KOTAK MAHINDRA BANK LIMITED Versus Girnar Corrugators Pvt. Ltd. & Ors

KOTAK MAHINDRA BANK LIMITED Versus Girnar Corrugators Pvt. Ltd. & Ors

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6662 OF 2022

KOTAK MAHINDRA BANK LIMITED …Appellant

Versus

Girnar Corrugators Pvt. Ltd. & Ors. …Respondents

J U D G M E N T

M.R. SHAH, J.

1. 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 facts leading to the present appeal, in nut shell, are

as under:

1.1 One Mission Vivacare (hereinafter referred to as 'debtor')

advanced various credit facilities by the appellant bank –

secured creditor. In order 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.

1.2 On account of default in payment of loan / debt, the

bank-initiated recovery proceedings in respect of the secured

assets contemplated under Section 13(2) of the SARFAESI Act.

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. By order dated 24.09.2014, the District

Magistrate allowed the said application by directing the SDM,

District: Dhar to take vacant possession of the secured assets.

However, no action was taken and therefore, the bank

submitted applications to the District Magistrate and the SDM

complaining non-compliance of the order to take possession of

the secured assets. Finally, SDM issued direction to the Naib

Tehsildar vide communication dated 07.11.2015 to comply the

order of the District Magistrate and obtain the possession by

taking police assistance. 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. At this stage, it is required to be noted that the

recovery certificates were issued in favour of respondent No.1

3

pursuant to the award passed by the Facilitation Council on

11.09.2014 which was in favour of respondent No.1 herein,

which was under provisions of MSMED Act. The order passed

by the Naib Tehsildar refusing to take possession of the

secured assets pursuant to the order passed by the District

Magistrate dated 24.09.2014 was the subject matter of writ

petition before the learned Single Judge of the High Court by

way of Writ Petition No.2569 of 2016. While refusing to take

possession of the secured assets pursuant to the order passed

by the District Magistrate under Section 14 of the SARFAESI

Act, Naib Tehsildar observed 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.

1.3 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.

1.4 Feeling aggrieved by and dissatisfied with the judgment

and order passed by the learned Single Judge holding that the

SARFAESI Act would prevail, respondent No.1 herein in whose

favour there was an award under provisions of the MSMED

Act and in whose favour the recovery certificates were issued,

filed the present writ appeal before the Division Bench of the

High Court. By the impugned judgment and order, the

Division Bench of the High Court has allowed the said appeal

and has 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.

1.5 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.

2. Shri Amar Dave, learned counsel appearing for the

appellant bank – secured creditor has vehemently submitted

that as such, there is no repugnancy between the provisions of

SARFAESI Act and MSMED Act. It is submitted that nonobstante clause in the MSMED Act, i.e. Section 24 provides

that provisions under Sections 15 to 23 shall have effect

notwithstanding anything inconsistent therewith contained in

any other law for the time being in force. It is submitted 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. 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 no provision to this effect is

consciously provided. It is submitted that in sharp contrast to

this, the perusal of the scheme of SARFAESI Act, including in

Section 26E, thereof leaves no room for doubt that the

legislature has expressly and unambiguously provided for a

legal framework exclusively on the issue of 'priority' of

payment of dues. It is submitted that in case of certain other

legislations, there is express provision for the manner in which

the dues thereunder may either have a charge over the

property or have 'priority' over other dues. Reference is made

to the provisions of the Maharashtra Value Added Tax Act,

2002; Employees' Provident Fund and Miscellaneous

Provisions Act, 1952; Kerala General Sales Tax Act, 1963;

Workmen's Compensation Act, 1923; Central Excise Act,

1944; Enforcement of Security Interest and Recovery Debts

Laws and Miscellaneous Provisions (Amendment) Act, 2016,

etc. 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. It

7

is submitted that any such 'priority' over and above the dues

of secured creditors or government dues has to be expressly

and unambiguously provided for and cannot be read by

implication. It is submitted that viewed from this angle, in

fact, there is no conflict between the two schemes, i.e. MSMED

Act and SARFAESI Act as far as the specific subject of 'priority'

is concerned.

