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  • Employees Provident Funds Act, 1952 (Act XIX of 1952) (hereinafter referred to as the Act)
  • S. 7-A into the Act in 1963. That Section
  • PROVIDENT FUNDS ACT
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Citation Codes
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citation codes
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  • Employees Provident Funds Act, 1952 (Act XIX of 1952) (hereinafter referred to as the Act)
  • S. 7-A into the Act in 1963. That Section
  • PROVIDENT FUNDS ACT
Smart Summary

Structured Summary of the Judgment (Ramakrishnan, J.) — Appeals W.A. No. 80 of 1963 & W.A. No. 81 of 1963

Factual and Procedural Background

These two appeals arise from writ petitions under Article 226 (W.P. No. 888 of 1959 and W.P. No. 619 of 1959) decided by Jagadisan, J. and Veeraswami, J., respectively. The appeals were heard together because they raised common questions.

In W.P. No. 888 of 1959 (now W.A. No. 80 of 1963) the petitioner was a firm operating a factory (since 1942) employing more than 50 persons and manufacturing tapes, lampwicks, etc. The firm disputed the applicability of the Employees Provident Funds Act, 1952. The Central Government issued an order on 29 September 1958 under Section 19-A of the Act holding that the Act applied. The Regional Provident Fund Commissioner (Madras) by order dated 1 September 1959 required the petitioner to pay:

  • Employer's share of contribution from 1 November 1952 (date the provident fund scheme became applicable) up to 30 April 1957;
  • Administrative charges calculated at 3% of total employer's and employees' contribution (per the scheme/notification); and
  • Damages for default calculated at 6¼% per annum (subject to a maximum of 25% under S. 14-B).

Jagadisan, J. followed the Calcutta High Court decision in Aluminium Corporation of India Ltd. v. Regional Provident Fund Commissioner and held the claims for the back period (contributions and administrative charges) unsustainable, issuing a writ of mandamus forbearing collection for the period 1 November 1952 to 30 April 1957; the judge did not grant relief regarding damages as that claim was under investigation. The Regional Provident Fund Commissioner appealed (W.A. No. 80/1963).

In W.P. No. 619 of 1959 (now W.A. No. 81 of 1963) the petitioner East India Industries Pte., Madras (manufacturing waterproof packing paper, tarpaulins etc.) was called upon to remit arrears of employer's contribution from 1 March 1954 to 31 March 1958, administrative charges at 3% on both employer's and employees' contribution, and damages at 6¼% per annum. The petitioner conceded the employer's share but disputed (a) administrative charges calculated on double the employer's contribution and (b) damages. Veeraswami, J. quashed the order of the Regional Provident Fund Commissioner as regards the two disputed items and maintained the claim for arrears of employer's contribution. The Commissioner appealed (W.A. No. 81/1963).

Legal Issues Presented

  1. Whether Clause 26 read with Clause 30 of the Employees Provident Fund Scheme (framed under Section 5 of the Act) entitles the Provident Fund Commissioner to recover from the employer arrears of contribution for the "pre-discovery" or back period (i.e., from the date the scheme became applicable to the date when the Commissioner issued notice or the Central Government removed doubt under Section 19-A).
  2. Whether administrative charges (fixed as a percentage) are recoverable for the pre-discovery/back period.
  3. Whether damages for default under Section 14-B can be imposed for the pre-discovery/back period in the absence of proof of default.
  4. How the word "required" in Clause 26 should be interpreted — as mandatory (obligating employers to comply from the date the scheme applies) or directory (allowing delay until discovery/notice).
  5. Whether the retrospective enforcement of scheme provisions for the back period gives rise to any constitutional infirmity (the opinion records an argument invoking Article 19(1)(b) of the Constitution as pressed by counsel).

Arguments of the Parties

Petitioners / Employers

  • Contended that claims for contributions and administrative charges for the back period were unsustainable because retrospective levy would be oppressive and illegal.
  • In the second case the petitioner conceded liability for the employer's share for the back period but challenged the administrative charges (as calculated on double the employer's contribution) and the damages claim.
  • Argued (as recorded in the Calcutta decision relied upon) that practical difficulties made retrospective enforcement impossible or unjust — e.g., employees who had left service and drawn accumulations, impossibility of recovering employees' contributions, and difficulties in applying other scheme provisions retrospectively.

