TMI Blog1987 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ohtak, and Commissioner of Income-tax, Delhi VI, New Delhi. Respondent No.1 is the Regional Provident Fund Commissioner (Haryana) and respondent No. 2 is the Regional Director, Employees' State Insurance Corporation (ESIC), also of Haryana. Respondent No. 5 is the Registrar of Companies (Delhi Haryana) but no relief is sought against this respondent. It is stated that petitioners Nos. 1 and 2 are not the working directors of the company and are not responsible for the day to day conduct of the business of the company. The only working directors of the company are stated to be petitioners Nos. 3, 4 and 5. Petitioner No. 6 is the nominee director of the State Industrial and Investment Corporation of Maharashtra, a financial institution from where the company had taken loan. Petitioners Nos. 7 and 8 are alternate directors nominated by two non-resident German directors of the company. It is stated that they are on the board by virtue of their expertise and professional skill. Petitioners Nos. 9 and 10 are respectively the general manager and senior personnel manager of the company and it is stated that they are not responsible for the defaults in respect of payments of statutory due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed that the total subsidy available to the company for chrome vanadium steel if the scheme is implemented with effect from 9th February, 1981, would be around Rs. 1 crore and that if subsidy is provided for forging quality carbon steel from 9th February, 1981, the total amount of subsidy due to the company would be around Rs. 1,30,00,000. Then, it is stated that because of recession and high steel prices prevailing in the country, the company suffered losses during the two year, (1981-82, ending June, 1982, and 1982-83, ending December, 1983), and that after adjusting depreciation and the export incentive received by the company, the losses for these two years were respectively Rs. 1.86 crores and Rs. 6.55 crores. It is then stated that the company being labour intensive having about 6,000 employees wanted to protect as many jobs as it could in the national interest and that with that end in view was trying to manage the situation in the best possible manner and did not take recourse to retrenchment or closure. Financial crisis led to defaults in payment of statutory dues. The aforesaid circumstances, it is claimed, were beyond the control of the petitioners and that payments und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they apprehend prosecutions by respondents Nos. 1 to 4 and 6. They, therefore, on these allegations pray to be excused and/or relieved from the prosecutions likely to be launched against them. Replies by the Regional Provident Fund Commissioner (Haryana), Regional Director, ESIC (Haryana) and the Income-tax Department have been filed. The Regional Provident Fund Commissioner (RPFC) in his affidavit in reply dated 15th March, 1985, says that the provident fund dues in default amount to Rs. 1,07,55,125.97 though as per statement admittedly filed by the company, the default is to the tune of Rs. 69,38,207.50 only. It is stated that there is nothing on record to show that the financial position of the company was so bad that it could not pay even the wages and if the wages could be paid, the least that could be expected was that employees' share deducted towards provident fund dues was paid and that this amount deducted from the employees' wages was in trust with the company and could not be utilised for its business purpose. It then said that financial difficulty per se is no excuse for not discharging the statutory obligations under the Provident Funds Act and that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney and was lying in trust with the company. The reasons of the company for not depositing the TDS on the ground that there was recession in the industry and that the company expected to realise from the Government substantial amount as steel subsidy have been stated to be of no relevance. Parties were allowed to lead evidence by means of affidavits. At the time of admission of the petition, it was directed that no further prosecutions would be filed. By order dated 15th January, 1986, it was directed that the current dues as required under the statute should be regularly paid from January, 1986, onwards without fail and if these were not paid, the stay would automatically stand vacated. There was some controversy between the parties whether this order pertained to the dues under the Provident Funds Act only or under the Employees' State Insurance Act and the Income-tax Act as well. During the course of these proceedings, it was submitted by Mr. R. C. Chawla, learned counsel for the Regional Provident Fund Commissioner, that this order had not been complied with. The petitioners were, therefore, directed to file a detailed affidavit giving the particulars of the payments made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to a default of non-payment of contributions as required under section 6 of the Provident Funds Act. He doubted the correctness of the decisions of this Court in In re Beejay Engineers Pvt. Ltd. [1983] 53 Comp Cas 918. This judgment was rendered by the Division Bench. One of the questions raised therein was if while exercising powers under section 633 of the Act, the