Kodukulanji Service Co-operative Bank Vs. State of Kerala - Court Judgment

SooperKanoon Citationsooperkanoon.com/730243
SubjectTrusts and Societies
CourtKerala High Court
Decided OnAug-09-2002
Case NumberO.P. No. 17853 of 2002 and connected cases
Judge Kurian Joseph, J.
Reported in2003(1)KLT250
AppellantKodukulanji Service Co-operative Bank
RespondentState of Kerala
Appellant Advocate Jomy George, Adv.
Respondent Advocate Vijy Thomas, Government Pleader,; T.R. Ramachandran Nair and;
Excerpt:
trusts and societies - welfare legislation - sections 61 and 80 a of kerala co-operative societies act, 1969, rule 39 of kerala co-operative societies self financing pension scheme, 1994, section 32 a of employees provident funds scheme, 1952 and section 14 b of employees' provident funds and miscellaneous provisions act, 1952 - pension scheme is welfare legislation for employees - pension scheme should be made compulsory - mandatory for every society to establish contributory provident fund as far as provident fund under section 61 concerned - direction to government in public interest to notify pension scheme as applicable to all societies registered under provisions of act of 1969 except where there is scheme under act of 1952. - - various welfare schemes like superannuation pension, retiring pension',invalid pension, family pension etc.kurian joseph, j.1. retrospective levy of penal interest and rate of interest are the two issues to be tackled in these cases, in the background of an amendment to the kerala co-operative societies employees self financing pension scheme, 1994 (hereinafter referred to as the scheme). the impugned amendment is to rule 39 (paragraph?) of the scheme. rule 39(1a) was introduced as per notification dated 4-2-1999. the provision reads as follows:'39(1a). if any society fails to transfer the employees contribution with interest accrued thereon after the commencement of section 80a of the kerala co-operative societies act, 1969 and the kerala co-operative societies employees self financing pension scheme, 1994, within a period of one year from 14.3.1995, that is the date of implementation of the pension scheme or has transferred only a part thereof, shall be liable to transfer such amount or part thereof as the case may be with interest at the rate of 24% per annum.'2. the scheme is framed in exercise of the powers conferred on the government under section 80a of the kerala co-operative societies act, which provides as follows:-'80a. pension scheme:- (1) the government may, by notification in the gazette, frame a self financing pension scheme for the establishment of a pension fund for payment of pension to the employees of the societies in the manner provided therein and may appoint different dates for the application of the scheme to different classes of societies. (2) the pension fund established under the self financing pension scheme framed under sub-section (1) shall vest in, and be administered by, such body or authority as may be specified in the said scheme.' the scheme thus framed though published on 14.3.1995 is given retrospective effect from 3.6.1993. the scheme contemplates establishment of a pension fund under rule 3 which reads as follows:-'3. establishment of pension fund.- (1) there shall be established a pension fund for payment of pension the employees of co-operative societies to which shall be credited a monthly contribution by the society at the rate of 8.33% of the pay as specified in clause 2(g) of each of its employees.'as the very name of the scheme indicates it is a self financing scheme and there is no other contribution to the scheme. various welfare schemes like superannuation pension, 'retiring pension', invalid pension, family pension etc. are provided under the scheme and hence the entire demands will have to be met from the funds of the scheme itself. originally no rate of interest was provided in case the contribution is delayed. therefore, rule 39(1 a) was introduced. but the rate of interest is 24%, obviously at penal rates. is there any justification in imposing such rates with retrospective effect3. as already stated above, the scheme was published on 14.3.1995. rule 39(1a) provides that if the contribution is not made within one year from that date, that is on or before 13.3.1996, it would carry interest at the rate of 24%. this provision itself is introduced only on 4.2.1999. it is significant to note that mode of recovery was provided under r.38 which originally provided for initiation of revenue recovery proceedings without interest. the said rule 38 also was amended with effect from 4.2.1999 providing for interest at the rate of 24% or rs. 500/- whichever is higher, from the date of notice to the demand for a revenue recovery to the collector. rule 38 as amended on 4.2.1999 reads as follows:-'38. recovery of amount due from a society.- if any amount, due from a society to the pension fund under this scheme is in arrears, the secretary or any other officer authorised by him in his behalf shall, after due enquiry, ascertain the amount of arrears and if the society fails to clear the arrears within the time as may be specified in the notice issued thereon, issue a certificate for that amount with interest at the rate of 24% p.a. till date or rs. 500 whichever is higher, from the date of such notice to the collector of the district in which the demand raised and the collector on receipt of such certificate shall proceed to recover the amount with interest in the same manner as arrears of public revenue due on land.'however, the said course is to be resorted to only in case the society fails to clear the arrears within the time specified in a notice issued to the society. whatever that be, the imposition of interest at the rate of 24% retrospectively from 13.3.1996 is certainly unreasonable since the liability at such rate of interest is notified only on 4.2.1999 and since the provision is certainly penal. therefore, it is declared that rule 39(1a) providing for interest at the rate of 24% with effect from 13.3.1996 is unreasonable. it is ultravires the powers under section 80a of the act. the provision would be operative only with effect from 4.2.1999. in other words, the liability to pay interest at the rate of 24% under rule 39(1a) for delayed payment of contribution under the scheme is only with effect from 4.2.1999 and not earlier. however, it is made clear that this is without prejudice to the recovery contemplated under rule 38.4. there is also challenge on the rate of interest. as already stated above, being a self financing scheme, the pension board will have to meet the entire demands from the available fund. therefore, any delay in the matter of contribution would adversely affect the very working of the scheme. unless stringent methods are adopted, there would be laxity in the matter of remittance of the contribution resulting in serious prejudice even affecting the very existence of the scheme. hence it cannot be said that the rate charged is unreasonable; what is intended being penal. it will be profitable to refer to the rate of interest provided under the employees provident fund and miscellaneous provisions act on the delayed payment of the contribution. section 32a of the employees provident funds scheme, 1952 reads as follows:-'32 a. recovery of damages for default in payment of any contribution.