ORGANO CHEMICAL INDUSTRIES & ANR. v. UNION OF INDIA & ORS (2)

Citation: [1980] 1 S.C.R. 61

Court: Supreme Court of India

Bench: V.R. KRISHNA IYER, A.P. SEN

Case summary

The section is not bad, though action under th'e section can be challenged in writ jurisdiction when infirmities which a.

Judgment text

ORGANO CHEMICAL INDUSTRIES & ANR. ' v. UNION OF INDIA & ORS. July 23, 1979 (V. R. KRISHNA IYER AND A. P. SEN, JJ. ] • ,) Employees Provident Fund and Miscellaneous Provisions Aot 1952-S. 14B and Constitution of India 1950, Art. 14-Power to recover darnages- Absence of appellate review-Whether violates Art. 14-Damages whether to be credited to general revenues of State. Words & Phrases-'Dan1ages' meaning of-En1ployees Providenl Fund and Miscellaneous Provisions-· Act 1952-S. 14B. lnterpreta! ion of Statutes-A policy orientation interpretation necessary for a welfare legislation-Each word, phrase or sentence to be considered in the light of general purpose of the Act. The Provident rund Act 1952 as originally cinactcd provided for the insti- )) tution of compulsory provident fund f0r employees in factories and other establishments. Under s. 4 of the Act the Central Government framed the EmPloyees Provident Fund Scheme, 1952 and s.

6 of the Act enjoined on every 'employer to make contributions to the Fund. Section 14 of the Act provided penalties for breach of the provisions of the Act viz. , failure to pay contributions, failure to submit necessary returns etc. , and the penalties extended to various t'erms of imprisonment extending upto 6 months or with fine upto Rs. 1000/-. The Act was a. mended by Parliament by Act XVI of 1971 and it was reentitled as the "Employees Provident Fund and Miscellaneous Provisions Act, 1952". The 2. mending Act inserted s. 6A in the Act for the establishment of the Family Pension Fund, and in exercise of its powers the Central Government ~reated the Family Pension Scheme, 1971 and para 9 of th'e S-cheme created a Family Pension Fund and provided that from 2 -- The National Commission on Labour, reoommended that in order to check the growth of arrears, penalties for defa. ult in payment of provid'ent fund dues should be more stringent and that the default should be made cognizable.

This view was endorsed by the Estimates Committe'e in its 116th Report to the P·arliament. Actordingly, the Act was further amended by Act No. 40 of 1973, and the words "twenty five per cent" were omitted from s. 14B and I the words "not ·exceeding the amount of arrears" were substituted. The employer a. chemical industry failed to deposit the amount of Provi- ' 'c. , dent Fund and Family Pension Scheme dues with the Provident Fund Commissioner. The Regional Provident Fu\1d Commisiion'er after issuing a showcause notice to the employer, imposed a penalty which \Vas equivalent to the amount pay a wealth of implications and Iimita· 1ions, sufficient to serve as guideline in fixing the impost. The conceptual limitations of 'damages' serve as guideline and barricade the exercise. The Commissioner cannot award anything more than or unrelated to 'damages'. "Nor can he go beyond 10070 of the f! mount defaulted.

Such limitations without further guidelines are not uncommon in taxing laws to penalise -Oefaults and suppressions. [73B, H. 74A] C. l. T. , M. P. v. Radhakrishan, l1979} ,2 SCC 249; P. l'/. Kouslial v. . Union >-of India, etc. , [19781 3 SCC 558; referred to. 9. The expression 'damages' is neither vague nor over~wid·e. Its precise import in a given context is \lot difficult to dis. cern. A plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent U damages, continuing damages, double damages, excessive dc. mages, exemplary damages, general damages, irreparable dama. ges, p·ecuniary damages, pros~ t pective damages, special damages, speculative damages, substa~1tial damages, >..... unliquidated damages.. But the essentials are (a) detrin1ent to one by the wrong doing of another, (b) repar and thereby· to prevent employees from making defaults.

The intention in increasing the quantum of da. mages, namely, "not exceeding the amount of arrears" is to invest the Regional Provident Fund Commissioner with power to impose such damages so that the employer would not find it E profitable to make defaults in making payments. [82D-G] • 2. The \VOrd "damag'es'' in Section 14Il of the Employees Provident Funds anJ ~Iisce! laneous Provi .... The word "damages" in section 14B is related to the word "default". The words u! Cd in section 14B are "default in the payment of contribution'' and. therefore the word "d'efault" must be construed in the light of Para 36 of the Employees' Provident Fund Scheme, 1952, which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word "defa. ult" in section 14B must mean "failure in performance" or "failure to act". At the saime time the imposition of damages u/s 14B is to provide reparation for the amount of loss :-;uffered by employees.

