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Murarka Paint And Varnish Works, Ltd., And Another v. Union Of India And Others
Structured Summary of the Provided Opinion
Factual and Procedural Background
The Employees' Provident Funds Act, 1952 (now Employees' Provident Funds and Family Pension Fund Act, 1952) was applied to the petitioner's head office in or about June 1962 and to the petitioner's factory from 6 July 1962. From 13 July 1962 the petitioner company paid provident fund dues but on several occasions payments were late. Provident Fund inspectors visited the establishment repeatedly. On 12 August 1968 the petitioner received a report (dated 31 July 1968) threatening legal action and imposition of damages under Section 14B if dues were not paid; a similar report dated 4 February 1969 was received on 13 February 1969.
An amendment on 1 November 1973 increased the maximum quantum of damages from 25% to 100% of arrears. On 30 July 1975 the petitioner received two show-cause notices dated 26 July 1975 directing it to show cause why damages should not be levied and requiring appearance on 1 August 1975. The petitioner's representatives met Deputy Provident Fund Commissioner R.M. Gandhi on 1 August 1975 and were granted time until 25 August 1975 to file objections. On 25 August 1975 the petitioner's director submitted a letter dated 23 August 1975 with balance-sheets and other material. On 3 October 1975 the petitioner received an order dated 30 September 1975 (cyclostyled with gaps filled in), signed by P.S. Dhotrekar, Regional Provident Fund Commissioner, determining damages totaling Rs. 2,30,497.20 and directing deposit within thirty days.
The petitioners filed an application under Article 226 on 23 October 1975 and a rule nisi was issued. The impugned order was challenged on multiple grounds in that writ petition.
Legal Issues Presented
- Whether the impugned order was invalid because the petitioners' representations were heard by the Deputy Provident Fund Commissioner but the order was passed by the Regional Provident Fund Commissioner.
- Whether belated (but ultimately paid) provident fund contributions constitute a "default in the payment of any contribution" under Section 14B such that damages may be recovered.
- Whether the statutory scheme vests the authority to impose damages in the Central Government (or some distinct authority) rather than the Central Provident Fund Commissioner or an authorized officer, and whether the word "it" in the section indicates a separate imposition/recovery power.
- Whether representations by Inspectors suggesting that immediate payment might avoid further legal action estop the Commissioner from recovering damages under Section 14B.
- Whether the impugned order was a valid exercise of discretion or was vitiated by being a non-speaking order that did not show application of mind to the correlation between damages and loss.
Arguments of the Parties
Petitioners' Arguments
- The petitioners contended that their representations had been heard by the Deputy Provident Fund Commissioner (R.M. Gandhi) and that the order should therefore have been passed by the authority who heard them; passing the order by the Regional Commissioner was challenged.
- They argued that payments had in fact been made (albeit belatedly) and that a belated payment was not a "default" under Section 14B; reliance was placed on the phrase "amount of arrear" to suggest the section was directed at non-payment rather than late payment.
- They relied on representations in the Inspector's report that if payments were made immediately it might not be necessary to secure compliance through legal action, suggesting such assurances made the imposition of maximum damages unfair or unconscionable.
- The petitioners challenged the order as harsh and, implicitly, as not reflecting proper consideration of mitigating facts or of a reasonable correlation between damages and loss.
Respondents' Arguments
- The respondents disputed that the Deputy alone had heard the objections and maintained that the Commissioner himself had heard the objections and was therefore competent to pass the order.
- They contended that Section 14B covered defaults that included late payments (non-payment at the due time) and that the Commissioner or other authorized officer had the power to recover damages not exceeding the arrears.
- They argued that representations in inspection reports could not estop enforcement of statutory rights; and they relied on authorities for the proposition that the court should not interfere with a statutory authority's discretion, provided it was properly exercised.