- (1) where an employer makes default in the payment of any contribution to the fund, or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 or sub-section (5) of section 17 of the act or in the payment of any charges payable under any other provisions of the act or scheme or under any of the conditions specified under section 17 of the act, the central provident fund commissioner or such officer as may be authorised by the central government, by notification in the official gazette in this behalf, may recover from the employer by way of penalty, damages at the rates given below:- period of default rate of damages(% of arrears per annum)(a) less than two months 17(b) two months and above butless than four months 22(c) four months and abovebut less than six months 27(d) six months and above 37 as the nearest higher rupee and fraction of a rupee less than 50 paise to be ignored.' that apart, there is a provision for damages also. an amount equal to the liability can be assessed as damages under section 14b of the employees' provident funds and miscellaneous provisions act, 1952, which reads as follows:-'14b. power to recover damages. - where an employer makes default in the payment of any contribution to the fund the pension fund or the insurance fund or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 or sub-section (5) of section 17 or in the payment of any charges payable under any other provision of this act or of any scheme or insurance scheme or under any of the conditions specified under section 17, the central provident fund commissioner or such other officer as may be authorised by the central government, by notification in the official gazette, in this behalf may recover from the employer such damages, not exceeding the amount of arrears, as it may thinks fit to impose: provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard: provided further that the central board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned; by the board for industrial and financial reconstruction established under section 4 of the sick industrial companies (special provisions) act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the scheme.' these provisions would only indicate that these are all meant for the proper functioning of a welfare scheme. therefore, it cannot be said that the rate of interest is unreasonable.5. the essential dispute raised in these original petitions is on the retrospective rate of interest which has already been found unreasonable and unconstitutional. incidentally there is also another issue where public interest demands the intervention of this court. rule 1(3) of the kerala co-operative societies employees self financing pension scheme, reads as follows:-'1(3). it shall apply to such class or classes of societies and from such date as the government may, from time to time, by notification in the gazette, specify. under section 80a where the power is reserved to the government, no particular date of application of the scheme is specifically mentioned. section 61(1) provides for provident fund which reads as follows:-'61. provident fund.- (1) a society shall establish a contributory provident fund for the benefit of its employees, to which shall be credited all contributions made by the employees and the society in accordance with the rules or the employees provident funds act, 1952 (central act 19 of 1952) whichever is more beneficial. provided that the contributory provident fund established under this sub-section shall not apply to the employees of such society to which the provisions of the self financing pension scheme framed under sub-section (1) of section 80a are made applicable and such society shall establish a provident fund in such manner and subject to such conditions or as may be prescribed, for the benefit of such employees.' the corresponding rule is rule 58. the two provisos of rule 58(1) read as follows:-'provided that when the employees provident fund act, 1952, is applicable to the society, and the provisions of that act are more beneficial, the fund shall be maintained in accordance with the provisions of that act. provided further that the contributory provident fund established under sub-section (i) of section 61 of the act shall cease to operate in the case of existing employees brought under the self financing pension scheme /rained under section 80a of the act.' it is seen that the government has not so far notified the scheme as mandatory. under the provisions of the act, rules and scheme, if only the government notifies, it becomes mandatory. so far the scheme is made applicable to societies coming under the administrative control of the registrar of co-operative societies. but there are ever so many societies - apcos, fisheries, coir, industries, scheduled caste/scheduled tribe, handloom, marketing, consumer, farming, housing, khadi and village industries, hospital, educational, labour, vanitha etc. - registered under the provisions of the kerala co-operative societies act, 1969. being a welfare legislation for the employees, the pension scheme should be made compulsory. it is significant to note that as far as the provident fund under section 61 is concerned, it was mandatory for every society to establish a contributory provident fund. therefore, in public interest, there will be a direction to the government to notify the pension scheme as applicable to all the societies registered under the provisions of the kerala co-operative societies act, 1969, except where there is scheme under the employees provident fund and miscellaneous provisions act, 1952. a notification shall be issued within a period of two months from today.the original petitions are disposed of as above.a copy of this judgment will be immediately forwarded to the secretary to government, co-operation department, trivandrum and also to the registrar of cooperative societies, trivandrum.
Judgment:

