HC Madras (07.09.2011) in R. Balachandran & Anr Vs. The Regional Provident Fund Commissioner & Ors. [W.P.(MD)No.11546 of 2010 and M.P.(MD)No.2 of 2010] held that;
In absence of any allegation that the business of the Company was for the benefit of the Director for his own benefit, or that the Director was personally liable to pay contribution, and the corporate veil is lifted, the Director of the Company, cannot be treated to be an employer, in the case of a Registered Company, which has its own legal entity.
The short question which is to be taken into consideration is whether the dues can be recovered either from the owner or from the occupier as defined under Section 2(e) of the said Act.
The Apex Court has held that the words "owner" or "occupier" which is found in Section 2(e) of the said Act have been used disjunctively and therefore, in a case where the owner is public limited company, in that case while construing the definition of "owner", it would not be necessary to refer to the word "occupier".
Therefore, when the owner of a factory is a company it is the company which is the principal employer and not its director.
Therefore, in view of the decision of the Apex Court, it is apparent that the word "owner" or "occupier" has to be used disjunctively and in cases where the owner of factory is a company, it is the company which is the principal employer and not a director.
That the Managing Director of a company cannot be personally liable towards arrears of provident fund contribution by the company.
In view of these, the impugned notice-cum-Order dated 6th January, 2003 issued under Section 8F of the said Act is quashed and set aside. Respondent no.1 is directed to refund the said amount to the petitioner which is recovered from the petitioner's bank in pursuance of its notice dated 6th January, 2003."
The contention of the learned counsel that in view of Form 5A, the first petitioner will be an occupier of the Factory, thus liable for payment of provident fund, again, deserves to be noticed to be rejected, for the simple reason, that the liability under Section 7-A of the Act, is that of the employer, and as already mentioned, in case of a Registered Company, it is the Company, which is the employer.
Headnotes;
Writ Petition filed under Article 226 of the Constitution of India, praying for issuance of a Writ of Certiorarified Mandamus to call for the records of the second respondent in EPFCP 16 (No.TN/MDU/6357/RECY/CP162001/2006) dated 25.07.2006 and the consequential renewal order of attachment issued by the same respondent in EPF:CP16 Ref.No.M11/TN/MDU/RECY/RO/2009 dated 08.12.2009 and quash the same and further direct the respondents not to take steps for the alleged arrears of Employees' Provident Funds due by the fourth respondent against the petitioners and their properties under the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (Central Act 19 of 1952).
Excerpts of the order;
The petitioner has approached this Court, with a prayer for issuance of a Writ, in the nature of Certiorari, to quash the notice of recovery issued to the petitioner, for recovery of amount due from M/s. Swamiji Mills Limited.
# 2. M/s. Swamiji Mills Limited is a company, registered under the Companies Act, covered under The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as "the Act"). Proceedings under Section 7-A of the Act, was initiated, and order was passed for recovery of amount from the employer.
# 3. The Recovery Officer, in order to effect recovery of the Certificate issued under Section 7-A of the Act, passed an order, directing the attachment of the property of Tmt.B.Ramdev Soundari, the second petitioner herein, Wife of Mr. R.Balachandran, the first petitioner herein, who was the Director of the Company from the year 1999 to 15.05.2002.
# 4. The petitioner has challenged the impugned order, on the ground, that for payment of dues by the Company, the property of the Director cannot be attached, and in any case, the property of the petitioner No.2 could not be attached at all, as she had no concern with the Company's affair.
# 5. In support of this contention, the learned counsel for the petitioner placed reliance on the Judgment of the Hon'ble Supreme Court in the case of EMPLOYEES' STATE INSURANCE CORPORATION ..VS.. S.K.AGGARWAL AND OTHERS (A.I.R. 1998 S.C. 2676), judgment of the Bombay High Court in W.P.No.407 of 2003 (SHRI VIMALKUMAR RAVJI SHAH ..VS.. THE EMPLOYEES PROVIDENT FUND ORGANISATION, SOLAPUR AND OTHERS) decided on 23.04.2009 and the Judgment of Punjab and Haryana High Court in C.W.P.No.700 of 2009 (VIJAY AGGARWAL ..VS.. THE RECOVERY OFFICER AND ANOTHER) decided on 24.07.2009, wherein it has been authoritatively laid down, that property of the Director cannot be attached, for recovery of the amount due, to Employees Provident Fund Organisation.
