Full Judgment Text
2025 INSC 1335
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.27740 of 2011)
Jalgaon District Central Coop. Bank Ltd.
…Appellant
Versus
State of Maharashtra and Ors.
…Respondents
With
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.28496 of 2011)
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.28042 of 2011)
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.30476 of 2011)
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.619 of 2012)
J U D G E M E N T
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
Signature Not Verified
against the properties of the mortgagee, a Co-operative
Digitally signed by
NARENDRA PRASAD
Date: 2025.11.20
18:22:40 IST
Reason:
Page 1 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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
1
Security Interest Act, 2002 , 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.
1
for short, ‘the SARFAESI Act’
Page 2 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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
2
& Ors. v. Union of India & Ors. .
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
3
Provident Fund Commissioner 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
2
(2022) 7 SCC 260
3
(2009) 10 SCC 123
Page 3 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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
Page 4 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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 liquidator for payment
of their dues and later in the year 2007 approached the
Industrial Court under the Maharashtra Recognition of
Trade Unions and Prevention of Unfair Labour Practices
4
Act, 1971 . The said application stood dismissed as it was
delayed and since there was no application filed for
condonation of the delay occasioned.
8. When the appellant-bank proceeded to sell the
properties, there were multiple writ petitions filed
challenging the same by the workmen and their Union
seeking recovery of the dues of the workmen and the
defaulted amounts of provident fund. A Director of the
appellant also challenged the auction proceedings,
4
for short, ‘the MRTU & PULP Act’
Page 5 of 25
CA @ SLP (C) No.27740 of 2011 etc.
specifically a corrigendum issued. The Society and its
members also filed separate writ petitions; all of which
were decided by the impugned judgment, against which
the appeals are filed. The impugned judgment relied on
the judgment in United Bank of India v. Satyawati Tondon
5
and Ors. , wherein this Court had expressed serious
concern in the High Courts’ continuing to ignore the
statutory remedies available under the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 and the
SARFAESI Act to invoke the jurisdiction under Article 226,
having serious adverse impact on the rights of the banks
and other financial institutions. The Division Bench which
heard the writ petitions by the common impugned
judgment left remedy to the different petitioners to
approach the appellate authority and insofar as the claim
made by the workmen, liberty was left to them to seek for
their dues once it is quantified by a competent court. The
provident fund dues were found to have priority which was
directed to be paid immediately on the sale of the
5
(2010) 8 SCC 110
Page 6 of 25
CA @ SLP (C) No.27740 of 2011 etc.
property, before applying the proceeds to the debt due to
the bank.
9. The directions issued, which the appellant-bank
seriously assail, found in paragraph 26, are as under: -
“26. In these circumstances, the following order
will meet the ends of justice:
(i) The bank may proceed with the sale in
accordance with the law.
(ii) The sale proceeds shall be deposited in a
separate account i.e. "No Lien Account" in the
bank. Unpaid wages and other legal dues of the
workers shall be paid from this account once the
dues are quantified by a competent court.
(iii) The provident fund dues shall be deposited
with the Provident Fund authorities, immediately
on the sale of the property and before applying the
proceeds to any other debt, including the banks
claim.
(iv) All other contentions raised by the
petitioners in the present petitions may be
agitated by them before the Debt Recovery
Tribunal under Section 17 of the Securitization
Act.”
Page 7 of 25
CA @ SLP (C) No.27740 of 2011 etc.
10. The contention raised by the appellant-bank is also
based on the introduction of Chapter IVA w.e.f. 24.01.2020.
Chapter IV constitutes a Central Registry and Section 23
requires that all the particulars of every transaction of
securitisation, asset reconstruction or creation of security
interest, shall be filed with the Central Registrar in the
manner provided, on payment of such fee as may be
prescribed. The appellant has complied with Section 23 as
is evident from Annexure A-40. The ‘Asset ID Search
Report’ (A-40) speaks of the appellant-bank having
complied with Section 23 insofar as the security interest
created on the assets of the respondent-society, having
been registered with the Central Registry, thus making
applicable Section 26E.
11. The provision under Section 26E, in addition to
Section 35, gives a debt of the secured creditor priority
over the workmen’s dues if it is registered with the Central
Authority as provided under the Act of 2002.
12. One other aspect to be observed is that the workmen
had approached the Industrial Court which rejected the
Page 8 of 25
CA @ SLP (C) No.27740 of 2011 etc.
different claims filed by them which have been annexed as
Annexures A-6 to A-16. A challenge was made to the order
of the Industrial Court in a writ petition which was disposed
of by Annexure R-3. The petitioners therein challenged the
order of the Industrial Court, claiming wages between
March 1998 to December 1999. The learned Single Judge
who disposed of the petition posed a question as to
whether the matter should be remanded to the Industrial
Court, since it was rejected on the ground of delay or
allowed to be agitated before the Liquidator. Eventually,
the Liquidator was directed to verify the claims and pass
an order computing the amounts due to the workmen,
pending disposal of the present appeals. The Liquidator’s
role is no more relevant since the secured creditor has
taken over the property and had proceeded for sale as per
the Act of 2002. There is hence no question of
determination of the amounts due, by the Liquidator,
2
13. Punjab National Bank considered the issue of
priority of Central Excise dues as against the secured
creditor to proceed under the SARFAESI Act. The first
Page 9 of 25
CA @ SLP (C) No.27740 of 2011 etc.
