Damages and Recovery of Amounts Due

Two provisos, and both are important:

• before levying and recovering such damages, the employer shall be given an opportunity of being heard;
• the Central Board or the Corporation may reduce or waive the damages in relation to an establishment for which a resolution plan or repayment plan recommending such waiver has been approved by the adjudicating authority under the Insolvency and Bankruptcy Code 2016, subject to conditions notified by the Central Government.

The ceiling is the amount of the arrears, so at worst the employer pays twice what he owed. And the second proviso is a modern addition: where a company has been through insolvency resolution and the approved plan recommends waiver, the damages may be reduced or waived, so that the labour dues do not by themselves defeat a rescue.

Damages under section 128 are appealable to the Tribunal where they relate to Chapter III: section 23(1)(b).

Section 129: recovery by certificate

Section 129(1), what may be recovered. Any amount due from an employer or any other person in relation to an establishment, including any contribution or cess payable, charges, interest, damages, or benefit or any other amount, may, if in arrear, be recovered in the manner specified in sections 129 to 132.

Note the width. It is not confined to contributions. Cess under Chapter VIII, interest under section 127, damages under section 128 and even a benefit wrongly received all come through this route.

Section 129(2), the certificate and the three modes. Where an amount is in arrear, the Authorised Officer or the competent authority shall issue to the Recovery Officer a certificate, electronically or otherwise, specifying the amount of arrears; and the Recovery Officer shall proceed to recover it from the establishment or the employer by one or more of:

• (a) attachment and sale of the movable or immovable property of the establishment or the employer;
• (b) arrest of the employer and his detention in prison;
• (c) appointing a receiver for the management of the movable or immovable properties of the defaulter.

The proviso is a real protection and is regularly missed. Attachment and sale shall first be effected against the properties of the establishment, and only where that is insufficient may the Recovery Officer proceed against the property of the employer for the whole or part of the arrears.

So the order is fixed: establishment first, employer second. A recovery which starts with the employer's house is out of order.

Section 129(3). A certificate may be issued notwithstanding that recovery by any other mode has been taken.

Section 129(4), which Recovery Officer. The one within whose jurisdiction the employer carries on his business or profession, or where the principal place of the establishment is situated; or where he resides, or where any movable or immovable property of the establishment or employer is situated.

Section 129(5), property in several jurisdictions. Where the Recovery Officer cannot recover the entire amount within his jurisdiction, or thinks it necessary to expedite or secure recovery, he may send the certificate, or a certified copy specifying the part to be recovered, to the Recovery Officer where the property is or the employer resides, who then proceeds as if the certificate had been sent to him by the Authorised Officer or competent authority.

Section 130: the certificate is not open to challenge before the Recovery Officer

Section 130(1), the bar. When a certificate is issued, it shall not be open to the employer to dispute before the Recovery Officer the correctness of the amount, and no objection to the certificate on any other ground shall be entertained by him.

This is the section to cite when a problem has an employer arguing the merits before the recovery officer. The recovery stage is execution, not adjudication. His remedy against the amount is the appeal against the assessment, not an objection to the certificate.

But the issuing authority keeps control, and sub-sections (2) to (7) say how:

• (2) it may withdraw the certificate or correct a clerical or arithmetical mistake, by intimation to the Recovery Officer;
• (3) it shall intimate any withdrawal, cancellation or correction;
• (4) it may grant time to the employer for payment, and the Recovery Officer shall stay proceedings until that time expires;
• (5) it shall keep the Recovery Officer informed of any amount paid or time granted after the certificate;
• (6) where the order giving rise to the demand has been modified in appeal, reducing the demand, but is the subject of further proceedings, it shall stay recovery of the reduced part while those proceedings remain pending;
• (7) when that appeal or proceeding becomes final and conclusive, it shall amend or withdraw the certificate in consonance with it.

Read (1) with (6) and (7) together and the scheme is coherent. The employer may not argue before the Recovery Officer, but the assessment authority must keep the certificate in step with the appellate outcome, staying the disputed part meanwhile.

