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2025 Supreme(SC) 1953
SUPREME COURT OF INDIA
B. R. Gavai, CJI., K. Vinod Chandran, J.
Jalgaon District Central Coop. Bank Ltd. – Appellant
Versus
State of Maharashtra and Ors. – Respondents
Civil Appeal No. 13884 of 2025 (@Special Leave Petition (C) No. 27740 of 2011) With With Civil Appeal No. 13885 of 2025 (@Special Leave Petition (C) No. 28496 of 2011) Civil Appeal No. 13886 of 2025 (@Special Leave Petition (C) No. 28042 of 2011) Civil Appeal No. 13887 of 2025 (@Special Leave Petition (C) No.30476 of 2011) Civil Appeal No. 13888 of 2025 (@Special Leave Petition (C) No. 619 of 2012)
Decided On : 20-11-2025
For the Petitioner(s): Mr. M. Y. Deshmukh, AOR Ms. Manjeet Kirpal, Adv. Ms. Sanyukta N. Suryawanshi, Adv. Mr. D. Aswathaman, Adv. Mr. Atharva D. Kale, Adv. Mr. Dhumal Viraj Prataprao, Adv.
For the Respondent(s): Ms. Preet S. Phanse, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Shrirang B. Varma, Adv. Mr. Shivaji M. Jadhav, AOR M/S. S.M. Jadhav And Company, AOR
The court ruled that provident fund dues have a statutory first charge over secured creditors' claims under the SARFAESI Act, thus prioritizing employee welfare in debt recovery contexts.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 26D and 26E - Employees' Provident Funds and Miscellaneous Provisions Act, 1952 - Priority of dues - Secured creditor has an overriding claim over the assets of a defunct co-operative society which defaulted on a loan. The court found that Section 26E provides a priority to secured creditors over all other debts notwithstanding other provisions, but the first charge under Section 11(2) of the EPF & MP Act must be satisfied first from sale proceeds. (Paras 28, 30)
(B) A first charge created by statute (EPF & MP Act) takes precedence over the priority of secured creditors under SARFAESI Act; hence provident fund dues should be paid prior to other debts. (Paragraphs 11, 26).
Facts of the case:
The appellant bank sought to recover dues from a co-operative sugar society that failed to service its mortgage. Despite secured creditor claims, the workmen's unpaid salaries and provident fund dues were at issue. The court dismissed the workmen's delayed claims at first, allowing for reconsideration after asset liquidation.
Findings of Court:
The sale proceeds from the co-operative society must first satisfy EPF dues before addressing secured creditors' claims.
Issues: Whether the secured creditor's priority under SARFAESI Act supersedes the workmen's claims was central, along with the precedence of the EPF dues.
Ratio Decidendi: The court reiterated that statutory first charges (EPF dues) supersede claims by secured creditors, affirming the importance of prioritizing employee welfare in insolvency proceedings.
Result: Appeals allowed, setting aside the impugned judgment.
| Table of Content |
|---|
| 1. priority of secured creditor under sarfaesi act (Para 2 , 6 , 10) |
| 2. arguments regarding workers' dues vs. bank dues (Para 4 , 5 , 7) |
| 3. priority of epf dues over secured debt (Para 11 , 14 , 19 , 28) |
| 4. precedence of welfare legislation over secured creditor's claims (Para 15 , 20 , 24) |
| 5. conclusion on the distribution of sale proceeds (Para 29 , 30 , 31) |
JUDGMENT :
K. VINOD CHANDRAN, J.
Leave granted.
2. The appellant in all these appeals is the secured creditor, a Co-operative Bank, who seeks to proceed against the properties of the mortgagee, a Co-operative Society, engaged in the manufacture of sugar at its factory. The specific contention is that the appellant having registered the transaction with the respondent Society, at the Central Registry, as constituted by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 20021[for short, ‘the SARFAESI Act’], has an overriding claim over the assets of the factory. The factory has become defunct, and the Society has defaulted the loan. For recovery of the dues, the mortgaged property has been proceeded against by the Bank, which has a priority insofar as satisfaction of the defaulted loan amounts. The specific contention taken is that the secured creditor has a priority, even as against the dues of the workmen and the Provident Fund amounts defaulted, as provided under Section 26E of the Act of 2002.
3. We heard Mr.M.Y. Deshmukh, learned counsel appearing for the appellant-bank and Mr. Shivaji M. Jadhav, learned counsel appearing for the respondent- workmen and their union.
4. It is submitted by Mr. Deshmukh that Sections 26D and 26E of the SARFAESI Act introduced w.e.f. 24.01.2020, has an overriding effect insofar as the recovery of dues of the secured creditor. The learned counsel also placed heavy reliance on the judgment in Punjab National Bank & Ors. v. Union of India & Ors., (2022) 7 SCC 260.
5. Mr. Jadhav, on the other hand makes a fervent plea that the workmen have been denied their wages and even the PF amounts defaulted. The provident fund dues definitely have a first charge, as has been affirmed in Maharashtra State Cooperative Bank Ltd. v. Assistant Provident Fund Commissioner , (2009) 10 SCC 123, which are to be first paid before the bank proceeds to set off the defaulted loan amounts. The learned counsel for the appellant points out that the claim made by the workmen, which was grossly delayed, was rejected by the Industrial Court. The respondent-workmen, however, point out that by Annexure R-3 a learned Single Judge of the High Court of Judicature of Bombay, at Aurangabad had permitted them to approach the liquidator appointed by the Sugar Commissioner to consider their claims and in any event, the Industrial Court without consideration of the merits rejected the claim on the mere premise that there was no affidavit filed putting forth the reasons for delay, seeking condonation.
6. On facts, it has to be noticed that the Co-operative Society engaged in the manufacturing of sugar, mortgaged their properties and also hypothecated the stock in trade to the Bank as security for loan availed. In the year 2000, the factory stood closed because of the huge losses. On 17.03.2001, the appellant-bank approached the Cooperative Court with Dispute No.459 of 2000 in which dispute a Receiver was appointed on 11.01.2001. The dispute was adjudicated, allowing the appellant-bank to recover an amount of Rs.30,24,32,954/-. In 2002, the Commissioner of Sugar appointed a liquidator to commence the proceedings for liquidation and in 2006, the appellant-bank issued a notice under Section 13 (2) of the SARFAESI Act and took over possession of the secured assets of the Society. After the takeover of the assets, for a year, the factory was run by another company, based on an agreement of lease, which also did not turn around the business, upon which the assets were handed over back to the appellant-bank.
7. The workers approached the