charge provided for the excise dues was incorporated in
the Central Excise Act, 1944 w.e.f. 08.04.2011, that too
subject to the SARFAESI Act, while the mortgage/
hypothecation of the properties to the secured creditor in
that case occurred long before. Hence, Section 13 of the
Act of 2002 read with Section 35 was found to enable an
overriding effect for the Act of 2002 over all other existing
laws. The claim for prior satisfaction of the excise dues was
rejected. This applies squarely to the dues of the workmen
which as of now has not even been quantified. As of now
since Section 26E gives a priority to the secured creditor’s
dues even if the claim of the workmen was accepted and
their dues determined, it could not have been recovered
from the sale proceeds of the auction conducted by the
secured creditor; if the proceeds could only satisfy the
debt due to the secured creditor.
14. The next question is as to the priority of the provident
fund dues which, in any event has a first charge created
under the Employees' Provident Funds and Miscellaneous
Page 10 of 25
CA @ SLP (C) No.27740 of 2011 etc.
6
Provisions Act, 1952 . This Court in Maharashtra State
3
Cooperative Bank Ltd. found that the priority under
Sections 11(1) and (2) of the EPF & MP Act would operate
against the statutory as well as non-statutory and secured
as well as un-secured debts, including mortgage or
pledge. Section 11 as amended in 1973, was found to be
as under:
“ 27 …It (sub-section (1) of Section 11) lays down
that the amount due from the employer in respect
of any contribution payable to the Fund or, as the
case may be, the Insurance Fund, damages
recoverable under Section 14-B, accumulations
required to be transferred under Section 15(2) or
any charges payable by him under any other
provision of the Act or the Scheme or the Insurance
Scheme shall be paid in priority to all other debts
in the distribution of the property of the insolvent
or the assets of the company being wound up, as
the case may be.
28 . Sub-section (2), which was added to Section 11
by Act 40 of 1973 contains a non obstante clause
and lays down that if any amount is due from the
employer whether in respect of the employees'
contribution deducted from the wages of the
employee or the employer's contribution, the
same shall be deemed to be the first charge on the
assets of the establishment and shall,
notwithstanding anything contained in any other
law for the time being in force, be paid in priority
to all other debts….”
6
for short, ‘the EPF&MP Act’
Page 11 of 25
CA @ SLP (C) No.27740 of 2011 etc.
15. We are in the present case concerned with a non
obstante clause , giving priority to the secured creditors
brought under the SARFAESI Act in the year 2020 which
overrides any other law in force at the time of its
incorporation, pitted against a specific first charge
provided in a welfare legislation, enacted earlier. The
above requires consideration based on the precedents of
this Court on similar issues of precedence, whether it be to
a priority conferred by statute, notwithstanding the law in
force at the time of enactment or a first charge statutorily
created in a stand-alone provision.
3
16. Maharashtra State Cooperative Bank Ltd. has to be
perused in detail, though the said decision is prior to
introduction of Chapter 26-E in the Act of 2002 with effect
from 24.01.2020. The issue arising therein was whether the
sugar bags pledged by a company in favour of the
appellant bank as security for repayment of a loan, could
be attached and sold in realization of provident fund dues.
The appellant bank contended that since the sugar bags
Page 12 of 25
CA @ SLP (C) No.27740 of 2011 etc.
were already pledged with the appellant bank, the first
charge created statutorily under Section 11(2) of the
EPF&MP Act cannot have priority over the dues of the
appellant bank. It was also alternatively contended that
even if the first charge could be said to operate for the
amounts determined under Section 7-A, being the
contributions of the employer and the employee, it could
not apply to interest payable under Section 7-Q and the
damages levied under Section 14-B.
17. This Court in Maharashtra State Cooperative Bank
3
Ltd. considered the background which led to the
enactment of EPF&MP Act, which was found belonging to
“the family of legislations enacted by Parliament in
furtherance of the mandate of Articles 38 and 43 of the
Constitution” (sic) , intended to give social security to the
workers employed in the factories and other
establishments; essentially a welfare legislation. On an
analysis of the provisions of the EPF&MP Act, it was found
to provide for framing of various schemes, establishment
of funds and a regulatory regime to ensure compliance by
Page 13 of 25
CA @ SLP (C) No.27740 of 2011 etc.
imposition of penalty and damages as also comprehensive
provisions for recovery by way of attachment and sale of
the assets of the employer. Sub-section (2) of Section 11
was held to be not only a declaration “that the amount due
from the employer towards contribution under the Act shall
be treated as the first charge of the assets of the
establishment, but also lays down that notwithstanding
anything contained in other law, such dues shall be paid in
priority to all other dues (sic. paragraph 28)” . Asserting that
the Act is a social welfare legislation intended to protect
the interest of weaker sections of the society it was found
imperative that the Court give a purposive interpretation
to the provisions, keeping in mind the Directive Principles
of State Policy embodied in the Constitution.
18. Builders Supply Corporation v. Union of India &
7
Ors. considered the question as to whether the tax
payable to the Union of India has priority over other debts,
which affirmed such priority. State Bank of Bikaner and
7
(1965) 2 SCR 289
Page 14 of 25
CA @ SLP (C) No.27740 of 2011 etc.
