Damages under Section 14-B of the Employees Provident Funds and Miscellaneous Provisions Act are punitive and compensatory in nature, and the imposition of damages must be based on a quasi-criminal proceeding, considering whether the employer acted deliberately in defiance of the law or was guilty of contumacious conduct. The company's status as a sick industry and the reasons for the delay in payment of contributions must be considered in the imposition of damages.

The petitioner in this writ petition, namely, M/s. Indian Telephone Industries Limited, is a Public Limited Company under the administrative control of the Ministry of Communications and Information Technology of the Government of India. This writ petition relates to imposition of damages under Section 14-B of the Employees Provident Funds and Miscellaneous Provisions Act (hereinafter referred to as ‘the Act’) on the Company for delay in payment of contributions under the Act in respect of the employees of the Palakkad unit of the Company, which is one of its seven units scattered all over India, for the period from September, 2003 to October, 2004.

2. The petitioner-Company was established in the year 1948. Stated to be due to change in the policy of the Government of India, the petitioner-Company, which was making profits till 1995, started accumulating losses which has presently swelled up to the tune of Rs. 1330 crores. In view of the precarious financial situation of the Company, which could not be reversed by efforts of the Company on its own, the Company made a reference to the Board of Industries and Financial Reconstruction, under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, (for short ‘the SIC Act’) which reference was registered by the BIFR as Case No. 504/2004 as per Ext. P1 letter issued by the Registrar of the BIFR. The BIFR thought it fit to explore the possibility of revival of the Company, which resulted in Ext. P9 order of the BIFR, by which the State Bank of India was appointed as an operating agency in terms of Section 17 (3) of the SIC Act for preparing a scheme for rehabilitation of the Company in accordance with the guidelines appended to the order, under Section 17(3) of the SIC Act.

3. In view of the acute financial crisis faced by the Company, the petitioner was unable to pay salary to the employees of the Company for the period from September, 2003 to October, 2004. In December, 2004, the Cabinet Committee of Economic Affairs sanctioned a revival package to the Company and as part of the said package, funds were released in March, 2005 for clearing the liabilities of the Company including the salary arrears and provident fund contributions etc. Pursuant thereto, the Company was able to pay arrears of salary for the above said periods. Evidently, as a result of the above, there was delay in payment of contributions under the Act in respect of the employees of the Company for the above said period. Proceedings were initiated by the 1st respondent for imposition of damages under Section 14B and realisation of interest under Section 7Q of the Act. It resulted in Ext. P2 order by which damage to the tune of Rs. 86,952/- was imposed on the petitioner in respect of the delay in payment of inspection charges and pension fund contributions for the above said period and Ext. P3 order whereby an amount of Rs. 3,85,485/- was imposed as damages for delay in payment of employees provident fund contributions on the petitioner-Company. Apparently, believing that Ext.P9 order of the BIFR amounted to sanctioning of a scheme of rehabilitation as contemplated under the second proviso to Section 14-B of the Act, the petitioner-Company filed Ext. P4 application for waiver of damages under the said proviso before the Central Board of Trustees of the Provident Fund Organization. In the meanwhile, the 1st respondent issued Ext.P5 order to the 4th respondent-Bank under Section 87 of the Act demanding the Bank to pay an amount of Rs. 5,33,814/- lying in deposit in the accounts of the Company with the said Bank. By Ext. P6 judgment, this Court in W.P(C) No.23176/2005 directed the Central Board of Trustees of the P.F. Organization to consider Ext. P4 application of the Company under the second proviso to Section 14-B of the Act and stayed further proceedings for recovery of damages as per Exts. P2 and P3 orders. However, by Ext. P8 order, the Central Provident Fund Commissioner informed t