EPFO Cannot Block Payments Without Notice, Rules Bombay High Court

The Bombay High Court has held that the Employees’ Provident Fund Organisation (EPFO) cannot stop payments or issue a prohibitory order under Section 8-F unless it first gives the concerned party a notice and an opportunity to reply. The Court said bypassing this process violates the law and principles of natural justice.

How the Case Started

The case was filed by B.T. Kadlag Constructions, which had taken a sugar factory in Nashik on lease.

• The factory originally belonged to a cooperative sugar mill that defaulted on its loan repayments.
• Due to the defaults, the Nashik District Central Cooperative Bank took over the factory under the SARFAESI Act and leased it to the petitioner, who paid rent directly to the bank.

Meanwhile, the EPFO was trying to recover ₹2.52 crore in provident fund dues from the old management of the sugar mill.

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.

• It stopped the petitioner from paying the lease rent to the bank.
• It directed the petitioner to instead pay the money to the EPFO’s Recovery Officer.

The petitioner argued that EPFO never issued the required notice under Section 8-F(3) and did not allow them to submit a statement on oath, steps that are mandatory before attaching any payment.

High Court’s Key Observations

The Court made 3 important points:

1. PF dues have top priority, and recovery is important.
2. A lessee can be treated as a “transferee” under Section 17-B, even if the transfer happens through a bank.
3. However, Section 8-F has a strict procedure similar to the Income Tax Act.
   • A notice must be issued
   • The party must be allowed to file a sworn statement
   • A proper enquiry must follow

Only then can a prohibitory order be issued.

Read More, EPF Act Still Active Despite New Labour Code Repeal: Here’s Why the Change Isn’t Implemented Yet!

Final Verdict

Since the EPFO did not follow these mandatory steps, the High Court quashed the prohibitory order. However, the Court allowed the same communication to act as a notice under Section 8-F, giving the petitioner three weeks to file their statement on oath.

Conclusion

The Bombay High Court’s ruling reinforces that EPFO must strictly follow the procedure laid down under Section 8-F before blocking payments. Even though PF dues have priority, authorities cannot bypass due process. The decision protects borrowers and lessees from sudden recovery actions without proper notice.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.