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Petitioner: SIND EMPLOYEES' SOCIAL SECURITY INSTITUTE VS Respondent: AMIN FABRICS LIMITED
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid Title: SIND EMPLOYEES' SOCIAL SECURITY INSTITUTE vs AMIN FABRICS LIMITED Case No.: Miscellaneous Appeal No. 7 of 1982 M. A. No. 94 of 1979 Date of Judgment:1982-10-17 Reported As: 1983 PLC 182 Result: Appeal allowed
JUDGMENT
JUDGMENT This is a miscellaneous appeal filed by the appellant, Sind Employees' Social Security Institution. Respondent in this Appeal is Amin Fabrics Limited, a company inter alia engaged in the manufacture of jute bags in its factory situated at Kotri. The provisions of the Provincial Employees Social Security Ordinance No. X of 1965 became applicable to the respondent company with effect from July, IS68. 2. By his letter dated 3-10-1974 addressed to the respondent-company, the director of the appellant institution at Hyderabad informed the respondent that the Audit team of his office, after checking respondent's record of pay--ments, detected an evasion of social security contribution to the tune of Rs. 4,194 and "increase" of Rs. 2,097 made a total of Rs. 6,291 and required the respondent to pay this amount immediately. Then by his letter dated 28-10-1974, the Social Security 6fficer, Kotri confirmed that the record checked by the Audit team bad revealed an evasion of Rs. 6,291 and this related to the period since the Ordinance of 1965 became applicable to the mills of the respondent till June, 1974. This payment was made by the respondent in March, 1975. Then, on record, there is the letter dated 13-10-1980 of the director of the appellant institution addressed to the respon--dent to the effect that the Vigilance team of the Head Office of the appellant institution had visited the establishment of the respondent on various dates and had checked their record since July, 1968 up to June, 1980 and found that the respondent had paid less amount of social security contribution to the extent of Rs. 1,11,609.22 as per details attached with the said letter. Respondent was required to pay this amount within 15 days. After this some letters were exchanged between the parties but the demand of R s. 1,11,609.22 was not withdrawn by the appellant institution and in the circumstances, the respondent company filed an application under
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section 57 of the 1965 Ordinance which was disposed of by the Commissioner of the appellant institution by his order dated 30-3-1981. It may be observed here that the demand raised by the appellant institution related to the contribution to be paid by the respondent-company on the following payments and by the respondent-company to its employees :- (i) Production bonus ; (ii) Washing/kit allowance ; and (i.e) Conveyance reimbursement. It was the case of the respondent/Company that none of such payments were included in the definition of the word "wages" in section 2(30) of the 1965 Ordinance and as such no contribution was payable by the respondent/, Company on these amounts paid to their employees. The demand on account of "increase" at the rate of 50% of the amount of contribution was also challenged as unjustified and not payable in the circumstances of the case. The Commissioner of the appellant institution by his order dated 30-3-1981 decided that production bonus and amount paid to the employees as convey--ance reimbursement was not exempt from payment of contribution but in so far as the washing/kit allowance was concerned, he came to the conclusion that such allowance did not form part of "wages" and accordingly contribu--tion was not payable by the respondent/Company thereon. As regards the increase the Commissioner was of the view that the employees were legally obliged to pay the increase under section 23(l) of the 1965, Ordinance on account of late payment of contribution. A review petition was filed by the respondent/Company against the decision dated 30-3-1981 of the Commissioner of the appellant institution which came to be dismissed by the Commissioner by his order dated 13-6-1981. Being aggrieved with the aforesaid orders dated 30-3-1981 and 13-6-1981 of the Commissioner of the appellant institution, the respondent/Company filed an appeal No. 2/1981 under section 59 pf the 1965 Ordinance before the Sind Employees' Social Security Court, Karachi. This appeal was dismissed by Sind Social Security Court No. 1, Karachi by judgment dated 19-12-1981 subject, however, to ,the reduction of the rate of "increase" from 50.% to 30 %. Para. 17 of the judgment of the Sind Social Security Court relates to the question of increase and it reads as follows :- "17. As regards increase at the rate of 50 %, I think that the same appears to be unreasonable. Accordingly the rate of increase is hereby decreased to 30 % and the respondents (appellant institution) are hereby directed to make adjustment in the demand accordingly." The appellant institution has filed the present Miscellaneous Appeal No. 7/1982 challenging the reduction of the rate of increase from 50% to 30% by the Sind Social Security Court . Cross-objections have been filed in this appeal on behalf of the respondent-company under Order XLI, rule 22, C. P. C. Praying that- (i) This appeal be dismissed ; and (ii) The decisions of the Social Security Institution and the Social Security Court be set aside. 