HORTICULTURE EXPERIMENT STATION GONIKOPPAL, COORG VS THE REGIONAL PROVIDENT FUND ORGANIZATION

HORTICULTURE EXPERIMENT STATION GONIKOPPAL, COORG VS THE REGIONAL PROVIDENT FUND ORGANIZATION

REPORTABLE
IN THE SUPREME COURT OF INDIA
 CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL NO(S). 2136 OF 2012
HORTICULTURE EXPERIMENT STATION
GONIKOPPAL, COORG ….APPELLANT(S)
VERSUS
THE REGIONAL PROVIDENT FUND
ORGANIZATION ….RESPONDENT(S)
WITH
CIVIL APPEAL NO(S). 2121 OF 2012
WITH
CIVIL APPEAL NO(S). 2135 OF 2012
WITH
CIVIL APPEAL NO(S). 2141 OF 2012
J U D G M E N T
Rastogi, J.
1. The instant appeals are directed against the common
judgment and order dated 26th October, 2009 passed by the
Division Bench of the High Court of Karnataka at Bangalore.
2
2. That while setting aside the judgment of the learned Single
Judge dated 3rd February, 2009, it was observed that once the
employer has failed to deposit the contribution of EPF or
committed default as mandated under the provisions of the
Employees Provident Fund & Miscellaneous Provisions Act, 1952
(hereinafter referred to as the “Act 1952”), having failed to do so
after determination under Section 7A by the competent authority,
levy of damages is a sine qua non and upheld the order for recovery
of damages in the proceedings initiated under Section 14B of the
Act 1952.
3. The undisputed facts culled out from the record are that the
establishment of the appellant(s) is covered under the provisions
of the Act 1952. On 31st December, 1974, under Code no.KN/8573
under scheduled head “Fruit Orchards”, the appellant(s) failed to
comply with the provisions of Act 1952 from 1st January, 1975 to
31st October, 1988. For non-compliance of the mandate of Act
1952, proceedings were initiated under Section 7A and dues
towards contribution of EPF for the intervening period of 1st
January, 1975 to 31st October, 1988 amounting to Rs.74,288/-
were assessed by the competent authority and after adjudication,
that was paid by the appellant to the office of EPF. Thereafter, the
3
authorities issued a notice under Section 14B of the Act 1952 to
charge damages for the delayed payment of provident fund amount
which was levied for the period January 1978 to September, 1988
and called upon the appellant(s) to pay damages of Rs.85,548/-.
The High Court under the impugned judgment held that once the
default in payment of contribution is admitted, the damages as
being envisaged under Section 14B of the Act 1952 are
consequential and the employer is under an obligation to pay the
damages for delay in payment of contribution of EPF under Section
14B of the Act 1952, which is the subject matter of challenge in
the present appeals.
4. The Act 1952 is a legislation for providing social security to
the employees working in any establishment and engaging 20 or
more persons on any day and casts an obligation upon the
employer to make compulsory deduction for provident fund and to
deposit in the workers account in the EPF office. Similar is the
provision which is pari materia to recover damages under Section
85B of the Employees State Insurance Act, 1948(hereinafter being
referred to as the “Act 1948”) providing insurance and pensionary
benefits to the employees.
4
5. Section 14B of the Act 1952 which is pari materia to Section
85B of the Act, 1948 is reproduced hereunder:
“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 subsection (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.”
6. So far as the constitutional validity of Section 14B of the Act
1952 is concerned, the same has been upheld by the judgment of
this Court in Organo Chemical Industries and another v. Union
of India and others1.
7. Learned counsel for the appellant(s) submits that the
justification tendered by the appellant(s) for which the
1
(1979) 4 SCC 573
5
contribution of EPF could not have been deposited has not been
looked into by the authority and the element of mens rea or actus
reus is one of the essential elements which has not been taken note
of by the authority while imposing damages under Section 14B of
the Act 1952. In support of his submissions, counsel for the
appellant(s) has placed reliance on the judgments of this Court in
Employees State Insurance Corporation v. HMT Ltd. and
another2, Mcleod Russell India Ltd. v. Regional Provident
Fund Commissioner, Jalpaiguri and others3 and Assistant
Provident Fund Commissioner, EPFO and another v. The
Management of RSL Textiles India Private Limited through its
Director4.
