The Supreme Court of India has set aside a Karnataka High Court order in a case involving M/s Edelweiss Asset Reconstruction Limited (EARC) and the Employees Provident Fund Organisation (EPFO). The apex court ruled that the matter requires a fresh hearing after impleading Axis Bank as a party, given its claim over the auctioned property under the SARFAESI Act, 2002.
Background of the Dispute
The case originated from the defaults of M/s Acropetal Technologies Pvt. Ltd., which failed to pay provident fund dues since July 2013. After an inquiry, the Regional PF Commissioner, Bengaluru determined a liability of ₹1.28 crore against the company in June 2015. EPFO invoked Section 11(2) of the PF Act, 1952, claiming priority over assets of the establishment.
Axis Bank, however, had already declared the company's loan accounts as Non-Performing Assets (NPAs) and initiated property auctions under the SARFAESI Act. Disputes arose when both EPFO and Axis Bank claimed priority rights over the Attibele property, which Axis Bank eventually sold in March 2016 for around ₹12 crore.
Later, Edelweiss Asset Reconstruction Ltd. (EARC) auctioned two other properties - Kammanahalli and Palya - realizing around ₹7 crore. EPFO demanded ₹2.08 crore from EARC, but the company deposited ₹75 lakh as an interim measure after challenging the recovery in the Karnataka High Court.
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In February 2023, the Karnataka High Court dismissed EARC’s petition and ordered that the deposited ₹75 lakh be transferred to EPFO. EARC appealed to the Supreme Court, arguing that EPFO’s remaining dues should be recovered from Axis Bank, which had already gained higher proceeds from property auctions.
The bench of Justice Vikram Nath, Justice Sanjay Karol, and Justice Sandeep Mehta held that the High Court erred in deciding the case without impleading Axis Bank.
"It would be appropriate that the High Court first deals with the issues raised by Axis Bank that it has first charge and priority over and above the EPFO to satisfy its dues," the Supreme Court observed.
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The Court noted that while EPFO claimed statutory priority under the PF Act, Axis Bank relied on Section 35 of the SARFAESI Act. Since both laws provide conflicting claims of priority, the High Court must examine and decide which prevails.
The Supreme Court allowed EARC's appeal, set aside the High Court’s order, and restored the writ petition for a fresh hearing. It directed the Karnataka High Court to implead Axis Bank and decide the matter after giving all parties an opportunity to present their claims.
Case: M/S Edelweiss Asset Reconstruction Limited vs. Regional PF Commissioner-II and Recovery Officer, RO Bengaluru (Koramangala) & Anr.
Case No.: Civil Appeal No…./2025 (Arising out of SLP (Civil) No. 11069 of 2024)