2.1 It is further submitted that Section 26E of the

SARFAESI Act being subsequently inserted vide

amendment in 2016, the non-obstante clause in

Section 26E of the SARFAESI Act shall prevail over the

provisions of MSMED Act. Reliance is placed on the

decision of this Court in case of Bank of India vs.

Ketan Praekh & Ors. [(2008) 8 SCC 148 (para 28)].

2.2 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.

3. The present appeal is vehemently opposed by Shri

Niranjan Reddy, learned Senior Counsel appearing for

respondent No.1.

3.1 Learned counsel appearing for respondent

No.1 has vehemently submitted that MSMED Act has

been enacted to promote and protect the interests of

the small and medium scale enterprises which is a

source of livelihood for several citizens and contributes

towards 27% to the GDP. It is submitted that

therefore, aggressive provisions were brought in for the

recovery of dues and compound interests are given in

MSMED Act which is not present in any other

legislations and is in the nature of a beneficial

legislation. 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.

3.2 It is submitted that the financial institutions

have various other means of recovery including

SARFAESI Act, IBC etc. as being a secured creditor to

an extent of also taking personal guarantee from the

Directors of the company in certain cases. However,

such liberty of taking personal guarantees etc. are not

available to MSME and they completely rely on

MSMED Act for recovery of dues and as such have

only one method of recovery by virtue of the award

which is in the nature of a decree from the Facilitation

Council. It is submitted that in the above said context,

an overriding provision is provided under Section 24 of

the MSMED Act.

3.3 It is submitted that Section 24 of the MSMED

Act provides for an overriding effect over other

prevailing laws. It is submitted that the provisions of

Sections 15 to 23 of the MSMED Act shall have effect

10

notwithstanding anything inconsistent therewith

contained in any other law for the time being in force.

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. It is submitted that

therefore, an award from the Facilitation Council will

also have an overriding effect by virtue of Section 24.

It is submitted that the intention of the legislature is

clear as the overriding provision is for a particular set

of delayed payments recovery mechanism provided

under MSMED Act which is also in consonance with

object and purpose of the MSMED Act.

3.4 It is further submitted that MSMED Act is a

subsequent legislation and by providing Section 24 of

the MSMED Act, the legislature has purposefully and

knowingly superseded all the recovery procedures

prevailing at that relevant point of time, by its non11

obstante clause. It is submitted that if any contrary

interpretation is to be given to the said position of law,

then the same would make Section 24 redundant,

which by all means is not the intention of the

legislature. 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 the same would severely

affect the existence and growth of the MSME and is

also against object of the MSMED Act.

3.5 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 the principle therefore

would be that the court must look into the objectives

of the two Special Acts. It is submitted that if the

legislature still confers the later enactment with a non12

obstante clause, it means the legislature wanted the

enactment to prevail. It is submitted that therefore,

non-obstante clause in MSMED Act, i.e. Section 24

would prevail over the recovery mechanism of

SARFAESI Act, being enacted later in point of time,

overriding all other laws being in force at that point of

time.

3.6 It is submitted that the State Madhya Pradesh

in exercise of powers conferred under Section 30 read

with sub-section (3) of Section 21 of the MSMED Act

made the Rules known as 'M.P. Micro and Small

Enterprises Facilitation Council Rules, 2006' for

procedure to be followed for recovery of amounts due.

It is submitted that under the said Rules, the decree,

award or order passed under provisions of MSMED Act

shall be executed by the Collector of the District

concerned and the amount due shall be recovered as

arrears of land revenue. It is submitted that as per

Section 137 of Madhya Pradesh Land Revenue Code,

1959, land revenue would have first charge on the

13

proceeds of the recovery of dues from the subject

property. It is submitted that SARFAESI Act does not

provide that it will have precedence over a decree /

award of the decree holder.

3.7 It is submitted that Section 240A of the IBC,

2016 provides exception of certain provisions of

Section 29A of the IBC to MSME. 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.

3.8 It is further submitted that MSMED Act is an

extension of the welfare policy of the State and may

need to be considered in order to balance the larger

public interest of the small and medium scale

enterprises and their means of existence. It is

submitted that therefore, to strike the balance of

interest for survival of small and medium scale

enterprises, it is prayed to interpret the provisions in

favour of the small and medium scale enterprises and

14

to hold that the recoveries under MSMED Act would

prevail over the recoveries under SARFAESI Act.

