The Bombay High Court, in the case of B.T. Kadlag Constructions Pvt. Ltd. v. Employees’ Provident Fund Organisation & Ors., Writ Petition No. 12754 of 2025, decided on 18.11.2025, held that a prohibitory order under Section 8-F of the Employees’ Provident Funds and Miscellaneous Provisions (hereinafter referred to as “EPF”) Act, 1952 cannot be issued without prior notice to the debtor and compliance with the procedure prescribed under the Act.
FACTS
B.T Kadlag Constructions Pvt. Ltd. (hereinafter referred to as “the Petitioner”) filed the present writ petition challenging a recovery action initiated by the Employees’ Provident Fund Organisation, acting through its Recovery Office (hereinafter referred to as “the Respondent No. 1”). Niphad Sahakari Sakhar Karkhana Ltd. (hereinafter referred to as “the Respondent No. 2”) was the employer establishment in default, and Nashik District Central Cooperative Bank (hereinafter referred to as “the Respondent No. 3”) was the secured creditor which had taken possession of the establishment.
Respondent No.2 was in arrears of provident fund and allied statutory dues under the EPF Act, amounting to approximately ₹2.52 crores, for which recovery certificates were issued.
Respondent No. 3, being a secured creditor, initiated proceedings under the SARFAESI Act, 2002 and took possession of the establishment. In order to make the establishment functional and recover its dues, Respondent No. 3 entered into a long-term lease agreement dated 9 December 2022 with the Petitioner for a period of 25 years. Under the lease arrangement, the Petitioner was required to pay lease rent, a portion of which was to be utilised towards statutory dues and liabilities of Respondent No. 2.
Respondent No. 1 issued notices to the Petitioner asserting that the Petitioner was a transferee of the establishment and was jointly and severally liable for provident fund dues under Section 17B of the EPF Act. Thereafter, by a prohibitory order dated 22 August 2025, Respondent No. 1 restrained the Petitioner from making any payment to Respondent No. 2 or any other person and directed that amounts payable by the Petitioner be remitted directly to Respondent No. 1. The order further stated that failure to comply would result in recovery from the Petitioner as if the amount were due from it.
Aggrieved by the said prohibitory order, the Petitioner filed a petition before the Hon’ble High Court of Bombay under Article 227 of the Constitution of India.
ISSUES BEFORE THE COURT
- Whether the prohibitory order issued by Respondent No.1 was legally sustaibable in the absence of compliance with the procedure prescribed under Section 8F of the EPF Act.
- Whether the Petitioner could be proceeded against as a debtor or garnishee of Respondent No.2 without issuance of prior notice and opportunity to file a statement on oath.
- Whether the impugned order was in violation of the statutory mandate and the principles of natural justice.
CONTENTIONS OF THE PARTIES
The Petitioner contended that the impugned prohibitory order was issued in clear violation of the provisions of the EPF Act, as no enquiry had been conducted to determine the Petitioner’s liability. It was submitted that the Petitioner was merely a lessee of the establishment under a lease executed by Respondent No. 3 and could not be treated as a transferee of Respondent No. 2 for the purposes of Section 17B of the Act.
It was further contended that the provident fund dues pertained to a period prior to the Petitioner entering into the lease arrangement and that, under the terms of the lease deed, responsibility for payment of statutory dues rested with Respondent No. 3. The Petitioner also submitted that the prohibitory order was arbitrary, having been issued without prior notice or opportunity of hearing as mandated under Section 8F of the EPF Act.
The Respondents, on the other hand, contended that provident fund dues enjoy statutory priority over all other debts, including those of secured creditors, by virtue of Section 11(2) of the EPF Act. It was argued that the provisions of Section 17B must be interpreted broadly to include transfers effected through secured creditors, as excluding such transfers would defeat the object of protecting the interests of workmen.
It was further submitted that the Petitioner had not raised any valid dispute regarding the dues and that the recovery action was in accordance with law and the social welfare objectives of the EPF Act.
DECISION AND FINDINGS
The Hon’ble High Court of Bombay reaffirmed that provident fund dues enjoy overriding statutory priority and that the provisions of the EPF Act must be interpreted purposively to safeguard the interests of employees. The Court rejected the contention that the Petitioner could avoid liability merely because the transfer of the establishment was effected through a secured creditor.
However, the Court found that the procedure adopted by Respondent No. 1 in issuing the prohibitory order was legally unsustainable. On a proper construction, the impugned order was held to be an action taken under Section 8F of the EPF Act, which governs recovery from debtors or garnishees of the employer.
The Court held that Section 8F (3) mandates issuance of a prior notice to the debtor and provides an opportunity to file a statement on oath. This procedure involves a quasi-judicial determination and requires adherence to the principles of natural justice. In the present case, Respondent No. 1 had issued the prohibitory order without issuing the requisite notice or granting the Petitioner an opportunity to object.
Accordingly, the impugned prohibitory order dated 22 August 2025 was quashed and set aside. The Court, however, directed that the said order be treated as a notice under Section 8F (3) (i) of the EPF Act and granted the Petitioner liberty to file a statement on oath within three weeks. Respondent No. 1 was directed to thereafter pass an appropriate order in accordance with law.
AMLEGALS REMARKS
The judgment reinforces that while provident fund dues are accorded the highest statutory priority, recovery proceedings must strictly adhere to the procedural safeguards prescribed under the EPF Act. The decision emphasises that actions under Section 8F are quasi-judicial in nature and cannot be undertaken without prior notice and opportunity of hearing. The ruling thus balances the social welfare objectives of the legislation with the requirement of procedural fairness and legality.
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