2026 LLR 218
GUJARAT HIGH COURT
Hon'ble Mr. Hemant M. Prachchhak, J.
R/SCA No. 3664/2024, Dt/ 25-11-2025
Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd.
v.
Employees Provident Fund Organisation & Ors.
EMPLOYEES PROVIDENT FUND Determination of dues Liability of principal employer The petitioner has engaged various contractors for manpower supply Each contractor was having an independent PF Code number An order under section 7A of the EPF was passed against one of the contractors The petitioner deposited an amount with respondent No. 1 without prejudice to its rights Another order under section 7A was passed without impleading petitioner as a party Recovery proceedings were initiated against the petitioner Hence, the present writ Held, the respondent-authority has passed an order without hearing the petitioner and has fastened liability upon it Before fastening liability upon the principal employer qua the dues of the contractor, discreet inquiry is required to be undertaken by the authority When the contractors are having independent code number, such liability cannot be fastened upon the principal employer The matter is to be remanded back to the concerned authority for deciding the issue afresh The impugned order was quashed and set aside Ample opportunity is to be given to the petitioner before passing any order Writ petition is disposed of. Paras 6 to 8
For Petitioner: Mr. Dipak R. Dave, Advocate.
For Respondent Nos. 1, 2 & 3: Mr. Chaitanya S. Joshi, Advocate.
For Respondent No. 4: Served by RPAD.
IMPORTANT POINTS
Note: This judgment is still relevant as it enumerates general principles pertaining to provident fund related law.
ORDER (Oral)
Hemant M. Prachchhak, J.1. By way of present petition under Article 14, 19(1), 226 and 227 of the Constitution of India read with the provision of the Employees' Provident Funds and Misc. Provisions Act, 1952 (hereinafter be referred to as the Act), the petitioner has prayed for the following relief/s:
7(A) This Hon'ble Court may be pleased to issue an appropriate writ, order or direction to
(i) hold and declare that action initiated by respondent Nos. 1 and 2 under sections 8B to 8G against the petitioner for recovery of dues of the erstwhile contractor Dada Bapurav Dharane and Machhindar Baburao Dharane pursuant to the orders at Annexure-C and Annexure-E against the petitioner as illegal, unjust, arbitrary and further may be pleased to hold and declare that respondents have no power and/or authority to recover the said amount pursuant to the at Annexure-C and Annexure-E against the petitioner;
(ii) hold and declare that the action on part of the respondent Nos. 1 and 2 in initiating recovery under sections 8B to 8G against the petitioner as illegal, unjust and further may be pleased to quashed and set aside prohibitory order dated 16-02-2024 at Annexure-K and further order at Annexure-M issued against the bankers of the petitioner;
(iii) hold and declare that respondent Nos. 1 and 2 have no authority to freeze the bank accounts of the petitioner with HDFC Bank bearing No. 02091450000277 and Surat District Cooperative Bank bearing current account No. 808004000143 and may be pleased to immediately direct the respondent Nos. 1 and 2 to defreeze the said bank accounts of the petitioner; (Ann-l)
(iv) hold and declare that recovery of Rs. 64,53,843/- made by respondent Nos. 1 and 2 from the bank accounts of the petitioner is illegal, unjust and further may be pleased to direct the respondent Nos. 1 and 2 to immediately refund the said amount with interest at the rate of 12% in the accounts of the petitioner;
(B) Pending the admission hearing and final disposal of the petition, this Hon'ble Court may be pleased to restrain respondent Nos. 1 and 2 from taking any coercive action against the petitioner and further may be pleased to direct respondent Nos. 1 and 2 to immediately defreeze the bank account of the petitioner with HDFC Bank bearing No. 02091450000277 and Surat District Cooperative Bank bearing current account No. 808004000143; (Ann-L)
(C) Pending the admission hearing and final disposal of the petition, this Hon'ble Court may be pleased to direct respondent Nos. 3 and 4 to immediately inquire into the affairs of respondent Nos. 1 and 2 and action taken report against respondent Nos. 1 and 2 may be placed on record of this Hon'ble Court;
(D) Any other and further relief or reliefs to which this Hon'ble Court deemed fit, in the interest of justice; may kindly be granted;
2. The facts giving rise to the present petition are that the petitioner is engaged in its regular business activities and has engaged various contractors for manpower supply, each having an independent EPF Code Number, including contractors namely: (i) Dada Bapurav Dharane, and (ii) Machhindar Baburao Dharane, who were independently responsible for compliance under the provisions of the EPF Act. On 22-07-2022, respondent No. 1 passed an order under section 7A of the EPF Act against one of the contractors of the petitioner.
