[2025] 7 S.C.R. 252
(Writ Petition (Civil) No. 995 of 2019), delivered on 15 May 2025 by the Supreme Court1.
Core Issues
The Supreme Court addressed two primary legal questions arising from the National Spot Exchange Limited (NSEL) scam:
1. Whether secured creditors would have priority of interest over assets attached under the Prevention of Money Laundering Act, 2002 (PMLA) and the Maharashtra Protection of Investors and Depositors Act, 1999 (MPID Act), by virtue of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act)2.
2. Whether properties attached under the MPID Act would be available for execution of decrees against judgment debtors, despite the provision of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC)3.
Factual Background
The case originated from a significant fraud and payment defaults of approximately Rs. 5,600 Crores at the NSEL commodity exchange platform, affecting around 13,000 traders45. To recover these lost monies, various actions were taken:
• NSEL obtained decrees and arbitral awards against defaulters6.
• The Enforcement Directorate (ED) attached assets under the PMLA6.
• The State of Maharashtra attached movable and immovable properties under the MPID Act6.
Recognising the complexity and multiple jurisdictions involved, the Supreme Court, on 04 May 2022, exercised its extraordinary powers under Article 142 of the Constitution to constitute a Supreme Court Committee (S.C. Committee). This Committee was tasked with achieving a “holistic solution for speedy recovery of the outstanding amounts to be distributed to the investors” and was empowered to sell properties of judgment debtors, even if already attached under PMLA or MPID Act, to satisfy decrees7…. The S.C. Committee subsequently passed orders addressing the priority of secured creditors and the impact of IBC moratorium, which were then challenged before the Supreme Court10….
Supreme Court’s Reasoning
1. Priority of Secured Creditors (SARFAESI/RDB vs. PMLA/MPID):
• MPID Act’s Dominance: The Court affirmed the constitutional validity of the MPID Act, noting its enactment by the State of Maharashtra to protect depositors from fraudulent financial establishments13…. It falls under Entries 1, 30, and 32 of the State List (List II) of the Seventh Schedule16. The Court emphasised the principle of federal structure (Article 246)1718.
• Pith and Substance Doctrine: It was held that SARFAESI Act and RDB Act, though Central Legislations pertaining to “Banking” (Union List, Entry 45)19, cannot automatically override the MPID Act. The Court applied the doctrine of ‘pith and substance’, stating that these Acts operate in distinct fields. Incidental overlap does not allow Central legislation to denude the State’s exclusive legislative power20….
• Nature of Funds: The monies or deposits recovered under the MPID Act, intended for defrauded depositors, were not considered a “debt” as contemplated by Section 26E of the SARFAESI Act23.
• Conclusion on Priority: The Supreme Court concluded that no priority of interest can be claimed by secured creditors against properties attached under the MPID Act. The provisions of the MPID Act would override any such claim for priority2425.
2. Availability of MPID-attached Properties despite IBC Moratorium:
• Distinct Statutory Frameworks: The Court found no inconsistency between the MPID Act and the IBC2627. The MPID Act (State List) and IBC (Concurrent List) address different subject matters, so Article 254 (repugnancy) is not attracted28….
• Nature of Attachment: Under Section 4 of the MPID Act, properties attached vest forthwith in the Competent Authority, pending orders from the Designated Court, primarily to protect depositors from fraud. This is distinct from a moratorium under Section 14 of the IBC, which arises from debtor-creditor relationships and prohibits certain actions upon a Corporate Insolvency Resolution Process (CIRP) declaration30…. MPID attachment is “beyond the realm of the Debtor-Creditor relationship as contemplated in the IBC”2830.
• Conclusion on Moratorium: Properties of judgment debtors attached under the MPID Act would be available for execution of decrees by the S.C. Committee, despite the IBC moratorium333.
3. Scope of Article 142 Powers:
Intervenors questioned the broad powers conferred on the S.C. Committee under Article 142, arguing it superseded statutory provisions34. The Court reiterated that Article 142 powers are curative and supplementary to do “complete justice”, but generally do not ignore or override express substantive statutory provisions that deal explicitly with a subject, particularly if it involves fundamental principles of public policy35…. However, in this case, the Article 142 order was passed to achieve a “holistic solution for speedy recovery” and “complete justice to the aggrieved Traders” where legal issues arose subsequently942.
Final Outcome
The Supreme Court upheld both orders passed by the Supreme Court Committee on 10 August 2023 and 08 January 20243…. Consequently, Question (i) was answered in the negative (secured creditors do not have priority over MPID-attached assets), and Question (ii) was answered in the affirmative (MPID-attached properties are available for execution despite IBC moratorium)33.