8. Per contra, learned counsel for the respondent(s) in support
of submissions, submitted that mens rea is not an essential
element for imposing penalty for breach of civil obligations or
liabilities and mere contravention of the provisions of the Act or
default in making compliance of the mandate of law as regards the
civil liabilities are concerned, mens rea or actus reus is not the
requirement of law to be considered, while imposing damages like,
2
(2008) 3 SCC 35
3
(2014) 15 SCC 263
4
(2017) 3 SCC 110
6
in the instant case, under Section 14B of the Act 1952. In support
of submissions, learned counsel has placed reliance on a twoJudge Bench judgment in Chairman, SEBI v. Shriram Mutual
Fund and Another5 which has been relied upon by a three-Judge
Bench judgment of this Court in Union of India and Others v.
Dharmendra Textile Processors and others6.
9. The question that emerges for our consideration in the
instant appeals is that what will be the effect and implementation
of Section 14B of the Act 1952 and as to whether the breach of civil
obligations or liabilities committed by the employer is a sine qua
non for imposition of penalty/damages or the element of mens rea
or actus reus is one of the essential elements has a role to play and
the authority is under an obligation to examine the justification, if
any, being tendered while passing the order imposing damages
under the provisions of the Act 1952.
10. Undisputedly, the establishment of the appellant(s) was
covered under the provisions of the Act 1952, but still failed to
comply with the same and for such non-compliance of the mandate
of the Act 1952, initially the proceedings were initiated under
5
(2006) 5 SCC 361
6
(2008) 13 SCC 369
7
section 7A and after adjudication was made in reference to
contribution of the EPF which the appellant was under an
obligation to pay and for the contravention of the provisions of the
Act 1952, the appellant(s) indeed committed a breach of civil
obligations/liabilities and after compliance of the procedure
prescribed under the Act 1952 and for the delayed payment of EPF
contribution for the period January 1975 to October 1988, after
affording due opportunity of hearing as contemplated, order was
passed by the competent authority directing the appellant(s) to pay
damages as assessed in accordance with Section 14B of the Act
1952.
11. A two-Judge Bench of this Court in Chairman, SEBI (supra),
while examining the scope and ambit of Section 15-D of SEBI
(Mutual Funds) Regulations, 1996 regarding imposition of penalty
for certain defaults in case of mutual funds, examined the question
as to whether mens rea is an essential element for imposing
penalty for breach of civil obligations and taking note of the
binding precedent of this Court held that mens rea is not an
essential element for imposing penalty for breach of civil
obligations or liabilities. Relevant paras 33 and 35 of the judgment
are reproduced as under:
8
“33. This Court in a catena of decisions has held that mens rea is
not an essential element for imposing penalty for breach of civil
obligations:
(a) Director of Enforcement v. MCTM Corpn. (P) Ltd. [(1996) 2
SCC 471
“8. It is thus the breach of a ‘civil obligation’ which attracts ‘penalty’
under Section 23(1)(a), FERA, 1947 and a finding that the
delinquent has contravened the provisions of Section 10, FERA,
1947 that would immediately attract the levy of ‘penalty’ under
Section 23, irrespective of the fact whether the contravention was
made by the defaulter with any ‘guilty intention’ or not. Therefore,
unlike in a criminal case, where it is essential for the ‘prosecution’
to establish that the ‘accused’ had the necessary guilty intention or
in other words the requisite ‘mens rea’ to commit the alleged offence
with which he is charged before recording his conviction, the
obligation on the part of the Directorate of Enforcement, in cases of
contravention of the provisions of Section 10 of FERA, would be
discharged where it is shown that the ‘blameworthy conduct’ of the
delinquent had been established by wilful contravention by him of
the provisions of Section 10, FERA, 1947. It is the delinquency of
the defaulter itself which establishes his ‘blameworthy’ conduct,
attracting the provisions of Section 23(1)(a) of FERA, 1947 without
any further proof of the existence of ‘mens rea’. Even after an
adjudication by the authorities and levy of penalty under Section
23(1)(a) of FERA, 1947, the defaulter can still be tried and punished
for the commission of an offence under the penal law,….
