K R KRISHNAMOORTHY Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) etitioners in the two sets of petitions aforementioned are employees of the Canara Bank-a nationalised Bank-deputed by the said Bank to function as Directors of M/s. Desmet (India) Pvt. Ltd.-a Company incorporated under the Companies Act, 1956. M/s. Desmet (India) Pvt. Ltd. came to grief and was given the benefit of a nursing programme by the Bombay Canara Banks Worli Branch. The Company had its office at Worli Bombay and its factory at Thane. The Thane cases relate to alleged lapses in relation to contributions of employees working in the factory, whereas the Bombay cases originate from lapses vis-a-vis the employees attached to the Bombay office. Pursuant to the nursing programme, the Canara Bank deputed petitioners. M/s. K R. Krishnamoorthy and U.A. Mallya to function as nominated Directors on the Board of Directors of M/s. Desmet (India) Pvt. Ltd. The Company controlled by (he Sharmas inducted Krishnamoorthy and Mallya as Directors on its Board by resolutions passed on 5-11-1988 and 1- 11- 1980 respectively. On 5-11-1980 the Board passed a resolution reading thus The Board was informed that there are huge outstanding against statutory liabilities. The Managing Director assured the Board that in future he would endeavour to pay all the statutory dues in time. It was resolved that the nominee directors of the Bank will not be held responsible or liable for any of the statutory dues past, present and future.T The employees contributions towards the provident Fund Scheme in operation was decucted at source from the wages and salaries payable to them. This was done under the EmployeeTs Provident Funds and Miscellaneous Provisions Act, 1952. (EPF Act). The said deductions not having been credited, the Regional Provident Fund Commissioner caused a notice to be issued to the Directors including the petitioners pointing out the omission and threatening prosecutions. In reply to the communication the petitioners pointed out that they had been absolved of the liability to make statutory deductions and deposits by resolution dated 5-11-1980. It was further pointed out that ultimate control over the affairs of the establishment rested with the Managing Director Ramchandra Sharma. If anyone was responsible for the lapse to credit the provident fund contributions, it was Ramchandra Sharma and action had to be taken against him. Nothing daunted, .the Provident Fund Inspector, Bombay-hereinafter to be referred to as the complainant-lodged complaints and these ascribed to all Directors including the petitioners, the commission of offences punishable under Sections 14(2A) and 14A of the EPF Act read with Employees Family Pension Scheme, 1971. The Magistrate at Thane and Bombay having taken cognizance, directed the issue of summons in the first instance to the petitioners. The orders taking cognizance are impugned in the aforementioned petitions, which initially lodged under Section 482 of the Code of Criminal Procedure, 1973 have been permitted to be amended to also include the invocation to Article 227 of the Constitution.

(2.) All the complaints moved by the complainant are more or less identically worded. They however relate to different periods in which deductions were allegedly made from the wages and salaries payable to the employees but were not credited. To be brief, the complaints alleged that petitioners and their co-accused being on the Board of Directors were responsible to the Company for the conduct of its business. This made them liable to comply with the provisions of the EPF Act and the Scheme framed thereunder. The Scheme read with certain provisions of the Act require the Directors to deposit the P.F. contributions to the Pension Fund of the employees within 15 days of the month in which the deductions had been made. The persons complained against had failed to discharge their duty to credit the contributions and had thus committed offences punishable under Ss. 14(2A) and 14A of the EPF Act. The complainant does not dispute the passing of the resolution of 5.11.1980. He however contends that the said resolution did not absolve the petitioners that it is ultra vires and that by virtue of information furnished in Form 5-A it is not open to the petitioners to contend that they are not liable for the failure to credit the employees contributions to the Family Pension Fund. The contention is that the petitioners along with the Sharmas, were all members of the Board of Directors and as such were persons in-charge and responsible for the conduct of the business of M/s Desmet (India) Pvt. Ltd. Petitioners question the initiation of the prosecutions and the taking of cognizance by the Magistrates on various grounds. First, they point to the resolution of 5-11-1980 which in turn absolved them of the liability to deposit statutory dues. Next, it is contended that they are not employers within the meaning of Section 2(e) of the EPF Act. Section 14(2A) is in no way applicable and Section 14A which deals with offences by Companies cannot take into its sweep nominated Directors such as petitioners.

(3.) Counsel for parties have been heard at length and before coming to the submissions advanced by them, I shall set forth certain provisions of the EPF Act and Companies Act as have a bearing on the questions that need to be decided. EPF Act 2(e)T 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 subsection (1) of section 7 of the Factories Act, 1948; 63 of 1948, the person so named; and (ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent. 2(g) T1factory means any premises including the precincts thereof, in any, part of which a manufacturing process is being carried on, or is ordinarily so carried on, whether with the aid of power or without the aid of power. 2(k) occupier of a factoryT 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 BOMBAY HIGH COURT Page 4 of 7 be deemed to be the occupier of the factory. 2A For the removal of doubts, it is hereby declared that where an establishment consists of different departments or has branches, whether situated in the same place or in. different places, all such departments or branches shall be treated as parts of the same establishment. 14(2A)whoever contravenes or makes default in complying with any provision of this Act or of any condition subject to which exemption was granted under section 17 shall, if no other penalty is elsewhere provided by or under t his Act for such contravention or nOllcompliance, be punishable with imprisonment which may extend to three months, or with fine which may extend to one thousand rupees, or with both. 14A(I)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 sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under 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. Para 36-4. Employer to furnish particulars of ownership-Every employer in relation to a factory or other establishment to which the Act applies on the date of coming into force of the Employees Provident Funds (Tenth Amendment) Scheme; 1961, or is applied after that date shall furnish in duplicate to the Regional CommissiOner in Form No. 5-A annexed hereto particulars of all the branches and departments, owners, occupiers, directors, partners, manner or any other person or persons who have the ultimate control over the affairs of such factory or establishment and also send intimation of any change in such particulars within fifteen days of such change, to the Regional Commissioner by Registered post and in such other manner as may be specified by the Regional Commissioner. TI Companies Act Section 5. For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression officer who is in default means all the following officers of the company viz. (a the managing director or managing directors; (b) the whole-time director or whole time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of Directors of the BOMBAY HIGH COURT Page 5 of 7 company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision: Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified all the directors; Provided that where the Board exercises any power under clause (f) or clause (g) it shall within thirty days of the exercise of such powers file with the Registrar a return in the prescribed form. Section 291 (1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers and to do all such acts and things, as the company is authorised to exercise and do: Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum to articles of the company or otherwise to be exercised or done by the company in general meeting. Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other act or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting. (2) No regulation made by the company in general meeting shall invalidate any prior act of the Board, which would have been valid if that regulation had not been made. Section 633 (1) If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, it appears to the Court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case including those connected with his appointment, he ought fairly to be excused, the Court may relieve him, either wholly or partly, from his liability on such terms as it may think fit Provided that in a criminal proceeding under this sub-section, the court shall have no power to grant relief from any civil liability which may attach to an officer in respect of such negligence, default, breach of duty, misfeasance or, breach of trust. (2) Where any such officer has reason to apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, he may apply to the High Court for relief and the High Court on such application shall have the same power to relieve him as it would have had if it had been a Court before which a proceeding against that officer for negligence, default, breach of duty, misfeasance or breach of trust had been brought under sub-section (1). (3)