Employer Cannot "Lure" Employee By Provident Fund As It Is Statutory Deduction, Offence Of Cheating Not Attracted Upon Non-Remittance: Karnataka HC

A single judge bench of Justice M Nagaprasanna made this observation while allowing a petition filed by one CH K.S.Prasad and quashing the offences registered against him under sections 409 and 420 of the Indian Penal Code.

The bench said,

“The case at hand is concerning contribution towards provident fund and its non-remittance to the Organization. It cannot be imagined as to how contribution of provident fund can be lured by the petitioner over the employees when it is a statutory deduction. Therefore, the cognizance for offence punishable under Section 420 of the IPC is recklessly taken, as none of the ingredients that are necessary to be proved for offence punishable under Section 420 as obtaining under Section 415 of the IPC are remotely present in the case at hand.”

The petitioner was an employee of M/s Vasan Healthcare Private Limited from 2012 up to 13-09-2017. During the said period, he further claims to have donned several roles in the Establishment and was for some time Senior Vice-President, Human Resources and was also authorised to sign certain forms in connection with the business of the Establishment including the forms of Employees Provident Fund.

During the period from August 2014 to May 2015 the Establishment deducted provident fund from the wages of employees. The amount totaled to 95,58,104, based upon this, a complaint came to be registered on 06-08-2015 before the 1st respondent alleging offences punishable under Sections 406 and 409 of the IPC.

The Police after investigation filed a charge sheet; the petitioner approached the court calling in question the proceedings.

The petitioner contended that he was discharged of liability by the Special Court for Economic Offences. However, on the same set of facts, the present criminal case was being continued, without making the Establishment as an accused in the proceedings.

Findings:

The bench noted that the Establishment (company) between August 2014 and May 2015 did not remit contributions that were deducted from the salaries of employees of the Establishment to the Organization. The reason behind non-remittance is that the Bank accounts of the Establishment were attached by the Income-Tax Department in several cases. Following which a criminal case before the Special Court for Economic Offences under Paragraph 76(d) of the Employees’ provident Fund Scheme, 1952 read with Sections 14(1A) and 14A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 for contravention of Section 6 of the Act r/w Para 30 and 38 of the Employees’ Provident Fund Scheme, 1952 was instituted. The proceedings before the Special Court were against the Establishment and one Mr. A.M.Arun, the Chairman.

The High Court vide its order dated 18-02-2019 observed that it was the petitioner who was at the helm of affairs and not the Chairman Mr.A.M.Arun and accordingly the proceedings against the Chairman were quashed.

Further, the concerned court had considered the application of the present petitioner for discharge and in terms of its order dated 31-08-2019 it accordingly discharged him. Even the Establishment was absolved on the ground that it could not remit the amount on account of its bank accounts being frozen by the Income Tax.

Following which the bench observed “Section 420 of the IPC has its ingredients in Section 415 of the IPC. The ingredients are that an accused should lure the complainant/firm to part with certain property with dishonest intention.”

It then held “It cannot be imagined as to how contribution of provident fund can be lured by the petitioner over the employees when it is a statutory deduction. Therefore, the cognizance for offence punishable under Section 420 of the IPC is recklessly taken, as none of the ingredients that are necessary to be proved for offence punishable under Section 420 as obtaining under Section 415 of the IPC are remotely present in the case at hand.”

As regarding the cognizance taken by the court of section 409 of IPC which pertains to breach of trust by a servant or a banker or whoever being entrusted with some property, the bench said “If ingredients of Section 409 of the IPC are alleged element of mens rea would become mandatory.”

Then it held “The finding of the Special Court in favour of the Establishment was that there was no willful default on the part of the Establishment and it was a circumstance which was beyond the control of the Establishment, as the Income Tax Department authorities had attached the properties of the Establishment. If that be the finding and the said finding having become final, the petitioner cannot be hauled into the web of crime for an offence under Section 409 of the IPC, as if there is willful default against the Establishment. There cannot be anything willful laid against the petitioner. There is no iota of element of mens rea that is alleged against the petitioner.”

Finally it held “The proceedings are instituted only against the petitioner. The petitioner was an employee of the Establishment. For proceedings to be instituted for offences under Sections 406 or 420 of the IPC, the Establishment ought to have been made a party. Without the Establishment being an accused, the proceedings against the petitioner cannot be permitted to be continued.”

Accordingly it allowed the petition saying “Permitting further proceedings to be continued against the petitioner would 19 degenerate into harassment, becomes an abuse of the process of law and ultimately result in miscarriage of justice.”

Case Title: CH K.S.Prasad @ K S Prasad And State of Karnataka & ANR

Case No: CRIMINAL PETITION No.195 OF 2020

Citation: 2023 LiveLaw (Kar) 41

Date of Order: 31-01-2023

Appearance: Advocate Noor UL Hussain For petitioner.

HCGP K.S.Abhijith FOR R-1.

Advocate B.V.Vidyulatha for R-2.