The Supreme Court Has Ruled That The MSMED Act's "Dues" Will Not Prevail In SARFAESI Proceedings

The Micro, Small, and Medium Enterprises Development Act of 2006 fees, according to the Supreme Court, would not trump the SARFAESI Act.

The MSMED Act shall take precedence over the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, according to the Madhya Pradesh High Court's ruling in this case. The MSMED Act would take precedence over the SARFAESI Act, according to the High Court, because it was enacted later than the SARFAESI Act and because Section 24 of the MSMED Act provides that the provisions of Sections 15 to 23 of the MSMED Act would have an overriding effect and shall have effect notwithstanding anything inconsistent therewith contained in any other law currently in force.

The Apex Court's bench of Justices M. R. Shah and Krishna Murari underlined the following details about pertinent MSMED Act and SARFAESI Act clauses in the appeal

1. Unlike Section 26E of the SARFAESI Act, no "priority" is granted about the MSMED Act's dues under the terms of the MSMED Act, more specifically Sections 15 to 23.
2. After the registration of a 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, State Government, or local authorities, notwithstanding anything inconsistent therewith contained in any other law currently in force. This provision was added by an amendment to the SARFAESI Act in 2016.

In light of this, the bench noted the following while granting the appeal

"It is necessary to take into account the SARFAESI Act's intent and purpose. The SARFAESI Act was passed to control the securitization and reconstruction of financial assets, the enforcement of security interests, and to establish a central fund for security interests created on property rights, as well as for issues related to or incidental to those activities. To provide a specific process or provision for the financial assets and security interest, the SARFAESI Act was enacted. A specific law was formed in favour of the secured creditor, a financial institution, for the enforcement of security interests. 

Therefore, if Respondent No. 1's submission for the dues under MSMED Act were to take precedence over the SARFAESI Act in the absence of any specific provision for priority of the dues under the MSMED Act, not only would the object and purpose of the special enactment/SARFAESI Act be frustrated, but also the later enactment by way of the insertion of Section 26E of the SARFAESI Act would be frustrated. The SARFAESI Act's Section 26E would become meaningless, otiose, and/or refund, and if the submission made on behalf of Respondent No. 1 is approved. Any other opposing viewpoint would violate Section 26E of the SARFAESI Act as well as the law's goals.