Dual Prosecution Under IPC and EPF Act Applies to PF Defaults; Serves Different Goals: Kerala HC

Background:

S. Mohammed Nowfal was charged under Section 406 of the IPC for deducting but not depositing Provident Fund contributions for employees from 2006 to 2008. He sought discharge, arguing that the investigation under Article 406 required the sanction of the Central Provident Fund Commissioner per Department. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) 14-AC. Nowfal’s plea relied on judgments of the Gujarat and Bombay High Courts, which held that sanctions under the EPF Act were necessary to prosecute PF-related defaults.

arguments

Nowfal’s counsel argued that since the charges were directly related to Provident Fund deductions, his prosecution should require prior sanction of the Central Provident Fund Commissioner under Section 14-AC. quoted Deepak Maneklal Patel – Natwarbhai Somabhai Patel (Gujarat High Court) and Yeshwantrao Dattaji Chowgule / State (Bombay High Court) held that prosecution for violations, both involving Provident Fund contributions, required EPF Act procedures, including prior sanction. Nowfal’s counsel argued that considering the facts of the case, the investigation into default in Provident Fund deposits should be conducted only under the provisions of the EPF Act.

The prosecutor rebutted this contention stating that since trust is a criminal offence, prosecution under IPC Section 406 is separate from the regulations of the EPF Act and does not require EPF Act approved permission. He argued that criminal breach of trust under the provisions of the IPC has an independent legal status and is intended to address abusive breaches, unlike administrative breaches under the EPF Act. Citing various Supreme Court judgments, he argued that the IPC provisions could operate independently and allow authorities to prosecute violations without the procedural requirements prescribed by the EPF Act.

Justification of the Court:

The Court began by examining the 1973 amendments to the IPC and EPF Act, which inserted Explanation 1 to Section 405 of the IPC to specifically address situations where employers defaulted in depositing employee contributions. The Court held that Explanation 1 provides that if an employer fails to deposit deducted employee contributions into the Provident Fund, those funds are entrusted to him and any default constitutes “dishonest” misconduct within the scope of criminal breach of trust (Section 406 IPC). He announced that he did. This amendment allowed prosecution under IPC provisions as such defaults involved criminal intent or fraud beyond administrative oversight.

The court noted that although the EPF Act contains stringent penalties for non-compliance with provident fund contributions, Explanation 1 to Section 405 of the IPC creates an entirely separate offence, focusing on criminal intent in default cases. Emphasizing that Section 14-AC of the EPF Act clearly requires sanction only for offenses under the EPF Act, the judge explained that defaults pursued under Section 406 of the IPC are excluded from the procedural requirements of EPF Act sanctions. Justice Babu further explained that the two laws serve different objectives: while the primary focus of the EPF Act is to regulate timely contributions to ensure the welfare of employees, the IPC addresses fraud and breach of trust. The court also noted that since TMK crimes involve different elements of criminal intent, double jeopardy under Article 20(2) of the Constitution does not apply here.

Dismissing the Gujarat and Bombay High Court judgments cited by Nowfal, the court held that it was wrong to rely on these judgments as both were issued before Explanation 1 of Section 405 became widely accepted. The court emphasized that the enforcement provision of Section 14-AC of the EPF Act was designed to prevent frivolous prosecutions under the EPF regulations and not to limit the wider application of the IPC. Accordingly, the court concluded that since there was prima facie evidence of criminal violation under Section 406, the Magistrate was justified in refusing the discharge.

Date: October 22, 2024

Case Quote: 2024:KER:78491

Applicant’s attorney: Mr. G. Keerthivas

Public Prosecutor: Mr. G. Sudheer

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