# 6. The learned counsel for the respondents vehemently contended, that the petitioners cannot take benefit of the property being in the name of second petitioner for the reason, that the attached property was in the name of the first petitioner, which was transferred in the name of the second petitioner only on 15.06.2002, whereas the property in dispute was attached by the Recovery Officer on 11.06.2002. The transfer therefore was with an intention to defraud the Provident Fund Organisation, thus the transfer deserves to be ignored. Though there is force in this contention of the learned counsel, but this can be of no help to the respondents as, the property of the first petitioner could not be attached, being not an employer.
# 7. Section 8-B of the Act, which reads as under:-
"8-B. Issue of Certificate to the Recovery Officer:-
(1) Where any amount is in arrear under Section 8, the authorised officer may issue, to the Recovery Officer, a certificate under his signature specifying the amount of arrears and the Recovery Officer, on receipt of such certificate, shall proceed to recover the amount specified therein from the establishment or, as the case may be, the employer by one or more of the modes mentioned below :-
(a)attachment and sale of the movable or immovable property of the establishment or, as the case may be, the employer;
(b)arrest of the employer and his detention in prison;
(c)appointing a receiver for the management of the movable or immovable properties of the establishment or, as the case may be, the employer; Provided that the attachment and sale of any property under this section shall first be effected against the properties of the establishment and where such attachment and sale is insufficient for recovering the whole of the amount of arrears specified in the certificate, the Recovery Officer may take such proceedings against the property of the employer for recovery of the whole or any part of such arrears.
(2) The authorised officer may issue a certificate under sub-section (1), notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.
# 8. The learned counsel for the respondents referred to Section 8-B of the Act, to contend, that in view of the Proviso to Section 8-B of the Act, after the property of the establishment is found to be insufficient, the property of the employer can be attached, thus the property of petitioner No.1 was rightly attached as the definition of "employer" under Section 2(e) of the Act, reads as under:-
"2(e) "Employer" means -
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause (f) of sub-section (1) of Section 7 of the Factories Act, 1948 (63 of 1948), the person so named ; and
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director of managing agent.
# 9. Therefore, the first petitioner will fall under Section 2(e)(ii) of the Act, being a Director, is "employer" for the purposes of the Act, and his property can be attached.
#10. On consideration, I find force in the contentions of the learned counsel for the petitioner.
# 11. A company registered under the Companies Act, has its own legal entity, which is independent from that of its Directors, and Shareholders. In absence of any allegation that the business of the Company was for the benefit of the Director for his own benefit, or that the Director was personally liable to pay contribution, and the corporate veil is lifted, the Director of the Company, cannot be treated to be an employer, in the case of a Registered Company, which has its own legal entity.
# 12. The Hon'ble Bombay High Court, in the case of SHRI VIMALKUMAR RAVJI SHAH (supra) considered this aspect and held:-
"7. It is an admitted position that the definition of a 'employer' is defined under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 under Section 2(e) and definition of 'principal employer' is defined under Section 2(17) the Employees' State Insurance Act, 1948 is paramateria and both the definitions clearly are couched in the same words. Before deciding the rival contentions, therefore, it is necessary to consider the relevant provisions of the Act and Rules framed thereunder. Section 2(e) gives the definition of a 'employer' which reads as under :-
"2. Definitions.-In this Act, unless the context otherwise requires,-
(e) "employer" means-
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause (f) of sub-section of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent; So far as the recovery of dues are concerned, the Provident Fund Act has become procedure for the recovery of the dues in Section 8 of the said Act. Section 8 reads as under :-
8. Mode of recovery of moneys due from employers:- Any amount due-
(a) from the employer in relation to an establishment to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund damages recoverable under section 14B, accumulations required to be transferred under sub-section (2) of section 15 or under sub-section (5) of section 17, or any charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme; or
(b) from the employer in relation to an exempted establishment in respect of any damages recoverable under section 14B or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under section 17 or in respect of the contribution payable by him towards the Pension Scheme under the said section 17, may, if the amount is in arrear, be recovered by the Central Provident Fund Commissioner or such other officer as may be authorised by him, by notification in the Official Gazette, in this behalf in the same manner as an arrear of land revenue."
