Assessment, Determination and Appeal

Section 125(2), the timetable. Notwithstanding the Code of Civil Procedure 1908, the inquiry shall as far as practicable be held on a day to day basis, and endeavour shall be made to conclude it within two years.

Three provisos on time:

1. where it is not concluded within two years, the Authorised Officer shall record the circumstances and reasons and submit them to the Central Provident Fund Commissioner or the Director General of the Corporation, or an officer authorised by him;
2. that Commissioner or Director General may grant an extension of up to one year to conclude the inquiry;
3. inquiries pending immediately before the commencement of the Code shall be concluded within two years from that commencement.

So the outer limit is effectively two years, extendable by one, and the extension requires reasons recorded and submitted to a named senior officer. It is a soft deadline with a hard accountability attached.

Section 125(3), powers. The Authorised Officer has the same powers as a court under the Code of Civil Procedure 1908 trying a suit in respect of: enforcing attendance and examining on oath; discovery and production of documents; receiving evidence on affidavit; and issuing commissions for the examination of witnesses. The inquiry is deemed a judicial proceeding within sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code 1860.

Section 125(4), natural justice. No order shall be made under sub-section (1) unless the employer concerned is given a reasonable opportunity of representing his case.

Section 125(5), non-cooperation. Where the employer, employee or any other person required to attend fails to attend without assigning any valid reason, or fails to produce a document, report or return when called upon, the officer may decide applicability or determine the amount on the basis of the evidence adduced during the inquiry and other documents on record.

Section 125(6), setting aside an ex parte order. Where an order is passed ex parte, the employer may, within three months from communication of the order, apply to the Authorised Officer to set it aside. If the officer is satisfied that:

• the show cause notice was not duly served; or
• the employer was prevented by sufficient cause from appearing,

he shall set aside the order and appoint a date for proceeding with the inquiry.

The proviso. No such order shall be set aside merely on the ground of an irregularity in service of the show cause notice if the officer is satisfied that the employer had notice of the date of hearing and had sufficient time to appear.

The Explanation. Where an appeal has been preferred against an ex parte order and has been disposed of otherwise than on the ground that the appellant withdrew it, no application lies under sub-section (6).

Section 125(7). No order shall be set aside on such an application unless notice of it has been served on the opposite party.

Section 125(6) and its Explanation together set up an election, which is a favourite examination point. An employer against whom an ex parte order is made may either apply to set it aside or appeal. If he appeals and the appeal is decided, the set aside route closes.

Section 126: appeal in Chapter IV matters

If an employer is not satisfied with an order under section 125 relating to Chapter IV, he may appeal to the appellate authority not below the rank of a Joint Director of the Corporation, as provided by regulations, within sixty days of the order, after depositing:

twenty-five per cent of the contribution so ordered, or the contribution as per his own calculation, whichever is higher, with the Corporation.

Two provisos:

• the appellate authority shall decide the appeal within six months from the date of preferring it;
• if the employer finally succeeds, the Corporation shall refund the deposit together with such interest as the regulations specify.

The deposit formula is the trap. It is not simply twenty-five per cent. It is twenty-five per cent of the amount ordered or the whole of what the employer himself says he owes, whichever is higher. An employer who admits a large liability but disputes a larger one must deposit his own admitted figure, even if that exceeds a quarter of the order.

Note also the two protections that go with it: a six month time limit on the appellate authority, and a refund with interest if the employer wins. Neither appears in section 23 for Chapter III.

Section 127: interest

Except where expressly provided otherwise in the Code, the employer is liable to pay simple interest at such rate as the Central Government notifies from time to time, from the date on which any amount has become due under the Code until the date of its actual payment.

Three points. It is simple interest, not compound. It runs from the due date, not from the assessment. And it is a general provision, applying wherever the Code does not say otherwise, so it fills the gaps left by the specific interest provisions in sections 56(4), 77(3) and 101.

Comparing the three appeal routes

This is the table to learn, because the Code sets three different deposits and students cross them.

A worked example

Orbit Plastics employs thirty-two people. The Corporation says Chapter IV has applied since 2022 and that 11,00,000 rupees of contributions are outstanding. Orbit says the Chapter never applied, and that if it did, only 3,00,000 rupees is due.

Who decides? An Authorised Officer of the Corporation, not below the rank of a Group A officer, under section 125(1). He may decide both questions: applicability under clause (a) and the amount under clause (b).

Is he in time? Only if the proceeding is initiated within five years from the date the dispute is alleged to have arisen or the amount is alleged to have become due: the proviso to section 125(1).

How quickly must he finish? The inquiry is to be held as far as practicable on a day to day basis, with an endeavour to conclude within two years. Beyond that he must record the circumstances and reasons and submit them to the Director General of the Corporation, who may grant up to one year more: section 125(2).

Can he compel Orbit's accountant to attend? Yes. He has the powers of a civil court trying a suit for enforcing attendance and examination on oath, discovery and production of documents, evidence on affidavit and commissions: section 125(3). The inquiry is a judicial proceeding for sections 193 and 228 and for the purpose of section 196 of the Indian Penal Code 1860.

Orbit ignores the notices. The officer may decide applicability and determine the amount on the evidence adduced and the documents on record: section 125(5).