Section 131: other modes of recovery

Section 131(1). Notwithstanding the issue of a certificate, the Central Provident Fund Commissioner or the Director General of the Corporation, or an authorised officer of the Social Security Organisation, may recover the amount by one or more of the modes in the section.

Section 131(2), deduction by a debtor of the employer. If any amount is due from any person to an employer who is in arrears, that officer may require the person to deduct the arrears from it and pay the sum deducted to the officer's credit, and that person shall comply.

The proviso. Nothing in that sub-section applies to any part of the amount exempt from attachment in execution of a decree of a civil court under section 60 of the Code of Civil Procedure 1908.

Section 131(3), the garnishee notice. The officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to the employer or the establishment, or any person who holds or may subsequently hold money for or on account of them, to pay to him, either forthwith on the money becoming due or being held, or within the time specified in the notice, so much of the money as is sufficient to pay the arrears, or the whole of it where it is equal to or less than the arrears.

Section 131 is the provision with the most practical bite in the Chapter. It reaches the employer's bank, his customers and anyone holding money for him, without waiting for property to be attached and sold. The proviso to sub-section (2) preserves the exemptions in section 60 of the Code of Civil Procedure 1908, which protect such things as wages up to prescribed limits and tools of a craftsman.

Section 132: applying the Income-tax Act

Section 132 applies certain provisions of the Income-tax Act 1961 to recovery under the Code. The point of it is that tax recovery law already contains a fully worked out machinery for attachment, sale, arrest and the duties of a recovery officer, and rather than repeat it the Code borrows it.

A worked example

Vega Foods owes 15,00,000 rupees of contributions determined under section 125, and has paid nothing for a year.

What is the first consequence? Interest under section 127, simple, from the due date to actual payment.

And the second? Damages under section 128, levied by the Director General of the Corporation, of an amount not exceeding the amount of the arrears, that is up to 15,00,000 rupees. Vega must be given an opportunity of being heard before they are levied.

How is it collected? The Authorised Officer or competent authority issues a certificate specifying the arrears to the Recovery Officer: section 129(2). He may attach and sell property, arrest and detain the employer, or appoint a receiver.

Can the Recovery Officer start with the managing director's flat? No. The proviso to section 129(2) requires attachment and sale to be first effected against the properties of the establishment, and only where that is insufficient may he move against the property of the employer.

Vega tells the Recovery Officer the assessment was wrong. He cannot entertain that. Section 130(1) provides that it is not open to the employer to dispute before the Recovery Officer the correctness of the amount, and no objection on any other ground shall be entertained.

Vega's appeal succeeds in part, reducing the demand, and it goes on to a further proceeding. The Authorised Officer shall stay recovery of the reduced part while that remains pending: section 130(6). When it becomes final, he shall amend or withdraw the certificate accordingly: section 130(7).

Vega asks for time to pay. The Authorised Officer may grant time, and the Recovery Officer shall stay proceedings until it expires: section 130(4).

Vega has property in two States. The Recovery Officer who cannot recover the whole within his jurisdiction, or who thinks it necessary to expedite or secure recovery, may send the certificate or a certified copy to the Recovery Officer where the property is: section 129(5).

A supermarket chain owes Vega 6,00,000 rupees for goods supplied. Under section 131(3) the Director General may, by notice in writing, require the supermarket to pay that money to him instead, up to the amount of the arrears. Under section 131(2) he may require a person owing money to Vega to deduct the arrears and pay them over, and that person shall comply, except as to amounts exempt from attachment under section 60 of the Code of Civil Procedure 1908.

Vega then goes through insolvency and an approved resolution plan recommends waiver of the damages. The Corporation may reduce or waive the damages levied under section 128, subject to conditions notified by the Central Government: the second proviso to section 128.

What this does NOT mean

Damages are not unlimited. Section 128 caps them at the amount of the arrears.

