1. These writ appeals raise a question as to the validity of the order passed by the Provident Fund Commissioner made under S. 14-B of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Act). Writ Appeal No. 393 of 1979 is filed by the Regional Provident Fund Commissioner challenging the order of Mohan, J. in Writ Petition No. 171 of 1975 in which Mohan, J., has taken the view that the only power of the Provident Fund Commissioner under S. 14-B of the Act is to levy damages, and such damages do not involve any element of penalty for non-payment or delayed payment of the employer's contribution. The learned Judge has also taken the view that merely because there is a delay or belated payment, the liability to pay damages is not automatically attracted. According to the learned Judge, the Provident Fund Commissioner has to apply his mind and examine the merits of each case before he assesses damages payable by an employer.
2. Writ Appeal No. 411 of 1981 is filed by an employer, the Azhagappa Cotton Mills. Rajapalayam, challenging a common order made by Padmanabhan, J., in several writ petitions in which orders directing recovery of damages by the Regional Provident Fund Commissioner, Madras were challenged. The learned Judge in that decision took the view following the decision of the Supreme Court in Organo Chemical Industries v. Union of India : (1979)IILLJ416SC , that damages contemplated under S. 14-B of the Act are to be levied by way of penalty. The learned Judge held that the damages as imposed by S. 14-B includes a punitive sum quantified according to the circumstances of the case and that these damages are penalty imposed on the employer for breach of the statutory obligation. The learned Judge further held that the Section does not warrant inference that damages contemplated therein must have relationship to the loss which is caused to the beneficiaries under the scheme by the delayed payment of contribution by the employers. In the appeals filed by the Regional Provident Fund Commissioner, we have heard Mr. Govind Swaminathan who canvassed for upholding the decision of Padmanabhan, J., which was challenged in Writ Appeal No. 684 of 1979. Mr. M. R. Narayanaswamy who appears for the respondent in W.A. No. 684 of 1979 canvassed for upholding the view of Mohan, J., which is challenged in the appeals filed by the Provident Fund Commissioner. It is rather unfortunate that the order of Mohan, J., dated 31st October, 1977 has not been referred to in the order of Padmanabhan, J., who delivered judgment on 22nd October, 1980. It will be reasonable to assume that the judgment of Mohan, J., was not cited before Padmanabhan, J., because normally, if one learned single Judge of this Court does not agree with the view taken by another learned single Judge, the normal course would be to refer the matter to a larger Bench unless, of course, the question is open for a fresh determination which in the instant cases was the circumstances of the Organo Chemical Industries decision (supra), of the Supreme Court.
3. The nature of the damages under S. 14-B of the Act is the subject-matter of several appeals and petitions, and we have also heard learned counsel appearing in Writ Appeal 762 of 1980, Writ Appeal No. 280 of 1982 and Writ Appeal No. 76 of 1981, which are all directed against the order of Mohan, J., and Writ Appeals Nos. 758 and 759 of 1980 which are also directed against the order of Mohan, J. As a matter of fact we have heard all those counsel who were willing to contribute to the discussion on the scope of the provisions of S. 14-A of the Act. The main argument on behalf of the employers was advanced by Mr. M. R. Narayanaswamy.
4. According to Mr. Swaminathan the view taken by Mohan J., must now stand rejected in view of the decision of the Supreme Court in Organo Chemical Industries case (supra) and he did not have any objection if the Provident Fund Commissioner is asked to re-determine the liability of the employees who have come to this Court in accordance with the decision of the Supreme Court in the said case. Mr. Swaminathan did not dispute that the Provident Fund Commissioner under the proviso had an obligation to hear the employer who was a defaulter and then decide as to whether damages should be levied at all, and if damages had to be levied then what was the quantum of damages to be levied. Mr. Swaminathan therefore, contended that the appeals of the Provident Fund Commissioner which are directed against the view of Mohan, J., with regard to the restricted scope of damages recoverable under S. 14-B of the Act must be allowed.
