SARFAESI as Special Law: Section 35 Override and Section 37 Savings

A powerful statute needs to know its place among others, and SARFAESI answers in two apparently opposite provisions: Section 35 sweeps inconsistent law aside, while Section 37 says the Act does not displace the Companies Act, the SEBI Act, the RDB Act and others. Read together they are a sword and a saving clause, and the way they resolve, against general law, against the later IBC, and against State first charges, is among the most examined and most litigated aspects of the Act. This note sets out both and how courts reconcile them.

1. The Sword and the Saving Clause

Figure 1: Section 35 against Section 37

• Section 35: the override. A non-obstante clause: the Act prevails over anything inconsistent in any other law or instrument, giving SARFAESI primacy where a genuine conflict exists, the sword that clears conflicting statutes aside.
• Section 37: not in derogation. The Act is in addition to, and not in derogation of, the named statutes and any other law, so those laws continue to apply and the remedies they give survive, the saving clause that keeps the field from being emptied.
• The apparent paradox. One section overrides other laws, the other preserves them: the reconciliation is that s.35 clears only inconsistent provisions, while s.37 keeps the rest of the listed statutes operative, so SARFAESI supplements the general framework and prevails only on direct conflict.

2. How the Conflict Resolves

Figure 2: Override read in context

• Against general law. Where another statute merely conflicts with SARFAESI, s.35 gives SARFAESI primacy, and the RDB Act machinery runs alongside rather than against it, the two recovery regimes being complementary (Topic 75)
• Against the later IBC. The Insolvency and Bankruptcy Code, 2016 carries its own override in s.238 and is a later, self-contained code, so on the matters it occupies, the moratorium and the collective resolution process, the IBC prevails, and a SARFAESI action yields once the moratorium bites (Topic 76)
• State first charges and Crown debt. Before 2016, in Central Bank of India v. State of Kerala (2009) the Supreme Court held that s.35 did not by itself give secured creditors priority over a State statutory first charge for tax dues, since those statutes created their own first charge; the position changed with s.26E, inserted in 2016, which now gives registered secured creditors express priority over other debts and government dues (Topics 49, 50)
• The reading rule. Courts harmonise the two: a non-obstante clause is given effect only to the extent of real inconsistency, so s.35 and s.37 coexist, SARFAESI overriding on conflict while leaving the surrounding statutes to operate.

3. Frequently Asked Questions

How do Sections 35 and 37 of the SARFAESI Act operate together?

Section 35 gives the Act overriding effect notwithstanding anything inconsistent in any other law, while Section 37 provides that the Act is in addition to and not in derogation of the Companies Act, the SEBI Act, the RDB Act and other laws. They are reconciled by the inconsistency principle: Section 35 displaces only those provisions of other laws that directly conflict with SARFAESI, while Section 37 preserves the rest, so SARFAESI supplements the general legal framework and prevails only where there is a genuine clash, rather than wiping out the surrounding statutes.

Does SARFAESI override the Insolvency and Bankruptcy Code?

No, on the matters the Code occupies. The IBC, 2016 is later in time, is a complete code, and carries its own overriding clause in Section 238, so on the moratorium and the collective resolution process the IBC prevails, and a secured creditor's SARFAESI action gives way once a moratorium is in force. SARFAESI remains the secured creditor's individual enforcement remedy outside insolvency, but it cannot be pursued against the collective process the Code governs.

4. Related Topics

• Topic 76: SARFAESI vs IBC. The two override clauses compared.
• Topic 49: Section 26E Priority. The 2016 priority over other debts and Crown dues.