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Jalgaon District Central Coop. Bank Ltd. vs. State of Maharashtra and Ors.

Not available · 2025 INSC 1335Decided 20 Nov 2025
Not available

Background

A Co-operative Bank (the appellant), acting as a secured creditor, sought to enforce its mortgage over the sugar-manufacturing factory assets of a defaulting Co-operative Society. Having registered its security interest with the Central Registry under the SARFAESI Act, 2002, the Bank claimed priority over its dues even ahead of workmen's dues and unpaid Provident Fund contributions, relying on Section 26E of the SARFAESI Act. The factory had become defunct and the Society had defaulted on its loan, prompting the Bank to proceed against the mortgaged property.

Decision Breakdown

The Supreme Court held that while a secured creditor's dues under Section 26E of the SARFAESI Act generally have priority, dues payable under the Employees' Provident Funds and Miscellaneous Provisions Act (EPF&MP Act) (including contributions, interest, penalty and damages) must first be satisfied out of the sale proceeds before the secured creditor's debt. The Court partly set aside the impugned High Court judgment, allowing the Bank to proceed with the auction, but directed that EPF&MP Act dues be paid first, followed by the Bank's dues. Workmen were given liberty to approach the appropriate authority to determine any further dues owed to them from any surplus.

Lesson Learnt

Even though secured creditors generally enjoy priority under the SARFAESI Act, statutory Provident Fund dues of workers rank ahead of a bank's secured debt when a defaulting employer's assets are sold: a protection that ordinary employees and their families should be aware of when an employer becomes insolvent.

Official source (sci.gov.in)View Judgment (PDF)

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