The Kerala High Court has held the Central Provident Fund Commissioner’s sanction is not required for criminal breach of trust prosecutions under the Indian Penal Code for Provident Fund related violations.

The Court was hearing a Criminal Revision Petition in a case about an employer’s non-deposition of employees’ contribution to the Provident Fund. The petition challenged an Order of the Judicial First Class Magistrate dismissing an application for discharge. The question before the Bench was whether a prior sanction of the Central Provident Fund Commissioner as provided in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is required for prosecution under Section 406 (Punishment for criminal breach of trust) of the Indian Penal Code, 1860 (IPC)

The Single Judge Bench of Justice K. Babu held, “A literal interpretation of Section 14-AC of the EPF Act makes it clear that sanction is contemplated only for prosecuting the offences under the EPF Act, and no sanction is required for prosecuting the offence under Section 406 read with 405 IPC.”

Advocate G. Keerthivas appeared for the petitioner and Public Prosecutor G. Sudheer appeared for the State of Kerala.

In the present case, the accused employer deducted the employees’ contribution to the Provident Fund from their salary but did not deposit the same with the authority concerned. Charges under Section 406 of the IPC were then imposed on the employer. The employer argued that a prior sanction of the Central Provident Fund Commissioner as provided under Section 14-AC of the EPF Act was required for prosecution. Section 14-AC, added through an Amendment in 1973, prescribes that sanction of the Central Provident Fund Commissioner is a mandatory requirement for any court to take cognisance under the EPF Act.

“The legislature had taken note of the vast arrears due to the Provident Fund due to the defaults in payment of contributions… Section 14-AC was inserted as protection from frivolous prosecution of the offences under the Act with the enhancement of punishment for various offences,” the High Court said on the addition of the provision through an Amendment.

By the same Amendment, Explanation 1 was inserted into Section 405 (Criminal breach of trust) of the IPC, which mandates that an employer who “deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount for the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.”

The Court said that the Parliament had added this Explanation taking note of the fact that the scheme under the Act was not effective in preventing the defaults in payment of contribution to the Employees‘ Provident Fund even after the deduction of the same from the wages of the employees. The Court added that the intention of the legislature to make the act of default on the part of the employers in contributing the amounts deducted from the wages of the employees a separate and distinct offence from the offences under the EPF Act is "vivid" with the insertion of the Explanation 1 to Section 405 IPC. “The legislature consciously wanted to permit prosecution of this offence without the sanction as provided in Section 14-AC of the Act.”

The legislature wanted to dilute the procedural rigours like the report of the competent officer and previous sanction from the Central Provident Fund Commissioner in the prosecution of that offence, the Court said, arriving at the conclusion that Section 14-AC makes it clear that sanction is only required for prosecuting under the EPF Act, and not the IPC.

The Court then noted that contrary opinions have been expressed by High Courts on the issue. The High Courts of Gujarat and Bombay have held that sanction is required even for prosecuting under Section 406 of the IPC. However, the Calcutta High Court as well as the Kerala High Court itself had held that no sanction is required where the case is registered under the IPC and not the EPF Act.

The Court noted the Calcutta High Court’s judgment in Sushil Kumar Bagla v. State (2003) which held that if an act or omission amounts to offences under two enactments and under one such enactment, sanction is required for prosecution of the offender, it is the option of the prosecution to prosecute him under either of the enactments.

Taking the above into consideration, the High Court in the present case concluded that the challenge of the revision petitioner that the prosecution will not sustain in the absence of sanction has no merit. “The order impugned is not affected by any patent error of jurisdiction. All the challenges in this revision petition fail,” the Court said, asking the Trial Court to proceed with the trial.

Cause Title: S. Mohammed Nowfal v. State of Kerala [CRL. REV. PET 790 OF 2024]

Appearance:

Petitioner: Advocate G. Keerthivas

Respondent: Public Prosecutor G. Sudheer

Click here to read/download the Order


Justice K. Babu

Tushar Kohli