Credit and Finance for MSMEs: The Supreme Court on Thursday maintained that recoveries under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) with regard to the secured assets will prevail over the recoveries under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 to recover the amount under the award or decree passed by the facilitation council, reported PTI.
The Supreme Court (SC) mentioned that the SARFAESI Act, 2002 has been enacted to regulate securitisation and reconstruction of financial assets, enforcement of security interest and to provide a central debt of security interest created on property rights.
The verdict came after an appeal was made in the SC regarding a question that whether recovery proceedings under the MSMED Act would prevail over the similar proceedings under the SARFAESI Act provisions.
“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,” a bench of Justices M R Shah and Krishna Murari said.
The court set aside/overruled the August 2017 judgment made by the Madhya Pradesh High Court which ruled that the MSMED Act will prevail over the SARFAESI Act in such instances.
The bench further mentioned that in the MSMED Act, there is no specific provision that prioritises for payments under the Act over the dues of the secured creditors or over any taxes or cesses payable to the central or the state government or the 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 or local authority,” the bench noted.
In addition to that, the bench highlighted, “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 (The Insolvency and Bankruptcy Code).”
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The SARFAESI Act was enacted considering the specific mechanism or provision for the financial assets and security interest, it added.
“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 deserves to be quashed and set aside. Consequently, the present appeal is allowed,” the bench said, while restoring the order passed by the single judge.