The relevant provisions of the PF Act pertaining to recovery are Sections

8, 8-B and 8-G read with Rule 4 and Rule 73 of the Second Schedule of
the Income Tax Act, 1961.

Section 8 of the PF Act provides for the Modes of recoveries referred to

above. The Section provides as under:

“Section 8. Mode of recovery of moneys due from employers:

Any amount due –

(a) from the employer in relation to an establishment to which any

Scheme or the Insurance Scheme applies in respect of any
contribution payable to the Fund or, as the case may be, the
Insurance Fund damages recoverable under Section 14-B,
accumulations required to be transferred under sub-section 2 of
Section 15 or under sub-section (5) of section 17 or any charges
payable by him under any other provision of this Act or of any
provision of the Scheme or the Insurance Scheme; or

(b) xxx

may, if the amount is in arrear, be recovered by the Central Provident

Fund Commissioner or such other officer as may be authorized by
him, by notification in the Official Gazette, in this behalf in this same
manner as an arrear of land revenue.

Section 8-B contemplates the issuance of a Recovery Certificate to a

Recovery Officer, and empowers the Recovery Officer to recover monies
dues from the Employer by various modes, including civil imprisonment.
The Section reads as under:

Section 8-B. Issue of certificate to the recovery officer:

Where any amount is in arrear under Section8, the authorized

officer may issue, to the Recovery Officer, a certificate under his
signature specifying the amount of arrears and the Recovery Officer,
on receipt of such certificate, shall proceed to recover the amount
 2

specified therein from the establishment or, as the case may be, the
employer by one or more of the modes mentioned below:-

1. Xxx
2. Arrest of the employer and his detention in prison;
3. Xxx

The authorized officer may issue a certificate under sub-section (1),

notwithstanding that proceedings for recovery of the arrears by any
other mode have been taken.

Section 8-G makes the Second and Third Schedules of the Income Tax
Act, 1961 and Income Tax (Certificate Proceeding) Rules, 1962,
applicable mutatis mutandis in terms of any arrears as mentioned in
Section 8 of the PF Act. Rule 4 of the Second Schedule of the Income
Tax Act, 1961 lays down substantially similar modes of recovery as
compared to those laid down in Section 8-B. Under the Income Tax
Act, when a certificate of Recovery is issued, the Recovery Officer
must send a Notice to the defaulter under Rule 73 (1) of the Second
Schedule of the Act to pay the dues within the time specified in the
Notice, and if payment is not made, Rule 4 lays down Modes of
Recovery. The said Rule 4 of the Income Tax Act reads as under:

4. Mode of Recovery-

If the amount mentioned in the notice is not paid within the time
specified therein or within such further time as the Tax Recovery
Officer may grant in his discretion, the Tax Recovery Officer shall
proceed to realize the amount by one or more of the following modes:

(a) by attachment and sale of the defaulter’s movable property;

(b) by attachment and sale of the defaulter’s immovable property;

(c) by arrest of the defaulter and his detention in prison;

(d) by appointing a receiver for the management of the defaulter’s

movable and immovable properties.”
 3

A Division Bench of the Hon’ble Punjab & Haryana High Court was
pleased to hold in Mohan v. Regional Provident Fund Commissioner & Anr.
[2002 III LLJ page 779] that the modes of recovery are alternative and not
exhaustive, and that the Recovery Officer can adopt any of the recovery
modes. There is no bar in adopting the mode of arrest and detention, i.e.
civil imprisonment, before exhausting other modes under the PF Act. The
Hon’ble High Court was pleased to observe that:

We are further of the view that the modes of recovery specified in

clauses (a), (b) and (c) of S. 8-B(1) of the Act are alternative modes
and not exclusive of each other and it is open to the Recovery Officer
to resort to one or more of the modes. The use of the expression “by
one or more of the modes mentioned below” in the substantive part of
S. 8-B(1) makes it clear that the Legislature has, with a view to
ensure that the dues payable under the Act are recovered,
empowered the Recovery Officer to resort to one or all of the modes
for recovery of the arrears… there is nothing in S. 8-B(1) and
other provisions of the Act from which it can be inferred that
the Recovery Officer cannot adopt the mode specified in
Clause (b) of S.8-B(1) before exhausting other modes of
recovery.

