Summary
A Naib Tehsildar refused to execute a District Magistrate's order under Section 14 of the SARFAESI Act to give a bank possession of mortgaged plots. His reason was that recovery certificates on an MSME Facilitation Council award against the same assets were pending. The Madhya Pradesh High Court's Division Bench held that the later MSMED Act, with its non-obstante clause in Section 24, prevails over the SARFAESI Act. The Supreme Court reversed. Sections 15 to 23 of the MSMED Act give MSE dues no priority. Section 26E of the SARFAESI Act, a later non-obstante provision inserted in 2016 and subject only to the IBC, gives secured creditors priority over all other debts. The two laws do not conflict on priority. A Section 14 authority cannot adjudicate disputes, and objectors must go to the DRT under Section 17.
Issues
- Whether recovery under an award of the MSME Facilitation Council under the MSMED Act, 2006 prevails over recovery by a secured creditor of secured assets under the SARFAESI Act, 2002.
- Whether the revenue authority could refuse to execute an order under Section 14 of the SARFAESI Act because MSMED recovery certificates were pending.
Provisions considered
- Section 26E, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Inserted in 2016 with a non-obstante clause, it gives debts due to secured creditors, after registration of the security interest, priority over all other debts and government dues, subject to the IBC. (¶¶ 7, 9)
- Sections 15 to 24, Micro, Small and Medium Enterprises Development Act, 2006The provisions create a special mechanism for adjudicating delayed-payment disputes and interest, but give no priority to MSE dues over secured creditors; an award is executed like other debts. (¶¶ 7, 8)
- Sections 14 and 17, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The Magistrate under Section 14 only assists the secured creditor to take possession and cannot adjudicate disputes; an aggrieved person must approach the DRT under Section 17. (¶¶ 10, 11)
Held
- The MSMED Act provides no priority for MSE dues, while Section 26E of the SARFAESI Act, the later enactment with a non-obstante clause, expressly gives secured creditors priority; there is thus no repugnancy, and on the question of priority recoveries under the SARFAESI Act prevail over those under an MSMED award. (¶¶ 7, 8, 11)
- Giving MSMED dues precedence would frustrate the object of the SARFAESI Act as a special law for enforcement of security interests and render Section 26E otiose. (¶ 9)
- The Naib Tehsildar's refusal to take possession under the District Magistrate's order on the ground of pending MSMED recovery certificates was wholly without jurisdiction. (¶ 10)
Result
Civil Appeal No. 6662 of 2022 allowed; the Madhya Pradesh High Court (Indore Bench) Division Bench judgment dated 11.08.2017 set aside and the Single Judge's order restored, with liberty to respondent No. 1 to proceed under Section 17 of the SARFAESI Act; no costs.