Transferee Liability for Provident Fund Dues in SARFAESI Transfers and Procedural Safeguards in EPF Garnishee Proceedings: Commentary on B.T. Kadlag Constructions Pvt Ltd v. EPFO

Transferee Liability for Provident Fund Dues in SARFAESI Transfers and Procedural Safeguards in EPF Garnishee Proceedings: Commentary on B.T. Kadlag Constructions Pvt Ltd v. The Employees Provident Fund Organization

1. Case Overview

Court: High Court of Judicature at Bombay, Civil Appellate Jurisdiction

Case: Writ Petition No. 12754 of 2025

Parties:

  • Petitioner: B.T. Kadlag Constructions Pvt Ltd (lessee of a sugar factory)
  • Respondent No.1: Employees Provident Fund Organization (EPFO) through Assistant Provident Fund Commissioner / Recovery Officer, Nashik
  • Respondent No.2: Niphad Sahakari Sakhar Karkhana Ltd, through its Liquidator (defaulting employer/establishment)
  • Respondent No.3: Nashik District Central Cooperative Bank (secured creditor under SARFAESI)
  • Respondent No.4: State of Maharashtra

Coram: N. J. Jamadar, J.

Reserved on: 4 November 2025   |   Pronounced on: 18 November 2025

1.1 Factual Background

The case arises out of an attempt by the Employees Provident Fund Organization (EPFO) to recover substantial provident fund arrears from a sugar cooperative by targeting the payments owed by a third party lessee under a SARFAESI enforcement structure.

  • Respondent No.2, Niphad Sahakari Sakhar Karkhana Ltd, was an “employer” under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”). It defaulted on provident fund and related dues, accumulating arrears of over ₹2.5 crores, later stated to have risen to ₹4.91 crores.
  • Respondent No.3, Nashik District Central Cooperative Bank, was a secured creditor of R2. On R2’s loan default, R3 invoked the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and took possession of the factory (the “establishment”).
  • To make the factory functional and recover loan dues, R3 entered into a Lease Agreement dated 9 December 2022 with the Petitioner, B.T. Kadlag Constructions Pvt Ltd:
    • Lease term: 25 years from crushing season 2022–2023.
    • Petitioner (lessee) to pay rent at agreed rates.
    • Parties agreed that:
      • 50% of lease payments would be utilised for statutory dues and other liabilities of R2; and
      • 50% would go towards discharging R2’s dues to R3 (the bank), with a possibility of enhancement of the share for loan recovery.
      • Statutory dues and workmen’s dues were expressly to be paid by R3 (lessor/bank).
  • EPFO had already issued recovery certificates under Section 8B EPF Act against the employer (R2).

Thereafter:

  • EPFO treated the Petitioner as a “transferee” of the establishment under Section 17B EPF Act, asserting joint and several liability with the employer for the pre-transfer PF dues.
  • Various notices were issued, including one dated 27 September 2023 demanding ₹2,52,17,137/- under Section 17B.
  • On 22 August 2025, EPFO issued a prohibitory order, in substance under Section 8F EPF Act, directing:
    • The Petitioner not to pay any amount “owed” to R2, and
    • R2 not to receive such amounts,
    • but instead to remit those amounts to EPFO towards PF arrears of around ₹4.91 crores.
    • It further warned that in default, the amount would be recovered from the Petitioner as if due from the Petitioner itself.

The Petitioner invoked Article 227 of the Constitution, challenging the legality and propriety of this prohibitory order.

1.2 Key Legal Issues

  1. Priority of provident fund dues: Whether EPF dues under Section 11(2) EPF Act override the secured creditor’s (bank’s) interest under SARFAESI.
  2. Transferee liability under Section 17B:
    • Can a lessee of an establishment, where the lease is executed by a secured creditor (not the employer), be treated as a “transferee” under Section 17B?
    • Does the “involuntary” nature of transfer (via enforcement by secured creditor) put it outside Section 17B?
  3. Need for Section 7A enquiry: Was EPFO obliged to conduct a fresh enquiry under Section 7A EPF Act vis-à-vis the Petitioner before enforcing dues?
  4. Validity of prohibitory order under Section 8F:
    • Did EPFO comply with the statutory scheme of garnishee recovery in Section 8F?
    • Is the Petitioner entitled to notice and an opportunity to contest under Section 8F(3) before being saddled with liability?
  5. Effect of lease covenants: Can parties, via contract, shift or limit statutory PF liability, thereby insulating the lessee?

