Supreme Court Remands Priority Dispute Between Provident Fund Claim and Secured Creditors to High Court

A bench of Justices Vikram Nath, Sanjay Karol and Sandeep Mehta heard an appeal by an asset reconstruction firm against a Karnataka High Court order that refused relief and directed transmission of a deposit to the Employees' Provident Fund Organisation (EPFO). The principal issue before the Court was the priority of claims: whether the EPFO's statutory charge under Section 11(2) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 prevailed over secured creditors claiming priority under Section 35 of the SARFAESI Act.

The Supreme Court allowed the appeal, set aside the impugned High Court order and remitted the matter to the High Court for fresh adjudication after impleading the Axis Bank as a party and affording all parties an opportunity to plead and be heard. The Court emphasised that the High Court must examine "the priority of first charge amongst the EPFO and the secured creditors" in the light of the competing statutory provisions. The Court, in its reasoning, observed: <I> "In our considered opinion, 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 from the secured property in view of Section 35 of the SARFAESI Act. The High Court will examine the priority of first charge amongst the EPFO and the secured creditors i.e. the Axis Bank and other two Banks, namely, State Bank of India and the State Bank of Travancore (now taken over by SBI) in view of Section 11(2) of the PF Act." </I> The Court further directed that the restored writ petition be decided afresh, observing that "All the parties to the writ petition as it would stand now after remand would be at liberty to raise all contentions before the High Court."

Background

The dispute arose after M/s Acropetal Technologies Pvt. Ltd. (the establishment) defaulted on provident fund dues and the Regional Provident Fund Commissioner-II, Bangalore fixed a liability in June 2015. The establishment's bank accounts had been declared NPA and two separate secured creditors—including Axis Bank—initiated auction proceedings of charged properties. EPFO claimed priority under Section 11(2) and issued attachment notices and demands to banks and to the assignee (the appellant asset reconstruction company), seeking remittance from sale proceeds. EPFO relied on precedent and statutory priority; the record noted a reference to Maharashtra State Co-operative Bank v. Assistant PF Commissioner.

Axis Bank resisted EPFO's demand, relying on Section 35 of the SARFAESI Act and contending that its secured dues had priority over other claims until fully satisfied. The appellant paid Rs.75 lakhs to the High Court as an interim measure (with an undertaking that it would pay a specified sum in full and final settlement) and sought clarification that any remaining shortfall should be recovered from Axis Bank, which had realised substantially higher sale proceeds from a separate auction. The Karnataka High Court dismissed the appellant's writ petition and directed transmission of the deposit to EPFO; the asset reconstruction firm appealed.

The Supreme Court found that the Axis Bank had not been impleaded before the High Court and that issues of competing statutory priority required adjudication with all relevant parties in place. The Court did not decide the merits on priority but remanded the matter for fresh consideration, instructing the High Court to examine whether EPFO's charge was created prior to the secured charges, and to entertain all contentions and evidence on priority, charges and appropriations. The appeal was allowed, the impugned order was set aside and the writ petition was restored for disposal in accordance with law. All parties were granted liberty to raise contentions before the High Court.

Case Details:
Case No.: 2025 INSC 1045 (Arising out of SLP(C) No.11069 of 2024)
Case Title: M/s Edelweiss Asset Reconstruction Limited v. Regional PF Commissioner II and Recovery Officer, RO Bengaluru (Koramangala) & Anr.
Appearances:
For the Petitioner(s): Shri Krishnan Venugopal, Senior Counsel
For the Respondent(s): Shri Gopal Jain, Senior Counsel (for Axis Bank); Shri Dushyant Parashar, Advocate (for EPFO)