THOUGHTS ON IMPROVING RECOVERY/COMPLIANCE MACHANISM
THOUGHTS ON IMPROVING COMPLIANCE/RECOVERY MACHINERY OF EPFO
Given the increasing number of defaulters and the sharp decline in the number of coverages after introduction of the Compliance 2000 programme, which emphasises ‘voluntary compliance’ in place of ‘coercive compliance’, what could we learn is that the EPFO should adopt a ‘middle path’ -- to act as hard as possible against defaulting employers but as soft as necessary, not to ‘clip the wings’ of the scrupulous employers. It is pertinent to note here that the Malaysian EPF Organisation had already experimented in the ‘voluntary compliance’ which proved failure.
The following features may be incorporated to the present Compliance 2000 programme to make it more effective.
1. Effective communication: Needless to say, communication is important. Every word of the letters sent to the employers should be carved out so carefully as to make the employer understand the consequences of default and to remit the dues immediately. The soft-notices generated through the computers should be worded in such a way to impress upon the employers the seriousness and gravity of their offence and the penalties that will be imposed on them for the offence.
2. Restructuring the Compliance Wing:
At present, all the defaulters are treated indiscriminately. This prevents specialization. The degree and complexity of the legal and recovery action warranted in cases of default for more than four or five years are perhaps more than those in the case of default for two or three months. Hence, the correspondence files (both in the Enforcement and Recovery) in respect of the chronic defaulters (say, default for more than three years) may be transferred to a separate wing/section comprising of personnel expertised in legal and recovery provisions. This will enable ‘specilisation’ and continuous follow-up action against chronic defaulters.
3. Effective action under various Acts other than EPF & MP Act:
Many of the employers are keen to obtain stay from the courts of law, against enforcement of recovery provisions of the Employees Provident Funds and Miscellaneous provisions Act, 1952. In such cases, legal action under other Act may be supportive.
Filing complaints under Section 110 Cr.P.C and 405/406 of IPC: Section 110 of Cr.P.C takes, inter alia, habitual defaulters under and Cosmetics Act, 1940, Foreign Exchange Management Act, EPF & MP Act, 1952, Prevention of Food eration Act, 1954, Essential Commodities Act, 1955 and so on It is however a matter of common knowledge that this power is hardly ever used against the economic offenders like defaulters of EPF dues. It is mainly and generally used only against habitual offenders against property like thieves, robbers and house-breakers. The executive magistrates may be appraised of the gravity of economic offences like EPF defaults and may be impressed upon to take action against chronic defaulters under Section 110 of Cr.P.C. This will effectively prevent defaults. Similarly, action under Section 405/406 of IPC is also an under-utilized but effective tool to arrest defaults. As per the annual report of the Labour Ministry, out of 7769 cases filed under Section 405/406 of IPC against employers who had not remitted the workers’ share after deduction, First Information Reports were filed in respect of 46 cases only. Steps may be taken at the national level to advise the authorities concerned to take effective and expeditious action under Section 110 Cr.P.C and Sec.405/406 IPC in cases of complaints of EPF defaults.
Conducting tripartite dialogues:
The employees, particularly, the labour unions should not be passive spectators of the default by their employer; rather they should be made active participants in prevention of default in payment of PF dues. We may conduct frequent ‘tripartite dialogues’ with the defaulting employers and employees/labour unions.
Need for dissemination of information on default:
It is necessary to embark on more extensive information dissemination programmes so that more members would be aware of their rights in relation to EPF, and the importance of the role they could play in arresting default by their employers.
Creation of an interactive website:
The present website of the EPFO www.epfindia.com provides information to the public. It should be improved to enable the members to have interaction with the EPFO. This will promote sharing of information on default by employers and other sources of intelligence like banker details of the employer, non-enrolment of eligible workers and so on.
Delegation of Recovery powers to the Enforcement Officers:
Para 19A of the Income tax Act 1961 (Second Schedule) provides for delegation of the powers of the Recovery officer to any other office, not below the rank of Inspectors, and such officer shall in relation to the function so entrusted to him be deemed to be the Recovery officer. With the increasing number of recovery certificates, it is difficult for the Recovery officer to exercise all his powers directly, in all cases invariably. Recovery certificates in which the dues are not above a certain limit, say 5, 000, may be entrusted to Enforcement Officers through delegation of powers, under Para 19A of the Second Schedule to Income Tax Act, 1961. This may reduce the workload of the Recovery officer to a great extent. Importantly, such delegation of powers to the Inspectors does not warrant any amendment to the Act; rather, it can be given effect through a simple order of delegation by the Recovery Officer himself.
