In a recent ruling, the Supreme Court held that 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. [Kotak Mahindra Bank Limited vs. Girnar Corrugators Pvt. Ltd. & Ors., Civil Appeal No. 6662 of 2022, Supreme Court]
Whether recovery proceedings under the MSMED Act would prevail over the recovery proceedings under provisions of the SARFAESI Act.
The Supreme Court set aside the order of the division bench of the high court and restored the order of the learned single judge.
The court observed that Sections 15 to 23 of the MSMED Act only provide for special mechanism for adjudication of the dispute along with enforcing certain other contractual and business terms on the parties such as time limit for payments and interest in case of delayed payments.
The court further 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 whereas Section 26E of the SARFAESI Act clearly provides that debts due to any secured creditor shall be paid in ‘priority’ over all other debts.
The court 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. Thus, the court concluded that the ‘priority’ conferred/provided under Section 26E of the SARFAESI Act would prevail over the recovery mechanism of the MSMED Act.
It is well settled that the rights of the secured creditor in respect of the security interest prevails over all other dues.
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