Kurian Joseph, J.

1. Retrospective levy of penal interest and rate of interest are the two issues to be tackled in these cases, in the background of an amendment to the Kerala Co-operative Societies Employees Self Financing Pension Scheme, 1994 (hereinafter referred to as the Scheme). The impugned amendment is to Rule 39 (paragraph?) of the Scheme. Rule 39(1A) was introduced as per notification dated 4-2-1999. The provision reads as follows:

'39(1A). If any society fails to transfer the employees contribution with interest accrued thereon after the commencement of Section 80A of the Kerala Co-operative Societies Act, 1969 and the Kerala Co-operative Societies Employees Self Financing Pension Scheme, 1994, within a period of one year from 14.3.1995, that is the date of implementation of the pension scheme or has transferred only a part thereof, shall be liable to transfer such amount or part thereof as the case may be with interest at the rate of 24% per annum.'

2. The Scheme is framed in exercise of the powers conferred on the Government under Section 80A of the Kerala Co-operative Societies Act, which provides as follows:-

'80A. Pension Scheme:- (1) The Government may, by notification in the Gazette, frame a Self Financing Pension Scheme for the establishment of a Pension Fund for payment of pension to the employees of the societies in the manner provided therein and may appoint different dates for the application of the scheme to different classes of societies. (2) The pension fund established under the Self Financing Pension Scheme framed under Sub-section (1) shall vest in, and be administered by, such body or authority as may be specified in the said scheme.'