5. Mr. M. R. Narayanaswamy, however, contended that the Supreme Court in an earlier decision in Coal Mines Provident Fund Commissioner v. J. P. Lalla : (1976)IILLJ91SC , while construing an almost identical provision is S. 10-F of the Coal Mines Provident Fund and Bonus Schemes Act, 1948 has specifically held that the provisions of S. 10-F of the said Act indicate that the determination of damages is not a mechanical process and that the words 'damages not exceeding 25 per cent.' showed that the determination of damages is not an inflexible application of a rigid formula. The contention appears to be that in its decision under the Coal Mines Provident Fund and Bonus Schemes Act, the Supreme Court has not referred to the provisions as contemplating any penalty and as a matter of fact, the said decision holds that the determination of damages cannot be restricted to the application of a rigid formula which in that case was contained in a table setting out the sliding rate of recovery of damages. Mr. Narayanaswamy therefore, contended that in the instant cases also the Provident Fund Commissioner has proceeded on the footing that the damages are to be determined in accordance with the formula which is reproduced at page 9 of the additional typed set in Writ Appeal No. 393 of 1979. This formula refers to the serial Number of the default, then the length of the period for which the default has occurred starting from one month or less to over twelve months, and sliding scales for levy of damages have been given, with the result that on the twelfth default, the minimum damages are 55 per cent. for one month, and if the default continues over eleven months, then after the twelfth month the damages are 100 per cent. of the amount of arrears. The learned counsel contended that as held in the Coal Mines Provident Fund Commissioner's case (supra), the words 'as it may think fit' contemplate an application of mind and the Provident Fund Commissioner has to apply his mind in each case to the facts placed before him, firstly in order to decide whether any damages are to be levied or not, and then if he comes to the conclusion that damages have to be recovered, he must apply his mind again to the question as to the quantum of damages which is a matter of discretion, and he cannot be controlled by the rigid formula which is in the form of a table. The learned counsel contended that we should follow the decision of the Supreme Court in the Coal Mines Provident Fund Commissioner's case (supra), because that is a decision of a larger Bench of three learned Judges while the decision in the Organo Chemical Industries case (supra), is only a decision of two learned Judges. In support of this proposition that the larger Bench must be followed. Mr. Narayanaswamy relied on the decision of the Supreme Court in State of Uttar Pradesh v. Ram Chandra : (1977)ILLJ200SC . In this decision, a Bench of three learned Judges of the Supreme Court has held that in cases where a High Court finds any conflict between the views expressed by larger and smaller Benches of the Supreme Court it cannot disregard the view expressed by the larger Benches and the proper course for a High Court in such a case is to try to find out and follow the opinion expressed by larger Benches in preference to those expressed by smaller Benches of the Court which practice hardened, as it has, into rule of law, is followed by the Supreme Court itself. Mr. Narayanaswamy therefore contended that the judgment of Mohan, J., is in keeping with the law laid down by the Supreme Court in the Coal Mines Provident Fund Commissioner's case (supra), and even though Padmanabhan, J., followed the decision of the Supreme Court in the Organo Chemical Industries case (supra), his decision is liable to be set aside, because the view of Mohan, J., is supported by a larger Bench of the Supreme Court.
6. We shall briefly reproduce the material part of S. 14-B of the Act which is necessary to appreciate the contentions raised before us :
'Section 14-B Power to recover damages.
'Where an employer makes default in the payments of any contribution to the Fund, .......... or in the payment of any charges payable under any other provision of this Act or under of ....... any scheme or under any of the Insurance Schemes/or under any of the conditions specified under S. 17, the Central Provident Fund Commissioners or such other officer as may be authorised by the Central Government by the notification in the Official Gazette in this behalf, may recover from the employer such damages, not exceeding the amount of arrears. As it may think fit to impose.
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard.'
The Proviso was added by Act 40 of 1973. Now, as far as the Employees Provident Funds Scheme is concerned para. 38 requires the employer to deduct the employees contribution from the wages before paying the employees his wages in respect of any period or part of period for which contributions are payable, and it further provides that the employer shall within fifteen days of the close of every month pay the same to the Fund by separate Bank drafts or cheques on account of contributions and administrative charge. The contributions made to the Employees Provident Fund are all credited to an account which is called 'Provident Fund Account.' This account is administered by the Board of Trustees contemplated by Chapter II of the Scheme. Para. 52 of the scheme provides that all moneys belonging to the Fund shall be deposited in the Reserve Bank or the State Bank of India or in such other scheduled Bank as may be approved by the Central Government from time to time or shall be invested, subject to such directions as the Central Government may from time to time give, in the securities mentioned or referred to in Cls. (a) to (d) of S. 20 of the Indian Trusts Act, 1982. The Provident Fund Commissioner has to maintain an account of each member and to that account is credited, the employee's contribution, the contribution made by the employer in respect of him and the interest as provident in para. 60. Paragraph 60 provides that the Commissioner shall credit to the account of each member interest at such rate as may be determined by the Central Government in consultation with the Central Board.
7. Section 14-B of the Act refers to damages and these damages cannot exceed the amount of arrears. Therefore, the outer limit of the quantum of damages is set out by S. 14-B as the amount of arrears. There is a conflict of opinion in different High Courts as to the concept of damages referred to in S. 14-B of the Act. Fortunately, we are relived of the necessity of referring in detail that conflict in view of the decision of the Supreme Court in Organo Chemical Industries case (supra). The specific question as to whether the damages contemplated by S. 14-B are damages in the conventional sense of the term or whether they include an element of penal payment as penalty on account of non-performance of the specific statutory obligation was considered by the Supreme Court in Organo Chemical Industries case (supra), which was decided by Krishna Iyer and Sen, JJ. The two learned Judges wrote two separate judgments. The main judgment was delivered by Sen, J., with whom while agreeing, Krishna Iyer, J. also delivered a separate judgment. Krishna Iyer, J., laid down the following essentials of the damages referred to in S. 14-B of the Act :- (a) Detriment to one by the wrong doing of another, (b) reparation awarded to the injured through legal remedies, and (c) its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often, not always, a punitive addition as a deterrent cum-denunciation by the law. The learned Judge observed that the power conferred is delimited by the contents and contour of the concept itself and therefore, S. 14-B of the Act was valid. Dealing with the contention that the damages could not exceed the interest and the amount the defaulter would have paid during the period of delay, the learned Judge held as follows :-
'I am clearly of the view that 'damages' as imposed by S. 14-B includes a punitive sum quantified according to the circumstances of the case. In 'exemplary damages' this aggravating element is prominent. Constitutionally speaking, such a penal levy included in damages is perfectly within the area of implied powers and the legislature may, while enforcing collections, legitimately and reasonably provide for recovery of additional sums in the shape of penalty so as to see that avoidance is obviated. Such a penal levy can take the form of damages, because the reparation for the injury suffered by default is more than the narrow computation of interest on the contribution.'
