The Supreme Court has clarified that the moratorium under the Insolvency and Bankruptcy Code (IBC) does not prevent the attachment of properties under the Maharashtra Protection of Interest of Depositors (MPID) Act. The Court emphasized that the MPID Act is designed to protect the interests of depositors who have suffered due to financial frauds by enabling the attachment and recovery of assets.
Rejecting the argument that the IBC’s moratorium should block property attachments under the MPID Act, the Court stated:
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"The primary purpose of the MPID Act is to facilitate recovery for victims of financial fraud through the attachment of assets. Once a property vests with the State Competent Authority under the MPID Act, such vesting cannot be impeded by invoking the IBC moratorium."
The Court dismissed the claim of any conflict or overlap between the two laws, explaining that they operate in separate legal domains. The IBC governs debtor-creditor relationships, while the MPID Act is a state law protecting depositors from fraudulent schemes.
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Case Background
The case is rooted in the 2013 National Spot Exchange Limited (NSEL) scam, where NSEL, a commodity exchange platform, defaulted on payments worth ₹5,600 crores to nearly 13,000 traders. This led to a series of legal proceedings, with NSEL filing a writ petition in 2019 before the Supreme Court to consolidate these cases.
The Supreme Court, exercising its powers under Article 142 of the Constitution, formed a Supreme Court Committee (SCC) led by a retired judge. The SCC was tasked with executing decrees, selling attached properties (including those under the Prevention of Money Laundering Act (PMLA) and MPID Act), and ensuring fair distribution of proceeds to affected investors.
However, the corporate debtor argued that the IBC moratorium should prevent property attachments under the MPID Act. The Supreme Court rejected this argument, clarifying that the IBC does not override the MPID Act’s authority to protect depositors.
Justice Bela M Trivedi, delivering the judgment, stated:
"There is no overlap or inconsistency between the provisions of the IBC and the MPID Act. Section 14 of the IBC relates to the moratorium, but it is distinct from Section 4 of the MPID Act, which governs the attachment of assets to safeguard depositors."
The Court highlighted that the MPID Act, enacted by the Maharashtra Government under the State List of the Constitution, functions independently of the IBC, which is a central law. This independence means that the State Competent Authority can continue to attach the defaulter’s properties under the MPID Act, even during the IBC moratorium period.
"In the absence of any inconsistency, Section 238 of IBC, which gives overriding effect to IBC over other laws, cannot be invoked here," the Court said.
Case Title: NATIONAL SPOT EXCHANGE LIMITED VERSUS UNION OF INDIA & ORS.
Appearance:
For Petitioner(s) : Mr. Atul Nanda, Sr. Adv. Ms. Diksha Rai, AOR Ms. Rameeza Hakeem, Adv.
For Respondent(s) : Mr. Amit Sibal, Sr. Adv. Mr. Aditya Verma, AOR Mr. Y Suryanarayana, Adv.
Applicant in IA Nos. 42318/2024, 42396/2024 and 42625/2024 Mr. Vijay Kumar Singh, Adv., Ms. Shivani Tandon, Adv. & Mr. Prem Prakash, AOR (Not present)
Mr. Mukesh Kumar Maroria, AOR Mr. Arvind Kumar Sharma, AOR Mr. Aaditya Aniruddha Pande, AOR Mr. Sachin Patil, AOR Mr. Himanshu Chaubey, AOR Mr. Vikalp Mudgal, AOR Mr. Shashwat Anand, AOR Ms. Abha Jain, AOR Mr. Ashok Kumar Gupta II, AOR Mr. Bijoy Kumar Jain, AOR Mr. Bhaskar Aditya , AOR Mr. Ankur Mittal, AOR Ms. Sanjana Saddy, AOR Mr. Mohd. Zahid Hussain , AOR Mr. Y. Raja Gopala Rao, AOR Mr. Gopal Singh, AOR