***
12. In Corpus Juris Secundum, Vol. 85, at p. 580, para 1023, it
is stated thus:
‘A penalty imposed for a tax delinquency is a civil obligation,
remedial and coercive in its nature, and is far different from
the penalty for a crime or a fine or forfeiture provided as
punishment for the violation of criminal or penal laws.’
13. We are in agreement with the aforesaid view and in our opinion,
what applies to ‘tax delinquency’ equally holds good for the
‘blameworthy’ conduct for contravention of the provisions of FERA,
1947. We, therefore, hold that mens rea (as is understood in
criminal law) is not an essential ingredient for holding a delinquent
liable to pay penalty under Section 23(1)(a) of FERA, 1947 for
contravention of the provisions of Section 10 of FERA, 1947 and that
penalty is attracted under Section 23(1)(a) as soon as contravention
of the statutory obligation contemplated by Section 10(1)(a) is
established. The High Court apparently fell in error in treating the
‘blameworthy conduct’ under the Act as equivalent to the
commission of a ‘criminal offence’, overlooking the position that the
9
‘blameworthy conduct’ in the adjudicatory proceedings is
established by proof only of the breach of a civil obligation under the
Act, for which the defaulter is obliged to make amends by payment
of the penalty imposed under Section 23(1)(a) of the Act irrespective
of the fact whether he committed the breach with or without any
guilty intention.”
(emphasis in original)
(b) J.K. Industries Ltd. v. Chief Inspector of Factories and
Boilers (1996) 6 SCC 665
“42. The offences under the Act are not a part of general penal law
but arise from the breach of a duty provided in a special beneficial
social defence legislation, which creates absolute or strict liability
without proof of any mens rea. The offences are strict statutory
offences for which establishment of mens rea is not an essential
ingredient. The omission or commission of the statutory breach is
itself the offence. Similar type of offences based on the principle of
strict liability, which means liability without fault or mens rea, exist
in many statutes relating to economic crimes as well as in laws
concerning the industry, food adulteration, prevention of pollution,
etc. in India and abroad. ‘Absolute offences’ are not criminal offences
in any real sense but acts which are prohibited in the interest of
welfare of the public and the prohibition is backed by sanction of
penalty.”
(c) R.S. Joshi v. Ajit Mills Ltd. (1977) 4 SCC 98
“Even here we may reject the notion that a penalty or a punishment
cannot be cast in the form of an absolute or no-fault liability but
must be preceded by mens rea. The classical view that ‘no mens rea,
no crime’ has long ago been eroded and several laws in India and
abroad, especially regarding economic crimes and departmental
penalties, have created severe punishments even where the offences
have been defined to exclude mens rea. Therefore, the contention
that Section 37(1) fastens a heavy liability regardless of fault has no
force in depriving the forfeiture of the character of penalty.”
(d) Gujarat Travancore Agency v. CIT (1989) 3 SCC 52
“It is sufficient for us to refer to Section 271(1)(a), which provides
that a penalty may be imposed if the Income Tax Officer is satisfied
that any person has without reasonable cause failed to furnish the
return of total income, and to Section 276-C which provides that if
a person wilfully fails to furnish in due time the return of income
required under Section 139(1), he shall be punishable with rigorous
imprisonment for a term which may extend to one year or with fine.
It is clear that in the former case what is intended is a civil obligation
while in the latter what is imposed is a criminal sentence. There can
10
be no dispute that having regard to the provisions of Section 276-C,
which speaks of wilful failure on the part of the defaulter and taking
into consideration the nature of the penalty, which is punitive, no
sentence can be imposed under that provision unless the element of
mens rea is established. In most cases of criminal liability, the
intention of the legislature is that the penalty should serve as a
deterrent. The creation of an offence by statute proceeds on the
assumption that society suffers injury by the act or omission of the
defaulter and that a deterrent must be imposed to discourage the
repetition of the offence. In the case of a proceeding under Section
271(1)(a), however, it seems that the intention of the legislature is to
emphasise the fact of loss of revenue and to provide a remedy for
such loss, although no doubt an element of coercion is present in
the penalty. In this connection the terms in which the penalty falls
to be measured is significant. Unless there is something in the
language of the statute indicating the need to establish the element
of mens rea it is generally sufficient to prove that a default in
complying with the statute has occurred. In our opinion, there is
nothing in Section 271(1)(a) which requires that mens rea must be
proved before penalty can be levied under that provision.”
