A.Sunder Singh vs. The Recovery Officer

Facts

The petitioners, engaged in providing security and allied manpower services, challenged garnishee orders issued by the Recovery Officer, ESI Corporation. These orders, passed under Section 131(3) of the Code on Social Security, 2020, froze the petitioners' bank accounts across nine banks to recover alleged arrears of Rs. 22,19,827/-. The petitioners argued that the freezing of accounts halted their business operations, preventing them from paying their approximately 400 employees. They expressed readiness to pay the arrears in instalments and sought permission to operate their accounts for business activities. The Recovery Officer contended that recovery proceedings began in 2019, multiple demand notices were issued, and the petitioners only approached the court after garnishee orders were passed.

Held

The Court held that it was not disputed that a sum of Rs. 22,19,827/- was due from the petitioners. The Court acknowledged the petitioners' submission that the default occurred due to financial crisis and that the freezing of accounts severely affected their employees. Balancing the interests of both parties and considering the welfare of the employees, the Court permitted the petitioners to pay the defaulted amount of Rs. 22,19,827/- in six equal monthly instalments. The Court directed that the bank accounts would be defreezed upon payment of three instalments, allowing the petitioners to operate them thereafter. It was clarified that instalment payments must be made on or before the 5th day of every English calendar month without fail. The Court also stated that if the petitioners could pay the entire amount earlier, they were at liberty to do so. The Court further stipulated that in case of default in any instalment payment, the Recovery Officer was free to proceed further as per law. The Court did not expressly leave any issue undecided.

Key Issues

1. Whether the garnishee orders issued under Section 131(3) of the Code on Social Security, 2020, are legally sustainable given the petitioners' plea for instalment payments and the impact on their employees? Petitioner's Arguments: The petitioners contended that the freezing of their bank accounts has brought their business to a standstill, preventing them from disbursing salaries to their approximately 400 employees. They expressed their willingness to pay the total outstanding amount of Rs. 22,19,827/- in reasonable instalments and requested permission to operate their bank accounts for essential business activities. They sought the quashing of the garnishee orders and the defreezing of their accounts. Revenue's Arguments: The Revenue, represented by the Recovery Officer, argued that recovery proceedings were initiated in 2019, and several demand notices were issued to the petitioners. They stated that the petitioners remained inactive and did not take steps to clear the dues, even through instalments, until after the garnishee orders were issued and their bank accounts were frozen. The Revenue asserted that the garnishee orders were a necessary step for recovery.