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Case Number

Matter No. 2206 of 1987

Advocates

Ram Chandra Prasad
R.P.Mukherjee
K.Mondal
Dilip Kumar Dhar

Judges

Prabir Kumar Majumdar
Nripendra Kumar Bhattacharyya, JJ.

Acts

EMPLOYEES PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT 1952
clause (f) of sub-s. (1) of s. 7 of the Factories Act, 1948 (63 of 1948)
Fund.Sub-section 5 of s. 17

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Smart Summary

Case Summary — Appeal concerning notices under ss. 14B and 17B, Employees' Provident Funds & Miscellaneous Provisions Act, 1952

Factual and Procedural Background

The present appeal challenges a judgment and/or order (variously dated in the opinion as 2nd May, 1988 and 22nd May, 1988) of the trial Court (Hon'ble Mr. Justice Babulal Jain) which discharged a rule and vacated interim orders in a writ petition.

In the writ petition the petitioner No. 1 alleged that it purchased the Bundapani Tea Estate from Ramjhore Tea Estate Co. Ltd., with the transfer taking effect from 1st January, 1975, and that since then petitioner No. 1 has been operating the estate.

Petitioner No. 1 received a notice dated 18th March, 1986 from respondent No. 1 (Regional Provident Fund Commissioner, West Bengal) under s. 14B of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 ("the Act"), directing the petitioner to show cause why damages should not be levied for defaults in payment of provident fund dues for specified pre-1975 periods (September–November 1968; March 1970–January 1973; May 1973–February 1974).

The petitioner's manager replied (31st March, 1986) asserting the defaults related to the pre-purchase period and directing correspondence to the seller (Ramjhore Tea Estate Co. Ltd.). Respondent No.1 then, by letter dated 10th April, 1986, relied on s. 17B to state that the employer and the person to whom the establishment is transferred are jointly and severally liable and requested appearance; hearings were adjourned. By letter dated 3rd September, 1986 respondent No.2 confirmed that damages under s.14B were to be paid by petitioner No.1 under s.17B.

The writ petition sought a writ of mandamus directing the respondents to withdraw, cancel or set aside the notices (Annexures B, C and I/D). A rule was issued. The trial Judge discharged the rule and vacated interim orders. The petitioners appealed; a stay application in the appeal was granted (staying operation of the trial Court order) pending the appeal.

Legal Issues Presented

Whether a notice under s. 14B of the Act (which contains a proviso requiring that "the employer shall be given a reasonable opportunity of being heard") can be served upon the transferee of an establishment (the person to whom the establishment is transferred) in respect of defaults that occurred prior to the transfer.
Whether the expression "other sums due" in s. 17B must first be ascertained and quantified before any demand can be raised on the transferee, and whether such ascertainment/quantification requires a s.14B hearing.
Whether s.14B's hearing requirement applies only at a stage prior to transfer (i.e., to the "employer") and does not contemplate serving notice on the "other person" contemplated by s.17B.

Arguments of the Parties

Appellant's Arguments (Mr. Dhar)

s.14B envisages that an employer must be given a reasonable opportunity of being heard before damages are levied; the section contemplates service of the notice upon the employer only.
There is nothing in s.14B indicating that notice may be served upon a transferee; s.14B is confined to the pre-transfer period and contemplates a hearing of the employer before transfer.
The phrase "other sums due" in s.17B must be a quantified sum determined after ascertainment; unless and until such sums are ascertained and quantified, no demand can be raised on the transferee.
Therefore, the s.14B notice served on petitioner No.1 (the transferee) was illegal and liable to be quashed.

Respondent's Arguments (Mr. Prasad)

Under s.17B liability runs jointly and severally between the employer and the transferee for contribution and "other sums due" in respect of periods up to the date of transfer.
To ascertain the transferee's liability the authority must conduct a hearing (under s.14B) in the presence of either the employer or the transferee so that the "other sums due" can be ascertained and quantified.
Accordingly, a notice under s.14B can be served on the person to whom the establishment is transferred (the transferee).

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The following sets out the court's step-by-step legal analysis as expressed in the opinion; no inference beyond the text is made.