Issue of Recovery certificates immediately after assessment of dues:
The Act prescribes the mode of Recovery of arrears under section 8 and all the powers of recovery, save Section 8F, are conferred on the Recovery officer rather than on the assessing authority. It would therefore be not prudential to wait till the end of the financial year to authorize the Recovery officer to recover the dues. Issue of Recovery Certificate immediately after the completion of the time allowed in the assessment orders for payment of dues, will prevent accumulation of recovery certificates at the end of the financial year.
Reminding of the Time limit for sale of attached immovable properties:
The provisions of the Second schedule to the Income Tax Act, 1961 mandates sale of immovable properties within a time-limit of 4 years from the end of the financial year in which the order giving rise to a demand of any assessed dues for the recovery of which the immovable properties were attached was passed. It would be wise to give specific advice to the Recovery officer to ensure sale of attached properties within 4 years from the day of issue of notice of demand. This may obviate legal hurdles in sale of attached immovable properties.
Modification of the Order issued under Section 8F:
The common draft of the 8F orders ends up mostly with a mere direction to the banker/debtor to remit the dues within a stipulated time. Common experience shows that many of the bank authorities are indifferent to admit availability of money in the account of the defaulter; may it be due to the fear of earning the discredit of their customer-employers. However, Section 8F mandates the person to whom the order is issued to furnish a statement on oath, in case he does not owe any money to the employer/establishment in default. We may draft a specimen statement of oath and enclose it with the 8F order requiring/insisting the banker/post office/insurer to sign the statement of oath and return the same within a stipulated time (in case he does not owe any money to the employer/establishment) failing which it would reasonably be presumed that he holds money on behalf of the establishment/employer and has failed to comply with the orders.
Specimen
STATEMENT ON OATH
I, the Manager of ………………….. (name of the bank and branch), do hereby state on oath that the sum demanded in the Notice No…………………… dated ………………..or any part thereof is NOT due to M/s……………………………………….. (name of the establishment in default) or to its employer. I further declare that I do not hold any money for on account of M/s………………………………… (name of the establishment in default) or its employer. I understand that I furnish this statement on oath as required under Section 8F (3) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
Signature of the bank manager/
Post master/insurer/garnishee
With date and Office seal.
This will prevent the garnishee from playing the tactics of delay or unresponsiveness.
Besides attachment of bank accounts and sundry debtor accounts, we may also carry out attachment of negotiable instruments such as promissory note, bill of exchange or cheque payable to the bearer, shares, insurance polices, if any, belonging to the establishment/employer, as allowed by the provisions of the Act.
Given the increasing number of defaulters and the sharp decline in the number of coverages after introduction of the Compliance 2000 programme, which emphasises ‘voluntary compliance’ in place of ‘coercive compliance’, what could we learn is that the EPFO should adopt a ‘middle path’ -- to act as hard as possible against defaulting employers but as soft as necessary, not to ‘clip the wings’ of the scrupulous employers. It is pertinent to note here that the Malaysian EPF Organisation had already experimented in the ‘voluntary compliance’ which proved failure.
The following features may be incorporated to the present Compliance 2000 programme to make it more effective.
1. Effective communication: Needless to say, communication is important. Every word of the letters sent to the employers should be carved out so carefully as to make the employer understand the consequences of default and to remit the dues immediately. The soft-notices generated through the computers should be worded in such a way to impress upon the employers the seriousness and gravity of their offence and the penalties that will be imposed on them for the offence.
2. Restructuring the Compliance Wing:
At present, all the defaulters are treated indiscriminately. This prevents specialization. The degree and complexity of the legal and recovery action warranted in cases of default for more than four or five years are perhaps more than those in the case of default for two or three months. Hence, the correspondence files (both in the Enforcement and Recovery) in respect of the chronic defaulters (say, default for more than three years) may be transferred to a separate wing/section comprising of personnel expertised in legal and recovery provisions. This will enable ‘specilisation’ and continuous follow-up action against chronic defaulters.
3. Effective action under various Acts other than EPF & MP Act:
Many of the employers are keen to obtain stay from the courts of law, against enforcement of recovery provisions of the Employees Provident Funds and Miscellaneous provisions Act, 1952. In such cases, legal action under other Act may be supportive.
Filing complaints under Section 110 Cr.P.C and 405/406 of IPC: Section 110 of Cr.P.C takes, inter alia, habitual defaulters under and Cosmetics Act, 1940, Foreign Exchange Management Act, EPF & MP Act, 1952, Prevention of Food eration Act, 1954, Essential Commodities Act, 1955 and so on It is however a matter of common knowledge that this power is hardly ever used against the economic offenders like defaulters of EPF dues. It is mainly and generally used only against habitual offenders against property like thieves, robbers and house-breakers. The executive magistrates may be appraised of the gravity of economic offences like EPF defaults and may be impressed upon to take action against chronic defaulters under Section 110 of Cr.P.C. This will effectively prevent defaults. Similarly, action under Section 405/406 of IPC is also an under-utilized but effective tool to arrest defaults. As per the annual report of the Labour Ministry, out of 7769 cases filed under Section 405/406 of IPC against employers who had not remitted the workers’ share after deduction, First Information Reports were filed in respect of 46 cases only. Steps may be taken at the national level to advise the authorities concerned to take effective and expeditious action under Section 110 Cr.P.C and Sec.405/406 IPC in cases of complaints of EPF defaults.
