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TMI Blog2023 (1) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... z. SARFAESI Act and MSMED Act. As such, there is no conflict between two schemes, i.e. MSMED Act and SARFAESI Act as far as the specific subject of 'priority' is concerned. 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 Section 26E of the SARFA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 pursuant to the award passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 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 ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 preva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial enactment / SARFAESI Act would be frustrated, even the later enactment by way of insertion of 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 Met ..... X X X X Extracts X X X X X X X X Extracts X X X X
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