# ORGANO CHEMICAL INDUSTRIES & ANR v. UNION OF INDIA & ORS

- **Citation:** [1980] 1 S.C.R. 61
- **Court:** Supreme Court of India
- **Decided:** 1979-07-23
- **Case number:** Writ Petition No. 4319 of 1978
- **Bench:** V. R. Krishna Iyer, A. P. Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/organo-chemical-industries-anr-v-union-of-india-ors-7818
- **Pages:** 30

## Headnote

Employees Provident Fund and Miscellaneous
Provisions Aot 1952-S.
14B and Constitution of India 1950, Art. 14-Power to recover darnagesAbsence of appellate review-Whether violates Art. 14-Damages whether to
be credited to general revenues of State.
Words & Phrases-'Dan1ages' meaning of-En1ployees Providenl Fund and
C
Miscellaneous Provisions-· Act 1952-S. 14B.
lnterpreta!ion of Statutes-A policy orientation
interpretation
necessary
for a welfare legislation-Each word, phrase or sentence to be considered in
the light of general purpose of the Act.
The Provident rund Act 1952 as originally cinactcd provided for the institution of compulsory
provident fund f0r employees in factories and other
establishments.
Under s. 4 of the Act the Central Government framed the
EmPloyees Provident Fund Scheme, 1952 and s. 6 of the Act enjoined on
every 'employer to make contributions to the Fund.
Section 14 of the Act
provided penalties for breach of the provisions of the Act viz., failure to pay
contributions, failure to submit necessary returns etc., and the penalties extended to various t'erms of imprisonment extending upto 6 months or with
fine upto Rs. 1000/-.
The Act was a.mended by Parliament by Act XVI of 1971 and it was reentitled as the "Employees Provident Fund and Miscellaneous Provisions Act,
1952".
The 2.mending Act inserted s. 6A in the Act for the establishment of
the Family Pension Fund, and in exercise of its powers the Central Government ~reated the Family Pension Scheme, 1971 and para 9 of th'e S-cheme
created a Family Pension Fund and provided that from 2<nd out of contribution payable by the employer and en1ployee9' in each month under s. 6 of the
Act, a p<1rt of the co1.1tribution shall be remitted by the employer to the Family
Pension Fund.
The authoriti"es noticed in the working of the Act and the Scheme that
an employer could delay payment of provident fund dues \vithout any additional financial liability, a.mended the Act and inserted s-. l4B for recovery
of ·damages on the amount of arrears, the object and purpose b'eiflg to authorise the Regional Provident Fund Commissioner to impose exemplary punitive damages and thereby to prevent th'e employers from making the defaults.
Section 14B as origina.Hy enacted provided. for imposition of ~uch damages
'not exceeding twenty five per cent oo the amount of arrears.'
This, however,
did not
prove sufficiently deterrent and the employers
Vi'ere still
making
d'efaults in making oeontributions to the provident fund and in the meanwhile
utilising both their O\VIl contribution as well as the employees' contributions
in their business.
))
F
G
B
A
B
c
I)
G
H
62
SUPREME COURT REPORTS
[1980] 1 S.C.R.
The National Commission on Labour, reoommended that in order to check
the growth of arrears, penalties for defa.ult in payment of provid'ent fund dues
should be more stringent and that the
default should be made cognizable.
This view was endorsed by the Estimates Committe'e in its 116th Report to the
P·arliament.
Actordingly, the Act was further amended by Act No. 40 of
1973, and the words "twenty five per cent" were omitted from s. 14B and
the words "not ·exceeding the amount of arrears" were substituted.
The employer a. chemical industry failed to deposit the amount of Provident Fund and Family Pension Scheme dues with the Provident Fund Commissioner.
The Regional Provident Fu\1d Commisiion'er after issuing a showcause notice to the employer, imposed a penalty which \Vas equivalent to the
amount pay<1ble by the petitioner company and this penalty cam·e to nearly
Rupees one lakh.
The employer pleaded before the Provident Fund Commissioner that dis·
putes between the partners of the firm, power
cut of 60 %
necessitating
purchase of generating set on loan basis leading to loss were the difficulties
in n1aking the contributions in time and these were circumstances beyond
their control. The Region&l Provident Fund Commissioner
after
affording
the petitioner the opportunity of a hearing, by

## Text

_Characters 0–39,908 of 82,897. This is a partial read: ask again with offset=39908 for what follows._

'
•
,)
61
ORGANO CHEMICAL INDUSTRIES & ANR.
v.
UNION OF INDIA & ORS.
July 23, 1979
(V. R. KRISHNA IYER AND A. P. SEN, JJ.]
Employees Provident Fund and Miscellaneous
Provisions Aot 1952-S.
14B and Constitution of India 1950, Art. 14-Power to recover darnagesAbsence of appellate review-Whether violates Art. 14-Damages whether to
be credited to general revenues of State.
Words & Phrases-'Dan1ages' meaning of-En1ployees Providenl Fund and
C
Miscellaneous Provisions-· Act 1952-S. 14B.
lnterpreta!ion of Statutes-A policy orientation
interpretation
necessary
for a welfare legislation-Each word, phrase or sentence to be considered in
the light of general purpose of the Act.