The court examined the language and context of the relevant statutory provisions: s.14B (power to recover damages and proviso requiring that the employer be given a reasonable opportunity of being heard), s.15(2), s.17(5) and s.17B (liability in case of transfer), together with the definition of "employer" in s.2(e).
The court observed that ss.14B, 15(2) and 17(5) "contemplate a period and or stage prior to any transfer of the establishment." By contrast s.17B explicitly contemplates the situation after transfer: it speaks of "the employer and the person to whom the establishment is so transferred" being jointly and severally liable for sums due in respect of the period up to the date of transfer.
From the textual distinction the court concluded there is a difference between "employer" (as defined in s.2(e)) and "the other person" (the transferee) mentioned in s.17B. The transferee is not encompassed within the statutory definition of "employer" for the purposes of s.14B.
The court reasoned that the absence of any reference to "the other person" in s.14B shows that the hearing contemplated by the proviso to s.14B is a hearing of the employer before transfer. Thus, s.14B contemplates notice upon the employer and not upon the transferee who comes into the picture only after transfer under s.17B.
The court further noted that the periods for which damages were sought (the three periods listed in the notices) were all prior to the effective date of transfer to petitioner No.1 (1st January, 1975). Therefore the notices under s.14B, as served on the transferee (petitioner No.1), were inappropriate because the stage of s.17B (post-transfer liability and quantification of "other sums due") had not been reached in the statutory scheme invoked for a s.14B notice.
The court concluded that the "other sums due" must be ascertained and quantified before a demand can be raised on the transferee and that, until such ascertainment and quantification occurs (and subject to the statutory limitation that the transferee's liability is limited to the value of assets obtained by transfer), no demand can be validly raised on the transferee by way of a s.14B notice.
On that statutory-textual basis the court rejected the respondents' contention that s.14B notices could properly be served on the transferee in respect of the specified pre-transfer periods and held that the notices as served were not legally sustainable.

Holding and Implications

Core Ruling: The appeal is allowed and the notices under s.14B (dated 18th March, 1986; 10th April, 1986; and 3rd September, 1986 — Annexures B, C and D/I to the writ petition) are quashed.

Direct consequences of the decision:

The judgment and/or order under challenge of the trial Court is set aside.
All interim stays, if any, granted by the trial Court are vacated.
The respondents are not precluded by this decision from proceeding against the petitioners "according to law" (the court expressly stated this reservation).
The respondents' subsequent prayer for stay of the appellate order was refused by the court.

The opinion does not discuss broader jurisprudential implications beyond the statutory interpretation and the direct effect on the parties; accordingly, no new precedent beyond the ratio articulated in this decision is discussed in the text.

Operative notation in the opinion:

“Notices quashed. Appeal allowed. Prayer for stay refused.”

Judge Prabir Kumar Majumdar concurred with the judgment.

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Darjeeling Dooars Plantation Ltd. & Anrs. v. Regional Provident Fund Commissioner, West Bengal & Ors.

Nripendra Kumar Bhattacharyya, J.:—The present appeal is directed against the judgment and/or order dated 2nd May, 1988 passed in Matter No. 2206 of 1987 by the Hon'ble Mr. Justice Babulal Jain, J. discharging the rule and vacating the interim orders.

2. In their writ petition before the trial Judge the writ petitioner alleged that the petitioner No. 1 purchased Bundapani Tea Estate from Ramjhore Tea Estate and all the right, title and interest of the said Tea Estate Co. Ltd. vested in petitioner No. 1 with effect from 1st January, 1975. Since then the petitioner No. 1 has been running the said Tea Estate. The petitioner No. 1 received a notice dated 18th March, 1986 from respondent No. 1, Regional Provident Fund Commissioner, West Bengal, directing the petitioner to show cause as to why damages are not to be levied for default in payment of the dues to the provident fund for the month of September, 1968 to November 1968, March 1970 to January 1973 and May 1973 to February 1974. The said notice is under s. 14B of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 which term will be referred to hereinafter as the Act.

3. The notice and or letter has been annexed to the writ petition as Annexure B. The Manager of the petitioner No. 1 by a letter dated March 31, 1986 informed the respondent No. 1 that the matter relates to pre-purchase period and the present management of the petitioner No. 1 was in no way responsible for such payment of dues so all correspondences regarding the same should be made with Ramjhore Tea Estate Co. Ltd. at 36A Metcalf Street, Calcutta.

4. The Respondent No. 1 by its letter dated 10th April, 1986 indicated to the petitioner No. 1 that as under s. 17B of the Act the employer and any person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under the provision of the Act or the scheme as the case may be in respect of the period up to date of such transfer, the petitioner No. 1 was requested to appear before that authority on 17th April, 1986. The said letter is annexed to the writ petition as Annexure C. Thereafter the hearing was adjourned from time to time.

5. Thereafter the petitioner No. 1 received a letter and/or notice from respondent No. 2 dated September 3rd, 1986 intimating that under s. 17B of the Act the liability to pay the amount of damages is with person to whom the establishment is transferred. Accordingly, the damages as may be levied under s. 14B are to be paid by the petitioner No. 1.