Conducting tripartite dialogues:
The employees, particularly, the labour unions should not be passive spectators of the default by their employer; rather they should be made active participants in prevention of default in payment of PF dues. We may conduct frequent ‘tripartite dialogues’ with the defaulting employers and employees/labour unions.
Need for dissemination of information on default:
It is necessary to embark on more extensive information dissemination programmes so that more members would be aware of their rights in relation to EPF, and the importance of the role they could play in arresting default by their employers.
Creation of an interactive website:
The present website of the EPFO www.epfindia.com provides information to the public. It should be improved to enable the members to have interaction with the EPFO. This will promote sharing of information on default by employers and other sources of intelligence like banker details of the employer, non-enrolment of eligible workers and so on.
Delegation of Recovery powers to the Enforcement Officers:
Para 19A of the Income tax Act 1961 (Second Schedule) provides for delegation of the powers of the Recovery officer to any other office, not below the rank of Inspectors, and such officer shall in relation to the function so entrusted to him be deemed to be the Recovery officer. With the increasing number of recovery certificates, it is difficult for the Recovery officer to exercise all his powers directly, in all cases invariably. Recovery certificates in which the dues are not above a certain limit, say 5, 000, may be entrusted to Enforcement Officers through delegation of powers, under Para 19A of the Second Schedule to Income Tax Act, 1961. This may reduce the workload of the Recovery officer to a great extent. Importantly, such delegation of powers to the Inspectors does not warrant any amendment to the Act; rather, it can be given effect through a simple order of delegation by the Recovery Officer himself.
Issue of Recovery certificates immediately after assessment of dues:
The Act prescribes the mode of Recovery of arrears under section 8 and all the powers of recovery, save Section 8F, are conferred on the Recovery officer rather than on the assessing authority. It would therefore be not prudential to wait till the end of the financial year to authorize the Recovery officer to recover the dues. Issue of Recovery Certificate immediately after the completion of the time allowed in the assessment orders for payment of dues, will prevent accumulation of recovery certificates at the end of the financial year.
Reminding of the Time limit for sale of attached immovable properties:
The provisions of the Second schedule to the Income Tax Act, 1961 mandates sale of immovable properties within a time-limit of 4 years from the end of the financial year in which the order giving rise to a demand of any assessed dues for the recovery of which the immovable properties were attached was passed. It would be wise to give specific advice to the Recovery officer to ensure sale of attached properties within 4 years from the day of issue of notice of demand. This may obviate legal hurdles in sale of attached immovable properties.
Modification of the Order issued under Section 8F:
The common draft of the 8F orders ends up mostly with a mere direction to the banker/debtor to remit the dues within a stipulated time. Common experience shows that many of the bank authorities are indifferent to admit availability of money in the account of the defaulter; may it be due to the fear of earning the discredit of their customer-employers. However, Section 8F mandates the person to whom the order is issued to furnish a statement on oath, in case he does not owe any money to the employer/establishment in default. We may draft a specimen statement of oath and enclose it with the 8F order requiring/insisting the banker/post office/insurer to sign the statement of oath and return the same within a stipulated time (in case he does not owe any money to the employer/establishment) failing which it would reasonably be presumed that he holds money on behalf of the establishment/employer and has failed to comply with the orders.
Specimen
STATEMENT ON OATH
I, the Manager of ………………….. (name of the bank and branch), do hereby state on oath that the sum demanded in the Notice No…………………… dated ………………..or any part thereof is NOT due to M/s……………………………………….. (name of the establishment in default) or to its employer. I further declare that I do not hold any money for on account of M/s………………………………… (name of the establishment in default) or its employer. I understand that I furnish this statement on oath as required under Section 8F (3) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
Signature of the bank manager/
Post master/insurer/garnishee
With date and Office seal.
This will prevent the garnishee from playing the tactics of delay or unresponsiveness.
Besides attachment of bank accounts and sundry debtor accounts, we may also carry out attachment of negotiable instruments such as promissory note, bill of exchange or cheque payable to the bearer, shares, insurance polices, if any, belonging to the establishment/employer, as allowed by the provisions of the Act.
posted by ramesh at 8:35 AM
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