In the matter of Manuel Mohandas v. the Assistant Provident Fund, [WP(C). No. 2633 of 2011(D) decided on June 11, 2020], lodged in the Kerala High Court
KERALA HIGH COURT DECIDES UPON WHETHER THE PROVIDENT FUND DEPARTMENT CAN PROCEED AGAINST A PRESENT OCCUPIER OF AN ESTABLISHMENT BASIS PRIOR DUES OWED BY SUCH AN ESTABLISHMENT.
Karma Global is in the business of establishment and vendor compliance management. It has hundreds of elite domestic clients on its excellent service dispensing list. The expert staff on its roll deals with thousands of regulatory compliance acts on a Pan India basis, some of the acts being state-specific while others are enacted by the Central Government.
Karma Management has now become Karma Management Global Consulting Solutions Pvt. Ltd. which was incorporated in the year 2004 and has now completed almost 18 years of its existence.
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Since then, it has already made its mark in terms of providing excellent services in the areas of payroll, outsourcing, recruitment and talent acquisition, regulatory compliance, and advisory.
Karma Global handles the payroll-related compliances for over hundreds of clients viz. PF, ESI, PT, and LWF right from eligibility, registration, contributions and challans, inquiries and proceedings, penalties and interest/damages, summons and arrest warrants, defaults and streamlining of the back wages contributions and future processes of contributions, protection against attachment, transfer of accounts and liabilities.
In this blog, Karma Global takes the case of Manuel Mohandas as a study for benefit of all stakeholders so as to share knowledge and is a shining example of how the case was dealt with, in Court.
Background of the Case
THE EMPLOYEES’ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952
The Constitution of India under “Directive Principles of State Policy” provides that the State shall within the limits of its economic capacity make effective provisions for securing the right to work, education, and to public assistance in cases of unemployment, old-age, sickness & disablement and undeserved want.
The Employees’ Provident Fund Organization (EPFO) is a statutory body of the Government of India under the Ministry of Labour and Employment. It administers a compulsory contributory Provident Fund Scheme, Pension Scheme, and Insurance Scheme. It is one of the largest provident fund institutions in the world in terms of members and volume of financial transactions that it has been carrying on.
Facts of the case:
The petitioner in this particular case was an employer under a lease agreement in respect of the establishment for a period commencing from September 15, 2006, till October 23, 2007. A demand notice was issued by the provident fund department in respect of provident fund arrears for the period commencing from November 2005 to December 2006, and ultimately, the determination was made for the period from April 2004 to February 2008.
The petitioner challenged such determination by contending that as he was not an employer during the entire period from April 2004 to February 2008 demanded in the notice, his liability to pay the contribution was limited to only for the period covered by lease and not be personally liable for effecting payment for the period not covered by the lease.
Issue:
The issues which arose before the High Court of Kerala were:
a. the extent of liability of the petitioner with respect to the establishment in relation to the past dues; and
b. the validity of the review order passed under Section 7B of the EPF Act, which made the petitioner liable beyond the period covered in the notice issued under Section 7A of the EPF Act.
A decision by the court:
The High Court observed that pursuant to Section 14B (‘Power to recover damage’) read with Section 17B (‘Liability in case of transfer of establishment’) of the EPF Act, the Provident Fund Authority has the right to proceed against the establishment for any dues, without being required to choose the employer from whom the amount is to be recovered.
However, the court recognized that a person could not be saddled with any personal liability in respect of the past dues and held that, if the petitioner is forced to pay for any period which pertained to past dues, the remedy of the petitioner would be to pay and recover it from the person who is actually liable.
Thus, the court held that the Provident Fund Authority was well within its competence to proceed against the assets of the establishment in accordance with law for any recovery impugned order, although the petitioner could not be saddled with any personal liability in respect of the period not covered by the lease.
In relation to the second issue, the court further held that the determination under Section 7A cannot go beyond the period which was not mentioned in the demand notice. However, it recognized the authority’s power to cover any other period, subject to a fresh notice being issued in this regard.
Just for sharing whether proceedings under Section 7A of the EPF Act are quasi-judicial in nature?
In the matter of the Central Board of Trustees, Employees’ Provident Fund Organisation v. Sastha Enterprises, [W.P.(C) No. 17077 of 2015 (H) decided on July 17, 2020], the Kerala High Court held that, the proceedings under Section 7A (Determination of money due from employers) of the EPF Act are quasi-judicial in nature and that a statutory obligation is cast upon the regional provident fund commissioner to conduct a detailed fact-finding inquiry to arrive at a conclusion with regard to the liability and obligation of an employer.
