Date of Judgement:
23rd February 2022
Bench:
Ajay Rastogi, J.
Abhay S.Oka, J.
Parties:
Appellant – Horticulture Experiment Station Gonikoppal, Coorg.
Respondent – The Regional Provident Fund Organization.
Subject
The Supreme Court stated that the employer's default or delay in paying EPF contributions is a condition precedent to the imposition of damages under Section 14B of the Employees Provident Fund & Miscellaneous Provisions Act, 1952. The Hon’ble Court observed that mens rea or actus rea is not a necessary component of imposing penalties/damages for legal obligations/liabilities.
Legal Provisions
- Section 14B of Employees Provident Funds and [Miscellaneous Provisions] Act, 1952 – Which provides for employer’s default for non-payment of any contribution to the fund or payment to the employees, then the employees may recover the same under any of the conditions specified in Section 17.
- Section 7A of Employees Provident Funds and [Miscellaneous Provisions] Act, 1952–Provides for The Central Provident Fund Commissioner or any Assistant Provident Fund officer may regarding the application of the order decide on such disputes and ascertain a fair amount from Pension scheme or Insurance scheme due from any employer under the given provision of the Act.
- Section 271(1) (C) Of Income Tax Act, 1961- provides for Principal Commissioner or Assessment Officer in the due course of the proceedings, is satisfied that anyone who has concealed the original accounts of his income or has furnished false/inaccurate written statement about his income, then he may direct such person to pay in lieu of penalty imposed which shall not be less than the amount differential to the original statement, but also the same shall not exceed three-time to the amount of tax sought by the alleged person.
Overview
- The appellant, upon being aggrieved by the decision taken by the High Court of Karnataka at Bengaluru, The Hon’ble court enunciated the provisions U/s 7A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952(hereinafter referred to as the “Act 1952”) and observed that employers have failed to submit the contribution to the EPF shall be held responsible U/s. 14B and damages claimed is a sine qua non, and upheld the institution of suit for claiming damages. Subsequently, the appellant petitioned Supreme Court to begin aggrieved by the above judgment by the High Court of Karnataka.
- The appellant(s) was a legitimate competent body constituted under the provisions of the Act, 1952, and on December 31st, 1974, under the following code(No. KN/8857), the appellants failed to comply with the establishing principles of Act, 1952 from date, ‘January 1st, 1975’ to ‘October 31st, 1988’. For non-adherence to the mandate provided under the Act of 1952, following which proceedings were commenced U/s. 7A and dues assessed by the competent authority were estimated t to be amounting to Rs. 74,288/-(Rupees Seventy-four Thousand, two-hundred and eighty-eight) which was paid in full to the EPF office after apt adjudication.
- Owing to which the authorities issued a notice U/s 14B of the Act, 1952, for claiming damages of Rs.85,548/-(Rupees Eighty-five thousand, five hundred and forty-eight) for the delay made by the appellants to make payment to Provident Fund, for the period between January 1978 to September 1988.
- Affirming which the High Court also held that once the appellant has admitted the fact that the default in payment has taken place, from thereafter the damages as provided U/s. 14B of the Act, 1952 are resultant and the concerned employer is under a duty to pay the damages for the delay made in the due payment of the funds.
- The Hon’ble Supreme Court emphasized the necessity of the Act, 1952, and how it acts as a beneficial system for securing social security for employees working in any establishment or corporate body.
- Learned counsels appearing on behalf of the appellants, contended that reasons provided by the appellants to the EPF office were not looked into and further argued that the presence of mens rea and actus rea has not been considered by the authority while levying damages U/s 14B of the Act,1952. Underwriting of the submissions made by the ld. Counsels placed reliance on the case of Employees State Insurance Corporation v. HMT Ltd. and another, and Assistant Provident Fund Commissioner, EPFO and another v. The Management of RSL Textiles India Private Limited through its Director, which was the judgments passed by the Hon’ble in similar circumstances as to the given case.
- On the other hand, learned counsels for respondent(s) to substantiate the submissions made, submitted that mens rea is not an essential element for imposing a sanction for the breach of certain civil obligations, as far as civil liabilities are concerned the presence of mens rea or actus reus should not be the base requirement of law to be considered which imposing sanctions U/s 14B of the Act 1952.