8
Jaipur v. National Iron Steel Rolling Corporation
considered the priority of an earlier mortgage as against
the first charge created under a sales tax enactment. It was
held unequivocally that the statutory first charge created
on the property of a dealer is on the entire property, the
title of which is held by the mortgagee. Despite the
mortgage it operates on the property as a whole, without
being subject to the mortgage, was the finding. A charge
was held to be a wider term, covering within its ambit, a
mortgage, giving absolute precedence to the charge
9
created. State of M.P. v. State Bank of Indore likewise
held the statutory first charge created under the sales tax
act to prevail over the banks charge created by a
mortgage.
3
19. In Maharashtra State Cooperative Bank Ltd. this
Court referred, with approval, to a decision of a Division
Bench of the Kerala High Court in Recovery Officer and
Assistant Provident Fund Commissioner v. Kerala
8
(1995) 2 SCC 19
9
(2002) 10 SCC 441
Page 15 of 25
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10
Financial Corporation , which considered the interplay
11
of Section 46-B of State Financial Corporations Act, 1951
with Section 11 of the EPF&MP Act. The Division Bench
emphasised the two facets of Section 11(2) of the EPF&MP
Act, primarily the first charge created and then the
declaration that it would have priority over all other debts
notwithstanding any law for the time being in force. Section
11(2) of EPF&MP Act having been enacted later, to the SFC
Act, was found to override the earlier legislation i.e.
Section 46-B which was an identical non-obstante clause.
Similar was the principle propounded in A.P. State
12
Financial Corporation v. Official Liquidator , wherein
Section 29 of the SFC Act was found to subserve Section
529(1) and Section 529A of the Companies Act, which
provisions were introduced subsequently with a social
purpose, i.e.: to protect the dues of a workman.
20. This Court in Maharashtra State Co-operative Bank
3
Ltd. while upholding the first charge and priority created
10
(2002) 3 LLJ 643
11
for short, ‘SFC Act’
12
(2000) 7 SCC 291
Page 16 of 25
CA @ SLP (C) No.27740 of 2011 etc.
under Section 11(2) of the EPF&MP Act also considered the
question as to whether the first charge would be restricted
to the amount determined under Section 7-A or would
include the interest and damages levied. Paragraph 67 of
the said decision is extracted hereunder:
“67. The expression “any amount due from an
employer” appearing in sub-section (2) of
Section 11 has to be interpreted keeping in
view the object of the Act and other provisions
contained therein including sub-section (1) of
Section 11 and Sections 7-A, 7-Q, 14-B and
15(2) which provide for determination of the
dues payable by the employer, liability of the
employer to pay interest in case the payment
of the amount due is delayed and also pay
damages, if there is default in making
contribution to the Fund. If any amount
payable by the employer becomes due and
the same is not paid within the stipulated time,
then the employer is required to pay interest
in terms of the mandate of Section 7-Q.
Likewise, default on the employer's part to
pay any contribution to the Fund can visit him
with the consequence of levy of damages.”
13
21. Union of India v. SICOM Ltd. was concerned with
the Common law doctrine of priority or precedence of
Crown debts vis-a-vis secured debts under the SFC Act of
1951. Therein, the appellant in satisfaction of amounts due
13
(2009) 2 SCC 121
Page 17 of 25
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to it proceeded against the properties of respondent No. 2.
Respondent No.2 had borrowed a sum from SICOM;
covered under the SFC Act, through an indenture of
mortgage based on which, on default, SICOM sought to
attach and seize the properties of the defaulter raising the
issue of first charge by way of a prior mortgage. It was held
that the common law principle of precedence conferred on
Crown debt was a law, within the meaning of Article 13 of
the Constitution of India, saved in terms of Article 372.
However, when a debt is secured by reason of the
provisions of a statute that becomes a first charge over the
properties having regard to the plain meaning of Article
372 of the Constitution of India, which prevails over the
Crown debt; an unsecured debt, was the finding. The Court
also referred to Section 46-B of the SFC Act which is a non-
obstante clause giving the provisions of the SFC Act an
overriding effect notwithstanding anything inconsistent in
any other law for the time being in force or any other
instrument having effect by virtue of any law.
Page 18 of 25
CA @ SLP (C) No.27740 of 2011 etc.
2
22. Punjab National Bank again considered the
question of priority of Crown debt, being the duty due
under the Central Excise Act of 1944, as against the
secured creditor. Therein the department had made a
confiscation order which however was not tenable, for
reason of the power in the rules permitting such
confiscation, having been omitted before the order was
passed. Section 35 of the Act of 2002 which is in pari materia
with Section 46-B of the SFC Act was noticed along with
Section 13 to find that the secured debt has a priority
especially when the Central Excise Act and Rules at that
time did not provide for a first charge; which was later
provided as per Section 11-E. The mere provision,
enabling recovery of debts due, deeming it to be arrears
due on land revenue, it was held, would not confer a
charge having precedence over all other debts. Even after
introduction of Section 11-E wherein a first charge was
created, Section 13 and Section 35 of the SARFAESI Act was
held to prevail, since the first charge created under Section
Page 19 of 25
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11-E of the Central Excise Act, 1944 was subject to the
provisions contained in the SARFAESI Act.
