EPF Dues have First Charge Over Secured Creditors under SARFAESI Act: Supreme Court [Read Order]
The court ruled that the EPF Act is a welfare legislation intended to protect workers' interests and includes not only contributions but also interest, penalties, and damages.
The Supreme Court has ruled that Employees' Provident Fund (EPF) dues have a first charge over secured creditors under the SARFAESI Act, allowing Jalgaon District Central Coop. Bank to proceed with the auction of mortgaged properties but requiring that sale proceeds first satisfy EPF dues before satisfying the bank's debt.
The case involved multiple appeals filed by Jalgaon District Central Coop. Bank against the State of Maharashtra and others, including workmen and their union, regarding the priority of claims over properties of a defunct sugar factory that had defaulted on loans. The bank had registered its security interest with the Central Registry under SARFAESI Act and claimed priority under Section 26E, while the workmen claimed their dues and EPF contributions should have priority.
The core legal issue centered on the interplay between Section 11(2) of the EPF Act (which creates a statutory first charge) and Section 26E of SARFAESI Act (which gives priority to secured creditors). The bank argued that its registered security interest under the SARFAESI Act, introduced in 2020, should prevail over the workers' claims, while the workmen contended that EPF dues have a first charge under welfare legislation.
The court, comprising Justice K. VinodChandran, analyzed the distinction between a "first charge" and "priority," holding that a statutory first charge created under the EPF Act prevails over the priority provision in SARFAESI Act. The bench noted that while SARFAESI Act is the later enactment, the first charge created under EPF Act cannot be overridden as it operates on the entire property without being subject to the mortgage.
The court ruled that the EPF Act is a welfare legislation intended to protect workers' interests and includes not only contributions but also interest, penalties, and damages.
Consequently, the Supreme Court allowed the appeals and set aside the previous judgment, directing that sale proceeds from the mortgaged properties must first satisfy EPF dues before satisfying the bank's debt. The court left liberty to the workmen to approach the appropriate authority under the MRTU & PULP Act to determine their dues, which shall be considered de hors the previous order rejecting them on grounds of delay.Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates
