Page 1 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 5927 OF 2014

[Arising out of SLP(C) No.7704 of 2008]

MCLEOD RUSSEL INDIA LIMITED ….. APPELLANT

vs

REG. PROVIDENT FUND COMMISSIONER,

JALPAIGURI & ORS. ….. RESPONDENTS

J U D G M E N T

VIKRAMAJIT SEN,J.

1 Leave granted.

2 This Appeal assails the judgment of the Division Bench of the

High Court at Calcutta which had allowed the Appeal preferred against

the judgment of the learned Single Judge, who in turn had applied and

implemented the opinion of the Division Bench as expressed in

Darjeeling Dooars Plantation Ltd. vs Regional Provident Fund

Commissioner, 1995 ILLJ 939 Cal. In the impugned Order, the

present Division Bench had the advantage of perusing the view taken

by a Special Bench of three learned Judges of the Calcutta High Court

Page 2 2

in Dalgaon Agro Industries Ltd. vs Union of India, (2006) 1 CALLT

32 (HC), which was decided on 24.06.2005. The Special Bench was

constituted in view of a reference submitted by a Single Judge in Writ

Petition No. 16037(W), who had entertained an opinion which differed

with three earlier decisions rendered by Single Judges in three separate

matters. Along with the aforestated writ petition, an appeal pending

before a Division Bench against one of those Single Judge decisions

was also taken up by the Special Bench. In this Appeal, therefore, we

have primarily to consider whether the exposition of law by the Special

Bench in Dalgaon Agro Industries Ltd. is the logical and acceptable

view.

3 The factual matrix obtaining in the case at hand, succinctly

stated, is that M/s. Mathura Tea Estate, P.O. Mathura Bagan, District

Jalpaiguri, West Bengal, owned by Saroda Tea Company Ltd.,

indubitably an establishment covered by the Employees’ Provident

Funds and Miscellaneous Provisions Act, 1952 (‘the EPF Act’ for

brevity), had defaulted in remitting the contributions and

accumulations payable under the EPF Act and the sundry Schemes

formulated under that statute. It was in those circumstances that the

Regional Provident Fund Commissioner (‘RPF Commissioner’ for

Page 3 3

brevity), Jalpaiguri, West Bengal, had issued notices to M/s. Mathura

Tea Estate enabling it to show cause against the imposition of

‘damages’ as envisaged under Section 14B of the EPF Act. M/s.

Mathura Tea Estate requested for a waiver of damages, which request

came to be rejected on the predication that the said establishment was

neither a sick unit nor the subject of any scheme for rehabilitation

sanctioned by the Board for Industrial and Financial Reconstruction. In

the duration of those proceedings, the management of M/s. Mathura

Tea Estate under the erstwhile ownership of Saroda Tea Company Ltd.

was taken over by Eveready Industries (India) Ltd, which thereafter

discharged the liability of entire principal sum of Provident Fund dues

to the tune of Rs.75,76,000/- pertaining to the period prior to the

takeover in consonance with the Memorandum of Understanding

entered into between it and Saroda Tea Company Ltd. Significantly,

the said Memorandum of Understanding also included a clause to the

effect that any damages payable for the failure to deposit the dues and

accumulations under the EPF Act would be the exclusive liability of

Saroda Tea Company Ltd making it palpably evident that the appellant

was fully alive to this liability. It is in these premises that Eveready

Industries (India) Ltd. undauntedly contended before the RPF

Page 4 4

Commissioner, Jalpaiguri, in the event in futility, that proceedings

under Section 14B of the EPF Act against it were unjustified as it was

not the “employer” defined under Section 2(e) of the EPF Act, which

defaulted in paying contributions. The RPF Commissioner has

recorded that M/s. Mathura Tea Estate had defaulted in payment of

dues for the period from March, 1989 to February, 1998, which

assertion of fact is not in dispute. It held that on a conjoint reading of

Sections 14B and 17B of the EPF Act it was clear that damages under

Section 14B were recoverable jointly and severally from Saroda Tea

Company Ltd. as well as Eveready Industries (India) Ltd. After

tabulating the rates of damages, i.e. percentage of arrears per annum

depending on the period of default, damages were assessed at

Rs.70,37,950; and it was further directed that failure to deposit penal

damages within the stipulated period would attract the provisions of

Section 7Q of the EPF Act, thereby enhancing the liability to include

simple interest at the rate of 12 per cent per annum on the damages.