The Provident rund Act 1952 as originally cinactcd provided for the institution of compulsory
provident fund f0r employees in factories and other
establishments.
Under s. 4 of the Act the Central Government framed the
EmPloyees Provident Fund Scheme, 1952 and s. 6 of the Act enjoined on
every 'employer to make contributions to the Fund.
Section 14 of the Act
provided penalties for breach of the provisions of the Act viz., failure to pay
contributions, failure to submit necessary returns etc., and the penalties extended to various t'erms of imprisonment extending upto 6 months or with
fine upto Rs. 1000/-.
The Act was a.mended by Parliament by Act XVI of 1971 and it was reentitled as the "Employees Provident Fund and Miscellaneous Provisions Act,
1952".
The 2.mending Act inserted s. 6A in the Act for the establishment of
the Family Pension Fund, and in exercise of its powers the Central Government ~reated the Family Pension Scheme, 1971 and para 9 of th'e S-cheme
created a Family Pension Fund and provided that from 2<nd out of contribution payable by the employer and en1ployee9' in each month under s. 6 of the
Act, a p<1rt of the co1.1tribution shall be remitted by the employer to the Family
Pension Fund.
The authoriti"es noticed in the working of the Act and the Scheme that
an employer could delay payment of provident fund dues \vithout any additional financial liability, a.mended the Act and inserted s-. l4B for recovery
of ·damages on the amount of arrears, the object and purpose b'eiflg to authorise the Regional Provident Fund Commissioner to impose exemplary punitive damages and thereby to prevent th'e employers from making the defaults.
Section 14B as origina.Hy enacted provided. for imposition of ~uch damages
'not exceeding twenty five per cent oo the amount of arrears.'
This, however,
did not
prove sufficiently deterrent and the employers
Vi'ere still
making
d'efaults in making oeontributions to the provident fund and in the meanwhile
utilising both their O\VIl contribution as well as the employees' contributions
in their business.
))
F
G
B
A
B
c
I)
G
H
62
SUPREME COURT REPORTS
[1980] 1 S.C.R.
The National Commission on Labour, reoommended that in order to check
the growth of arrears, penalties for defa.ult in payment of provid'ent fund dues
should be more stringent and that the
default should be made cognizable.
This view was endorsed by the Estimates Committe'e in its 116th Report to the
P·arliament.
Actordingly, the Act was further amended by Act No. 40 of
1973, and the words "twenty five per cent" were omitted from s. 14B and
the words "not ·exceeding the amount of arrears" were substituted.
The employer a. chemical industry failed to deposit the amount of Provident Fund and Family Pension Scheme dues with the Provident Fund Commissioner.
The Regional Provident Fu\1d Commisiion'er after issuing a showcause notice to the employer, imposed a penalty which \Vas equivalent to the
amount pay<1ble by the petitioner company and this penalty cam·e to nearly
Rupees one lakh.
The employer pleaded before the Provident Fund Commissioner that dis·
putes between the partners of the firm, power
cut of 60 %
necessitating
purchase of generating set on loan basis leading to loss were the difficulties
in n1aking the contributions in time and these were circumstances beyond
their control. The Region&l Provident Fund Commissioner
after
affording
the petitioner the opportunity of a hearing, by a reasoned order, considered
in detail each of the grounds taiken in mitigation of the default and came to
the conclusion that non'e of the grounds alleged furnished a legal justification
for the delay in making contributions in time and held that the petitioner had
failed to carry out their obligations to contribute to the Fund and no con·
vincing case having been matle out to justify the delay in making th'e deposits
and being 'habitual defaulters', their case should be severely dealt with and
held that it was a fit case for imposition of punitiv'e damages to ensure due
compliance of the provisions of the Act.
In the writ petition to this Court it Was contended on behalf ot the peti·
tioners (.i) that s. 14B of the Act is violative of Art.
14 of the Constit..ition
as it confers unguided, IB1Controll'ed, and arbitrary powers on the Regional
·Provident Fund Commissioner, (ii) So. 14B deals with the power to recover
damages and the damages imposed must have co·relation with the loss suffered
as a r'esult of delayed payment, (iii) the period of arrears varies from less
than one month to more than 12 months and therefore the imposition of
damages at the flat rate of 100% for all the defaults irrespective of their
duration is not only capricious but arbitrary; (iv) the absence of provision of
app'eal leave• the defaulter-employer with no remedy and (v) s. 14B of the
Act has not authorised levy of any penal damages i.e. the penalty or fine but
deals with the power to recover the damages.
Dismissing the petition,
HELD : Per Krishna Iyer, I.
1. The Act a social security measure is a humane homage the State pays
to Arts. 39 and 41 of the Constitution. The viability of the project depecds
on the employer duly deductillg the \Vorkers' contribution from
their wages,
adding his own little and promptly depositing the same. The
mechanics
of
the system will suffer paralysis of the e1nployer fails to perform his function.
The dynamics of this beneficia-l statute derive its locomotive po"''er from the
funds regularly flowing into the statutory till.