3. I have heard at length the arguments of Mr. S. A. Sarwana, learned counsel for the appellant and Mr. Mamoon Kazi, learned counsel for the respondent. Before, however, referring to the various contentions raised on behalf of the parties, by their learned counsel, reference may be made to certain relevant provisions of they Provincial Employees' Social Security Ordinance, 1965 and the Provincial Employees' Social Security (Contributions) Rules, 1966 framed under section 79 of the 1965 Ordinance. Relevant pro--visions are reproduced here:--
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"Section 2(S):= "Contribution" means the sum of money payable to the Institution by an employer in respect of an employee, to accordance with the provisions of this Ordinance ; Section 2(30).-"Wages" means remuneration for service paid or, payable in cash or in kind to a secured person, not being less than remuneration based on the minimum rates of were declared under the Minimum Wages Ordinance, 1961 (XXXIX of 1961), without taking account of deductions for any purpose, under a contract of service or apprentice--ship, expressed,: or implied and shall be deemed to include any dearness allowance or other addition in respect of the cost of living and any payment by the employer to a secured person in respect of any period of authorised leave, illegal lock-out or legal strike ; but does not include- (a) any payment for overtime ; or (b) any sum paid to the person employed to defray special expenses entailed by the nature of his employment ; or (c) any gratuity payable on discharge.; or (d) any sum paid as bonus by the employer ; Section 20. Amount and payment of contribution.-(1) Subject to the other provisions of this Chapter, the employer, shall in respect pf every employee, whether employed by him directly or through any other person pay to the Institution a contribution at such times, at such rate and subject to such conditions as may be prescribed. (2) (3) The employer shall not be entitled to deduct from the employee's wages or otherwise to recover from him any portion of the contribu--tion, notwithstanding any agreement to the contrary. (4) Subject to the provisions of subsection (2) of section 71- (a) no contribution shall be payable on wages which are in excess of rupees twenty per day ; and (5) For the purpose of determining the amount of the contribution payable, daily wages shall be calculated in such manner as may be provided by regulations. (6) Where the mode of payment of remuneration, whether in cash or in kind, makes difficult to determine the amount of wages for compu--ting the contribution, the Commissioner may, subject to regulations and in consultation with the representatives of employees, determine such wages. (8) In the case of construction . Work the owner of the building shall guarantee the payment of contributions by the contractor. (9) In the case of works executed or undertakings carried on behalf of the State by a contractor or licensee, the competent public authority shall before final settlement of the claims of the contractor or licensee arising out of the contract, require the production of a certificate from the Institution showing that the necessary contributions have been paid and in default of such certificate it shall deduct from the amount otherwise payable in settlement of such claim, the appro--priate amount of the contributions payable, and pay such amount direct to the Institution. ' Section 21. Records and returns by employers.-Every employer shall 'keep such records and shall submit to the Institution such returns, at such times, in such form and containing such particulars relating to persons employed by him, as may be provided in the regulations. Section 22. Officials of Institution to check employer's books.-(1) Any official of the Institution, duly authorised by a certificate in a form specified in the regulations, may, for the purpose of inquiring into the correctness of any of the particulars stated in the records or returns referred to in section 21 for the purpose of ascertaining whether any of the provisions of this Ordinance have been complied with- (a) require an employer to furnish to him such information as he may consider necessary ; or (b) at any reasonable time enter any establishment or other premises occupied by such employer and require any person found in charge thereof to produce and allow him to examine such