2. Summary of the Judgment

2.1 Holdings in Brief

  1. Priority of EPF dues affirmed: Following Supreme Court precedents, the Court held that EPF dues under Section 11(2) constitute a first charge on the assets of the establishment and must be paid in priority to all other debts, including those of secured creditors such as banks proceeding under SARFAESI.
  2. Section 7A enquiry not a prerequisite against the transferee: Since the liability of the employer had already been determined and not challenged, the transferee (Petitioner) could not insist upon a fresh determination under Section 7A.
  3. Broad construction of “transfer” and “transferee” under Section 17B:
    • Section 17B is intended to protect workers by preventing the defeat of their PF dues through transfer of establishments.
    • The Court rejected the distinction between voluntary and involuntary transfers in this context.
    • A lessee of an establishment under a lease executed by a secured creditor who has taken possession under SARFAESI is still a “transferee” under Section 17B.
    • The transferee is jointly and severally liable with the employer for pre-transfer PF dues, subject to the proviso limiting liability to the value of assets obtained.
  4. Parties cannot contract out of statutory PF obligations: Lease terms assigning responsibility for statutory dues to the bank (R3) cannot override the statutory scheme. EPF liabilities “run with the establishment” and cannot be neutralised by private agreement.
  5. Section 8F proceedings are quasi-judicial and require notice and hearing:
    • The impugned prohibitory order was, in substance, an exercise of power under Section 8F EPF Act (garnishee proceedings).
    • Section 8F, particularly sub-section (3)(i) and (vi), requires:
      • Service of a notice on the person from whom money is due to the employer, and
      • An opportunity to file a statement on oath disputing that any amount is due or held for the employer.
    • By analogy with Section 226(3) of the Income Tax Act and the Supreme Court’s decision in Beharilal Ramcharan, such proceedings are quasi-judicial and must comply with the principles of natural justice.
    • EPFO had not followed this procedure; hence the prohibitory order was vitiated by procedural illegality.
  6. Relief granted:
    • The prohibitory order dated 22 August 2025 was quashed and set aside qua the Petitioner.
    • However, in a pragmatic approach, the Court directed that the impugned order be treated as a notice under Section 8F(3)(i).
    • The Petitioner was given three weeks to file a statement on oath under Section 8F(3)(vi).
    • EPFO (R1) was directed to conduct further enquiry as considered appropriate and pass an order in accordance with law after considering the Petitioner’s statement.

3. Detailed Analysis

3.1 Statutory Framework

3.1.1 Section 11(2) EPF Act – First charge and priority over debts

Section 11(2) provides:

“If any amount is due from an employer… the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts.”

The Court emphasised that this “non obstante” clause (“notwithstanding anything contained in any other law”) gives EPF dues super-priority, even over:

  • statutory debts,
  • non-statutory debts, and
  • secured debts (including those under mortgages and pledges).

This is based on the social welfare character of the EPF Act and its alignment with Directive Principles of State Policy (Articles 38 and 43 of the Constitution).

3.1.2 Section 17B EPF Act – Liability in case of transfer of establishment

Section 17B states:

“Where an employer, in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer… in respect of the period up to the date of such transfer:

Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.”

Core elements:

  • Applies where an establishment is transferred “in whole or in part”.
  • Covers transfers by sale, gift, lease, license or in any other manner whatsoever – an intentionally broad formulation.
  • Creates joint and several liability of employer and transferee for PF dues up to the date of transfer.
  • The transferee’s liability is capped at the value of assets obtained.

3.1.3 Sections 8B and 8F EPF Act – Recovery mechanisms

  • Section 8B enables the Recovery Officer, on receipt of a recovery certificate, to recover dues by:
    • attachment and sale of movable/immovable property,
    • arrest and detention of the employer,
    • appointment of a receiver.
  • Section 8F titled “Other modes of recovery” is the garnishee provision:
    • Section 8F(2): allows EPFO to require a person who owes money to the employer to deduct PF arrears and pay them directly to EPFO.
    • Section 8F(3)(i): EPFO may issue a written notice to any person from whom money is due or may become due to the employer, or who holds or may hold money for/on account of the employer, directing payment to EPFO.
    • Section 8F(3)(vi): allows the noticee to object by a statement on oath that:
      • the demanded sum is not due to the employer, or
      • he does not hold any money for or on account of the employer.
      If the oath is made, the person is not bound to comply—unless it is later discovered that the statement was false in any material particular, in which case personal liability may arise.
    • Section 8F(3)(x): If a noticee fails to comply with a valid notice, he is deemed to be an employer in default, and recovery may proceed against him directly.