The Scheme thus framed though published on 14.3.1995 is given retrospective effect from 3.6.1993. The Scheme contemplates establishment of a pension fund under Rule 3 which reads as follows:-

'3. Establishment of Pension Fund.- (1) There shall be established a Pension Fund for payment of pension the employees of Co-operative Societies to which shall be credited a monthly contribution by the Society at the rate of 8.33% of the pay as specified in Clause 2(g) of each of its employees.'

As the very name of the Scheme indicates it is a Self Financing Scheme and there is no other contribution to the Scheme. Various welfare schemes like superannuation pension, 'retiring pension', invalid pension, family pension etc. are provided under the Scheme and hence the entire demands will have to be met from the funds of the Scheme itself. Originally no rate of interest was provided in case the contribution is delayed. Therefore, Rule 39(1 A) was introduced. But the rate of interest is 24%, obviously at penal rates. Is there any justification in imposing such rates with retrospective effect

3. As already stated above, the Scheme was published on 14.3.1995. Rule 39(1A) provides that if the contribution is not made within one year from that date, that is on or before 13.3.1996, it would carry interest at the rate of 24%. This provision itself is introduced only on 4.2.1999. It is significant to note that mode of recovery was provided under R.38 which originally provided for initiation of revenue recovery proceedings without interest. The said Rule 38 also was amended with effect from 4.2.1999 providing for interest at the rate of 24% or Rs. 500/- whichever is higher, from the date of notice to the demand for a revenue recovery to the Collector. Rule 38 as amended on 4.2.1999 reads as follows:-

'38. Recovery of amount due from a Society.- If any amount, due from a society to the Pension Fund under this Scheme is in arrears, the Secretary or any other officer authorised by him in his behalf shall, after due enquiry, ascertain the amount of arrears and if the society fails to clear the arrears within the time as may be specified in the notice issued thereon, issue a certificate for that amount with interest at the rate of 24% p.a. till date or Rs. 500 whichever is higher, from the date of such notice to the Collector of the District in which the demand raised and the Collector on receipt of such certificate shall proceed to recover the amount with interest in the same manner as arrears of public revenue due on land.'

However, the said course is to be resorted to only in case the Society fails to clear the arrears within the time specified in a notice issued to the Society. Whatever that be, the imposition of interest at the rate of 24% retrospectively from 13.3.1996 is certainly unreasonable since the liability at such rate of interest is notified only on 4.2.1999 and since the provision is certainly penal. Therefore, it is declared that Rule 39(1A) providing for interest at the rate of 24% with effect from 13.3.1996 is unreasonable. It is ultravires the powers under Section 80A of the Act. The provision would be operative only with effect from 4.2.1999. In other words, the liability to pay interest at the rate of 24% under Rule 39(1A) for delayed payment of contribution under the Scheme is only with effect from 4.2.1999 and not earlier. However, it is made clear that this is without prejudice to the recovery contemplated under Rule 38.

4. There is also challenge on the rate of interest. As already stated above, being a Self Financing Scheme, the Pension Board will have to meet the entire demands from the available fund. Therefore, any delay in the matter of contribution would adversely affect the very working of the Scheme. Unless stringent methods are adopted, there would be laxity in the matter of remittance of the contribution resulting in serious prejudice even affecting the very existence of the Scheme. Hence it cannot be said that the rate charged is unreasonable; what is intended being penal. It will be profitable to refer to the rate of interest provided under the Employees Provident Fund and Miscellaneous Provisions Act on the delayed payment of the contribution. Section 32A of the Employees Provident Funds Scheme, 1952 reads as follows:-

'32 A. Recovery of damages for default in payment of any contribution.- (1) Where an employer makes default in the payment of any contribution to the fund, or in the transfer of accumulations required to be transferred by him under Sub-section (2) of Section 15 or Sub-section (5) of Section 17 of the Act or in the payment of any charges payable under any other provisions of the Act or Scheme or under any of the conditions specified under Section 17 of the Act, the Central Provident Fund Commissioner or such officer as may be authorised by the Central Government, by notification in the Official Gazette in this behalf, may recover from the employer by way of penalty, damages at the rates given below:-

Period of Default Rate of damages(% of arrears per annum)(a) Less than two months 17(b) Two months and above butless than four months 22(c) Four months and abovebut less than six months 27(d) Six months and above 37 as the nearest higher rupee and fraction of a rupee less than 50 paise to be ignored.'