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accounts books and other documents relating to the employment of persons and payment of wages, or to furnish to him such information, as he may consider necessary, or (c) examine, with respect to any matter relevant to the purposes afore. Said, the employer, his agent or any person found in such establishment or other premises, or any other person whom the said official ha; reasonable cause to believe to be or to have been a secured person. (2) The official referred to in subsection (I) shall be bound so secrecy a. Regards all matters with which he becomes acquainted in the perform once of his duties and which do not relate to matters provided for in this Ordinance. (3) If an employer fails to maintain records or to submit returns as required by regulations, or otherwise fails to comply with the provisions of subsection (1) and thereby makes it difficult to ascertain the identity of persons required to be secured or the amount of contribution payable, the contribution shall be assessed on the basis of such evidence as the Institution may find satisfactory for this purpose. Section 23. Increase of unpaid contribution and recovery of contribu--tion, etc., as arrears of land revenue.-(1) If any employer fails to pay on the due date the contribution payable by him under subsection (1) of section 20, the amount so payable by him shall be increased by such percentage or amount as may be prescribed: Provided that in no case shall such increase exceed fifty per centum of the amount due Provided further that no part of such increase shall be payable by, or the liability to pay the same be passed on by the employer to his employees. (2) Without prejudice to any other remedy, the amount of the contribu--tion due, together with the increase provided for under subsection (1), may be recovered as arrears of land revenue. Rule 5.-The employer shall submit to the Local Office of the Institution at which he is registered, the copies of pay rolls or contribution schedules referred to in rule 4(I), within fifteen days of the end of each month, or such extended period, not exceeding forty-five days, as the Institution may allow on good cause being shown for the extension, and at the same time shall pay, at the said Local Once, the total amount of the contribution shown thereon as due. Rule 6.--If any employer fails to pay the total amount of contribution within the ,period prescribed in rule 5, the amount payable shall be increased by one-half per centum per day for each day after expiry of the prescribed date, subject to the maximum increase provided in sub-section (1) of section 23." 4. In support of the present appeal, Mr. S. A. Sarwana, learned counsel for the appellant, contended that the liability of "increase" under section 23 of the 1965 Ordinance was a statutory liability and the employer was liable to pay such increase in accordance with the Rules. It was further contended that neither the Institution nor the Social Security Court had any power or jurisdiction under the 1965 Ordinance or the Rules framed thereunder to reduce the statutory liability under section 23 of the 1965 Ordinance. It. Was argued that section 23(1) provided that if any employer fails to pay on the due date the contribution payable under section 20(t), the amount so payable by the employer shall be increased by such percentage or amount as may be prescribed and under rule 6 of the Provincial Employees' Social Security (Contribution) Rules, 1966, it was prescribed that the amount payable shall be increased by --% per day for each day after the expiry of the prescribed date, subject however to the maximum increase provided in section 23(1) of the Ordinance, which was 50 % of the amount due. Counsel referred to rule 5 of the said Rules of 1966 and argued that on good cause being shown the Institution could extend the time for 45 days to pay the amount of con--tribution and this was the maximum time that could be granted by the Institution and no other exemption or relief in so far as the increase was concerned could be granted under the law by the Institution. Learned counsel referred to the
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following reported judgments of the Supreme Court of Pakistan and of this High Court for the proposition that "increase" was a statutory liability of an, employer who was liable to ,pay the increase in accordance with the Rules :- (i) Kohinoor Chemical Co. Ltd. v. Sind Employees' Social Security Institu--tion PLD 1977 SC 197. (ii) Sind Employees' Social Security Institution v. Silva Industries Ltd. 1982 PLC 1062. (i.e) Rashid Textile Mills Ltd. v. Sind Social Security Institution 1984 PLC 800. (iv) Sind Employees' Social Security Institution v. Rashid Textile Mills Ltd. 1980 `PLC 1245. The aforesaid decisions no doubt lay down that the liability for payment of "increase" is a statutory liability of the employer but in none of these decisions there is any discussion on the question whether the Social Security Institution or the Court has any power to reduce the amount of "increase" or in a given case, where facts and circumstances require, even exempt the employer front payment of increase. On the other hand it was argued by Mr. Mamoon Kazi, learned counsel for the respondent, that the first proviso to