Supreme Court: SARFAESI Act prevails over MSMED Act in recovery matters

The Supreme Court held that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) prevails over the Micro, Small and Medium Enterprises Development Act (MSMED Act) in recovery proceedings. The Court emphasized that the SARFAESI Act provides priority to debts due to secured creditors, unlike the MSMED Act. Additionally, the Court ruled that the Naib Tehsildar's refusal to take possession of secured assets under SARFAESI Act due to pending recovery certificates under MSMED Act was without jurisdiction. The Supreme Court set aside the Division Bench's decision and restored the Single Judge's judgment, allowing the appeal with no costs.

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Issues Involved:
1. Whether the MSMED Act would prevail over the SARFAESI Act in recovery proceedings.
2. Whether the Naib Tehsildar was justified in refusing to take possession of secured assets under the SARFAESI Act due to pending recovery certificates under the MSMED Act.

Issue-wise Detailed Analysis:

1. Prevalence of MSMED Act over SARFAESI Act in Recovery Proceedings:
The core issue was whether the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) would take precedence over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) in recovery proceedings. The Division Bench of the High Court had ruled that the MSMED Act, being a later enactment, would prevail over the SARFAESI Act. However, the Supreme Court overturned this decision, emphasizing that the MSMED Act does not provide any specific express provision giving 'priority' for payments over the dues of secured creditors, unlike Section 26E of the SARFAESI Act, which explicitly states that debts due to secured creditors shall be paid in priority over all other debts. The Supreme Court further noted that Section 26E, inserted in 2016, includes a non-obstante clause, indicating the legislature's intent for it to prevail over earlier enactments, including the MSMED Act. Therefore, the Court concluded that the 'priority' conferred under Section 26E of the SARFAESI Act would prevail over the recovery mechanism of the MSMED Act.

2. Justification of Naib Tehsildar's Refusal to Take Possession of Secured Assets:
The Naib Tehsildar had refused to take possession of the secured assets as directed by the District Magistrate under Section 14 of the SARFAESI Act, citing pending recovery certificates under the MSMED Act. The Supreme Court found this refusal to be wholly without jurisdiction. It clarified that under Section 14 of the SARFAESI Act, the District Magistrate or Chief Metropolitan Magistrate is required to assist the secured creditor in obtaining possession of the secured assets and does not have the jurisdiction to adjudicate disputes between the secured creditor and debtor. The Court stated that any person aggrieved by the steps taken under Section 13(4) or the order passed under Section 14 should approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act. Consequently, the order passed by the Naib Tehsildar was set aside.

Conclusion:
The Supreme Court quashed the impugned judgment and order of the Division Bench of the High Court, restoring the judgment of the Single Judge, which held that recoveries under the SARFAESI Act with respect to secured assets would prevail over recoveries under the MSMED Act. The Court reiterated that if any party is aggrieved by the order passed under Section 14 of the SARFAESI Act, they may initiate proceedings under Section 17 of the SARFAESI Act. The appeal was allowed with no order as to costs.

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