New Delhi, May 15 (PTI) In a significant verdict, the Supreme Court on Thursday held that the moratorium imposed under the Insolvency and Bankruptcy Code (IBC) does not prohibit the attachment of properties under the Maharashtra Protection of Interest of Depositors (MPID) Act.

A bench comprising Justices Bela M Trivedi and Satish Chandra Sharma upheld the orders passed by the apex court-appointed committee in the high-profile National Spot Exchange Limited (NSEL) fraud case.

Writing a 76-page judgement for the bench, Justice Trivedi reaffirmed that secured creditors cannot claim priority over assets attached under the Prevention of Money Laundering Act (PMLA) and the MPID Act.

The bench dealt with two crucial questions arising from the orders dated August 10, 2023, and January 8, 2024, passed by the apex court-appointed committee probing the Rs 5,600 crore NSEL scam.

The first issue was “whether the secured creditors would have priority of interest over the assets attached under the Provisions of PMLA, 2002, and the MPID Act, 1999, by virtue of the Provisions of SARFAESI Act, 2002 and RDB Act, 1993”.

The second issue was “whether the properties of the judgment debtors and garnishees attached under the provisions of MPID Act would be available for the execution of the decrees against judgment debtors in view of the Provision of Moratorium under Section 14 of the IBC, 2016”.

Referring to earlier verdict, the bench said that the validity of the MPID Act was upheld and it was enacted by Maharashtra to protect the interest of depositors of the financial establishments and matters relating to them.

“There remains no shadow of doubt that the State of Maharashtra was within its legislative competence to enact the MPID Act, the subject matter of which in pith and substance was relatable to Entries 1, 30 and 32 of the State List (List II) of the Seventh Schedule of the Constitution,” it said.

It said properties attached in the instant case were acquired by the NSEL either in its own name or in the name of other persons from out of deposits collected by the financial establishment.

“No priority of interest can be claimed by the secured creditors against the properties attached under the MPID Act and that the provisions of MPID Act would override any claim for priority of interest by the secured creditors in respect of the properties which have been attached under the MPID Act,” the bench ruled.

All such properties and assets of the financial establishment and the persons mentioned in the said provision, vest in the competent authority appointed by the government, pending further orders from the designated court, it said.

“Such monies or deposits of depositors/ investors, who have been allegedly defrauded by the Financial Establishment, and for the recovery of which the MPID Act has been enacted, could not be said to be a “debt” contemplated in Section 26E of the SARFAESI Act, and hence also the provisions of Section 26E could not be said to have been attracted to the facts of the case,” it held while answering the first issue.

Answering the second question, the bench said the MPID was enacted in the public interest to curb the unscrupulous activities of financial establishments, who had defaulted to return the deposits of the public in Maharashtra.

“In the instant case, there is also no overlap or inconsistency between the provisions contained in the IBC and MPID Act...,” it said, adding “so far as the attachment of properties under Section 4 of the MPID Act is concerned, it is beyond the realm of the Debtor-Creditor relationship as contemplated in the IBC”.

“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 SC Committee, despite the provision of Moratorium under Section 14 of the IBC,” it said.

The bench answered the first question in the negative and the issue two in the affirmative.

The scam, which emerged from the operations of NSEL — a commodity exchange platform promoted by 63 Moons Technologies Ltd — resulted in massive payment defaults and affected approximately 13,000 traders.

Various properties linked to the scam were attached under the MPID Act and PMLA, triggering competing claims between secured creditors and depositors. PTI SJK SJK KVK KVK