[69 B-01
.>--
I
'
'c.,
.__
'
·~
•
• '
ORGANO CHEMICAL INDUSTRIES V. UNION
63
2. It the stream of contributions were frozen by employers' defaultSi after · A
due deduction for the wages and diversion for their ow.1 purposes the scheme
\\'ould be damnified by traumatic starvation of the Fund. {69D]
3. 'Damages' have a wider socially semantic connotation than pecuniary
1oss of interest on non-payment when a. social welfare scheme suffers mayhem
on account of the injury. La\v expands concepts to embrace social neeJs so
as to becon1e functionally effectual.
[69E]
B
4. The power to affect citizen's rights, especia.lly by way of punitive impost or damag'es for 'vrong doing, is quasi-judicial in character even if exercised by executive echelons.
This Court has underscored
the
importance of
jnjecting the norms of natural justice when statutory functionaries affect the
rights of a person.
[7 lA]
5. (i) The imposition of damages on a party after statutory hearing
is
C
quasi·judicial direction.
This Court has impressed the requirements of natural
justice on such jurisdiction a.nd one such desideratum is spe1ling out reason!il
for t:lte order made, in other words, a speaking ord'er.
The inscrutable face
of a sphinx is ordinarily incoogruous with a judicial or quasi·judicial
per·
formance. [71E]
(ii) An imperative of s. l4B is that the Commissioner s-hall give reasons
D
for his order imposing damages on a.n employer. · Such a guarante'e ensures
rational action by the officer, because reasons imply relevant reasons, not
capricious ink: and the need for cogency rivets the officer's mind to the pertinent
material on r'e~ord.
Moreover, once reasons are set down, the order readily
·expoiei itself to the writ jurisdiction of the coun under Art. 226 so that per-
'·ersity, illiteracy, extra\1eous influence, malafides and other blatant infirmities
straight get caught ood corrected.
[71F-G]
E
6. A high official h'ea.rs and decides.
The maximum harm is pecuniary
-liability limited by the statute. The writ jUrisdiction is ready to review glaring
errors. Under such circumstanc'es the needs of the factual &ituation and the legal
milieu are su:h that the absence of app'ellate review in no way militates a.gains-t
the justice and reasonableness of the provision.
The argument of arbitrariness
on thi11 score is untenable.
The section is not bad, though action under th'e
section can be challenged in writ jurisdiction when infirmities which a.ttract
such jurisdit.'1:ion vitiate the order. [71 E~F]
7. The argument that absent detailed guid'elines, the law is void, is not
·tenable.
What is not explicit may still be implicit.
What is not articulated
at length may be spun out from a single
phra~e. Whait is not transparent
in particularised provisions n1ay be immanent in the preamble, scheme, purpose
F
or subject-matter of the Act. What is real is not only the gross but also the
G
subtle. Such a perspective dispels the submission that s. 14B is bad as un·
circumscribed and over·broad. [72H-73A]
8. The word 'damages' under s. 14B ha.<> a wealth of implications and Iimita·
1ions, sufficient to serve as guideline in fixing the impost. The
conceptual
limitations of 'damages' serve as guideline and barricade the exercise.
The
Commissioner cannot award anything more than or unrelated
to
'damages'.
H
"Nor can he go beyond 10070 of
the
f!mount
defaulted. Such limitations
without further guidelines are not uncommon in
taxing laws
to
penalise
-Oefaults and suppressions. [73B, H. 74A]
A
64
SUPREME COURT REPORTS
[1980] l S.C.R.
C.l.T., M.P. v. Radhakrishan, l1979} ,2 SCC 249; P. l'/. Kouslial v . .Union
of India, etc., [19781 3 SCC 558; referred to.
9. The expression 'damages' is neither vague nor
over~wid·e.
Its precise
import in a given context is \lot difficult to dis.cern.
A plurality of variants
stemming out of a core concept is seen in such words as actual damages,
civil damages,
compensatory
damages,
consequential
damages,
contingent
U
damages, continuing damages, double damages, excessive dc.mages, exemplary
>--
damages, general damages, irreparable dama.ges, p·ecuniary damages,
pros~
t
pective damages, special damages, speculative damages,
substa~1tial damages,
>.....
unliquidated damages..
But the essentials are (a) detrin1ent to one by the
wrong doing of another, (b) repar<!•tion awarded to the injured through Jegal
remedies and ( c) its quantum being determined by the dual components of
pecuniary compe'ilsation for the Tos-s suffer'ed and often not ahvays a. punitive
C
addition as a deterrent-cum-denunciation by the law,
[74 B-D]
D
F
10. 'Exemplary dama.ges' are damages on an increased scale, awarded to
the plaintiff over and above what will barely compensate him for his prop·erty·
loss, \Vhere the wrong done to him was aggrnvated by circumYtances of violence,
oppressi1on, malice, fraud or wanton and wicked conduct on the part of th'I!
defenda.nt and are intended to solace the plaintiff for mental anguish laceration
of his feelings, shame, degradation or other aggravations of the original wrong,
or e1s'e to punish the defendant for his evil behaviour or to make an example
of him, for Which reason they are ::ilso ca·lled "punitive" or "runitory" damages
or "vindictive'' damages, and (vulgarly) "smart-money". [74E-F]
11. The power conferred to award damages is delimited' by the content and
contour of the conc'ept itself and if the Court finds the Commissioner travelling
beyond, the blow will fall.
Section l4B is therefore good for these reasons.
[740]
12. A policy oriented interpretatio•.1 when a welfare legislation falls for
determination, 'especially in the context of a developing aountry. is sanctioned
by principle a.nd precedent and is implicit in Art.
37 of the Constitution, since
the judicial branch is-, in a sense, part of the State.
So it is reasonable to
assig.n to 'damage<;' a largCr. fulfilling meaning.
[75E]
14. The composite idea of 'damages· include.s more than pe-;;;uniary compensa.tion.
l\.foreover, the injured party is the Board of trustees who administer
the Fund.
That Fund not merely loses the interest consequent <~ the noapayrr1ent but receives a shock in that its scarce resources are further f'anlished
by employ'ers' default.
There is great social injury to the scheme when employers default in number.
So the lash of the law is deli\'ered when it.s object
G
is frustnited.
f\..fore denunciatory is the fact that the employer makes deducH
tiO'.is from th'e poor wa.ges of the workers and divert.9 even those sums for
his private purposes by failing to make pro1npt remittances.
Thus default in
contributio•ns is compounded by 'embezzlement, as it were.
Naturally, damages
will take an exemplary character and inflict a
heavy blow on the
shady
defaulter. [75F-0]
15. The damages are levied under the Act and the
Authority levying
damages is created by Act and is respons.ible for the collection of contributions
a111d damages for the Fund.
It is not possible to dichotomise and hold that
the contributions go into the Provident Fund but the rest of the damages go
'
•
i
ORGANO CHEMICAL INDUSTRIES V. UNION
65
into the general revenues.
This is not a fine under the criminal law.
Nor is
ft recovery on beha.Jf of the Government of amounts under a general statute
for purposes of revenue.
A special statute creating a special fund, empowers
special officers to recover speci~lly designated contributions and special damage~
for default.
The entire sum belongs to the fund except perhaps the administrativ'e charges which are usually sepa.rately indicated.
It is wrong therefore
to credit the damages into the general revenues. To that extent it is a breach
of the statutory scheme and a deprivation of \Vhat belongs to the workers' Provident Fu•.id.
Tf any Stare is diverting the damages under the Act into its own
coffers. it is improper.
[76G-77B]
A.
16, 'Dan1ages' as imposed by s. 14B, includes a punitive
sum quantified
according to the circumstances of the case.
Jn
'exemplary
damages' this
aggravating clement is prominent. ·constitutionally speaking such a penal levy
included in damages is perfe..:tly within the ar'ea of implied powers and the Jegisc:
lature maiy, while eriforcing collections, legitimately and reasonably provide
for recnvcry of additional sums in the shape of poo.alty oo as to see that
avoiJnnce is obviated.
Such a penal levy cnn take the form of dan1agcs.
[75H-76B]
Per Sen, J. 1. Section 14B of th'c Employees' Provident Funds c.nd l\fiscellaneous ProviskJns Act, 1952 was enacted to deter the employers and to thwart
· them fron1 making defaults in carrying out their- statutory oblig2.tions to make
payments to the Provident Fund. The object and purpose of th'e Section is to
authorise the Regional Provident Fund Con1n1issioner to impose exemplary or
punitive damageS> and thereby· to prevent employees from making defaults.
The intention in increasing the quantum of da.mages, namely, "not exceeding
the amount of arrears" is to invest the Regional Provident Fund Commissioner
with power to impose such damages so that the employer would not find it
profitable to make defaults in making payments.
[82D-G]
2. The \VOrd "damag'es'' in Section 14Il of the Employees Provident Funds
anJ
~Iisce!laneous Provi<Jions /\ct, 1952 cannot be read in i-:·o!ation nor 1;an
sectio-;: 14B be read out of confext. The \\'ord has to be given its true meaning
in c0nsonance with the objects and purposes of the Legislation.
It n1ust take
its colour and "..:ontent from its context.
The \VOrd 'dnrn<iges' in :;ection 148,
in the context in which it appears, means penal dam<iges i.e. a penalty and not
n1ercly actual loss to the beneficiaries.
Otherwise the very object of the Legislation \vould be frustrated.
f870]
3. The in1position of damages under section 14B serves a
Jt results in dan1nification and also s'erves as a deterrent.
object is to penalise, so that nn employer may be th\\'arted
n1aking any further defaults.
[87E]
two-fold purpose.
The prcdominent
or deferred from
The exprl!ssicn "damages" accruing in Section 14B is, in substance, a penalty
imposed on the employer for the brea.ch of the statutory obligation. The object
of imposition of pen<tlty ujs 148 is not m'erely "to provide compensation for
the employees".
The imposition of damages u/s 148 serves both the purposes-.
It is meant to penalise defaultit1g emplo~'er as also to provide reparation for the
amount of toss suffered by the employees.
lt is not only a \Yarning to employers in general not to commit a breach of the ~,t<1tutory
requirement of
section 6 of the Act, but at lhe 512,me time it is meant to provide compensation
D·
E •
F
•
66
SUPREME COURT REPORTS
(1980] I S.C.R.
