ROMA HENNY SECURITY SERVICES PVT. LTD. vs. CENTRAL BOARD OF TRUSTEES, E.P.F.

(Full Bench)
* IN THE HIGH COURT OF DELHI AT NEW DELHI
W.P.(C) 831 OF 2012

Judgments Reserved on: 24.8.2012.
% Judgment Delivered on:12.09.2012


ROMA HENNY SECURITY SERVICES PVT. LTD. . . . PETITIONER

Through : Mr. S.P. Arora, Advocate.

VERSUS

CENTRAL BOARD OF TRUSTEES, E.P.F.
ORGANIZATION THROUGH ASSISTANT
P.F. COMMISSIONER, DELHI (NORTH) … RESPONDENT

Through: Ms. Aparna Bhat, with Ms. Raj
Kumari Banju, Advocates.

CORAM :-

HON’BLE THE ACTING CHIEF JUSTICE
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
HON’BLE MR. JUSTICE RAJIV SHAKDHER

A.K. SIKRI, ACTING CHIEF JUSTICE:


1. Vide orders dated 13.7.2012 the Division Bench referred the matter
for determination of question of law, which arises in this petition, by a

W.P.(C) 831/2012 Page 1 of 16


Larger Bench. The reason for reference of the matter to the Larger Bench
was the judgment given by the earlier Division Bench in the case of M/S
System and Stampings and Anr. Vs. Employees’ Provident Fund Appellate
Tribunal and Ors. 2008 LLR 485. It was argued by the respondents that
certain facts/provisions could not be pointed out to the Division Bench and
had that position been there before the Court, it would have changed the
direction of the judgment. The Division Bench felt that in case the stand of
the respondent is accepted, that would result in taking contrary view to the
view taken by the Division Bench in M/S System and Stampings (supra),
and for this reason, it would be appropriate if the matter is referred to the
Larger Bench for determination. The facts are stated in detail in the
reference order dated 13.7.2012. However, for complete understanding of
the issue at hand, it would be necessary to re-visit those facts and
incorporate in the present order, which we now proceed to do.

2. The petitioner is an establishment engaged in supplies of manpower
for the purposes of security and surveillance to different establishments and
is covered by the provisions of the PF Act. It is allotted Code Number DL-
27506. It appears that the petitioner had not paid provident fund contribution
and other contribution including administrative charges payable under
different provisions of the said Act in time and because of this late payment
the Assistant Provident Fund Commissioner initiated proceedings for
recovery of damages under Section 14-B of the Act. These proceedings

W.P.(C) 831/2012 Page 2 of 16


culminated in passing of order dated 26.11.2010 holding that the
establishment had failed to pay, within prescribed time limit:-
(i) The Provident Fund contribution;
(ii) The Employees‟ Pension contribution;
(iii) The Insurance Fund contribution; and
(iv) The Administrative charges For the
period from 06/99 to 06/04, 03/05 to
05/05, 07/05 to 01/07, 05/07 to 08/08,
10/08, 10/08.

3. For this reason, damages in the sum of ` 7,10,989/- were imposed
under Section 14-B of the Act; details of which are as under:-
For the period from 06/99 to 06/04, 03/05 to 05/05, 07/05 to 08/08,
10/08, 10/08 totalling ` 710989/- be recovered as per the account wise
schedule indicted below from the employer in relation to M/s Roma Henny
Security Services Pvt. Ltd. bearing code No. DL/27506:
Nature of damages Amount Account No.
P.F. contributions ` 165371/- 1
Administrative Charges ` 60889/ 2
FPF/EPS contributions ` 456578/- 10
EDLI contributions ` 27610/- 21
EDLI administrative charges ` 541/- 22
`
Total 710989/-
( ` Seven Lac Ten Thousand Nine Hundred Eighty Nine only)

W.P.(C) 831/2012 Page 3 of 16




4. The order further indicated that the petitioner was also liable to remit
a sum of ` 4,53,886/- towards interest payable under Section 7-Q of the PF
Act @ 12% p.a. which provisions come into force vide notification dated
30.06.1997. The account wise detail of the amount payable towards Section
7-Q of the PF Act was furnished as follows:-
Nature of interest Amount Account No.
P.F. contributions ` 105249/- 1
`
Administrative charges 38918/- 2
FPF/EPs contributions ` 291705/- 10
EDLI contributions ` 17654/- 21
EDLI administrative charges ` 360/- 22
Total ` 4,53,886/-
The petitioner paid the amount of damages of ` 7,10,989/- vide cheque
No. 632192 dated 28.12.2010. By a separate letter of even date, the
petitioner disputed the liability of interest under Section 7-Q of the Act on
the ground that this amount had already been included in the amount of
damages calculated by the respondent. The respondent however, did not
accept this plea and issued attachment orders under Section 8F of the PF Act
and attached the current account of the petitioner and by this process
recovered a sum of ` 4,53,886/- on 3.2.2011. The petitioner protested against

