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Judgment
K.P. Sivasubramaniam, J.—These appeals are directed against the judgment of the learned Judicial First Class Magistrate No. 1, Madurai,
in S.T.C. Nos. 244 to 253 of 1986 dated 11.6.1987. The cases relate to the alleged non-payment of the dues under the Employees'' Provident
Funds and Miscellaneous Provisions Act, 1952 (hereinafter called the Act). Ten different complaints have been filed with reference to the different
periods of dues between 1984 and 1985 and hence the above ten appeals.
The complainant being the Provident Fund Inspector at Madurai, has alleged that the first accused M/s. Mahalakshmi Textiles Mills Ltd., was an
establishment within the meaning of the Act and the scheme framed thereunder are applicable to the said establishment, that accused 2 to 7 are the
persons in charge of the establishment and are responsible for the conduct of the business and they were required to comply with all the provisions
of the Act and the scheme being applicable to the establishment, that in spite of several reminders Use accused had failed to comply with the
provisions of the Act and failed to pay the administrative charges and the provident fund amount which was deducted from the wages of the
employees and had not remitted the employees'' share of contributions which are deemed to be entrusted to the employer, that the said
establishment had thus committed offences under Sections 14-A and 14-AA of the said Act and the accused 2 to 7 were during the relevant
period in charge of the said establishment and were responsible for tile conduct of the business, that the aforesaid offences were committed by the
establishment with their consent and connivance and attributable to their negligence and that as such the said accused persons have committed the
offences under Sections 14-A and 14-AAof the Act. It is further alleged that a show-cause notice was duly sent to the accused (Ex. P. 2) and that
sanction for prosecution was granted by the Regional Provident Fund Commissioner, Madurai, in his order dated 24.10.1985. In the charge-sheet,
it is also further stated that the accused had also suffered previous convictions. Therefore, it was prayed that the accused be punished under the
relevant provisions and also to order the accused to pay the administrative charges in respect of which the complaint had been lodged and also for
payment of compensation u/s 357, Cr.P.C.
The complainant had examined herself as a witness for the appellant herein. The accused individuals though in their statement u/s 313 Cr.P.C.
would deny the allegations they have examined one Solaiappan, the Office Manager of the first accused as defence witness. In his evidence D.W.
1 would state that though the amounts were credited in the accounts, the Company had not utilised the amount for any of the individual Directors
and that the Company was a sick industry having been taken over as a relief undertaking.
The learned Judicial Magistrate did not go into the merits of the allegations contained in the charge-sheet, but acquitted all the accused only on
the ground that inasmuch as only the second accused, the Managing Director and the seventh accused Manager of the Company had been
disclosed as occupiers within the meaning of the Act, it was not correct to have initiated prosecution against all the Directors. According to the
learned Magistrate there was no proper material to establish that all the accused individuals were in charge of and were responsible to the affairs of
the Company and that therefore, the complaint was liable to be rejected. On the basis of the said conclusions the accused/respondents were
acquitted of the charges u/s 255(i) Cr.P.C. It is as against the said orders of acquittal the above appeals have been filed.
In these proceedings while the Company has been impleaded as the first accused, Managing Director has been impleaded as the second
accused while other Directors have been impleaded as accused 3 to 6. Seventh accused is the Manager of the establishment. In form 5-A filed by
the establishment under the Employees Provident Scheme, 1962 under Column 8 relating to the particulars of owners, accused 2 to 6 have been
disclosed as Managing Director and Directors respectively. Under Column 10 relating to the particulars of the Manager/ Occupier, if registered
under the Factories Act, the name of the second accused who is the Managing Director has been disclosed as occupier while the name of the
seventh accused has been disclosed as the Manager. Under Column 11 dealing with the particulars of the persons who are in charge of and
responsible for the conduct of the business of the establishment, the names of accused 2, 3 and 7 have been specified.
The question which arises for consideration in these above appeals is as regards whether the judgment of the learned Judicial Magistrate holding
that the Directors where names are not included in the list of occupiers cannot be prosecuted, could be sustained.