A
or redress to the beneficiaries i.e. to recomp'ense the employees for the loss
sustained by them.
The damages need not bear any relationship to the loss
which is caused to the beneficiaries under the scheme.
[87F-GJ
B
c
D
E
F
H
4. Each word, phrase or sentence must be considered in the light of the
general ptifpose of the Act its'elf.
A bare mechanical interpratation of the
words devoid of concept or purpose will reduce most of legislation to futility.
It is a salutary rule well established that the intention of the legislature must
be found by reading th'e statute as a whole.
[89E]
The word "damages" in section 14B is related to the word "default". The
words u!Cd in section 14B are "default in the payment of contribution'' and.
therefore the word "d'efault" must be construed in the light of Para 36 of the
Employees' Provident Fund Scheme, 1952, which provides that the payment of
contribution has got to be made by the 15th of the following
month and,
therefore, the word "defa.ult" in section 14B must mean "failure in performance"
or "failure to act".
At the saime time the imposition of damages u/s 14B is
to provide reparation for the amount of loss :-;uffered by employees.
And this
is in accord with the intent and purpose of the legislation.
[87H-88B]
5. In assessing the damages, the Regional Provident Fund Commissioner is
not only bound to take into account the los:-; to the beneficiaries, but also the
default by the employ'er in .making his contributions, which
occasioned the
infliction of damages.
The entire amount of damages awarded under section
14B, except for the amount relata.ble to administrative charge'lo, must nec'essarily be transferred to the Employees' Provident Fund and the Family Pension
Fund.
The employees would g'et damages commensurate with their Joss i.e.
the amount of interest on delayed payments, but the remaining amount would
go to augma1t the 'Fund' constituted under section 5, for implementing the
scheme of the Act.
[89G-90A]
6. Sectioo 14B of the Act does not confer unguided or uncontrolled dis·
cretion upon the Regional Provident Fund
Commissioner to
impo9e such
damages "as he may think fit", and, is, therefore, not violative of Article 14
of the Constitution.
[83G]
It cannot be said that there are no
guidelines provided for
fixing the
quantum of damages.
The guidelines are provided in the Act and its various
provisions, particularly in the word "damages" the liability for- which under
Section- 14B arises on the 'making of
default".
The word
"damages" in
Section 14B Jays down s.ufficient guidelines for the Regional Provident Fund
C·ommissioner to levy damages. [83G-84B]
7. The power of Regional Provident Fund Commissioner to impose damages
under section 14B is quasi-judicial function.
It must be ex'ercised after notice.
to the defaulter and after giving him a reasonable opportunity of being hen.rd.
The discretion to award damages could be exercis'ed within the limits fixed by
the statute, by taking into conmderatlon various factors, namely, the number
of defaults, the period of delay, the frequ'et.1cy of defaults and the amount involved.
Having regard to the punitive nature of the power exercisable under
Section 14B and the consequences that ensu'e therefrom, an order under Section
14B must be a "speaking order" containing the reasons in support of it.
[83H-84A]
.'--
f
•
>....
; •
OR GANO CHEMICAL INDUSTRIES· V. UNION
67
'\
Con1missioner of Coal Mines Provident Fund, Dhanbad v, J. Lalla & Sons,
&
[1976] 3 S.C.R. 365; referred to.
8. 1Jere absence of provision for am appeal in the Employees Provident
Fund and Miscellaneous Provisions Act, 1952 does not imply that the Regional
Provident Fund
Commissioner, is invested with arbitrary or
uncontrolled
power, without any guidelines.
[85B]
B
•
The conferral of power to award damages under section 14B is to ensure
~}
the success of the measure. It is dependent on existenice of certain facts, there
has to be an objective determination, not subjective. [85C]
. "'
The Regiona.1 Provid'ent Fund Commiooicner has not only to apply his mind
to the requirements of Section 14B but is cast with the duty of making a
speaking order after conforming to the rules of natural justice. [85C]
C
The absence of a provision for ap:peal or revision can be of no cons'equence.
Where the discretion to apply the provisic~s of a particular statute is left with
the Government or one of the highest officers, it will b'e presumed that the dis~
cretion vested in such a high authority will not be abused.
The Government
or such authority is in a position to have all the relevant and nec'essary information in relation to each kind of establishment, the nature of defaults made
D·
by the employ~r and the necessity to decid'e whether the damages to be imposed should be exemplary or not. When the power has to be exercised by
one of the highest officers, the fact that no appeal has be'en provided for "is a
matter of no moment".
There is always a presumption that public officials
would discharge, their duties honestly and in accordance with the rules of law.
[85G, D-F]
Mohammad Ali and Ors. v. Union of India and Anr., [1963] Suppl. 1 SCR
993; K. L. Gupta v, Bombay
Municipal Corporation,
[1968] 1 SCR 274;
Chintr~linga1n and Ors. v. Govt. of India and Ors. [1971] 2 SCR 871 and
Pannalal Birijraj v. Union of India. [1957} SCR 233; follo\ved.