(e) Swedish Match AB v. SEBI (2004) 11 SCC 641
“The provisions of Section 15-H of the Act mandate that a penalty of
rupees twenty-five crores may be imposed. The Board does not have
any discretion in the matter and, thus, the adjudication proceeding
is a mere formality. Imposition of penalty upon the appellant would,
thus, be a forgone conclusion. Only in the criminal proceedings
initiated against the appellants, existence of mens rea on the part of
the appellants will come up for consideration.”
(f) SEBI v. Cabot International Capital Corpn. (2005) 123 Comp
Cas 841 (Bom)
“47. Thus, the following extracted principles are summarised:
(A) Mens rea is an essential or sine qua non for criminal
offence.
(B) A straitjacket formula of mens rea cannot be blindly
followed in each and every case. The scheme of a particular
statute may be diluted in a given case.
(C) If, from the scheme, object and words used in the statute,
it appears that the proceedings for imposition of the penalty
are adjudicatory in nature, in contradistinction to criminal or
quasi-criminal proceedings, the determination is of the breach
of the civil obligation by the offender. The word ‘penalty’ by
itself will not be determinative to conclude the nature of
11
proceedings being criminal or quasi-criminal. The relevant
considerations being the nature of the functions being
discharged by the authority and the determination of the
liability of the contravenor and the delinquency.
(D) Mens rea is not essential element for imposing penalty for
breach of civil obligations or liabilities.
(E) There can be two distinct liabilities, civil and criminal,
under the same Act.
***
52. The SEBI Act and the Regulations, are intended to regulate the
securities market and the related aspects, the imposition of penalty,
in the given facts and circumstances of the case, cannot be tested
on the ground of ‘no mens rea, no penalty’. For breaches of
provisions of the SEBI Act and Regulations, according to us, which
are civil in nature, mens rea is not essential. On particular facts and
circumstances of the case, proper exercise of judicial discretion is a
must, but not on foundation that mens rea is essential to impose
penalty in each and every breach of provisions of the SEBI Act.
***
54. However, we are not in agreement with the Appellate Authority
in respect of the reasoning given in regard to the necessity of mens
rea being essential for imposing the penalty. According to us, mens
rea is not essential for imposing civil penalties under the SEBI Act
and Regulations.”
(emphasis in original)
35. In our considered opinion, penalty is attracted as soon as the
contravention of the statutory obligation as contemplated by the Act
and the Regulations is established and hence the intention of the
parties committing such violation becomes wholly irrelevant. A
breach of civil obligation which attracts penalty in the nature of fine
under the provisions of the Act and the Regulations would
immediately attract the levy of penalty irrespective of the fact
whether contravention must be made by the defaulter with guilty
intention or not. We also further held that unless the language of
the statute indicates the need to establish the presence of mens rea,
it is wholly unnecessary to ascertain whether such a violation was
intentional or not. On a careful perusal of Section 15-D(b) and
Section 15-E of the Act, there is nothing which requires that mens
rea must be proved before penalty can be imposed under these
provisions. Hence once the contravention is established then the
penalty is to follow.”
[Emphasis Supplied]
12
12. The three-Judge Bench of this Court in Union of India v.
Dharmendra Textile Processors and others (supra) while
examining the scope and ambit of Section 271(1)(c) of the Income
Tax Act, 1961 held that as far as the penalty inflicted under the
provisions is a civil liability is concerned, mens rea or actus reus is
not an essential element for imposing civil penalties and overruled
the two-Judge Bench judgment in Dilip N. Shroff v. Joint
Commissioner of Income Tax, Mumbai and Another7 and
approved the view expressed by a two-Judge Bench of this Court
in Chairman, SEBI (supra) and held in paras 18 and 20 as under:
“18. The Explanations appended to Section 271(1)(c) of the IT Act
entirely indicates the element of strict liability on the assessee for
concealment or for giving inaccurate particulars while filing return.
