In a significant ruling addressing competing claims over attached properties in the National Spot Exchange Limited (NSEL) case, the Supreme Court has upheld that assets attached under the Prevention of Money Laundering Act (PMLA) and the Maharashtra Protection of Interests of Depositors (MPID) Act will take precedence over claims by secured creditors under the SARFAESI Act and Recovery of Debts and Bankruptcy Act (RDB Act).
A Bench comprising Justice Bela M Trivedi and Justice Satish Chandra Sharma delivered the judgment in Writ Petition (Civil) No. 995 of 2019: National Spot Exchange Ltd. vs Union of India & Others, affirming the validity of orders passed by the Supreme Court-appointed Committee dated August 10, 2023 and January 8, 2024.
Background
The NSEL, incorporated in 2005 and promoted by 63 Moons Technologies Ltd., provided a platform for commodity trading. A massive payment default and trading fraud aggregating to approximately ₹5,600 crore came to light in July 2013, affecting over 13,000 traders. FIRs were registered, suits were filed—including Representative Suit No. 173 of 2014 in the Bombay High Court—and assets of defaulter members were attached by the Enforcement Directorate (under PMLA) and the State of Maharashtra (under MPID Act).
To streamline execution proceedings of various decrees and arbitral awards secured by NSEL, the Supreme Court, by an order dated May 4, 2022, constituted a high-powered Committee chaired by Justice (Retd.) Pradeep Nandrajog. The Committee was given all powers of a civil court to execute such decrees, including selling attached properties.
Legal Issues Before the Court
Two legal questions emerged for priority determination:
- Whether secured creditors have priority over properties attached under PMLA and MPID Act by virtue of SARFAESI Act and RDB Act?
- Whether properties attached under the MPID Act are immune to insolvency moratoriums under Section 14 and 96 of the Insolvency and Bankruptcy Code (IBC)?
Committee’s Conclusions
The Supreme Court Committee ruled:
- As per its order dated August 10, 2023, that the attached properties were considered proceeds of crime and thus secured creditors cannot claim priority under SARFAESI or RDB Act against them.
- Regarding MPID attachments, the Committee concluded that MPID Act overrides claims by secured creditors.
Further, through its January 8, 2024 order, the Committee held that properties vested in the competent authority under MPID Act prior to the moratorium under IBC would remain outside the insolvency process and could be used to satisfy decree-holders’ claims.
Supreme Court’s Observations and Decision
Justice Bela M. Trivedi, writing for the Court, upheld the Committee’s interpretation. The Court clarified the scope of Article 142 of the Constitution, under which the Committee was constituted, affirming that such powers cannot override express provisions of substantive statutory laws unless required to “balance equities.”
The Court emphasized:
“Though the powers of this Court cannot be controlled by any statutory provisions, when the exercise of powers under Article 142 comes directly in conflict with what has been expressly provided in a statute, ordinarily, such power should not be exercised.”
Acknowledging concerns raised by secured creditors, the Court held that such objections had lost relevance at the current stage since the execution process was already underway under the 2022 order.
The Court concluded that:
- The statutory provisions of the MPID Act and PMLA had overriding effect through their respective non-obstante clauses.
- Section 26E of the SARFAESI Act and Section 31B of the RDB Act provide priority to secured creditors but remain subject to PMLA and MPID Act when proceeds of crime or depositors’ interests are involved.
Accordingly, the Supreme Court dismissed the objections raised by secured creditors and affirmed the Committee’s directions regarding priority of claims and the availability of attached assets for execution of decrees.