2.1 Thereafter, on 05-09-2022, without prejudice to its rights, the petitioner deposited an amount of Rs. 99,25,355/- with respondent No. 1. Prior thereto, on 10-08-2022, an order under section 7A came to be passed assessing an amount of Rs. 25,41,834/- against the contractor, Dada Bapurav Dharane. Subsequently, for another contractor, Machhindar Baburao Dharane, a separate inquiry for the period from March 2010 to September 2018 was initiated, and in the said inquiry, the petitioner was fastened with liability treating it as the principal employer, though the contractor was having a separate and independent code number and was solely responsible for statutory compliance.
2.2 On 16-03-2023, the petitioner made a detailed representation pointing out that no liability could be fastened upon the petitioner since the contractor was allotted an independent code number. However, on 31-03-2023, respondent Nos. 1 and 2 passed an order under section 7A of the Act assessing an amount of Rs. 1,53,41,912/- against the contractors of the petitioner, without impleading the petitioner as a party to the proceedings and without granting any opportunity of hearing.
2.3 Thereafter, in January 2024, coercive recovery proceedings were initiated against the petitioner and the petitioner was called upon to remit Rs. 25,39,637/- treating the petitioner as the principal employer in respect of the contractor, Dada Bapurav Dharane. On 23-01-2024, the petitioner was served with a copy of EPF CP-1 purportedly originally issued to contractor, Machhindar Baburao Dharane, and on the very next day i.e., 24-01-2024, the petitioner was directed to remit an amount of Rs. 1,31,08,693/- towards the alleged dues of the said contractor.
2.4 The petitioner again submitted a detailed representation on 25-01-2024 pointing out that the petitioner cannot be saddled with any liability of the contractors. Yet again, on 05-02-2024, respondent Nos. 1 and 2 directed the petitioner to remit Rs. 25,39,637/- with respect to the earlier order concerning contractor, Dada Bapurav Dharane. On 07-02-2024, the petitioner filed a comprehensive reply reiterating that no liability could be legally fastened upon the petitioner on several grounds; however, without considering the same and in complete disregard to the principles of natural justice, a prohibitory order under section 8F of the EPF Act came to be passed on 16-02-2024. Pursuant thereto, the bank accounts of the petitioner were attached and substantial recovery was effected therefrom.
2.5 The entire recovery proceedings initiated under sections 8B to 8G of the EPF Act, more particularly under section 8F, against the petitioner are wholly without jurisdiction, illegal, arbitrary and unknown to law, inasmuch as no assessment order has ever been passed against the petitioner nor any opportunity of hearing has been afforded before fastening liability. As a result of the attachment of its bank accounts, the entire working capital of the petitioner has been taken away, severely affecting the day-to-day functioning of the petitioner.
2.4 Being aggrieved and dissatisfied with the impugned order dated 16-2-2024, the petitioner has preferred present petition.
3. Heard Mr. Dipak R. Dave, learned counsel for the petitioner and Mr. Chaitanya S. Joshi, learned counsel for the respondents.
4. Mr. Dave, learned counsel for the petitioner, has submitted that the petitioner is engaged in manufacturing of jaggery and sugar, and for the labour work, the labour contractor supplied labourers, as the contractor has an independent Provident Fund registration number, and even the notice under section 7(A) of the Act was issued against the contractor only, and the present petitioner was not made a party to the proceedings. He has submitted that, however, the order was passed fastening the liability upon the petitioner, and recovery was sought for the alleged dues mentioned in the notice.
4.1 Mr. Dave, learned counsel for the petitioner has submitted that the inquiry under section 7(A) of the Act was initiated against the establishment only, and on the basis of the Area Enforcement Officer's report dated 30-06-2014, wherein it was mentioned that the seven contractors referred to in the notice have their independent Provident Fund code numbers and summons were issued against them, and it was specifically recorded that the said seven contractors had not remitted their Provident Fund contribution dues from 2010 to 2014, the authority, after initiation of the proceedings, passed an order and initiated recovery, and the amount of Rs. 90,25,355/- was sought to be recovered from the present petitioners as mentioned in the order.