3.1.4 Section 7A EPF Act – Enquiry into applicability and amounts due

Section 7A empowers the competent authority to:

  • decide disputes regarding the applicability of the Act to an establishment; and
  • determine the amounts due from an employer under the Act, Scheme, or Pension/Insurance Scheme.

The Petitioner argued that no enquiry under Section 7A had been conducted vis-à-vis it. The Court held this argument to be inapplicable where the underlying dues of the employer (R2) had already been determined and had attained finality; the transferee cannot use Section 7A as a backdoor to reopen that concluded determination.

3.2 Precedents and Their Influence

3.2.1 Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Ltd (2011) 10 SCC 727

This Supreme Court decision is central to the judgment’s reasoning on priority of EPF dues and the nature of the EPF Act.

The Court quoted with approval:

“The EPF Act is a social welfare legislation intended to protect the interest of a weaker section of the society, i.e. the workers… Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation…”

And, after referring to Maharashtra State Cooperative Bank Ltd v. Assistant Provident Fund Commissioner, the Supreme Court held that:

“Any amount due from an employer shall be deemed to be the first charge on the assets of the establishment and is payable in priority to all other debts including the debts due to a bank, which falls in the category of secured creditor.”

Jamadar J. used this to reaffirm that:

  • EPF arrears outrank secured creditors, even those enforcing security under SARFAESI.
  • The expression “all other debts” in Section 11(1) and 11(2) is broad and unequivocal.
  • Section 11(2) is designed to ensure PF dues are not defeated by prior secured claims.

3.2.2 Maharashtra State Cooperative Bank Ltd v. Assistant Provident Fund Commissioner (2009) 10 SCC 123

This case was cited within Esskay Pharmaceuticals and is indirectly applied here. The Supreme Court held that the first charge created by Section 11(2) EPF Act operates against all types of debts, including secured debts (such as the interests of a pledgee bank in pledged sugar bags).

Bombay High Court, in the present case, adopts that ratio wholesale, stating that it is “too late in the day” to dispute the priority of PF dues over bank dues.

3.2.3 Dalgaon Agro Industries Ltd (Now Tasati Tea Ltd) v. Union of India, 2005 SCC OnLine Cal 313 (Full Bench, Calcutta High Court)

This Full Bench decision is closely aligned with the current case on the interpretation of Section 17B. In Dalgaon Agro:

  • The transfer of the establishment occurred under a court-approved scheme, arguably an “involuntary” transfer.
  • The transferee argued that Section 17B did not apply to such involuntary transfers.

The Full Bench rejected that contention, observing that:

“The object and purpose of the statute is to give benefit to the employees… The employees cannot be made to run after the transferor employer. It is whoever would be the employer would be liable; particularly when the transfer between the transferor and the transferee neither binds the employee nor the Provident Fund Authority.”

On the attempt to rely on a court-approved scheme to limit liability, it held:

“…even if the scheme might have received the seal of the Court and might have a binding force, it binds only the parties to the transfer to which neither the employees nor the Provident Fund Authority were parties… the provisions being statutory and primarily running with the establishment… can never be eclipsed, superseded or affected by any scheme approved by the Court.”

Jamadar J. relies on this reasoning to:

  • Reject the distinction between voluntary and involuntary transfers for applying Section 17B.
  • Affirm that PF obligations “run with the establishment”, unaffected by:
    • SARFAESI enforcement, or
    • contracts/schemes between employer and transferee or bank.