Respondent / Regional Provident Fund Commissioner

  • Asserted that from the date the Scheme came into force Clause 26 made membership automatic and Clause 30 made the employer liable to pay both employer's and employees' contributions; liability did not depend on the Commissioner discovering non-compliance or issuing a notice.
  • Maintained that an employer cannot avoid liability by pointing to delay in discovery or delay in an order under Section 19-A; the scheme's provisions operate from their notified date.
  • Counsel (Sri K.K. Venugopal) for the respondent in W.A. 80 of 1963 also argued that the proceedings involved a violation of Article 19(1)(b) (the right to acquire, hold and dispose of property), referring to possibilities of prosecution for omissions occurring during the back period.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Aluminium Corporation of India Ltd. v. Regional Provident Fund Commissioner (Calcutta High Court, Mukherji, J.) Supported the view that retrospective enforcement for the pre-discovery period was unjust and that various demands for back contributions, administrative charges and damages were invalid in the circumstances. The Calcutta decision was followed by Jagadisan, J. in W.P. 888/1959. The present Court reviewed Mukherji, J.'s objections and expressly disagreed with that reasoning on the main issue of liability from the date the Scheme came into force, though it accepted that hardships may be mitigated under S. 7-A.
Kapurbembar (Kapurbhimbar) Union v. Regional Provident Fund Commissioner (Punjab High Court Division Bench) Held that the Act takes effect at once and provisions become enforceable from the date the relevant clause of the Scheme comes into force (supporting recoverability for the back period). Cited as authority supporting the present Court's conclusion that employers' liabilities arise from the Scheme's operative date.
Nazeena Traders Pte. Ltd. v. Regional Provident Fund Commissioner (Andhra Pradesh High Court) Similar holding that liability arises from the date the Scheme applies and does not depend on department's discovery or issue of notice. Referenced as supporting the Court's adopted view on enforceability from the Scheme date.
Kokkalai R. and O.M. Foundry v. R.P.F. Commissioner (Kerala Full Bench) Followed the view that contributions are enforceable from the operative date of the Scheme. Quoted as part of the body of authority endorsing the Court's position that obligation arises automatically from the Scheme date.
N.K. Industries (P) Ltd. v. R.P.F. Commissioner (Allahabad High Court) Held that the Scheme's provisions are enforceable from their operative date (supporting collection for the back period). Referred to as an authority aligning with the Court's conclusion.
Nagpur Glass Works v. R.P.F. Commissioner (Bombay High Court — Mudholkar & Naik, JJ.) Held Clause 27 of the Scheme mandatory; noted in passing that the word "require" in Clause 26 may be distinguished from "shall become". Cited: the Court noted the decision but observed that the Nagpur Glass Works judgment did not sufficiently discuss the significance of "require" in Clause 26 in the statutory context.
Orissa Cement v. Union of India (Supreme Court) Struck down a scheme provision making employers unconditionally liable to pay employees' contribution for contractor's employees when there was no provision for recovery — held unfair, harsh and discriminatory (contravening Article 19(6) per the opinion's description). Distinguished on facts: the Court noted that Orissa Cement invalidated an unfair provision as it left no recovery remedy to employers; here employers have avenues (including S. 7-A) and the factual matrix differs.
Annamalai Mudaliar and Bros. v. R.P.F. Commissioner (Rajagopalan, J.) Stated that provisions of the Act should not be applied to a factory in the event of a dispute until a decision under S. 19-A is given to settle the dispute. The Court observed that this decision does not support the proposition that once a S. 19-A order is given in favour of the department, demands for back periods cannot be enforced; it is not authority for barring retrospective enforcement once the dispute is resolved adversely to the employer.
King v. Birmingham; Queen v. The Justices of Worcestershire; Coal v. Creese; K.S. Srinivasa v. Union of India (authorities on interpretation) These decisions were cited on the jurisprudence of interpreting the word "required" — illustrating that "require" can be read as mandatory or directory depending on context and justice considerations. The Court reviewed these authorities; it concluded that in the context of the Act and Scheme, "required" in Clause 26 is to be given a mandatory meaning and not a purely directory one.
Maxwell, Interpretation of Statutes (textbook) Principle that arguments drawn from inconvenience, absurdity or injustice may influence statutory construction. The Court referred to Maxwell to note that absurdity/injustice can justify alternative constructions but concluded that the Scheme's mandatory character and remedies under S. 7-A counsel in favour of reading Clause 26 as obligatory.

Court's Reasoning and Analysis

The Court analysed the statutory framework and the Scheme provisions in detail, focusing on Clause 26 (membership requirement), Clause 29 (rate of employer contributions — 6¼% of basic wages and dearness allowance), Clause 30 (employer to pay both employer's and employees' contributions in the first instance and responsibility of principal employer for payments and administrative charges), Clause 32 (employer's power to recover employees' contribution by deduction with a proviso), Section 14-B (power to recover damages up to 25% for defaults), Section 19-A (power of Central Government to remove difficulties by order), and Section 7-A (inserted by 1963 amendment authorising the Provident Fund authorities to determine amounts due after enquiry and making such orders final).