The learned Judge therefore, specifically overruled the contention that the amount of damages awarded under S. 14-B of the Act should not exceed the interest which the amount defaulted would have earned during the period of delay. In the same judgment, the learned Judge has observed that it was imperative in S. 14-B that the Commissioner shall give reason in his order imposing damages on an employer. This obligation has not been disputed by Mr. Govind Swaminathan appearing on behalf of the Provident Fund Commissioner, and in our opinion,. fairly so.
8. There is a detailed discussion on the concept of damages in S. 14A of the Act in the judgment of Sen, J. In para. 44 of the judgment the learned Judge referred to the conflict of opinion between different High Courts as to the meaning of the word 'damages' in S. 14-B. The learned Judge observed that according to some of the High Courts the defaulter under S. 14-B, is liable to pay only damages which represent the loss, but not anything more, as such recovery would amount to penalty and this was not permissible under the Section. The learned Judge observed that any delay in paying the amount under S. 6 causes loss to the beneficiaries of scheme such as loss of the interest and like and this loss was sough to be recovered from the defaulting employer for the purpose of indemnifying the beneficiaries of the scheme, namely, the employees to the extent of the loss suffered by them. The learned Judge pointed out that the High Courts had overlooked the fact that we (Courts) are not concerned in interpreting what damages means in the realm of contract or tort, but the word had to the given its true meaning, in consonance with the objects and purpose of the legislation. The learned Judge referred to the traditional view of damages as meaning actual loss which according to him did not take into account the social context of a provision like S. 14-B contained in socio-economic measure like the Act in question. Referring to the fact that the word 'damages' has different shades of meaning it was observed that it must take its colour and content from its context and it cannot be read in isolation, nor can S. 14-B be read out of context. The learned Judge then observed as follows :-
'The very object of the legislation would be frustrated if the word 'damages' appearing in S. 14-B of the Act was not construed to mean penal damages. The imposition of damages under S. 14-B served a two fold purpose :- It results in damnification and also serves as a deterrent. The predominant object is to penalise, so that an employer may be thwarted or deterred from making any further defaults.'
The learned Judge in para. 47 has observed as follows :-
'The object of imposition of penalty under S. 14-B is not merely to provide compensation for the employees.'
We are clearly of the opinion that the imposition of damages under S. 14-B serves both the purposes. It is meant to penalise defaulting employer as also to provide reparation for the amount of loss suffered by the employees. It is not only a warning to employers in general not to commit a breach of the statutory requirements of S. 6, but at the same time it is meant to provide compensation of redress to the beneficiaries, i.e., to recompense the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the loss which is caused to the beneficiaries under the Scheme. The word 'damages' in S. 14-B is related to the word 'default'. The words used in S. 14-B are 'default' in the payment of contribution' and, therefore, the word 'default' must be construed in the light of para. 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month, and therefore, the word 'default' in S. 14-B must mean failure in 'performance' or 'failure to act'. At the same time, the imposition of damages under S. 14-B is to provide reparation for the amount of loss suffered by the employees.'
The learned Judge in para. 49 of the judgment dealt with the manner of allocating the damages recoverable under S. 14-B of the Act and observed as follows :-
'We hope that those charged with administering the Act will keep this in view while allocating the damages under S. 14-B of the Act to different heads. The employees would, of course, get damages commensurate with their loss, i.e., the amount of interest on delayed payments; but the remaining amount under go to augment the 'Fund' constituted under S. 5, for implementing the Schemes under the Act.'
9. Now in the face of such clear adjudication with regard to the scope of damages recoverable under S. 14-B of the Act we have now to see how the decision of the Supreme Court in Coal Mines Provident Fund Commissioner v. J. P. Lalla (supra), can really be of any assistance to Mr. M. R. Narayanaswamy. The decision in the said case is not one which construes the meaning of the word 'damages' in S. 14-B of the Act. The fact that in that decision a provision similar to S. 14-B of the Act was considered and in that context it was not laid down that the damages contemplated in S. 10F of the Coal Mines Provident Fund and Bonus Schemes Act. 1948 included penal damages does not affect the binding nature of the decision in Organo Chemical Industries v. Union of India (supra). Since Organo Chemical Industries case (supra), the Supreme Court has specifically dealt with the provision of the Act with which we are concerned and it is that decision which we are bound to follow. In that sense, there is no question of any conflict between two decisions of the Supreme Court, one by a smaller Bench and the other by a larger Bench on the same question. There is therefore, no question of our following the decision in Coal Mines Provident Fund Commissioner's case (supra), as it is given by a larger Bench because that decision does not deal with the provisions of Central Act 19 of 1952, which we are called upon to consider.
