D-2/18/2019 Lakhani - three appeals vs APFC/RPFC Faridabad on 2 November 2026

1. D- 2/10/2019 M/s. Lakhani Footwear Pvt. Ltd.

to

₹15,71,323/- ₹7,61,542/-

2. D- 2/11/2019 M/s. Lakhani Rubber Works Ltd.

to

₹23,80,307/- ₹11,46,598/-

3. D- 2/18/2019 M/s. Lakhani Armaan Shoes Pvt. Ltd.

to

₹19,55,056/- ₹9,49,619/- These three appeals are being taken up together for disposal, as all three appellants, though separate legal entities, form part of the same parent company. The appellants are companies duly registered

under the provisions of the Companies Act, 1956, and had been complying with the provisions of the Act since their coverage under the same. It is the case of the appellants that several disputes were pending amongst the members of the Lakhani Group of Companies, and various petitions had been filed before the Company Law Board against one another. Due to these disputes, the bank accounts of the companies were frozen, resulting in a situation where even the payment of salaries was delayed. The matter was eventually settled before the Hon’ble Company Law Board, subject to various terms and conditions relating to the division of businesses and the distribution of movable and immovable assets amongst the parties, pursuant to the settlement arrived at on 20.05.2008. The proceedings under Sections 14B and 7Q of the Act were initiated by the Respondent for the respective periods mentioned in the table above. The appellants appeared in the proceedings and also submitted their explanations for the delay in making payments and depositing the provident fund dues. It took more than one and a half years for the appellants to finally settle the disputes and commence operations independently in accordance with their respective shares. For the appellants, the year 2010–2011 practically marked a fresh beginning, with new account books and assets. Owing to the division, liquidity also became an issue, as financial commitments towards banks and financial institutions had to be met and loan arrangements were restructured between the parties. The Respondent, without properly appreciating the submissions made by the appellants and allegedly proceeding on assumptions, passed the impugned orders dated 31.05.2019. The appellants have further contended that the overlapping period from 03/2012 to 20/2014 had already been covered by an earlier order dated 26.12.2014, which is under challenge in ATA No. 21(16)/2015. The appellants have assailed the impugned orders on various grounds, inter alia, that the proceedings are illegal and vitiated for being in violation of the principles of natural justice. It is contended that the assessing authority has acted as the representative of the PF department as well as the adjudicating authority in the same proceedings. Hence, the impugned orders are liable to be set aside on this ground alone. The

Respondent has also allegedly failed to appreciate that the delay occurred due to the circumstances stated hereinabove, which were beyond the appellants’ control, and that the defaults were not wilful. The appellants have further contended that the Respondent failed to consider the judgment of the Hon’ble High Court of Kerala in RPFC v. Harrisons Malayalam Ltd., 2013 LLR 1083, wherein, according to the appellants, it was held that damages should not be imposed where the establishment has suffered huge losses. It is further submitted that the impugned orders suffer from illegality as they cover a period overlapping with the earlier assessments. The impugned orders are also alleged to be non-speaking orders and contrary to the circular issued by the Respondent Department itself, which lays down guidelines for adjudication under Section 14B of the Act. Accordingly, the appellants have prayed that the appeals be allowed and the impugned orders be set aside. In response, the Respondent filed counter-replies to the appeals, raising preliminary objections regarding their maintainability. The Respondent also referred to the object of the Act and the statutory obligation cast upon the employer to deposit the provident fund contributions by the 15th day of the following wage month. The Respondent further relied upon various judgments, including Bharat Plywood & Timber Products (P) Ltd. v. Employees’ Provident Fund Commissioner, (1977) I LLJ 379 (Ker), wherein it was held that financial difficulties do not constitute a sufficient ground for failure to deposit provident fund dues within the prescribed time. I have heard the arguments advanced by the learned counsel for both parties and perused the records of the appeals. Before proceeding further, Sections 14B and 7Q of the Act are required to be reproduced herein: 14B. Power to recover damages.—Where an employer makes default in the payment of any contribution to the Fund 3[, the 2[Pension] Fund or the Insurance Fund] or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 4[or sub-section (5) of section 17] or in the payment of any charges payable under any other provision of this Act or of 5[any Scheme or Insurance Scheme] or under any of the conditions specified under section 17, 6[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 7[from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:] 8 [Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard]: 9 [Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985,subject to such terms and conditions as may be specified in the Scheme.] 7Q. Interest payable by the employer.—The employer shall be liable to pay simple interest at the rate of twelve per cent. per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment: Provided that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank.] Rate of levy of damages is given in Para 32 A of the Employees’ Provident Funds Scheme, 1952 and subsequent Para 8A of the Employees’ Deposit Linked Insurance Scheme, 1976 and Para 5 of the Employees’ Pension Scheme, 1995 which have empowered the CPFC or any such authorized officer to recover from the employer by way of penalty, damages at the rate given below:- S.No. Period Of default Rate of damages (percentage of arrears per annum)