3.2.4 Beharilal Ramcharan v. ITO, Special Circle “B” Ward, Kanpur (1981) 3 SCC 473

The Court analogised Section 8F EPF Act with Section 226(3) of the Income Tax Act, 1961, which is also a garnishee provision. In Beharilal, a three-judge Bench of the Supreme Court held that:

“…under clause (vi) the discovery by the Income-tax Officer that the statement on oath made on behalf of the garnishee is false in any material particular has the consequence of imposing personal liability for payment on the garnishee and it must therefore be a quasi-judicial decision preceded by a quasi-judicial inquiry involving observance of the principles of natural justice…

The Income-tax Officer… would have to give notice and hold an inquiry… and in this inquiry he would have to follow the principles of natural justice and reach an objective decision…”

Applying this to Section 8F:

  • The EPFO Recovery Officer must:
    • issue a notice under Section 8F(3)(i),
    • allow the recipient to file a statement on oath under Section 8F(3)(vi), and
    • only upon a reasoned determination of falsity and of the amount actually due from the garnishee, impose personal liability.
  • This process is not discretionary; it is mandated by statute and grounded in natural justice.

Consequently, the Bombay High Court characterised EPFO’s direct prohibitory order (without notice and enquiry as above) as procedurally defective.

3.2.5 Other Bombay High Court decisions cited in argument

  • Vitthal Sahakari Sakhar Karkhana, Aurangabad & Anr v. Assistant Provident Fund Commissioner & Ors (2008) 3 Mh.L.J. 114
    • Cited by the Petitioner to argue that it could not be saddled with pre-transfer dues or that Section 17B was inapplicable.
    • The present judgment does not directly analyse or distinguish Vitthal at length, but its broad reading of Section 17B (including involuntary transfers) moves in a direction that limits room for arguments curtailing transferee liability for pre-transfer dues.
  • Nandkishore Laxminarayan Agarwal v. Union Of India & Ors 2010(1) Mh.L.J. 907
    • Cited by EPFO to contend that similar challenges had been rejected previously.
    • The present judgment is consistent with the principle that EPF dues have primacy and that transferees cannot escape statutory liability; the only point on which EPFO fails here is procedural – omission to follow Section 8F’s garnishee process.

3.3 The Court’s Legal Reasoning

3.3.1 Priority of EPF dues over secured creditors and SARFAESI enforcement

After rehearsing the Supreme Court’s analysis in Esskay Pharmaceuticals and Maharashtra State Cooperative Bank, the Court held:

  • The non obstante clause in Section 11(2) EPF Act means:
    • PF dues rank ahead of all other debts,
    • including bank dues secured by mortgage, pledge, or security interest under SARFAESI.
  • SARFAESI enforcement does not “cleanse” the establishment of PF liabilities nor override the statutory first charge created by the EPF Act.
  • Accordingly, R3 (the secured creditor bank) cannot claim priority over EPFO; the PF dues of workers must be satisfied first out of the assets of the establishment.

This sets the context for viewing any lease or transfer by the bank as operating under the shadow of EPF’s statutory first charge.

3.3.2 Rejection of the Section 7A objection

The Petitioner argued that since no separate enquiry was carried out under Section 7A to determine its liability as an “establishment”, the prohibitory order was invalid. The Court responded:

  • EPFO had already issued recovery certificates under Section 8B against the original employer (R2) in respect of determined PF dues.
  • Neither R2 nor R3 (who had taken over the establishment) had challenged that determination.
  • In such a scenario, the Petitioner, being proceeded against as a transferee under Section 17B and as a debtor/garnishee under Section 8F, could not reopen the concluded determination by invoking Section 7A.

The Court thus draws a distinction between:

  • a primary inquiry into the employer’s PF liability under Section 7A, and
  • subsequent enforcement against transferees or garnishees based on a crystallised liability.

3.3.3 Broad and purposive interpretation of “transfer” under Section 17B

A central contention was that the lease was not executed by the employer (R2) but by the secured creditor (R3) who had enforced its security under SARFAESI and taken possession of the establishment. Hence, the Petitioner argued, there was:

  • no direct privity between it and R2; and
  • the transfer was “involuntary” from the employer’s perspective, falling outside Section 17B.