10. We must therefore, proceed on the footing that the damages which are recoverable under the Act have a penal element, and as observed by Sen J. it has also an element of reparation. The damages are not to be restricted only to the loss of interest to an individual employee caused by nondeposit or late deposit of the contribution by the employer. On this short ground, the view taken by Mohan, J. cannot be upheld and we must uphold the view taken by Padmanabhan, J. who expressly followed the decision of the Supreme Court in the Organo Chemical Industries case (supra).
11. The next question which arises is what is the obligation of the Provident Fund Commissioner when he determines damages. As already observed, the proviso to S. 14-B which was incorporated by Act 40 of 1973 clearly lays down that the employer has to be given a reasonable opportunity of being heard before the damages are levied and recovered. The proviso would emphasis the fact that the Provident Fund Commissioner is required first to determine. After hearing the defaulter, as to whether the defaulter is liable to pay any damages at all, and if he comes to the conclusion that the defaulter has given valid reasons acceptable to the Commissioner which explains the delay in depositing the contribution under the Scheme or the Act, then the further question of recovering any damages or determining the quantum of damages does not arise. However, if the Provident Fund Commissioner comes to the conclusion that the explanation for the delay in depositing the contribution is not acceptable and that there is a liability to pay damages, then he will proceed to decide on the quantum of damages. Therefore, the hearing before the Provident Fund Commissioner in reply to the notice to show cause as to why damages should not be recovered from the defaulter is in respect of two matters, namely, first the liability to pay damages and secondly, the quantum of damages. Indeed, this position has not been disputed by Mr. Govind Swaminathan appearing on behalf of the Provident Fund Commissioner. Even the instructions issued to the Provident Fund Commissioner, which are to be found in the Manual of Accounting Procedure, Volume I, issued by the Central Provident Fund Commissioner, are in conformity with the scope of the proviso to S. 14-B of the Act. Paragraph 169 of the Manual which is at page 53 reads as follows :
'The amount of penal damages should be at the prescribed percentage calculated on the amount defaulted. After arriving at the number of default and the period of delay, the actual amount of damages leviable will be worked out as per the standard table. The amount thus arrived at will represent the proposed amount of damages leviable. However, the defaulted employer will be informed of the details of defaults through the show-cause notice without mentioning the proposed quantum of damages. The final amount of damages will be decided by the Regional Commissioner after hearing the representation from the defaulted employer either in person and/or in writing and depending on the merits of each case the damages will be levied through a speaking order.'
This instruction does not have any statutory force. But, they are intended for the guidance of the authorities vested with the power to levy and recover damages. The instruction in paragraph 169 undoubtedly refers to the computation of penal damages according to a standard table, and it further says that the defaulted employer should not be informed about the proposed quantum of damages.
This instruction that the proposed quantum of damages should not be informed to the defaulted employer is obviously to rule out a challenge to the show-cause notice on the ground that the authority has already made up its mind to levy damages. In our view, reference to the proposed quantum of damages in a show-cause notice can never be construed as creating an infirmity in the show-cause notice. As a matter of fact, it is common knowledge that in a notice to show-cause as to why a penalty should not be levied, a reference to the penalty will facilitate the receiver of the notice who is called upon to show-cause, to meet the case properly. In a given case, if the proposed damages are negligible it is quite probable that a defaulting employer may not think it worthwhile contesting the liability. However, if the damages are substantial and exemplary in nature, defaulting employer would be put on guard and he will possibly produce all materials which will help him to establish that he is not liable to pay damages at all or that the quantum of damages proposed should be reduced. While non-mentioning of the proposed quantum of damages may not create any infirmity in the notice to show-cause, we are also of the considered view that mention of the proposed damages will also not create any infirmity in the notice and make it vulnerable to challenge on the ground that the authority has already made up its mind to levy and recover damages.
12. The instruction that a speaking order has to be passed is, in our view, clearly indicative of the fact that the Commissioner has to apply his mind to the merits of such case before he decided to levy damages and then decide the quantum of damages. The essential ingredient of a speaking order is that that order must disclose an application of the mind by the authority concerned and the order must also set out reasons which enable the authority to reach the conclusion contained in that order. Such an order is subject to the scrutiny of this Court in the exercise of its power under Art. 226 of the Constitution of India. If there is any infirmity in any particular order levying damages, it is the merit of that order which will have to be determined when it is called in question.
