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Kotak Mahindra Bank Limited Vs. Girnar Corrugators Pvt. Ltd. and Ors. - (Supreme Court) (05 Jan 2023)

In absence of any specific provision for priority of the dues under MSMED Act, dues under MSMED Act would not prevail over the SARFAESI Act



The secured creditor, Kotak Mahindra Bank Limited has preferred the present appeal feeling aggrieved with the impugned judgment and order passed by the High Court, by which the High Court has observed and held that Micro, Small and Medium Enterprises Development Act, 2006 ('MSMED Act') will prevail over Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act').

The short question which is posed for the consideration of this Court is whether recovery proceedings under the MSMED Act would prevail over the recoveries made/recovery proceedings under provisions of the SARFAESI Act?

As per the settle position of law, if the legislature confers the later enactment with a non-obstante clause, it means the legislature wanted the subsequent/later enactment to prevail. Thus, a 'priority' conferred/provided under Section 26E of the SARFAESI Act would prevail over the recovery mechanism of the MSMED Act.

MSMED Act does not provide any priority over the debt dues of the secured creditor akin to Section 26E of the SARFAESI Act. The decree passed by the Facilitation Council shall be executed as such and the micro or small enterprise in whose favour the award or decree has been passed by the Facilitation Council shall be entitled to execute the same like other debts/creditors. There is no conflict between two schemes, i.e. MSMED Act and SARFAESI Act as far as the specific subject of 'priority' is concerned.

SARFAESI Act has been enacted providing specific mechanism/provision for the financial assets and security interest. It is a special legislation for enforcement of security interest which is created in favour of the secured creditor - financial institution. Therefore, in absence of any specific provision for priority of the dues under MSMED Act, if the submission on behalf of Respondent No. 1 for the dues under MSMED Act would prevail over the SARFAESI Act, then in that case, not only the object and purpose of special enactment/SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated.

If any person is aggrieved by the steps under Section 13(4)/order passed under Section 14, then the aggrieved person has to approach the Debts Recovery Tribunal by way of appeal/application Under Section 17 of the SARFAESI Act. Therefore, the order passed by the Naib Tehsildar refusing to take the possession pursuant to the order passed by the District Magistrate Under Section 14 of the SARFAESI Act was wholly without jurisdiction and therefore also the same was liable to be set aside. The impugned judgment and order passed by the Division Bench of the High Court is set aside. Appeal allowed.


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