2009 (10) TMI 540 - HC - Companies Law

Mill was restrained from disposing of its assets by the BIFR under section 22A of the Act - whether as no payment could be made by the first petitioner mill towards the statutory dues and therefore, non payment was neither wilful nor wanton? Held that - Though the fact that the obligation and liability for payment of the provident fund contribution and other dues have been entirely discharged by the petitioners, it may not by itself exonerate them from the penal consequences flowing from the tentacles of sections 14A and 14(1A) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and yet it cannot be stated that such a circumstance cannot at all be construed as a mitigating circumstance to take into consideration by the court concerned. It is open to the petitioners to place relevant materials before the learned Magistrate in this regard and the learned Magistrate will examine the submissions made by the petitioners in the light of the discussions made above and decide in the light of the evidence adduced whether on the facts and circumstances of this case prosecution is sustainable.

Summary

Issues:
Facing trial for alleged offences under sections 14(1A) and 14A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 regarding non-payment of provident fund dues. Effect of BIFR proceedings on criminal prosecution. Legal impediments for payment of dues during BIFR proceedings. Mitigating circumstances for non-payment of dues.

Analysis:
The petitioners are facing trial for alleged offences under sections 14(1A) and 14A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The prosecution alleges non-payment of contributions towards provident fund dues. The second petitioner, as the managing director, is held responsible for the default committed by the petitioners for different periods.

The petitioners argue that the first petitioner mill was declared a sick company by the BIFR and was restrained from disposing of assets, leading to non-remittance of dues. Despite efforts for rehabilitation, the scheme could not be implemented, resulting in the winding up of the mill. The petitioners challenge the orders of BIFR and AAFIR, claiming that coercive proceedings or criminal prosecution cannot proceed without consent from the BIFR.

The respondent relies on a Supreme Court judgment stating that section 22 of the Act does not bar payment of dues by the company or its directors. The judgment clarifies that section 22 does not create a legal impediment for criminal cases, including non-remittance of provident fund contributions. The liability to pay such contributions is a personal obligation of the petitioners, leading to prosecution in various calendar cases.

The Karnataka High Court decision emphasizes that section 22 does not forbid prosecution proceedings against a company. It specifies that the protection under section 22 applies to certain matters, not including criminal proceedings. The court notes that evidence is necessary to determine if non-payment was beyond the company's control before quashing criminal proceedings.

The petitioners have since remitted all provident fund dues, but this may not absolve them from penal consequences. The court advises the learned Magistrate to consider mitigating circumstances and special reasons for leniency in imposing punishment, including the option of a nominal fine. Ultimately, the court disposes of the criminal original petitions, leaving the decision on prosecution sustainability to the learned Magistrate.