In a significant ruling that could impact distressed industries across Maharashtra, the Supreme Court on Thursday clarified how sale proceeds of a defunct Jalgaon sugar factory will be distributed between the workers’ provident fund dues and the bank that financed the cooperative mill. The courtroom saw intense arguments from both sides, with the bench occasionally pausing to unpack complex statutory overlaps in simple terms. At one point, the bench observed, “A statutory first charge cannot be pushed aside merely because a later law says ‘priority’.”
Background
The dispute revolves around a cooperative sugar factory in Jalgaon that shut down in 2000 after massive losses. The factory had mortgaged its land, machinery, and stock to the Jalgaon District Central Cooperative Bank, which later invoked the SARFAESI Act to take possession of the assets.
Workers, on the other hand, claimed years of unpaid wages and Provident Fund (PF) amounts. Their attempt to recover dues before the Industrial Court was dismissed due to delay, yet a Single Judge of the Bombay High Court had earlier allowed them to raise their grievance before the liquidator.
Meanwhile, multiple petitions challenged the bank’s auction plans, leading to a Bombay High Court order directing that sale proceeds be set aside in a “No Lien Account” and that PF dues be cleared before the bank touched a rupee. The bank appealed, relying heavily on amendments to the SARFAESI Act-especially Section 26-E, which grants priority to secured creditors.
Court’s Observations
The Supreme Court bench, led by Justice K. Vinod Chandran, spent considerable time comparing two competing statutory protections:
- Section 26-E of SARFAESI, inserted in 2020, giving banks priority after registration of security interest.
- Section 11(2) of the EPF Act, which creates a statutory first charge for PF dues.
The bench acknowledged the bank’s argument that its mortgage and registration with the Central Registry should give it precedence. But the judges were equally attentive to the workmen’s plea that PF dues-being part of a welfare law-cannot be diluted.
In a moment that summed up the Court’s thinking, Justice Chandran remarked, “Priority is not the same as a first charge. A first charge stands on higher footing and it overrides later-enacted priorities.”
The Court also noted that workers’ wage claims remain unquantified but clarified that this by itself cannot defeat the bank’s priority over ordinary dues. Still, PF dues belong to a different category altogether.
Decision
Citing earlier rulings on statutory charges and workers’ rights, the Supreme Court ultimately partly set aside the Bombay High Court’s order.
The final directions are clear:
- The bank may proceed with the auction of the factory assets.
- From the auction proceeds, PF dues must be satisfied first, including contribution, interest, penalties, and damages.
- Only after clearing PF dues can the bank recover its secured debt.
- Workers may approach the competent authority afresh to quantify wage claims, without being rejected on grounds of delay.
- Any leftover amount-after PF dues and the bank’s recovery-may then be used for workers’ wages.
With this ruling, the Court has attempted to strike a middle ground: protecting the bank’s secured rights under SARFAESI, while reaffirming that PF dues are sacrosanct under Indian welfare law.
Case Title: Jalgaon District Central Coop. Bank Ltd. vs. State of Maharashtra & Others
Case No.: Civil Appeal (arising out of SLP (C) No. 27740 of 2011)
Case Type: Civil Appeal (SARFAESI vs. EPF priority dispute)
Court: Supreme Court of India
Jurisdiction: Civil Appellate Jurisdiction
Decision Date: 20 November 2025