Main analytical steps:

  1. Interpretation of Clause 26: The Court examined the statutory language, the words "entitled and required to become a member", and authorities on the meaning of "required". It concluded that given the overall compulsory purpose of the Act and Scheme, "required" in Clause 26 must be read as mandatory in this context. The obligation to treat qualifying employees as members and to make contributions arises from the date the Scheme becomes applicable, without awaiting notice from the Provident Fund Commissioner.
  2. Retrospective enforcement / pre-discovery period: The Court rejected the view that the employer's liability should be limited to the period after detection/notice or after a Section 19-A order. It held that the Scheme imposes automatic obligations on the employer from the operative date; delay in discovery or in a S. 19-A decision does not absolve the employer. The Court observed that an employer who is indifferent or deliberately recalcitrant cannot rely on administrative delay to avoid liability.
  3. Administrative charges: The Court reasoned that administrative charges are fixed as a percentage of the contribution amount and are designed to meet administrative costs connected with funds actually collected (investment, accounts, etc.). Thus, administrative charges calculated as a percentage on the amount of contribution claimed for the back period are recoverable as regards the employer's contribution (although the Court noted possible limits in respect of employees' contributions when those have neither been demanded nor paid).
  4. Damages for default: The Court held that damages under Section 14-B could not be imposed without proof of default. An absence of payment in the pre-discovery period does not automatically establish a "default" — each case must be examined on its facts. Because Section 7-A (inserted after the orders in these appeals) provides a process for enquiries and gives employers a hearing, the Court remitted claims for damages and other individualized difficulties (employees who left service, died, dismissed etc.) to the authority under S. 7-A for fresh consideration.
  5. Constitutional challenge: The Court considered the argument invoking Article 19(1)(b) (as raised by counsel) concerning possible prosecutions for omissions occurring in the back period. The Court observed that the petitioner would be able to raise such defenses where prosecution is involved but that no specific rule offending Article 19(1)(b) had been identified in the present proceedings. The Court also distinguished Orissa Cement (Supreme Court) on facts, noting that the present Scheme (and the opportunity to recover employees' contributions) is materially different from the provision struck down in Orissa Cement.
  6. Remedy and procedural safeguards: The Court emphasised that hardships or injustices resulting from application of the Scheme to the back period are matters for enquiry under Section 7-A (as amended in 1963), where the employer is entitled to be heard and may seek relief (including waiver of employees' share for the pre-discovery period or relief as regards individual employees who left, died, or whose whereabouts are unknown).

Holding and Implications

Holding:

The appeals are allowed in part.

More specifically:

  • In W.A. No. 80 of 1963 the Court set aside the order of Jagadisan, J. that had issued a writ of mandamus forbidding the Regional Provident Fund Commissioner from collecting contributions and administrative charges for the period 1 November 1952 to 30 April 1957. The Court observed, however, that the petitioner may raise claims for relief (including damages and claims relating to individuals who left employment) before the appropriate authority under Section 7-A of the Act.
  • In W.A. No. 81 of 1963 the Court allowed the appeal from the decision of Veeraswami, J., and made a similar observation that the employer may seek necessary reliefs under Section 7-A.
  • The Court remitted claims for damages and other individualized enforcement difficulties to be examined afresh by the authority empowered under Section 7-A (as inserted in 1963), giving employers the opportunity to present hardship or other factual objections.
  • No costs were awarded.

Implications:

  • Direct effect on the parties: The decisions of the High Court judges (Jagadisan, J. and Veeraswami, J.) insofar as they forbade or quashed recovery of certain claims for the back period were set aside in part; the Provident Fund authorities are entitled to press claims arising from the period when the Scheme applied, subject to the remedial and adjudicatory safeguards under S. 7-A.
  • Relief mechanisms available to employers: Employers may apply under Section 7-A for adjudication and relief in respect of damages and specific hardship situations (employees who left, were dismissed, died, etc.), and may seek waiver of employees' share for the pre-discovery period where justified.
  • On administrative charges: The Court accepted that administrative charges calculated as a percentage of contributions are, in principle, recoverable for the employer's contribution claimed for the back period.
  • On damages: Damages cannot be imposed as a matter of course for the pre-discovery period; proof of default and case-specific enquiry under S. 7-A is necessary.
  • Broader precedent: The Court adopted and relied on the body of High Court authority holding that the Scheme operates from the date it is made applicable; however, the Court also recognised procedural safeguards introduced by the 1963 amendment (S. 7-A) to avoid injustice in individual cases.
  • The Court did not identify any specific provision that contravened Article 19(1)(b) in the circumstances presented; defenses remain open where prosecution or other penal consequences are concerned.

Note: This summary is restricted to and derived exclusively from the content of the provided opinion. No information not contained in the opinion has been added.

    The Regional Provident Fund Commissioner, Madras v. K.R Subbaier Tape Factory, Woraiyur, Tiruchirapalli.

    The Advocate General for Mr. Q. Ramanujam for Appt.

    Messrs. K.K Venugopal and S. Swaminathmt for Respts.

    JUDGMENT

    (Delivered by Ramakrishnan, J.)

    These appeals are directed respectively against the judgments of Jagadisan, J. in W.P No. 888 of 1959 and Veeraswami, J., ia W.P No. 619 of 1959, petition filed under Art. 226 of the Constitution. They were heard together since common questioai have arises in them for decision.