3.9 Making above submissions, it is prayed to

dismiss the present appeal.

4. Heard learned counsel appearing for the respective

parties at length.

5. The short question which is posed for the consideration

of this Court is whether the MSMED Act would prevail over the

SARFAESI Act? The question is whether recovery

proceedings / recoveries under the MSMED Act would prevail

over the recoveries made / recovery proceedings under

provisions of the SARFAESI Act?

6. 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.

7. While appreciating the above submissions, it is required

to be appreciated 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. 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. In sharp contrast to this, 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

16

or Local Authority. However, the priority to secured creditors

in payment of debt as per Section 26E of the SARFAESI Act

shall be subject to the provisions of the IBC. 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. At this stage, it is required to be noted

Section 26E of the SARFAESI Act which is inserted in 2016 is

also having a non-obstante clause. Even as per the

submission on behalf of respondent No.1, 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. As per the

settle position of law, if the legislature confers the later

enactment with a non-obstante clause, it means the

legislature wanted the subsequent / later enactment to

prevail. Thus, a ‘priority’ conferred / provided under Section

26E of the SARFAESI Act would prevail over the recovery

mechanism of 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.

8. As observed hereinabove, Sections 15 to 23 of the

MSMED Act are providing a special mechanism for

adjudication of the disputes and to adjudicate and resolve the

disputes between the supplier and buyer – micro or small

enterprise. At the cost of repetition, it is observed that MSMED

Act does not provide any priority over the debt dues of the

secured creditor akin to Section 26E of the SARFAESI Act. At

the most, the decree / order / award passed by the

Facilitation Council shall be executed as such and the micro

or small enterprise in whose favour the award or decree has

been passed by the Facilitation Council shall be entitled to

execute the same like other debts / creditors. Therefore,

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. As such,

18

there is no conflict between two schemes, i.e. MSMED Act and

SARFAESI Act as far as the specific subject of 'priority' is

concerned.

9. At this stage, the object and purpose of the enactment of

SARFAESI Act is required to be considered. 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, SARFAESI Act has been enacted

providing specific mechanism / provision for the financial

assets and security interest. It is a special legislation for

enforcement of security interest which is created in favour of

the secured creditor – financial institution. 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. If the

submission on behalf of respondent No.1 is accepted, then in

that case, Section 26E of the SARFAESI Act would become

nugatory and would become otiose and/or redundant. Any

other contrary view would be defeating the provision of Section

26E of the SARFAESI Act and also the object and purpose of

the SARFAESI Act.

10. Even otherwise the Naib Tehsildar was not at all justified

in not taking possession of the secured assets / properties as

per order dated 24.09.2014 passed by the District Magistrate

under Section 14 of the SARFAESI Act. 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 No.1 for recovery of the orders passed by

the Facilitation Council are pending, is wholly without

jurisdiction. 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. Under Section 14 of the

SARFAESI Act, the District Magistrate or the Chief

Metropolitan Magistrate as the case may be is required to

assist the secured creditor in getting the possession of the

secured assets. Under Section 14 of the SARFAESI Act, 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. Therefore, the order

passed by the Naib Tehsildar refusing to take the possession

pursuant to the order passed by the District Magistrate under

Section 14 of the SARFAESI Act was wholly without

jurisdiction and therefore also the same was liable to be set

aside.

11. In view of the above and further reasons stated above,

the impugned judgment and order passed by the Division

Bench of the High Court is unsustainable and the same

21

deserves to be quashed and set aside. Consequently, the

present appeal is allowed. 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 Appeal No. 268 of

2017 is set aside and the judgment and order passed by the

learned Single Judge is hereby restored. 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. It is rightly

observed by the learned Single Judge that if respondent No.1

is aggrieved by the order passed by the District Magistrate

under Section 14 of the SARFAESI Act, it will be open for him

to initiate proceedings under Section 17 of the SARFAESI Act

which be considered in accordance with law and on its merits

and subject to the provisions of Section 17 and the provisions

of the SARFAESI Act.

12. The present appeal is accordingly allowed. No order as to

costs.

22

 ………………………………….J.

 [M.R. SHAH]

………………………………….J.

 [KRISHNA MURARI]

NEW DELHI;

JANUARY 5, 2023.

23