4.2 Mr. Dave, learned counsel for the petitioner has further submitted that thereafter, the petitioner issued a communication on 05-09-2022, pointing out that, as per the order and the recovery proceedings, they have received copies thereof and the amount of Rs. 90,25,355/- has been deposited by way of demand draft, the copy of which was also produced along with the communication. He has submitted that since the contractor was having an independent Provident Fund code number, the petitioner, being the principal employer, was not required to deposit the contribution towards the Provident Fund of the contract employees. He has submitted that considering all these facts, the authority has without giving any opportunity and without hearing the petitioner, passed an order against present petitioner on 18-9-2018 and thereafter initiated proceedings to recover the said amount and thereafter passed prohibitory order dated 16-2-2024 which is completely erroneous, illegal and unjust and requires to be quashed and set aside and the petitioner may be heard by the concerned authority.
4.3 In support of his submissions, Mr. Dave, learned counsel for the petitioner has referred and relied upon the decision of the Hon'ble High Court of Madras (Madurai Bench) in case of Madurai District Central Cooperative Bank Ltd. v. Employees Provident Fund Organization, Recovery Officer, Employees Provident Fund Organization , 2011 LawSuit (Mad) 5126, the decision of Hon'ble High Court of Madras in case of Brakes India Ltd. v. Employees Provident Fund Organization , 2015 LawSuit (Mad) 121 and the decision of Hon'ble High Court of Punjab and Haryana in the case of Calcutta Constructions Company v. Regional Provident Fund Commissioner and others , 2015 LawSuit (P&H) 1751.
5. On the other hand, Mr. Chaitainya Joshi, learned counsel for the respondents has opposed the petition and submitted that the Central Board of Trustees, EPS has not been joined as a respondent in present matter. He has submitted that present petition is liable to be dismissed on the ground of non-rejoinder of the necessary party i.e. The Central Board of the Trustees. He has submitted that the Government of India through Labour Commissioner, Ministry of Labour and Employment, New Delhi has been joined as respondent No. 4 though they are not concerned with the cause of action because looking into the facts of the present case, the cause of action lies with the EPFO.
5.1 Mr. Joshi, learned counsel for the respondent has submitted that after the order has been passed under section 7A, notice dated 23-1-2024 was served upon the petitioner requesting them to remit the amount of Rs. 1,31,08,693/- towards the non-payment of EPFO dues by the establishment, i.e., Mr. Machhindar Baburao Dharane and the petitioner was called upon to pay the said amount being the principal employer. He has submitted that in view of the fact that the case of the petitioner that no notice has been issued to them is absolutely false and baseless.
5.2 Mr. Joshi, learned counsel for the respondent has submitted that the petitioner did not cooperate with the respondent authority and did not comply with the repeated notices and orders and therefore, ultimately an action under section 8F(3)(i) of the Act was taken and in this regard order has been passed by the concerned authority on 16-2-2024 and in view of the facts of the case, this Court may not interfere in this petition.
5.3 However, while going through the documents annexed in the petition at page 212 dated 18-09-2018, when the Court inquired whether a notice had been served to the present petitioner, he was unable to answer the query of the Court, and therefore Mr. Dave, learned counsel for the petitioner, urged that the present petition be heard and the matter be remanded back to the concerned authority.
6. I have gone through the relevant materials and documents produced on record. I have also perused and examined the impugned order passed by the concerned Authority. From the bare perusal of the orders under challenge, it appears that without assigning any cogent reasons and without hearing the petitioner the authority has passed the order fastening the liability upon the petitioner. In view of decisions rendered by High Court of Madras in case of Brakes India (supra) and Madurai District Central Cooperative Bank (supra), it is evident that before fastening liability upon the principal employer qua the dues of contractor, discreet inquiry is required to be undertaken by the authority. When the contractors are having independent code number, such liability cannot be fastened upon the principal employer. No opportunity is given to the petitioner nor any of the above submission of the petitioner are considered by the authority and straightway recovery proceedings are initiated against the petitioner and therefore, this Court is of the opinion that the present petition is required to be remanded back to the concerned authority for deciding the issue afresh.
7. In the result, the present petition is hereby partly allowed. The impugned orders dated 16-2-2024 at Annexure K and M are hereby quashed and set aside. The matter is remanded back to the concerned respondent authority for deciding the issue afresh and the concerned respondent authority shall decide the same in accordance with law, after giving ample opportunity of hearing to all the concerned parties as expeditiously as possible preferably within a period of three months from the date of initiation of fresh proceedings, but not later than 30-04-2026. Rule is made absolute to the aforesaid extent.