court had jurisdiction to grant relief against prosecution under other Acts. In that case, petition had been filed under section 633(2) of the Act for being relieved/ excused from proceedings which were likely to be launched for alleged contravention of the Provident Funds Act, Central Excises and Salt Act, Employees' State Insurance Act, Sales Tax Act and Income-tax Act with reference to tax deducted at source. The court held that the section would apply to all legal proceedings, civil, criminal or otherwise, so long as the liability of an officer of a company arose from negligence, default, breach of duty, misfeasance or breach of trust and he could be relieved from such liability on account of his having acted honestly, namely, in good faith and if he had justifiable reason to escape from such liability. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act 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, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly." Similarly, section 17 of the Prevention of Food Adulteration Act, 1954, deals with offences by companies. So is section 10 of the Essential Commodities Act, 1955, and also section 14A of the Provident Funds Act. The list appears to be endless. If the words " any proceeding " are of wide amplitude, then perhaps Chapter XXI of the Income-tax Act dealing with penalties imposable for various defaults committed under that Act would also be within the ambit of section 633(2) of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid." Mr. Chawla thus said that the liability of the employer was absolute and he would be deemed to have dishonestly used the amount of employees' contributions from the wages payable to the employee in case of non-deposit of the same as required under the Provident Funds Act. The law presumed that at least the employees' contribution lying with the employer was in trust with him. I think Mr. Chawla is correct. The Explanations to section 405 of the Indian Penal Code call for no exceptions. Even otherwise, the contentions raised by the petitioners that there was terrific recession all over the world in respect of hand tools manufactured by the company or non-receipt of subsidy from the Central Government or labour unrest in some of the manufacturing units of the company and suffering of huge losses by the company are no answer when it comes to non-deposit of the employees' contributions deducted from the wages of the employees themselves. Explanations to section 405 of the Indian Penal Code apply with full rigour and it cannot be said that the petitioners either acted honestly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 by traumatic starvation of the fund, public frustration from the failure of the project and psychic demoralisation of the miserable beneficiaries when they find their wages deducted and the employer got way with it even after default in his own contribution and malversation of the 'workers' share. " Krishna Iyer, J., further observed (p. 1808 of 1979 AIR) " The measure was enacted for the support of a weaker sector, viz., the working class during the superannuated winter of their life. The financial reservoir for the distribution of benefits is filled by the employer collecting, by deducting from the workers' wages, completing it with his own equal share and duly making over the gross sums to the fund. If the employer neglects to remit or diverts the moneys for alien purposes, the fund gets dry and the retirees are denied the meagre support when they most need it. This prospect of destitution demoralises the working class and frustrates the hopes of the community itself. The whole proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted. To my mind, non-deposit of contributions in respect of each employee would be a distinct default and the employer would become liable to punishment. The default will terminate only when deposit is made. I will have to say more on this subject when I deal with the defaults committed under the Income-tax Act. Nevertheless, by order dated 24th November, 1986, I did call upon the petitioners to indicate as to how they intended to clear the payments under the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act. They did not give any positive answer except their assertion that they had every earnest desire to make the payments. But then, the petitioners themselves in the petition, which was filed on 4th September, 1984, bad said that they wanted only a period of about two years for them to clear all the statutory dues. They have defaulted even in payment of current statutory dues regularly in spite of specific order dated 15th January, .1986. Mr. K. N. Kataria, learned counsel for Employees' State Insurance Corporation generally supported the submissions of Mr. Chawla. He said it was impossible to act on the ESI scheme in the absence of due contributions f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter XVII-B, he shall be punishable, (i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine." Section 278B of the Income-tax Act, which I have already reproduced above, provides for offences by companies. Again, it would appear that when a person responsible for paying has not paid the tax to the credit of the Central Government as required by law, he will be deemed to have committed an offence punishable under section 276B of the Income-tax Act, if non-deposit was without reasonable cause or excuse. It would appear to be a continuing offence and would terminate only when the deposit of the tax deducted is made. Non-payment of tax in accordance with law deducted from the salary of every employee each month would be a distinct offence. Reference, in this connection, may be made to a decision of the Supreme Court in Maya Rani Punj v. Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver. Along with the return of income, Prakash Chand Jhalani filed a statement of total income wherein he claimed refund of a sum of Rs. 4,722. This was on the basis that as per his return of income, the amount of tax would be Rs. 22,622 while a sum of Rs. 25,344 had been deducted as tax deducted at source as per the certificate. Admittedly, tax of Rs. 25,344 stated to have been deducted from the salary of Prakash Chand Jhalani had not been paid to the credit of the Central Government. On the basis of the certificate, Prakash Chand Jhalani did not deposit the self-assessment tax while filing his return of income as required under section 140A. He also claimed deduction for payment towards provident fund when the provident fund amount had not been deposited. On top of this, he is claiming refund of tax stated to have been deposited in excess when in fact the tax was not deposited as claimed. I think, in the circumstances, this was the most dishonest thing to do. I will outright reject the argument of Mr. Bhandare, learned counsel for the petitioners, that deposit of tax was the responsibility of the company and the petitioners could not be blamed. The company as well as the principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, they ought fairly to be excused. It is said that Rooplal Chaganlal Sohani (petitioner No. 6), V. Sagar (petitioner No. 7) and R. K. Talwar (petitioner No. 8) are in no way connected with the day to day functioning of the company and are not responsible for the conduct of the affairs of the company in any way. Sohani is the nominee director of the State Industrial and Investment Corporation of Maharashtra while Sagar and Talwar are the alternate directors nominated on the board by the two non-resident German directors. I do not find any denial of this averment in the affidavits filed by any of the respondents. They cannot, therefore, be saddled with any liability for any default under any of the three Acts, namely, the Provident Funds Act, Employees' State Insurance Act and the Income-tax Act. They are, therefore, to be relieved wholly from any liability arising for any defaults under those Acts. I order accordingly. But this cannot be said about the other petitioners. The words " honestly and reasonably " are words of common use and have to be understood as such. To be relieved of their liability it has to be seen whether the petitioners are not lying or cheating or hiding fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material for the case in hand. Mr. Bhandare said that the petitioners admitted defaults but he pleaded that " cake " had to be distributed according to the priorities, these being payment of wages and salaries, buying of raw material, payment of electricity bills, freight, etc. He said that the basic thing was that the company should run and that was ultimately for the benefit of the industry and the workers and thus for the country. He also said that provident fund dues of the workers would become due to them after many years as the average age of the workers of the company was 38 years, the retirement age being 58 years. There is, thus, no denying the fact that the contributions to the provident fund both of employees and employer and also contribution to the Employees' State Insurance Corporation and the amounts of income-tax deducted at source have been used by the company for its business purposes. If the argument of Mr. Bhandare is to be accepted, it is difficult to comprehend how any legislation for the benefit of the workers can be successfully put into operation and how even a Government can run starved of its revenue if the payments of the provident fund, ESIC contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of provident fund as well as Employees' State Insurance Corporation contribution in respect of each employee every month is a distinct default in itself and so also non-deposit of the TDS from the salary of an employee every month is a distinct default. The petitioners will, therefore, have to explain with reference to each and every default if they acted honestly and reasonably and a general statement that the company is passing through financial crisis or is sick industry is certainly no answer. The court has to relieve the petitioners in respect of each default on its satisfaction that the petitioners acted honestly and reasonably. The petitioners gave no particulars and led no evidence for the court to relieve them of the liability incurred thereby. Further, there are different considerations for the defaults committed under different Acts. As regards the Provident Fund and the Employees' State Insurance Corporation, I have already reproduced some observations of the Supreme Court in Organo Chemical Industries, AIR 1979 SC 1803 ; 55 FJR 283. As regards income-tax, it is a revenue of the State. Payment of tax deducted at source cannot be withheld by advancing a plea that the c ..... 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