The Supreme Court says "Recoveries under SARFAESI Act to prevail over MSMED Act"

The Supreme Court observed that Micro, Small and Medium Enterprises Development (MSMED) Act does not provide any priority over the debt dues of the secured creditor (Kotak Mahindra Bank Limited) akin to Section 26E of the SARFAESI Act. In this case, debtor (One Mission Vivacare) advanced various credit facilities by the appellant bank to secure various credit facilities. Plots were mortgaged along with certain movable fixed assets. On account of default in payment of loan/debt, the bank-initiated recovery proceedings in respect of the secured assets. An application was filed by the secured creditor before the District Magistrate seeking assistance in taking possession of the secured assets. 

District Magistrate allowed the said application by directing the SDM to take vacant possession of the secured assets. SDM further issued direction to the Naib Tehsildar to comply the order of the District Magistrate and obtain the possession by taking police assistance. The order passed by the NaibTehsildar "refusing to take possession of the secured assets" pursuant to the order passed by the District Magistrate. The learned Single Judge allowed the writ petition preferred by the bank and set aside the order passed by the NaibTehsildar. 

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Feeling aggrieved by and dissatisfied with the judgment and order passed by the learned Single Judge holding that the SARFAESI Act would prevail, respondent No.1 herein in whose favor there was an award under provisions of the MSMED Act and in whose favor the recovery certificates were issued, filed the present writ appeal before the Division Bench of the High Court.

The Supreme Court stated that “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.” They also observed that MSMED Act does not prevail over the debt dues of the SARFAESI Act. Moreover, SARFAESI Act has been enacted to regulate the securitization and reconstruction of financial assets and enforcement of security interest and to provide for a central debt of security interest created on property rights. 

The impugned judgment and order passed by the Division Bench of the Madhya Pradesh High Court were unsustainable and the same deserved to be quashed and set aside. Consequently, the present appeal was allowed. The top Court also highlighted 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.”

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