13. The next question which has been very vehemently argued by Mr. M. R. Narayanaswami is that when the Provident Fund Commissioner has been supplied with a table which we have referred to earlier, then the Provident Fund Commissioner determines the penalty in accordance with the table depending upon the number of times the default has been committed and the duration of the default. The learned counsel contended that by issuing instruction in the form of such a table, the discretion of a statutory authority like the Provident Fund Commissioner has been controlled or curtailed and the statutory authority is made to exercise his discretion in a rigid manner in accordance with the schedule. The contention is that the table which has been protected is a table in terms of the percentage of the arrears, and as the concept of 'damages' in S. 14-B consists of two elements, namely, reparation to the employee for the monetary loss suffered by him and the penal element, there is nothing in the table to indicate as to how these two elements can be separated from the figures of percentage referred to in the table. The same argument was made by Mr. Somayaji who contended that the table should not be accepted as the guideline. It was also contended that as observed in the last paragraph the decision in Organo Chemical Industries case (supra), the employees would get damages commensurate with their loss, i.e., the amount of interest on delayed payments, and thus one element of the damages is already settled. This element is the interest which is provided in paragraph 59 of the Employees Provident Funds Scheme which is to be credited to the account of each employee and the rate of interest is to be determined by the Central Government as contemplated in paragraph 60 of the scheme. Both the learned counsel therefore, contended that the table must be treated as wholly foreign to the determination of damages. The Supreme Court undoubtedly has said that the loss to the employee in the form of interest has to be compensated by the defaulting employer. But, in the earlier part of the judgment while dealing with the concept of damages, Sen, J. in paragraph 47, which we have already extracted, has observed that the damages are meant to provide compensation or redress to the beneficiaries, i.e., to recompense the employees for the loss sustained by them, and further it is made clear that there is nothing in the Section to show that the damages must bear relation ship to the loss which is caused to the beneficiaries under the Scheme. These observations would further indicate the liability to pay damages also includes liability other than mere compensation to the employees who have sustained loss. We have reproduced earlier the provision in paragraph 52 of the Scheme which enables the fund to be invested either in the form of deposit in the scheduled bank or in securities. As a matter of fact, the amount is to be directly deposited either in the Reserve Bank of India or in the State Bank of India. The delay by the defaulting employer in depositing the amount has therefore, a double effect. The first effect is that the Fund is deprived of the interest which it would have earned on the deposit and the second effect is that the employee would be deprived of interest being credited to his account because the employer has not deposited the moneys and to that extent, interest will be lost. The first one is independent of the second one and we do not see any reason why the defaulting employer must be enabled to profit at the cost of the provident fund by relieving him of the liability to reimburse the fund itself, by including this element of compensation in the penal aspect of damages. Therefore, the fact that the Supreme Court has referred to reparation of the employee does not necessarily mean that the fund can be deprived of the interest which it would have otherwise earned and that the same cannot be taken into account while determining penal damages.
14. We have gone through the table and it is clear that on the face of it, it does not make any distinction between the two elements, namely, reparation and the penal element. In view of the Supreme Court decision and in view of the proviso to S. 14-B of the Act, we must hold that the Provident Fund Commissioner cannot consider himself bound by the table itself. The Provident Fund Commissioner is a statutory authority who has been given discretion to levy or not to levy damages. The words used in S. 14-B of the Act are 'where an employer makes default in the payments of any contribution to the fund ..................... the Central Provident Fund Commissioner ..................... may recover from the employer such damages ................... The use of the word 'may' is indicative of the discretion which has been vested in the Provident Fund Commissioner. But, that discretion will have to be exercised on well known principles. This will only mean that it is possible for the employer to satisfy the Provident Fund Commissioner that for reasons beyond the control of the employer, the employer was not possessed of sufficient means or funds to make the necessary payment then employer should be relieved of the liability to pay the penalty part of damages. The Provident Fund Commissioner can, in the exercise of his discretion under S. 14-B of the Act, decline to recover that part of damages. We may make it clear that we are dealing with a social welfare legislation made for the benefit of the employees. The fact that arrears of provide it fund contribution have been increasing has been noticed by Parliament when the Act was amended in 1973. In the Objects and Reasons accompanying the Bill which was enacted in the form of Act 40 of 1973, reference is made to the recommendation of the National Commission on Labour that 'in order to check the growth of arrears, penalties for defaults in payment of provident fund dues should be made more stringent and that the defaults should be made cognizable'. It must be remembered that it was by Act 40 of 1973 that the maximum amount of damages was specified at 100 per cent. in the place of the 25 per cent. which was the original figure. This amendment highlights the continued growth of an attitude on the part of the employers to avoid depositing the contribution payable under the Act and the scheme. If the defaulting employer wants to be relieved from the liability to pay damages under S. 14-B having regard to the object for which S. 14-B was specifically enacted, in our view, it will be obligatory on the part of the employer to lay before the Provident Fund Commissioner sufficient and reliable materials to establish his inability to send in the contribution payable under the Act. The mere fact that there was a strike or a lock-out or power cut, etc., during the relevant period would not be a sufficient explanation, unless it is also possible for the employer to show that the employees' salaries had not been paid and therefore, deductions were not made; or that even that much of funds to be remitted were not available on due dates. The relevant factors have to be determined by the Provident Fund Commissioner quasi-judicially and, as already pointed out by us, he has to ascribe reasons for conclusions arrived at.
