Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-013884-013884 – 2025 |
| Diary Number | 29907/2011 |
| Judge Name | HON’BLE MR. JUSTICE K. VINOD CHANDRAN |
| Bench | HON’BLE THE CHIEF JUSTICE; HON’BLE MR. JUSTICE PRASANNA B. VARALE; HON’BLE MR. JUSTICE K. VINOD CHANDRAN |
| Precedent Value | Binding authority on the interplay between statutory first charges and statutory priority under SARFAESI |
| Overrules / Affirms | Partly overrules the impugned High Court directions; affirms the primacy of the EPF&MP Act’s first charge over SARFAESI priority |
| Type of Law | Statutory – secured transactions and labour welfare statutes |
| Questions of Law | Does Section 26-E of the SARFAESI Act, 2002 override the first charge created by Section 11(2) of the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952? |
| Ratio Decidendi |
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| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon |
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| Facts as Summarised by the Court |
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Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts and tribunals adjudicating SARFAESI enforcement and labour welfare dues |
| Persuasive For | High Courts, DRTs, and tribunals dealing with inter-legislative priority conflicts |
| Overrules | The impugned Bombay High Court directions that directed PF dues to be paid immediately before bank’s secured debt under Section 26-E |
| Follows | Maharashtra State Co-op. Bank Ltd. v. Asst. PF Comm’r; Punjab National Bank & Ors. v. Union of India & Ors. |
What’s New / What Lawyers Should Note
- Confirms that a statutory first charge under Section 11(2) EPF&MP Act (including contributions, interest, damages) cannot be displaced by SARFAESI priority under Section 26-E.
- Distinguishes between “first charge” (absolute statutory lien) and “priority” (preferred payment sequence).
- Requires SARFAESI sale proceeds to satisfy PF dues first, then secured debt.
- Affirms workmen can approach the MRTU & PULP Act authority to quantify dues de hors delay or condonation issues.
- Clarifies that once SARFAESI possession is taken, the liquidator’s role under the Sugar Commission process is rendered moot.
Summary of Legal Reasoning
- Section 26-E of SARFAESI grants secured creditors priority over all other debts but does not create a first charge.
- Section 11(2) of EPF&MP Act creates a statutory first charge on employer’s assets “notwithstanding anything contained in any other law.”
- Precedents establish that a statutory first charge prevails over later-in-time statutory priorities; non-obstante priority cannot override express charge.
- EPF dues (contributions, interest, penalties) must be paid from SARFAESI auction proceeds before bank’s secured claim.
- Workmen retain the right to have dues quantified by appropriate authority under MRTU & PULP Act.
Arguments by the Parties
Petitioner (Bank)
- Sections 26D and 26E of SARFAESI (effective 24.01.2020) confer overriding priority on secured creditors.
- Security registered with Central Registry; priority covers PF and wages claims.
- Workmen’s claim was grossly delayed and rejected by Industrial Court; they lack enforceable right.
Respondent (Workmen and Union)
- PF dues have first charge under Section 11(2) EPF&MP Act (Maharashtra State Co-op. Bank Ltd. v. APFC).
- Delay in approaching Industrial Court was condonable; Single Judge directed liquidator to quantify.
- High Court rightly protected workmen’s dues ahead of bank’s auction proceeds.
Factual Background
A cooperative sugar society mortgaged its factory assets to a cooperative bank as security for loans. The factory closed in 2000 and the society defaulted. The bank invoked SARFAESI (2006), took possession and leased the factory before auction. Workmen filed delayed claims for unpaid wages and PF dues; the Industrial Court dismissed them for want of condonation. The Bombay High Court directed that PF dues be paid immediately from sale proceeds, wages upon quantification, and balance applied to bank’s debt. The bank challenged these directions before the Supreme Court.
Statutory Analysis
- Section 23 SARFAESI Act: mandatory registration of security interest in Central Registry.
- Section 26-E SARFAESI Act: “after registration… debts due to any secured creditor shall be paid in priority over all other debts… notwithstanding anything contained in any other law.”
- Section 11(2) EPF&MP Act: “any amount due from an employer… shall be deemed to be the first charge on the assets… notwithstanding anything contained in any other law… paid in priority to all other debts.”
- Legislative timeline: EPF Act (1952, amended 1973) predates SARFAESI (2002, amended 2020).
- Non-obstante clause vs statutory first charge: priority vs charge.
Dissenting / Concurring Opinion Summary
No separate dissenting or concurring opinions were delivered.
Procedural Innovations
- Workmen may approach MRTU & PULP Act authority to quantify dues de hors condonation of delay.
- Clarifies that once SARFAESI possession is taken, prior liquidator appointment under Sugar Commissioner becomes redundant for debt quantification.
Alert Indicators
- ✔ Precedent Followed – Upholds principles from Maharashtra State Co-op. Bank Ltd. and Punjab National Bank.
- 🔄 Conflicting Decisions – Deviates from the impugned Bombay High Court order directing immediate PF payment before invoking SARFAESI.