Vitro Pharma Products Company, Ltd. v. Regional Provident Fund Commissioner And Another

1. This petition impugns the order passed on 15 December, 1981, by the Regional Provident Fund Commissioner levying a penalty upon the petitioner-company under S. 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, in the sum of Rs. 36,930.95. Until 4 April, 1976, the petitioner-company was a private limited company. The controlling interest in it was owned by one Dr. Ramaswamy. On 4 April, 1976, he sold the controlling interest to AFCO, Ltd. but continued in charge. On 20 January, 1977, he and his wife sold out the remaining shares in the petitioner-company to AFCO, Ltd., whereupon the petitioner-company became a public limited company.

2. On 23 and 28 March, 1978, the petitioner-company was served with notices to show cause why a penalty under S. 14-B of the Act should not be levied. The one notice was for defaults committed during the period 1971 to 1974 and the other for default committed during the period 1974 to 1976. An order was passed on 20 July, 1978, whereby a penalty was levied, without hearing the petitioner-company. The petitioner-company approached this Hon'ble Court by way of a writ petition and on 3 November, 1931, an order was obtained where by the order, dated 20 July, 1978, was set aside and the Regional Provident Fund Commissioner was directed to give a bearing to the petitioner-company on the two notices of demand.

3. After affording a hearing to the petitioner-company, the Regional Provident Fund Commissioner passed the order, dated 15 December, 1981, which is impugned in this petition. The order notes the arguments advanced on behalf of the petitioner-company and on behalf of the department. It holds that the conversion of the private limited company into a public limited company was only a legal fiction and, for all purposes, the limited company had, ipso facto, the same management. Having regard to the fact that the proceedings were in respect of a persistent defaulter who had evaded timely compliance of the statutory provisions despite an earlier levy of damages, the case fell within the ambit of the Supreme Court's, decision in Organo Chemical Industries v. Union of India [1979-II L.L.N 358]. That a prosecution in respect of part of the defaults covered by the notices had been filed and withdrawn did not lead to the inference that the damages had been waived, A reading of the balance sheet of the private limited company disclosed that its capital had not been wiped out but that its directors have drawn a fat remuneration while defaulting in payment of the employees' share of contribution deducted from their wages. That the private limited company was incurring losses was known to the present management when it decided to take over the holding interest. It was acknowledged that the limited company had made profits during the last financial year. The present establishment was the establishment that had defaulted. It had persistently neglected to discharge its obligations on the due dates. The defaults were serious enough to attract the maximum damages, but the damages levied had to be restricted to those proposed in the notices. Accordingly, the Commissioner ordered the payment of damages for delayed payment of the provident fund/family pension fund/deposit linked insurance fund and administrative charges for the period September 1971 to December 1974 in the sum of Rs. 36,930.95.

4. Sri Caraa, learned counsel for the petitioner, submitted that the present management of the petitioner-company had nothing to do with the aforesaid defaults and that the then management was responsible. He submitted that the liability under S. 14-B in so far as it related to penalty, was a personal liability which could not be imposed upon the present management which was not liable for the defaults. He drew my attention to S. 14-A(1) of the Act, which deals with offences by companies. It provides that every person, who at the time an offence under the Act was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, would be deemed to be guilty of the offence and would be proceeded against and punished. Sri Cama also relied upon the proviso thereto which states that nothing contained in Sub-sec. (1) would render any such person liable to punishment if he could establish that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.

5. Sri Cama's argument proceeds upon a misconception of the law. The petitioner-company, when a private limited company, and thereafter a public limited company, was one entity and was responsible for the defaults, being the employer within the meaning of the Act. That entity cannot avoid the liability for penalty on the footing that, at the time when the defaults took place, a management other than the current management had been in office.

6. Section 14 deals with penalties under the Act and contemplates imprisonment as a punishment for an offence thereunder. It is as a sequel to S. 14 that the provisions of S. 14-A have been enacted. It was necessary to do so because it was necessary to make clear who would suffer imprisonment on behalf of an offending company. Section 14-A provided no assistance to Sri Cama in the present context for we are here concerned with a pecuniary penalty which must come from the coffers of the petitioner-company.

7. There is nothing in Ss. 14-A and 14-B to suggest that the withdrawal of a prosecution under the one amounts to the waiver of the right to levy penalty under the other.

8. Sri Cama submitted that the Commissioner had not exercised his discretion to levy a nil penalty under S. 14-B. It was, according to Sri Cama, erroneous for the Commissioner to consider the financial situation of the petitioner-company at the point of time when the defaults were committed. In his submission, the Commissioner ought to have considered the financial situation of the petitioner-company at the time when the penalty was being considered. I cannot agree. The Commissioner was entitled to consider the financial situation of the company at the time the defaults took place. In fact, it is not correct to suggest that the Commissioner did not consider the petitioner-company's financial situation at the time when he made the impugned order. He did so and stated that it was an acknowledged position that petitioner-company had made profits during the last financial year.

9. There is no limitation provided under the Act for the levy of penalty under S. 14-B. The Commissioner was entirely within his rights in levying penalty when he did.

10. My attention was drawn to my judgment in Josts Engineering, Ltd., Bombay v. Union of India [1983-II L.L.N 57], and it was pointed out that the impugned order does not satisfy the requirements thereof. This again is not wholly correct, for the order is a speaking order, in that it deals with arguments advanced on behalf of either side. It is correct that the order does not make ft distinction between the assessment of the actual loss and the punitive element, but having regard to the conduct of the petitioner-company and the comparatively mild penalty imposed, I do not propose to exercise discretion under Art. 226 to quash the impugned order for this reason.

11. The petition is dismissed with costs and in favour of the first respondent.