The following are the extracts of the relevant provisions under the Act:
The expression ''employer'' is defined u/s 2(e) of the Act as follows:
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 S. 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 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;
The expression ""occupier of a factory"" is defined under S. 2(k) of the Act as follows:
2(k) ""occupier of a factory"" means the person, who has ultimate control over the affairs of the factory, and, where the said affairs are entrusted to
a managing agent, such agent shall be deemed to be the occupier of the factory;
S. 14A of the Act deals with offences by companies, which is relevant for the purpose of the present appeals, is as follows:
14A. Offences by companies- (1) If the person committing an offence under this Act (the Scheme or the Family 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 subsection 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 this Act, (the Scheme or (the Family 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.
S. 14-A as extracted above stipulates that if the person committing an offence is a company, every person, who at the time of the offence 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, in interpreting an analogous provision in pari materia as occurring under the
Employees State Insurance Act, 1948. T.S. Arunachalam, J. in the judgment reported in 1990 L.W.(Crl.) 414 (G. Ramaswamy Moopanar v.
Employees , State Insurance Corpn.) has dealt with the issue as to whether a Director of Company or a partner of a firm, by virtue of being a
Director would be liable to pay the contribution under the Act and whether he would be liable to be proceeded against under the provisions of the
Act. After elaborately dealing with many prior rulings on the subject the learned Judge ultimately concluded in paragraph 49 of the judgment as
follows:-
The answer to the question formulated, is as follows: The Director of a Company or a partner of a firm, by virtue of being a Director or a partner,
is not a principal employer, contemplated by S. 2(17) of the Employees'' State Insurance Act. He is not personally liable to pay the employer''s
contribution under the Act. The Act contemplates an ""immediate employer"" and the ''principal employer'', but when the definition ''principal
employer'' refers to the ''owner'' or ''occupier'' of a factory, it is apparent that the principal employer can either be the owner or the occupier,
depending upon the facts of each case, The word ""or"" must be read disjunctively and cannot be read as ""and"", because such a reading is bound to
introduce an uncertainty, in fastening the obligation, to deduct and pay the employer''s contribution as well as the employees'' contribution. The
concept appears to be, that the person liable, is one; who has ultimate control over the affairs of the factory. I respectively agree with such of those
decisions referred to above, which lend support to my view.
M. Karpagavinayagam J. in the judgment reported in 1996 (1) MWN (Cr.) 304 (Employees'' State Ins. Corpn v. Alagasundaram & others),
followed the judgment of T.S. Arunachalam, J. cited above and held in paragraph No. 7 of the judgment as follows:
At this stage, it was brought to my notice that Justice Arunachalam of this Court had an occasion to consider in a batch of cases, Crl.M.P. Nos.
12781 of 1986 etc., as to whether the directors of a company or a partner of a firm by virtue of being a director or partner alone could be
considered to interfere with the judgments of the trial Courts in S.T.C. Nos. 335 and 336 of 1986, except to point out the illegality committed by
the learned trial Magistrate, as submitted by Learned Counsel for the appellant. With these observations, the above two appeals are dismissed.
The Supreme Court while interpreting S. 2(n) of the Factories Act, 1948, dealt with a similar issue in its judgment reported in J.K. Industries
Ltd. and Others Vs. Chief Inspector of Factories and Boilers and Others, In that case the question arose as to whether on the failure of a
Company to nominate one of its Directors as occupier it would give liberty to Inspector of Factories to proceed against any one of the Directors
treating him as a .deemed occupier for prosecution and punishment in case of breach of the provisions of Factories Act. In the said case, the
implications arising out of S. 2(n) of the Factories Act, 1948 as well as S. 100 of the said Act was considered in detail. S. 100 dealt with
determination of occupier in certain cases and it came to be omitted by Amendment Act 20 of 1987. After elaborately considering the statutory
provisions as well as the prior rulings on the subject, in paragraph No. 63 of the judgment, the Supreme Court held as follows:-
Thus, from the above discussion, it follows that the directions given by the Chief Inspector of Factories to the writ petitioners and the
appellants herein to the effect that only a director of the company could file an application for renewal of the factory licence (or for grant of factory
licence), as occupier of the factory and that no other employee could make such an application even if nominated by the company as an occupier
of the factory, suffers from no infirmity whatsoever. To sum up our conclusions are:
(1) In the case of a company, which owns a factory, it is only one of the directors of the company who can be notified as the occupier of the
factory for the purposes of the Act and the Company cannot nominate any other employee to be the occupier of the factory;
(2) Where the company fails to nominate one of its directors as the occupier of the factory, the Inspector of Factories shall be at liberty to proceed
against any one of the directors of the company, treating him as the deemed occupier of the factory, for prosecution and punishment in case of any
breach or contravention of the provisions of the Act or for offences committed under the Act;
(3) Proviso (ii) to S. 2(n) of the Act is intra vires the substantive provision of S. 2(n) of the Act;
(4) Proviso (ii) to S. 2(n) is constitutionally valid and is not ultra vires Art. 14, 19(1)(g) and 21 of the Constitution of India;
(5) The law laid down by the High Courts of Bombay, Orissa, Karnataka, Calcutta, Guwahati and Madras is not the correct law and the contrary
view expressed by the High Courts of Allahabad, Madhya Pradesh, Rajasthan and Patna is the correct enunciation of law in regard to the ambit
and scope of proviso (ii) to S. 2(n) of the Act.