The Court rejected this line of argument, reasoning:

  • Section 17B is framed in broad language:
    • “sale, gift, lease or licence or in any other manner whatsoever”,
    • indicating legislative intent to capture all effective transfers of the establishment, irrespective of form.
  • The object of Section 17B is to ensure that PF rights are not defeated by transfer of the establishment.
  • The appropriate interpretive approach is the “effect” test:
    • Has the establishment effectively passed from one controlling entity to another, exposing workers’ dues to being left behind?
    • If yes, Section 17B should apply, whether the transfer is:
      • voluntary (sale/lease executed by the employer), or
      • involuntary (e.g., SARFAESI enforcement by a bank, or court-approved restructuring).
  • The Court endorsed the Calcutta Full Bench’s view in Dalgaon Agro that:
    • Employees and EPFO are not parties to the arrangements between transferor and transferee (including schemes or leases); and
    • Their statutory rights cannot be curtailed by such arrangements.

Accordingly, the Court held that a lease executed by a secured creditor who has taken possession of the establishment under SARFAESI is still a “transfer of the establishment” within Section 17B, and the lessee is a transferee liable for pre-transfer PF dues (subject to the value-of-assets cap).

3.3.4 Inability to contract out of statutory EPF obligations

The Lease Deed stipulated that:

  • R3 (the bank) as lessor would pay statutory dues and workmen’s dues accrued prior to the lease; and
  • Lease rentals would be utilised partly to meet such statutory dues and partly to repay the bank’s loan.

The Petitioner argued that this allocation of responsibility shielded it from liability. The Court held:

  • Such clauses may define obligations inter se between lessor and lessee but cannot restrict or exclude the statutory rights of employees or EPFO.
  • Parties cannot contract out of a social welfare statute like the EPF Act.
  • The liability of the transferee under Section 17B is statutory and cannot be negatived by private agreement.

In other words, even if the lease says “bank will pay old PF dues,” EPFO is legally free to proceed against either or both the employer and the transferee, leaving them to adjust their rights amongst themselves.

3.3.5 Nature and defects of the Section 8F procedure adopted

Although EPFO’s notices invoked Sections 8B and 17B, the Court found that the impugned order was in substance an order under Section 8F:

  • It treated the Petitioner as a debtor of the employer (R2), i.e., a person from whom money is due to the employer.
  • It restrained the employer (R2) from receiving any amount from the Petitioner.
  • It restrained the Petitioner from paying any amount due to the employer or any other person, directing payment to EPFO instead.
  • It threatened that, in default, the amount would be recovered from the Petitioner as if it were due from the Petitioner as an employer in default—precisely the result contemplated by Section 8F(3)(x).

However, the statutory safeguards in Section 8F(3) were not followed:

  • No prior notice as per Section 8F(3)(i) was given to the Petitioner that:
    • EPFO considered it a debtor of the employer; and
    • it was required to pay specified amounts directly to EPFO.
  • No opportunity was given to:
    • file a statement on oath under Section 8F(3)(vi) claiming that no amount was due or held for the employer, or
    • dispute the quantum of any such amount.

By applying the Supreme Court’s reasoning in Beharilal Ramcharan, the Court held that such “discovery” of falsity and imposition of personal liability under the analogous clause must be based on:

  • a quasi-judicial inquiry,
  • observance of natural justice, and
  • an objective decision.

Since EPFO skipped this process and moved directly to an enforcement order freezing payments, the prohibitory order was procedurally unsustainable.

3.3.6 The Court’s remedial approach

Rather than simply quashing the order and foreclosing EPFO’s recovery, the Court adopted a middle course:

  • The impugned order was quashed and set aside qua the Petitioner for non-compliance with Section 8F procedure.
  • Simultaneously, the Court directed that the impugned order be treated as a notice under Section 8F(3)(i).
  • The Petitioner was allowed three weeks to file a statement on oath as contemplated under Section 8F(3)(vi).
  • EPFO was directed to:
    • consider that statement,
    • conduct any further enquiry deemed necessary, and
    • thereafter pass an order in accordance with law.

This preserves EPFO’s substantive rights to recover PF dues from persons owing money to the employer, while enforcing strict compliance with the EPF Act’s procedural safeguards.