6. In the writ petition the petitioner prayed for writ of mandamus for a command upon the respondents to withdraw cancel and or to set aside the said notice dated March 18, 1986 issued by the respondent No. 1 and the letter dated September 3, 1986 issued by the respondent No. 2.

7. A rule was issued upon the writ application. The trial Judge while discharging the rule and vacating the interim orders by his judgment and order dated 22nd May, 1988 inter alia observed:

“In my opinion, the liability under s. 14B of the said Act is covered within the meaning of the expression” other sums due from the employer under any provisions of this Act” as used in s. 17B of the said Act. By virtue of the said Section the petitioner No. 1 as jointly as well as severally liable along with his seller and the Provident Fund Commissioner had the option to proceed against both or either of them. It is for the petitioners to find out as to whether the petitioner No. 1 had obtained any indemnity from his seller as against such liabilities arising to the petitioner No. 1 for any periods prior to the date of the purchase. That matter as between the petitioner No. 1 and its sellers is to be governed by the terms of the contract of purchase and/or its interpretation. So far as the Provident Fund Authorities are concerned by virtue of the said s. 17B they are at liberty to proceed even against the petitioner No. 1 alone who claims to be the present owner of the tea estate.

By this application the petitioner No. 1 has sought to challenge the three notices dated 18th March, 1986 being Annexure-B to the petition, the notice dated 10th April, 1986 being Annexure-C to the petition and also the notice dated 3rd September, 1986 being Annexure-I to the petition and/or the orders and/or the decisions contained therein.

In my opinion the Provident Fund Commissioner was and is entitled to proceed against the existing owner even though the obligation relates to the period prior to the effective date of purchase, by virtue of s. 17B of the said Act. In that view of the matter. I do not think that there are any merits in this application.”

8. Being aggrieved by that judgment and/or decision of the trial Judge the petitioners preferred this appeal. In connection with the appeal a stay application has been filed praying for stay of operation of the order of the trial Court and stay has been granted staying the operation of the order of the trial Court.

9. The learned counsel Mr. Dhar contended for the appellant that s. 14B envisages that a hearing should be given to the employer before levying and recovering the damages regarding default in payment of any contribution to the fund (the family Fund or the Insurance Fund,) or in the transfer of accumulations required to be transferred by him under sub-s. (2) of s. 15 or sub-s. (5) of s. 17 or in the payment of any charge payable under any other provisions of the Act or of any Scheme or Insurance Scheme or under any of the conditions specified under s. 17.

10. Mr. Dhar contended that a notice under s. 14B is contemplated to be served upon the employer. In that section there is nothing to show that section contemplates any transfer of the establishment and any notice upon the transferee on such transfer. Mr. Dhar further submitted that s. 14B of the Act is confined to a period before transfer, if there is any such transfer, and as such it also contemplates a notice for hearing upon the employer only before transfer of the establishment. He also contended that the expression “other sums due” as used in s. 17B of the Act must be a quantified sum after ascertainment. He submitted that unless and until the sum is ascertained and quantified no demand can be raised upon the person to whom the establishment is so transferred. He contended further that till the “other sums due” is ascertained and quantified no demand can be made from the person to whom the establishment is so transferred. According to Mr. Dhar the notice under s. 14B as has been served upon the petitioner is illegal and is not warranted by law and as such the same is liable to be quashed.

11. Mr. Prasad on the other hand contended for the respondents that under s. 17B of the Act the liability runs jointly and severally with the employer or the person to whom the establishment is to transferred to pay the contribution and “other sums due” from the employer. He also contended that in order to ascertain their liability regarding the “other sums due” a hearing is necessary in presence of the employer or the person to whom the establishment is so that the “other sums due” can be ascertained and quantified and after such ascertainment and quantification of the amount the demand can be raised jointly upon the owner and the other person to whom the establishment is so transferred or from either of them. He contended further that accordingly a notice under s. 14B of the Act can be served also upon any person to whom the establishment is so transferred.

12. With anxiety and patience we have heard the submissions of the learned counsels for the parties. We are unable to accept the contention of Mr. Prasad for the following reasons.

13. Section 14B of the Act reads as follows:—

“14B. Power to recover demages—Where an employer makes default in the payment of any contribution to the Fund, the Family Pension Fund or the Insurance Fund or in the tranfer of accumulations required to be transferred by him under sub-s. (2) of s. 15 or sub-s. (5) of s. 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or Insurance Scheme-or under any of the conditions specified under s. 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gaeztte, in this behalf may recover from the employer such damages not exceeding the amount of arrears, as may be specified in the Scheme.

Provided that before levying and recoverring such damages, the employer shall be given a reasonable opportunity of being heard.”