- Additionally, the learned counsels for the respondent(s) placed special emphasis on a two-Judge Bench judgment in Chairman, SEBI v. Shriram Mutual Fund and Anr, which was subsequently relied upon by a three-judge Bench judgment of the Hon’ble Supreme Court in Union of India and Anr. V. Dharmendra Textile Processors and other,
- In response learned counsels for the appellants(s) further gave emphasis on the judgment of the Hon’ble Court in the case of Mcleod Russel India Ltd. The counsels tried to shift the partial burden to the erstwhile as well as the present managements for recovering jointly and severally but the court placed reliance on another judgment where it was decided beforehand as to the placement of reliance for recoverable.
Issues
- Whether the application of Section 14B of the Act,1952 for the breach of civil liabilities committed on the employer was justified or not?
- Whether the element of mens rea or actus reus has an important role to play in determining the obligations of the authority to examine the justifications before the imposition of sanctions?
Judgment
- The Hon’ble Court observed in this instant application that the initial proceedings against the appellant was instituted U/s 7A, which obligated the appellants as it was covered under the provisions of the Act, 1952, in which subsequent adjudication was made to seek contribution for the EPF which the appellants contravened from the period of January 1975 to October 1988, simultaneously the court stated that only after giving due opportunity of evaluating the justifications given by the appellants, the order was passed by the apt authority directing the appellants to pay certain sanctions/damages U/s. 14B of the Act, 1952.
- In addition to the above reasoning the Hon’ble court referred to Chairman, SEBI(supra), for examining whether mens rea as construed in the contentions put forth by the appellant, as well as the judgmentwas given by the High Court of Karnataka, is an essential binding element in this instant case or not for imposing a penalty for breach of civil obligations.
- Subsequently the Hon’ble Supreme Court differentiated between the criminal and civil cases of ‘tax delinquency’ whereas stating that as such in criminal cases it is necessary for the prosecution to prove the mental guilt of the accused when he is charged for a certain offense likewise in a case where the willful contravention by the delinquent has been established the Directorate of Enforcement thus it impromptu establishes ‘blameworthy’ conduct attracting the provisions of Section 23(1) (a) of FERA,1947.
- Furthermore, the Hon’ble Supreme Court provided clarity on the instant matter that “A penalty imposed for a tax delinquency falls under the ambit of civil obligations and liabilities and is completely different from the penalty imposed for a criminal act or criminal violation of penal laws”. Thus, upholding that mens rea as understood in criminal law is not an essential ingredient in holding the appellant the alleged person liable to pay damages under Section 23(1)(a) of FERA, 1947.
- Likewise, where the offenses are strict statutory offenses in which the establishment of mens rea is not required. The act of omission or performance of a statutory violation constitutes an offense in and of itself. Many statutes dealing with economic crimes contain similar types of offenses based on the premise of strict responsibility, which means liability without guilt or mens rea.
- The Hon’ble Supreme Court cited the case of Swedish Match AB v. SEBI (2004) 11 SCC 641, where the existence of mens rea will only be considered in the cases of criminal proceedings against the appellant. And lastly, the Hon’ble Court discerned that there can be two distinct liabilities, civil and criminal under the same Act, and mens reais not an essential element for imposing a penalty for breaches in civil liabilities, the same was overruled by the Hon’ble Supreme Court in the case of Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai, and Another,
- The Hon’ble Court affirmed that it is unnecessary to determine whether the breach was intended by the party or not and upon examination of Section 15-D(b) and Section 15-E of the Act, there is nothing in these rules that says mens rea must be proven before a penalty can be imposed. As a result, after the violation has been confirmed, the penalty will be imposed.
- Thus, referring to the three-judge bench judgment of the Hon’ble Court in Union of India and others v. Dharmendra Textile Processors and other, decided that in view of any default or delay caused in the payment of EPF contribution by the Employer under the Act is a sine qua non for the imposition of damaged U/s.14B of the Act,1952, and mens rea or actus reus is not an essential ingredient for imposing sanctions or damages for breach of civil obligations.
- The court dismissed the appeal as no material substance was presented before the court to consider, and all the pending applications in lieu of the appeal were disposed of.
Conclusion
The Court observed that any default or delay in the payment of EPF contribution by the employer is an essential condition for imposition of damages U/s 14B and there lies a significant distinction between civil and criminal conduct by the blameworthy, the Hon’ble Supreme Court construed the error made by the High Court in the interpretation of the act as similar as that of a criminal offense, which basically overlooked the distinction and that mens rea is not an essential element for imposing a penalty for breach of civil obligations or liabilities.
Mens rea is not required for violations of the SEBI Act and Regulations, which are civil in nature, according to us. On the basis of specific facts and circumstances where no mens rea is necessary for violations of the SEBI Act and Regulations, which are civil in nature. Based on a set of facts and situations.
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