It was this Order of the RPF Commissioner that failed to find favour

with the learned Single Judge of the High Court at Calcutta, who set

aside the Commissioner’s Orders and directed the said Authority to

reconsider the issues within a period of three months. The learned

Page 5 5

Single Judge had drawn reliance from the ruling reported as The

Regional Provident Fund Commissioner, Mangalore vs Karnataka

Forest Plantations Corporation Ltd., Bangalore, 2000 (1) LLJ 1134,

which had ruled that on an interpretation of Section 17B the transferee

employer would be liable to pay all outstanding contributions even for

the period preceding the transfer, but it could not be fastened with

punitive liability for acts of omission or commission of the previous

employer for the period anterior to the transfer. It will bear reiteration

that in terms of the judgment of the Division Bench impugned before

us, the decision of the learned Single Judge in its own turn was

reversed on the application of the dictum of the Special Three-Judge

Bench in Dalgaon Agro Industries Ltd.

4 The Special Bench of the High Court of Calcutta in Dalgaon

Agro Industries Ltd. has rendered a detailed judgment on the

conundrum before us. Succinctly stated, the Special Bench has opined

that (a) the transferor and the transferee managements remain jointly

and severally liable under Sections 14B and 17B of the Act for all

sums due including damages; (b) the transferor’s indebtedness comes

to a halt on the date of the transfer but includes the sums computed

under both these Sections till the date of transfer; (c) the transfer does

Page 6 6

not bind either the employees or the Fund; (d) the transferee stands

cautioned by virtue of Sections 1(3) and 17B that the erstwhile as well

as the current employer remain responsible for liabilities under both

the Sections as a consequence of liability being that of the

establishment in question of which employers are merely fictional

representatives to facilitate recovery of dues; (e) recovery of any

amount due is protected under Section 11(2) of the Act, which grants

priority to the amount so due over all other debts under any other

statute as being the first charge on the assets of the establishment; (f)

the Act has innovated radical and effective modes of recovery as

evident from Sections 8B and 8F, which further reinforces the fact that

liability to pay dues is of the establishment recoverable through the

employer; (g) liability under Section 14B admits no waiver except as

provided; (h) damages could be recovered regardless of any reasonable

period of prescription; (i) the covenants in the Transfer Deed are

irrelevant for determination and recovery of dues and damages; and (j)

criminal liability would be attracted only in the event the outstandings

are not completely recovered.

5 For facility of reference, the relevant provisions of the EPF Act

are reproduced:-

Page 7 7

An Act to provide for the institution of provident funds,

pension fund and deposit-linked insurance fund for employees

in factories and other establishments.

Section 1(3) Subject to the provisions contained in section 16,

it applies -

(a) to every establishment which is a factory engaged in any

industry specified in Schedule I and in which twenty or more

persons are employed, and

(b) to any other establishment employing twenty or more

persons or class of such establishments which the Central

Government may, by notification in the Official Gazette,

specify in this behalf:

Provided that the Central Government may, after giving not

less than two months’ notice of its intention so to do, by

notification in the Official Gazette, apply the provisions of

this Act to any establishment employing such number of

persons less than twenty as may be specified in the

notification.

Section 2(e) “employer” means –

(i) in relation to an establishment which is a factory, the

owner or occupier of the factory, including the agent of such

owner or occupier, the legal representative of a deceased

owner or occupier and, where a person has been named as a

manager of the factory under clause (f) of sub-section (1) of

section 7 of the Factories Act, 1948 (63 of 1948), the person

so named; and

(ii) in relation to any other establishment, the person who, or

the authority which, has the ultimate control over the affairs

of the establishment, and where the said affairs are entrusted

to a manager, managing director or managing agent, such

manager, managing director or managing agent;

Section 7A. Determination of moneys due from employers.

– (1) The Central Provident Fund Commissioner, any

Additional Central Provident Fund Commissioner, any

Deputy Provident Fund Commissioner, any Regional

Provident Fund Commissioner or any Assistant Provident

Fund Commissioner may, by order, -

Page 8 8

(a) in a case where a dispute arises regarding the

applicability of this Act to an establishment, decide such

dispute; and

(b) determine the amount due from any employer under

any provision of this Act, the Scheme or the [Pension]

Scheme or the Insurance Scheme, as the case may be,

and for any of the aforesaid purposes may conduct such

inquiry as he may deem necessary.

Section 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.

