(1) These appeals are directed respectively against the judgments of Jagadisan J. in W.P. No. 888 of 1959 and Veeraswami J. in W.P. 619 of 1959, petition filed under Art. 226 of the constitution. They were heard together since common questions have arisen in them for decision.
(2) In the first case, the petitioner firm ran a factory, from 1942 for manufacturing tapes, lampwicks, etc., with more than 50 persons in its employ. At an anterior stage, the firm disputed the fact that the Employees Provident Funds Act 1952 (Act 19 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 29-9-1958 under S. 19-A of the Act 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 not dispute that the petitioners concern is covered by the Act. The Regional Provident Fund Commissioners, Madras, by an order dated 1-9-1959 called upon the petitioner to pay (1) the employer's share of the contribution to the provident fund from 1-11-1952 (the date on which the provident fund scheme framed under the Act before applicable to the firm) upto 30-4-1957, 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 31-10-1952, 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 61/4 per cent per annum from the date on which the arrears fell due, upto the date of remittance(under section 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 show that the provident fund contribution and administrative charges, cannot be lived 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 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 1-11-1952 to 30-4-1957. 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. 80 of 1963.
(3) In W.P. No. 619 of 1959, East India Industries Pvt. Ltd., 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 1-3-1954(the date when the scheme framed under the Act became applicable to the factory) to 31-3-1958, besides the administrative charges for the said period at 3 per cent on both the employees' and employers contribution, and damages at 61/4 per cent annum. There was an initial dispute before Veeraswami J. s 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 employers 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 writ of certiorari quashed the order of 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 to which we have made
reference. Against this decision, the present appeal W.A. 81 of 1963 is filed by the Regional Provident Fund Commissioner.
(4) It is common ground in both these cases that before the enactment of the Provident Funds Act, there was not provident fund scheme in existence, in the two firms concerned in these appeals. Clause 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 which this scheme applies other than an excluded employee shall 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 he has completed one year's continuos 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 partly 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 an 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 of the factory or other establishment or in respect of any other factory or establishment to which 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 the Scheme is applied to the factory if they have completed one year's continuos 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.
(5) Clause 29 states that the contributions payable by the employer under the Scheme shall be at the rate of 61/4 per cent of the basic wages and dearness allowance payable to each employee to whom the Scheme applies. Clause 30 (1) 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 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 percentage of the pay(basic wages, dearness allowances retaining allowance, if any, cash value of food concessions admissible thereon) and having regard to the resources of the fund for meeting its normal 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 clerical error, or where the employee has given a false declaration that he was not already a member of the fund. Section 14-B of the Act states that where an employer makes default 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 Scheme, 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 arrears of land revenue under the provisions of the Revenue Recovery Act.
(6) Section 19-A of the Act gives power to the Central Government to remove any difficulty arising in giving effect to the provisions of the Act by an order passed for the purpose. Such order will be final.
(7) Before concluding the reference to the relevant provisions, we may also refer to S. 7A 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 the scheme, and for this purpose, may conduct such enquiry as he may deem necessary. Section 7-A(2) provides that the employer shall be given a reasonable opportunity of representing his case before any order determining the amount due from him is passed. Section 7-A(4) states that an order made under this section shall be final and shall not be questioned in any court of law.
(8) 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 Kapurbhimber Union v. Regional Provident Fund Commissioner Punjab, ILR (1965) 1 Punj 321 the "Pre-discovery period". Section 5(1) of the Act 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-section (1) may provide that any of its provisions shall take effect either prospectively of retrospectively on such date as may be specified in this behalf in the scheme. Clause 1 of the Scheme 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. Clause 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 1-11-1952 in W.A. 80 of 1963 and 1-3-1954 in W.A. 81 of 1963. Jagadisan J. held on the former case, that the pre-discovery period must be the period between 1-11-1952 and 30-4-1957, when the employer received a notice from the Provident Fund Inspector making a demand for the contribution. The order of the Central Government under S. 19-A negativing the objection of the employer was passed only on 29-9-1958. But the back period was not reckoned from 29-9-1958, 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 1-3-1954 to 31-3-1958.
(9) 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 form 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 to 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 same mentioned above) should be ruled out. This latter view has been upheld in the judgment of a single Judge of the Calcutta High Court Mukharji, J in a decision which was followed by Jagadisan, 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 23-10-1957 by the Government of India under S. 19-A which directed the firm to pay the employer's share of the contribution from 1-11-1952 to 31-10-1956, administrative charges on both the employer's and employees shares, damages and also the employees' share of the contributions from 1-11-1956 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, Mukharji, 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 back 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 1-11-1952, and the date of the Government's order, that such persons would have drawn the accumulation in the existing provident fund and left the employment, and that no purpose would be served by asking the employer to pay again their contribution to a provident fund. Equally it would be impossible to apply Cl. 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 therefore. 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 23-10-1957, the difficulty whether the establishment was a factory or not removed, and that consequently there could be difficulty in the payment of contribution prior to that date. Similar reasons were relied on by Jagadisan J 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 manifestly 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).
(10) It appears to us, on the other hand, with due respect to the learned Judges, that there is considerable force in the 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 with effect from the date when the scheme has been declared applicable to them. The principal duty is laid upon the employer to put the scheme into operation forthwith, and to make the contributions of both the employer's and employees' share to the fund then and there, and deduct the latter share from the salary of the employees for the purpose of adjusting it against the amount, which they had paid to the fund in advance. In clause 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.
