In a significant ruling that settles the long-standing conflict between secured creditors and workers over priority in distribution of assets, the Supreme Court on November 20, 2025, delivered a landmark judgment clarifying that Provident Fund (PF) dues enjoy absolute statutory precedence over all other debts, including those of secured creditors proceeding under the SARFAESI Act. The decision, delivered by a Bench led by Chief Justice B.R. Gavai and Justice K. Vinod Chandran, carries major implications for financial institutions, liquidators, workmen of defunct industrial establishments, and ongoing recovery proceedings.
The case arose from the liquidation of a cooperative sugar factory in Maharashtra whose assets had been mortgaged to the Jalgaon District Central Co-operative Bank for substantial loans amounting to more than ₹30 crore. After the factory closed in the early 2000s due to massive losses, the Bank invoked proceedings under the SARFAESI Act, took possession of the property, and sought to auction it to recover dues. Meanwhile, hundreds of workers claimed unpaid wages and Provident Fund contributions, alleging long-standing defaults by the management. Their claims were initially rejected by the Industrial Court due to delay, but the High Court later permitted them to approach the Liquidator.
A Division Bench of the Bombay High Court held that PF dues should be cleared first and wages could be paid after they were quantified. Challenging this, the Bank argued before the Supreme Court that the 2020 amendment to the SARFAESI Act—specifically Section 26E, which grants priority to registered secured creditors—gave banks an overriding claim over all other debts, including workmen’s dues and government claims.
However, the Supreme Court disagreed, conducting an extensive analysis of statutory “first charge” provisions, welfare legislation, and prior precedents. The Bench noted that Section 11(2) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 creates a statutory first charge over the assets of an establishment for unpaid PF contributions, interest and damages. This first charge, the Court held, is stronger and more comprehensive than the “priority” created under Section 26E of the SARFAESI Act, which merely provides preferential treatment and does not create a charge on the property.
The Bench emphasised that when two statutes contain overriding clauses, the presence of a statutory first charge takes precedence over a mere priority clause, even if the latter is enacted later. Observing that the EPF Act is a welfare legislation backed by constitutional directives, the Court reaffirmed earlier decisions such as Maharashtra State Cooperative Bank Ltd. v. APFC and Central Bank of India v. State of Kerala, concluding that PF dues must be settled before any secured creditor recovers its debts.
As a result, the Supreme Court directed that the Bank may proceed with the auction of the sugar factory’s properties, but the sale proceeds must first be used to discharge all PF dues, including contributions, interest, penalties and damages. Only the remaining balance, if any, can be utilized to pay the Bank’s secured debt. The Court also held that unquantified wage claims of workmen cannot take precedence over the Bank’s debt, but granted workers liberty to seek fresh determination of such dues before the competent authority, irrespective of prior technical dismissal for delay.
The judgment provides much-needed clarity in the interplay between welfare legislation and financial recovery laws, reaffirming the centrality of workers’ statutory entitlements. While securing the recovery rights of banks, the Court ensured that the social security of employees remains protected. The ruling will serve as a crucial precedent for future disputes involving insolvent establishments, competing debts, and conflicting statutory priorities.
Case: Jalgaon District Central Co-operative Bank Ltd. v. State of Maharashtra & Others
Decision Date: 20 November 2025
Court: Supreme Court of India