Proceedigs U/s. 7A of the Employees Provident Fund & Misc. Provision Act, 1952

Bikram D. Mishra

Section 7A Proceedings under Employees Provident Fund & Miscellaneous Provisions Act 1952 remains highly controversial more so in view of latest Judgment by Various Hon’ble High Courts on the Issue

The Employees Provident Funds and Miscellaneous Provisions Act, 1952 and the Schemes were brought in to Force from November 01, 1952. The Act extends to whole of India, except the State of Jammu and Kashmir. Hon’ble Supreme Court in the case of Maharashtra State Coop. Bank Ltd. Vs. Provident Fund Commissioner (2009) 10 SCC 123 observed the following:-

“Since the Act is a social welfare legislation intended to protect the interest of a weaker section of the society i.e. the workers employed in factories and other establishments, it is imperative for the courts to give a purposive interpretation to the provisions contained therein keeping in view the Directive Principles of State Policy embodied in Articles 38 and 43 of the Constitution.”

♠ To whom it is Applicable:-

It applies to every establishment which is engaged in any one or more of the Industries specified in schedule – I to the Act, or any activity notified by Central Government, in the Official Gazette V/S/ (L). and has completed a period of three years of set up and employing 20 or more persons.

The Central Government issued a notification in accordance with the Provisions of Section 1(3) (b) of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 covering every trading & Commercial Establishment employing 20 or more persons, engaged in the purchase, sale or storage of any goods including establishments of Exporters, importers, Advertisers, Commission Agents and Brokers, commodity and Stock Exchanges but not including Banks or warehouse established under any Central or State Act.

♠ What is 7A Proceeding Under Employees Provident Fund & Miscellaneous Provisions Act, 1952:-

7A. DETERMINATION OF MONEYS DUE FROM EMPLOYERS

(1) The Central Provident Fund Commissioner, any Additional Central Provident Fund Commissioner, any Deputy Provident Fund Commissioner, any Regional Provident Fund Commissioner or any Assistant Provident Fund Commissioner may, by order,

(a) In a case where a dispute arises regarding the applicability of this Act to an establishment, decide such dispute; and

(b) Determine the amount due from any employer under any provision of this Act, the Scheme or the ³³[Pension] Scheme or the Insurance Scheme, as the case may be, and for any of the aforesaid purposes may conduct such inquiry as he may deem necessary.]

(2) The officer conducting the inquiry under sub-section (1) shall, for the purposes of such inquiry, have the same powers as are vested in a court under the Code of Civil Procedure, 1908, for trying a suit in respect of the following matters, namely:

(a) Enforcing the attendance of any person or examining him on oath;

(b) Requiring the discovery and production of documents;

(c) Receiving evidence on affidavit;

(d) Issuing commissions for the examination of witnesses;

And any such inquiry shall be deemed to be judicial proceeding within the meaning of Sections 193 and 228, and for the purpose of section 196 of the Indian Penal Code.

(3) No order shall be made under sub-section (1), unless [the employer concerned] is given a reasonable opportunity of representing his case.

(3A) Where the employer, employee or any other person required to attend the inquiry under sub-section (1) fails to attend such inquiry without assigning any valid reason or fails to produce any document or to file any report or return when called upon to do so, the officer conducting the inquiry may decide the applicability of the Act or determine the amount due from any employer, as the case may be, on the basis of the evidence adduced during such enquiry and other documents available on record.]

(4) Where an order under sub-section (1) is passed against an employer ex parte, he may, within three months from the date of communication of such order, apply to the officer for setting aside such order and if he satisfies the officer that the show cause notice was not duly served or that he was prevented by any sufficient cause from appearing when the inquiry was held, the officer shall make an order setting aside his earlier order and shall appoint a date for proceeding with the inquiry:

PROVIDED that no such order shall be set aside merely on the ground that there has been an irregularity in the service of the show cause notice if the officer is satisfied that the employer had notice of the date of hearing and had sufficient time to appear before the officer.