14
23. In Central Bank of India v. State of Kerala , a three-
Judge Bench was concerned with the first charge statutorily
created under the Bombay Sales Tax Act, 1959 and Kerala
General Sales Tax Act, 1963 inter alia as against the
SARFAESI Act. Despite Section 13 and Section 35 of the
SARFAESI Act, it was held that the GST Acts enacted by the
State Legislature under Entry 54 of List II, creating first
charge on the property of the dealer or person liable to
pay sales tax cannot be struck down on the ground of
inconsistency with the non-obstante clause in Section 35 of
the SARFAESI Act, both of which provided for only
preferential enforcement of security interest.
24. Employees Provident Fund Commissioner v.
15
Official Liquidator was concerned with the interplay of
again the EPF&MP Act and the Companies Act, specifically
Section 529-A. The question raised was as to whether the
14
(2009) 4 SCC 94
15
(2011) 10 SCC 727
Page 20 of 25
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employees’ dues under the Companies Act had a priority
as against the dues under the EPF&MP Act. It was held that
the non-obstante clause in Section 11(2) of the EPF Act is
not subject to the non-obstante clause in Section 529-A of
the Companies Act since the words “all other debts” in
Section 11(2) included debts due to secured creditors
whereas Section 529-A of the Companies Act merely
expanded the scope of workmen’s dues and placed them
on a par with debts due to secured creditors without
creating any first charge in respect thereof.
25. Hence, when there are two enactments conferring
priority in satisfaction of a debt coming under the
respective enactments, by virtue of a non-obstante clause
overriding the provisions of any law in force at that time,
the time in which the statute was enacted or the provision
was incorporated, assumes significance and the provision
latter in time would prevail. However, if there is a first
charge statutorily created, validly, dehors the non obstante
clause conferring priority over other debts, the statutory
charge would prevail. With these principles in mind, when
Page 21 of 25
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we look at the provisions under the SARFAESI Act and the
EPF&MP Act, the former with the incorporation of Section
26-E, we are of the opinion that there has to be found a first
charge to the EPF&MP Act dues, under Section 11(2) of that
Act.
26. We extract Section 11(2) of the EPF Act and Section
26-E of the SARFAESI Act hereunder.
“Sec. 11(2): Without prejudice to the provisions
of sub-section (1), if any amount is due from an
employer, whether in respect of the employee’s
contribution (deducted from the wages of the
employee) or the employer’s contribution, the
amount so due shall be deemed to be the first
charge on the assets of the establishment, and
shall, notwithstanding anything contained in any
other law for the time being in force, be paid in
priority to all other debts.
Sec. 26-E: Priority to secured creditors—
Notwithstanding anything contained in any
other law for the time being in force, after the
registration of security interest, the debts due to
any secured creditor shall be paid in priority
over all other debts and all revenues, taxes,
cesses and other rates payable to the Central
Government or State Government or local
authority.”
27. Undisputedly, SARFAESI Act is the latter act and if the
question was solely of the non-obstante clause giving it
Page 22 of 25
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overriding effect from any law for the time being in force,
the SARFAESI Act would prevail. However, in the EPF&MP
Act, Section 11(2) creates a statutory first charge on the
assets of the establishment for any amount due from an
employer, be it the employers’ or employees’
contribution, which would include any interest or damages
also as has been held in Maharashtra State Co-operative
3
Bank Limited . In that circumstance, the effect of the non
obstante clause giving precedence over any other law for
the time being in force pales into insignificance, as held in
13
Central Bank of India . There being a clear first charge
created under the EPF&MP Act, it overrides the priority
under Section 35 and Section 13 as also that conferred
under Section 26-E since a priority cannot be equated with
a first charge and cannot be given prevalence over the first
charge statutorily created.
28. On the above reasoning, we find that the workmen’s
dues which also has not been quantified as of now cannot
have any priority over the claim raised by the secured
creditor, the Bank, which is conferred a priority under
Page 23 of 25
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Section 26-E of the SARFAESI Act. However, from the
proceeds of the sale of the assets, the first charge would be
for the dues under the EPF&MP Act which includes not only
the contribution payable but also the interest, penalty and
damages if any imposed. Hence, the sale proceeds have to
be first applied in satisfaction of the dues under the
EPF&MP Act and then in satisfaction of the secured debt of
the appellant-bank.
29. On the above reasoning, we cannot but partly set
aside the impugned judgment and the directions therein.
The appellant-bank would be entitled to proceed with the
auction, if not already proceeded with and from the
proceeds received in auction, first the dues under the
EPF&MP Act will have to be satisfied and then the debts
due to the appellant Bank. We would only leave liberty to
the workmen to approach the appropriate authority under
the MRTU & PULP Act by an application to determine the
dues, which shall be considered de hors the order
rejecting the same on the ground of delay and de hors the
delay caused as such. Such determination would be
Page 24 of 25
CA @ SLP (C) No.27740 of 2011 etc.
necessitated if there is any amount remaining after
satisfaction of the provident fund dues and that of the
secured creditor.
30. The appeals are allowed, setting aside the impugned
judgment with the aforesaid directions.
31. Pending applications, if any, shall also stand
disposed of.
..…….……………………. CJI.
(B. R. GAVAI)
………….……………………. J.
(K. VINOD CHANDRAN)
New Delhi;
November 20, 2025.
Page 25 of 25
CA @ SLP (C) No.27740 of 2011 etc.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.27740 of 2011)
Jalgaon District Central Coop. Bank Ltd.
…Appellant
Versus
State of Maharashtra and Ors.