# 8. Perusal of the said section clearly discloses that the dues of the employer's contribution towards provident fund are recovered from the owner. In the present case, the establishment is a public limited company. The short question which is to be taken into consideration is whether the dues can be recovered either from the owner or from the occupier as defined under Section 2(e) of the said Act. This question has been considered by the Apex Court in the case of Employees' State Insurance Corporation vs. S.K. Aggarwal & Ors, reported in 1998 II CLR 518. The Apex Court has held that the words "owner" or "occupier" which is found in Section 2(e) of the said Act have been used disjunctively and therefore, in a case where the owner is public limited company, in that case while construing the definition of "owner", it would not be necessary to refer to the word "occupier". The Apex Court in the said judgment in para 7 has observed as under :-
"7. Under S.40 the words "owner" and "occupier" have been used disjunctively. The Court also referred to S.100 of the Factories Act and said that even under the Factories Act, 1948, the Legislature has clearly contemplated that in the case of a factory, a company can be the "occupier". Therefore, when the owner of a factory is a company it is the company which is the principal employer and not its director."
The Bombay High Court overruled the judgment of the Single Judge of the Bombay High Court in so deciding." In para 10, therefore, the Apex Court has observed as under :-
"10. Therefore, even if we read the definition of "principal employer" under the Employees' State Insurance Act, 1948 in Explanation 2 to S.405 of the Indian Penal Code, the directors of the company, in the present case, would not be covered by the definition of "principal employer" when the company itself owns the factory and is also the employer of its employees at the head office".
# 9. The Apex Court has referred to judgement of Division bench of this Court in the case of Suresh Tulsidas Kilachand & Ors. etc. v. Collector of Bombay & Ors. etc., reported in 1984 Maharashtra Law Journal 117 and also judgment of the Apex Court in the case of Employees' State Insurance Corporation, Chandigarh v. Gurdial Singh & Ors, reported in 1991 LIC 52. The Apex Court also relied on the judgment of the Madhya Pradesh High Court in the case of Employees' State Insurance Corporation, Indore v. Kailaschandra & Ors., reported in 1989 LIC 760.
# 10. Though the issue involved in the said case was whether the directors of the company could be made liable for the offence punishable under Section 405 for Criminal Breach of Trust, while considering the said issue, the Apex Court had an occasion to deal with and consider the relevant provision under Section 2(17) which defines the term "principal employer". It is an admitted position that the definition of "principal employer" as defined under Section 2(17) of the ESI Act is paramateria with the provisions of Section 2(e) of the Provident Funds Act. In this view of the matter, therefore, in view of the decision of the Apex Court, it is apparent that the word "owner" or "occupier" has to be used disjunctively and in cases where the owner of factory is a company, it is the company which is the principal employer and not a director. Similarly, the learned Judge of this Court in the case of Mansingh L. Bhakta (supra) has also taken a similar view holding that the Managing Director of a company cannot be personally liable towards arrears of provident fund contribution by the company. Similar view has been taken by the learned Single Judge of this Court in the case of Employees State Insurance Corporation & Anr. vs. G.N. Mathur & Ors. (supra). (supra) That being the settled position, it was not open for the respondent no.1 to attach the personal property of the Managing Director.
