Somnath Iyer, J.
1. The petitioner in Writ Petition No. 121 of 1966 is a certain Fernandes who is the Managing Partner of a cashewnut factory in Mangalore. The Petitioner in Writ Petition No. 122 of 1966 is a certain Mizar Govinda Annappa Pai who is the proprietor of another cashewnut factory in that place. For the reasons that they committed default in the payment of their contribution to the Employees Provident Fund payable under the Employees' Provident Funds Act, 1952 and the administrative charges payable under the scheme made under the provisions of the Act, the Regional Provident Fund Commissioner called upon them to pay damages determined under Section 14B of that Act. The amount demanded of Fernandes was Rs. 12,760/- which consisted of amounts described as penal interest and penal damages. Similarly, the amount demanded of Mizar Govinda Annappa Pai was Rs. 19,318/-.
2. We are asked in these Writ Petitions to quash those demands on the ground that there was no proper determination of the damages which could be demanded under Section 14B of the Employees' Provident Funds Act, 1952 which would be referred to in the course of this judgment as the Act.
3. That section reads:
'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-section (2) of Section 15 (or sub-section (5) of Section 17) or in the payment of any charges payable under any other provision of this Act or of any scheme or under any of the conditions specified under Section 17, the appropriate Government may recover from the employer such damages, not exceeding twenty-five percent of the amount of arrears, as it may think fir to impose.
4. The Government of the new State of Mysore in the exercise of the power created by Section 19 delegated the power to recover damages under the provisions of this section to the Regional Provident Fund Commissioner, Bangalore, by a notification made on September 2, 1963. By that notification, the Regional Provident Fund Commissioner was directed to recover from the defaulters, damages specified in a table annexed to the notification. That table incorporated a formula for the computation of damages which could be recovered on the basis of the number of defaults and the period during which there was non-payment. That table is:
PERIOD OF DEFAULTSl. No. One month Over one Over two Over 3 Over 4 Over 5Default month or month upto months upto month upto months upto monthsless two months three months 4 months 5 months1 2 3 4 5 6 71st 2% of 5% of 10% of 15% of 20% of 25% ofdefault arrears arrears arrears arrears arrears arrears2nd 5% of 10% of 15% of 20% of 25% ofdefault arrears arrears arrears arrears arrears3rd 10% of 15% of 20% of 25% ofdefault arrears arrears arrears arrears4th 15% of 20% of 25% ofdefault arrears arrears arrears5th 20% of 25% ofdefault arrears arrears6th 25% ofdefault arrears
5. The office of the Regional Provident Fund Commissioner, therefore made the arithmetic directed by that table and arrived at the sums which the petitioners were called upon to pay.
6. Mr. Jagannatha Shetty contends that it was the duty of the State Government under Section 14B of the Act to determined the sum of money which could be recovered as damages under its provisions in each case which came up before it and that it could not make a formula of universal application such as the one which the table to the notification incorporates. He maintained that since the only power that was delegated to the Regional Provident Commissioner was the power to make a calculation in accordance with the system evolved by the State Government, there was no proper determination either by the State Government or by the regional Provident Commissioner of damages recoverable from the petitioners, if any.
7. We are of the opinion that this criticism of the impugned demands is unassailable. Section 14B empowers the State Government to recover damages when an employer makes a default with respect to any one of the three distinct matters to which that Section refers. Although it states that the upper limit of the damages which could be recovered in respect of such default is 25% of the arrears, it contains a clear direction that the damages which could be recovered are those which the appropriate Government might think fit to impose. So it is plain that in each case which arises for consideration, it is the duty of the appropriate Government to determine the amount of the damages which in its opinion could properly be recovered having regard to all the facts and circumstances of the case. The words 'such damages... as it may think fit to impose', are susceptible of no other construction that that there should be an estimation of the amount of damages in each case which presents itself, and that that estimation should rest upon a consideration of all relevant facts and circumstances.
8. But what the State Government did in the case before us was to evolve a rigid and inflexible formula for the computation of damages. It is clear that a general scheme of that description is not authorised by Section 14B. The damages which could be recovered under that section are in the nature of a punishment or penalty as explained by the High Court of Patna in R. B. H. M. Jute Mills (Private) Ltd. v. Regional Provident Funds Commissioner, Bihar, (1958) ILR 37 Pat 47, and it is the duty of the appropriate Government in every case which arises before it to decide whether any damages should be recovered at all, and if so how much.
9. Section 14B does not compel recovery of damages in each case in which there is a default, nor does it specify the amount of damages which should be recovered. It confers on the appropriate Government the power not only to decide whether in the circumstances of the case any damages should be recovered from the employer and to further decide if it comes to the conclusion that such recovery should be made, how much should be recovered from him. And when it reaches the conclusion that the case is one in which damages should be recovered, the quantification of the damages should be made on the materials before it and having regard to all relevant circumstances and facts of that case.
