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TMI Blog1987 (3) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Pvt. Ltd. There are 10 petitioners and respondents are 6 in number. Respondents Nos. 3, 4 and 6 are Income-tax Officers under the charge of Commissioner of Income-tax, Rohtak, and Commissioner of Income-tax, Delhi VI, New Delhi. Respondent No. 1 is the Regional Provident Fund Commissioner (Haryana) and respondent No. 2 is the Regional Director, Employees' State Insurance Corporation (ESIC), also of Haryana. Respondent No. 5 is the Registrar of Companies (Delhi Haryana) but no relief is sought against this respondent. It is stated that petitioners Nos. 1 and 2 are not the working directors of the company and are not responsible for the day to day conduct of the business of the company. The only working directors of the company are stated to be petitioners Nos. 3, 4 and 5. Petitioner No. 6 is the nominee director of the State Industrial and Investment Corporation of Maharashtra, a financial institution from where the company had taken loan. Petitioners Nos. 7 and 8 are alternate directors nominated by two non-resident German directors of the company. It is stated that they are on the board by virtue of their expertise and professional skill. Petitioners Nos. 9 and 10 are respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade for the purpose. It is stated that it was on 16th July, 1984, that benefits of IPRS were extended to hand tools made from chrome vanadium steel as well. It is then claimed that the total subsidy available to the company for chrome vanadium steel if the scheme is implemented with effect from 9th February, 1981, would be around Rs. 1 crore and that if subsidy is provided for forging quality carbon steel from 9th February, 1981, the total amount of subsidy due to the company would be around Rs. 1,30,00,000. Then, it is stated that because of recession and high steel prices prevailing in the country, the company suffered losses during the two years (1981-82, ending June, 1982, and 1982-83, ending December, 1983), and that after adjusting depreciation and the export incentive received by the company, the losses for these two years were respectively Rs. 1.86 crores and Rs. 6.55 crores. It is then stated that the company being labour intensive having about 6,000 employees wanted to protect as many jobs as it could in the national interest and that with that end in view was trying to manage the situation in the best possible manner and did not take recourse to retrenchment or closure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st any of the petitioners in respect of non-deposit of employer's share of provident fund for the period from March, 1982, onwards. The petitioners thus say that they apprehend prosecutions by respondents Nos. 1 to 4 and 6. They, therefore, on these allegations pray to be excused and/or relieved from the prosecutions likely to be launched against them. Replies by the Regional Provident Fund Commissioner (Haryana), Regional Director, ESIC (Haryana) and the Income-tax Department have been filed. The Regional Provident Fund Commissioner (RPFC) in his affidavit in reply dated 15th March, 1985, says that the provident fund dues in default amount to Rs. 1,07,55,125.97 though as per statement admittedly filed by the company, the default is to the tune of Rs. 69,38,207.50 only. It is stated that there is nothing on record to show that the financial position of the company was so bad that it could not pay even the wages and if the wages could be paid, the least that could be expected was that employees' share deducted towards provident fund dues was paid and that this amount deducted from the employees' wages was in trust with the company and could not be utilised for its business purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be deposited within 7 days of deduction in terms of rule 30 of the Income-tax Rules, 1962. It is stated that this amount was in fact Government money and was lying in trust with the company. The reasons of the company for not depositing the TDS on the ground that there was recession in the industry and that the company expected to realise from the Government substantial amount as steel subsidy have been stated to be of no relevance. Parties were allowed to lead evidence by means of affidavits. At the time of admission of the petition, it was directed that no further prosecutions would be filed. By order dated 15th January, 1986, it was directed that the current dues as required under the statute should be regularly paid from January, 1986, onwards without fail and if these were not paid, the stay would automatically stand vacated. There was some controversy between the parties whether this order pertained to the dues under the Provident Funds Act only or under the Employees' State Insurance Act and the Income-tax Act as well. During the course of these proceedings, it was submitted by Mr. R. C. Chawla, learned counsel for the Regional Provident Fund Commissioner, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order. Thereafter, further arguments were heard. Mr. R. C. Chawla, learned counsel for the RPFC, said that section 633(2) of the Act would not be applicable to a default of non-payment of contributions as required under section 6 of the Provident Funds Act. He doubted the correctness of the decisions of this Court in In re Beejay Engineers