Institute of Legal and Management Studies

The Supreme Court today (May 15) ruled that the moratorium under the Insolvency & Bankruptcy Code (“IBC”) doesn't prohibit attachment of properties under the Maharashtra Protection of Interest of Depositors Act (“MPID Act”).

The Court rejected the contention that the moratorium imposed under the IBC bars the attachment of properties under the MPID Act. It held that the primary purpose of the MPID Act is to facilitate recovery for victims of financial fraud through the attachment of assets. Consequently, once a property vests with the State Competent Authority under the MPID Act, such vesting cannot be impeded by invoking the IBC moratorium.

Further, the Court dismissed the argument of inconsistency or overlapping between the provisions contained under the MPID Act and IBC to give primacy to central law IBC under Article 254 of the Constitution, stating that both the Acts operate within their field drawing legislative support from their respective lists under the Schedule VII of the Constitution. The Court added that the MPID Act was enacted by the Maharashtra Government under the State List, therefore, the moratorium declared under IBC would not preclude the State Competent Authority from attaching the defaulter's property to facilitate recovery for victims of financial fraud.

“In the instant case, there is also no overlap or inconsistency between the provisions contained in the IBC and MPID Act. As such, Section 14 of IBC has the connotation which is very much different from Section 4 of MPID Act. The proceedings under the IBC arise out of the Debtor-Creditor relationships of the parties. As per Section 14 of IBC, which pertains to the Moratorium, a declaration has to be made to an order by the Adjudicating Authority prohibiting the acts mentioned therein. Therefore, Section 14 of IBC is consequent upon the order passed by the Adjudicating Authority declaring Moratorium.”, the court said.

Background

The bench comprising Justice Bela M Trivedi and Justice Satish Chandra Sharma was hearing the case that arises from the 2013 National Spot Exchange Limited (NSEL) scam, where NSEL, a commodity exchange platform, defaulted on payments worth ₹5,600 crores to around 13,000 traders. This led to the filing of multiple legal proceedings; however, due to difficulties in executing decrees across multiple jurisdictions, the Appellant-NSEL filed a writ petition before the Supreme Court in 2019, seeking the consolidation of proceedings.

In exercise of its powers under Article 142 of the Constitution, the Court constituted a Supreme Court Committee (SCC) headed by a retired judge who executed all decrees/awards against defaulters, sold attached properties (even those under PMLA/MPID Act) to repay investors, and distributed proceeds equitably among depositors.

The aforesaid proceedings by SCC was challenged by the corporate debtor, stating that when moratorium under IBC was force than no attachment proceedings under the MPID Act can continue.

Decision

Rejecting the Appellant's argument, the judgment authored by Justice Trivedi held that the IBC moratorium cannot obstruct the enforcement of statutory attachments that were made in the public interest prior to the commencement of insolvency proceedings. The Court emphasized that the IBC and the MPID Act operate in distinct and non-conflicting domains, and there is no inconsistency between them that would trigger Article 254 of the Constitution to grant overriding effect to the IBC for barring such attachments during the moratorium period.

“In absence of any inconsistency having been brought on record, between the provisions contained in the MPID Act and in the IBC, Section 238 of IBC, which gives overriding effect to the IBC over the other Acts for the time being in force, cannot be said to have been attracted.”, the court said.

“In that view of the matter, it is held that the properties of the Judgment Debtors and Garnishees attached under the provisions of the MPID Act, would be available for the execution of the decrees against the Judgment Debtors by the S.C. Committee, despite the provision of Moratorium under Section 14 of the IBC.”, the court added.

Case Title: NATIONAL SPOT EXCHANGE LIMITED VERSUS UNION OF INDIA & ORS.

Citation : 2025 LiveLaw (SC) 577

Click here to read/download the judgment

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