EPFO cannot block payments without prior notice to debtor, says Bombay High Court

The Bombay High Court recently ruled that the Employees’ Provident Fund Organisation (EPFO) cannot issue a prohibitory order under Section 8-F of the EPF Act without first giving notice to the concerned party and allowing them to respond. The Court said any such action without following the mandatory steps violates the statute and the principles of natural justice.

How the dispute began

The case was filed by B.T. Kadlag Constructions, which had leased a sugar factory in Nashik. The factory originally belonged to a cooperative sugar mill that had defaulted on loan repayments. Due to these loan defaults, the Nashik District Central Cooperative Bank took over the factory under the SARFAESI Act and leased it to the petitioner. The petitioner paid lease rent directly to the bank.

While this was going on, the EPFO was trying to recover provident fund dues of about Rs 2.52 crore from the old management.

EPFO’s Prohibitory Order

On 22 August 2025, the EPFO suddenly issued a prohibitory order treating the petitioner as a “debtor” of the defaulting employer. The order stopped the petitioner from paying lease rent to the bank and directed that the money be handed over to the Recovery Officer instead.

The petitioner argued that EPFO never issued the mandatory notice under Section 8-F(3), nor gave a chance to submit a statement on oath — steps that must be completed before attaching any money from a debtor.

High court’s observations

The High Court acknowledged that provident fund dues enjoy the highest priority under the law. It also clarified that a lessee can be treated as a “transferee” under Section 17-B even when the transfer happens through a secured creditor like a bank.

However, the Court stressed that Section 8-F follows a strict procedure similar to the Income Tax Act. A notice, an opportunity to file a sworn statement, and a proper enquiry are mandatory before any prohibitory order is issued.