And this is in accord with the intent and purpose of the legislation. [87H-88B] 5. In assessing the damages, the Regional Provident Fund Commissioner is not only bound to take into account the los:-; to the beneficiaries, but also the default by the employ'er in . making his contributions, which occasioned the infliction of damages. The entire amount of damages awarded under section 14B, except for the amount relata. ble to administrative charge'lo, must nec'essarily be transferred to the Employees' Provident Fund and the Family Pension Fund. The employees would g'et damages commensurate with their Joss i. e. the amount of interest on delayed payments, but the remaining amount would go to augma1t the 'Fund' constituted under section 5, for implementing the • scheme of the Act. [89G-90A] 6.

Sectioo 14B of the Act does not confer unguided or uncontrolled dis· cretion upon the Regional Provident Fund Commissioner to impo9e such damages "as he may think fit", and, is, therefore, not violative of Article 14 of the Constitution. [83G] It cannot be said that there are no guidelines provided for fixing the quantum of damages. The guidelines are provided in the Act and its various provisions, particularly in the word "damages" the liability for- which under Section- 14B arises on the 'making of default". The word "damages" in Section 14B Jays down s. ufficient guidelines for the Regional Provident Fund C·ommissioner to levy damages. [83G-84B] ; 7. The power of Regional Provident Fund Commissioner to impose damages • under section 14B is quasi-judicial function. It must be ex'ercised after notice. to the defaulter and after giving him a reasonable opportunity of being hen. rd.

The discretion to award damages could be exercis'ed within the limits fixed by the statute, by taking into conmderatlon various factors, namely, the number of defaults, the period of delay, the frequ'et. 1cy of defaults and the amount involved. Having regard to the punitive nature of the power exercisable under Section 14B and the consequences that ensu'e therefrom, an order under Section 14B must be a "speaking order" containing the reasons in support of it. [83H-84A] ORGANO CHEMICAL INDUSTRIES· V. UNION 67 '\ Con1missioner of Coal Mines Provident Fund, Dhanbad v, J. Lalla & Sons, & [1976] 3 S. C. R. 365; referred to. 8. 1Jere absence of provision for am appeal in the Employees Provident Fund and Miscellaneous Provisions Act, 1952 does not imply that the Regional Provident Fund Commissioner, is invested with arbitrary or uncontrolled power, without any guidelines. [85B] • The conferral of power to award damages under section 14B is to ensure ~} the success of the measure.

It is dependent on existenice of certain facts, there has to be an objective determination, not subjective. [85C] The Regiona. 1 Provid'ent Fund Commiooicner has not only to apply his mind to the requirements of Section 14B but is cast with the duty of making speaking order after conforming to the rules of natural justice. [85C] The absence of a provision for ap:peal or revision can be of no cons'equence. Where the discretion to apply the provisic~s of a particular statute is left with the Government or one of the highest officers, it will b'e presumed that the dis~ cretion vested in such a high authority will not be abused. The Government or such authority is in a position to have all the relevant and nec'essary information in relation to each kind of establishment, the nature of defaults made D· by the employ~r and the necessity to decid'e whether the damages to be imposed should be exemplary or not.

When the power has to be exercised by one of the highest officers, the fact that no appeal has be'en provided for "is matter of no moment". There is always a presumption that public officials would discharge, their duties honestly and in accordance with the rules of law. [85G, D-F] Mohammad Ali and Ors. v. Union of India and Anr. , [1963] Suppl. 1 SCR 993; K. L. Gupta v, Bombay Municipal Corporation, [1968] 1 SCR 274; Chintr~linga1n and Ors. v. Govt. of India and Ors. [1971] 2 SCR 871 and Pannalal Birijraj v. Union of India. [1957} SCR 233; follo\ved. 9. In the instant case, the petitioners are guilty of suppressio vcri for deliberate concealment of facto;; pertaining to the earlier defaults and the attendant levy of dan1ages under s. 14B. The petitioners instead of m - • Is the imposition by the 'speaking order' of the Regional Provident· • Fund Commissioner, Chandigarh, of a heavy penalty of Rs. 94,996. 80 by way of damages under Sec. 14B of the E. P. F. and M. P.