The judgment in Dilip N. Shroff case [(2007) 6 SCC 329] has not
considered the effect and relevance of Section 276-C of the IT Act.
Object behind enactment of Section 271(1)(c) read with Explanations
indicate that the said section has been enacted to provide for a
remedy for loss of revenue. The penalty under that provision is a
civil liability. Wilful concealment is not an essential ingredient for
attracting civil liability as is the case in the matter of prosecution
under Section 276-C of the IT Act.
20. Above being the position, the plea that Rules 96-ZQ and 96-ZO
have a concept of discretion inbuilt cannot be sustained. Dilip Shroff
case [(2007) 6 SCC 329] was not correctly decided but SEBI
case [(2006) 5 SCC 361] has analysed the legal position in the
correct perspectives. The reference is answered. The matter shall
now be placed before the Division Bench to deal with the matter in
the light of what has been stated above, only so far as the cases
where challenge to vires of Rule 967-Q(5) are concerned. In all other
cases the orders of the High Court or the Tribunal, as the case may
be, are quashed and the matter remitted to it for disposal in the light
of present judgments. Appeals except Civil Appeals Nos. 3397 &
7
(2007) 6 SCC 329
13
3398-99 of 2003, 4096 of 2004, 3388 & 5277 of 2006, 4316, 4317,
675 and 1420 of 2007 and appeal relating to SLP (C) No. 21751 of
2007 are allowed and the excepted appeals shall now be placed
before the Division Bench for disposal.”
13. Taking note of the exposition of law on the subject, it is wellsettled that mens rea or actus reus is not an essential element for
imposing penalty or damages for breach of civil obligations and
liabilities.
14. The judgment on which the learned counsel for the
appellant(s) has placed reliance i.e. Employees State Insurance
Corporation(supra), the Division Bench in ignorance of the settled
judicial binding precedent of which a detailed reference has been
made, while examining the scope and ambit of Section 85B of the
Employees State Insurance Corporation Act, 1948 which is pari
materia to Section 14B of the Act 1952 placing reliance on the
judgment of Division Bench of this Court in Dilip N. Shroff (supra)
held that for the breach of civil obligations/liabilities, existence of
mens rea or actus reus to be a necessary ingredient for levy of
damages and/or the quantum thereof.
15. It may be noticed that Dilip N. Shroff(supra) on which
reliance was placed has been overruled by this Court in Union of
India and Others v. Dharmendra Textile Processors and
14
others (supra). For the aforesaid reasons, the view expressed by
this Court in Employees State Insurance Corporation (supra)
may not be of binding precedent on the subject and of no
assistance to the appellant(s).
16. Learned counsel for the appellant(s) further placed reliance
on the judgment of this Court in Mcleod Russell India Ltd.
(supra), wherein the question emerged for consideration was as to
whether the damages which has been charged under Section 14B
of the Act 1952 would be recoverable jointly or severally from the
erstwhile as well as the current managements. At the same time,
the judgment relied upon in Assistant Provident Fund
Commissioner, EPFO and Another (supra) was decided placing
reliance on the judgment of this Court in Mcleod Russell India
Ltd. (supra), which may not be of any assistance to the
appellant(s).
17. Taking note of three-Judge Bench judgment of this Court in
Union of India and Others v. Dharmendra Textile Processors
and others (supra), which is indeed binding on us, we are of the
considered view that any default or delay in the payment of EPF
contribution by the employer under the Act is a sine qua non for
imposition of levy of damages under Section 14B of the Act 1952
15
and mens rea or actus reus is not an essential element for imposing
penalty/damages for breach of civil obligations/liabilities.
18. We find no substance in the appeals and the same are
accordingly dismissed.
19. Pending application(s), if any, stand disposed of.
…………………………….J.
(AJAY RASTOGI)
……………………………J.
(ABHAY S. OKA)
NEW DELHI
FEBRUARY 23, 2022.

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