section 23(1) of. The 1965 Ordinance places a maximum ceiling on the rate of increase which was 50 % of the; amount due and as a maximum ceiling was placed it has to be implied that the increase could be less. 5. In my view the liability for the payment of increase is no doubt a statutory liability but the employer is only to pay the increase under section 23 (l) of the 1965 Ordinance if he "fails to pay on the due date the contribution payable by him" as provided by section 23 (1). In the case of Sind Employees' Social Security Institution v. Silva Industries Limited, Ajmal Mian, J. Considered this provision of section 23 from the angle whether an employer is liable to pay the amount of increase if he fails to pay con--tribution in respect of any payment for any reason whatsoever or there should be some negligence or default on his part in order to attract the above penal provisions. In this context, Ajmal Mian, J. Was of the view that the words "fail" and "default" are not synonymous and the word "fail" has wider connotation as compared to the word "default". In that case the employer had written a letter to the direction of the appellant institution informing that they had entered into an agreement with their employees to pay canteen allowance and as that payment was an ex gratia payment to the workers the employer believed that provisions of Social Security Ordinance were not applicable in respect of that payment and the institution was asked to confirm. The director of the appellant institution in reply informed the employer that social security contribution was not payable on canteen allowance. Later on it was held that social security contribution was under the law payable; on canteen allowance also and the institution sought to recover "increase" on the amount of contribution payable in respect of the canteen allowance. It was held by Ajmal Mian, J. In that case that the employer did not pay the con--tribution on the amount of the canteen allowance because of the express statement made by the director of the appellant institution that no contribution in respect thereof was liable. It was observed that "it will be unjust and improper to levy a penalty in the form of an increase in the instant case as in my view there has not been any failure on the pact of the respondents within the meaning of section 23 of the Ordinance. 6. The question, therefore, that arises in this case is whether there has been any "failure" on the part of the respondent Company to pay the con--tribution. Reference has already been made to certain correspondence which included the letter dated 3-10-1974 of the director of the appellant institution addressed to the respondent Company that after checking the records of the respondent company an evasion of Rs. 4,194 was detected on which increase amounted to Rs. 21,097 making the total Rs. 6,291 due from the respondent up to June, 1974. This was again confirmed by the institution by the letter dated 28-10-1974 of the Social Security Officer, addressed to the respondent Company. In the said letter, it is stated as follows :-
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"It is confirmed that the record checked by the Audit Team and evasion of Rs. 6,291 detected related to the period since the Social Security Ordinance applied to or bills up to June, 1974." On the basis of the aforesaid documents, therefore, it is apparent that the records of the respondent Company were checked in 1974 by the Audit Team of the appellant institution and on the records being checked, an evasion of Rs. Y5,291 was detected. It is an admitted position that "production bonus" as well as "conveyance reimbursement" was being paid by respondent Company to their employees even prior to June, 1974. After 1974 the first intimation that the respondent receives in relation to the default in the payment of contribution is the letter dated 13- 10-1980 of the director of the appellant institution in which reference; is made to a checking of the record of. The respondent Company by the Vigilance team of the Head Office and for the a first time a demand is raised relating to production bonus, conveyance reimbursement and washing/kit allowance. In the statement attached to the letter dated 13-10-1980, details of the amount payable according to the institu--tion since 1969 are given and it is shown that such bonus/allowances were being paid by the respondent Company to their employees since a date much prior to October, 1974. As observed earlier, in 1974 the records of the respondent Company were checked by the Audit Team of the appellant institution. In spite of the checking of the records, no demand was raised by the institution in respect of production bonus, washing/kit allowance and conveyance reimbursement. On the contrary it was confirmed by letter dated 213-10-1974 by the Social Security Officer, Kotri that the checking of records bar the Audit Team had shown a n evasion of Rs. 6,291. From this it follows that although payments were being made on account of production bonus and conveyance