4. Impact and Implications

4.1 For transferees and investors in distressed assets

The ruling carries significant implications for purchasers and lessees of industrial units—especially sugar factories and other labour-intensive establishments—acquired through SARFAESI or similar enforcement routes:

  • Transferee status is broad: Even a lessee from a secured creditor (rather than from the original employer) can be treated as a “transferee” under Section 17B.
  • Pre-transfer PF dues travel with the establishment: PF arrears up to the date of transfer remain enforceable against:
    • the original employer (R2), and
    • the transferee (Petitioner), jointly and severally.
  • Contractual allocation of risk is not a shield: Lease or sale agreements that declare that the bank or seller will pay old PF dues do not bar EPFO from targeting the transferee. Such clauses only operate inter se between the contracting parties.
  • Due diligence and pricing: Transferees must:
    • conduct thorough PF compliance due diligence before acquiring or leasing an establishment;
    • factor potential Section 17B liability (capped at asset value) into commercial negotiations; and
    • seek robust contractual indemnities and escrows, while recognising that these do not bind EPFO.

4.2 For secured creditors and SARFAESI enforcement

Banks and financial institutions must reckon with the reality that:

  • EPF enjoys statutory super-priority: Section 11(2) EPF Act, as interpreted by the Supreme Court and reaffirmed here, gives PF dues priority over secured debts under SARFAESI.
  • Transfers cannot sidestep PF dues: Leasing or selling the establishment to third parties does not extinguish PF dues; they continue to encumber the establishment and expose transferees and, indirectly, transaction value.
  • Transaction structuring and distributions: Banks should:
    • account for PF arrears when valuing and marketing SARFAESI assets;
    • ensure payment of PF dues out of sale/lease proceeds before or contemporaneously with servicing their own loans; and
    • disclose PF arrears transparently to potential bidders/lessees.

4.3 For EPFO and enforcement practice

The judgment draws an important line:

  • Substantive rights are expansive: EPFO can:
    • assert priority over secured creditors,
    • pursue transferees under Section 17B, and
    • attach debts owed to employers using Section 8F.
  • But procedural compliance is non-negotiable:
    • Garnishee proceedings under Section 8F are quasi-judicial.
    • EPFO must:
      • issue a proper notice under Section 8F(3)(i),
      • allow the garnishee to file a statement on oath disputing liability or quantum, and
      • reach an objective, reasoned decision before treating the garnishee as an “employer in default”.

This decision may prompt EPFO to:

  • standardise and document its 8F procedures,
  • train officers in natural justice requirements for garnishee proceedings, and
  • avoid short-cut measures like immediate prohibitory orders without a preceding notice-and-response stage.

4.4 For employees and the broader social welfare objective

From the workers’ perspective, the judgment is reinforcing:

  • PF dues remain enforceable despite corporate distress, enforcement of security, or changes of control.
  • EPF law is interpreted in a beneficial, purposive manner, consistent with Articles 38 and 43 of the Constitution.
  • The risk that employers will evade PF dues by transferring establishments—directly or via banks—is significantly reduced.

4.5 Jurisprudential impact

The judgment contributes to Indian labour and insolvency jurisprudence by:

  • Aligning the EPF Act’s social welfare objectives with SARFAESI and banking law.
  • Extending the logic of Dalgaon Agro (Calcutta FB) to the context of secured creditor leases under SARFAESI.
  • Importing the Beharilal Ramcharan reasoning on quasi-judicial nature and natural justice into EPF garnishee proceedings under Section 8F.
  • Confirming that transferee liability is not dependent on voluntary consent of the original employer but on the economic and functional continuity of the establishment.

5. Simplifying the Complex Concepts

This section explains some of the more technical terms and concepts used in the judgment.

5.1 “First charge on the assets of the establishment”

Think of the assets of an establishment (factory, land, machinery, etc.) as a pool from which various creditors want to be paid. A “first charge” means:

  • The EPF dues stand at the front of the queue.
  • Even if a bank has a mortgage or security interest over those assets, EPF dues must be paid before satisfying the bank’s claims.

5.2 “Secured creditor” and SARFAESI enforcement

  • A secured creditor is a lender who has been given specific assets as security—for example, a bank with a mortgage over a factory.
  • The SARFAESI Act allows such creditors to:
    • take possession of secured assets without court intervention, and
    • sell or lease them to recover their loans.
  • This judgment clarifies that SARFAESI enforcement does not override the EPF Act’s first charge over the establishment’s assets.

5.3 “Transferee” and “transfer of establishment” under Section 17B

  • An “establishment” is the workplace or undertaking (factory, organisation) where employees work.
  • A “transfer” of establishment means that the control, possession, or business of that establishment is moved from one entity to another.
  • A “transferee” is the person or entity who takes over, whether by:
    • sale,
    • gift,
    • lease,
    • licence, or
    • “any other manner whatsoever” (including under court orders or SARFAESI enforcement).

