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Informist, Thursday, Nov. 20, 2025

 

NEW DELHI – The Supreme Court Thursday held that a company or an entity's dues towards employees' provident fund will have a priority over unpaid debt to secured creditors on the proceeds of sale of secured assets of the entity. "...from the proceeds of the sale of the assets, the first charge would be for the dues under the EPF&MP (Employees' Provident Funds and Miscellaneous Provisions) Act which includes not only the contribution payable but also the interest, penalty and damages, if any, imposed," said a bench led by Chief Justice of India B.R. Gavai.

 

The sale proceeds have to be first applied in satisfaction of the dues under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and then in satisfaction of the secured debt of the bank. The bench, also comprising Justice K.V. Chandran, said that Section 11(2) of the 1952 Act 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.

 

Hearing a case involving Jalgaon District Central Coop. Bank Ltd., the apex court said that the bank will be entitled to proceed with the auction of a co-operative society, which was engaged in the manufacturing of sugar. Of the proceeds received from the auction, first the dues under the 1952 Act will have to be satisfied and then the debts due to the bank, the court said.

 

"We would only leave liberty to the workmen to approach the appropriate authority under the MRTU & PULP Act (Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971) 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," said the top court. Such determination would be necessitated if there is any amount remaining after satisfaction of the provident fund dues and that of the secured creditor, the court added.

 

The case has its genesis from the co-operative society mortgaging their properties and also hypothecating their stock in trade to the bank as security for loan availed. In the year 2000, the factory closed because of huge losses. Thereafter, the bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and took over possession of the secured assets of the society. When the bank proceeded to sell the properties, there were multiple petitions filed seeking recovery of the dues of the workmen and the defaulted amounts of provident fund. 

 

The bank argued that the secured creditor has a priority against the dues of the workmen and the provident fund amounts defaulted, as provided under Section 26E of the 2002 Act. The workmen said that they have been denied their wages and even the provident fund amounts defaulted. The provident fund dues definitely have a first charge, as has been affirmed by the Supreme Court in 2009, and are to be first paid before the bank proceeds to set off the defaulted loan amounts, said the workmen.  End

 

Reported by Surya Tripathi

Edited by Vandana Hingorani

 

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