Subsequent to the said judgment of the Supreme Court R. Balasbramanian, J. had occasion to deal with a case [Reported in 1997 1 L.W.(Crl.)
139 Inspector, Employees State Insurance Corporation, Madurai v. A.L. Veerappan and 3 others -- Ed] arising out of the Employees State
Insurance Corporation Act, 1947, before whom the judgments of T.S. Arunachalam, J. and M. Karpagavinayagam, J. came to be cited. Learned
Judge took note of the fact that the judgment of the Supreme Court in J.K. Industries Ltd. and Others Vs. Chief Inspector of Factories and Boilers
and Others, came to be delivered long after the judgment of M. Karpagavinayagam, J. and on the basis of the law laid down by the Supreme
Court in J.K. Industries Ltd. and Others Vs. Chief Inspector of Factories and Boilers and Others, R. Balasubramanian, J. held that in view of the
pronouncement by the Supreme Court, so far as it related to the liability of the Directors of the Company under S. 40 of the Employees'' State
Insurance Act, the two judgments rendered by this Court would not be correct. He held that the Directors were liable to be proceeded against and
consequently remitted the case back to the trial Magistrate with a direction to take it on file and proceed in accordance with law against all the five
persons who had been arrayed as accused.
It is pertinent to note that all the abovementioned judgments deal with the provisions of the Employees State Insurance Act, 1947 as well as
the Factories Act, 1948 which are no doubt relevant for interpreting the provisions of the Employees Provident Funds and Miscellaneous
Provisions Act, 1952 which arise for consideration in the above appeals. The said provisions came to be directly interpreted by the Supreme
Court in its judgment reported in 1994 L.W (Crl.) 138 (Srikanta Datta Narasimharaja Wodiyar v. Enforcement officer). In the said case, the
question arose whether a Director of a private company, who is neither an occupier nor the Manager be prosecuted under S. 14-A of the Act for
violation of the Provident Fund Scheme. According to the Director who was the appellant before the Supreme Court the complaint did not contain
relevant averments constituting the offence against the appellant and that one Sri N.K. Khudamurad was recorded as occupier and one Sri D.K.
Darasha was recorded as the Manager. While examining the scope of the expression ""employer"" as occurring under S. 2(e) of the Act read with
the definition of ""occupier"" as occurring under S. 2(k) of the Act, the Supreme Court held that the definition was an inclusive definition bringing
within its ambit the owner or occupier as well as its Manager. His Lordship Mr. Justice K. Ramaswamy, J. in the judgment took note of the fact
that the appellant having declared himself as one of the persons in charge of and responsible for the conduct of the business of the establishment of
the factory he was certainly liable to be prosecuted under the provisions of the Act. In a separate and concurring judgment, His Lordship Mr.
