KOTAK MAHINDRA BANK LIMITED versus GIRNAR CORRUGATORS PVT. LTD. & ORS.

Citation: [2023] 1 S.C.R. 873 · Decided: 05-01-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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KOTAK MAHINDRA BANK LIMITED
v.
GIRNAR CORRUGATORS PVT. LTD. & ORS.
(Civil Appeal No.6662 of 2022)
JANUARY 05, 2023
[M. R. SHAH AND KRISHNA MURARI, JJ.]
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act) – ss.
13(2), 13(4), 14, 17, 26E – Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act) – ss. 15-23, 24 – Whether
the MSMED Act would prevail over the SARFAESI Act and whether
recovery proceedings/recoveries under MSMED Act would prevail
over the recoveries made/recovery proceedings under provisions
of the SARFAESI Act – Held : Sec 15 to 23 of the MSMED Act
provides a special mechanism for adjudication of dispute between
buyer and seller – But does not provides for priority over debt dues
of the secured creditor akin to s.26E of the SARFAESI Act – A
‘priority’ conferred / provided under Section 26E of the SARFAESI
Act would prevail over the recovery mechanism   of   the MSMED
Act – There is no repugnancy between the two Acts – In the absence
of any specific provision for priority in the MSMED Act, if MSMED
Act is allowed to prevail it would defeat the very object and purpose
of SARFAESI Act – Under section 14 of the SARFAESI Act, District
Magistrate or the Chief Metropolitan Magistrate is required to assist
the secured creditor in getting the possession of the secured assets
– Neither, District Magistrate or Metropolitan Magistrate would
have jurisdiction to adjudicate the matter between secured creditor
and debtor – Person aggrieved by the steps u/s. 13(4) and s.14 of
the SARFAESI Act has to approach Debts Recovery Tribunal by
way of appeal/application u/s. 17 of the SARFAESI Act – Recoveries
under the SARFAESI Act with respect to the secured assets would
prevail over the recoveries under the MSMED Act.
Allowing the appeal, the Court
HELD: 1. In the entire Micro, Small and Medium
Enterprises Development Act, 2006 (MSMED Act), there is no
   [2023] 1 S.C.R. 873
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SUPREME COURT REPORTS
[2023] 1 S.C.R.
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 Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (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
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. 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. 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.
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.
[Para 7][883-B-G]
2. 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
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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
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