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:

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“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

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‘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

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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

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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]

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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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