Provident Fund contribution delayed by company: Will court punish directors for offence?

Rajeev Kumar
provident fund contribution rules

Employers cannot escape from the responsibility of depositing PF contributions of employees timely. Also, the employer can’t be exonerated even when it deposits the contributions after a complaint of delay is already filed, according to a recent decision of the Calcutta High Court in Malhati Tea & Industries Ltd. & Ors VS State of West Bengal & Anr. In this case, one of the important questions before the court was: Whether subsequent deposit of statutory dues absolves the company from the liability of the offence completed due to non-deposit of the share of provident fund of the employees within time? The court didn’t absolve the company – Malhati Tea & Industries Ltd -which had committed the offence of not depositing the PF contribution within time.

The second question before the court was whether directors of the company be considered as the employer to be punished for the offence under relevant legal provisions.

The case

The Provident Fund Enforcement Officer had lodged an FIR against the company, one of its ex-director and three existing directors in 2011, alleging they had failed to deposit the employees' share of the provident fund contribution for the period from April, 2007 to October, 2007 amounting to Rs.12,72,266. The PF officer had alleged that the company and its directors had committed an offence punishable under Section 406/409 of the Indian Penal Code. Police completed the probe and submitted charge-sheet against the company in December 2013. A warrant of arrest was issued by Special Judge against the directors. The Special Judge also refused the directors’ request to recall the warrant order.

The company had filed a writ petition in 2011, praying for instalments to liquidate the provident fund dues. The court disposed the writ petition on July 5, 2011, directing the company to pay the employees’ contribution to PF within 8 weeks.

In the high court, the company pleaded that they had already made the payment subsequently. However, the Regional Provident Fund Authority submitted before HC: "Subsequent deposit of the said share of provident fund with the appropriate Authority cannot exonerate the petitioners from the criminal liability of the offence already committed by the petitioners. Subsequent deposit of provident fund contribution dues after commission of the alleged offences is not a ground to quash the criminal proceedings pending against the petitioners."

The Authority forcefully contended: "He has forcefully contended that it would not be reasonable and justified to quash the proceedings which have been initiated for non-deposit of the shares of the provident fund of the employees and employer with the statutory Authority within time."

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Directors not responsible

Given previous SC judgements, the High Court held that "Directors of the company cannot be termed as employers/owners for the purpose of prosecution for the commission of criminal breach of trust under Section 405/406/409 of the Indian Penal Code." The HC quashed the criminal proceedings against the directors. It held that directors were not "principal employers" and "they cannot be held to be vicariously liable for the alleged offences committed by the company."

However, proceedings against the company was not quashed.