Explanation: Where an appeal has been preferred under this Act against an order passed ex parte and such appeal has been disposed of otherwise than on the ground that the appellant has withdrawn the appeal, no application shall lie under this sub-section for setting aside the ex-pert order.

(5) No order passed under this Section shall be set aside on any application under sub-section (4) unless notice thereof has been served on the opposite party.]

♠ Reason for Issue of 7A Notice:-

There can be possibly two reasons:-

i. In a case where a dispute arises regarding the applicability of this Act to an establishment, decide such dispute;

and/or

ii.  Determine the amount due from any employer under any provision of this Act, the Scheme or the ³³[Pension] Scheme or the Insurance Scheme, as the case may be, and for any of the aforesaid purposes may conduct such inquiry as he may deem necessary.

EPFO vide its Circular dated 6^th August 2014 has also provided the Guidelines for carrying out 7A Proceedings, brief of which is as follows:-

Inquiries should be initiated only after actionable and verifiable information if placed for consideration of the Compliance Officers. Following could be the Source information for initiation of enquiries:-

a. A system generated report of probable/and/or actual defaults based on receipts/remittance position of the establishments. Mapping of individual establishments regarding the amount remitted as well as the number of employees for whom the establishment is remitting the dues. [Remittance drop in excess of Rs. 10,000/- Ten Thousand] and 15%. Membership drop in excess of Fifty Members and 15%.]

b. Verifiable Complaints or information received from the general public at large may be another source for initiation of investigations and/or enquiry.

c. Reports submitted by the Enforcement officers.

The Circular also inter alia provide following procedure:

i. Information received about default will be entered in a Central Register to be maintained on a Central Server.

ii. On Receipt of the information, Notice shall be issued to the Establishment enclosing the information on the basis of which the instant notice has been issued. If the establishment accepts the contents of the Notice, than the matter may be verified for the further necessary action.

iii. If no response is received then the EO shall be advised to investigate and file a report in the matter. The Investigation Report of the EO shall be accordingly to the “Form of Inspection Report” as issued vide EPF, Headquarters Circular No. C-III/110001/4/2(25) 2014/ HQRS/web portal/10398 dated 30-07-2014 (at Sl. No. 307 Officer Orders/Circulars-2014-15).

iv. The Compliance Branch shall examine the investigation report submitted by the EO and decide whether any case is made out for initiation of Quasi Judicial Enquiries.

v. If, on the basis of the report of the EO, it is decided that it is fit case for initiation of Enquiry U/s. 7A of the Act, then the report of the EO and observations thereon of the compliance Branch shall be forwarded to the Assessing Officer for initiation of an enquiry U/s. 7A of the Act.

vi. Before Recommending any case, the Compliance Branch shall specifically verify, whether any report/record is available on the file indicating the status of the establishment, i.e. whether it is a closed establishment etc.

vii. Complete Investigation Report should be available on record before initiation of enquiry is recommended by the Compliance Branch. In cases where the Complete report is not received the compliance Branch shall record reasons in writing for initiating the proposal for the said enquiry

viii. No enquiry shall be initiative unless a prima facie case exist on the basis of the Said Report.

♠ Whether notice U/s. 7A can be Challenged:-

KCP Vs. ITO 146 ITR 284 was held that Notice issued without recording of reasons or before recording of reasons and any assessment in pursuance whether of is bad in law. This was held with reference to Notice U/s. 148 of the Income Tax Act, 1961.

The requirement of natural justice is thus a common feature in all cases where a decision or order may adversely affect an individual. It is also significant that Section 11A of the Central Excise Act, 1944 enables a Central Excise Officer to recover the duty which has been not levied, short paid or erroneously refunded. Neither the Central Excise Act, nor the rules made there under have set out what the requirement of a Notice is but it is a well settle Practice for a notice U/s. 11A to Set out details of the allegations against the Assessee. The documents on the basis of which the charges are levied are also to be informed/supplied to the assessee.