9. In the instant case, the petitioners are guilty of suppressio vcri for deliberate concealment of facto;; pertaining to the earlier defaults and the attendant
levy of dan1ages under s. 14B. The petitioners instead of m<l.king their contributions, deliberately ma.de wilful defaults on one pretext or another and have
been utilising the amounts deduct'ed from the wages of their employees, including their own contributions as well as admini&trative charges, in running their
business. Therefore, this was pre-eminently a fit case for imposition of purlitive
damages to ensure due compliance of the provisions of the Act. [79F, G, SOC]
ORIGINAL JURISDICTION: Writ Petition No. 4319 of 1978.
(Under Article 32 of the Constitution)
Bardridas Sharma and K. R. R. Pillai for the Petitioners.
Soli !. Sorabjee, Addi. Sol. Genl. of India and A. Subhashini for
the Respondents.
The followi"ng Judgments were delivered :
F
G
H
A
B
D
F
G
H
68
SUPREME COURT REP,0RTS
(1980) l S.C.R.
KRISHNA IYER, J.-Having bad the advantage of reading my learned brother's judgment I should have stopped mine with a single sentence, following the example of Diplock, L.J. who in
Hughes v.
Hughes(') merely said: 'For the rea·sons given by my brother Harman
I would dismiss the appeal'.
But I respect brother Sen's request that
my concurrence notwithstanding I should, in a separate opinion, highlight the quintessential aspects and
reinforce the legal
conclusions
which are interpretatively decisive and constitutionally validatory of
Section I 4B of the Employees Provident Fnnd and Miscellaneous
Provisions Act, 1952 (briefly, the Act).
That is the apology for this
separate judgment of mine.
Why an apology? Because exordiums
are opprobriums and socio-economic apercus are anathemas for some
judicial psyches; and I should have, for that reason, abandoned my
habitual deviance from the orthodox norm idealised by some that a
judicial judgment shall be a dry statement of facts, drier presentation
of law and logomachy and driest in least communicating to the lawabiding community, which is the court's constituency, the glow of lifegiving principles rooted in social sciences and translated into juristic
rules wl:ich legitimate our institution functionally.
The last consideration, in my humble view, is the elan vital of the justicing process and
jettisoning it is judicial self-alienation from the nation.
Of course,
minds differ as rivers differ and habits die hard !
The central issues in this civil appeal are whether Sec. l 4B of the
E.P.F. and M.P. Act is unconstitntionul and, if not, what is the semantic-juristic sweep of the expression 'damages' used therein.
Other vital
but peripheral matters may be side-s(epped for the nonce, especially
because my learned brother has neatly and rightly dealt with them .. The
factnal setting of the case, without which the legal confentions mgued
lose their luscent relevance, have been stated by my brother Sen, J. but
I may project them in a single sentence to help focus on the vires of
Sec.
14B and the conceptual width of 'damages' in the given context.
Is the imposition by the 'speaking order' of the Regional Provident·
Fund Commissioner, Chandigarh, of a heavy penalty of Rs. 94,996.80
by way of damages under Sec. 14B of the E.P.F. and
M.P. Act
1952 upon the writ petitioners-employers, for chronic and unjustified
defaults in remittances of the provident fund contributions of themselves and their employees legally sustainable, if obviously in excess
of the
pecuniary loss of interest attributable to the
non-payment.
Briefly and
broadly
and
lopping off
aspects
unnecessary
for
this case the scheme of the Act is that each employer and employee
in every
'establishment'
falling
within
the Act
do
contribute
(1) See Foot~note 49 in Law and Politics by Robert Stevens
•
>- •
•
... i
...
ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.)
69
into a statutory fund a titll!c, viz. 6t % of the wages to swell into a
large Fund wherewith the workers who toil to produce the nation's
wealth during their physically fit span of life may be provided some
retiral benefit which will 'keep the pot boiling' and some source wherefrom loans to face unforseen needs may be obtained.
This social security measure is a humane homage the State pays to Articles 39 and 41
of the Co_nstitution. The viability of the project depends on the 'employer duly deducting the workers' contribution from their wages, adding
his own little and promptly depositing the mickle into the chest consti-
<utcd by the Act. The mechanics of the system will suffer paralysis if
the employer fails to perform his function. The dynamics of this beneficial statute derives its locomotive power from the funds regularly
flowing into the statutory till.
The pragmatics of the situation is that if the stream of contributions
were frozen by employers' defaults after due deduction from the wages
and diversion for their own purposes, the scheme would be damnified
A
B
c
by traumatic starvation of the Fund, public frustration from the· failure
D
of the project and psychic demoralisation of the miserable beneficiaries
when they find their wages deducted and the employer get away with
it even after default in his own contribution and malversation of the
workers' share. 'Damages' have a wider socially semantic connotation
than pecuniary loss of interest on non-payment when a social welfare
scheme suffers mayhem on account of the injury.
Law expands conE
cepts to embrace social needs so as to become functionally effectual.
We may wad Sec. 14B and Rule 38 to vivify the discussion:
"14B.
Power to recover damages: Where an employer
makes defaults in the pa,yments of any contribution to the
Fund (the Family Fund or the Insurance Fund) or in the
transfer of accumulations required to be transferred by him
under sub-section (2) of Section 15 [for sub-section (5) of
Section 1 7] or in the payment of any charges payable under
any other provision of this Act or of (any scheme or Insurance Scheme) or under any of the conditions specified under
Section 17, (the Central Provident Fund Commissioner or
such other officer as may be authorised by the Central Government by notification in the Official Gazette in this behalf)
may recover from the employer such damages, not exceeding
the amount of arrear, 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 heoard."