Pvt. Ltd. [1983] 53 Comp. Cas. 918 . This judgment was rendered by the Division Bench. One of the questions raised therein was if while exercising powers under section 633 of the Act, the court had jurisdiction to grant relief against prosecution under other Acts. In that case, a petition had been filed under section 633(2) of the Act for being relieved/ excused from proceedings which were likely to be launched for alleged contravention of the Provident Funds Act, Central Excises and Salt Act, Employees' State Insurance Act, Sales Tax Act and Income-tax Act with reference to tax deducted at source. The court held that the section would apply to all legal proceedings, civil, criminal or otherwise, so long as the liability of an officer of a company arose from negligence, default, breach of duty, misfeasance or breach of trust and he cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly : Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly". Similarly, section 17 of the Prevention of Food Adulteration Act, 1954, deals with offences by companies. So is section 10 of the Essential Commodities Act, 1955, and also section 14Aof the Provident Funds Act. The list appears to be endless. If the words "any proceeding" are of wide amplitude, then perhaps Chapter XXI of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the contribution so deducted by him and if he makes default in the payment of such contribution to the said fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid". Mr. Chawla thus said that the liability of the employer was absolute and he would be deemed to have dishonestly used the amount of employees' contributions from the wages payable to the employee in case of non-deposit of the same as required under the Provident Funds Act. The law presumed that at least the employees' contribution lying with the employer was in trust with him. I think Mr. Chawla is correct. The Explanations to section 405 of the Indian Penal Code call for no exceptions. Even otherwise, the contentions raised by the petitioners that there was terrific recession all over the world in respect of hand tools manufactured by the company or non-receipt of subsidy from the Central Government or labour unrest in some of the manufacturing units of the company and suffering of huge losses by the company are no answer when it comes to non-deposit of the employees' contributions deducted from the wages of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is if the employer fails to perform his function. The dynamics of this beneficial statute derives its locomotive power from the funds regularly flowing into the statutory till. The pragmatics of the situation is that if the stream of contributions were frozen by employers' defaults after due deduction from the wages and diversion for their own purposes, the scheme would be damnified by traumatic starvation of the fund, public frustration from the failure of the project and psychic demoralisation of the miserable beneficiaries when they find their wages deducted and the employer got way with it even after default in his own contribution and malversation of the workers' share". Krishna Iyer, J., further observed (p. 1808 of 1979 AIR) (p. 292 of 55 FJR) : "The measure was enacted for the support of a weaker sector, viz ., the working class during the superannuated winter of their life. The financial reservoir for the distribution of benefits is filled by the employer collecting, by deducting from the workers' wages, completing it with his own equal share and duly making over the gross sums to the fund. If the employer neglects to remit or diverts the moneys for alien purposes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aults are staggering. The Schemes under the Provident Funds Act and Employees' State Insurance Act are bound to go haywire to the extreme disadvantage of the employees and such a state of affairs cannot be permitted. To my mind, non-deposit of contributions in respect of each employee would be a distinct default and the employer would become liable to punishment. The default will terminate only when deposit is made. I will have to say more on this subject when I deal with the defaults committed under the Income-tax Act. Nevertheless, by order dated 24th November, 1986, I did call upon the petitioners to indicate as to how they intended to clear the payments under the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act. They did not give any positive answer except their assertion that they had every earnest desire to make the payments. But then, the petitioners themselves in the petition, which was filed on 4th September, 1984, had said that they wanted only a period of about two years for them to clear all the statutory dues. They have defaulted even in payment of current statutory dues regularly in spite of specific order dated 15th January, 1986. Mr. K. