Legal Review and Analysis of Jalgaon District Central Coop Bank Ltd vs State of Maharashtra 2025 INSC 1335

In-Short

Case: Jalgaon District Central Coop. Bank Ltd. vs. State of Maharashtra (2025 INSC 1335): Supreme Court holds that the statutory first charge for Provident Fund dues under the EPF Act prevails over the priority granted to secured creditors under the SARFAESI Act, directing that PF dues be paid first from the sale of secured assets.

1. Heading of the Judgment

Case Name: Jalgaon District Central Coop. Bank Ltd. vs. State of Maharashtra & Ors.
Citation: 2025 INSC 1335
Court: Supreme Court of India
Jurisdiction: Civil Appellate Jurisdiction
Special Leave Petition (C) No.: 27740 of 2011 (along with other connected appeals)
Date of Judgment: November 20, 2025
Judges: Chief Justice B. R. Gavai and Justice K. Vinod Chandran

2. Related Laws and Sections

The judgment primarily discusses and interprets the following legal provisions:

• The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act):
  Section 13: Enforcement of security interest.
  Section 26E: Priority to secured creditors (introduced in 2020).
  Section 35: Overriding effect of the Act.

• The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act):
  Section 11(2): Creates a statutory first charge on the assets of the establishment for provident fund dues.

• Precedents on Conflicting Charges:
  Maharashtra State Cooperative Bank Ltd. v. Assistant Provident Fund Commissioner (2009) 10 SCC 123
  Central Bank of India vs State of Kerala (2009) 4 SCC 94
  Punjab National Bank & Ors. vs Union of India & Ors. (2022) 7 SCC 260

3. Basic Judgment Details

This civil appeal was filed before the Supreme Court by a secured creditor, Jalgaon District Central Cooperative Bank Ltd., challenging the judgment of the Bombay High Court. The High Court had directed that from the sale proceeds of a defunct sugar factory's assets:

1. Provident Fund (PF) dues be paid first.

2. The remaining amount be kept in a "No Lien Account" for payment of workmen's dues, once quantified.

3. The bank's claim as a secured creditor would be satisfied thereafter.

The appellant-bank argued that its debt, registered under the SARFAESI Act, had priority over all other claims, including those of workmen and PF authorities, by virtue of Section 26E of the SARFAESI Act.

4. Core Principle and In-Depth Analysis of the Judgment

The core of this judgment is the resolution of a conflict between two statutory rights: the priority of a secured creditor under the SARFAESI Act and the statutory first charge created for welfare dues under the EPF Act.

A. The Central Issue: Priority under SARFAESI vs. First Charge under EPF Act

The primary legal issue was whether the appellant-bank, as a secured creditor who had registered its security interest under the SARFAESI Act, had a superior claim to the sale proceeds over the dues of the Provident Fund authorities, for which a statutory first charge is created under Section 11(2) of the EPF & MP Act.

• The Bank's Contention based on Section 26E of SARFAESI Act:
  The bank relied on Section 26E, introduced in 2020, which states: "Notwithstanding anything contained in any other law... the debts due to any secured creditor shall be paid in priority over all other debts..." The bank argued that this provision, being later in time and containing a non-obstante clause, overrode all previous laws, including the EPF Act.

• The Conflict with Section 11(2) of the EPF & MP Act:
  Section 11(2) of the EPF Act states: "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." This provision also contains a non-obstante clause and specifically creates a first charge on the assets.

B. The Supreme Court's Legal Reasoning and Resolution

The Supreme Court engaged in a detailed analysis of precedents to resolve this clash of non-obstante clauses.

• The Key Distinction: "Priority" vs. "First Charge":
  The Court drew a crucial legal distinction. It held that a statutory "first charge" is a specific encumbrance on the property itself, a right in rem that attaches to the asset. A provision granting "priority" in payment, on the other hand, is a right in personam that dictates the sequence of payment from a common pool of funds but does not create a charge on the asset. The Court reasoned that a first charge, being a higher and more substantive right, must prevail over a mere priority in payment.

• Analysis of Precedents:
  The Court relied heavily on Maharashtra State Cooperative Bank Ltd. (2009), which had unequivocally held that the first charge under Section 11(2) of the EPF Act operates against all other debts, including secured debts. It also referenced Central Bank of India v. State of Kerala (2009), where it was held that a statutory first charge created by a State law under Entry 54 of List II could not be struck down by the non-obstante clause of the SARFAESI Act.
  The Court further noted that while Section 26E of the SARFAESI Act is a later law, the first charge under Section 11(2) of the EPF Act is a substantive legal creation that is not extinguished by a subsequent law granting priority, unless that later law explicitly extinguishes the charge.

• Final Legal Position:
  The Supreme Court concluded that the statutory first charge created by Section 11(2) of the EPF & MP Act prevails over the priority granted to secured creditors under Section 26E of the SARFAESI Act. This first charge covers not only the principal contributions but also interest, penalties, and damages recoverable under the EPF Act.

• Decision on Workmen's Dues:
  Regarding the unquantified dues of the workmen (as distinct from PF dues), the Court held that they do not have any priority over the bank's claim. The bank's debt, protected by Section 26E, has priority over the workmen's dues. The workmen were given liberty to get their dues quantified, but their recovery would be subject to the prior satisfaction of the PF dues and the bank's debt.

5. Final Outcome of the Judgment

The Supreme Court partly allowed the appeals and modified the directions of the High Court as follows:

1. The appellant-bank is entitled to proceed with the auction of the secured assets.

2. From the sale proceeds, the dues under the EPF & MP Act (including interest and damages) must be paid first, as they constitute a first charge on the assets.

3. The remaining proceeds shall then be applied to satisfy the debt of the secured creditor (the appellant-bank).

4. Only if any surplus remains after satisfying the PF dues and the bank's debt, can the workmen's dues be paid from it, subject to their being quantified by the appropriate authority.

6. MCQs Based on the Judgment

MCQ 1: As per the Supreme Court's judgment in Jalgaon District Central Coop. Bank Ltd. vs. State of Maharashtra (2025 INSC 1335), which of the following has the highest claim on the sale proceeds of a defaulter's assets?
a) Dues of a secured creditor registered under the SARFAESI Act.
b) Unpaid wages of workmen as directed by an Industrial Court.
c) Provident Fund dues under the EPF & MP Act.
d) Claims of unsecured creditors.

MCQ 2: The Supreme Court resolved the conflict between Section 26E of the SARFAESI Act and Section 11(2) of the EPF Act by holding that?
a) The later enactment always prevails over the earlier one.
b) A statutory "first charge" prevails over a statutory "priority".
c) The non-obstante clause in the SARFAESI Act is stronger.
d) Workmen's dues must always be paid before secured creditors.