2014 (7) TMI 1382 - SC - Indian Laws

Imposition of 'damages' as envisaged Under Section 14B of the EPF Act - request for a waiver of damages 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 - ELD THAT - There 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 . 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 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 impugned judgment deserves to be upheld - Appeal is devoid of merit - appeal dismissed.

Summary

Issues Involved:

1. Applicability of Section 14B of the EPF Act for damages on the transferee of an establishment.
2. Joint and several liability under Sections 14B and 17B of the EPF Act.
3. Interpretation of the term "employer" under the EPF Act.
4. The validity of the imposition of damages and interest under the EPF Act.
5. The impact of contractual agreements between transferor and transferee on statutory liabilities.

Issue-wise Detailed Analysis:

1. Applicability of Section 14B of the EPF Act for damages on the transferee of an establishment:

The Supreme Court examined whether the damages under Section 14B of the EPF Act could be imposed on Eveready Industries (India) Ltd., the transferee of M/s. Mathura Tea Estate. The Court upheld that the transferee is liable for damages as Section 14B allows for the recovery of damages from the employer by way of penalty for default in payment of contributions. The Court emphasized that the liability for damages is not restricted to the original employer but extends to the transferee as well, as the establishment's liability continues post-transfer.

2. Joint and several liability under Sections 14B and 17B of the EPF Act:

The Court affirmed the Special Bench's opinion in Dalgaon Agro Industries Ltd. that both the transferor and transferee managements are jointly and severally liable under Sections 14B and 17B for all sums due, including damages. It was clarified that the liability of the transferee is limited to the value of the assets obtained through the transfer, as stated in the proviso to Section 17B.

3. Interpretation of the term "employer" under the EPF Act:

The Court reiterated that the term "employer" under Section 2(e) of the EPF Act includes the owner or occupier of the factory or establishment. In the case of a transfer, the transferee assumes the role of the employer and inherits the liabilities of the establishment, including those arising from defaults in contribution payments prior to the transfer.

4. The validity of the imposition of damages and interest under the EPF Act:

The Court upheld the imposition of damages and interest by the RPF Commissioner. It was noted that the Commissioner had taken a lenient view by not imposing the maximum damages of 100% of the arrears. The Court referenced the decision in Organo Chemical Industries v. Union of India, which upheld the constitutional validity of Section 14B, emphasizing that damages serve both as a penalty and reparation for loss caused to the Fund.

5. The impact of contractual agreements between transferor and transferee on statutory liabilities:

The Court rejected the argument that the contractual agreement between Eveready Industries (India) Ltd. and Saroda Tea Company Ltd., which stipulated that damages would be the exclusive liability of the transferor, could insulate the transferee from statutory liabilities. It was held that such covenants are irrelevant for the determination and recovery of statutory dues and damages.

Conclusion:

The Supreme Court dismissed the appeal, affirming that the liabilities under the EPF Act, including damages and interest, are enforceable against the transferee of an establishment. The Court underscored the importance of the statutory provisions in ensuring the protection of employees' rights and the integrity of the provident fund system. The judgment emphasized that contractual agreements cannot override statutory obligations, and both the transferor and transferee remain jointly and severally liable for defaults in contributions.