- They placed reliance on cases establishing non-interference with discretion when properly exercised by administrative authorities.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Williams v. Stern [(1879) 5 Q.B.D 409] | Authority on the meaning of "default in payment" (failure to pay at the due time). | Relied upon to support the view that a default occurs when payment is not made at the due time, thereby including belated payments within "default". |
| Thorn v. City Rice Mills [(1899) 40 Ch. D. 357] | Authority on the meaning of "to make default in payment" (failure to pay at the due date). | Relied upon alongside Williams v. Stern to support that late payments are defaults under Section 14B. |
| Coal Mines Provident Fund Commissioner v. J.P. Lala & Sons [1976 — I L.L.N 259] | Explained that phrases like "not exceeding... 25 per cent" and "as it may think fit to impose" require authorities to apply their minds; damages determination is not a rigid formula and must show consideration of facts. | Applied to hold that the impugned order was a non-speaking order lacking reasons to show application of mind; on this basis the order was quashed and the Commissioner was directed to proceed afresh recording reasons. |
| Amin Chand and Sons v. State of Punjab [A.I.R. 1965 Punj. 441] | Relied upon by petitioners for the proposition that representations might prevent imposition of legal action when dues paid. | The court stated with respect it could not accept the ratio of this decision; it held that representations by inspectors cannot give rise to estoppel against statutory powers to recover damages under the Act. |
| Lord Krishna Sugar Mills, Ltd. v. Income-tax Officer, Ambala [A.I.R. 1953 Punj. 113] | Cited by respondents for the general proposition that courts should not interfere with discretion properly exercised by an authority. | The court accepted the general proposition but observed that where an order is non-speaking and indicates non-application of mind, interference is appropriate. |
| Mayor and Company of Westminster v. London and North Western Railway Company [1905 A.C. 326] | Cited by respondents for the principle of non-interference with administrative discretion when properly exercised. | The court noted the authority for the general rule but held it did not preclude interference where the order indicates absence of application of mind. |
| City of Nagpur Corporation v. J.S. Philip [A.I.R. 1963 S.C. 897] | Cited by respondents as authority on non-interference with discretion exercised by authorities. | The court relied on the same general principle but distinguished that non-speaking orders may be quashed as indicating non-application of mind. |
Court's Reasoning and Analysis
The court addressed each major ground in turn, following a step-by-step legal analysis based on the material produced in the record and applicable legal principles:
- On the challenge that the Deputy Commissioner had heard the objections but the Regional Commissioner passed the order, the court examined the original order-sheet. The entries on the order-sheet bore the Regional Provident Fund Commissioner's signature for the relevant dates, including a notation reserving orders and the Regional Commissioner's signature dated 25 August 1975. On that basis the court accepted the respondents' version that the Commissioner himself heard the petitioners' submissions and therefore rejected the first ground of challenge.
- On whether belated payments amounted to "default" under Section 14B, the court refused to accept the petitioners' narrow construction that limited "default" to non-payment simpliciter. The court reasoned that the Act and scheme impose obligations to make payments within stipulated times and that failure to pay within the stipulated time constitutes a default. The court relied on Stroud's Judicial Dictionary's definition of "default in payment" (non-payment at the due time and place) and on English authority (Williams v. Stern and Thorn v. City Rice Mills) to conclude that late payment falls within "default" for Section 14B.
- On the contention that the Central Government alone was the authority to impose damages (with a separate authority to recover them), the court construed Section 14B as vesting both the power to impose and recover such damages in the Central Provident Fund Commissioner or any other officer authorized by the Central Government. The court found the grammar and context made it clear that the authority which imposes the damages is the same authority entitled to recover them, and that the pronoun "it" in the section refers to that authority.
- On the contention that representations in the Inspector's report (that immediate payment might avoid legal action) estopped the authorities from imposing damages, the court observed that there is no estoppel against the statute. The court further analysed the actual wording of the representation and concluded it did not amount to an undertaking that damages under Section 14B would not be imposed. The court therefore rejected the estoppel argument.
- The court then turned to the form and content of the impugned order itself. While the court acknowledged the authority's discretion in fixing damages, it emphasized that Section 14B's wording (and precedent such as the Coal Mines Provident Fund Commissioner v. J.P. Lala & Sons) required the authority to apply its mind and to demonstrate some reasoning linking the amount of damages to the loss suffered from delayed payments. The impugned order was a cyclostyled, non-speaking order which did not indicate why the particular amount was fixed nor how it correlated with any loss. On that basis the court held the order to be unreasonable for failing to show application of mind.
- Weighing the principles cited by respondents that courts should not ordinarily interfere with properly exercised discretion, the court reconciled that principle with the immediate facts: where an order is non-speaking and manifests non-application of mind, interference is appropriate and necessary.
