“Transferee Liability of Lessee under EPF Act & Procedural Safeguards: B.T. Kadlag Constructions Pvt. Ltd. v. EPFO”.

Headnote:

The Court considered whether a lessee of an establishment leased by a secured creditor (which had taken possession under the SARFAESI Act) could be held jointly and severally liable with the original employer for provident fund dues under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF Act). It examined the interplay of Sections 17‑B, 8‑B and 8‑F of the EPF Act, and the priority of PF dues under Section 11(2). The Court held that while the transferee/lessee may be liable under Section 17‑B (even in an involuntary transfer), the recovery process under Section 8‑F must comply with procedural safeguards (notice to debtor/garnishee, statement on oath, quasi‑judicial enquiry). The impugned prohibitory order lacked compliance with Section 8‑F procedures and therefore was partly set aside.

Background:

1. The employer (Respondent No.2) defaulted in PF contributions and other dues amounting to ₹ 2,52,17,137/-. Recovery certificates were issued.
2. The secured creditor (Respondent No.3) under the SARFAESI Act took possession of the employer’s factory, then leased it out on 9 December 2022 to the Petitioner for 25 years. The lease provided that 50% of rent would go to statutory/workmen dues of the employer, 50% to bank liability, and that the lessor (bank) would discharge workmen/statutory dues.
3. EPFO issued notice dated 27 September 2023 to the Petitioner under Section 17‑B, asserting transferee liability. Subsequently, on 22 August 2025 EPFO passed an order restraining the Petitioner from paying the employer any amount but directing payment to EPFO under Certificates issued under Section 8‑B (later recovery via Section 8‑F).
4. The Petitioner challenged the order under Article 227 of the Constitution.

Issues:

1. Whether the Petitioner qualifies as a “transferee” of the establishment under Section 17‑B of the EPF Act, thereby attracting joint and several liability for pre‑transfer dues.
2. Whether provident fund dues, under Section 11(2) of the EPF Act, enjoy priority over secured creditor claims.
3. Whether the impugned order under Section 8‑F of the EPF Act complied with required procedure (notice to debtor/garnishee and opportunity to respond on oath), and whether the Petitioner was validly made liable without such compliance.

Petitioner’s Contentions:

1. The EPFO proceeded without the enquiry required under Section 7‑A of EPF Act to determine applicability to Petitioner or establish dues.
2. The Petitioner was merely a lessee of the creditor, not a transferee of the original employer, so Section 17‑B does not apply.
3. The lease terms shifted statutory dues to the lessor (bank), and the dues pre‑date the Petitioner’s lease period. Reliance placed on Vitthal Sahakari Sakhar Karkhana v. APFC (2008).

Respondent’s Contentions:

1. EPFO argued that by virtue of Section 17‑B, the Petitioner as lessee of the establishment is jointly and severally liable for dues up to the date of transfer; the form of transfer (lease, sale, etc.) is immaterial.
2. Under Section 11(2) PF dues have first charge over the assets of the establishment, giving priority to workers’ claims over secured creditors.
3. Lease stipulations cannot override statutory obligations and the object of the EPF Act (social welfare) must be given a purposive interpretation.

Court’s Analysis & Reasoning:

1. The EPF Act is a social welfare legislation: dues are deemed first charge on the establishment’s assets under Section 11(2) (citing Official Liquidator of Esskay Pharmaceuticals Ltd.).
2. The concept of “transferee” under Section 17‑B includes lease/license and the test is the “effect” of transfer — whether the establishment stands transferred in whole or part, regardless of voluntariness.
3. The lease from a secured creditor does not exempt the Petitioner from liability under Section 17‑B; statutory obligations cannot be contractually excluded.
4. However, with respect to recovery by EPFO under Section 8‑F (notice to debtor/garnishee), the procedure must be respected: issuance of notice, opportunity for the debtor to file statement on oath (Clause (vi) of Sub‑section (3)), failure of which can result in liability.
5. The impugned order served more as a prohibitory order (preventing payment to employer) rather than an initial notice under Section 8‑F(3)(i). EPFO did not afford the Petitioner an opportunity to respond under oath. Thus, procedural infirmity existed.

Decision:

1. The petition is partly allowed.
2. The prohibitory order dated 22 August 2025 is quashed and set aside with respect to the Petitioner.
3. The order shall be treated as a notice under Section 8‑F(3)(i) of the EPF Act.
4. Petitioner is permitted to file a statement on oath within three weeks of order upload.
5. EPFO shall thereafter pass an appropriate order after considering the statement and conducting enquiry in accordance with law.
6. Rule made absolute to this extent. No order as to costs.

Significance:

1. Reinforces that PF dues have priority over secured creditor claims under Section 11(2) EPF Act.
2. Confirms that “transferee” liability under Section 17‑B will apply even in cases of lease by a secured creditor post‑possession.
3. Emphasises procedural safeguards under Section 8‑F (notice to debtor/garnishee, statement on oath) cannot be bypassed.
4. Lease agreements cannot contract out of statutory liability; object of social legislation prevails.

Citation: 2025: BHC‑AS: 49563

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

Coram: Justice N. J. Jamadar

Reserved On: 4 November 2025

Pronounced On: 18 November 2025