Section 8. Mode of recovery of moneys due from

employers– Any amount due -

(a) from the employer in relation to an establishment to which

any Scheme or the Insurance Scheme applies in respect of any

contribution payable to the Fund or, as the case may be, the

Insurance Fund damages recoverable under section 14B,

accumulations required to be transferred under sub-section (2)

of section 15 or under sub-section (5) of section 17, or any

charges payable by him under any other provision of this Act

or of any provision of the Scheme or the Insurance Scheme;

or

(b) from the employer in relation to an exempted

establishment in respect of any damages recoverable under

section 14B or any charges payable by him to the appropriate

Government under any provision of this Act or under any of

the conditions specified under section 17 or in respect of the

contribution payable by him towards the Pension Scheme

under the said section 17,

may, if the amount is in arrear, be recovered in the manner

specified in sections 8B to 8G.

Page 9 9

Section 11(2) Without prejudice to the provisions of sub-

section (1), if any amount is due from an employer whether in

respect of the employee’s contribution deducted from the

wages of the employee or the employer’s contribution, the

amount so due shall be deemed to be the first charge on the

assets of the establishment, and shall, notwithstanding

anything contained in any other law for the time being force,

be paid in priority to all other debts.

Section 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 (1 of

1986), subject to such terms and conditions as may be

specified in the Scheme.

Section 17B. Liability in case of transfer of establishment -

Where an employer, in relation to an establishment, transfers

that establishment in whole or in part, by sale, gift, lease or

licence or in any other manner whatsoever, the employer and

Page 10 10

the person to whom the establishment is so transferred shall

jointly and severally be liable to pay the contribution and

other sums due from the employer under any provision of this

Act or the Scheme or the Pension Scheme or the Insurance

Scheme, as the case may be, in respect of the period up to the

date of such transfer:

Provided that the liability of the transferee shall be limited to

the value of the assets obtained by him by such transfer.”

6 We shall briefly discuss a decision of this Court namely, Sayaji

Mills Ltd. vs. Regional Provident Fund Commissioner, 1984 (Supp)

SCC 610, even though the questions before this Court are disparate in

quotient. The management/owners of the Sayaji Mills had contended

that since the factory had been purchased in 1955 in certain liquidation

proceedings and the period of three years had not elapsed from the date

of its establishment, the EPF Act would have no applicability to it

under unamended Section 16(1)(b) of the Act. This Court observed

that the statute is a beneficent legislation and any interpretation

facilitating the evasion of its provisions should be abjured, as

employers would “spare no ingenuity in seeking to deprive the

employees of all the benefits conferred upon them”; that the old

establishment should virtually have come to an end for the EPF Act to

apply afresh; and most significantly, that the said Act is made

applicable to the factory in contradistinction to its owner. Once this

Page 11 11

rationale is applied to the present conundrum, it becomes apparent that

the inter se covenants between the Eveready Industries (India) Ltd.

and the erstwhile owners viz. Saroda Tea Company Ltd. would not

insulate the former from the rigours of damages imposed by the EPF

Act. Damages must be calculated, it is plain, and be recovered by the

Authority in the most efficacious and convenient manner. This

decision, Sayaji Mills Ltd., was not brought to the notice of the

Division Bench of the Karnataka High Court in Karnataka Forest

Plantations Corporation Limited, otherwise it would not have

endeavoured to explore which party/employer was ‘guilty’ of the

infraction of the statutory provisions. The reasoning of the Karnataka

decision is evidently flawed and runs counter to the intendment of the

EPF Act as is crystal clear from a perusal of its Preamble (supra); and

manifests the ingenuity that employers may devise to circumvent

liability.

7 Mr. Jayant Bhushan, learned Senior Counsel for the Appellant

has sought sustainment for his submissions from Employees’ State

Insurance Corporation vs HMT Ltd. (2008) 3 SCC 35, but in our

consideration, in vain. In that case, the ESIC raised a claim for

deposit of interest on outstanding contributions of the management

Page 12 12

under the ESIC Act and the concerned Regulations, and in addition

thereto levied damages in terms of Section 85B of the Employees’

State Insurance Act, 1948 (‘ESIC Act’ for brevity). Section 85B of the

ESIC Act is essentially para materia Section 14B of the EPF Act, and

therefore this decision assumes great importance. The submission of

the HMT Management was that damages ought not to be levied, since

Section 85B was an enabling provision and did not intend to make levy

of damages mandatory. We shall reproduce for facility of reference

and comparison, the statutory provision of ESIC Act, 1948 to spotlight

the legal nodus with which we are presently engrossed –

85B. Power to recover damages. – (1) Where an employer

fails to pay the amount due in respect of any contribution or

any other amount payable under this Act, the Corporation may

recover from the employer by way of penalty such damages

not exceeding the amount of arrears as may be specified in the

regulations:

Provided that before recovering such damages, the employer

shall be given a reasonable opportunity of being heard:

Provided further that the Corporation may reduce or waive the

damages recoverable under this section in relation to an

establishment which is a sick industrial company in respect of

which a scheme of 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 (1 of 1986), subject to such terms and

conditions as may be specified in regulations.

