Facts Of The Case:
The appellant, Jalgaon District Central Co-operative Bank Ltd., is a secured creditor which had advanced loans to a co-operative sugar society, secured by a mortgage and hypothecation of the society’s assets. The sugar factory became defunct, leading to loan defaults. The bank initiated recovery under the SARFAESI Act, took possession of the secured assets, and proceeded to auction them. Concurrently, the respondent-workmen of the defunct society claimed unpaid wages and provident fund dues. The workmen’s application before the Industrial Court was dismissed on grounds of delay. Aggrieved, the workmen and their union challenged the bank’s auction proceedings before the High Court. The High Court, in its impugned judgment, directed that the auction proceeds be deposited in a ‘No Lien Account’, from which provident fund dues were to be paid first, and workmen’s wages paid upon quantification by a competent court. The bank appealed to the Supreme Court, contending that as a secured creditor with its security interest registered under the SARFAESI Act, its debt had priority over all other claims, including workmen’s dues and provident fund, by virtue of the newly introduced Section 26E of the Act.
Procedural History:
The case originated with the appellant-bank filing a dispute before the Co-operative Court (Dispute No.459 of 2000) for loan recovery. After the bank initiated SARFAESI proceedings, multiple writ petitions were filed before the Bombay High Court by the workmen, their union, and others challenging the auction. A Division Bench of the High Court, by a common judgment, dismissed the petitions but granted liberty to the parties to approach the Debt Recovery Tribunal. It specifically directed that provident fund dues be paid first from the sale proceeds and workmen’s wages be paid upon quantification. Aggrieved by these directions, the appellant-bank filed Special Leave Petitions before the Supreme Court, which were granted leave, leading to the present civil appeals.
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Court Observation:
The Supreme Court observed that while Section 26E of the SARFAESI Act grants a priority to secured creditors over other debts, this priority is distinct from a statutory first charge. The Court emphasized that Section 11(2) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, explicitly creates a first charge on the assets of the establishment for provident fund dues, which includes contributions, interest, and damages. This statutory first charge, created by a welfare legislation with a non-obstante clause, operates as a paramount claim. The Court held that such a clear statutory first charge overrides the general priority conferred upon secured creditors under the later-enacted SARFAESI Act, as a priority cannot supersede a specifically created first charge. Consequently, provident fund dues must be satisfied first from the sale proceeds of secured assets.
Final Decision & Judgement:
The Supreme Court partly allowed the appeals. It set aside the High Court’s directions to the extent they deferred the payment of provident fund dues and created a separate account for workmen’s wages. The Court held that the statutory first charge for provident fund dues under Section 11(2) of the EPF & MP Act has paramountcy and must be satisfied first from the auction proceeds of the secured assets. Only thereafter can the balance be applied to satisfy the debt of the secured creditor bank under the SARFAESI Act. The workmen’s dues for wages, being unquantified and not enjoying a similar statutory charge, do not have priority over the bank’s claim. Liberty was granted to the workmen to seek quantification of their wage dues before the appropriate authority, de hors the earlier dismissal on grounds of delay.
Case Details:
Case Title: Jalgaon District Central Coop. Bank Ltd. vs. State of Maharashtra & Ors. Citation: 2025 INSC 1335 Civil Appeal No.: (@ SLP(C) No. 27740 of 2011) along with connected appeals. Date of Judgement: November 20, 2025 Judges/Justice Name: Justice K. Vinod Chandran, & Justice B.R. Gavai