Feeling aggrieved by and dissatisfied with the impugned judgment and order passed by the Division Bench of the High Court of Madhya Pradesh at Indore dated 11.08.2017 in Writ Appeal No 248 of 2017, by which the Division Bench of the High Court has allowed the said appeal preferred by respondent No.1 herein and has quashed and set aside the judgment and order passed by the learned Single Judge and 1 has observed and held that Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as ‘MSMED Act’) will prevail over Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘SARFAESI Act’), the secured creditor – Kotak Mahindra Bank Limited has preferred the present appeal. The bank – secured creditor filed an application before the District Magistrate on 17.06.2014 under Section 14 of the 2 SARFAESI Act seeking assistance from taking possession of the secured assets. Thereafter vide order dated 21.03.2016, Naib Tehsildar refused to take possession and to comply the order dated 24.09.2014 on the ground that one recovery proceeding is pending for recovery of certain amounts from the secured assets and on the ground that the recovery certificate issued in favour of respondent No.1 (original respondent No.4 before the High Court) was already pending for recovery of certain amounts from the aforesaid two secured assets.
3 The learned Single Judge allowed the writ petition preferred by the bank – secured creditor and set aside the order passed by the Naib Tehsildar by observing that the provisions of SARFAESI Act would prevail and if respondent No.1 is aggrieved by the order passed by the District Magistrate under Section 14 of the SARFAESI Act or the 4 measures taken under Section 13(4) of the SARFAESI Act, he may prefer an appeal/application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. 5 The impugned judgment and order passed by the Division Bench of the High Court holding that MSMED Act being later enactment, the same would prevail over the 5 SARFAESI Act the bank – secured creditor has preferred the present appeal.
It is submitted that the perusal of the said scheme, from Sections 15 to 23 of the MSMED Act, clearly shows that there is no express ‘priority’ envisaged for payments under the MSMED Act over the dues of secured creditors or over any taxes or cesses payable to Central Government or State Government or Local Authority as the 6 case may be.
It is submitted that in the absence of such express provisions, there can be no basis to ignore the specific scheme of the SARFAESI Act in comparison to such specific scheme under the MSMED Act with regard to ‘priority’ of payments. 2 Making above submissions, it is prayed to allow the present appeal and quash and set aside the impugned judgment and order passed by the Division Bench and restore the judgment and order passed by the learned Single Judge by holding that the recoveries 8 under SARFAESI Act shall be accorded priority over recoveries under MSMED Act.
It is submitted that therefore, in view of Section 24 of the MSMED Act which provides for an overriding effect over other prevailing laws, the provisions with respect to recoveries under MSMED 9 Act shall prevail over the recoveries under SARFAESI Act. It is submitted that the entire scheme of provisions under Chapter V – Sections 15 to 23 which includes delayed payments, recovery of amounts due, and establishment of Facilitation Council and its award has an overriding effect on all other legislations including SARFAESI Act.
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It is submitted that if SARFAESI Act is given overriding effect over the MSMED Act, then it would render awards of the Facilitation Council as non-executable in all cases where there is a secured creditor.
It is submitted that as per the law laid down by this Court in catena of decisions, 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. It is submitted that it is a settled law that IBC, 2016 would override SARFAESI Act and therefore, in the said context also, MSMED Act may have precedence over SARFAESI Act. It is the case on behalf of respondent No.1 that in view of Section 24 of the MSMED Act which provides that the provisions of Sections 15 to 23 of the MSMED Act would have overriding effect and shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force and in view of the fact that the MSMED 15 Act being a later enactment, then the SARFAESI Act, the MSMED Act would prevail over the SARFAESI Act.
In the entire 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. Therefore, such dues vis-a-vis dues under the MSMED Act, as per the decree or order passed by the Facilitation Council debts due to the secured creditor shall have a priority in view of Section 26E of the SARFAESI Act which is later enactment in point of time than the MSMED Act. The aforesaid is to be 17 considered along with the fact that under provisions of the MSMED Act, more particularly Sections 15 to 23, no ‘priority’ is provided with respect to the dues under the MSMED Act, like Section 26E of the SARFAESI Act. SARFAESI Act has been enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and to provide for a central debts of security interest created on property rights, and for matters connected therewith or incidental thereto. 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 19 Section 26E of the SARFAESI Act would be frustrated. 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 20 between secured creditor and debtor. The impugned judgment and order dated 11.08.2017 passed by the Division Bench of the High Court of Madhya Pradesh at Indore in Writ
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Appeal
Case Title: KOTAK MAHINDRA BANK LIMITED Vs. GIRNAR CORRUGATORS PVT. LTD. (2023 INSC 12)
Case Number: C.A. No.-006662-006662 / 2022