10. But the table appended to the notification made by the Government of the State of Mysore on September 2, 1963 places fetters on the exercise of that power bestowed by Section 14B. It does not reserve for the appropriate Government or the Regional Provident Fund Commissioner, the power to say, whatever may be the extenuating circumstances, that the employer cannot be absolved from liability to pay the damages. Then again, it divests the authority which should make a computation of the damages, of the power to measure the damages which could be recovered on the merits of each case.
The prescription of notification is that if there is a default during a particular period a certain sum of money must needs be recovered as damages solely on the basis of number of defaults committed by him and the period during which he had been defaulter. This prescription is found on the insupportable assumption that in the decision of the question whether any damages should be recovered and if so their measure, the only factors which have relevance are the number of defaults and their duration. It overlooks the relevance of other factors, an exhaustive catalogue of which is of course not possible.
11. The power created by Section 14B is to determine the amount of those damages as Government may think fit to impose. The words 'may recover' occurring in the concluding part of that section demonstrate that in a given case Government have no power, if the circumstances justify the conclusion, to decide against the recovery of any damages, and it is that power of which the State Government stood denuded by the prescription of a rigid formula which in its opinion should settle all cases arising under that section.
That formula also resulted in the abdication of the duty to consider the facts of each case even with respect of the measures of damages. The words 'as it may think fit to impose' clearly display the legislative intent that in each case there should be an application of the mind of the appropriate Government to its relevant features which should guide the conclusion both on the question whether any damages should be demanded and their quantum. The formation of the opinion that the case is a fit one for the demand for payment of damages and of a particular sum of money as damages, is what Section 14-B clearly insists upon, and it is plain that that opinion has to be formed independently in the case of each default to which Section 14-B refers.
12. The table which forms an annexure to the Government Notification makes such an application of the mind impossible. It transforms the duty confided by Section 14-B to estimate the damages on an investigation into the relevant facts, into a mere mechanical function without reference to the relevant facts of each case. There are many incongruities displayed by that table. It directs that in a case where the default extends over a period of a month or less the damages should be equivalent to 2% of the arrears. An employer who pays the arrears only a day late and a person in whose case there is a delay of 30 days are both liable to pay the same amount by way of damages which shall not be less than 2% of the arrears. It again directs that where the delay in the payment is for a period more than a month and not more than two months, damages equivalent to 5% of the arrears should be recovered.
So the amount of damages payable would be the same where there is a delay during a period of a month and one or during the full period of two months. It will also be observed that whereas a person who has defaulted during a period of one month should pay damages amounting to 2% of the arrears, a person who is a defaulter for a period of a month and one day becomes liable to pay a sum equivalent to 5% of the arrears. The same odd feature of the table is discernible with respect to all the six defaults to which it refers and the delay of five months of which it speaks.
13. It is easy to see that a mechanical computation of damages in that way is not what is envisaged by section 14-B. The view that we take is also the view taken by the High Court of Bombay in Bharat Barrel & Drum Mfg. Co. v. Raval, (1966) 2 Lab LJ 804 (Bom). Such is also the effect of the pronouncement of the High Court of Madras in Regl. P. F. Commr. v. K. R. Subbier Tape Factory, : (1966)IILLJ676Mad .
14. Mr. Shetty is in our opinion right in making the submission that no determination under Section 14-B could be made without affording the defaulter an opportunity to show cause against such determination. Although that section does not say so in so many words, it is clear that an adjudication under its provisions without affording that opportunity to the defaulter who plainly transgress the rules of natural justice.
15. We therefore set aside the impugned demands reserving liberty for the appropriate authority to make a fresh determination under Section 14-B of the Act.
16. Before we conclude, we should notice a question which was debated during the argument as to where the power resides to make that determination. Mr. Shetty for the petitioners submitted that since some of the defaults committed by the petitioners were antecedent to the notification by which there was a delegation of power to the Regional Provident Fund Commissioner, the State Government alone had the power to make a determination with respect to those defaults.
17. But is clear that this postulate is unacceptable since the authority which could exercise power under Section 14-B is the authority in whom that power resides at the point of time when the determination has to be made, irrespective of the period of default. We were intimated by both sides that the notification by which there was delegation, has since been rescinded and that the power which was so delegated has been recalled by the State Government. So, it is clear that although it was possible for Government notwithstanding the delegation to exercise power which it had so delegated, that power exclusively vests in Government after the delegated power was recalled. That being so and with respect to the defaults with which we are concerned in these writ petitions, the power created by the Section 14-B to decide whether any damages should be recovered and to decide their quantum now resides in Government which is the repository of that power. We make this elucidation so that there should be no further controversy in respect of this question.
18. In the circumstances we make no direction in regard to costs.
19. Petition allowed.