The inability of an employer to make the PF contributions due to bad

market conditions or defaulting customers, etc. have been held as
insufficient reasons by the Hon’ble Karnataka High Court in Chandan A.
Rajan v. U.O.I & Ors. [2007 III LLJ page 42]. In that case the employer was
put in jail u/S. 8-B(1)(b) of the Act for failure to pay provident fund
contribution though he personally narrated the facts and circumstances of
his default due to market recessions, slump in the off take, his customers’
default in making payment, lack of funds and mounting interest liability,
and as such he was compelled to defer the statutory obligations. He filed a
writ petition stating that his arrest was arbitrary. The Hon’ble High Court
upheld the action of the Provident Fund Authority. Arresting and
detention in civil prison for non-payment of provident fund dues is not
illegal nor unconstitutional.
 4

The Hon’ble Bombay High Court has stated, however, that the power to
order arrest and detention is not absolute and unfettered. Section 8-B
read with Section 8-G require reference to the relevant provisions of the
Income Tax Act, 1961. The arrest and detention must be made in
accordance with the provisions of Rule 73 of the Second Schedule of
the Income Tax Act, which requires the issuance of a Notice to Show
Cause. The relevant provisions for Arrest and Default under Part V of the
Second Schedule of the Income Tax Act are as under:

ARREST AND DETENTION OF THE DEFAULTER

Notice to show cause.

73. (1) No order for the arrest and detention in civil prison of a
defaulter shall be made unless the Tax Recovery Officer has
issued and served a notice upon the defaulter calling upon
him to appear before him on the date specified in the notice
and to show cause why he should not be committed to the civil
prison, and unless the Tax Recovery Officer, for reasons recorded in
writing, is satisfied—

(a) that the defaulter, with the object or effect of obstructing the
execution of the certificate, has, after [the drawing up of the
certificate by the Tax Recovery Officer], dishonestly transferred,
concealed, or removed any part of his property, or

(b) that the defaulter has, or has had since [the drawing up of
the certificate by the Tax Recovery Officer], the means to pay
the arrears or some substantial part thereof and refuses or
neglects or has refused or neglected to pay the same.

(2) Notwithstanding anything contained in sub-rule (1), a warrant for

the arrest of the defaulter may be issued by the Tax Recovery Officer
if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that
with the object or effect of delaying the execution of the certificate, the
defaulter is likely to abscond or leave the local limits of the
jurisdiction of the Tax Recovery Officer.
 5

(3) Where appearance is not made in obedience to a notice

issued and served under sub-rule (1), the Tax Recovery Officer
may issue a warrant for the arrest of the defaulter.

[(3A) A warrant of arrest issued by a Tax Recovery Officer under sub-

rule (2) or sub-rule (3) may also be executed by any other Tax
Recovery Officer within whose jurisdiction the defaulter may for the
time being be found.]

(4) Every person arrested in pursuance of a warrant of arrest

under [this rule] shall be brought before the Tax Recovery
Officer [issuing the warrant] as soon as practicable and in any
event within twenty-four hours of his arrest (exclusive of the
time required for the journey):

Provided that, if the defaulter pays the amount entered in the

warrant of arrest as due and the costs of the arrest to the officer
arresting him, such officer shall at once release him.

[Explanation.—For the purposes of this rule, where the defaulter is a

Hindu undivided family, the karta thereof shall be deemed to be the
defaulter.]

Hearing.

74. When a defaulter appears before the Tax Recovery Officer in

obedience to a notice to show cause or is brought before the Tax
Recovery Officer under rule 73, [the Tax Recovery Officer shall
give the defaulter] an opportunity of showing cause why he
should not be committed to the civil prison.

Custody pending hearing.