Holding and Implications
Holding:
The impugned order dated 30 September 1975 is set aside (quashed).
Directives and immediate consequences:
- The Regional Provident Fund Commissioner is directed to proceed afresh in accordance with law, after giving the petitioners further opportunity and after recording his reasons.
- The Commissioner must bear in mind that the purpose of Section 14B is to recover damages (not to impose penal forfeiture) and that the maximum amount that may be imposed is as indicated in the section itself.
- The Commissioner is directed to determine the matter within ten weeks from the date of the judgment.
- Until the Commissioner disposes of the matter, the bank guarantee given by the petitioner will continue in force; the petitioners may apply for discharge of the bank guarantee if the Commissioner does not dispose of the matter within the ten-week period.
- There will be no order as to costs.
Implications (scope and precedent):
The decision directly affects the parties by annulling the specific damages order and directing a fresh determination with reasons. The court did not proclaim the creation of a novel legal principle beyond the application of established principles (notably the requirement that an authority applying a discretionary statutory power must show application of mind and give reasons). The judgment applies existing principles (including those in earlier precedents cited in the opinion) to the facts and mandates a reasoned re-determination; it does not, on the face of the opinion, state that it establishes a new broader precedent beyond the circumstances presented.
1. The Employees' Provident Funds Act, 1952, which is now known as the Employees' Provident Funds and Family Pension Fund Act, 1952, was made applicable to the petitioner's head office in or about June 1962. From 6 July, 1962, the said Act was made applicable to the petitioner's factory. From 13 July, 1962, petitioner 1 which is a company paid all provident fund dues but there was some delay in making the payments on certain occasions. During this period the Provident Fund Inspector visited the petitioner's establishment on several occasions. On or about 12 August, 1968, a copy of the report of the Provident Fund Inspector, dated 31 July, 1968, was received by petitioner 1 in which the petitioner was threatened with legal action and imposition of damages under S. 14B if the petitioner failed to pay off provident fund dues. It was also mentioned that if the payments were made immediately it might not be necessary for the Provident Fund Commissioner to secure compliance through the legal action mentioned in the said report. On 13 February, 1969, a copy of the report of the Provident Fund Commissioner, dated 4 February, 1969, was received by petitioner 1, inter alia, threatening the petitioner with damages under S. 14B of the Act for belated payment. It was also mentioned in the report that if the amounts were paid off immediately, it might not be necessary for the authorities to secure compliance through legal action under the Act. On 1 November, 1973, there was an amendment of the Act and the maximum quantum of damages chargeable was enhanced to 100 per cent instead of 25 per cent of the arrears. On 30 July, 1975, petitioner 1 received two notices, both dated 26 July, 1975, from the Provident Fund Commissioner directing the petitioner to show cause, inter alia, as to why the damages proposed in the last column of the statement enclosed with the notices should not be levied and recovered. Petitioner 1 was also directed to appear in person or through an authorized representative before the Regional Provident Fund Commissioner on 1 August, 1975. It is alleged that on 1 August, 1975, petitioner 2, Beharilal Murarka along with Netai Chandra Bhattacharjee attended the office of the Provident Fund Commissioner and met one Sri R.M Gandhi, the Deputy Provident Fund Commissioner, and prayed for some time. It is further alleged that Sri Gandhi was pleased to grant time upto 25 August, 1975, when the petitioners were directed to file objection with documentary evidence, if any. It is further alleged that on 25 August, 1975, Sri Beharilal Murarka along with the said Netai Chandra Bhattacharjee met the Deputy Provident Fund Commissioner and handed over the letter, dated 23 August, 1975, along with the balance-sheets and a chart based on the annual reports and Sri Murarka made necessary submissions before the Deputy Provident Fund Commissioner. On 3 October, 1975, petitioner 1 received an order, dated 30 September, 1975. The said order is the subject-matter of challenge in this application under Art. 226 of the Constitution. The said order was in cyclostyled form with the gaps filled in imposing damages including administrative charges for a sum of Rs. 2,30,497.20 with a direction to deposit the said amount within thirty days. The said order is to the following effect:
The Murarka Paint and Varnish Works (Private), Ltd.,
4E, B.B.D Bag, 29 Stephen House, Calcutta 1.
