EPFO Dues vs Bank’s SARFAESI Claims: SC on Priority of Provident Fund Dues Over Secured Creditors

The establishment was found liable under Section 7A of the EPF Act by order dated 08.06.2015, assessing Rs. 1,28,90,486, excluding interest and damages under Sections 7Q and 14B. The provident fund authority invoked Section 11(2) and, by a communication dated 08.07.2015, sought Rs. 2,96,76,656/- from auction proceeds. Axis Bank invoked the first charge under Section 35 of the SARFAESI Act and issued attachment orders. Axis Bank then realised about Rs. 12 crores through the sale of a single property, and the appellant realised about Rs. 7 crores through two other properties. The provident fund authority required the appellant for Rs. 2,08,94,800/- and, after deduction for a stay against Section 14B demand of Rs. 1,30,52,221/-, necessitated Rs. 78,42,579/-.

HC’s Decision: The High Court ordered the attachment order dated 24.11.2022. The appellant tendered Rs. 78,43,629/- as full and final settlement and under the interim directions of the High Court dated 02.02.2023, made a deposit of Rs. 75 lakhs.. The writ petition was later dismissed with a direction to transmit the deposited amount to the provident fund authority, leading to the present appeal.

Issue Raised: Whether provident fund dues under Section 11(2) of the EPF Act override secured creditors’ claims under Section 35 of the SARFAESI Act, and how liability is to be apportioned where multiple secured creditors have realised differing amounts.

Supreme Court Held: The Court noted that a major secured creditor was not impleaded before the High Court despite realising higher proceeds. It was of the view that the question of priority under Section 11(2) of the EPF Act and Section 35 of the SARFAESI Act had to be determined after impleading all the parties concerned. The High Court had dismissed the writ petition without impleading Axis Bank, even though its claim of priority directly affected the outcome. Since Axis Bank was now impleaded before the Supreme Court, the issue of inter se priority between EPFO and secured creditors required reconsideration.

Therefore, the Supreme Court set aside the impugned judgment and restored Writ Petition to High Court for fresh consideration. It directed the High Court to implead Axis Bank and decide the matter afresh after full pleadings and hearing all stakeholders, including SBI and SBT which has now merged with SBI. The Court clarified that it was not deciding the merits of the priority issue and left all contentions open for the High Court’s consideration.

Thus, the appeal was allowed, and the matter was remanded for a fresh decision.

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