In a landmark decision dated 15 May 2025, Justice Bela M. Trivedi delivered a decisive verdict in Writ Petition (Civil) No. 995 of 2019, concerning the priority of rights over properties attached following the massive ₹5,600 crore fraud at the National Spot Exchange Limited (NSEL). This case evaluates whether secured creditors hold precedence over properties attached under the Prevention of Money Laundering Act (PMLA) and Maharashtra Protection of Interests of Depositors (MPID) Act, despite having claims under the SARFAESI Act and RDB Act.
Background of the Case
NSEL, a commodities trading platform, faced a massive default crisis in 2013 when 13,000 traders were defrauded by 24 defaulting members. NSEL, promoted by 63 Moons Technologies Ltd., suffered defaults on payouts amounting to over ₹5,600 crore. Investigations led to multiple legal actions:
- Properties of defaulters were attached by the Enforcement Directorate under the PMLA and by the State of Maharashtra under the MPID Act.
- NSEL filed recovery suits and obtained decrees/arbitral awards worth ₹3,365 crore.
- A Supreme Court-appointed Committee under Article 142, led by Justice (Retd.) Pradeep Nandrajog was tasked with executing these awards and facilitating asset monetization.
Issues for Determination
The Court prioritized two key legal questions arising from the Supreme Court Committee’s orders dated 10.08.2023 and 08.01.2024:
- Whether secured creditors have priority over properties attached under the PMLA and MPID Act by virtue of the SARFAESI and RDB Acts.
- Whether moratoriums under the Insolvency and Bankruptcy Code (IBC), 2016, bar the Committee from proceeding against attached properties of judgment debtors or their personal guarantors.
Legal Arguments
For the Secured Creditors:
- Asserted statutory priority under:
- Section 26E of SARFAESI Act
- Section 31B of RDB Act
- Section 26E of SARFAESI Act
- Cited Punjab National Bank v. Union of India (2022) and Asset Reconstruction Company (India) Ltd. v. S. P. M. L. Infra Ltd. (2022), highlighting legislative intent to prioritize secured debt recovery.
- Challenged the Supreme Court Committee’s jurisdiction under Article 142 to override statutory rights.
For the Union of India and Other Respondents:
- Emphasized overriding provisions of:
- Section 71 of PMLA
- Section 4(2) and Section 7 of MPID Act, which vest attached properties in the Competent Authority.
- Section 71 of PMLA
- Cited State of Maharashtra v. Tapas D. Neogy (1999) and Sejal Rameshbhai Shah v. Union of India (2022), where attached properties were deemed part of the “proceeds of crime.”
- Argued that once attached under PMLA/MPID, such properties cannot be diverted to satisfy claims under other statutes.
Reasoning of the Court
On the Scope of Article 142:
Relying on Supreme Court Bar Association v. Union of India (1998) and Shilpa Sailesh v. Varun Sreenivasan (2023), the Court reaffirmed that while Article 142 empowers it to do “complete justice,” it cannot override explicit statutory provisions, especially those rooted in public policy.
On Priority of Rights:
- MPID and PMLA Have Overriding Effect: The Court affirmed that properties vested in the Competent Authority under MPID or PMLA are insulated from claims under SARFAESI or RDB, citing their clear non obstante clauses.
- Attachment Precedes Debt Recovery: Even registered security interests under SARFAESI/RDB do not override attachments predating enforcement actions.
- IBC Moratorium Doesn’t Apply Retrospectively: If properties were attached before insolvency or moratorium commenced, such assets remain under the Committee’s purview for execution.
Final Verdict
The Court upheld the Committee’s conclusions and ruled:
- Secured creditors have no priority over properties attached under PMLA or MPID, even if they hold valid security interests.
- Moratoriums under Section 14 or Section 96 of IBC do not prevent execution of attached properties vested in the Competent Authority before the moratorium took effect.
- The Committee can liquidate such properties in line with the Supreme Court’s 2022 directions under Article 142, provided it does not conflict with existing statutory entitlements.
Significance of the Judgment
This ruling affirms the legislative primacy of anti-money laundering and depositor protection laws over debt recovery statutes, especially in multi-jurisdictional financial fraud cases. It also reinforces the restrained yet effective use of Article 142 to coordinate complex enforcement regimes without violating statutory rights.
FAQs:
1. What is the NSEL fraud case about?
It involved a ₹5,600 crore payment default by members trading on the National Spot Exchange, affecting 13,000 traders.
2. Who has first right over attached properties: secured banks or the government?
As per the 2025 judgment, the government (via MPID or PMLA attachments) has overriding rights over secured creditors.
3. Does the IBC moratorium stop the execution of already attached properties?
No. If properties were attached before the moratorium, they can still be sold to recover dues.
4. What is Article 142 and how was it used here?
It allows the Court to do “complete justice.” It was used to form a Committee for executing decrees and distributing investor recoveries.
5. Can banks still recover anything in this case?
Banks can still pursue unencumbered assets or file claims in insolvency proceedings, but not claim priority over already attached properties.
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