…Respondents
With
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.28496 of 2011)
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.28042 of 2011)
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.30476 of 2011)
Civil Appeal No…………. of 2025
(@Special Leave Petition (C) No.619 of 2012)
J U D G E M E N T
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
Signature Not Verified
against the properties of the mortgagee, a Co-operative
Digitally signed by
NARENDRA PRASAD
Date: 2025.11.20
18:22:40 IST
Reason:
Page 1 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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
1
Security Interest Act, 2002 , 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.
1
for short, ‘the SARFAESI Act’
Page 2 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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
2
& Ors. v. Union of India & Ors. .
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
3
Provident Fund Commissioner 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
2
(2022) 7 SCC 260
3
(2009) 10 SCC 123
Page 3 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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
Page 4 of 25
CA @ SLP (C) No.27740 of 2011 etc.
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 liquidator for payment
of their dues and later in the year 2007 approached the
Industrial Court under the Maharashtra Recognition of
Trade Unions and Prevention of Unfair Labour Practices
4
Act, 1971 . The said application stood dismissed as it was
delayed and since there was no application filed for
condonation of the delay occasioned.
8. When the appellant-bank proceeded to sell the
properties, there were multiple writ petitions filed
challenging the same by the workmen and their Union
seeking recovery of the dues of the workmen and the
defaulted amounts of provident fund. A Director of the
appellant also challenged the auction proceedings,
4
for short, ‘the MRTU & PULP Act’
Page 5 of 25
CA @ SLP (C) No.27740 of 2011 etc.
specifically a corrigendum issued. The Society and its
members also filed separate writ petitions; all of which
were decided by the impugned judgment, against which
the appeals are filed. The impugned judgment relied on
the judgment in United Bank of India v. Satyawati Tondon
5
and Ors. , wherein this Court had expressed serious
concern in the High Courts’ continuing to ignore the
statutory remedies available under the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 and the
SARFAESI Act to invoke the jurisdiction under Article 226,
having serious adverse impact on the rights of the banks
and other financial institutions. The Division Bench which
heard the writ petitions by the common impugned
judgment left remedy to the different petitioners to
approach the appellate authority and insofar as the claim
made by the workmen, liberty was left to them to seek for
their dues once it is quantified by a competent court. The
provident fund dues were found to have priority which was
directed to be paid immediately on the sale of the
5
(2010) 8 SCC 110
Page 6 of 25
CA @ SLP (C) No.27740 of 2011 etc.
property, before applying the proceeds to the debt due to
the bank.
9. The directions issued, which the appellant-bank
seriously assail, found in paragraph 26, are as under: -
“26. In these circumstances, the following order
will meet the ends of justice:
(i) The bank may proceed with the sale in
accordance with the law.
(ii) The sale proceeds shall be deposited in a
separate account i.e. "No Lien Account" in the
bank. Unpaid wages and other legal dues of the
workers shall be paid from this account once the
dues are quantified by a competent court.
(iii) The provident fund dues shall be deposited
with the Provident Fund authorities, immediately
on the sale of the property and before applying the
proceeds to any other debt, including the banks
claim.
(iv) All other contentions raised by the
petitioners in the present petitions may be
agitated by them before the Debt Recovery
Tribunal under Section 17 of the Securitization
Act.”
Page 7 of 25
CA @ SLP (C) No.27740 of 2011 etc.
10. The contention raised by the appellant-bank is also
based on the introduction of Chapter IVA w.e.f. 24.01.2020.
Chapter IV constitutes a Central Registry and Section 23
requires that all the particulars of every transaction of
securitisation, asset reconstruction or creation of security
interest, shall be filed with the Central Registrar in the
manner provided, on payment of such fee as may be
prescribed. The appellant has complied with Section 23 as
is evident from Annexure A-40. The ‘Asset ID Search
Report’ (A-40) speaks of the appellant-bank having
complied with Section 23 insofar as the security interest
created on the assets of the respondent-society, having
been registered with the Central Registry, thus making
applicable Section 26E.
11. The provision under Section 26E, in addition to
Section 35, gives a debt of the secured creditor priority
over the workmen’s dues if it is registered with the Central
Authority as provided under the Act of 2002.
12. One other aspect to be observed is that the workmen
had approached the Industrial Court which rejected the
Page 8 of 25
CA @ SLP (C) No.27740 of 2011 etc.
different claims filed by them which have been annexed as
Annexures A-6 to A-16. A challenge was made to the order
of the Industrial Court in a writ petition which was disposed
of by Annexure R-3. The petitioners therein challenged the
order of the Industrial Court, claiming wages between
March 1998 to December 1999. The learned Single Judge
who disposed of the petition posed a question as to
whether the matter should be remanded to the Industrial
Court, since it was rejected on the ground of delay or
allowed to be agitated before the Liquidator. Eventually,
the Liquidator was directed to verify the claims and pass
an order computing the amounts due to the workmen,
pending disposal of the present appeals. The Liquidator’s
role is no more relevant since the secured creditor has
taken over the property and had proceeded for sale as per
the Act of 2002. There is hence no question of
determination of the amounts due, by the Liquidator,
2
13. Punjab National Bank considered the issue of
priority of Central Excise dues as against the secured
creditor to proceed under the SARFAESI Act. The first
Page 9 of 25
CA @ SLP (C) No.27740 of 2011 etc.
charge provided for the excise dues was incorporated in
the Central Excise Act, 1944 w.e.f. 08.04.2011, that too
subject to the SARFAESI Act, while the mortgage/
hypothecation of the properties to the secured creditor in
that case occurred long before. Hence, Section 13 of the
Act of 2002 read with Section 35 was found to enable an
overriding effect for the Act of 2002 over all other existing
laws. The claim for prior satisfaction of the excise dues was
rejected. This applies squarely to the dues of the workmen
which as of now has not even been quantified. As of now
since Section 26E gives a priority to the secured creditor’s
dues even if the claim of the workmen was accepted and
their dues determined, it could not have been recovered
from the sale proceeds of the auction conducted by the
secured creditor; if the proceeds could only satisfy the
debt due to the secured creditor.
