 7-I of thePF Act?
19. In the present case, the Respondents have notstated any particular reason for levying damages at themaximum rate. On the other hand, they did not even takeinto account the nature of activities done by thePetitioner institution, especially the fact that theywere working for the eradication of leprosy in India andtaking care of the health of such patients and runningthe institution with public donations.
20. Once there is power vested with the Tribunalto grant relief and the Tribunal does not even addressthe issue even though, it was specifically raised beforeit, then the order of the Tribunal certainly calls forinterference by this Court. The decision relied on by theTribunal has no relevance to the case on hand. TheTribunal failed to note that there were two issues beforeit; one relating to the coverage and the second relating to the levy of damages and interest. Therefore, thequestion of any interim order getting merged with the final order as found in the decision cited in AmarjitSingh''s case (cited supra) has no relevance to the factson hand.
21. Though the second Respondent had taken astand that he had no power to grant waiver of damages andinterest and the parties must either approach theTribunal or Central Board of Trustees, the firstRespondent being an Appellate Authority, empowered toentertain the appeal u/s 7-I even against theorder passed u/s 14-B had not applied its mindand rendered proper findings on the levy of damages andinterest.
22. As to the scope of levy of damages and interest came to be considered by the Supreme Court in its decision in
25. The statute itself does not say that apenalty has to be levied only in themanner prescribed. It is also not a casewhere the authority is left with nodiscretion. The legislation does notprovide that adjudication for the purpose of levy of penalty proceeding would be amere formality or imposition of penalty asalso computation of the quantum thereofbecame 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 with the principles of natural justice is necessary thereunder.
26. Existence of mens rea or actus reus tocontravene a statutory provision must alsobe held to be a necessary ingredient forlevy of damages and/or the quantum thereof.
23. Further, as noted in the Hindustan Times''scase (cited supra), the second Respondent, though being aquasi-judicial authority failed to consider that the levyof damages and interest was not necessarily proportionateto the loss incurred by the employees.
24. In view of the above, the writ petitionstands allowed. The order of the Tribunal, dated28.01.2011 dismissing the appeal filed against the orderpassed by the second Respondent levying damages andinterest against the Petitioner Trust is set aside. Sincethe second Respondent recovered the amount in terms ofSection 8-F of the PF Act, the second Respondent ishereby directed to refund the amount of Rs. 24,27,204/-tothe Petitioner Trust within a period of four weeks. Theorder of attachment made in respect of the Petitioner Trust u/s 8-F of the PF Act dated 04.03.2011will also stand raised. However, there will be no orderas to costs. Consequently, connected miscellaneouspetitions are closed.