The Importance of following the principles of Natural justice in all quasi judicial proceedings has been repeatedly emphasized by the Supreme Court and the High Courts. The Concept of

“Reasonable Opportunity” includes the need for an individual to be told what the charges level against him is and the allegations on which such charges are based. Mere re-producing the format of Notice without mentioning the particulars on which the case against the assessee is based is not proper. It is essential to state the particulars to enable the person to answer the charges against him.

After careful examination of case law, the Supreme Court once again emphasizes the need for a show cause notice to inform a Noticee all the charges that are against him. Detailed Guidelines as to what constitutes reasonable particulars where also set out by the Supreme Court.

Art. 14 guarantee a right of hearing to the person adversely affected by an administrative order. In Delhi Transport Corporation v. DTC Mazdoor Union, SC held that “the audi alteram partem rule, in essence, enforce the equality clause in Art 14 and it is applicable not only to quasi-judicial bodies but also to administrative order adversely affecting the party in question unless the rule has been excluded by the Act in question.” Similarly in Maneka Gandhi v. Union of India SC opined that Art 14 is an authority for the proposition that the principles of natural justice are an integral part of the guarantee of equality assured by Art. 14 an order depriving a person of his civil right passed without affording him an opportunity of being heard suffers from the vice of violation of natural justice.

In Smt. Savitri Chandrakesh Pal Vs. State of Maharashtra while framing guidelines for quasi judicial authorities as well as by the Government Administration has quoted Judgment of Hon’ble Supreme Court in Mohmd. Ramzan Khan

There is an urgent need for

The Supreme Court in GKN Drive Shafts case has only added to the agony of the Assessee. In this case, the Assessee had filed a writ against a notice which was issued U/s. 143(2) calling for further information. The Delhi High Court rightly held that the petitioner was not justified in invoking the writ Jurisdiction at that stage and the Supreme Court should have simply dismissed the Special Leave Petition. After holding that there was no reason to interfere, the Supreme Court Proceeded to issue a clarification “which was wholly un necessary and contrary to the statutory provisions. This decision is another example of impermissible judicial legislation.

The Supreme Court point out that once a Notice U/s. 148 is issued, the following steps must be followed.

a. “ The Noticee must file a return and, if he so desires, seek reason for issuing the notice”;

b. The A.O. is bound to furnish reasons “with-in reasonable” time

c. On receipt of the reasons, the assessee has to file objections to issuance of the Notice; And

d. The A.O. has to dispose the same by passing a speaking Order.

Though Employee Provident Fund & Miscellaneous Provisions Act, 1952 or rules made there under does not provide that reasons of Notice & documents on the basis of which the charges are levied, be informed/supplied to the Noticee.

However the Supreme Court in many cases has emphasized that need for a show cause notice to inform a noticee all the charges that all against him.

Detailed Guidelines as to what constitutes reasonable particulars where also set out by the Supreme Court.

In Delhi Transport Corporation Vs. DTC Mazdoor Union, SC held that “the audi alteram partem rule, in essence enforce the equality clause in Article 14 and it is applicable not only to quasi judicial bodies but also to Administrative order adversely affecting the partly in question unless the rule has been excluded by the Act in question.

Mere giving a Short Term Notice is also a violation of Article 14 of the Constitution.

There are several instances where Article 14 of the Constitution is evoked to protect individuals from Violation of Natural Justice Principles, in Central Inland Water Transport Corporation Limited vs. Brojo Nath, in this case a Government Company made a service rule authorizing it to terminate the Service of Permanent Employees by merely giving him a three months Notice or salary in lieu of Notice. The rule was declared to be invalid as being violative of Article 1 4 on the ground that it was unconstitutional. The rule in question constituted a part of the Employment contract between the corporation and its employees. The Court ruled that it would not enforce, and so far as the P.F. authorities concerned it was held in the case of a Hi. Tach Vocational Training Centre Vs. APFC 2011 ICLR 698, Delhi High Court that the proceedings held under Section 14(B) of P.F. Act to levy damages are of Quasi-Judicial nature required in the P.F. authorities to pass a speaking order.