14. The next question is as to the priority of the provident
fund dues which, in any event has a first charge created
under the Employees' Provident Funds and Miscellaneous
Page 10 of 25
CA @ SLP (C) No.27740 of 2011 etc.
6
Provisions Act, 1952 . This Court in Maharashtra State
3
Cooperative Bank Ltd. found that the priority under
Sections 11(1) and (2) of the EPF & MP Act would operate
against the statutory as well as non-statutory and secured
as well as un-secured debts, including mortgage or
pledge. Section 11 as amended in 1973, was found to be
as under:
“ 27 …It (sub-section (1) of Section 11) lays down
that the amount due from the employer in respect
of any contribution payable to the Fund or, as the
case may be, the Insurance Fund, damages
recoverable under Section 14-B, accumulations
required to be transferred under Section 15(2) or
any charges payable by him under any other
provision of the Act or the Scheme or the Insurance
Scheme shall be paid in priority to all other debts
in the distribution of the property of the insolvent
or the assets of the company being wound up, as
the case may be.
28 . Sub-section (2), which was added to Section 11
by Act 40 of 1973 contains a non obstante clause
and lays down that if any amount is due from the
employer whether in respect of the employees'
contribution deducted from the wages of the
employee or the employer's contribution, the
same shall be deemed to be the first charge on the
assets of the establishment and shall,
notwithstanding anything contained in any other
law for the time being in force, be paid in priority
to all other debts….”
6
for short, ‘the EPF&MP Act’
Page 11 of 25
CA @ SLP (C) No.27740 of 2011 etc.
15. We are in the present case concerned with a non
obstante clause , giving priority to the secured creditors
brought under the SARFAESI Act in the year 2020 which
overrides any other law in force at the time of its
incorporation, pitted against a specific first charge
provided in a welfare legislation, enacted earlier. The
above requires consideration based on the precedents of
this Court on similar issues of precedence, whether it be to
a priority conferred by statute, notwithstanding the law in
force at the time of enactment or a first charge statutorily
created in a stand-alone provision.
3
16. Maharashtra State Cooperative Bank Ltd. has to be
perused in detail, though the said decision is prior to
introduction of Chapter 26-E in the Act of 2002 with effect
from 24.01.2020. The issue arising therein was whether the
sugar bags pledged by a company in favour of the
appellant bank as security for repayment of a loan, could
be attached and sold in realization of provident fund dues.
The appellant bank contended that since the sugar bags
Page 12 of 25
CA @ SLP (C) No.27740 of 2011 etc.
were already pledged with the appellant bank, the first
charge created statutorily under Section 11(2) of the
EPF&MP Act cannot have priority over the dues of the
appellant bank. It was also alternatively contended that
even if the first charge could be said to operate for the
amounts determined under Section 7-A, being the
contributions of the employer and the employee, it could
not apply to interest payable under Section 7-Q and the
damages levied under Section 14-B.
17. This Court in Maharashtra State Cooperative Bank
3
Ltd. considered the background which led to the
enactment of EPF&MP Act, which was found belonging to
“the family of legislations enacted by Parliament in
furtherance of the mandate of Articles 38 and 43 of the
Constitution” (sic) , intended to give social security to the
workers employed in the factories and other
establishments; essentially a welfare legislation. On an
analysis of the provisions of the EPF&MP Act, it was found
to provide for framing of various schemes, establishment
of funds and a regulatory regime to ensure compliance by
Page 13 of 25
CA @ SLP (C) No.27740 of 2011 etc.
imposition of penalty and damages as also comprehensive
provisions for recovery by way of attachment and sale of
the assets of the employer. Sub-section (2) of Section 11
was held to be not only a declaration “that the amount due
from the employer towards contribution under the Act shall
be treated as the first charge of the assets of the
establishment, but also lays down that notwithstanding
anything contained in other law, such dues shall be paid in
priority to all other dues (sic. paragraph 28)” . Asserting that
the Act is a social welfare legislation intended to protect
the interest of weaker sections of the society it was found
imperative that the Court give a purposive interpretation
to the provisions, keeping in mind the Directive Principles
of State Policy embodied in the Constitution.
18. Builders Supply Corporation v. Union of India &
7
Ors. considered the question as to whether the tax
payable to the Union of India has priority over other debts,
which affirmed such priority. State Bank of Bikaner and
7
(1965) 2 SCR 289
Page 14 of 25
CA @ SLP (C) No.27740 of 2011 etc.