Damages are not automatic. The employer must be given an opportunity of being heard first.

Recovery does not begin with the employer personally. The proviso to section 129(2) requires the establishment's property to be attached and sold first.

The Recovery Officer is not a forum for the merits. Section 130(1) shuts out any dispute about the correctness of the amount, and any other objection to the certificate.

Section 131 does not override the civil exemptions. The proviso to section 131(2) preserves the amounts exempt from attachment under section 60 of the Code of Civil Procedure 1908.

Limits and criticism

Arrest and detention in prison for a civil debt is a strong power to give to a recovery officer, exercisable on a certificate the employer may not challenge before him.

Damages equal to the arrears, on top of interest, can double a liability that may itself be disputed on appeal, and section 128 sets no criteria for fixing the amount within the ceiling.

Section 130(1) is absolute in its terms. The safeguards in sub-sections (2) to (7) all depend on the assessing authority acting, and the employer has no locus before the Recovery Officer to make it act.

The waiver in the second proviso to section 128 is available only through insolvency. An employer in genuine difficulty who has not entered a resolution process has no route to relief from damages.

Quick revision

• Section 128: damages not exceeding the amount of arrears, levied by the Central Provident Fund Commissioner or Director General, for default in contributions, transfer of accumulations or charges; only after an opportunity of being heard; reducible or waivable where an approved Insolvency and Bankruptcy Code resolution or repayment plan recommends it.
• Section 129: any amount in arrear, including cess, charges, interest, damages and benefits, recovered by certificate to a Recovery Officer; three modes, attachment and sale, arrest and detention, receiver; establishment's property first, employer's second; certificate may issue although other modes are being used; jurisdiction by business, principal place, residence or property; transferable to another Recovery Officer.
• Section 130: the employer may not dispute the amount or object before the Recovery Officer; the issuing authority may withdraw or correct the certificate, grant time with a stay, must keep the officer informed, must stay the reduced part pending further proceedings, and must amend or withdraw on finality.
• Section 131: notwithstanding a certificate, recovery by requiring a debtor of the employer to deduct and pay over, subject to the section 60 Code of Civil Procedure exemptions, and by written notice to any person who owes or holds money for the employer or establishment.
• Section 132: applies provisions of the Income-tax Act 1961 to recovery.

Test yourself

1. What is the maximum amount of damages under section 128, and what must precede them? An amount not exceeding the amount of the arrears. The employer must be given an opportunity of being heard before damages are levied and recovered: the first proviso.

2. When may damages be reduced or waived? Where a resolution plan or repayment plan recommending such waiver has been approved by the adjudicating authority under the Insolvency and Bankruptcy Code 2016, subject to conditions notified by the Central Government: the second proviso to section 128.

3. Name the three modes of recovery available to a Recovery Officer, and the order the Code requires. Attachment and sale of movable or immovable property; arrest of the employer and his detention in prison; and appointment of a receiver. By the proviso to section 129(2), attachment and sale must first be effected against the properties of the establishment, and only where that is insufficient against the property of the employer.

4. An employer tells the Recovery Officer that the assessed amount is wrong. Can the officer consider it? No. Section 130(1) provides that it shall not be open to the employer to dispute before the Recovery Officer the correctness of the amount, and no objection to the certificate on any other ground shall be entertained by him.

5. What happens to the certificate if an appeal reduces the demand but further proceedings are pending? The Authorised Officer or competent authority shall stay recovery of that part of the certificate which pertains to the reduction, for the period the appeal or other proceeding remains pending: section 130(6); and on finality shall amend or withdraw the certificate accordingly: section 130(7).

6. Can the authority recover from a customer of the defaulting employer? Yes. Under section 131(3) it may, by notice in writing, require any person from whom money is due or may become due to the employer or the establishment, or who holds money for them, to pay so much of it as is sufficient to meet the arrears. Under section 131(2) it may require a debtor to deduct the arrears and pay them over, subject to the exemptions under section 60 of the Code of Civil Procedure 1908.