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The SARFAESI Act with respect to the secured assets would prevail over MSMED Act

APPELLANT: KOTAK MAHINDRA BANK LIMITED.

RESPONDANT: Girnar Corrugators Pvt. Ltd. & Ors.

 

FACTS:

  1. The appellant advanced various credit facilities and to secure such facilities security of two plot were mortgaged along with certain movable fixed assets.
  2. Due to non-payment of loan the Secured creditor filed application in district magistrate for recovery of secured assets and the same was allowed.
  3. No action was taken and due to non-compliance of order another application was filed. SDM issued direction to the Naib Tehsildar but he declined.
  4. Naib Tehsildar observed that MSMED Act being a special enactment enacted subsequent to SARFAESI Act would have overriding effect.
  5. Writ petition to HC by single judge allowed and set aside the order passed by the Naib Tehsildar. Hence, the provisions of SARFAESI Act would prevail.
  6. Again, Writ petition to HC regarding same, who quashed order passed by single judge and stated that MSMED ACT being the new enactment will prevail over SARFAESI ACT.
  7. An appeal was made to SC regarding same.

 

ARGUMENT OF APPELLANT:

  1. Section 26E of the SARFAESI Act inserted vide amendment in 2016, the non-obstante clause shall prevail over the provisions of MSMED Act.
  2. The non obstante clause in the MSMED Act provides that provisions u/s 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law.
  3. There is no express ‘priority’ envisaged for payments under the MSMED Act over the dues of secured creditors.
  4. The MSMED act does not provide any framework for the issues regarding ‘priority’ of payment, but SARFAESI Act does.

 

ARGUMENT OF RESPONDENT:

  1. Aggressive provisions were brought in for the recovery of dues and compound interests are given in MSMED Act which is not present in any other legislations.
  2. financial institutions have various other means of recovery. However, such liberty of taking personal guarantees are not available to MSME and they completely rely on MSMED Act for recovery of dues.
  3. The provisions in MSMED includes delayed payments, recovery of amounts due, and its award has an overriding effect on all other legislations including SARFAESI Act.

 

OBSERVATION/RATIO DECIDENDI:

  1. Reference is made to the provisions of the Maharashtra Value Added Tax Act, 2002; Employees’ Provident Fund and Miscellaneous Provisions Act, 1952; Kerala General Sales Tax Act, 1963; Workmen’s Compensation Act, 1923; Central Excise Act, 1944; Enforcement of Security Interest and Recovery Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, etc.
  2. No basis to ignore SARFAESI Act in comparison to MSMED Act with regard to ‘priority’ of payments.
  3. In case of Bank of India vs. Ketan Praekh & Ors. [(2008) 8 SCC 148 (para 28)].

if two enactments have competing non-obstante provision and nothing repugnant, then the non-obstante clause of the subsequent statute would prevail over the earlier enactments.

  1. Under Section 14 of the SARFAESI Act, the District Magistrate or the Chief Metropolitan Magistrate as the case may be is required to assist the secured creditor in getting the possession of the secured assets. They don’t have any jurisdiction to adjudicate and/or decide the dispute even between the secured creditor and the debtor.
  2. The aggrieved person has to approach the Debts Recovery Tribunal by way of appeal / application under Section 17 of the SARFAESI Act.
  3. Order by HC was quashed stating that SARFAESI Act will prevail over MSMED Act regarding ‘priority’ of payment.

 

JUDGEMENT: Allowed.

 

BY: Anchal Pagar

NLC, Bharati Vidhyapeeth, Pune.

Judgement Link – C.A. No. 6662/2022 – D.No. 29729 / 2017 05-Jan-2023

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