The order is passed ex parte and Orbit says it never got the notice. It may apply within three months of communication to set the order aside. If the officer is satisfied the notice was not duly served or that Orbit was prevented by sufficient cause from appearing, he shall set it aside and fix a date: section 125(6). But not merely for an irregularity in service, if Orbit in fact had notice of the hearing date and sufficient time to appear.

Orbit appeals instead, and the appeal is dismissed on the merits. The set aside route is now closed: the Explanation to section 125(6) bars an application where an appeal has been disposed of otherwise than on withdrawal.

Orbit wants to appeal the Chapter IV order. What must it deposit? Under section 126, twenty-five per cent of the contribution ordered, that is 2,75,000 rupees, or the contribution as per its own calculation, that is 3,00,000 rupees, whichever is higher. So it must deposit 3,00,000 rupees, not 2,75,000.

By when, and how fast will it be heard? Within sixty days of the order, and the appellate authority shall decide within six months of the appeal being preferred.

Orbit wins. The Corporation refunds the deposit with such interest as the regulations specify: the second proviso to section 126.

Had this been a Chapter III provident fund dispute instead? The appeal would lie to the Tribunal under section 23(1)(a), and the deposit would be a flat twenty-five per cent of the amount determined, with no "whichever is higher".

What interest does Orbit owe on the arrears? Simple interest at the notified rate, from the date each amount became due to the date of actual payment: section 127.

What this does NOT mean

The Authorised Officer is not confined to computing. Section 125(1)(a) lets him decide whether the Chapter applies at all.

The five year limit is on initiation, not on completion. Section 125(2) deals with completion separately, and it is an endeavour with an extension mechanism, not a bar.

Section 125(5) does not allow a guess. The officer decides on the evidence adduced during the inquiry and other documents available on record.

The section 126 deposit is not always twenty-five per cent. It is the higher of twenty-five per cent of the order and the employer's own admitted figure.

Section 127 is not a substitute for the specific provisions. It applies except where expressly provided otherwise in the Code.

Limits and criticism

Two years extendable by one is a long time for an employer to be under an unresolved assessment, and the only sanction for delay is a report to a senior officer.

The section 126 deposit rewards a low self-assessment. An employer who admits little deposits little; one who admits candidly deposits more. That is an odd incentive to build into a compliance provision.

The Code gives no appeal at all against a section 125 order on applicability relating to Chapter III except through section 23, which is confined to determination of dues and damages, so an employer disputing pure applicability under Chapter III has to look to the general law.

"Reasonable opportunity of representing his case" is undefined, and section 125(5) allows the inquiry to proceed on the record where a party does not attend.

Quick revision

• Section 125(1): an Authorised Officer, not below Group A, of the Central Board or Corporation, decides applicability of Chapter III or IV and determines the amount due, after such inquiry as he deems necessary. Proviso: no proceeding initiated after five years from the dispute arising or the amount falling due.
• Section 125(2): day to day hearing so far as practicable, endeavour to conclude in two years, reasons recorded and submitted if not, extension up to one year, pending inquiries concluded within two years of commencement.
• Section 125(3): Civil Procedure Code powers; the inquiry is a judicial proceeding for sections 193, 228 and 196 of the Indian Penal Code 1860.
• Section 125(4): reasonable opportunity of representing his case before any order.
• Section 125(5): non-attendance without valid reason, or failure to produce, lets the officer decide on the record.
• Section 125(6) and (7): an ex parte order may be set aside on application within three months where the notice was not duly served or the employer was prevented by sufficient cause; not for mere irregularity where he had notice and time; not at all where an appeal has been disposed of otherwise than on withdrawal; and only after notice to the opposite party.
• Section 126: Chapter IV appeal to an authority not below Joint Director, within sixty days, on depositing twenty-five per cent of the order or the employer's own calculation, whichever is higher; decision within six months; refund with interest if he finally succeeds.
• Section 127: simple interest at the notified rate from the due date to actual payment, except where the Code expressly provides otherwise.

Test yourself

1. What two things may an Authorised Officer decide under section 125(1)? Whether Chapter III or Chapter IV applies to an establishment, where a dispute about that arises; and the amount due from an employer under that Chapter or the schemes, rules or regulations made under it.

2. Within what period must such a proceeding be initiated? Within five years from the date on which the dispute is alleged to have arisen, or the amount is alleged to have become due from the employer: the proviso to section 125(1).

3. An order is made against an employer in his absence. What are his two routes, and can he take both? He may apply to the Authorised Officer within three months of communication to set the order aside under section 125(6), or he may appeal. He cannot take both: by the Explanation to section 125(6), where an appeal has been disposed of otherwise than on the ground that the appellant withdrew it, no application to set aside lies.

4. The Corporation orders an employer to pay 8,00,000 rupees. He says the true figure is 2,50,000 rupees. What must he deposit to appeal under section 126? Twenty-five per cent of the amount ordered is 2,00,000 rupees; his own calculation is 2,50,000 rupees. Section 126 requires the higher, so he must deposit 2,50,000 rupees.

5. How long does the appellate authority have, and what happens if the employer wins? It shall decide the appeal within six months from the date of preferring it, and if the employer finally succeeds the Corporation shall refund the deposit together with such interest as the regulations specify: the two provisos to section 126.

6. From when does interest under section 127 run, and is it simple or compound? Simple interest, at the rate notified by the Central Government, from the date on which the amount became due under the Code until the date of its actual payment, except where the Code expressly provides otherwise.