F
G
H
A
B
c
D
E
F
70
SUPREME COURT REPORTS
[1980] l S.C.R.
"38 Mode of payment of contribution-(!) The employer shall, before paying the member his wages in respect of
any period or part of period for which contributions are payable, deduct the employee's contribution from his wages
which together with his own contribution as well as an administrative charge of such percenfage of the to!'al employer's
and employee's contribution as may be fixed by the Central
Govermnent, he shall within fifteen days of the close of every
month's pay to ti)e Fund by separate Bank drafts or cheques
on account of contributions and administrative charge ..... .
(2) The employer shall forward to the Commissioner,
within fifteen days of the close of the month, a monthly consolidated statement in such form as the Commissioner may
specify showing recoveries made from the wages of each employee and the amount contributed by the employer in respect of each such employee".
Counsel for the petitioners has turned the constitutional fusillade
on Sec. 14B by charging it with many-sided, in-built arbitrariness and
therefore liable to be fat'ally shot down by Art. 14. The provision is
simple and the contention is familiar.
The offending words of Sec.
14B are that 'the Provident Fund Commissioner may recover from
the employer such damages, not exceeding the amount of arrear, as it
thinks fit to impose.' Within the limit of 100%, the enforcing agency
is vested with naked and unguided power to inflict any quantum cif
damages as he fancies and this blanket authority is instinct with discriminatory possibility, a vice to which Art. 14 is very allergic. No reasons need be given, no appellate or revisional review is prescribed and
no judicial qualification is required for the Commissioner.
This tiny
statutory tyrant must be slain i:£ equal justice under the law were to be
part of our fundamenpa! rights package.
So
runs the
argumenttraditiona!, attractive and near-lethal. Indeed, if executive fiats released from legal restraints, were free to run amok, our freedoms would
be frothy boasts ! Sedulous scrutiny of this submission of counsel is our
G
solemn duty since I share with him the pensive thought that arrogance
of power dressed in little, brief authority is the undoing of our constitutional order. And yet, here the mini-nero portrait is too naive to meet
with approval.
A shower of precedents has rained on. Art. 14 but the cardinal prinH
ciples have sunk so deep into the constitutional consciousness of the
juristic community that recapitulation of cirations is an act of supererogation. 1 desist from it.
•
i
•
•
ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.)
71
The power to affect citizen's rights, especially by way of punitive
impost or damages for wrong. doing, is quasi-judicial in character even
if exercised by executiv~ echelons. This Court has underscored the importance of injecting the norms of natural justice when statutory functionarieii affect the rights of a person. The most recent of the cases
which lay bare the elementals of this branch of jurisprudence are :
(l)Siemens Engineering and Manufacturing Co. of India Ltd. v. Union
of India('); (2) Maneka Gandhi v. Union of lndia(2 ) and (3)
Mohinder Singh Gill & Anr. v. The Chief Election Commissioner, New
IDelhi and Ors.(')
In Siemens' case this Court observed :
"It is now settled law that where an authority makes an
order in exercise of a quasi-judicial function it must record
its reasons in snpport of the order it makes. Every quasijudicial order must be supported by reasons. That has been
laid down by a long line of decisions of this Court ending
with N. M. Desai v. The Testeels Ltd. & Anr.(4 )"
Fair play in Administration is a finer juristic facef, at once funda;..
mental and inviolable and natural justice is an inalienable functional
component of quasi-judicial acts.
Here, it is indubitable that the
imposition of damages on a party after a statutory hea;ring is a quasijudicial direction.
This Court has impressed the requirements Qf natural justice on such jurisdictions and one such desideratum is spelling
out reasons for the order made, in other words, a speaking order. Tue
inscrutable face of a sphnix is ordinarily incongruous with a judicial
or quasi-judicial performance. It is, in my view,
an imperative of
Sec. 14B that the Commissioner shall give reasons for his order imposing damages on an employer.
The constitutionality of the power,
tested on the .anvil of Articles 14 and 19, neceiisitates this prescription. Such a guarant'ee ensures rational action by the officer, because
reasons imply relevant reasons, not capricious ink and the need for
cogency rivets the officer's mind to the pertinent material on record.
Moreover, once reasons are set down, the order readily exposes itself
to the writ jurisdiqlion of the court under Article 226 so that perversity, illiteracy, extraneous infinence, malafides and other blatant infirmities straight get caught and corrected. Thus, viewing the situa-
(1) [19761 Supp. S.C.R, 499.
(2) [1978] 2 S.C.R. 621.
(3) [1978] 2 S.C.R. 272.
(4) C.A. 245 of 1970 decided on 17th December, 1975_by S.C.
o-475 SCI/79
A
B
c
D
E
F
G
ll
A
B
c
D
E
F
72
SUPREME COURT REPORTS
[1980] 1 S.C.R.
tion from the conspectus of requirements
and remedies,
statutory
agencies may be inhibited and the scare of arbitrary behaviour allayed
once reasons are required to be given.
