2022 (3) TMI 184 - SC - Indian Laws

Dismissed appeals uphold EPF contribution penalties under Section 14B Act 1952 without proof of intent.

HORTICULTURE EXPERIMENT STATION GONIKOPPAL, COORG Versus THE REGIONAL PROVIDENT FUND ORGANIZATION

The appeals were dismissed, affirming that any default or delay in EPF contributions warrants the imposition of damages under Section 14B of the Act 1952, ... Recovery of damages - failure to deposit the contribution of EPF or committed default as mandated under the provisions of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 - failure after determination under Section 7A by the competent authority - effect and implementation of Section 14B of the Act 1952? - whether the breach of civil obligations or liabilities committed by the employer is a sine qua non for imposition of penalty/damages or the element of mens rea or actus reus is one of the essential elements has a role to play and the authority is under an obligation to examine the justification, if any, being tendered while passing the order imposing damages under the provisions of the Act 1952? HELD THAT:- Undisputedly, the establishment of the appellant(s) was covered under the provisions of the Act 1952, but still failed to comply with the same and for such non-compliance of the mandate of the Act 1952, initially the proceedings were initiated under section 7A and after adjudication was made in reference to contribution of the EPF which the appellant was under an obligation to pay and for the contravention of the provisions of the Act 1952, the appellant(s) indeed committed a breach of civil obligations/liabilities and after compliance of the procedure prescribed under the Act 1952 and for the delayed payment of EPF contribution for the period January 1975 to October 1988, after affording due opportunity of hearing as contemplated, order was passed by the competent authority directing the appellant(s) to pay damages as assessed in accordance with Section 14B of the Act 1952. A two-Judge Bench of this Court in Chairman, SEBI [2006 (5) TMI 191 - SUPREME COURT], while examining the scope and ambit of Section 15-D of SEBI (Mutual Funds) Regulations, 1996 regarding imposition of penalty for certain defaults in case of mutual funds, examined the question as to whether mens rea is an essential element for imposing penalty for breach of civil obligations and taking note of the binding precedent of this Court held that mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities - The three-Judge Bench of this Court in Union of India v. Dharmendra Textile Processors and others [2008 (9) TMI 52 - SUPREME COURT] while examining the scope and ambit of Section 271(1)(c) of the Income Tax Act, 1961 held that as far as the penalty inflicted under the provisions is a civil liability is concerned, mens rea or actus reus is not an essential element for imposing civil penalties. Any default or delay in the payment of EPF contribution by the employer under the Act is a sine qua non for imposition of levy of damages under Section 14B of the Act 1952 and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligations/liabilities - Appeal dismissed. Issues Involved:1. Non-compliance with the Employees Provident Fund & Miscellaneous Provisions Act, 1952.2. Imposition of damages under Section 14B of the Act.3. Necessity of mens rea or actus reus for imposing penalties for civil obligations.4. Binding precedents and their applicability.Detailed Analysis:1. Non-compliance with the Employees Provident Fund & Miscellaneous Provisions Act, 1952:The establishment of the appellant(s) was covered under the Act 1952 but failed to comply with its provisions from January 1, 1975, to October 31, 1988. Proceedings initiated under Section 7A assessed dues amounting to Rs. 74,288, which the appellant(s) paid. Subsequently, a notice under Section 14B was issued to charge damages for delayed payment of provident fund contributions amounting to Rs. 85,548.2. Imposition of damages under Section 14B of the Act:The High Court upheld the imposition of damages under Section 14B, stating that once default in payment is admitted, damages are consequential. Section 14B allows the Central Provident Fund Commissioner to recover damages from the employer by way of penalty for default in payment of contributions.3. Necessity of mens rea or actus reus for imposing penalties for civil obligations:The appellant(s) argued that the authority did not consider the element of mens rea or actus reus while imposing damages. However, the court referenced several precedents, including Chairman, SEBI v. Shriram Mutual Fund and Union of India v. Dharmendra Textile Processors, which established that mens rea is not an essential element for imposing penalties for breach of civil obligations. The court concluded that the breach of civil obligations attracts penalties irrespective of the intention behind the contravention.4. Binding precedents and their applicability:The court noted that the constitutional validity of Section 14B had been upheld in Organo Chemical Industries v. Union of India. The court also dismissed the appellant(s)' reliance on Employees State Insurance Corporation v. HMT Ltd., as it was based on the overruled judgment in Dilip N. Shroff v. Joint Commissioner of Income Tax. The court reiterated that the three-Judge Bench judgment in Dharmendra Textile Processors, which overruled Dilip N. Shroff, is binding and affirmed that default in EPF payment necessitates the imposition of damages under Section 14B without requiring proof of mens rea or actus reus.Conclusion:The appeals were dismissed, affirming that any default or delay in EPF contributions warrants the imposition of damages under Section 14B of the Act 1952, without the necessity of proving mens rea or actus reus. Pending applications, if any, were also disposed of.