(2) Any damages recoverable under sub-section (1) may be

recovered as an arrear of land revenue or under section 45C to

section 45-I.

Page 13 13

8 In HMT Ltd., this Court noted the beneficial nature of the ESIC

Act; that subordinate legislation must conform to the provisions of the

parent Act. Despite giving due regard to the use of the words “may

recover damages by way of penalty”, and mindful that mens rea and

actus reus to contravene a statutory provision are necessary ingredients

for levy of damages, this Court set aside the interference of the High

Court vis-à-vis the imposition of damages and further held that

imposition of damages by way of penalty was not mandated in each

and every case. The dispute was remitted back to the High Court for

fresh consideration, i.e. to proceed on the premise that the levy of

penalty under the Act was not a mere formality, a foregone conclusion

or an inexorable imposition; and that the circumstances surrounding

the failure to deposit the contribution of the employees concerned

would also have to be cogitated upon. This decision does not

prescribe that damages or penalties cannot or ought not to be imposed.

Further, the presence or absence of mens rea and/or actus reus would

be a determinative factor in imposing damages under Section 14B, as

also the quantum thereof since it is not inflexible that 100 per cent of

the arrears has to be imposed in all the cases. Alternatively stated, if

damages have been imposed under Section 14B it will be only logical

Page 14 14

that mens rea and/or actus reus was prevailing at the relevant time.

We may also note that this Court had yet again reiterated the well-

known but oft ignored principle that High Courts or any Appellate

Authority created by a statute should not substitute their perspective of

discretion on that of the lower Adjudicatory Authority if the impugned

Order does not otherwise manifest perversity in the process of decision

taking. HMT Ltd. does not proscribe imposition of damages; that

would negate the intent of the legislature. The submission of the

petitioner before us is that the liability was of the erstwhile

management and since the petitioner was not the “employer” at the

relevant time, default much less deliberate and wilful default on the

part of the petitioner was absent. However, it seems to us that once

these damages have been levied, the quantification and imposition

could be recovered from the party which has assumed the management

of the concerned establishment.

9 The Two-Judge Bench decision in Organo Chemical Industries

vs Union of India (1979) 4 SCC 573, makes compelling reading not

only because of the contrasting styles of two of our illustrious

predecessors; A.P. Sen J for his erudite, efficient and precise

exposition of the law and V.R. Krishna Iyer J for his elegance of

Page 15 15

expression and verve impregnated with humanism and compassion.

Organo involved a petition under Article 32 of the Constitution

challenging the Constitutional vires of Section 14B of the EPF Act.

The contention was that the default of the employer/establishment was

not wilful, rendering inappropriate the imposition of damages of a

penal nature; and since the computation of damages was left totally

unguided and untrammelled, violation of Article 14 was plainly and

expectedly obvious. The Court while upholding the Constitutional

validity of Section 14B held that the raison d’etre for the introduction

of Section 14B (by Act 40 of 1973) was to deter and thwart employers

from defaulting in forwarding contributions to the Funds, most often

with the ulterior motive of misutilizing not only their own but also the

employees’ contributions. Section 14B originally restricted damages to

25 per cent of the withheld amounts which, having been found to be

ineffectual for the attainment to the objectives of the Act, was

increased to a sum “not exceeding the amount of arrears”. This Court

also interred the division or dichotomy of opinions flowing from

differing decisions of different High Courts by clarifying that the word

‘damages’ has been employed in this dispensation to mean penalty on

recalcitrant employers as well as reparation for loss caused to the

Page 16 16

Fund. The Court stoutly repelled the contention that damages were

merely compensatory in nature and, therefore, should not exceed the

interest that would have accrued in favour of the Funds had the

contributions been diligently dispatched to the Funds. Organo has

been favourably followed in Babubhai & Co. vs. State of Gujarat

(1985) 2 SCC 732.

10There is no gainsaying that criminal liability remains steadfastly

fastened to the actual perpetrator and cannot be transferred by any

compact between persons or even by statute. But this incontrovertible

legal principle does not support or validate the contention of Mr.

