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2018 Supreme(Online)(P&H) 534

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Yashvir Singh Rathor, J
Ajay Kumar Sandhu – Appellant
Versus
State Of Haryana – Respondent
CRM-M-50613-2018 (O&M)

Advocates:
For the Appellants/Petitioners: R.N. Lohan, J.S. Maanipur, Harpreet Kaur
For the Respondents: Vasundhara Dalal Anand

An employer's failure to remit deducted employee provident fund and insurance contributions constitutes criminal breach of trust under Section 406 IPC due to the deeming provisions of Section 405, and such prosecution may proceed independently of any regulatory penalties or procedural requirements set forth in special labour welfare enactments.

Headnote:(A) Bharatiya Nagarik Suraksha Sanhita, 2023 - Section 528 - Indian Penal Code, 1860 - Section 405 (Explanations 1 and 2), Section 406 - Employees’ State Insurance Act, 1948 - Sections 39, 75, 76, 85, 86 - Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 - Sections 14, 14-AA, 14-AB, 14-AC - Criminal breach of trust - Cognizance of offences - Petition for quashing of FIR - FIR investigated and final report presented - Petitioner contended that failure to deposit contributions is a violation of special statutes, not criminal breach of trust, and requires prior sanction - State contended that Explanation to Section 405 IPC creates a deeming fiction making default in payment of deducted contributions an offence of criminal breach of trust, which is distinct from statutory offences in special Acts.

(B) Criminal Procedure - Quashing of FIR - Application of Indian Penal Code and special statutes - Prosecution for criminal breach of trust under Section 406 IPC, based on default in payment of deducted employee contributions, does not require prior sanction under special labour legislations as these are distinct offences. (Paras 17, 18, 20, 21)

(C) Double Jeopardy - Article 20(2) of the Constitution - Offences under special Acts and Indian Penal Code are distinct as Section 406 IPC requires mens rea while statutory labour offences do not; thus, proceedings under both can coexist. (Paras 15, 21)

Facts of the case:
The petitioner, a former service contractor, was accused of failing to deposit deducted employee contributions towards Provident Fund and State Insurance into the statutory accounts, despite receiving the requisite funds from the principal employer. An FIR was registered under Sections 406 and 420 of the Indian Penal Code. The petitioner sought quashing of the FIR, arguing that the special labour laws provide a self-contained code for such defaults, requiring prior sanction and specialized procedures, and that the police registration of an FIR constitutes an abuse of process.

Findings of Court:
The court observed that Explanation 1 and 2 of Section 405 IPC specifically make the default in payment of deducted employee contributions a deemed instance of 'dishonest use' of property, thereby constituting criminal breach of trust. The court concluded that these IPC offences and the administrative offences/penalties under labour laws are distinct, do not trigger the bar of double jeopardy, and that prosecution for breach of trust under the Indian Penal Code does not require the sanction mandated by the special labour statutes.

Issues: Whether an FIR for criminal breach of trust can be maintained for non-deposit of statutory employee contributions, and whether such prosecution is barred by the procedural requirements and special provisions of labour welfare statutes.

Ratio Decidendi: By virtue of the Explanations added to Section 405 of the Indian Penal Code, an employer who deducts contributions but fails to remit them is deemed to have 'dishonestly used' the funds, establishing the mens rea necessary for the offence of criminal breach of trust. These criminal proceedings are distinct from and independent of the regulatory penalties prescribed under specialized labour legislation.

Result: Petition dismissed.

Table of Content
1. failure to deposit epf/esi contributions into employee accounts constitutes criminal conduct. (Para 1 , 2 , 11 , 12)
2. whether specific statutes like esi/epf preclude prosecution under the ipc. (Para 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 14)
3. section 405 ipc explanations create distinct criminal liability from statutory defaults. (Para 15 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24)
4. the trial court must address the inconsistency of simultaneous charges under sections 406 and 420 ipc. (Para 25 , 26)

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YASHVIR SINGH RATHOR, J. (Oral)

1. Prayer in this petition filed under Section 528 of Bharatiya Nagarik Suraksha Sanhita, 2023 is for quashing of F.I.R. No.436 dated 26.11.2014, registered under Sections 406 and 420 of IPC at Police Station Dadri City, District Bhiwani and all subsequent proceedings arising therefrom.

2. The present FIR has been registered on the basis of a complaint given to the police by the Executive Engineer, Sub Division, Vidyut Prasaran Nigam Limited (for short ‘HVPNL’), Bhiwani, with the allegation that M/s Sandhu Security Services, SCO No. 45-46, First Floor, Office No. 105 Sector-11, Panchkula, was an approved contractor for providing skilled manpower under this Division on outsourcing basis w.e.f. 01.06.2009 to 31.05.2010, and accordingly, work orders were placed on a monthly basis for the supply of requisite manpower at various substations. The payment is regulated by multiplying the number of manpower provided by the contractor with approved DC rates, applicable Employee Provident Fund (for short ‘EPF’) plus Employee State Insurance (for short ‘ESI’) plus service tax plus zero percent premium thereon. All the payments including EPF/ESI have been made to the contractor through account payee cheques but contractor has neither deposited the entire amount of EPF (both employer and employee share) and ESI (both employer and employee share) with the concerned authorities nor he has provided the contract labour with the mandatory EPF and ESI cards which was obligatory on the part of contract. The contractor has, thus, dishonestly misappropriated the EPF and ESI amounts paid to him and has also committed breach of trust. The contractor’s employees working under the proprietor have not been paid the EPF amounts even after the lapse of 18 months of termination of contract of this contractor. The embezzlement of EPF, ESI plus Service tax amounting to Rs.19,67,990/- was made by the contractor which shows that contractor has not deposited the exact amount with the EPF/ESI authorities and has embezzled the same. Accordingly, a prayer was made to investigate the matter after lodging the FIR against Ajay Sandhu son of Kulbir Singh resident of village and post office Kaoth Kalan, District & Tehsil Narnaud, District Hisar under appropriate Sections of IPC and initiate proceedings against him. After registration of FIR, matter was investigated and after completion of investigation, final report has been presented in the Court for trial.

3. By way of present petition, petitioner is seeking the quashing of the FIR. It has been alleged that the FIR has been falsely registered against the petitioner with an ulterior motive to blackmail him. A bare perusal of the FIR shows that it is a case of violation of provisions of Section 39(5a) of the Employees’ State Insurance Act, 1948 (for short ‘ESI Act’) according to which if the contribution payable under this Act is not paid by the principal employer on the date on which such contribution was due, he shall be liable to pay simple interest at the rate of 12% per annum or at such higher rates as may be specified in the regulations till the date of actual payment as has been provided in Section 39 of the said Act which is reproduced as below:-

“39. Contributions- (1) The contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer's contribution) and contribution payable by

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2018 Supreme(Online)(P&H) 534

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARHYashvir Singh Rathor, JAjay Kumar Sandhu – AppellantVersusState Of Haryana – RespondentCRM-M-50613-2018 (O&M)

Cases Referred (1)

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Yashvir Singh Rathor, J
Ajay Kumar Sandhu – Appellant
Versus
State Of Haryana – Respondent
CRM-M-50613-2018 (O&M)