The High Court of Kerala on June 5, 2020 in the case of T.A. Varghese vs. Ram Bahadur Thakur Limited, has considered the question of whether non-executive directors, who are not in charge of day-to-day of the establishment, could be prosecuted for contravention of the provision of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 ('EPF Act').

Facts of the case:

The appellant herein had filed a complaint before the lower court to prosecute the company along with its chairman and directors under Sections 14(IA) (‘Penalties’), 14(2) (‘Penalties’) and 14(A) (‘Offences by companies’) of the EPF Act and paragraph 76(d) (‘Punishment for failure to pay contributions etc.’) of the Employees Provident Fund Scheme, 1952 ('EPF Scheme'), alleging that as the chairman and the directors were the persons in charge of the establishment and were responsible for the conduct of the business of the establishment, they came with the scope of the definition of ‘employer’ as defined in the EPF Act and hence they were liable for the actions of the company

The Ld. Magistrate on considering the evidence and documents, ordered imprisonment and imposed fine on the chairman and the directors of the company in accordance with Section 14(1A) of the EPF Act (‘Penalties’),  while the company was sentenced to pay only a fine. On appeal, the Ld. Sessions Judge, whilst upholding the fine imposed against the establishment, acquitted the chairman and the directors.

Such acquittal was challenged before the High Court.  

Findings of the court:

The High Court observed that Section 14A (i) of the EPF Act (‘Offences by companies’), makes it is clear that, only the person responsible to the company for the conduct of the business of the company, as well as the company alone, are liable to be prosecuted and not all directors. In other words, the appellants who are directors, cannot be prosecuted, unless there are pleadings and evidence to show that, they were in charge and responsible for the conduct of the business of the company. The court relied upon the decision of Supreme Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla, 2005(4) KLT 209, in support of the proposition.

In the specific factual context, the court upheld the decision to acquit the directors by noting that Form 5A submitted by the company indicated that the manager was responsible for the conduct of the business and not the directors. Another factor, that may have influenced the court’s decision was lack of any reasonable opportunity being given to the accused to represent their case.

Contributed by Arka Majumdar (Partner) and Juhi Roy (Associate).