10 January 2023

Recovery proceedings under SARFAESI Act will prevail over those under MSMED Act

The Supreme Court of India has on 5 January 2023 allowed an appeal against the decision of the Madhya Pradesh High Court which had held that Micro, Small and Medium Enterprises Development Act, 2006 ('MSMED Act') will prevail over Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act').

It held that a ‘priority’ conferred / provided under Section 26E of the SARFAESI Act would prevail over the recovery mechanism of the MSMED Act.

The Apex Court in this regard noted that 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 the Central Government or the State Government or the Local Authority, as the case may be.

The Court further noted that in sharp contrast to this, Section 26E of the SARFAESI Act, inserted vide Amendment in 2016, 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 Government revenues.

Case of two non-obstante clauses

The Supreme Court further held that 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 observed that if the legislature confers the later enactment with a non-obstante clause, it means the legislature wanted the subsequent / later enactment to prevail.


The Apex Court in the case Kotak Mahindra Bank Limited v. Girnar Corrugators Pvt. Ltd. hence held as wholly without jurisdiction, the order passed by the Naib Tehsildar refusing to take possession of the secured assets / properties despite the order passed under Section 14 of the SARFAESI Act on the ground that recovery certificates issued by respondent for recovery of the orders passed by the Facilitation Council are pending.

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