8
Jaipur v. National Iron Steel Rolling Corporation
considered the priority of an earlier mortgage as against
the first charge created under a sales tax enactment. It was
held unequivocally that the statutory first charge created
on the property of a dealer is on the entire property, the
title of which is held by the mortgagee. Despite the
mortgage it operates on the property as a whole, without
being subject to the mortgage, was the finding. A charge
was held to be a wider term, covering within its ambit, a
mortgage, giving absolute precedence to the charge
9
created. State of M.P. v. State Bank of Indore likewise
held the statutory first charge created under the sales tax
act to prevail over the banks charge created by a
mortgage.
3
19. In Maharashtra State Cooperative Bank Ltd. this
Court referred, with approval, to a decision of a Division
Bench of the Kerala High Court in Recovery Officer and
Assistant Provident Fund Commissioner v. Kerala
8
(1995) 2 SCC 19
9
(2002) 10 SCC 441
Page 15 of 25
CA @ SLP (C) No.27740 of 2011 etc.
10
Financial Corporation , which considered the interplay
11
of Section 46-B of State Financial Corporations Act, 1951
with Section 11 of the EPF&MP Act. The Division Bench
emphasised the two facets of Section 11(2) of the EPF&MP
Act, primarily the first charge created and then the
declaration that it would have priority over all other debts
notwithstanding any law for the time being in force. Section
11(2) of EPF&MP Act having been enacted later, to the SFC
Act, was found to override the earlier legislation i.e.
Section 46-B which was an identical non-obstante clause.
Similar was the principle propounded in A.P. State
12
Financial Corporation v. Official Liquidator , wherein
Section 29 of the SFC Act was found to subserve Section
529(1) and Section 529A of the Companies Act, which
provisions were introduced subsequently with a social
purpose, i.e.: to protect the dues of a workman.
20. This Court in Maharashtra State Co-operative Bank
3
Ltd. while upholding the first charge and priority created
10
(2002) 3 LLJ 643
11
for short, ‘SFC Act’
12
(2000) 7 SCC 291
Page 16 of 25
CA @ SLP (C) No.27740 of 2011 etc.
under Section 11(2) of the EPF&MP Act also considered the
question as to whether the first charge would be restricted
to the amount determined under Section 7-A or would
include the interest and damages levied. Paragraph 67 of
the said decision is extracted hereunder:
“67. The expression “any amount due from an
employer” appearing in sub-section (2) of
Section 11 has to be interpreted keeping in
view the object of the Act and other provisions
contained therein including sub-section (1) of
Section 11 and Sections 7-A, 7-Q, 14-B and
15(2) which provide for determination of the
dues payable by the employer, liability of the
employer to pay interest in case the payment
of the amount due is delayed and also pay
damages, if there is default in making
contribution to the Fund. If any amount
payable by the employer becomes due and
the same is not paid within the stipulated time,
then the employer is required to pay interest
in terms of the mandate of Section 7-Q.
Likewise, default on the employer's part to
pay any contribution to the Fund can visit him
with the consequence of levy of damages.”
13
21. Union of India v. SICOM Ltd. was concerned with
the Common law doctrine of priority or precedence of
Crown debts vis-a-vis secured debts under the SFC Act of
1951. Therein, the appellant in satisfaction of amounts due
13
(2009) 2 SCC 121
Page 17 of 25
CA @ SLP (C) No.27740 of 2011 etc.
to it proceeded against the properties of respondent No. 2.
Respondent No.2 had borrowed a sum from SICOM;
covered under the SFC Act, through an indenture of
mortgage based on which, on default, SICOM sought to
attach and seize the properties of the defaulter raising the
issue of first charge by way of a prior mortgage. It was held
that the common law principle of precedence conferred on
Crown debt was a law, within the meaning of Article 13 of
the Constitution of India, saved in terms of Article 372.
However, when a debt is secured by reason of the
provisions of a statute that becomes a first charge over the
properties having regard to the plain meaning of Article
372 of the Constitution of India, which prevails over the
Crown debt; an unsecured debt, was the finding. The Court
also referred to Section 46-B of the SFC Act which is a non-
obstante clause giving the provisions of the SFC Act an
overriding effect notwithstanding anything inconsistent in
any other law for the time being in force or any other
instrument having effect by virtue of any law.
Page 18 of 25
CA @ SLP (C) No.27740 of 2011 etc.
2
22. Punjab National Bank again considered the
question of priority of Crown debt, being the duty due
under the Central Excise Act of 1944, as against the
secured creditor. Therein the department had made a
confiscation order which however was not tenable, for
reason of the power in the rules permitting such
confiscation, having been omitted before the order was
passed. Section 35 of the Act of 2002 which is in pari materia
with Section 46-B of the SFC Act was noticed along with
Section 13 to find that the secured debt has a priority
especially when the Central Excise Act and Rules at that
time did not provide for a first charge; which was later
provided as per Section 11-E. The mere provision,
enabling recovery of debts due, deeming it to be arrears
due on land revenue, it was held, would not confer a
charge having precedence over all other debts. Even after
introduction of Section 11-E wherein a first charge was
created, Section 13 and Section 35 of the SARFAESI Act was
held to prevail, since the first charge created under Section
Page 19 of 25
CA @ SLP (C) No.27740 of 2011 etc.
11-E of the Central Excise Act, 1944 was subject to the
provisions contained in the SARFAESI Act.