[Sub: Levy of damage under S. 14B of the Employees' Provident Funds/Family Pension Fund Act, 1952, against Murarka Paint and Varnish Works (Private), Ltd., Code No. WB/5518.]
[Ref: Show-cause notice No. A/045/5518/Damage/IV/WB/23 and 24, dated 26 July, 1975.]
In exercise of the powers conferred upon me by the Government of India, Ministry of Labour and Rehabilitation, Department of Labour and Employment — Notification No. S.O 548 (E), dated 16 October, 1973, read with S. 14B of the Employees' Provident Funds/Family Pension Fund Act, 1952, and after carefully considering the submissions made before me on 1 and 25 August by Sri B.L Murarka, the Director in relation to Murarka Paint and Varnish Works (Private), Ltd., and also the explanations contained in the letter No. G/34/1609, dated 23 August, 1975, received from Murarka Paint and Varnish Works (Private), Ltd., reply to show-cause notice under reference, I, the Regional Provident Fund Commissioner, West Bengal, do hereby determine that a sum of
(a) Rs. 2,24,236.05 (rupees two Lakhs twenty-four thousand two hundred thirty-six and paise five only);
(b) Rs. 842.65 (rupees eight hundred forty-two and paise sixty-five only); and
(c) Rs. 5,418.50 (rupees five thousand four hundred eighteen and paise fifty only)
are payable by Murarka Paint and Varnish Works (Private), Ltd., as a damage for delayed remittance of
(a) provident fund contributions for the period from May 1962 to February 1974;
(b) family pension fund contributions for the period from April 1971 to February 1974; and
(c) administrative charges for the period from May 1962 to February 1974 respectively.
I accordingly direct you to deposit the following amounts in the State Bank of India within thirty days from the date of receipt of this notice positively and forward triplicate copies of the bank challans to this office, failing which necessary legal action will be initiated for realization of the amount without any further correspondence.
Amount of damage on account of Amount Rs. To be credited to. “(a) Provident Fund Contributions 2,24,236.05 E.P.F A/c. No. I (b) Family Pension Fund Contributions 842.65 E.P.F A/c. No. II (c) Administrative Charges 5,418.50 E.P.F A/c. No. III Sd. (P.S Dhotrekar)
Regional Provident Fund Commissioner, West Bengal, The Andaman and Nicobar Islands.”
2. Thereafter the petitioners moved this application on 23 October, 1975, under Art. 226 of the Constitution and a rule nisi was issued. The order mentioned hereinbefore has been challenged on various grounds. The first ground of challenge to the order is that the representations on behalf of the petitioners were heard by the Deputy Provident Fund Commissioner, Sri R.M Gandhi, but the order in question was passed by Sri P.S Dhotrekar, the Regional Provident Fund Commissioner, Section 14B of the Employees' Provident Funds and Family Pension Fund Act, 1952, as it stood at the relevant time provided as follows;
“14B. Power to recover damages. — Where an employer makes default in the payment of any contribution to the fund or in the transfer of accumulations required to be transferred by him under Sub sec. (2) of S. 15 or Sub-sec. (5) of S. 17 or in the payment of charges payable under any other provision of this Act or of any scheme or under any of the conditions specified under S. 17, the Central Provident Fund Commissioner or such other officer as may be authorized by the Central Government, by notification in the official gazette in this behalf may recover from the employer such damages not exceeding the amount of arrear, as it may think fit to impose. Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard.”
It is obligatory that the order must be passed by the authority who will give an opportunity of being heard. Therefore, the authority hearing objection is obliged under the Act to pass the order. That is also not disputed on behalf of the respondents. It is disputed on behalf of the respondents, however, that the objections were heard by the Deputy Provident Fund Commissioner, Sri Gandhi. It is contended on behalf of the respondents that the objections were heard by the Provident Fund Commissioner who had passed the impugned order. It is significant and was argued rightly that Sri S.A Ali, Assistant Provident Fund Commissioner, who has affirmed the affidavit in answer to the rule nisi was not the person concerned or competent to make the affidavit denying the allegation which either Sri Dhotrekar or Sri Gandhi was capable of denying. There is no affidavit by either Sri Gandhi or Sri Dhotrekar. In those circumstances, it would have been difficult not to accept the allegation on this aspect of the matter made by the petitioners. However, the original order-sheet was produced before me and the said order-sheet reads as follows:
“Sri B.L Murarka, Director, appeared before me today. He has received the notices on 30 July, 1975, and desires three weeks' time to make a detailed representation after verifying the records. Time granted. Fixed for personal hearing on 25 August, 1975, at 11 A.M at this office, Sri Murarka informed.