    In the first ease, the petitioner firm ran a factory, from 1942, for manufacturing tapes, lampwicks, etc, with more than 50 persons ia its employ. At an anterior stage, the firs disputed the fact that the Employees Provident Funds Act, 1952 (Act XIX of 1952) (hereinafter referred to as the Act) would apply to the firm, and the question was settled only when the Central Government passed an order on 29th September 1958 under S. 19-A of the Aet, holding that the Act applied. This decision was challenged by the petitioner in W.P 888 of 1959 but Jagadisan, J., held that point against the petitioner. It is now not in dispute that the petitioner's concern is covered by the Act. The Regional Provident Fund Commissioner, Madras, by an order dated 1st September 1959 called upon the petitioner to pay (1) the Employer's share of the contribution to the provident fund from 1st November 1952 (the date on which the provident fund scheme framed under the Act became applicable to the firm) upto 30th April 1957, (the date when the petitioner was called upon to pay the contribution by a notice); (2) administrative charges in full, calculated on both the employees' and employer's share of the contribution to the provident fund (under Clause 39 of the provident fund scheme read with the Notification of the Government dated 31st October 1952, the percentage of administrative charges payable by the employer was fixed at 3 per cent of the total employer's and employees' contribution); and (3) damages for default calculated at 6i per cent per annum from the date on which the arrears fell due, upto the date of remittance (under S. 14-B of the Act, a maximum of 25 per cent of the amount of arrears was fixed for damages). The petitioner urged in the writ petition, that these claims for a back period were unsustainable and that a careful examination of the Act and the scheme, would showthat the provident fund contributien and administrative charges, cannot he levied retrospectively, because such levy would be oppressive and illegal. Jagadisan, J., following the decision of the Calcutta High Court of a single Judge, Mukherji, J., reported in Aluminium Corporation of India, Ltd. v. Regional Provident Fund Commissioner(1) upheld the contentions of the petitioner, and directed the issue of a writ of mandamus, against the Regional Provident Fund Commissioner, the respondent before the learned Judge, to forbear from making collections from the petitioner, by levy of contributions and management expenses for the period 1st November 1952 to 30th April 1957. In regard to the claim for damages, the learned Judge accepted the contention of the Regional Provident Fund Commissioner, that the claim for damages had not yet been settled but was under investigation and therefore did not grant any relief in regard to it. Against this decision, the respondent before the learned Judge, the Regional Provident Fund Commissioner has filed this appeal, W.A No. 80 of 1963.

    In W.P No. 619 of 1959, East India Industries Pte., Madras, a firm engaged in manufacturing water proof packing paper, tarpaulins, etc., had been called upon by the Provident Fund Commissioner, to remit the arrears of employer's contribution for the period from 1st March 1954 (the date when the scheme framed under the Act became applicable to the factory) to 31st March, 1958, besides the administrative charges for the said period at 3 per cent on both the employees' and employer's contribution, and damages at 6¼ per cent per annum. There was an initial dispute before Veeraswami, J. as to whether the firm in question was a factory to which the Act would apply. That question was answered in the affirmative by the learned Judge, and there is now no dispute about it. The petitioner before the learned Judge at the time of the hearing, conceded the validity of the claim for the employer's share of the provident fund contribution during the aforesaid back period, but disputed the claim for arrears of administrative charges, calculated on double the employer's contribution, and for damages. Veeraswami, J. held that these two claims were unsustainable, and, by a writ ef certiorari quashed the order ef the Regional Provident Fund Commissioner, in regard to the two items mentioned above, and maintained the claim for the arrears of employer's contribution to the provident fund.

    The learned Judge also followed the decision in Aluminium Corporation of India Ltd. v. Regional Provident Fund Commissioner (1) to whieh we have made reference. Against this decision, the present appeal W.A No. 81 of 1963 is filed by the Regional Provident Fund Commissioner.

    It is common ground in both these cases that before the enactment of the Provident Funds Act, there was no provident fund scheme in existence, in the two firms concerned in these appeals. Cl. 26 (1) of the Scheme framed under the Act provides:

    “26 (1) (a). Every employee employed in or in connection with the work of a factory or other establishment to whieh this Scheme applies, other than an excluded employee shall be entitled to and required to become a member ef the fund from the beginning of the month following that in which this paragraph comes into force in such factory or other establishment, if on the date of such coming into force he has completed one year's continuous service or has actually worked for not less than 240 days during a period of 12 months or less in that factory or other establishment or in any other factory or other establishment to which the Act applies under the same employer, or party in one and partly in the other.

    (b) Every employee employed in or in connection with the work of a factory or other establishment to which this Scheme applies, other than as excluded employee shall also be entitled and required to become a member of the fund from the beginning of the month following that in which this paragraph comes into force in such factory or other establishment if, on the date of such coming into force, such employee is a subscriber to a provident fund maintained in respect ef the factory or other establishment or in respeet of any other factory or establishment to whieh the Act applies under the same employer;

    Provided that where the Scheme applies to a factory or other establishment on the expiry or cancellation of an order of exemption under S. 17 of the Act, every employee who but for the exemption would have become and continued as a member of the Fund, shall become a member of the Fund forthwith.”

    Clause 26 was recast by an amendment in 1959, and before that amendment it was couched in a simple form, providing that all employees employed in a factory, except excluded employees, shall be required to become members of the fund from the date theScheme is applied to the factory if they have completed one year's continuous service on that date. But for the purpose of discussion in the present appeals there is not much difference between the clause-before the amendment and that after the amendment.