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct or pay tax. If a person, without reasonable cause or excuse, fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of sub-section (9) of section 80E or Chapter XVII-B, he shall be punishable, ( i )in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; ( ii )in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine". Section 278B of the Income-tax Act, which I have already reproduced above, provides for offences by companies. Again, it would appear that when a person responsible for paying has not paid the tax to the credit of the Central Government as required by law, he will be deemed to have committed an offence punishable under section 276B of the Income-tax Act, if non-deposit was without reasonable cause or excuse. It would appear to be a continuing offence and would terminate only when the deposit of the tax deducted is made. Non-payment of tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce premia (Rs. 31,927) had been allowed. The certificate would show that Prakash Chand Jhalani had been paid salary totalling Rs. 78,000, house rent allowance Rs. 27,300 and was also provided with a car and a driver. Along with the return of income, Prakash Chand Jhalani filed a statement of total income wherein he claimed refund of a sum of Rs. 4,722. This was on the basis that as per his return of income, the amount of tax would be Rs. 22,622 while a sum of Rs. 25,344 had been deducted as tax deducted at source as per the certificate. Admittedly, tax of Rs. 25,344 stated to have been deducted from the salary of Prakash Chand Jhalani had not been paid to the credit of the Central Government. On the basis of the certificate, Prakash Chand Jhalani did not deposit the self-assessment tax while filing his return of income as required under section 140A. He also claimed deduction for payment towards provident fund when the provident fund amount had not been deposited. On top of this, he is claiming refund of tax stated to have been deposited in excess when in fact the tax was not deposited as claimed. I think, in the circumstances, this was the most dishonest thing to do. I will outrig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed when salaries are paid as provided in section 192 of the Income-tax Act. The question that now arises is, if the petitioners acted honestly and reasonably, and, having regard to all the circumstances of the case, they ought fairly to be excused. It is said that Rooplal Chaganlal Sohani (petitioner No. 6), V. Sagar (petitioner No. 7) and R. K. Talwar (petitioner No. 8) are in no way connected with the day to day functioning of the company and are not responsible for the conduct of the affairs of the company in any way. Sohani is the nominee director of the State Industrial and Investment Corporation of Maharashtra while Sagar and Talwar are the alternate directors nominated on the board by the two non-resident German directors. I do not find any denial of this averment in the affidavits filed by any of the respondents. They cannot, therefore, be saddled with any liability for any default under any of the three Acts, namely, the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act. They are, therefore, to be relieved wholly from any liability arising for any defaults under those Acts. I order accordingly. But this cannot be said about the other petitioners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as on date. Obviously, this is a wrong statement. What EEPC said in its report is now sought to be projected as having been said by the Ministry of Commerce and the Reserve Bank of India. But, that is not material for the case in hand. Mr. Bhandare said that the petitioners admitted defaults but he pleaded that "cake" had to be distributed according to the priorities, these being payment of wages and salaries, buying of raw material, payment of electricity bills, freight, etc . He said that the basic thing was that the company should run and that was ultimately for the benefit of the industry and the workers and thus for the country. He also said that provident fund dues of the workers would become due to them after many years as the average age of the workers of the company was 38 years, the retirement age being 58 years. There is, thus, no denying the fact that the contributions to the provident fund both of employees and employer and also contribution to the Employees' State Insurance Corporation and the amounts of income-tax deducted at source have been used by the company for its business purposes. If the argument of Mr. Bhandare is to be accepted, it is difficult to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contributions of the employees which had been deducted from their wages and the tax deducted at source from the salaries of the employees of the company. As I have observed above, non-deposit of the contributions of provident fund as well as Employees' State Insurance Corporation contribution in respect of each employee every month is a distinct default in itself and so also non-deposit of the TDS from the salary of an employee every month is a distinct default. The petitioners will, therefore, have to explain with reference to each and every default if they acted honestly and reasonably and a general statement that the company is passing through financial crisis or is a sick industry is certainly no answer. The court has to relieve the petitioners in respect of each default on its satisfaction that the petitioners acted honestly and reasonably. The petitioners gave no particulars and led no evidence for the court to relieve them of the liability incurred thereby. Further, there are different considerations for the defaults committed under different Acts. As regards the Provident Fund and the Employees' State Insurance Corporation, I have already reproduced some observations of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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