Jayant Bhushan, Learned Senior Advocate for the Appellants, that

damages levied in terms of Section 14B of the EPF Act cannot be

foisted onto his clients. Sections 14, 14A, 14AA, 14AB and 14AC of

the EPF Act are the provisions postulating prosecution; in

contradistinction Section 14B contemplates the power to “recover from

the employer by way of penalty such damages, not exceeding the

amount of arrears, as may be specified in the Scheme”. It is true that it

is not a river but a mere rivulet that segregates and distinguishes the

legal concepts of damages or compensatory damages or exemplary

damages or deterrent damages or punitive damages or retributory

Page 17 17

damages. We shall abjure from writing a dissertation on this

compelling legal nodus; save to clarify that modern jurisprudence

recognizes that the imposition of punitive damages, quintessentially

quasi-criminal in character, can be resorted to even in civil proceedings

to deter wilful wrongdoing by making an admonished example of the

wrongdoer. This is the essential purpose, it seems to us, of Section

14B of the EPF Act, and an imposition within its confines does not

assume criminal prosecution so as to stand proscribed insofar as

transfer of establishment from one management/employer to its

successor is concerned.

11It has also been argued that damages as postulated in Section

14B would not be transferable under Section 17B. This argument has

to be stated only to be rejected for the reason that Section 17B

specifically speaks of “the contributions and other sums due from the

employer under any provision of this Act or the Scheme” (emphasis

added). The proviso to Section 17B indeed clarifies the position

inasmuch as it restricts and/or limits the liability of the transferee up to

the date of the transfer to the value of the assets obtained by him

through such transfer.

Page 18 18

12 We are also not impressed by the argument addressed by Mr.

Bhushan to the effect that damages under Section 14B are not jointly

and separately recoverable from the erstwhile and the present

managements under Section 17B as Section 14B moves in its own and

independent orbit. Several amendments have been made to the EPF

Act so far as the fasciculous of Sections 7A to Section 7Q is

concerned. This is also true of the pandect containing Sections 14A,

14AA, 14AB, 14AC, 14B and 14C; and for that matter Sections 17A,

17AA and 17B. Where such widespread amendments and changes are

incorporated in a statute, it is always salutary and advisable to

reposition the provisions and number them sequentially and logically.

The argument that the phrase “determination of amounts due from any

employer” is found in Section 7A as well as in Section 17B is not

factually correct. Section 17B speaks of “contributions and other

sums dues from the employer under any provision of this Act …….”;

the latter Section is, therefore, wider in ambit than the previous one. In

our opinion, Section 14B is complete in itself so far as the computation

of damages is concerned. It is conceivable that the money due from

an employer would have to be calculated under Section 7A, and in the

event the default or neglect of the employer is contumacious and

Page 19 19

contains the requisite mens rea and actus reus yet another exercise of

computation has to be undertaken under Section 14B. Where the

Authority is of the opinion that damages under Section 14B need to be

imposed, the computations would come within the purview of Section

14B and it would be recoverable jointly and severally from the

erstwhile as well as the current managements. A perusal of the

Appeals Section, namely, 7I is illustrative of the fact that these

exercises are distinct from each other as per the enumerations found in

the first sub-Section of Section 7I. It also appears logical to us, in the

wake of the numerous and different dates of amendments, that Section

7A(2) would also be available to proceedings under Section 14B of the

Act. The applicability of Civil Procedure Code, 1908 to proceedings

under Section 14B has not specifically been barred by the statute.

13 It is necessary to clarify that Eveready Industries (India) Ltd.

had in the interregnum of this litigation changed its name to Mcleod

Russel India Ltd. In view of our above analysis, it is our considered

opinion that the impugned Judgment deserves to be upheld. It

contains a detailed and logical exposition of facts as well as the law

pertaining to the present dispute. We also approve the pithy

observations of the RPF Commissioner, Jalpaiguri in the subject Order

Page 20 20

that failure on the part of the employers to make remittances of

accumulations and contributions, undermines the objectives and

purposes of the statute. We underscore that the liability of the Fund to

pay interest to subscribers regardless of whether employers have paid

their dues, runs relentlessly. The Commissioner has specifically

recorded that he has taken a lenient view in the matter and has

eschewed imposition of damages to the extent of 100 per cent of the

arrears even though this is envisaged by the EPF Act. The Appellant-

Petitioner has, in the circumstances of the case, been also rightly

burdened with the payment of interest under Section 7Q of the EPF

Act. Accordingly, the Appeal is dismissed and the interim Orders are

recalled. Although, it is our opinion that the Appeal is wholly devoid

of merit, we refrain from imposing costs.

............................................J.

[T.S. THAKUR]

............................................J.

[VIKRAMAJIT SEN]

New Delhi;

July 02, 2014.