Act 1952 upon the writ petitioners-employers, for chronic and unjustified defaults in remittances of the provident fund contributions of themselves and their employees legally sustainable, if obviously in excess of the pecuniary loss of interest attributable to the non-payment. Briefly and broadly and lopping off aspects unnecessary for this case the scheme of the Act is that each employer and employee in every 'establishment' falling within the Act do contribute (1) See Foot~note 49 in Law and Politics by Robert Stevens ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J. ) 69 into a statutory fund a titll! c, viz. 6t % of the wages to swell into large Fund wherewith the workers who toil to produce the nation's wealth during their physically fit span of life may be provided some retiral benefit which will 'keep the pot boiling' and some source wherefrom loans to face unforseen needs may be obtained.

This social security measure is a humane homage the State pays to Articles 39 and 41 of the Co_nstitution. The viability of the project depends on the 'employer duly deducting the workers' contribution from their wages, adding his own little and promptly depositing the mickle into the chest consti- hears and decides. Under such circumstances the needs of the factual situation and the legal milieu are such that the absence of appellate review in no way militates against the justice and reasonableness of the provision. The argument of arbitrariness on this score is untenable. The section is not bad. Maybe, action under the section may be challenged in writ jurisdiction provided infirmities which attract such jurisdiction vitiate the order. The bogie of absence of guidelines in the provision and consequen- + tial possibility of the authority running berserk or acting hubristicaUy does not frighten.

Of course, the more bereft of explicit guidelines a statutory power is, the more searching must be the judicial invigilation • .. to discover hidden injustice and masked mala fides. Even so, let us examine the ground that, ·absent detailed guidelines, the Jaw is void. What is not explicit may still be implicit. What is not articulated at length may be spun out from a single phrase. What is not transparent in particularised provisions may be immanent in the preamble, scheme; purpose or subject-matter of the Act: What is real is not only the gross but also the subtle, if I may strike a deeper note. Such a pers- ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J. ) 7 3 pective dispels the submission that s. 14B is bad as uncircumscribed and over-broad. • The power under the Section permits award of 'damages' and that word has a wealth of implications and ! imitations, sufficient to serve as guideli11e in fixing the impost.

In Arvinder Singh's case(') this Court upheld au otherwise unbridled power to Jevy tax by importing a B variety of factors gathered from the statute and relied on many prece- J dents. Likewise, in Radhakrishan's case (2) this Court rejected the plea that a power in the Commissioner to choose one of the two remedies was invalid in the absence of guidelines and observed, on a review of the case-law: "When power is conferred on high and responsible officers they are expected to act with caution and impartiality while discharging their duties and the circumstances under which they will choose either of the remedies available should be left to them. The vesting of discretionary power in the state or public authorities or an officer of high standing i; treated as a guarantee that the power will be used fairly and with a sense of responsibility. It has been held by the Privy Cowi. cil in Provl'nce of 3 Bombay v.

Bombay Municipal Corporation ( ), that every statute must be supposed to be for public good at least in intention and therefore of few Jaws can it oo said that the law confers unfettered discretionary power since the policy of law offers guidance for the exercise of discretionary power". Although our democratic ethos is incongruous with the assumptio~ that highly paid officials are more responsible than low-paid minions, the jurisprudence of power must be applied workably and not untouched by reality. More to the point is the decision in Kaushal's case('). There this Court accepted the submission that the seemingly naked power under Sec. 59 of the Punjab Excise Act was guided by the requirement that it was to be exercised for control of consumption of intoxicants. (The whole scheme of the statute proclaims its purpose of control in time and space and otherwise observed the Court). Here the conceptual limitations of 'damages' serve as guideline and barricade (I) [1979] I S. C. C. 137.

(2) [1979] 2 s. c. c. 249. (3) 73 I. A. 271: AIR 1947 P. C. 34. (4) [IJ73] 3 s. c. c. 558. the exercise. The Commissioner cannot award anything more than or unrelated to 'damages'. Nor can he go beyond 100% of the • amount defaulted. Such limitations without further guidelines are not uncommon in taxing laws to penalise defaults and suppressions. > What do we mean by 'damages' ? The expression 'damages' is • neither vague nor over-wide. It has more than one signification but the precise import in a given context is 'not difficult to discern. A • plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent damages, continuing damages, double damages, excessive damages, exemplary damages, groeral damages, irreparable damages, pecuniary damages, prospective damages, special damages, speculative damages, substantial damages, unliquidated damages.