JUDGMENT
Dated this the 11th day of June 2020
- This writ petition was filed challenging fastening liability on the petitioner for provident fund dues.
- The petitioner was issued with Ext.P1 notice dated 02.11.2007 passed by the respondent under Section 7A of the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (for short, ‘EPF & MP Act’) demanding provident fund arrears for the period from November 2005 to December 2006.
- The petitioner admittedly was an employer under a lease agreement in respect of the establishment for a period from 15.09.2006 till 23.10.2007. The petitioner filed a review petition, invoking Section 7B of the EPF & MP Act, stating that he was not an employer during the entire period demanded in Ext.P1 notice. The review petition was dismissed. While dismissing the review petition, it was observed that the petitioner is also having liabilities up to February 2008. By challenging this order, the petitioner approached this Court
- There are two points to be considered. One is regarding the liability of the petitioner and other is regarding the order passed under Section 7B by fastening the liability to the petitioner beyond the period covered in Ext.P1 notice issued under Section 7A of the EPF & MP Act.
- i. The petitioner’s case is that he is not an employer for the entire period demanded in Ext.P1 notice. In as much as that, it is only from 15.09.2006 to 23.10.2007. The petitioner further submitted that for the entire period covered by the lease, he had remitted the contribution. The petitioner would be liable to pay the contribution for the period covered by the lease. He is not personally liable for effecting payment for the period not covered by the lease. However, the Provident Fund Authority can very well proceed against the establishment of any dues. This is so clear from Section 14B read with Section 17B of the EPF Act. If the petitioner is forced to pay for any period which is not covered by the lease period, the remedy of the petitioner is to pay and recover it from the person who is actually liable. The Provident Fund Authority cannot be directed to choose the employer when there is any default committed in respect of the establishment. Therefore, the petitioner cannot question the demand raised except objecting to the same saying that he is not personally liable for the period not covered by the lease. Thus, the impugned order is affirmed making it clear that the petitioner cannot be saddled with any personal liability in respect of the period not covered by the lease. However, the EPF Authority is well within its competence to proceed against the assets of the establishment in accordance with the law for any recovery.
The petitioner has a case that the determination under Section 7A of the EPF Act was not in accordance with the notice preceded by the order. Ext.P1 is the said notice. As per Ext.P1 notice, demand was raised only for the period from November 2005 to December 2006. However, the determination as made covers the period from April 2004 to February 2008.
The petitioner has a case that the impugned order is passed without giving an opportunity to him to raise his objection.
This appears to be correct. Ext.P1 notice only shows that the demand is for a period from November 2005 to December 2006.
5. In such circumstances, the determination cannot go beyond the period which was not mentioned in the notice. Accordingly, the order is modified confining to the period from November 2005 to December 2006. If the provident fund Authority intends to cover any other period mentioned in
Ext.P3 order, they are free to do so by issuing a fresh notice to the petitioner or the employer.
With the observations and interference as above, the writ petition is disposed of.
Sd/-
A.MUHAMED MUSTAQUE
JUDGE
Conclusion
As said above, Karma Management Global Consulting Solutions Pvt. Ltd. which is a keeper of all laws and regulations on behalf of the clients whose compliance services it handles, is also of the strongest opinion that in our country as well, legislations are made for the benefit of all the stakeholders, be it the employers or the employees and therefore, the same has to adhere within the strongest sense of its functionalities or face action at the hands of the authorities.
In some of the other cases as well, the Courts have always gone by the containment of the respect Acts after thoroughly probing the definitions and the rules, based on which the judgment is delivered by the Hon’ble Courts.
In the matter of Loyal Textile Mills Limited v. Regional Provident Fund Commissioner, [W.P.(MD). No.12922 of 2017 decided on July 28, 2020], the Madras High Court held that the object of levying damages under Section 14B (Power to recover damages) of the EPF Act is to penalize the wilful default of an employer in making a contribution. Thus, men’s rea is an essential ingredient for the levy of damages under Section 14B of the EPF Act. Therefore, damages cannot be levied in cases where the wilful default of the employer cannot be established, since men’s rea of the employer cannot be discerned.
Notably, in the matter of Employees Provident Fund Organisation v. Parison Estates and Industries Private Limited, [W.P.(C). No. 23922 of 2014(M) decided on July 28, 2020], the Kerala High Court had also held that men’s rea is a determinative factor while imposing damages under Section 14B (Power to recover damages) of the EPF Act.
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