15. When we say that the discretion under S. 14-B cannot be controlled by administrative direction, we should not be understood to have said that there could not be any administrative guidelines for the exercise of that discretion. But, such guidelines cannot be treated as the only manner in which the discretion has to be exercised and cannot be understood to be conclusive. Though existence of such guidelines will be a welcome safeguard against arbitrary exercise of the discretion at the sweet will and the whim of the Provident Fund Commissioner, at the same time, it is necessary to observe that the guidelines will have to be prudently applied on the fact and circumstances of each case. The fact that guidelines were issued specifying the quantum of the damages with reference to the number of defaults or their duration does not prevent the Provident Fund Commissioner from determining whether damages which are less in quantum than what is prescribed in the schedule, could be levied or not. The guidelines cannot once and for all bind the hands of the Provident Fund Commissioner, and in a given case, it is quite permissible for the Commissioner to come to the conclusion that a case has been made out to levy less damages than what is provided in the schedule. This, of course, is subject to the rider that where he wants to depart from the guidelines, he must give valid reasons which may be tested if an occasion arises. It is also permissible for the authorities to substitute the present schedule with different guidelines specifically providing for each of the relevant elements as are set out in the judgment of the Supreme Court in the Organo Chemical Industries case (supra).
16. So far as the rate of interest is concerned we are not inclined to accept the argument of Mr. M. R. Narayanaswamy that it is only the interest which is credited to the individual account of the employee that should be recovered. We have already pointed out that the Fund itself has an option to invest its moneys in remunerative investments. Accepting the argument of the learned counsel Mr. M. R. Narayanaswamy, would be entitled to enrich defaulting employer would be entitled to enrich himself at the cost of the Fund which is entitled to invest the money and earn interest whereas those amounts would be utilised by the defaulting employer to invest and utilise in more remunerative ways. It is therefore, open to the Provident Fund Commissioner while considering the element of reparation to the employee to take into account the fact that the Fund itself has been deprived of these moneys and it would therefore, be open to him to charge a higher rate of interest than the interest that is actually credited to the account of the employee. We find from the instructions that the rate of interest provided is 10 per cent. as in 1980. This rate, of course, is a variable component. So far as the other component of penalty is concerned, as already pointed out, the question will have to be decided by the Provident Fund Commissioner on the facts of the case pleaded before him, subject to the composite maximum laid down by the guidelines.
17. Mr. M. R. Narayanaswamy also referred to us the decision of a learned single Judge of this Court (Sathiadev, J. in Sri Rajendra Mills Ltd. v. The Regional Commissioner, Employees Provident Fund : (1982)ILLJ352Mad , in which it was observed that the cause for non-payment of the contribution must be considered. The learned Judge has observed as follows : (at page 353)
'When the petitioner has furnished particular regarding power-cut, which had immobilised the industry for a considerable period, it is not only a pertinent, but a relevant factor that should be taken into account before ever damages are assessed. It is no answer to state that only one per cent. is imposed when the industry is disabled by the action of the State from functioning. If factors which are not within the control of the industry are responsible for non-functioning of the factory, like total strike in all industries, flood, power-cut which is imposed every year, directions by law and other authorities to close down factories during public unrest, etc., they would be relevant circumstances for sympathetically considering the claims of such industries in non-payment of contributions and other remittances under the provisions of the Act.'
These observations are not inconsistent with what we have said earlier except except that the added relevant factor is whether on due dates even that much of amount to be remitted was not available with the employer. No decision can ever be exhaustive of all the grounds on which an employer can claim to be relieved of the liability to pay damages. Each case will have to be considered on the facts of the case.
18. Mr. M. R. Narayanaswamy also referred to the decision of the Mysore High Court in Fernandes v. State of Mysore : (1969)IILLJ442Kant . The Division Bench of the Mysore High Court in that expressed the view that a mechanical computation of damages on the basis of the table was not what is envisaged under S. 14-B of the Act. There can be no quarrel with this proposition. As a matter of fact, we have earlier observed that S. 14-B vests a discretion in the Provident Fund Commissioner, which cannot be fettered or controlled by any administrative direction. Reliance was placed on a decision of the Calcutta High Court in Murarka Paints v. Union of India : (1977)ILLJ40Cal . In that decision a learned single Judge of that Court struck down the order of the Provident Fund Commissioner on the ground that it was not a speaking order, in the sense that it did not indicate as to what the amount of penalty was and it did not also indicate that the penalty imposed had any relationship with the loss suffered. The learned Judge seems to have taken the view in that case that though S. 14-B of the Act provides for a maximum amount of damages, it must have some correlation with the loss suffered as a result of delayed payment. With respect, these observations may not now be correct in view of the decision of the Supreme Court in Organo Chemical Industries case (supra).
