Calcutta High Court Quashes Garnishee Orders Against SBI Over Inoperative Account

The Calcutta High Court has held that the State Bank of India (SBI) could not have remitted Employees' State Insurance (ESI) dues from an “inoperative” account of its customer.

It observed that branding the bank a “deemed defaulter” in such circumstances was without application of mind and violated principles of natural justice.

Justice Shampa Dutt (Paul) made the observation while quashing garnishee orders issued against SBI in connection with the ESI dues of Eastern Division (Projects) Engineers Cooperative Society Ltd., a customer of SBI's Murgasol branch.

“In any event, SBI could not have remitted any amount to ESIC from an "inoperative" account of the customer. Therefore, to brand SBI as a "deemed defaulter" in relation to the dues of the respondent no. 3 was without any application of mind and in violation of the principles of natural justice,” the court observed.

The writ petition concerned garnishee orders dated February 21 and February 26, 2025 issued by the ESI Recovery Officer. The February 21 order was issued to SBI. The February 26 order sought recovery from the Reserve Bank of India (RBI) in relation to SBI's deposit lying with it.

The dispute arose after the ESI Recovery Officer issued a prohibitory order on August 12, 2024 in respect of the account of Eastern Division (Projects) Engineers Cooperative Society Ltd. SBI subsequently informed the Recovery Officer that a “hold” had been marked on the customer's current account.

The customer was separately challenging the ESI proceedings concerning its coverage and allotment of code numbers. On February 17, 2025, a Division Bench permitted the establishment to operate the account in the usual course of business while keeping ₹5 lakh frozen. SBI submitted that there was no such amount in the account.

The Division Bench disposed of the appeal on March 17, 2025. It kept the impugned order of the appellate authority in abeyance and directed the appellate authority under the ESI Act to hear the establishment afresh. It also directed that no coercive measures be taken against the establishment until April 15, 2025.

Before the single judge, SBI argued that ESIC's first duty while seeking recovery from a bank was to determine whether the bank was actually in a position to pay the amount demanded. It also argued that ESIC had to ascertain whether the bank was prevented by law from remitting the amount.

SBI also contended that Section 45H of the ESI Act, which applies provisions of the Income Tax Act and the Income Tax (Certificate) Rules to recovery proceedings, required an opportunity of hearing or at least notice before action was taken against a person from whom money was sought.

The court noted that the garnishee orders had been issued to implement an earlier order dated February 12, 2024 under Section 45A of the ESI Act. That order was subsequently kept in abeyance by the Division Bench on March 17, 2025, when it directed a fresh hearing in the proceedings.

The Division Bench had also restrained SBI from taking coercive measures against the establishment. It permitted the establishment to file a fresh appeal.

The single judge held that the March 17 order rendered the garnishee orders infructuous.

“Thus on the appeal MAT 222 of 2025 being disposed on 17.03.2025, directing fresh hearing in the proceedings under Section 45A of ESI Act, the impugned garnishee orders dated 21.02.2025 and 26.02.2025 have now become infructuous and are thus quashed and set aside,” the court ruled.

The court accordingly allowed SBI's writ petition. It quashed the February 21 and February 26, 2025 garnishee orders.

For Petitioners: Senior Advocate Soumya Majumder, Advocates Debashis Saha, Avirup Roy Sanyal, Sucheta Pal, Jyotishman Sarkar

For ESIC: Advocates Shiv Shankar Banerjee, Siddharth Chaurasia, A. Narayan Banerjee

For RBI: Advocates Suchishmita Ghosh, Aradhita Banerjee