reimbursement from a date much prior to October, 1974 by the respondent Company to its workers and this information was available in the records of the respondent Company, the appellant institution was of the view that social security contribution under section 20 of the 1965 Ordinance was not payable by the respondent Company in respect of those payments. In the circumstances I am of the view that till 13-10-1980 there was no "failure" on the part of the respondent Company in making payment of the contribution on "production bonus" and "conveyance reimbursement---. It has not been the case of the appellant institution that in spite of inspection of appellant's records, the demand in this regard was not raised earlier to 1980 on account of any collusion between the respondent Company and the concerned officials of the appellant institution. In the circumstances the respondent Company became liable to pay the increase only after the demand was raised about the contribution payable in respect of production bonus and conveyance reimbursement by the respondent to their employees. As there has been no failure on the part of the respondent Company prior to 13-10-1980 in the payment of contribution on production,, bonus and conveyance reimburse--ment, I hold that the respondent Company is not liable for any increase in the amount of contribution payable under these two heads for the period prior to 13-10-1980. I further hold that from 13-10-1980 the respondent Company will be entitled to an exemption of 45 days during which they are liable for any increase. From the date of expiry of 45 days from 1310-1980, the respondent Company is liable to pay the increase on the contribution payable under section 20(1) on payments towards production bonus and conveyance reimbur--sement, if such payments come within the meaning of "wages". The Social Security Court has given no reasons for reduction of rate of increase from 50 % to 30 %. The only reason that has been given in this regard is that rate of 50 % appears to be unreasonable. This vague reason given by the Social Security Court is not sufficient for reducing the rate of increase. I have already decided that no increase will be payable in respect of the contribution due on production bonus and conveyance reimbursement
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for the period prior to October, 1980. After the expiry of 45 days from 13-10.1980, increase is liable to be paid at the rates prescribed by the Rules as laid down in section 23(1) of the 1965 Ordinance. Payment of contribution is a statutory liability which has to be made at the rates prescribed and increase is also to be paid on the rates prescribed and from the language used in section 23 of the 1965 Ordinance and rules 5 and 6 of the Provincial , Employees' Social Security (Contribution) Rules, 1966, I am of the view that the institution cannot charge less than what is prescribed provided there, is failure on the part of the employer to pay the contribution. The rate of increase, therefore, could no be reduced as has been illegally done by the Social Security Court . It is, therefore, held that the respondent Company is liable to pay the statutory increase at the prescribed rate from the date specified earlier. 7. The point for determination in this appeal, apart from the question' of "increase", is whether the amounts paid or payable by respondent Company as "production bonus" and "conveyance reimbursement" to their employees come within the meaning of the word "wages", which has been defined in section 2(30) of the Provincial Employees' Social Security Ordinance, 1965. Definition of the word "wages" has already been reproduced above. 8. In support of his cross-objections, learned counsel for the respondent argued that payments under the aforesaid two heads are not "Wages" under the Ordinance of 1965. In so far as the production bonus" is concerned, the contention of the learned counsel for the respondent was that under sub. Clause (d) of section 2(30), wages do not i0clude any sum paid as "bonus" by the employer and as "production bonus", amounts paid in this regard to the employees are not included in "wages l' under .The 1965 Ordinance. As regards "conveyance reimbursement", the contention of the learned counsel for the respondent that this payment is not "wages", was two- fold. Firstly, it was argued that conveyance reimbursement was not a remuneration for service, and secondly, it was contended, that conveyance reimbursement was a payment made by the respondent Company to its employees to defray special expenses entailed by the nature of their workers' employment. It was, therefore, urged that no contribution was payable by the respondent on these two categories of payments. 9. I will take up the question regarding "conveyance reimbursement" first. There is no evidence on record to show whether this payment on account of "conveyance reimbursement" was being paid to employees on account of the conveyance expenses for…
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