    Clause 29 states that the contributions payable by the employer under the Scheme shall be at the rate of 6i per cent of the basic wages and dearness allowance payable to each employee to whom the Scheme applies. Cl. 30 (I) provides that in the first instance the employer shall pay both the contribution payable by himself and also on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member. Clause 30 (3) says that it shall be the responsibility of the principal employer to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges. There follows an explanation which states that the administrative charges shall be fixed by the Central Government in consultation with the Central Board at a certain per centage of the pay (basic wages, dearness allowances, retaining allowance, if any, and cash value of food concessions admissible thereon) and having regard to the resources of the fund for meeting its aormal administrative expenses. Clause 32 gives power to the employer to recover the employees' contribution by deduction from the wages of the member. The proviso to this clause says that no such deduction may be made from any wage other than that which is paid in respect of the period or part of the period in respect of which the contribution is payable. The effect of this proviso is that if the employer, fails to make a deduction of the employees' contribution from the pay paid for a particular period, he is precluded from deducting it subsequently, except in the case of an accidental mistake or a clerical error, or where the employee has given a false declaration that he was not already a member of the fund. S. 14-B of the Act states that where an employer makes defaults in the payment of any contribution to the fund or any payment of any charges payable under any other provisions of the Act or the Seheme, the appropriate Government may recover from the employer such damages, not exceeding 25 per cent of the amount of arrears, as it may think fit to impose. These amounts are recoverable as of land revenue under the provisions of the Revenue Recovery Act.

    S. 19-A of the Act gives power to the Central Government to remove any difficulty arises in giving effect to the provisions of the Act by an order passed for the purpose. Such order will be final.

    Before concluding the reference to the relevant provisions, we may also refer to S. 7-A of the Act inserted by an amendment (Act 28 of 1963). It provides that the Central Government Provident Fund Commissioner, any Deputy Provident Fund Commissioner, or any Regional Provident Fund Commissioner may, by order, determine the amount due from any employer under any provision of the Act or of the scheme, and for this purpose, may conduct such enquiry as he may deem necessary. S. 7-A (2) provides that the employer shall be given a reasonable opportunity of representing his case before an order determining the amount due from him is passed. S. 7-A (4) states that an order made under this section shall be final and shall not be questioned in any Court of law.

    The initial question for consideration is whether Clause 26 referred to above read with Clause 30 would entitle the Provident Fund Commissioner, to recover from the employer, arrears of contribution for a back period or what is called in one of the decisions cited at Bar [Messrs. Kapurbhimbar Union v. Regional Provident Fund Commissioner] the “pre-discovery periodlt S. 5 (1) of the Aot empowers the Central Government by notification, to frame a scheme called the Employees Provident Fund Scheme, for the establishment of provident funds under the Act, and S. 5 (2) indicates that a scheme framed, under Sub-S.(1) may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in this behalf in the scheme. Clause 1 of the Seheme provides that Chapters I to III shall come into force at once and the remaining provisions shall come into force on such date or dates as the Central Government may prescribe by a Notification. Cl. 26 is found in Chapter IV and Clause 30 is found in Chapter V. It is common ground that the relevant date for enforcing these clauses in the Scheme, was 1st November 1952 in W.A 80 of 1963 and 1st March 1954 in W.A 81 of 1963. Jagadisan, J., held on the former case, that the pre-discovery period must bethe period between 1st November 1952 and 30th April 1957, when the employer received a notiee from the Provident Fund Inspector making a demand for the contribution. The order of the-Central Government under S. 19-A negativing the objections of the employer was passed only on 29th September 1958. But the back period was not reckoned from 29th September 1958, the date of the notice was selected instead, for the purpose. This question did not arise before Veeraswami, J., in the latter case, because of a concession by the employer that he was liable to pay the arrears of contribution claimed from 1st March 1954 to 31st March 1958.