Regional Provident Fund Commissioner,
West Bengal.
1 August, 1975.
Sri B.L Murarka appeared before me today and handed over letter, dated 23 August, 1975, along with the balance-sheets of the company for the years from 1962 to 1975 in support of the contentions raised by the company, in the aforesaid letter. Sri Murarka pleads for condoning the delays in the circumstances explained in the letter.
Reserved for orders.
(P.S Dhotrekar)
Regional Provident Fund Commissioner,
West Bengal,
25 August, 1975.”
The placement of relevant entry in the said order-sheet along with signature of the Regional Provident Fund Commissioner on both the dates, in my opinion, makes it necessary for me for the purpose of this application under Art. 226 of the Constitution to accept the respondent's version and to reject the petitioner's contention that the objections were not heard by the Commissioner himself. The first ground of challenge to the impugned order, therefore, cannot be accepted.
3. The second ground of challenge to the impugned order was that in this case admittedly the payments had been made. There was delay in making the payments. Therefore, it was contended that belated payments were not defaults in terms of S. 14B of the Act and, therefore, on account of belated payments there could not be any scope for recovery of damages as contemplated by S. 14B of the Act. In aid of this submission reliance was placed on the expression “amount of arrear” which was the limit for imposition of damages. It was contended that the section covered cases where there was failure to make payments in terms of the Act and the scheme framed thereunder. This construction, it was urged, was in consonance with the scheme and the expression “amount of arrear” which fixed the limit or extent to which penalty would be imposed. It was contended that according to the common meaning the arrear would be fixed at the time of imposition of penalty. I am, however, unable to accept this contention. A default under the section is made whenever there is a default in payment of the contribution. The Act and the scheme framed under the Act impose obligation on the employer to make the stipulated payments within the stipulated time. Failure to make the payments within the time stipulated results in default of payment of contribution as enjoined by the Act. There is nothing in the language used in the section, in my opinion, which cuts down the meaning of the expression “default in payment” and limits it only to the failure to pay. Failure to pay within the time stipulated would also be default in the payment of contribution to the fund. In this connexion reliance may be placed on the meaning of the expression “default in payment” in Stroud's Judicial Dictionary, 3rd Edn., Vol. I at page 759, where it has been indicated that the expression “default in payment” means non-payment at the due time and place. It hat also been indicated that the expression “to make default in payment” means failure to pay at the due date. In this connexion reliance may also be placed on the decisions in the cases of Williams v. Stern [(1879) 5 Q.B.D 409] and Thorn v. City Rice Mills [(1899) 40 Ch. D. 357]. For the aforesaid reasons it is not possible to accept the contention that in case of belated payments there was no default in terms of S. 14B of the Act and as such no damages could be imposed.
4. It was then contended that under the scheme of the section the Central Government was the authority to impose damages and the Provident Fund Commissioner was the authority to recover the same. This argument was emphasized by stressing upon the word used in the last sentence “the amount of arrear as it may think fit to impose.” It was emphasized that the expression “it” indicated that the Central Government was the authority which was competent to impose the penalty. I am, however, unable to accept this contention also. The section makes it quite clear that where an employer makes default in payment of the contribution as indicated in the section, the Central Provident Fund Commissioner or such other officer as it may be authorized by the Central Government may recover from the employer such damages. The sentence is clear that the Central Provident Fund Commissioner or any other officer authorized by the Central Government can recover from the employer such damages not exceeding the amount of arrears as it may think fit to impose. There is no dual authority in the section — one for the imposition and the other for the recovery. The right to recover is given to the authority which imposes the penalty. That, in my opinion, would be a harmonious construction of the provisions of the section. The expression “it” denotes the authority who imposes the penalty or recovers the same. Therefore, it is not inconsistent with the office of the Central Provident Fund Commissioner if it is treated as an authority.
