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Case Analysis: Kotak Mahindra Bank Limited v/s Girnar Corrugators Pvt. Ltd

Citation: 2023 SCC OnLine SC 15

The Supreme Court observed that the dues under the Micro, Small, and Medium Enterprises Development Act, 2006 would not prevail over the SARFAESI Act. The significance of this judgment cannot be overemphasized, laying down a significant precedent for further prospective litigation. Recently, the Madhya Pradesh High Court held that MSMED Act will prevail over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

According to the High Court, 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 an 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 Act being a later enactment, then the SARFAESI Act, the MSMED Act would prevail over the SARFAESI Act.

Facts of the case:
Mission Vivacare advanced various credit facilities by the Appellant. To secure the various credit facilities, Plot Nos. 16 and 14, situated in SEZ Area of Dhar were mortgaged along with certain movable fixed assets. Recovery proceedings under Section 13 (2) of SARFAESI Act were initiated by the Bank on account of default.

The Naib Tehsildar vide order dated 21.03.2016 refused to take possession pursuant to the award passed by MSMED facilitation centre on 11.09.2014 observing that MSMED Act being a special enactment enacted subsequent to SARFAESI Act would have overriding effect and therefore, MSMED Act would prevail over the SARFAESI Act.

Thereafter, the Appellant Bank filed a Writ Petition in the High Court of M.P. wherein the Ld. Single judge held 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 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. Subsequently, a writ appeal was filed by Respondent No. 1 before the Division Bench at High Court of Madhya Pradesh wherein the Division Bench of the High Court allowed the said appeal and set aside the judgment and order passed by the learned Single Judge and has observed and held that MSMED Act being the later enactment, the same shall prevail over the SARFAESI Act.

Issue:
  • Whether recovery proceedings/recoveries under the MSMED Act would prevail over the recoveries made/recovery proceedings under provisions of the SARFAESI Act?

Observations:
  • Considering the provisions of Sections 15 to 23 read with Section 24 of the MSMED Act and the provisions of the SARFAESI Act, as such, there is no repugnancy between two enactments viz. SARFAESI Act and MSMED Act.
     
  • 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.
     
  • Section 26E of the 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 authorities.

Held:
  • If the legislature confers the later enactment with a non-obstante clause, it means the legislature wanted the subsequent/later enactment to prevail.
     
  • 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.

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