    In regard to the validity of the claim for the pre-discovery period, there have been conflicting views of several Courts. One view is that from the date of the coming into force of the Scheme, clause 26 makes it obligatory for all employees who are not exempted, and who have put in 240 days of service to become members of the fund, that thereafter, automatically the liability of the employer to pay both his contribution as well as the employee's contribution, under Clause 30 will arise and that the employer cannot plead, either delay on the part of the Provident Fund Commissioner in' issuing the notice to him to make the contribution, or any delay arising out of the time taken by the Central Government to pass an order under S. 19-A, for shirking this liability. The other view is that if the above interpretation is given to the provisions, it will lead to unjust and oppressive consequences, and even to a state of affairs where the provisions themselves will become unworkable, and therefore retrospective operation (in the sense mentioned above) should be ruled out. This latter view has been unheld in the judgment of a single Judge of the Calcutta High Court, Mukherji, J., in Aluminium Corporation of India Ltd. v. Regional Provident Fund Commissioner a decision which was followed by Jagidisan, J., in W.P ‘888 of 1959, now under appeal in W.A 80 of 1963. We will briefly refer to the facts in the Calcutta case. The firm in that case had a provident fund scheme already in existence. The firm objected to the applicability of the Act and this led to an order dated 23rd October 1957 by the Government of India under S. 19-A which directed the firm to pay the employer's share of the contribution from 1st November 1952 to 31st October 1956, administrative charges on both the employer's and employees’ shares, damages and also the employees' share of the contributions from 1st November 1956 with administrative charges thereon, leaving it to the employees to pay their share of the contribution for the former period if they so desired. The learned Judge, Mukherji, J., catalogued as many as 7 objections, to the validity of the directions for payment of the demands under the various heads mentioned above for the baek period. He stressed in particular, that it was impossible to make the required payment, in respect of employees who had left the service, during the five years that elapsed between 1st November 1952, and the date of the Government's order, that such persons would have drawn the accumulations in the existing Provident Fund and left the employment, and that no purpose would be served by asking the employer to pay again their contributions to a Provident Fund. Equally It would be impossible to apply CI. 32 of the Scheme for recovering the employees' contribution, from such persons who had left the employment. The retrospective application of several other provisions of the Scheme relating to the contribution cards and the submission of returns would be quite impossible. The claim for the employer's share of the administrative charges would be clearly illegal and inconsistent with the Act, because the administrative charges were intended to meet the cost of administering the fund, and for five years retrospectively there was no fund, and therefore no cost of administration incurred therefor. Coming to the damages, the learned Judge observed, that at earlier stages the Government had told the employer that the Act did not apply, that only after 23rd October 1957, was the difficulty whether the establishment was a factory or not removed, and that consequently there could be difficulty in the payment of contributions prior to that date. Similar reasons were relied on by Jagadisan, JJ for holding that the retrospective operation of the Act and the Scheme would be not merely illogical and oppressive, but inconsistent with the terms of the enactment which were mani-festly prospective in their operation. He pointed out that there was no duty laid on the Court to yield to absurd construction of statutes and referred to the views of Maxwell “An argument drawn from inconvenience it has been said, is forcible in law; and no less, but rather more, force is due to any drawn from an absurdity or injustice” (Maxwell, Interpretation of Statutes. 11th Edn. page 183).

    It appears to us, on the other hand, with due respect to the learned Judges, that there is considerable force in contrary view which holds that the main purport of the Act and the Scheme framed thereunder is to bring into existence a compulsory provident fund applicable to all industries to which the Act applies, witk effect from the date when the Scheme has been declared applicable to them. The principal daty is laid upon the employer to put the Scheme into operation forthwith, and to make the contribution of both the employer's and employees' skare to the fund then and there and deduct the latter share from the salary of of the employees for the purpose of adjusting it against the amount, which they had paid to the fund in advance. In Cl. 26 of the Scheme extracted above, the words used are “every employee shall be entitled and required to become a member of the fund “. In the context of the Act, the word “entitled “means that the employee has got an absolute right to get the benefits of the Act. The word “required” implies an obligation on the employer to treat all the employees, who are qualified and who are not exempted, as members of the fund, and to pay the contribution to the fund (both the employer's and the employees') from the date of the coming into force of the Scheme without allowing any interval to lapse either for the awaiting of a notice of demand from the Provident Fund Commissioner or for clearing a point of doubt or difficulty by getting an order from the Central Government under S. 19-A.

    The word “required” as used by legal draftsmen in statutory enactments, or by parties to formal contracts, has come in repeatedly for judicial interpretation. A referesce to any well known text book dealing with the meaning of words and phrases in judicial usage, will show the wide range and variety of the meaning of the word. Referring to the Law Lexicon of British India, by Ramanatha Aiyar, the word ‘required’ has tke meaning of “to make necessary; to demand; to ask as of rigkt”; to claim, to render necessary as a duty “ete. In the Shorter Oxford Dictionary, one use of tke word is referred to in the following terms:

    “Oliver Cromwell required, both of the Soldiers and others the Oath of Fidelity.”

    Obviously Oliver Cromwell, after supplant' ing the Royalist regime would not have given an opportunity to his soldiers of making a choice in the matter of allegiance, tt is clear that “require” in tke above usage, meant a mandate or a command. In contractual obligations the word has been given the meaning of need. In some cases the Courts had looked to principles of justice and equity for giving the word a directory rather than a mandatory import. In Coal v. Creese, Tintal, C. J; has followed an earlier decision in tke King v. Birmingham(2) for giving preference to the directory meaning of the word, in interpreting a provision in the Marriage Act, that the consent of the father or guardian is required for the marriage of a minor. It was held by Lord Tenterden in the King v. Brimingham (2) that the absence of such consent would not make the marriage void if solemnised without consent, and hence the word require must be interpreted to take a directory significance. But on the other hand, in Queen v. The Justices of Worcestershire(3), the Court of Appeal in England had to apply S. 29 of the Alehouse Act, 1828, which required the Court of quarter sessions in every case where a notice of appeal against the judgment of any justice in or concerning the execution of the Act shall have been given and such appeal shall have been dismissed, to adjudge and order the appellant to pay to the justice to whom such notice of appeal shall have been given, or to whomsor ever he shall appoint, such sum by way of costs as shall in the opinion of the Court of quarter sessions be sufficient to indemnify the justice from all cost and charge whatsoever to which he may have been put in consequence of his having had notice of appeal served upon him. A.L Smith L. J., expressing the view of the Court, observed that the Section made it imperative on the Court of quarter sessions, upon the event therein specified happening, namely, the dismissal of the appeal, to adjudge, and order the appellant to pay to the justice the indemnity costs therein mentioned. Bose, J., in K.S Srinivasa v. Union ef India(4), while interpreting a rule, which ran:

    “Where recruitment to a specified post is “required” to be made in consultation with the Federal Public Service Commission, no such declaration shall be issued except after consultation with the Commission”, held that the word “required” should be given only a directory and not a mandatory meaning,because an obvious injustice would result otherwise. In view of the obligatory nature of the provisions of the Provident Funds Act and the Scheme framed thereunder, giving no choice to the employer to postpone the application of its provisions, it appears to us that the word “required” in Cl. 26 of the Scheme, has to be given a mandatory and not a directory meaning, and that it implied an obligation whose affect is that every employee who is uot exempted, and who satisfies the required qualification of servioe, automatically becomes a member of the fund from the date of the earning into force of the scheme. Nor does the argument of hardship or injustice on which stress was laid by Mukherji, J. as well as Jagadisan J. can have such substance, subsequent to the amendment which incorporated S. 7-A into the Act in 1963. That Section gives an opportuaity to the employer to press his objections before the authorities mentioned therein, to any claim for payment made against hire, and this will include the ground that it is oppressive or unjust in nature. After this amendment, the authority is now obliged to decide the matter judicially after giving the employer a proper hearing. In our opinion, it is in the course of such an enquiry that individual cases of hardship should be pleaded, and relief obtained, for example, regarding employees who have left the service during the prediscovery period, employees who have been dismissed, employees who are dead, and employees in whose cases the employer did not have an adequate opportunity to recover their contributions if necessary even for reasons other than those mentioned specifically in the proviso to Cl. 30; it will be also ©pen to the employer to press at such an enquiry, for the waiver of the employee's share of the contribution for the pre-discovery period (a relief which the respondent has already given to the petitioners in these cases), or even for a period anterior to the order under S. 19-A of the Act, in a proper case. In fact, if we view the problems, in the abstract, there is no logical reasons why, if the claim for the period anterior to the notice is held to be oppressive, it could Dot be extended, in, a proper case, to the period anterior to the order under S. 19-A. A decision cited before us, of Rajagopalan, J., in Annamalai Mudaiiar and Bros. v. R. P. F. Commissioner, lays down that the provisions of the Act should not be applied to a factory in the event of a dispute, till a decision under S. 19-A is given to settle the dispute. But this decision it aot authority for the view that if and when the decision given, under S. 19-A, is in favour of the department, a demand for contribution made thereafter for the back period, cannot be legally enforced. If there is a rule which casts automatically upon the employer, as the Act does, the obligation to make the contribution, there is no logic in fixing the date of the notice by the Provident Fund Commissioner as the starting point, for making as valid claim. On the other hand, the Provident Fund Commissioner might have had more than one reason for the delay in the issue of a notice. He might not have an adequate staff to make a speedy investigation in respect of every factory in his jurisdiction, or the investigation might have taken a long time. In such circumstances, an indifferent or recalcitrant employer, who deliberately ignores the provisions of the Act, cannot urge, that he was awaiting the issue of a notice from the Provident Fund Commissioner, for the purpose of implementing the Act, and the Scheme in his establishment, and should therefore be given relief for the period prior to the issue of the notice.

    There is a considerable volume of authority in support of the view which we have just now stated. Srinivasan, J. in W.P No. 205 of 1962 held that the Act takes effect at once and the provisions of the Act become enforceable against the employer of a factory or an establishment with effect from the date on which the relevant clause of the Scheme comes into force, and that it does not depend upon the discovery made by the authorities of the department and the issue of the notice ealling upon the employer to make the contribution according to the Act. A Division Bench of the Punjab High Court in Kapurbembar Union v. Regional Provident Fund Commissioner and another, a Division Bench of the Andhra Pradesh High Court in Nazeena Traders Pte. Ltd. v. Regional “Provident Fund Commissioner, (Chandra Reddy, C.J and Chaadra-sekhara Sastry, J.), a Full Bench of the Kerala High Court in Kokkalai R. and O.M Foundry v. R.P.F Commissioner (where on facts the Provident Fund Commissioner had given a notice even before 1st November, 1952) and the Allahabad High Court In N.K Industries (P) Ltd. v. R.P.F Commissioner(5) (followed inthe above Kerala High Court Full Beach decision) have all held the view which we adopt in this case for the reasons stated above.

    There is one other decision of the Bombay High Court in Nagpur Glass Works v. R.P.F Commissioner by Mudholkar and Naik, JJ. who had to consider Cl. 27 of the Scheme, and they held that it was mandatory. While referring to Cl. 26 of the Scheme they made a passing observation that the word “require” used in that clause could be distinguished from the words “shall become” in Cl. 27 and that the former would not have a mandatory effect. But there has been no discussion in that judgment of the significance of the word “require” in the context of the Act and the Scheme, by reference to authorities.

