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Battle Between “Non –Obstante Clauses”

Abhishek Fernandes
24 Jan 2023 8:30 AM GMT
Battle Between “Non –Obstante Clauses”

As commercial transactions become progressively complex each passing day, interplay amongst various statues has become part and parcel of such transactions, including any litigation born out of such transactions. Parties and courts should be mindful in interpretating various laws and regulations especially in situations wherein the relevant subject matter falls into the purview of multiple regulators and/or statutes. Therefore, a particular statute cannot be read in isolation but it has been read taking into account other applicable laws to ensure as much as possible that there is a harmonious interpretation, unless it leads to absurdity.

However, there are times whereby a particular transaction due to its peculiar facts may fall into a grey area, wherein two separate special statutes have been put in place each having their own non - obstante clauses to ensure that their respective objectives as envisaged are met. The Supreme court vide this significant judgment in the case of Kotak Mahindra Bank Limited vs Girnar Corrugators Pvt. Ltd. & Ors. has succinctly resolved the conundrum in not only interpreting two separate special statutes, having their own non- obstante clauses but also situations whereby one statue’s non- obstante shall prevail over another’s.

The main bone of the contention in the present matter was under which act could an asset of a defaulter be recovered, on one hand there is a creditor (Respondent) who is registered as an MSME and in whose favour a recovery certificate had already been issued under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME ACT”) and on the other hand a bank(Appellant)who had initiated recovery proceedings under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), each statute having their own separate non- obstante clauses. In short whether the recovery proceedings under the MSME Act would prevail over the recovery proceedings under the SARFAESI Act or vice versa was the fundamental question before The Supreme Court.

The Supreme court while answering this question relied upon its judgement in Bank of India vs. KetanPraekh & Ors. [(2008) 8 SCC 148 wherein it was stated that “both the two acts i.e. Act of 1992 and the Act of 1993 start with the non obstante clause Section 34 of the Act of 1993 starts with non obstante clause, likewise Section 9-A (sic 13) of the Act of 1992 But incidentally, in this case Section 9-A came subsequently i.e. it came on 25-1-1994. Therefore, it is a subsequent legislation which will have the overriding effect over the Act of 1993”.

In the present matter, the MSME Act came into effect in 2006, Section 24 of the MSME Act containing the non- obstinate clause, provides that provisions mentioned in Section 15-23 pertaining to special mechanism for adjudication of the dispute between the supplier and buyer along with enforcing certain other contractual and business terms on the parties such as time limit for payments and interest in case of delayed, shall have effect not withstanding anything inconsistent therewith under any other law in effect. Similarly, under the SARFAESI Act the non obstante clause is mentioned under Section 26E. Although SARFAESI Act, 2002 came into effect prior to the MSME Act, 2006 but 26E of SARFEASI Act, was inserted vide an amendment in 2016. Therefore, the non obstante clause under SARFAESI Act came into effect subsequent to the non obstante clause mentioned under the MSME Act.

The Supreme Court basis the principle laid down in Bank of India vs. Ketan Praekh & Ors. [(2008) 8 SCC 148 (supra) wherein if two enactments have competing non- obstante clauses then the non - obstante clause of the subsequent statue would prevail over the earlier. Further the Supreme Court observed that sections 15- 23 of the MSME Act only provide for special mechanism for adjudication of the dispute between the supplier and buyer 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. However, the MSME Act is bereft of any express provisions in regards to priority of payment due to secured creditor. However, in contrast Section 26E of the SARFAESI Act specifically provides for priority of payment pertaining to a secured creditor. Therefore, there is no conflict between the two statutes specifically in the subject area of priority of payments. It was further observed that the objective for enacting the SARFAESI Act was to provide specific mechanism for enforcement of security interest which is created in favour of a secured creditor and as the MSME Act lacks any such similar provision for priority of dues therefore in matters pertaining to enforcement of security of dues, if the MSME would prevail then the purpose as envisaged under the SARFAESI Act would be frustrated.

Taking into consideration all the facts of the case and the precedents laid down, the Supreme Court held that when 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 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.

The author is an Advocate, views are personal.

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