Court Holds Garnishee Orders Infructuous Following Division Bench's Stay and Direction for Fresh Hearing under Employees' State Insurance Act, 1948
In a significant ruling dated October 5, 2026, the Calcutta High Court, presided over by Justice Shampa Dutt (Paul), set aside the garnishee orders issued by the Employees State Insurance Corporation (ESIC) Recovery Officer against the State Bank of India (SBI) and the Reserve Bank of India (RBI). The orders, dated February 21 and 26, 2025, had been issued for recovery of dues under the Employees' State Insurance Act, 1948, but were held to be infructuous due to an earlier Division Bench order that kept the underlying recovery order under Section 45A of the Act in abeyance.
The case arose from ESIC's attempt to recover dues from an establishment, Eastern Division (Projects) Engineers Cooperative Society Limited, which had a dispute regarding ESI coverage and allotment of code numbers. The Recovery Officer issued prohibitory and garnishee orders against SBI, as the banker holding the defaulter's account, and RBI, where SBI maintained its deposits. SBI contended that the bank was wrongly treated as a "deemed defaulter" since the customer's account was under "hold" or inoperative status, making it impossible for the bank to remit any amount to ESIC. Furthermore, SBI submitted that natural justice required the ESIC authority to first ascertain whether the bank was actually capable of paying the demanded dues before initiating recovery proceedings.
The Division Bench, in a connected appeal (MAT 222 of 2025), had earlier restrained coercive action against the establishment, permitted the appellant to operate the account subject to a partial freeze, and directed a fresh hearing by the appellate authority. The bench also kept the underlying order under Section 45A in abeyance and explicitly barred any coercive recovery steps until fresh orders were passed following due process. This interim order effectively rendered the subsequent garnishee orders invalid.
Justice Dutt (Paul) noted that since the garnishee orders were issued to enforce the order now kept in abeyance by the Division Bench, these orders could no longer stand. The court emphasized the necessity of following principles of natural justice, particularly the requirement to provide notice and opportunity to the bank before branding it a defaulter or ordering recovery from its funds. The court also observed that SBI could not have remitted any amount from an account that was inoperative or on hold, further invalidating the Recovery Officer's orders.
In light of these findings, the High Court quashed the garnishee orders dated February 21 and 26, 2025. The judgment thereby protects SBI and RBI from coercive recovery steps until the ESIC authorities complete the fresh hearing and pass reasoned orders as directed by the Division Bench. The ruling underscores the importance of adhering to procedural fairness in recovery proceedings under the Employees' State Insurance Act and reaffirms the judiciary's role in preventing abuse of legal process.
Bottom Line:
Employees' State Insurance Act, 1948 - Garnishee orders issued by Recovery Officer against bank and Reserve Bank of India for recovery of dues of establishment - Where Division Bench had kept the underlying order under Section 45A in abeyance, restrained coercive action and directed fresh hearing - Subsequent garnishee orders became infructuous and were liable to be quashed.
Statutory provision(s):
Employees' State Insurance Act, 1948 Sections 45A, 45G, 45H