19. The learned counsel has also referred to us the decision of a learned single Judge of the Bombay High Court in Josts Engineering Ltd., Bombay v. Union of India and another : (1983)IILLJ436Bom . The table with reference to which an argument was advanced before us was also the table questioned in that case and the learned Judge has observed that the quasi-judicial authority is not expected to conform to the tables, but to use his own judgment and support it by a speaking order once again a proposition which is incapable of any controversy. The learned Judge has also observed that an administrative authority cannot in any manner channel the discretion of a judicial or quasi-judicial authority by directives and that the authority under S. 14-B while assessing the damages was obliged to write a speaking order of his assessment setting out the reasons for it so that it was readily exposed to the scrutiny of a Court exercising writ jurisdiction. It however appears that with regard to this table a submission was made on behalf of the Provident Fund Commissioner that 'this table is merely a guideline and the authority's discretion is not fettered in any way.' This was not accepted by the learned Judge, because the affidavit filed on behalf of the Commissioner stated that the officers functioning under the Act are bound to follow the reasonable guidelines laid down by the Central Board of Trustees. The learned Judge therefore, held that a quasi-judicial authority is not expected to conform to it, but he has to use his own judgment and support it by a speaking order. We have also taken the same view in the earlier part of this judgment.
20. An apprehension was expressed by Mr. Somayajulu that if the schedule is allowed to be adopted as the guidelines, then in terms of the schedule, even if the defaulting employer has sufficient grounds for which he was not able to remit the necessary contribution, he would still be liable even though the preceding defaults have been properly explained by him. With reference to the schedule it was argued that the schedule prescribes a sliding scale of damages for the Twelfth default, and the argument is that even though for all the eleven earlier defaults there were satisfactory explanations which were accepted by the Provident Fund Commissioner, on the mere fact that a default is the twelfth one, the Provident Fund Commissioner would levy damages. In our view, this contention is based on a misconception that the Provident Fund Commissioner will mechanically treat the twelfth default as such for the purpose of the schedule. Even for the purpose of the twelfth default, the Provident Fund Commissioner would apply his mind and consider the explanation in respect of this default. And if there was sufficient explanation for the eleven defaults, then the twelfth default will be considered as the first default and not the twelfth default. Mr. Swaminathan appearing for the Commissioner also agrees that this would be the correct way in which the schedule will have to be read.
21. Mr. Somayaji also referred to the decision of the Mysore High Court in Mysore Bangle Works v. State of Mysore 1973 (26) F.L.R. 87. The Division Bench of the Mysore High Court in that case held that the words 'as it may think fit to impose' appearing in S. 14-B of the Act impose a responsibility on the part of the Government to exercise its discretion in determining the extent of damages. Subject of course, to the maximum of 25 per cent. of the arrears, without being influenced by any other extraneous circumstances such as the circular issued by the Regional Provident Fund Commissioner fixing damages in accordance with the schedule mentioned therein. This view does not run counter to the view which we have already taken in this case that the Commissioner cannot abdicate his discretion in the favour of the figures and the directions set out in the schedule which have to be considered as mere guidelines.
22. Mr. Sanjay Mohan appearing in W.A. No. 691 of 1979 also contended that the loss which would be suffered by the employees concerned would be only the amount of interest which was to be credited to the account of the employees concerned under paragraph 59 of the Scheme. Mr. Sanjay Mohan therefore, contended that it is not necessary to have any guidelines with regard to the element of reparation because paragraph 59 of the Scheme requires interest is to be credited to the member's account and this interest is to be at the rate to be determined by the Central Government in consultation with the Central Board. It is also contended by Mr. Sanjay Mohan that it would be improper to lay down any guidelines with regard to the penal element with reference to the quantum of arrears. Undoubtedly, reparation element takes in the loss of interest which would have been credited to the individual member's account as required by paragraph 59. But, we have pointed out earlier that this is not the only loss suffered by the Fund. The Fund also suffered the loss as a result of being deprived of the investment of the moneys which are not coming in on due dates by way of contribution and the element of reparation will come in that respect also with the result the element of reparation will be more than the actual amount of interest which is required to be credited to the employee's account. It is at the moment fixed at 10 per cent. and this 10 per cent. is inclusive of the interest which will be credited to the member's account. It is difficult to appreciate the arguments that the penal element of damages should have no reference to the quantum of arrears.
23. Determination of damages in a case like the present one cannot be done on the principles contained in S. 73 of the Contract Act. The penal element must take in for consideration the extent of the default and the frequency with which the employer is committing the defaults. As observed by the Supreme Court in the Organo Chemical Industries case (supra), this element as also to provide penalise defaulting employer as also to provide reparation for the amount of loss suffered by the employees. It is also a warning to the employer in general not to commit a breach of the statutory requirements of S. 6. Therefore, the levy of penal damages will be dependent on two relevant factors, namely, the duration of the default and the frequency of the defaulting in committing the defaults. The frequency of the default unexplained will indicate that the defaulting employer is bent on committing breach of the obligation for which penalty is provided. It would be a good measure if penal damages are to be determined in terms of the percentage of the amount of contribution. The damages must necessarily be related to the quantum of arrears. Indeed, S. 14-B itself contemplates that damages under S. 14-B of the Act do not exceed 100 per cent. of the arrears when it refers to damage not exceeding the amount of arrears. Determination of damages with reference to arrears is contemplated in the section itself, and it is therefore, not possible to accept the argument of Mr. Sanjay Mohan that the determination of the penal element should have no reference to the arrears.
24. Before we deal with Writ Appeal No. 393 of 1979 on merits, it would be advantageous to summaries our conclusions :
(1) The view taken by Padmanabhan, J. following the decision of the Supreme Court in Organo Chemical Industries v. Union of India (supra), is the correct view and the view taken by Mohan, J. is not in consonance with the decision of the Supreme Court cited supra and therefore, the decision of Mohan, J. must stand overruled.