14
23. In Central Bank of India v. State of Kerala , a three-
Judge Bench was concerned with the first charge statutorily
created under the Bombay Sales Tax Act, 1959 and Kerala
General Sales Tax Act, 1963 inter alia as against the
SARFAESI Act. Despite Section 13 and Section 35 of the
SARFAESI Act, it was held that the GST Acts enacted by the
State Legislature under Entry 54 of List II, creating first
charge on the property of the dealer or person liable to
pay sales tax cannot be struck down on the ground of
inconsistency with the non-obstante clause in Section 35 of
the SARFAESI Act, both of which provided for only
preferential enforcement of security interest.
24. Employees Provident Fund Commissioner v.
15
Official Liquidator was concerned with the interplay of
again the EPF&MP Act and the Companies Act, specifically
Section 529-A. The question raised was as to whether the
14
(2009) 4 SCC 94
15
(2011) 10 SCC 727
Page 20 of 25
CA @ SLP (C) No.27740 of 2011 etc.
employees’ dues under the Companies Act had a priority
as against the dues under the EPF&MP Act. It was held that
the non-obstante clause in Section 11(2) of the EPF Act is
not subject to the non-obstante clause in Section 529-A of
the Companies Act since the words “all other debts” in
Section 11(2) included debts due to secured creditors
whereas Section 529-A of the Companies Act merely
expanded the scope of workmen’s dues and placed them
on a par with debts due to secured creditors without
creating any first charge in respect thereof.
25. Hence, when there are two enactments conferring
priority in satisfaction of a debt coming under the
respective enactments, by virtue of a non-obstante clause
overriding the provisions of any law in force at that time,
the time in which the statute was enacted or the provision
was incorporated, assumes significance and the provision
latter in time would prevail. However, if there is a first
charge statutorily created, validly, dehors the non obstante
clause conferring priority over other debts, the statutory
charge would prevail. With these principles in mind, when
Page 21 of 25
CA @ SLP (C) No.27740 of 2011 etc.
we look at the provisions under the SARFAESI Act and the
EPF&MP Act, the former with the incorporation of Section
26-E, we are of the opinion that there has to be found a first
charge to the EPF&MP Act dues, under Section 11(2) of that
Act.
26. We extract Section 11(2) of the EPF Act and Section
26-E of the SARFAESI Act hereunder.
“Sec. 11(2): Without prejudice to the provisions
of sub-section (1), if any amount is due from an
employer, whether in respect of the employee’s
contribution (deducted from the wages of the
employee) or the employer’s contribution, the
amount so due shall be deemed to be the first
charge on the assets of the establishment, and
shall, notwithstanding anything contained in any
other law for the time being in force, be paid in
priority to all other debts.
Sec. 26-E: Priority to secured creditors—
Notwithstanding anything contained in any
other law for the time being in force, after the
registration of security interest, the debts due to
any secured creditor shall be paid in priority
over all other debts and all revenues, taxes,
cesses and other rates payable to the Central
Government or State Government or local
authority.”
27. Undisputedly, SARFAESI Act is the latter act and if the
question was solely of the non-obstante clause giving it
Page 22 of 25
CA @ SLP (C) No.27740 of 2011 etc.
overriding effect from any law for the time being in force,
the SARFAESI Act would prevail. However, in the EPF&MP
Act, Section 11(2) creates a statutory first charge on the
assets of the establishment for any amount due from an
employer, be it the employers’ or employees’
contribution, which would include any interest or damages
also as has been held in Maharashtra State Co-operative
3
Bank Limited . In that circumstance, the effect of the non
obstante clause giving precedence over any other law for
the time being in force pales into insignificance, as held in
13
Central Bank of India . There being a clear first charge
created under the EPF&MP Act, it overrides the priority
under Section 35 and Section 13 as also that conferred
under Section 26-E since a priority cannot be equated with
a first charge and cannot be given prevalence over the first
charge statutorily created.
28. On the above reasoning, we find that the workmen’s
dues which also has not been quantified as of now cannot
have any priority over the claim raised by the secured
creditor, the Bank, which is conferred a priority under
Page 23 of 25
CA @ SLP (C) No.27740 of 2011 etc.
Section 26-E of the SARFAESI Act. However, from the
proceeds of the sale of the assets, the first charge would be
for the dues under the EPF&MP Act which includes not only
the contribution payable but also the interest, penalty and
damages if any imposed. Hence, the sale proceeds have to
be first applied in satisfaction of the dues under the
EPF&MP Act and then in satisfaction of the secured debt of
the appellant-bank.
29. On the above reasoning, we cannot but partly set
aside the impugned judgment and the directions therein.
The appellant-bank would be entitled to proceed with the
auction, if not already proceeded with and from the
proceeds received in auction, first the dues under the
EPF&MP Act will have to be satisfied and then the debts
due to the appellant Bank. We would only leave liberty to
the workmen to approach the appropriate authority under
the MRTU & PULP Act by an application to determine the
dues, which shall be considered de hors the order
rejecting the same on the ground of delay and de hors the
delay caused as such. Such determination would be
Page 24 of 25
CA @ SLP (C) No.27740 of 2011 etc.
necessitated if there is any amount remaining after
satisfaction of the provident fund dues and that of the
secured creditor.
30. The appeals are allowed, setting aside the impugned
judgment with the aforesaid directions.
31. Pending applications, if any, shall also stand
disposed of.
..…….……………………. CJI.
(B. R. GAVAI)
………….……………………. J.
(K. VINOD CHANDRAN)
New Delhi;
November 20, 2025.
Page 25 of 25
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