(11) 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 reference 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 the meaning of "to make necessary; to demand; to ask as of right; to claim, to render necessary as a duty" etc. In the Shorter Oxford Dictionary, one use of the 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 supplanting the Royalist regime, would not have, given an opportunity to his soldiers of making a choice in the matter of allegience. It is clear that "require" in the 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 Cole v. Green (1843) 13 LJCP 30, Tindal C.J. has followed an earlier decision in the King v. Birmingham (1828) 8 B and C 29: 6 LJ (OS) MC 67, 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 (1828) 8 B and C 29: 6 LJ (OS) MC 67 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. Justices of Worcestershire, 1900-2 QB 576, 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 convening 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 whomsover 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 whatsover 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 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. Srinivasan v. Union of India, , 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 consolation 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 clause 26 of the Scheme, has to be given a mandatory and not a directory meaning, and that it implies and obligation whose effect is that every employee who is not exempted, and who satisfies the required qualification of service, automatically becomes a member of the fund from the date of the coming into force of the scheme. Nor does the argument of hardship of injustice on which stress was laid by Mukharji J. as well as Jagadisan J. can have substance, subsequent to the amendment which incorporated S. 7-A into the Act in 1963. That section gives an opportunity to the employer to press his objections before the authorities mentioned therein, to any claim for payment made against him and this will include the ground that it is oppressive or unjust in nature. After this amendment, the authority in 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, an relief obtained, for example, regarding employees who have left the service during the pre-discovery 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 of necessary even for reasons other than those mentioned specifically in the proviso to Clause 30; it will be also open to the employer to press at such enquiry, for the waiver of the employees 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 reason why, if the claim for the period anterior to the notice is held to be oppressive, it could not be extended, in a proper case, to the period anterior to the order under Section 19-A. A decision cited before us, of Rajagopalan J inAnnamalai Mudaliar and Bros v. R.P.F. Commissioner, Madras, , 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 is not 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 cases 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 a valid claim. On the other hand, the Provident Fund Commissioner might have had more than one reason for the delay in the issue of 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.
(12) There is a considerable volume of authority in support of the view which we have just now stated. Srinivasan J. W.P. 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 calling upon the employer to make the contribution according to the Act. A Division Bench of the Punjab High Court in ILR (1965-1) Punj 321, a Division Bench of the Andhra Pradesh High Court in Nazeena Traders (P) Ltd. v. Regional Provident Fund Commissioner, Hyderabad
(Chandra Reddy C.J. and Chandrasekhara Sastry J.) a Full Bench of the Kerala High Court in Kokkalai Rice and Oil Mills Foundry v. Regional Provident Fund Commissioner, (where on facts the
Provident Fund Commissioner had given a notice even before 1-11-1952) and the Allahabad High Court in N.K. Industries (P) Ltd. v. Regional Provident Fund Commr. U.P., (followed in the above
Kerala High Court Full Bench decision) have all held the view which we adopt in this case for the reasons stated above.
(13) There is one other decisions of the Bombay High Court in Nagpur Glass Works Ltd. v. R.P.F. Commr. by Mudholkar and
Naik JJ. who had to consider Clause 27 of the Scheme, and they held that it was mandatory. While referring to Clause 26 of the Scheme they made a passing observation that the word 'require' used in that clause, could be distinguished form the words "shall become" in Clause 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.
(14) We may also refer to the Supreme Court's decision in Orissa Cement Ltd. 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 proviso 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 that if any hardship results it may also be due to the employer's indifference of recalcitrance and that in genuine cases of hardships he has a remedy for relief under S. 7-A of the Act.
(15) In regard to the question of administrative charges following Mukharji J.'s view Veeraswami J. held that it could not be recovered because during the pre-discovery period there was no fund to administer & therefore the demand for administrative charges was improper. But this argument overlooks one important point. The administrative charges are not based upon the time factor in the sense of being calculated at so much per year. They are fixed at a percentage of the amount of the contribution levied and are therefore intended to meet the expenditure involved in investment the keeping of accounts and so on which can all arise only subsequent to the actual collection of the fund and will also have reference to the amount collected. From this point of view the claim for administrative charges calculated at a percentage in 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 an employee's contribution when it has neither been demanded nor paid,
(16) As regards the third item damages for default it is clear that the damages cannot be claimed in the absence of proof of default Mukharji J. had 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 that the default can operate. In other words there can be no retrospective to 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 respects to its own facts for an inference about the default. Section 7-A of the Act has provided for such an examination is disputed cases. The amendment introducing Sec. 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 whose where abouts 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 of the enactment of S. 7-A after the orders now in dispute had been passed.
(17) 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(1)(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 opportunity or occasion to submit the return or maintain a register and the like. The short answer to this argument is that it will 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 which was accepted by the Supreme Court in the case of contributions for contractors 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 contribution in respect of employees under a contractor. But the Scheme does give 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.
(18) We therefore allow the appeals in part as indicated in the foregoing paragraphs. In the case W. A. 80 of 1963 the order of Jagadisan J. issuing a writ of mandamus will be set aside but with observation that it will open to the petitioner to urge a claim for necessary reliefs including claims in respect of damages and also in respect of contributions relating individuals like those who have left the employment, and so on, during the period 1-11-1952 to 30-4-1957, in an application to be filed before the appropriate authority under S. 7-A. in the case of W. A. 81 of 1963 while allowing the appeal from the decision of Veeraswami J. we also make a similar observation. No costs.
(19) Appeal partly allowed.