W.P.(C) 831/2012 Page 4 of 16


this recovery vide his representation dated 12.2.2011 drawing the attention
of the Division Bench judgment of this Court in the case of M/S System
and Stampings (supra) which was upheld by the Supreme Court, as the
SLP thereagainst was dismissed in limine . However, this did not have any
effect on the respondent who made a further recovery of ` 13775.00 under
Section 7-Q of the PF Act on account of late payment of ` 4,53,886.00.
It is under these circumstances, the petitioner has preferred the instant
petition.

5. From the aforesaid, it would be clear that the case of the petitioner is
that once damages under Section 14-B of the Act are recovered, there
cannot be any payment of interest under Section 7-Q of the Act as the
interest component is already included in the damages imposed under
Section 14-B of the Act. The challenge to recovery is thus, laid on the
following basis:-
(a)The amount of interest payable under Section 7Q
of the Act is already stand included in the slab in
damages prescribed by the respondent under Section
14B of the PF Act as specifically held by this Court
in M/s System and Stampings (supra).

(b)The respondent does not have any statutory power
to charge and calculate any amount of interest under
Section 7Q of the Act as the said section is not a
charging section and there is no provision in the Act
for recovery of the amount of interest calculated
under this provision. It is submitted that provision of
Section 8 and 8-B to 8-G relating to recovery do

W.P.(C) 831/2012 Page 5 of 16


not provide for recovery by any throaty and charge
under Section 7Q of the Act.

6. In support of the first proposition namely interest payable under
Section 7-Q of the Act stands included in the slab in damages prescribed by
the respondent under Section 14-B of the Act, Mr. Arora, learned counsel for
the petitioner has relied upon M/S System and Stampings (supra) and in
that case the Division Bench has referred to Office Memorandum dated
29.5.1990 which reads as under:-

W.P.(C) 831/2012 Page 6 of 16

7. From the aforesaid the Division Bench concluded that the rates of
damages were revised payable under Section 14 B of the PF Act by
including the payment of simple interest @ 12 p.a. payable under Section 7-
Q of the PF Act. On that basis, the Court held that no additional interest
under Section 7Q of the PF Act was payable once the damages were paid
under Section 14B of the Act. The contention of the Provident Fund
Department to the contrary was turned down observing as under:-

“6. The circular dated 29.5.1990 provides that all
defaulters thereafter shall be liable to pay interest at
the rate specified in column 1, that is, from 5 to 25
per cent depending upon the period of default as
damages under section 14B of the Act. The
defaulters in addition are liable to pay interest
chargeable under Section 7Q of the Act at the rate
nd
of 12 per cent per annum as mentioned in the 2
column. The rates mentioned in column 3 of the
circular is the sum total of column nos. 1 and 2.
The total amount varies between 17 to 37 per cent
per annum depending upon the period of default.
Thus, for default of less than two months, the

W.P.(C) 831/2012 Page 7 of 16


defaulter becomes liable to pay damages at the rate
of 5 per cent per annum under section 14B and also
interest under Section 7Q of the Act at the rate of
12 per cent per annum. Therefore, the defaulter
becomes liable to pay damages under Section 14B
and interest under section 7Q at the rate of 17 per
cent per annum. This is less than the original rate
of damages of 25 per cent per annum as it existed
before the circular dated 29.5.1990 was issued.
Similarly, for defaults between two months less
than four months the defaulter becomes liable to
pay damages at the rate of 10 per cent per annum
under Section 14B and interest at the rate of 12 per
cent per annum under section 7Q after 1.7.1997 or
22 per cent in all. For defaults of more than four
months but less than six months each defaulter
becomes liable to pay interest and damages at the
rate of 27 per cent per annum and in defaults of
over six months interest and damages at the rate of
37 percent per annum. Thus for defaults beyond 4
months the amount payable increased from the flat
rate of 25% per annum.

7. The stand of the respondent, however, is that
even after 1.7.1997 the defaulter is liable to pay
“Total” mentioned in column 3 as well as interest at
the rate of 12 per cent per annum under section 7Q
of the Act or 29%, 34%, 39% and 49% for the
respective periods of default. This stand of the
respondents cannot be accepted as it is contrary to
their own circular dated 29.5.1990. As per the
respondent, defaulter will be made to pay interest
under Section 7Q at the rate of 12 per cent even
when he has paid damages as per the rate
mentioned in column 3 which includes interest

W.P.(C) 831/2012 Page 8 of 16


under Section 7Q. Thus, he will pay interest under
Section 7Q twice. It is clear from the circular that
once interest is chargeable under Section 7Q of the
Act, the defaulter should be asked to pay damages
as per the percentage specified in column 1, that is,
between 5 to 25 per cent per annum depending
upon the period of default. The third column
mentions the total of the revised rate of damages
and interest chargeable under Section 7Q. Column
3 cannot be regarded as rate of damages after
1.7.1997, when interest became payable under
section 7Q of the Act”.