    We may also refer to the Supreme Court's decision in Orissa Cement v. Union of India where they struck down a provision in the Scheme which made it obligatory on the employer to pay the employees' contribution for employees under contractors, as there was no provision in the Scheme (as it then stood) for the employer to recover from the contractor such contributions. The Supreme Court held that the provision operated unfairly and harshly on persons who employed contract labour and was also discriminatory, thereby contravening Art. 19 (6) of the Constitution of India. But here the facts are different. We have already referred to the fact that if any hardship results, it may also be due to the employer's indifference or recalcitrancy, and that in genuine cases of hardships he has a remedy for relief under S. 7-A of the Act.

    In regard to the question of administrative charges, following Mukherji, J's view Veera-swami, J. held that it could not be recovered because during the pre-discovery period there was no fuad to administer and therefore the demand for administrative charges was improper. But this argument overlooks one important poiat. The administrative charges are not based upon the time factor, in the sease of being caloulated at so much per year. They are fixed at a per centage of the amount of the contribution levied and are, therefore, intended to meet the expeaditure involved in investment, the keeping of aecounts and so on, which can all arise, only subsequent to the actual collection of the fund and will also have reference to the amount actually collected. From this point of view, the claim for administrative ex-charges calculated as a percentage on the amount, which the employer has been asked to pay by way of contribution for the back period is clearly admissible though it might not be admissible in respect of a employees' contribution, when it has neither been demanded nor paid.

    As regards the third item, damages for default, it is clear that the damages cannot be claimed in the absence of proof of default. Mukherji, J., in Aluminium Corporation of India v. Regional Provident Fund Commissioner has observed:

    “The question of liability for damages of the employer only arises when the employer makes default. I do not think that on the facts of this case, the employer can be said to have committed a default. The employer wrote to the Government. The Government writes back in answer that the Act will not apply An employer cannot make a default when there is a difficulty or doubt and when the Central Government has to remove that difficulty or doubt by an express order. It is only from the date of the order removing such difficulty or doubt that the default can operate. In other words, there can be no retrospective or constructive default in the present context of facts and law “.

    What transpires from the above, is, that it will not be legitimate to infer a default merely because there was no payment by the employer of the contribution during the pre-discovery period. Each case must be examined carefully with respect to its own facts, for, an inference about the default. S. 7-A of the Act has provided for such an examination in disputed cases. The amendment introducing S. 7-A came after the passing of the present orders now in appeal. Therefore, we will remit the claim for damages to a fresh consideration by the appropriate authority under S. 7-A of the Act. Likewise, other difficulties in the enforcement of the demand, for example, claims in respect of persons who have left the employment or persons who have died or whoso whereabouts are not known and persons who have been dismissed, should all be the subject matter of a detailed claim and consideration by the authority under S. 7-A on application made to it for that purpose and a fresh opportunity will have to be given to the petitioner for obtaining such a relief, in view ofthe enactment of S. 7-A after the orders now in dispute had been passed.

    We will finally deal with the argument of Sri K.K Venugopal, appearing for the respondent in W.A 80 of 1963, that the present proceedings involved a violation of Art. 19 (I) (b) of the Constitution of India, which deals with the right to acquire, hold and dispose of properties. But he has not referred to any particular rule or provision which offends the aforesaid provision of the Constitution. Learned Counsel urged that under the provisions of the Scheme as they stand, an employer would be liable to be prosecuted for any omission to file a return or any other contravention of the Scheme which has occurred during the back period at a time when he had no opportunity or occasion to submit the return or maintain a register and the like. The short answer to this argument is that it will be open to the petitioner to put forward such a defence where a question of prosecution arises, but that is not the case here. Another argument of the learned Counsel is based upon the argument which was accepted by the Supreme Court in the case of contributions for contractor's employees in the decision cited above. But the circumstances were quite different in the case before the Supreme Court. The Scheme, as it stood, at that time, gave no opportunity to the employer to recover contributions in respect of employees under a contractor. But the Scheme does give the employer an opportunity to recover contributions of the employees employed under him (which is the case here) subject to the restrictions mentioned in Cl. 32. He did not of course have that opportunity, in the case, of contributions demanded for the pre-discovery period, but that will be a matter for which relief will have to be claimed on proper grounds, in an application under S. 7-A of the Act. There are therefore no grounds for inferring a discriminatory operation of the provisions of the Act.

    We, therefore, allow the appeals in part as indicated in the foregoing paragraphs. In the case of W.A No. 80 of 1963, the order of Jagadisan, J., issuing a writ of mandamus will be set aside, but with the observation that it will be open to the petitioner to urge a claim for necessary reliefs, including claims in respect of damages, and also in respect of contribution relating to individuals, like those who have left the employment, and so on, during the period 1st November 1952 to 30th April 1957, in an application to be filed before the appropriate authority under S. 7-A. In the ease of W, A. No. 81 of 1963, while allowing the appeal from the decision of Veeraswami, J., we also make a similar observation. No costs.

    V.C.S

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