Justice Saliai, while considering the scope of the relevant provisions held that the provisions were very wide in their sweep and included not only
the owner or occupier but even the agent or Manager. In paragraph No. 13 of the judgment His Lordship held as follows:-
Both clauses (i) and (ii) again are wide in their sweep. In clause (i) are included not only owner or occupier but even the agent or manager. When it
comes to establishments other than factory it is not confined to owner or occupier but to all those who have control or are responsible for the
affairs of the company. It includes even director. Therefore, every such person who has the ultimate control over the affairs of company becomes
employer. To say therefore that since paragraph 36A requires an employer to do certain acts the responsibility for any violation of the provision
should be confined to such employer or owner would be ignoring the purpose and objective of the Act and the extended meaning of employer in
relation to establishments other than the factory. The declaration therefore in Form 5A including appellant as one of the persons in charge and
responsible for affairs of the company was in accordance with law therefore and his prosecution for violation of the scheme does not suffer from
any error of jurisdiction or law.
Therefore, on an analysis of me statutory provisions referred to above and the rulings of the Supreme Court in particular of the judgment
reported in 1994 (1) L.W. (Crl.) 138 supra, it follows that the actions taken against all the accused/respondents herein are sustainable under S.
14-A and 14-AA of the Act. All these individuals have been shown as the owners of the establishment and the seventh accused has been
disclosed as the occupier and also one of the individuals in charge of and responsible for the conduct of the business of the establishment. The
conclusion of the learned Magistrate cannot therefore be sustained and his holding that me Directors who have not been disclosed as occupiers
cannot be proceeded against, has to be set aside. Further, the order of the learned Magistrate in acquitting all the accused cannot at all be
sustained even on the basis of his own findings. Even if his conclusion that some of the accused cannot be proceeded against could be sustained,
there is absolutely no justification for the wholesale acquittal of the accused persons including those who have been named as occupiers.
As a result of the above discussion, the judgment of the learned Magistrate, requires to be set aside and inasmuch as he has not gone into the
merits of the complaint, in the normal course the appeal will have to be remanded for consideration of the complaint on merits. But while
concluding his submissions, Learned Counsel for the respondents fairly states that if the ruling of the Supreme Court could render the judgment of
the learned Magistrate being set aside, no purpose will be served in continuing the pain of the prosecution further more having regard to the fact
that the complaint is of the year 1986 and that the second accused having been passed away in the meantime. He would therefore, plead that the
accused may be let off without any punishment.
On a perusal of the records I find that evidence has been let in by both sides on merits of the complaint, even though the Magistrate had
ordered the acquittal on a technical ground. The material averments in the complaint are practically admitted. Even though the accused would deny
the charges in their respective statements under S. 313 Cr.P.C., D.W.1 being the Manager of the establishment, who has deposed on behalf of the
accused, has clearly admitted that the Employees'' Provident Fund contribution from the workers as well as the administrative charges have been
duly credited in the accounts of the Company. The only excuse which is offered is that the Company was a Sick Unit and declared as a relief
undertaking. It is settled law that the fact that an industrial undertaking being declared as a Sick Unit does not absolve the commissions and
omissions of the individuals having control over the establishment from being proceeded under the penal provisions. It is not the case of the
accused that the Scheme framed under the declaration of the Unit as a Relief Undertaking relieves them of the need to comply with the provisions
of the Act for the period in question.
As regards the charge under S. 14-AAof the Act, apart from the details of the previous conviction as enlisted under the complaint, the
complainant has also deposed about the same in evidence. The allegation in this context is not controverted and D.W.I has also not disputed about
this charge in his evidence.
It is therefore, irresistible to conclude that both the charges are proved beyond all reasonable doubt. It is therefore, not possible to let off the
accused without at least a minimal punishment having regard to the fact that they have already defaulted resulting in a previous conviction and have
also deducted amounts from the wages of the employees but have not credited the amounts to the Fund. The provisions of the Act being a welfare
Legislation require to be strictly implemented. But at the same time having regard to the fact that the complaint is of the year 1986 and that the
Managing Director who was at the helm of the affairs is no more, a minimal punishment will meet the ends of justice. Each of the accused is found
guilty under Ss. 14-A and 14-AAof the Act and the accused 1, 3 to 7 are directed to pay a fine of Rs. 1,000/- each within a period of one month
from the date of receipt of a copy of this order, in default A-3 to A-7 to undergo rigorous imprisonment for a period of two weeks. The amount of
fine shall be credited to the Fund for the benefit of the employees. As regards the administrative charges, the complainant is directed to calculate
the actual dues and to serve a notice on the accused concerned for the due payment to be paid within one month therefrom.
The above appeals are allowed in terms of the above directions.