Section 8F recovery requires proof that a third party holds money due to the employer.

Respondent No. 5, Earth Mover Consultancy Pvt. Ltd., was an EPF-covered establishment and contractor/dealer of the petitioner. Following employee complaints of unpaid provident fund contributions, the EPFO assessed dues against respondent No. 5 under Section 7A and interest under Section 7Q.

By an order dated 31 July 2017, purportedly under Section 8F, the EPFO directed the petitioner to pay ₹28,03,041. The petitioner replied that it held no money payable to respondent No. 5; rather, respondent No. 5 owed it substantial sums. The EPFO nevertheless issued a recovery certificate and demand notice against the petitioner. The petitioner challenged these actions by writ petition.

Whether the EPFO could invoke Section 8F to recover respondent No. 5’s arrears from the petitioner without establishing that money was due or held by the petitioner for respondent No. 5.

Whether the EPFO could issue the recovery certificate without considering the petitioner’s response to the Section 8F order and without giving reasons for rejecting it.

Whether the EPFO could defend the impugned order on the basis of the petitioner’s alleged liability as principal employer under provisions not relied upon in that order.

Section 8F of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 provides a mode of recovery from a person who owes money to, or holds money for or on account of, an employer in arrears; the existence of such money is a condition precedent to its use.

Administrative fairness requires a public authority to consider a response to its notice and give reasons for rejecting it.

Under Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405, an administrative order must be judged by the grounds on which it was made and cannot be supplemented by fresh reasons later.

The impugned order invoked Section 8F, which permits recovery from a third party only where money is due to, or held for, the defaulting employer. The petitioner expressly denied holding or owing any amount to respondent No. 5 and stated that respondent No. 5 instead owed it money. The EPFO neither addressed that response before issuing the recovery certificate nor produced material showing that the petitioner held any money of respondent No. 5.

The EPFO’s reliance in court on the petitioner’s alleged principal-employer liability under Section 8A and the EPF Scheme could not sustain an order made under Section 8F, because the validity of the order had to be assessed on its stated basis.

It quashed the order dated 31 July 2017 and the consequential recovery actions, while leaving the EPFO at liberty to pursue any other lawful recovery action against respondent No. 5.