8. It is an admitted case that Special Leave Petition was filed against this
order and the Supreme Court dismissed the same on the ground of limitation
as well as on merits vide order dated 16.7.2009.

9. Mr. Arora also referred to the judgment of the Supreme Court in
Organo Chemical Industries and Anr. Vs. Union of India and Ors. AIR
1979 SC 1803 . In that case the vires of Section 14-B of the Act was
challenged, inter alia, on the ground that Section 14-B of the Act was
unbridled and unguided power to the authority to impose damages and in
the absence of guidelines in the provision, it was arbitrary in nature. It was
also argued that though the purpose behind this provision was to impose
damages which is compensatory in character and could not exceed the
interest on the amount defaulted during the period of delay. But the
respondents had gone beyond the mere quantum of interest and were

W.P.(C) 831/2012 Page 9 of 16


levying/imposing damages making it penal in character. Rejecting these
contentions, the Court took the view that „damages‟ as imposed by Section
14-B of the Act included a punitive sum as well. Submission of Mr. Arora
was that while explaining the expression „damages‟ contemplated under
Section 14-B of the Act, the Court made it clear that there was a twin
purpose behind Section 14-B of the Act namely to impose penalty as well as
provide compensation for the employees by claiming interest. He thus
submitted that this judgment is an indicator that provisions of Section 14-B
of the Act include interest element as well. Specific reference was made to
the following observations in this behalf:-
“The expression 'damages' occurring in
Section 14B is, in substance, a penalty imposed
on the employer for the breach of the statutory
obligation. The object of imposition of penalty
Under Section 14B is not merely to provide
compensation for the employees'. We are
clearly of the opinion that the imposition of
damages Under Section 14B serves both the
purposes. It is meant to penalise defaulting
employer as also to provide reparation for the
amount of loss suffered by the employees. It is
not only a warning to employers in general not to
commit a breach of the statutory requirements of
Section 6, but at the same time it is meant to
provide compensation or redress to the
beneficiaries i.e. to recompense the employees for
the loss sustained by them. There is nothing in the
section to show that the damages must bear
relationship to the loss which is caused to the
beneficiaries under the Schemes. The word

W.P.(C) 831/2012 Page 10 of 16


'damages' in Section 14B is related to the word
'default'. The words used in Section 14B are
'default in the payment of contribution' and,
therefore, 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 and,
therefore, the word 'default' in Section 14B must
mean 'failure in performance' ,or 'failure to act.'
At the same time; the imposition of damages
under Section 14B is to provide reparation for the
amount of loss suffered by the employees.”

10. The argument of learned counsel for the respondent, on the other
hand, was same which was before the Division Bench and noted in order
dated 13.7.2012. To recapitulate, it was argued that Section 7Q of the PF
Act was introduced in the year 1997 which prescribes payment of interest
on the late damages of the provident contribution. It was argued that unlike
Section 14B of the PF Act which provides for damages, this provision is
compensatory in nature and there is no need to provide any adjudication or
give any hearing. The legislative intent was that as soon as any amount
becomes due, interest will accumulate automatically till such time the
amount is paid. The submission was that insofar as judgment in M/s System
and Stamping (supra) is concerned, the subsequent circulars were not taken
into account which would have clarified the position and resulting into
different consequences. Explaining the circumstances in which the office
memorandum (taken note of by the Court in the aforesaid judgment) was
issued, the respondent states that a proposal was forwarded from the Central

W.P.(C) 831/2012 Page 11 of 16


Provident Fund Commissioner proposing certain modifications in Section
14B of the PF Act more particularly in relation to the rates of damages
prescribed under para 32A of the scheme. This was a mere proposal which
was apparently also accepted by the Board of Trustees but it was not
accepted by the Ministry as amendments to the law was not made in line
with the proposal. At that time, neither para 32 as mentioned in paragraph 6
hereinabove nor section 7Q had come into force though it was introduced.
Section 7-Q of the Act was made effective only in July 1997. That in 1997
by virtue of an amendment in the law, section 7Q got introduced. She
referred to the clarificatory Circular dated 12.9.1997 precisely on this aspect
which made it abundantly clear that provisions of Section 7-Q of the Act
were different from Section 14-B and the table stipulating the damages for
default did not include interest element. She also submitted that the
observations of the Supreme Court in Organo Chemicals Industries & Anr.
( supra) , as relied upon by the petitioner, were totally out of context, insofar
as present case is concerned and were of no avail to the petitioner.