Under Section 17B:

  • Both the original employer and the transferee can be made to jointly and severally pay old PF dues.
  • The transferee’s liability is limited to the value of assets they received in the transfer.

5.4 “Joint and several liability”

When two persons are jointly and severally liable for a debt:

  • The creditor (here, EPFO/employees) can recover the entire amount:
    • from either party alone, or
    • from both in any proportion.
  • After paying, the party who has paid more than its share can try to recover the appropriate share from the other liable party (this is an internal adjustment and does not affect the creditor’s right).

5.5 “Garnishee” proceedings under Section 8F

  • A garnishee is someone who owes money to, or holds money for, the main debtor (here, the employer).
  • Section 8F allows EPFO to “step into the shoes” of the employer, by:
    • telling the garnishee: “Don’t pay the employer; pay me instead.”
  • This is powerful because EPFO can thus intercept inflows to the employer to satisfy PF arrears.
  • But because it can also lead to personal liability for the garnishee:
    • EPFO must give notice,
    • the garnishee can file a sworn statement saying “I don’t owe anything to the employer” or disputing the amount, and
    • EPFO must fairly consider this before enforcing recovery.

5.6 “Non obstante clause”

A non obstante clause starts with words like “notwithstanding anything contained in any other law…”. It means:

  • “Even if some other law or agreement says something inconsistent, this provision will still apply and prevail.”

Section 11(2) is such a clause, giving EPF dues priority over all other debts, no matter what other laws (like SARFAESI) provide.

5.7 “Quasi-judicial” decision and natural justice

  • A quasi-judicial decision is one made by an administrative or statutory authority which:
    • affects rights or liabilities, and
    • must be made fairly and based on consideration of evidence.
  • “Natural justice” in this context means:
    • Giving the affected party prior notice of the proposed action, and
    • Providing a fair opportunity to be heard and to present their case before a decision is taken.

6. Conclusion: Key Takeaways

The decision in B.T. Kadlag Constructions Pvt Ltd v. EPFO is significant on both substantive and procedural planes.

6.1 Substantive law

  • Priority of PF dues: It reaffirms, in line with Supreme Court authority, that EPF dues:
    • have a statutory first charge on the assets of the establishment, and
    • override even secured creditors’ claims, including those enforcing security under SARFAESI.
  • Transferee liability: It confirms a broad, purposive reading of Section 17B:
    • “Transfer” includes leases and transfers effected by a secured creditor who has taken possession under SARFAESI.
    • The transferee (such as a lessee) is jointly and severally liable for pre-transfer PF dues, up to the value of the assets obtained.
    • Attempts to distinguish voluntary from involuntary transfers are rejected.
  • No contracting out: Parties cannot, by lease or other agreements, insulate themselves from PF liability or curtail EPFO’s statutory rights; such arrangements are only relevant as between those parties.

6.2 Procedural law

  • Section 8F is quasi-judicial: Recovery from persons who owe money to the employer must:
    • follow the step-by-step procedure under Section 8F(3),
    • include notice and an opportunity to file a sworn statement, and
    • culminate in an objective, reasoned decision.
  • Prohibitory orders without process are invalid: EPFO cannot bypass these safeguards by issuing immediate freezing orders against alleged garnishees.
  • Pragmatic remedial approach: While ensuring procedural fairness, the Court preserved EPFO’s ability to proceed by treating the impugned order as a valid notice and remitting the matter for proper enquiry.

6.3 Broader significance

The judgment harmonises:

  • the protective intent of labour welfare legislation (EPF Act),
  • the commercial realities of distressed asset acquisition and SARFAESI enforcement, and
  • the rule of law requirement that even welfare-oriented enforcement must respect due process.

Future transferees of industrial establishments—especially via bank enforcement—must internalise the principle that PF liabilities run with the establishment, while EPFO must internalise the corollary that its powerful recovery tools under Section 8F are subject to procedural discipline and natural justice.

Case Details

Year: 2025
Court: Bombay High Court

Judge(s)

HON'BLE SHRI JUSTICE N. J. JAMADAR

Advocates

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