Merely Being Caretaker Of Society Doesn't Attract Vicarious Liability For Non-Deposit Of Provident Fund: Gujarat HC Quashes FIR

While quashing an FIR against three men who allegedly failed to deposit provident fund of the employees of a society, the Gujarat High Court said that merely because they were members of the society's custodian committee would not make them vicariously liable under the relevant law. 

To make the members of the society answerable or responsible for its administration, the complainant must show that the petitioners were responsible for the "day to day affairs" of the Society, it emphasized. 

A single judge bench of Justice Hasmukh D Suthar in its order said, "Merely because present petitioners are members of the Custodian Committee, the petitioners cannot be held vicariously responsible and prosecuted in aid of Section 14A of the EPF Act. To connect the accused persons with an offence, complainant must have to show that how and in what manner the present petitioners being the members of the Custodian Committee and are answerable for the conduct and business of the Society. Herein, in the complaint, nowhere the specific role of the present petitioners is alleged and merely their names are mentioned in Form No.5A in declaration and by virtue of designation the petitioners are arraigned as accused in their individual capacity". 

Petitioners made accused as caretaker of society, not full time employees

The high court noted that the petitioners were not full time salaried employees or nor were getting any remuneration from the Society and were made accused only by "virtue of their designation, as a care taker".

"Mere bald statement in the complaint is not enough for proceeding against the petitioners," the court added. 

Taking note of a communication, the court said that there appeared to be a "financial crunch" in the Society in question and "as a caretaker being the members of the Custodian Committee", the three petitioners were appointed.

It noted that they had deposited the amount and for the dues of provident fund in question, a separate machinery and provision was also provided for to recover the amount and charge was also created over the assets of the Society. Subsequent to that, the court said, it appeared that Society is now regularly paying the wages and depositing the contribution of provident fund of employees.

"Considering the aforesaid fact, there was no malafide intention on the part of the members of the Custodian Committee," the court said. 

Background

The order was passed while hearing the three petitioners' plea seeking quashing of an FIR  filed at the instance of Provident Fund Inspector under IPC Sections 405 (criminal breach of trust), 406 (punishment for criminal breach of trust),409 (criminal breach of trust by public servant, baker, merchant or agent).

It was alleged that the owners and responsible person of 'Shree Ukai Pradesh Sahakari Khand Udyog Mandli Limited' (society) did not deposit the amount of provident fund of the employees working with the society even after deducting the amount from their salaries as per the Employees' Provident Funds (EPF) and Miscellaneous Provisions Act 1952 (EPF Act).

The positions held by the three petitioners were General Manager, Surat District Cooperative Bank Ltd., the district registrar and the Chairman of the Gujarat Rajya Sahakari Khand Udyog Limited respectively.

Prior to their appointment the Society's Managing Committee was elected in 2009 having 12 members. In the absence of any elected Committee and due to a vacuum, the Custodian Committee was appointed by the State Government in 2011. The Custodian Committee constituted of (1) District Registrar, (2) General Manager of Surat District Cooperative Bank, (3) Chairman of Gujarat Rajya Sahakari Khand Udyog Limited and (4) Managing Director, Shree Ukai Pradesh Sahakari Khand Udyog Mandli Limited as the members and subsequently six more members were appointed as members of Custodian Committee.

At that time, there was no any member or officer designated as General Manager of the  Society. Being an affiliated Society of a lead Bank, the three petitioners used to provide the credit and being the members of other cooperative societies, "as a caretaker" they were appointed as members of the Custodian Committee. 

The allegation made against the petitioners was that they had violated the EPF scheme as per which before 15th Day of each English Calendar month, the deducted amount is to be transferred to the Department and petitioners had failed to do so. The aggregated amount that was not deposited from March 2010 to March 2012 amounted to Rs 56,94,887.

Findings

Justice Suthar observed that to make out an offence under IPC Section 406 prosecution has to prove that the accused was entrusted property or with any dominion or power over it and there was dishonest intention, misappropriation or dishonest conversion or disposal of property in violation of directions of law.

"Herein, in the case on hand, no any iota of evidence or allegation, which suggests entrustment of the property to the petitioners and dishonest intention on the part of the accused. In absence of any such contract of transaction or any breach of terms of agreement between the complainant and petitioner, no offence is made out," it said. 

“It is needless to say that liability recommends difference between the simple payment of investment of money. In absence ofany fraudulent entrustment or dishonest intention, no offence is made out," the court added. 

Referring to the Supreme Court's decisions in Employees State Insurance Corporation vs. S.K. Aggarwal (1998) and ESI Corpn. vs. Gurdial Singh (1991) the high court observed,  "As the Employees' State Insurance Act does not define the term 'employer', the term 'employer' is used in Section 2(17) of the ESI Act, which defines the term 'principal employer' as either 'owner' or “occupier”. The word “owner” and “occupier” have used disjunctively where the owner of the factory is a “principal employer”, there is no need to examine as to who is the occupier. The owner will be the “principal employer”. Hence, the present petitioners who were the members of theCustodian Committee cannot be regarded as 'principal employer'". 

Case title: I C MAHIDA - M.D. OF SURAT DISTRICT CO-OP BANK LTD v/s  STATE OF GUJARAT & ORS.

LL Citation: 2024 LiveLaw (Guj) 145

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