Sub-section (2) of s. 15 reads as follows:—

“15. Special provision relating to existing provident funds—(2) On the application of any Scheme to an establishment, the accumulations in any provident fund of the establishment standing to the credit of the employees who become members of the Fund established under the Scheme shall, notwithstanding anything to the contrary contained in any law for the time being in force or in any deed or other instrument establishing the provident fund but subject to the provisions, if any, contained in the Scheme, be transferred to the Fund established under the Scheme, and shall be credited to the accounts of the employees entitled thereto in the Fund.”

Sub-section 5 of s. 17 runs as under:—

“17. Power to exempt—(5) Where any exemption granted under sub-s. (1), sub-s. (1-A), sub-s. (1-C), sub-s. (2), sub-s. (2-A) or sub-s. (2-B) is cancelled, the amount of accumulations, to the credit of every employee to whom such exemption applied, in the provident fund, the family pension fund or the insurance fund or the establishment in which he is employed together with any amount forfeited from the employer's share of contribution to the credit of the employee who leaves the employment before the completion of the full period of service shall be transferred within such time and in such manner as may be specified in the Scheme or the Family Pension Scheme or the Insurance Scheme to the credit of his account in the Fund or the Family Pension Fund or the Insurance Fund, as the case may be.”

According to the definition as in s. 2(e) of the Act, “employer” means—

“(i) in relation to an establishment which is a factory the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause (f) of sub-s. (1) of s. 7 of the Factories Act, 1948 (63 of 1948) the person so named; and

(ii) in relation to any other establishment, the person who, or the authority, which has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent.”

Section 17B of the Act reads as under:—

“17B. Liability in case of transfer of establishment—Where an employer in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or the Family Pension Scheme or the Insurance Scheme, as the case may be, in respect of the period upto the date of such transfer:

Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.”

14. A plain reading of Ss. 14B, 15(2), 17(5) clearly indicates that the said Sections contemplate a period and or stage prior to any transfer of the establishment. Section 17B of the Act on the other hand contemplates a stage post transfer. The same will be evident from the use of the expression “the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay contribution and” other sums due “from the employer”. So that expression “the employer and other persons to whom the establishment is transferred”, clearly indicates that the transferee does not come within the meaning of the employer as in s. 2(e) of the Act. Under s. 17B of the Act the transferee is “the other person”. So there is a distinction between “employer” and “the other person”. “The other person” comes only after transfer of the establishment either in whole or in part. Transfer of the establishment is contemplated under s. 17B of the Act. The sections prior to that in the Act does not contemplate, either the transfer of the establishment or “the other person”. Section 17B does not contemplate any hearing of “the employer” and “the other person” or either of them. Rut s. 14B contemplates a hearing of “the employer”. The absence of the expression “the other person” in s. 14B clearly shows that it is a stage prior to the transfer of the establishment. In other words s. 14B contemplates in its proviso notice upon “the employer”, and not upon “the other persons”. The three notices dated 18th March, 1986 (Annexure ‘B’ to the petition), dated 10th April, 1986 (Annexure ‘C’ to the writ petition) and 3rd September, 1986 (Annexure ‘D’ to the writ petition) are for the period from the month of September, 1968 to November 1968, March 1972 to January 1973 and May 1973 to February 1974. The said period is prior to the transfer of the establishment to petitioner No. 1; The transfer was effected from January 1st, 1975. So in view of our discussion above notice under s. 14B for the purpose of hearing of the employer is to be given upon “the employer” and not upon “the person to whom the establishment is so transferred”. In the instant case the person as contemplated in s. 17B of the Act is the present petitioner-1. So no notice under s. 14B can be served on him. The stage of s. 17B has not yet arrived. The “other sums due” has not yet been ascertained and quantified. Unless and until such sum due is ascertained and quantified which liability of the transferee shall be limited to the value of the estates obtained by him by such transfer, no demand can be raised on the transferee, in the instant case the petitioner.

15. In that view of the matter we quashed the notices dated 18th March, 1986 (Annexure B to the writ petition), dated 10th April, 1986 (Annexure C to the writ petition) and 3rd September, 1986 (Annexure D to the writ petition). The appeal is accordingly allowed. The judgment and/or order under challenge is hereby set aside. All interim stay, if any, stand vacated. We make it clear that this will not preclude the respondents from proceeding against the petitioners according to law.

Learned Counsel for the respondents prays for stay of operation of this, order. Such prayer for stay is refused.

All parties shall, act on a signed copy of the minutes of the operative part of this judgment upon usual undertaking.

Prabir Kumar Majumdar, J.:—I agree.

Notices quashed. Appeal allowed. Prayer for stay refused.

A.G

Darjeeling Dooars Pl... v. Regional Provident F...