Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) – ss. 13(2), 13(4), 14, 17, 26E – Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) – ss. 15-23, 24 – Whether the MSMED Act would prevail over the SARFAESI Act and whether recovery proceedings/recoveries under MSMED Act would prevail over the recoveries made/recovery proceedings under provisions of the SARFAESI Act – Held : Sec 15 to 23 of the MSMED Act provides a special mechanism for adjudication of dispute between buyer and seller – But does not provides for priority over debt dues of the secured creditor akin to s.26E of the SARFAESI Act – A ‘priority’ conferred / provided under Section 26E of the SARFAESI Act would prevail over the recovery mechanism of the MSMED Act – There is no repugnancy between the two Acts – In the absence of any specific provision for priority in the MSMED Act, if MSMED Act is allowed to prevail it would defeat the very object and purpose of SARFAESI Act – Under section 14 of the SARFAESI Act, District Magistrate or the Chief Metropolitan Magistrate is required to assist the secured creditor in getting the possession of the secured assets – Neither, District Magistrate or Metropolitan Magistrate would have jurisdiction to adjudicate the matter between secured creditor and debtor – Person aggrieved by the steps u/s. 13(4) and s.14 of the SARFAESI Act has to approach Debts Recovery Tribunal by way of appeal/application u/s. 17 of the SARFAESI Act – Recoveries under the SARFAESI Act with respect to the secured assets would prevail over the recoveries under the MSMED Act.
Allowing the appeal, the Court
HELD: 1. In the entire Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), there is no specific express provision giving ‘priority’ for payments under the MSMED Act over the dues of the secured creditors or over any taxes or cesses payable to Central Government or State Government or Local Authority as the case may be. In sharp contrast to this, Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) which has been inserted vide Amendment in 2016, it provides that notwithstanding anything inconsistent therewith contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in ‘priority’ over all other debts and all revenue taxes and cesses and other rates payable to the Central Government or State Government or Local Authority. However, the priority to secured creditors in payment of debt as per Section 26E of the SARFAESI Act shall be subject to the provisions of the IBC. At this stage, it is required to be noted Section 26E of the SARFAESI Act which is inserted in 2016 is also having a non-obstante clause. 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. Sections 15 to 23 of the MSMED Act are providing a special mechanism for adjudication of the disputes and to adjudicate and resolve the disputes between the supplier and buyer – micro or small enterprise. At the cost of repetition, it is observed that MSMED Act does not provide any priority over the debt dues of the secured creditor akin to Section 26E of the SARFAESI Act. [Para 7][883-B-G]
2. 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 the submission on behalf of respondent No.1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/or redundant. Any other contrary view would be defeating the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act. [Para 9][884-D-G]
3. While exercising power under Section 14 of the SARFAESI Act, even the District Magistrate has no jurisdiction and/or District Magistrate and/or even the Chief Metropolitan Magistrate has no jurisdiction to adjudicate the dispute between secured creditor and debtor. 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. Under Section 14 of the SARFAESI Act, neither District Magistrate nor Metropolitan Magistrate would have any jurisdiction to adjudicate and/or decide the dispute even between the secured creditor and the debtor. 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. It is observed and held that so far as recoveries under the SARFAESI Act with respect to the secured assets would prevail over the recoveries under the MSMED Act to recover the amount under the award / decree passed by the Facilitation Council. [Paras 10 and 11][885-B-D, F-G]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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