State depositor-protection attachment prevails over secured creditor priority and insolvency moratorium for vested properties.
A valid State law protecting depositors and providing for attachment and vesting of properties in a competent authority prevails over priority claims based on SARFAESI and the RDB Act in respect of properties attached under that law. The attached assets are not treated as ordinary secured assets for creditor priority purposes, and the non obstante clauses in the central recovery statutes do not displace the State enactment. The same attachment and vesting mechanism also keeps such properties outside the ordinary insolvency pool, so the IBC moratorium does not defeat execution where no direct statutory inconsistency is shown. On both issues, the committee's approach was upheld.
Issues: (i) Whether secured creditors could claim priority over properties attached under the Prevention of Money Laundering Act, 2002 and the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 by relying on the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993; (ii) Whether properties attached under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 remained available for execution of decrees against judgment debtors and garnishees despite moratorium under the Insolvency and Bankruptcy Code, 2016.
Issue (i): Whether secured creditors could claim priority over properties attached under the Prevention of Money Laundering Act, 2002 and the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 by relying on the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993.
Analysis: The statutory scheme showed that the Maharashtra enactment was a valid State law occupying the field of protection of depositors and attachment of properties of financial establishments, while the central enactments relied on by secured creditors operated in the banking and secured-debt field. Applying the doctrines of federal supremacy, pith and substance, and repugnancy, the State law could not be displaced merely because the central laws contained non obstante clauses. The priority provisions in the SARFAESI and RDB enactments did not aid the secured creditors because the attached assets under the Maharashtra law were properties vested in the competent authority for the benefit of depositors, not ordinary secured assets within the meaning invoked by the creditors. The overriding provisions of the State law therefore prevailed in respect of the attached properties.
Conclusion: The claim of priority by secured creditors was rejected and the attached properties under the Maharashtra Act were held to remain subject to that Act, against the secured creditors.
Issue (ii): Whether properties attached under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 remained available for execution of decrees against judgment debtors and garnishees despite moratorium under the Insolvency and Bankruptcy Code, 2016.
Analysis: The attachment under the Maharashtra Act caused the properties to vest in the competent authority, subject to the statutory procedure before the designated court. The moratorium under the Insolvency and Bankruptcy Code operates in the insolvency framework, but the attached properties under the State enactment were already placed outside the ordinary insolvency pool by virtue of the attachment and vesting mechanism. Since the two enactments operated in different fields and no direct inconsistency was established, section 238 of the Insolvency and Bankruptcy Code was not attracted. The attached properties therefore continued to be available for execution in accordance with the Supreme Court's directions.
Conclusion: The attached properties were held to remain available for execution of decrees by the Supreme Court Committee notwithstanding moratorium under the Insolvency and Bankruptcy Code, 2016.
Final Conclusion: The challenge to the committee orders failed on both questions of law, and the committee's approach was affirmed as consistent with the governing statutory scheme.
Ratio Decidendi: A valid State law enacted to protect depositors and provide for attachment and vesting of properties in the competent authority prevails over competing claims under central recovery statutes in respect of those attached properties, and such properties are not drawn into insolvency moratorium unless a real statutory inconsistency is shown.
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