# 11. Shri Karnik, learned Counsel for respondent no.1, on the other hand, has relied on the judgment of the Apex Court in the case of the Srikanta Datta Narasimharaja Wodiyar vs. Enforcement Officer, Mysore (supra) wherein the Apex Court was pleased to consider the provisions of Section 14-A and Section 2(e) & (k) and Section 14(1-a) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. It was submitted that the Apex Court in the said case had held that so far as the criminal liability is concerned, the person who is incharge of management of the company would also be liable. There cannot be any doubt regarding the ratio of the Apex Court in the said case. The Apex Court in the said case was considering the criminal liability of the employees of the company though the principal employer and company refers to Section 14A of the said Act which relate to offence by the company. The Apex Court held that the expression 'was incharge of and was responsible to the Company for the conduct of the business' are very wide in their import and therefore, it could not be confined to employer only. The submissions made by Shri Karnik that therefore, even the occupier would also be liable personally to pay the arrears of Provident Fund contribution, cannot be accepted. In this context, therefore, it would be relevant to have a look at the relevant provision viz. Section 14A of the said Act. Section 14A reads as under :-
"14A. Offences by companies.- (1) If the person committing an offence under this Act, the Scheme or the Pension Scheme or the Insurance Scheme is a company, every person, who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under the Act, the Scheme or the Pension Scheme or the Insurance Scheme has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director or manager, secretary or other officer of the company, such director, manager, secretary or other officer shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation.-For the purposes of this section,- (a) "company" means any body corporate and includes a firm and other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm." and also Section 8 of the Provident Funds Act.
# 12. It can be seen that in Section 14A, it has been expressly provided that if the person committed the offence under the Act is a company, every person, who at the time of the offence was committed was incharge of, and was responsible to the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence. It can be seen that these words are not found in Section 8 of the Provident Funds Act and that the said section says that monies could be recovered from the employer. Therefore, in this context, the Apex Court in the case of Employees' State Insurance Corporation vs. S.K. Aggarwal & Ors. (Supra) had observed that the said words have to be construed disjunctively. The ratio of the judgment of the Apex Court on which reliance is placed by Mr.Karnik, learned Counsel for respondent no.1, therefore, will not be of any assistance to the respondent no.1. Similarly, in the case of Garware Marine Industries & others (supra) wherein the learned Single Judge of this Court has observed that the person so named as the employer under the meaning of Section 2(e) of the EPF and MP Act, alone can be prosecuted under provisions of Section 8B(b) of the Act. However, the judgment in the case of Employees' State Insurance Corporation vs. S.K. Aggarwal & Ors. (supra) and the judgment of the two learned Single Judge of this Court were not cited before the learned Single Judge. The said observation, therefore, also cannot be of any assistance to respondent no.1. In view of these, the impugned notice-cum-Order dated 6th January, 2003 issued under Section 8F of the said Act is quashed and set aside. Respondent no.1 is directed to refund the said amount to the petitioner which is recovered from the petitioner's bank in pursuance of its notice dated 6th January, 2003."
# 13. The contention of the learned counsel that in view of Form 5A, the first petitioner will be an occupier of the Factory, thus liable for payment of provident fund, again, deserves to be noticed to be rejected, for the simple reason, that the liability under Section 7-A of the Act, is that of the employer, and as already mentioned, in case of a Registered Company, it is the Company, which is the employer. An occupier can not be held responsible under Section 8-B of the Act, though action against Occupier can be taken under Section 14-A of the Act.
# 14. In support of the contention, the learned counsel for the respondents placed reliance on the decision of the Calcutta High Court in the case of BINOD KUMAR BIYALA ..VS.. REGIMAL PROVIDENT FUND ORGANISATION, WEST BENGAL (2001 (I) L.L.J. 305) wherein the Hon'ble Calcutta High Court pleased to lay down, that the Director of the Company mentioned in Form 5A of has the ultimate control over the Company, therefore liable for default, in payment of Provident Fund dues. This Judgment is not applicable as it deals with liability under Section 14-A of the Act and not under Section 8-B of the Act.
# 15. For the reasons stated, the impugned order cannot be sustained in law, accordingly, this writ petition is allowed, the impugned order is quashed. It is made clear that the respondents shall be at liberty to recover the amount, from the employer in accordance with law.
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