Nor is the plea of absence of guidelines or appell•ate review sound
enough to subvert the validity of Sec. 14B. It is attractive to hear
the argument that an order passed by an authority, which becomes
infallibly final in the absence of an appeal or revision, is apt to be
arbitrary and bad. An appeal is a desirable corrective but not an
indispensable imperative and while its presence is an extra. check on
wayward orders its absence is not a sure index of arbitrary potential.
1~ depends on the nature of the subject matter, other available correctives, possible harm flowing from wrong orders and a wealth of other
factors.
If a death sentence is allowed to become conclusive without so
much as a single appeal, Articles 14 and 21 may imperil such a provision but if a fine of Rs. 5 /- imposed for a minor offence in a summary trial by a First-Class Magistrate is imparted a finality, subject, of
course, to a constitutional remedy in the event of perverse or patent
illegality we may still uphold that provision with an easy constitutional
conscience.
In the present case, a hearing is given to the affected
party.
Reasons !rave to be recorded in the order awarding damages.
The writ jurisdiction is ready to review glaring errors. The maximum
harm is pecuniary liability limited by the statute.
A
high official
hears and decides.
Under such circumstances the needs of the factual situation and the legal milieu are such that the absence of appellate review in no way militates against the justice and reasonableness
of the provision.
The argument of
arbitrariness on this
score is
untenable. The section is not bad. Maybe, action under the section
may be challenged in writ jurisdiction provided infirmities
which
attract such jurisdiction vitiate the order.
The bogie of absence of guidelines in the provision and consequential possibility of the authority running berserk or acting hubristicaUy
G
does not frighten.
Of course, the more bereft of explicit guidelines a
statutory power is, the more searching must be the judicial invigilation
to discover hidden injustice and masked mala fides.
Even so, let us
examine the ground that, ·absent detailed guidelines, the Jaw is void.
What is not explicit may still be implicit. What is not articulated at
length may be spun out from a single phrase.
What is not transparent
B
in particularised provisions may be immanent in the preamble, scheme;
purpose or subject-matter of the Act: What is real is not only the
gross but also the subtle, if I may strike a deeper note.
Such a pers-
•
>-
+
•
..
•
J
ORGANO CHEMICAL INDUSTRIES v. UNION (Krishna Iyer, J.)
7 3
pective dispels the submission that s. 14B is bad as uncircumscribed
and over-broad .
The power under the Section permits award of 'damages' and that
word has a wealth of implications and !imitations, sufficient to serve
as guideli11e in fixing the impost.
In Arvinder Singh's case(') this
Court upheld au otherwise unbridled power to Jevy tax by importing a B
variety of factors gathered from the statute and relied on many precedents.
Likewise, in Radhakrishan' s case (2) this Court rejected
the
plea that a power in the Commissioner to choose one of the two remedies was invalid in the absence of guidelines and observed, on a review
of the case-law:
"When power is conferred on high and responsible
officers they are expected to act with caution and impartiality while discharging their duties and the circumstances
under which they will choose either of the remedies available
should be left to them.
The vesting of discretionary power
in the state or public authorities or an officer of high standing i; treated as a guarantee that the power will be used fairly
and with a sense of responsibility.
It has been held by the
Privy Cowi.cil in
Provl'nce of
A
c
D
Bombay v. Bombay Municipal Corporation (3), that every
E
statute must be supposed to be for public good at least in
intention and therefore of few Jaws can it oo said that the law
confers unfettered discretionary power since the policy of
law offers guidance for the exercise of discretionary power".
Although our democratic ethos is incongruous with the
assumptio~
that highly paid officials are more responsible than low-paid minions,
the jurisprudence of power must be applied workably and not untouched by reality. More to the point is the decision in Kaushal's case(').
There this Court accepted the submission that the seemingly naked
power under Sec. 59 of the Punjab Excise Act was guided by the
requirement that it was to be exercised for control of consumption of
intoxicants.
(The whole scheme of the statute proclaims its purpose
of control in time and space and otherwise observed the Court). Here
the conceptual limitations of 'damages' serve as guideline and barricade
(I) [1979] I S.C.C. 137.
(2) [1979] 2 s.c.c. 249.
(3) 73 I.A. 271: AIR 1947 P.C. 34.
(4) [IJ73] 3 s.c.c. 558.
F
G
H
74
SUPREME COURT REPORTS
[1980] 1 S.C.R.
A
the exercise.
The Commissioner cannot award anything more than
or unrelated to 'damages'. Nor can he go beyond
100%
of the
amount defaulted. Such limitations without further guidelines are
not uncommon in taxing laws to penalise defaults and suppressions.
B
c
D
E
F
G
What do we mean by 'damages' ? The expression 'damages' is
neither vague nor over-wide. It has more than one signification but
the precise import in a given context is 'not difficult to discern.
A
plurality of variants stemming out of a core concept is seen in such
words as actual damages, civil damages,
compensatory damages,
consequential damages, contingent damages, continuing damages,
double damages, excessive damages,
exemplary damages,
groeral
damages,
irreparable
damages,
pecuniary
damages,
prospective
damages, special damages, speculative damages, substantial damages,
unliquidated damages.