[A Case Note on Jalgaon District Central Coop. Bank Ltd. v. State of Maharashtra & Ors. (2025 INSC 1335) ]
Introduction
In a landmark judgment with significant implications for banks, financial institutions, liquidators, and workers, the Supreme Court of India has ruled that statutory provident fund (PF) dues enjoy priority as a “first charge” over the claims of secured creditors, even after the introduction of Section 26E of the SARFAESI Act, 2002, which grants priority to registered security interests.
The Court clarified the legal distinction between a statutory first charge and a statutory priority, holding that where the legislature has expressly created a first charge—as under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952—such a charge overrides the priority conferred on secured creditors under SARFAESI.
Background
The appellant, Jalgaon District Central Cooperative Bank Ltd., was a secured creditor of a cooperative sugar factory that had defaulted on substantial loans. The factory had shut down, and proceedings before cooperative and industrial forums had failed to resolve workers’ wage claims and provident fund defaults.
When the Bank initiated measures under Section 13 of the SARFAESI Act and proceeded to sell the secured assets, multiple writ petitions were filed by workers, unions, and directors challenging the sale.
The Bombay High Court issued directions including:
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Sale proceeds to be deposited in a “No Lien Account”
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PF dues to be paid before any debt, including the bank’s
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Workers permitted to pursue their wage claims before competent forums
The Bank challenged this order before the Supreme Court.
Issues Before the Supreme Court
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Whether Section 26E of the SARFAESI Act (2020 amendment), granting priority to secured creditors, overrides PF dues having a statutory first charge under Section 11(2) of the EPF Act?
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Whether workers’ wage claims (not yet quantified) are entitled to priority over the Bank’s secured debt?
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Whether the High Court’s directions regarding distribution of sale proceeds were legally sustainable
Arguments
Bank’s Arguments
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Sections 26D and 26E of SARFAESI give overriding statutory priority to secured creditors.
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The Bank had duly registered its security interest with CERSAI under Section 23.
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Workers’ wage claims were rejected earlier on grounds of delay.
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Reliance was placed on Punjab National Bank v. Union of India (2022) which upheld SARFAESI priority over statutory dues.
Workers’ Arguments
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Provident fund contributions enjoy a first charge under Section 11 of the EPF Act.
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PF dues have priority over all debts, including secured debts.
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Workers had been unpaid for long periods and should not be deprived of statutory protections.
Supreme Court’s Analysis
1. Distinction Between “First Charge” and “Priority”
The Court held:
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Section 11(2) EPF Act creates a first charge over the employer’s assets for all PF dues—employer’s contributions, employee contributions, damages, and interest.
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Section 26E SARFAESI Act grants priority, but does not create a first charge.
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A statutory first charge prevails over mere statutory priority.
2. Legislative Timing Matters, but First Charge Prevails Regardless
Although SARFAESI (with Section 26E) is a later law (2020), the presence of a statutory first charge in the EPF Act gives PF dues supremacy even over later non-obstante clauses.
The Court relied on:
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Maharashtra State Cooperative Bank Ltd. v. APFC (2009)
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Central Bank of India v. State of Kerala (2009)
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EPF Commissioner v. Official Liquidator (2011)
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Punjab National Bank v. Union of India (2022)
3. Workers’ Wage Claims
The Court noted:
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Wage claims were not quantified and earlier rejected by Industrial Court due to delay.
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Workers were permitted to re-approach the appropriate labour forum for quantification without being prejudiced by delay, but:
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Workers’ wage claims do not have priority over secured creditors under Section 26E.
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Only PF dues (statutory first charge) take precedence.
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Final Directions Issued by the Supreme Court
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EPF dues come first – Sale proceeds must first be used to pay EPF contributions, interest, damages, and penalties.
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Secured creditor (the Bank) comes next – Only after satisfying PF dues can the remaining proceeds be applied to the Bank’s SARFAESI debt.
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Workers’ wage claims do not get automatic priority – They may approach the competent authority for quantification, which will be considered on merits.
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The High Court’s directions were partly set aside.
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The Bank is free to proceed with the auction as per law.
Significance of the Judgment
For Banks and Financial Institutions
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SARFAESI priority does not override statutory first charges.
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Registration under CERSAI doesn’t defeat PF’s statutory charge.
For Workmen
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PF dues enjoy the strongest statutory protection.
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Even secured creditors cannot override PF contributions.
For Liquidators and Insolvency Administrators
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Must treat PF dues as the first charge, ahead of all debts.
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Wage claims need proper adjudication and do not automatically supersede secured debts.
For Law and Policy
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The judgment reaffirms the welfare objective of PF legislation.
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Clarifies the hierarchical structure between welfare-based first charges and financial-sector priority laws.
Conclusion
The Supreme Court’s ruling strikes a balance between safeguarding workers’ social security rights and recognising the statutory protections granted to secured creditors. By affirming that EPF dues constitute a first charge overriding SARFAESI priorities, the Court has reiterated the primacy of social welfare legislation in India’s debt recovery ecosystem.
This judgment will serve as authoritative guidance on the distribution of sale proceeds in secured asset recoveries, especially where creditors’ interests intersect with statutory welfare obligations.
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