(2) The reasonable opportunity of being heard contemplated in the proviso to S. 14-B of the Act includes an opportunity to show that a defaulting employer is not liable for damages at all; and in case the defaulting employer fails to satisfy the authority that he is not liable to damages, to show cause against the quantum of damages.
(3) The notice to show cause cannot be treated as invalid, merely on the ground that it contains the proposed quantum of damages.
(4) The mere fact that there was a strike or a lockout or power-cut, etc., during the relevant period would not be a sufficient explanation, unless it is also possible for the employer to show that the employees' salaries had not been paid and therefore, deduction were not made; or that even that much of funds to be remitted were not available on due dates
(5) The authorities are at liberty to provide guidelines from time to time to the Provident Fund Commissioners who are invested with the power to levy damages under S. 14-B of the Act taking into account the frequency and the duration of the defaults and calculate in terms of the percentage of the defaulted contribution. Such proposed quantum of damages to consist of the two elements, namely, the reparation element, i.e., the loss of interest caused to the employee and the fund and the penal part of the damages. These may be indicated either separately or as composite figures.
(6) Such prescription of guidelines will not mean that the Provident Fund Commissioner is bound to levy total damages strictly in accordance with the figures set out in such a schedule and the exact quantum of damages determinable in each case will have to determined by the Provident Fund Commissioner after taking into account the facts and circumstances of each case. Laying down such guidelines is to prevent arbitrary exercise of discretion by the Provident Fund Commissioner.
(7) Order passed must contain reasons on each point taken by the employer.
(8) Reasons to be furnished must show how quantum of damages is arrived at.
25. Since we have heard Writ Appeal No. 393 of 1979 which involves a short point, we are disposing of that appeal on merits. The respondent in the writ appeal was served with a notice containing a proposal to levy damages in respect of the contributions due for the months of February, 1972 to June 1972. The employer showed cause against this notice. According to the employer, the Mills were not functioning during the period from 8th March, 1972 to 9th July 1972, due to the reason that the Mills were closed down on account of labour troubles. Intimation of closure of the Mills was given to the Provident Fund Commissioner as also the intimation with regard to the opening of the Mills on 10th July, 1972. The Provident Fund Commissioner accepted the explanation of the respondent Mills with reference to the defaults for the months of March, April, May and June, 1972. But, with regard to the default in respect of contribution for the month of February, 1972, the Commissioner by a written order held that the reasons advanced in the representations of the defaulting employer for the belated remittance for the month of February, 1972 did not warrant any deduction in the leviable damages on the dues for February, 1972, because according to the Provident Fund Commissioner, these dues could have been remitted at least on ad hoc basis within the due date. He therefore, restricted the levy of damages in respect of the default for the month of February, 1972. This order is challenged, and it is pleaded that the dues for February, 1972 could be deposited on or before the 15th March, 1972, and that the default, if any, could occur only on and after the 15th March, 1972, and further there is no provision in the Act requiring the defaulting employer to make any ad hoc payments. Mr. Govind Swaminathan found it difficult to support this part of the order of the Commissioner. Mr. Swaminathan has fairly conceded that there is no provision either in the Act or in the Scheme which requires the employer to make any ad hoc payments. He was also not able to dispute and indeed rightly so that the default must be said to have occurred only on 15th March, 1972, because under paragraph 38 of the Scheme, the remittance has to be made within fifteen days of the close of every month. In the instant case, for the month of February, 1972, the contribution had to be remitted on or before 15th March, 1972, and if the Provident Fund Commissioner accepted that from 18th March, 1972 to 9th July, 1972 the condition in the Mills prevented the management from remitting the contribution and on such basis he relieved the defaulting employer of the liability to pay damages for the months of March, 1972 to June, 1972 he should have relieved the defaulting employer of the liability in respect of damages for the contribution due for the month of February, 1972 also. The order passed by Mohan, J. in the Writ Petition out of which the writ appeal arises has the effect of sending the matter back to the Commissioner. But, in view of the position pointed out above, the appeal and the original petition can both be disposed of, because we have held that the judgment of Mohan, J. cannot be now good law in view of the Supreme Court decision. On merits, the respondent-Mill is entitled to relief in the nature of quashing the demand made against the employer-Mill. Having regard to what we have said earlier, we must hold that Writ Appeal No. 393 of 1979 is allowed, but at the same time, we also allow Writ Petition No. 171 of 1975. Writ Appeal No. 411 of 1981 which is filed by the individual defaulting employer, as also the other appeals by the defaulting employers have to be dismissed.
26. It is however, common ground that the liability of damages and the quantum of damages will now require fresh consideration having regard to what we have dismissed the appeals filed by the individual defaulting employers because we have upheld the view of Padmanabhan, J., it will be necessary to direct the Provident Fund Commissioner to determine the liability, if any, and quantum of damages, if necessary, in each case. Having regards to the equal success and failure in each case, we make no order as to costs in these appeals.