Jalgaon District Central Coop Bank Ltd vs State Of Maharashtra

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)

JUDGEMENT

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

Security Interest Act, 20021, 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

& Ors. v. Union of India & Ors.2.

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

Provident Fund Commissioner3 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

Act, 19714. 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

and Ors.5, 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,

13. Punjab National Bank2 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. Provisions Act, 19526. This Court in Maharashtra State

Cooperative Bank Ltd.3 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.

16. Maharashtra State Cooperative Bank Ltd.3 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

Ltd.3 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 &

Ors.7 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. Jaipur v. National Iron Steel Rolling Corporation8

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

created. State of M.P. v. State Bank of Indore9 likewise

held the statutory first charge created under the sales tax

act to prevail over the banks charge created by a

mortgage.

19. In Maharashtra State Cooperative Bank Ltd.3 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. Financial Corporation10, which considered the interplay

of Section 46-B of State Financial Corporations Act, 195111

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

Financial Corporation v. Official Liquidator12, 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

Ltd.3 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.”

21. Union of India v. SICOM Ltd.13 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.

22. Punjab National Bank2 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.

23. In Central Bank of India v. State of Kerala14, 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.

Official Liquidator15 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

Bank Limited3. 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

Central Bank of India13. 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 CA @ SLP (C) No.27740 of 2011 etc.