11. We have deliberated upon the aforesaid submission of counsel on
either side.

12. It is not in dispute that if the judgment of M/s System and Stamping
(supra) is to be followed, the case is covered in favour of the petitioner.
However, we find substance in the submission of learned counsel for the
respondent that in the said judgment the Division Bench entirely rest upon

W.P.(C) 831/2012 Page 12 of 16


the Office Memorandum dated 29.5.1990 on the basis of which the Bench
came to the conclusion that interest element chargeable under Section 7-Q of
the Act was included in the table prescribing damages payable under Section
14-B of the Act. As we will demonstrate hereinafter, there were various
other subsequent Circulars which were not taken into account. In the first
instance, it needs to be pointed out that the Office Memorandum referred to
by the Division Bench was dated 29.5.1990. It was issued at the time when
Section 7-Q was not made effective. Pertinently, this provision was
introduced in the Act in the year 1988 but was made effective only from
1.7.1997. Since the provision was not in force as on 29.5.1990, it appears
that by that mechanism which was applied administratively was to include
the component of interest while imposing the damages under Section 14-B
of the Act. However, the position changed after Section 7-Q of the Act was
in force w.e.f. 1.7.1997. The interest on delayed contribution of provident
fund became payable statutorily. While this was so, the aforesaid table
continued to operate which has now been modified and replaced by the
another table made effective from 26.9.2008 and the rates of damages as per
the revised table are as under:-

W.P.(C) 831/2012 Page 13 of 16

13. It is clear from the above that w.e.f. 26.9.2008 the damages under
Section 14-B of the Act are charged on the aforesaid basis which would
show, for example if the period of default is less than two months, the
damages payable are 5%. However, the table which was governing upto this
date and is noted in the judgment of M/s System and Stamping (supra), the
damages for the period of default of less than two months were 17%. Same
is the position in respect of other periods of default when the two tables are
kept in juxtaposition it would clearly revealed that the damages are now
reduced by 12% at every stage meaning thereby component of interest
under Section 7-Q is now removed. The comparison of the aforesaid two
would show that upto 26.9.2008 the earlier table continue to govern which
included the element of interest under Section 7-Q of the Act. From
26.9.2008 onwards, however the two are segregated. This would clearly
bolster the stand of the petitioner that if the earlier table is applied which
was so done, interest payable under Section 7-Q of the Act was already
included.


W.P.(C) 831/2012 Page 14 of 16


14. In the present case, the period for which damages under Section 14-B
of the Act are levied is from June, 1999 to October, 2008. Therefore, for
almost the entire period interest stands charged by imposing damages under
Section 14-B of the Act with the application of rates mentioned in the table
prevailing prior to 26.9.2008. It is not the case of the Department that for
one month i.e. 27.9.2008 to October, 2008 damages were charged on the
rates specified in the new table. When the matter is examined from this
angle also we find substance in the argument of the learned counsel for the
petitioner that the clarification issued by the Department that interest is to
be charged separately would be of no avail. Of course, that may be the legal
position. However, the mechanism to charge interest separately was not
enforced by modifying the existing table which step was taken only in
issuing fresh table making effective from 26.9.2008.

15. We are therefore of the opinion that in M/s System and Stamping
(supra) the Division Bench took the correct view that damages under
Section 14-B of the Act were inclusive of interest chargeable under Section
7-Q of the Act as the present case covers that very period, the respondent
had no right to charge the interest under Section 7-Q of the Act additionally
when it already stood payable in the order passed under Section 14-B of the
Act. As the petition succeeds on this ground itself, it may not be necessary
to go into the other issues raised by the petitioner.


W.P.(C) 831/2012 Page 15 of 16


16. We accordingly set aside the order dated 26.11.2010 insofar as it
directs payment of interest under Section 7-Q of the Act in the sum of `
4,53,886/- in addition to the damages payable under Section 14B of the Act
which was levied to the tune of ` 7,10,989/- as the interest payable under
Section 7-Q of the Act was already included therein. Since this amount was
wrongly recovered from the petitioner on 3.2.2011, the PF Department is
directed to refund that amount of ` 4,53,886/- alongwith interest @12% to be
calculated till the date of payment.


17. No order as to costs.


ACTING CHIEF JUSTICE




(RAJIV SAHAI ENDLAW)
JUDGE



(RAJIV SHAKDHER)
JUDGE
SEPTEMBER 12, 2012
skb

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