A high-stakes tussle over who gets priority when a company defaults—the banks or the provident fund authority—has been kicked back to the Karnataka High Court by the Supreme Court.
At the heart of the dispute is M/s Acropetal Technologies Pvt. Ltd., which failed to deposit ₹1.29 crore in employees’ provident fund contributions. The Employees’ Provident Fund Organisation (EPFO) staked its claim, leaning on Section 11(2) of the Provident Funds Act, which gives PF dues a statutory first charge over assets.
But the financial giants were already circling. Axis Bank and Edelweiss ARC had sold off the company’s secured properties under the SARFAESI Act, pulling in about ₹12 crore and ₹7 crore respectively. EPFO insisted its dues be paid first. Axis Bank, meanwhile, relied on Section 35 of SARFAESI, which gives that law an overriding effect. Edelweiss, caught in the crossfire, offered to pay a slice but pointed the finger at Axis Bank, saying the bigger haul meant the bigger burden.
The Karnataka High Court initially sided with the provident fund authority, asking Edelweiss to cough up ₹75 lakh. That ruling was challenged, landing the case before the Supreme Court.
A bench of Justices Vikram Nath, Sanjay Karol, and Sandeep Mehta decided not to settle the issue outright. Instead, they noted a key gap: Axis Bank, a central figure in the dispute, hadn’t even been made a party before the High Court. The justices set aside the earlier ruling and sent the matter back for a fresh look, this time with Axis Bank and other secured lenders, including SBI, properly involved.
“The High Court must first examine whether Axis Bank indeed has priority over EPFO in light of Section 35 of SARFAESI, weighed against the statutory charge under the PF Act,” the bench directed. It added that all parties could bring their full set of arguments and documents to the table when the matter is reheard.
For now, the clash over whether workers’ savings or banks’ secured loans take precedence remains unresolved—resting squarely with the Karnataka High Court’s next move.