75. Pending the conclusion of the inquiry, the Tax Recovery

Officer may, in his discretion, order the defaulter to be
detained in the custody of such officer as the Tax Recovery
Officer may think fit or release him on his furnishing security to
 6

the satisfaction of the Tax Recovery Officer for his appearance when
required.

Order of detention.

76. (1) Upon the conclusion of the inquiry, the Tax Recovery
Officer may make an order for the detention of the defaulter
in the civil prison and shall in that event cause him to be
arrested if he is not already under arrest:

Provided that in order to give the defaulter an opportunity of

satisfying the arrears, the Tax Recovery Officer may, before
making the order of detention, leave the defaulter in the
custody of the officer arresting him or of any other officer for
a specified period not exceeding 15 days, or release him on his
furnishing security to the satisfaction of the Tax Recovery
Officer for his appearance at the expiration of the specified
period if the arrears are not so satisfied.

(2) When the Tax Recovery Officer does not make an order of
detention under sub-rule (1) he shall, if the defaulter is under arrest,
direct his release.

The Hon’ble Bombay High Court in Kanaiyalal Prabhudas Maru & Ors. V.
RPF Commissioner & Ors. [(2002) I LLJ page 297] and in ATV Projects
India Ltd. v. Office of the RPF Commissioner [(2005) I LLJ page 1046] was
pleased to set aside the orders for arrest on the grounds that they were
not in accordance with the requirements of Rule 73 and that they were,
therefore, arbitrary.

In a recent decision delivered by the Hon’ble Karataka High Court in the

matter of M.A. Zahid V/s Assistant Commissioner of Income Tax, the
Hon’ble Court was pleased to consider an anticipatory bail petition
wherein issue was whether a person issued with a notice under Rule 73 of
the Second Schedule of the Income Tax Act 1961 is entitled to invoke
Section 438 of CrPC. The court observed that the proceedings initiated
against the petitioner for recovery of the tax dues with the issuance of
show cause notice as contemplated in Rule 73 of the Second Schedule
 7

which specifically provides that no order for the arrest and detention in a
civil prison of a defaulter could be made unless the Tax Recovery Officer
has issued and served a notice upon the defaulter calling upon him to
appear before him on the date specified in the notice and to show cause as
to why he ought not to be committed to Civil Prison. The court also said
the notice under Rule 73 is issued for the recovery of the tax dues
determined under Section 222 of the Income Tax Act and it is a recovery
proceeding and that the petitioner is not sought to be prosecuted for the
alleged offence under Section 276-C of the Act.

The proceedings initiated against the petitioner are akin to the

proceedings for execution of decree under Order XXI Rule 37 of CPC.
Rule 4 of the Second Schedule of the Income Tax Act provides for the
various modes of recovery. As per the said provision, if the amount
mentioned in the notice is not paid within the time specified therein or
within such further time as the Tax Recovery Officer may grant in his
discretion, the Tax Recovery Officer shall proceed to realize the
amount by one or more of the following modes:-(a) by attachment and
sale of the defaulter’s movable property;(b) by attachment and sale of
the defaulter’s immovable property;(c) by arrest of the defaulter and
his detention in prison;(d) by appointing a receiver for the
management of the defaulter’s movable and immovable properties.

When a defaulter appears before the Tax Recovery Officer, he shall

be given an opportunity of hearing and only thereafter, an order could
be passed for detention of the defaulter in the civil prison. Therefore,
the apprehension of the petitioner that on issuance of a show
cause notice under Rule 73 of the Second Schedule of the
Income Tax Act, he has a reason to believe that he would be
arrested and detained in prison is wholly misconceived and
misplaced.

Dismissing the plea, the court said as the issuance of notice is under Rule
73 of the Second Schedule of the Income Tax Act, the petitioner is not
accused of committing any non-bailable offence and the said notice does
not give rise to any apprehension of immediate arrest so as to invoke
 8

the jurisdiction of the sessions court or high court under Section

438, CrPC (Direction for grant of bail to person apprehending arrest for
commission of a non-bailable offence).