But the essentials are (a) detriment to one by the wrong-doing of another (b) raparation awarded to the injured through legal remedies and (c) its quantum being determined by the dual components of pecuniary compensatiO'Jl for the loss suffered and often, not always, a punitive addition as a deterrent- of the statutory requirements of s. 6, but at the same time it is meant • to provide compensation or redress to the beneficiaries i. e. to recompe'nce the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the Joss which is caused to the beneficiaries under the Schemes. The word R 'damages' in s. 14B is related to the word 'default'. The words used in s. 14B are 'default in the payment o!

contribution' and therefore ' ' 7-475 SCI/79 • the word 'default' must be construed in the light of Para 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month a'nd, therefore, the word 'default' in s. 14B must mean 'failure in performance' or 'failure to act. ' At the same time, the imposition of damages u/s 14B is to pro" vide reparation for the amount of loss suffered by the employees. • The construction that we have placed on the word 'damages' appearing ins. 14B of the Act, is in accord with the intent and purpose of the Legislation. It was brought o'n the statute book by Act 37 of 1953, the objects and reasons so far material, read :- "There are also certain administrative difficulties to be ' . c set right. There is no provision for ins~ction of exempted factories nor is there any provision for the recowry of dues from such factories. An employer . . .

can delay payment of Provident Fund dues without any additional financial liability. Na punishment has been laid down for contravention of some of the provisions of the Act. " (Emphasis sup- "D plied). The object and purpose of the section is to authorise the Regional Provident Fund Commissioner to impose exemplary or punitiw damages a'nd thereby prevent employers from making defaults. The provision for imposition of damages at twenty-five per cent of the amount of arrear, however, did not prove to be effective. Accordingly, by Act 40 of 1973, the words 'not exceeding the amount of arrear' wore substituted, for the words 'twenty·five per cent'. The necessity for making this change is brought out in the objects and reasons, a material pqrtion of which reads :- "STATEMENT OF OBJECTS AND REASONS (Act 40 of 1973) The working of the Employees' Provide.

~t Fund and Family Pension Fund Act, 1952 and the Employees' Provident Fund Scheme has revealed that the present provisions of the Act and the Scheme are not effective in preventing defaults in payment of contributions to the Employees Provi- ·G dent Fund or in recovery of the dues on that account. The , result is that the amount of Provident Fund arrears recover- • able from the employers has been streadily increasing. In 1959-60, the arrears which amounted to Rs. 3. 65 crores, rose to Rs. 5. 96 crores as on the 31st March 1967. The ·H arrears stood at Rs. 14. 6 crores on 31st March, 1970 and they have been rise'n to Rs. 20. 65 crores as on the 31st March, 1972. • ORGANO CHEMICAL INDUSTRIES v. UNION (Sen, J. ) 8. 9 2. The National Commission on Labour has recommended that in order to check the growth of arrears, penalties for defaults in payment of Provident Fund dues should be made more stringent and that the default should be made ·cognizable.

In its ll6th Report presented to Parliament in April 1970, the Estimates Committee has endorsed the recommendations made by the National Commission on Labour and has further suggested that Government should .. . consider the feasibility of providing compulsory imprison- , ' ment for certain offonces under the Act. Accordingly, it is . , proposed to amend the Act so as to render the penal provisions more stringent and to make defaults cognizable offences. Provision is also being made for compuh;ory imprisonment in cases of non-payment of contributions and administration or inspection charges. As recommended by the Estimates Committee, a further provision is being made to enable levy of damages equal to the amount of arrears from a defaulting employer. " (Emphasis supplied). '. Each word, phrase or sentence is to b~ considered in the light of general purpose of the Act itself.

A bare mechanical interpretation of the words devoid of concept or purpose will reduce most of legislation to futility. It is a salutary rule, well established, that the inten- _, tion of the legislature must be found by reading the statute as whole. rnere. appears to be a misconception that the object of impositi0n ·O. f penalty under s. 14B is not 'to provide compensation for the employoes' whose interest may be i'njured, by loss of interest and the like. There is also a misconception that the damages imposed under ~. 14B are not transferred to the Employees' Provident Fund and the Family Pension Fund, of the employees who may be adversely affected. but the amount is transferred to the General Revenues of the appropriate Government. We find that this assumption is wholly unwarranted.

In assessing the damages, the Regional Provident Fund • Commissioner is not only bound to take into account the loss to the • beneficiaries but also the default by the employer in making his contributions, which occasions the infliction of damages. The learned Additional Solicitor General was fair enough to concede that the entire amount of damages awarded under s. 14B, except for the amount relatable to administrative charges, must necessarily be transferred to R the Employees' Provident Fund and the Family Pension Fund. We hope that those charged with administering the Act will keep this in A view while allocating the damages under s. 14B of the Act to differen• heads. The employees would, of course, get damages co=ensurate with their loss i. e. , the amount of interest on delayed payments; but the remaining amount should go to augment the 'Fund' constituted under s. 5, for implementing the Scheme under the Act.

II The result, therefore, is that this writ petition fails and is dismissed. with costs. N. V. K. Petition dismissed. •