Isabella Mariam

The High Court of Bombay Single Bench of Justice N. J. Jamadar, in a writ petition by a lessee of a sugar factory against the Employees Provident Fund Organisation, set aside a prohibitory order restraining the lessee from making payments due to the defaulting employer and directed that it be treated as a notice under Section 8-F(3)(i) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, with liberty to file a statement on oath. The Court held that the Employees Provident Fund Organisation cannot invoke Section 8-F to issue such a prohibitory order without first notifying the employer’s debtor and allowing an opportunity to submit a sworn statement under Section 8-F(3)(i) and (vi), and found the order contrary to the statutory framework and principles of natural justice.

The petition questioned the legality of a prohibitory order dated 22 August 2025 issued by the Assistant Provident Fund Commissioner/Recovery Officer restraining the petitioner, a lessee of a sugar factory, from paying lease amounts owed to the employer-establishment. The establishment had defaulted on provident fund dues amounting to Rs. 2,52,17,137, for which recovery certificates were issued. Subsequently, the secured creditor, a cooperative bank, took possession of the establishment under the SARFAESI Act and executed a 25-year lease agreement with the petitioner, under which lease rentals were to be utilized for statutory dues and loan recovery.

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The Provident Fund Department issued notices under Section 17-B of the EPF Act claiming the petitioner, as transferee of the establishment, was jointly and severally liable for dues up to the date of transfer. The petitioner disputed this liability, asserting absence of privity with the employer and contending that the secured creditor had assumed responsibility for statutory dues under the lease. It also questioned the computation of dues, noting the absence of an enquiry under Section 7-A of the EPF Act.

The respondents argued that provident fund dues had priority over all other debts under Section 11(2), and that Section 17-B covered transfers effected through a secured creditor. They relied on judicial precedents interpreting EPF dues as the first charge on the assets of the establishment.

The impugned order restrained both the petitioner from paying lease amounts to the establishment and the establishment from receiving such amounts, directing instead that payments be made to the Provident Fund authorities. The order also warned that, in the event of default, recovery would proceed against the petitioner as if the dues were payable by it. The Court examined whether the order had been issued following the statutory procedure for recovery under Section 8-F of the EPF Act, which governs recovery from debtors of an employer in arrears.

The Court recorded that the petitioner was “the lessee of the establishment, under the lease executed by the secured creditor” and that the Recovery Officer had proceeded on the premise that “the Petitioner and the employer were jointly and severally liable to pay the outstanding contribution and other sums due from the employer in respect of the period up to the date of such transfer.” It stated that although the order referred to Sections 8-B and 17-B, “on its true construction, the order appears to have been passed under the provisions of Section 8-F.”

The Court observed that the nature of the order—preventing the establishment from receiving payments and directing the lessee to remit them to the authority—“draws support and sustenance from the enabling provisions contained in Section 8-F… to recover the amount from the person who owes the amount to an employer.” It further stated that EPF legislation is a social welfare measure and quoted the Supreme Court’s description of the EPF Act as “a social welfare legislation intended to protect the interest of a weaker section of the society.”

Regarding the petitioner’s reliance on lack of enquiry under Section 7-A, the Court recorded that the transferee could not take that position because “the determination of the liability by the Respondent No.1 has not been assailed either by the employer or the secured creditor.” Addressing Section 17-B, it stated that transfers via secured creditors also fell within its purview, noting that the interpretation must avoid defeating the statute's object. It recorded: “It is the ‘effect’ test which needs to be applied. In ultimate analysis, the establishment stands transferred; either directly or indirectly.”

On the mode of recovery, the Court stated that the Recovery Officer had not followed the statutory procedure: “the Respondent No.1 has straightaway issued the prohibitory order… without giving a notice as envisaged by Clause (i) of sub-Section (3) of Section 8-F and also without providing an opportunity to meet the said demand by filing a statement on oath under Clause (vi).” It added that proceedings under Section 8-F(3)(vi) require “an opportunity of hearing and a quasi-judicial determination.”

The Court concluded that there was “infraction of the statutory mandate” as mere reference to Sections 8-B and 17-B did not validate the order unless recovery under Section 8-F was undertaken in accordance with law.

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The Court allowed the petition in part and directed that “the impugned prohibitory order dated 22nd August 2025 stands quashed and set aside qua the Petitioner.” It ordered that the same prohibitory order “be treated as a notice under Section 8-F(3)(i) of the Employees Provident Fund and Misc Provisions Act, 1952.”

The Court further directed that the petitioner “shall be entitled to file a statement on oath in terms of Clause (vi) of Sub-Section (3) of Section 8-F, within a period of three weeks of the uploading of this order,” and required the authority to “thereafter pass an appropriate order after considering the statement on oath… and conducting further enquiry as may be deemed appropriate.”

Advocates Representing The Parties

For the Petitioner: Mr. Sanskar Marathe, Advocate.
For the Respondents: Mr. Arsh Mishra, Mr. Sachin Gite

Case Title: B.T. Kadlag Constructions v. Employees Provident Fund Organisation & Ors.
Neutral Citation: 2025: BHC-AS:49563
Case Number: Writ Petition No. 12754 of 2025
Bench: Justice N. J. Jamadar