Impact Of Supreme Court Ruling in Horticulture Experiment Station Gonikoppal, Coorg Vs The Regional Provident Fund Organisation on 14B Proceedings.
Section 14B of the Employees Provident Funds and Miscellaneous Provisos Act runs 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 provision of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under section 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf may recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard
Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, subject to such terms and conditions as may be specified in the Scheme (Underlining supplied)
The Above Section empowers EPF Organisation to impose damages by way of penalty where an employer makes default in payment of contributions to the Provident Fund or Pension Fund or the Insurance Fund or other dues. The word used is ‘may’. It means in all cases of delay damages need not be imposed. It is a discretionary power and it need not be invoked compulsorily in all cases of default.
It pertinent to note that Section 7Q of the EPF Act provides for levy of interest for delayed payment of various dues under the Act. The said Section is cited below for convenient reference
7Q. Interest payable by the employer>:-The employer shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment:
Provided that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank. (Underling supplied)
The above Section of the EPF Act obligates employers to pay interest in respect of delayed payment of various dues under the EPF Act. The word used is ‘shall’. It is compulsory and mandatory. So whenever there is delay, invariably, it will attract interest. There is no provision for hearing with regard to levy of interest and there is no scope of discretion on the part of EPF organisation in the matter. There is no provision for appeal against an order levying interest.
With regard to recovery of damages, the Section 14B provides that the employer shall be given reasonable opportunity of hearing in the matter. The employer can avail the opportunity and explain as to how the default or delay is occasioned and canvas for reduction or waiver of damages. The EPF organisation has discretion to modulate the quantum of damages depending on the facts and circumstances of the case.
Further, the order imposing damages is an appealable order and therefore an appeal can be filed against the said order.
It is mandatory that the damages by way of penalty shall not exceed the amount of arrears.
In Horticulture Experiment Station Gonikoppal, Coorg Vs The Regional Provident Fund Organisation, the Supreme Court laid down that since the damage under S.14B contemplates a civil offence, no mens rea is required. The Supreme Court relied on the two bench decisions in Chairman, SEBI vs. Sriram Mutual Fund & Anr and three bench decision in Director of Enforcement Vs. M/S Mctm Corporation Pvt. Ltd. to arrive at a conclusion that there is no need of mens rea as to invoke Section 14B of the EPF & MP Act. It is observed in SEBI case as follows:
“Under a close scrutiny of Section 15D(B) and 15E of the Act there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence we are of the view that ones the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary. Discretion has been exercised by the Adjudicating Officer as is evident from imposition of lesser penalty than what could have been imposed under these provisions etc..
It is settled law that when a penalty is imposed by Adjudicating Officer, it is done so in Adjudicatory Proceedings and not by way of fine as result of prosecution of an accused for commission of an offence in criminal proceedings...”
In view of the above it is manifest that there is discretion on the part of authority who invoking the jurisdiction under Section 14B of EPF & MP Act and depending upon the facts and circumstances of the case the damages can be waived or reduced exercising the discretion conferred upon him. Thus the ruling of Supreme Court in Horticulture Experiment Station Gonikoppal, Coorg Vs The Regional Provident Fund Organisation does not make the liability as to damages absolute. Even though the defence of the absence of mens rea cannot be pleaded in a proceedings under S.14B of the EPF Act, it is up to the employer to point out the mitigating circumstances and seek the relief of waiver or reduction of damages.