State Bank of India & Anr. v. Employees' State Insurance Corporation & Ors.

What happened

The petitioners are the State Bank of India and its branch, with which the third respondent, a cooperative society of engineers, has a current account. The society disputed the coverage of its establishment under the ESI Act and the allotment of code numbers, and its writ petition was refused interim relief on 12 February 2025 against an ESIC order of 12 February 2024 under section 45A. The ESI Recovery Officer had issued a prohibitory order on 12 August 2024 to the bank, which replied on 19 December 2024 that a hold was marked on the current account and sent a demand draft of ₹1,26,000. On 17 February 2025 a Division Bench, in the appeal MAT 222 of 2025, restrained coercive measures and let the society operate its account while keeping ₹5 lakh frozen. Four days later, by a letter of 21 February 2025 under section 45G, ESIC declared the bank a deemed defaulter and, by a garnishee order of 26 February 2025, directed recovery of the dues from the Reserve Bank, where the bank keeps deposits. The bank argued that sections 45G and 45H were wrongly invoked, that notice and a hearing were needed to find out whether it was in a position to pay, and that it could not remit anything from an inoperative account. ESIC said that the society was a defaulter and the bank was the custodian of its account. On 17 March 2025 the Division Bench disposed of the appeal, keeping the order of the appellate authority in abeyance, restraining coercive measures till 15 April 2025 and directing a fresh appeal and hearing.

Questions before the court

• Should the garnishee orders against the bank survive after the Division Bench set the underlying ESI order in abeyance and directed a fresh hearing?

Why the court ruled this way

The Court noted that the garnishee orders were passed to implement the ESI order of 12 February 2024 under section 45A (paragraph 23). That order had been kept in abeyance by the Division Bench on 17 March 2025, which allowed ESIC a fresh hearing on its counsel's request in view of the large number of documents filed by the establishment, restrained the bank from coercive measures against the establishment during the fresh hearing, and had earlier let the establishment operate the account on keeping ₹5,00,000 frozen (paragraphs 24–26). The Reserve Bank informed the Court that the amount debited from the bank's account pursuant to the garnishee orders had been credited back (paragraph 22). In view of the disposal of the appeal and the direction for a fresh hearing in the section 45A proceedings, the garnishee orders had become infructuous (paragraph 27). The Court recorded the bank's arguments on sections 45G and 45H, but did not decide them.

Controlling point

Garnishee orders under the ESI Act that seek to implement an ESI order that has been kept in abeyance for fresh hearing become infructuous and are quashed.

Order and next steps

The garnishee orders of 21 February 2025 and 26 February 2025 were quashed and set aside, WPA 6511 of 2025 was allowed, connected applications were disposed of and the interim order, if any, was vacated.

Practical implications

A bank served with an ESI recovery notice for a customer should check whether the underlying determination is under appeal or has been stayed or remitted, and place the order before the Recovery Officer; it should reply with the account status.

Limits of this ruling

• The Court did not decide the arguments about the scope of sections 45G and 45H, the bank's position as garnishee or the treatment of an inoperative account, and its order rests on the Division Bench's order of 17 March 2025 and the fresh hearing.