(a) Less than 2 months Five

(b) Two months and above but less than four months Ten

(c) Four months and above but less than six months FiŌeen

(d) Six months and above Twenty five

The entire argument advanced by the learned counsel for the appellants revolves around the contention that the delay in depositing the provident fund dues occurred due to liquidity constraints arising out of disputes between the two brothers, which ultimately led to the division of the group of companies. It is contended that the freezing of bank accounts and the consequent financial difficulties were the reasons for the delay in remittance of the provident fund dues, but the Respondent Commissioner failed to consider these circumstances while passing the impugned orders. He further referred the order of High Court of Punjab and Haryana High Court dated 21.10.2024, where in the similar circumstances, in relation to the same group of companies of the appellants, the damages was reduced to 20% for the period of June, 2006 to 2012, noting that the appellant had not retrenched any workers. On the other hand, the Respondent’s case is that the provision of section 14B of 1952 Act are mandatory in nature, and the respondent has no discretion to reduce or waive the damages. Moreover, the delay in remittance of provident fund dues was not confined to one or two days but ranged from 01 day to 942 days during the periods under assessment. It is further contended that the defaults occurred on 38 occasions and it happened on multiple occasions, rather than one or two occasions. Moreover, in the writ petition filed by the respondent the period of delay in remittance of fund when the dispute between the family members were continued in nature, therefore, the ratio at that writ petition is not applicable. First of all, this Tribunal has to consider whether the respondent has the discretion to waive the damages considering the mens rea on part of the appellant in depositing belated remittance of PF dues or the damages can automatically be levied as per Para 32A of the Employees’ Provident Funds Scheme, 1952. The Ld. Counsel for the appellant has relied upon the judgment of Hon’ble Supreme Court in the case of Mcleod Russel India Limited vs. Regional Provident Fund Commissioner, Jalpaiguri & Others reported in (2014)15 S.C.C 263 and DCW Employees Co-operative Canteen Pvt. Ltd vs. P.O. EPFAT, 2018 LLR 672, decided by the Hon’ble High Court of Madras, where it was held that mens rea is an important factor to be considered while levying damages. He has also placed reliance upon Assistant Provident Fund Commissioner vs. Management of RSL Textile India Pvt. Ltd., reported

in 2017 LLR 337, where the Hon’ble Supreme Court held that mens rea is required before levy of damages. It is further submitted that the respondent even preferred a review petition under article 137 of constitution of India seeking review of the said judgment, where the Hon’ble Supreme Court dismissed the said petition and upheld the impugned judgment dated 13.11.2013. Therefore, the judgment in RSL Textile India Pvt. Ltd. attained finality. On the other hand, the Ld. Counsel for the respondent has relied upon the judgment of Hon’ble Supreme Court of India in Horticulture Experiment Station, Gonikoppal, Coorg vs. the RPFC (Civil Appeal No. 2136 of 2012 order dated 23.02.2022) where it was held that any default or delay in the payment of EPF contribution by the employer under the Act is a sina-qua-non for imposition of levy of damages under section 14B of the Act, and mens rea and actus reus is not an essential element for imposing penalty/damages for breach of civil obligations.

I have given my thoughtful consideration of the said contention. The judgment in Mcleod Russel India Limited and Horticulture Experiment Station (Supra) are of equal strength of benches. I have also gone through the judgment of Hon’ble Supreme Court in Sandeep Kumar Bafna vs. State of Maharasthra & Others, AIR 2014 SC 1745 where it has been held that a statement of law pronounced by a Division Bench is binding upon a subsequent Division Bench of same or lesser strength. If any contrary view is expressed by a later bench, the same would fall within the category of per incuriam and the earlier judgment of the co-ordinate bench would prevail. Even the Hon’ble Supreme Court of India in the recent judgment, i.e., M/s. Kerala Industrial Infrastructure Development Corp. v. Central Board of Trustees and Anr. (Civil Appeal no. 7724 of 2023), pronounced on 09.09.2026, has expressed doubt of the proposition laid down in Horticulture Experiment Station (supra) and referred the matter to a larger bench. In these circumstances, it is held that the respondent has the discretion to waive or reduce the damages. It is an admitted fact that a dispute was pending among the members of the Lakhani Group of Companies, and various petitions had been filed by them against one another before the erstwhile Company Law Board. It is further admitted that the bank account of the company had been frozen, resulting in a situation where even the payment of

salaries to the employees was delayed. Eventually, a settlement was arrived at between them. In these circumstances, the respondent assessed damages and interest on account of belated remittance of PF dues. Liquidity doesn’t come instantly but it takes time to improve. Therefore, the contention of the Ld. Counsel for the respondent that a settlement had been arrived at on 20.05.2008, whereas the assessment pertains to the period from 03/2012 to 02/2017 for belated remittances of PF dues, doesn’t hold much water. It is important to mention here that in a previous case relating to the earlier period, the damages had been reduced to 20% by the Punjab and Haryana High Court in a writ petition bearing no. CWP 2375/2015 (O & M), filed by the respondent herein, challenging the order passed by this Tribunal.

Considering the overall circumstances that there was a liquidity problem faced by the appellant establishment and the ongoing family dispute among the members of the group earlier, this Tribunal considers it appropriate to reduce the damages levied by the respondent to 35% of the assessed amount under section 14B of the Act. So far so the interest component is concerned, the same is disturbed because it has to be credited to the subscribers’ account.

Considering the totality of the facts and circumstances, this Tribunal finds it appropriate to modify the impugned orders. It is not a case of complete waiver. Accordingly, it is hereby ordered to reduce the damages assessed by the respondent authority to 35% of the assessed amount under section 14B of the Act along with the interest component. The damages shall be paid within two months of passing of this order. The amount of Rs. 3,00,000/-, 5,00,000/- and 4,00,000/- respectively deposited in these appeals as a condition of stay shall be adjusted . The appeals are partly allowed. A copy of this order is placed in each of the files. The records of these appeals are consigned to the record room.

Ordered accordingly.

(Atul Kumar Garg) Presiding Officer