5. It was then contended that in view of the assurance given in the Inspector's report that if payments were made in time, then other legal action might not be taken against the petitioners. The present order imposing maximum penalty was, therefore, harsh and bad. In aid of this submission reliance was placed on the observations of a learned single Judge of the Punjab High Court in the case of Amin Chand and Sons v. State of Punjab [A.I.R 1965 Punj. 441]. With great respect I am unable to accept the ratio of the said decision. If the Act gives a right to recover certain amount as damages to an authority for breach of the provisions of the Act, by asking the party to comply with the provisions of the Act, there is no estoppel against the statute. The statute in my opinion, is clear on this point. It gives the discretion to the authority concerned and that discretion cannot, in my opinion, be cut down in any manner by any representation made by the Provident Fund Inspector. Furthermore in the facts and circumstances of the case I find that no such representation as such that damages under S. 14B would not be imposed was ever given to the petitioners concerned. What was represented to the petitioners was as follows:
“The management is requested to pay off the above provident fund dues immediately so that it may not be necessary for this office to secure compliance through legal action under the provisions of the Employees' Provident Funds Act, 1952, and the scheme framed thereunder.”
Recovery of damages for belated payment is not securing compliance through legal action. There is no limitation of period or time during which such recovery can be made and, therefore, in my opinion, it cannot be said that in the facts and circumstances of the case the order was harsh and bad on the ground that the Provident Fund Inspector had represented to the petitioners that if dues were paid, no legal action would be taken. There is, however, another aspect of the order which requires closer examination. Section 14B deals with the power to recover damages. It is not the power to impose penalties. Though the maximum amount of damages that can be recovered has been indicated in the section, damages must have some correlation with the loss suffered as a result of delayed payments. The authority imposing the penalty must apply its mind to this aspect of the matter. The impugned order is not a speaking order in the sense that it does not indicate why the amount of penalty was imposed. It does not indicate that the amount imposed had any correlation with the loss suffered from this aspect of the matter, in my opinion, the order is unreasonable. In this connexion, reliance may be placed on the observations of the Supreme Court in the case of Coal Mines Provident Fund Commissioner v. J.P Lala & Sons [1976 — I L.L.N 259], where it dealt with S. 10 (f) of the Coal Mines Provident Funds and Bonus Schemes Act, 1948, which used the expression
“such damages not exceeding 25 per cent of the amount of arrears as it may think fit to impose.”
The Supreme Court observed that two important features were first, the damages not exceeding 25 per cent; these words showed that the determination of damages was not an inflexible application of rigid formula; second, the words “as it may think fit to impose” showed that the authorities were required to apply their mind to the facts and circumstances of the case. As the order does not indicate any reason in this respect, it is not manifest whether the authority had applied its mind to this aspect of the matter. Therefore, in my opinion, the order is liable to be quashed and I accordingly quash the order, dated 30 September, 1975, and direct the Regional Provident Fund Commissioner to proceed afresh in accordance with law after giving the petitioners further opportunity and after recording his reasons and after bearing in mind that the purpose of S. 14B was to recover damages and not to impose penalty and the maximum amount of penalty that could be imposed was as indicated in the section itself
6. Before I conclude I must note that on behalf of the respondents reliance was placed on the decisions in the case of Lord Krishna Sugar Mills, Ltd. v. Income-tax Officer, Ambala [A.I.R 1953 Punj. 113], in the case of Mayor and Company of Westminster v. London and North Western Railway Company [1905 A.C 326], in the case of City of Nagpur Corporation v. J.S Philip [A.I.R 1963 S.C 897], for the proposition that discretion exercised by an authority should not be interfered with by Court. There is no dispute with the proposition. The discretion if exercised properly in accordance with law cannot be interfered with in a writ application. But if an order has been passed which is not a speaking order and which has indicated non-application of mind, it is not a question of interfering with the discretion exercised by the authority concerned.
7. For the reasons mentioned, the impugned order is set aside and I direct the Commissioner to proceed afresh in accordance with law and in the light of the observations made in this judgment. The rule is made absolute to the extent indicated above. The Commissioner must determine this matter within ten weeks from this date and until the Commissioner disposes of the matter the bank guarantee given by the petitioner will continue. The petitioners will be at liberty to apply for discharge of bank guarantee if the Commissioner does not dispose of the matter within ten weeks from this date.
8. There will be no order as to cost.
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