That apart, there is a provision for damages also. An amount equal to the liability can be assessed as damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, which reads as follows:-

'14B. Power to recover damages. - Where an employer makes default in the payment of any contribution to the Fund the Pension Fund or the Insurance Fund or in the transfer of accumulations required to be transferred by him under Sub-section (2) of Section 15 or Sub-section (5) of Section 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under Section 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf may recover from the employer such damages, not exceeding the amount of arrears, as it may thinks fit to impose:

Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard:

Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned; by the Board for Industrial and Financial Reconstruction established under Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may be specified in the Scheme.'

These provisions would only indicate that these are all meant for the proper functioning of a welfare scheme. Therefore, it cannot be said that the rate of interest is unreasonable.

5. The essential dispute raised in these Original Petitions is on the retrospective rate of interest which has already been found unreasonable and unconstitutional. Incidentally there is also another issue where public interest demands the intervention of this court. Rule 1(3) of the Kerala Co-operative Societies Employees Self Financing Pension Scheme, reads as follows:-

'1(3). It shall apply to such class or classes of Societies and from such date as the Government may, from time to time, by notification in the Gazette, specify.

Under Section 80A where the power is reserved to the Government, no particular date of application of the Scheme is specifically mentioned. Section 61(1) provides for provident fund which reads as follows:-

'61. Provident Fund.- (1) A society shall establish a contributory provident fund for the benefit of its employees, to which shall be credited all contributions made by the employees and the society in accordance with the rules or the Employees Provident Funds Act, 1952 (Central Act 19 of 1952) whichever is more beneficial.

Provided that the contributory provident fund established under this sub-section shall not apply to the employees of such society to which the provisions of the Self Financing Pension Scheme framed under Sub-section (1) of Section 80A are made applicable and such society shall establish a Provident Fund in such manner and subject to such conditions or as may be prescribed, for the benefit of such employees.'

The corresponding Rule is Rule 58. The two provisos of Rule 58(1) read as follows:-

'Provided that when the Employees Provident Fund Act, 1952, is applicable to the society, and the provisions of that Act are more beneficial, the Fund shall be maintained in accordance with the provisions of that Act.

Provided further that the contributory provident fund established under Sub-section (i) of Section 61 of the Act shall cease to operate in the case of existing employees brought under the Self Financing Pension Scheme /rained under Section 80A of the Act.'

It is seen that the Government has not so far notified the Scheme as mandatory. Under the provisions of the Act, Rules and Scheme, if only the Government notifies, it becomes mandatory. So far the scheme is made applicable to societies coming under the administrative control of the Registrar of Co-operative Societies. But there are ever so many societies - APCOS, Fisheries, Coir, Industries, Scheduled Caste/Scheduled Tribe, Handloom, Marketing, Consumer, Farming, Housing, Khadi and Village Industries, Hospital, Educational, Labour, Vanitha etc. - registered under the provisions of the Kerala Co-operative Societies Act, 1969. Being a welfare legislation for the employees, the Pension Scheme should be made compulsory. It is significant to note that as far as the provident fund under Section 61 is concerned, it was mandatory for every society to establish a contributory provident fund. Therefore, in public interest, there will be a direction to the Government to notify the Pension Scheme as applicable to all the Societies registered under the provisions of the Kerala Co-operative Societies Act, 1969, except where there is scheme under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. A notification shall be issued within a period of two months from today.

The Original Petitions are disposed of as above.

A copy of this judgment will be immediately forwarded to the Secretary to Government, Co-operation Department, Trivandrum and also to the Registrar of Cooperative Societies, Trivandrum.