Supreme Court clarifies priority of secured creditors vs. PMLA and MPID Act in NSEL scam: National Spot Exchange Limited vs. Union of India (2025)

Date of the Judgment: May 15, 2025
Citation: 2025 INSC 694
Judges: Bela M. Trivedi, J., Satish Chandra Sharma, J.

In a significant judgment concerning the National Spot Exchange Limited (NSEL) scam, the Supreme Court addressed the conflicting claims between secured creditors and the attachment of assets under the Prevention of Money Laundering Act, 2002 (PMLA) and the Maharashtra Protection of Investors and Depositors Act, 1999 (MPID Act). The core issue revolved around determining the priority of interest over assets attached in connection with the NSEL scam, which defrauded approximately 13,000 traders of about Rs. 5,600 Crores. This judgment clarifies the interplay between various financial and economic legislations, providing much-needed guidance for resolving such conflicts in the future. The bench, comprising Justice Bela M. Trivedi and Justice Satish Chandra Sharma, delivered a unanimous decision.

Case Background: The NSEL Scam Unveiled

The National Spot Exchange Limited (NSEL), promoted by 63 Moons Technologies Limited, provided an electronic platform for trading commodities. The Department of Consumer Affairs initially exempted NSEL from certain provisions of the Forward Contracts (Regulation) Act, 1952 (FCRA). However, in July 2013, NSEL suspended its operations following allegations of payment defaults and fraud amounting to approximately Rs. 5,600 Crores, affecting about 13,000 traders.

An FIR was registered, and investigations revealed that 24 trading members defaulted on their payment obligations. Subsequently, the Enforcement Directorate attached assets worth approximately Rs. 1740.59 Crores under the PMLA, and the State of Maharashtra attached movable and immovable properties worth about Rs. 8,548 Crores under the MPID Act to recover the lost funds.

NSEL also initiated recovery proceedings, obtaining decrees/awards of about Rs. 3,365 Crores against the defaulters. Due to difficulties in executing these decrees across various courts, NSEL filed a writ petition seeking consolidation of proceedings.

Timeline: Key Events in the NSEL Scam

Here’s a timeline of the key events:

Course of Proceedings

The proceedings initiated by NSEL and various suits filed by affected traders were consolidated before a committee appointed by the Bombay High Court. This committee was tasked with crystallizing the liabilities of defaulting members and acting as a receiver to manage their assets. NSEL also filed third-party notices in Suit No. 173 of 2014 against its defaulters to recover the lost funds.

Subsequently, the Supreme Court, on May 4, 2022, constituted a high-powered committee (Supreme Court Committee) to expedite the recovery and distribution of outstanding amounts to the investors. This committee was granted the powers of a civil court to execute decrees, orders, and arbitral awards, including the authority to sell attached properties, even those attached under the PMLA and MPID Act.

Legal Framework

The Supreme Court considered the following legal provisions:

• Recovery of Debts and Bankruptcy Act, 1993 (RDB Act): This act establishes tribunals for the quick resolution and recovery of debts owed to banks and financial institutions. Section 34 provides the Act with overriding effect.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act): This act regulates securitization and reconstruction of financial assets and the enforcement of security interests. Section 35 provides the Act with overriding effect.
• Prevention of Money Laundering Act, 2002 (PMLA): This act aims to prevent money laundering and provides for the confiscation of property derived from or involved in money laundering. Section 71 provides the Act with overriding effect.
• Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act): This act protects the interests of depositors in financial establishments. Section 2(c) defines “deposit,” Section 2(d) defines “Financial Establishments,” Section 3 addresses fraudulent defaults by financial establishments, Section 4 allows for the attachment of properties, Section 7 outlines the powers of the Designated Court, and Section 14 provides the Act with overriding effect.
• Constitution of India: Article 246 outlines the subject matter of laws made by Parliament and the Legislatures of States, while Article 254 deals with inconsistencies between laws made by Parliament and laws made by the Legislatures of States.

Arguments

Arguments by the Secured Creditors:

• The secured creditors argued that they should have priority over the assets attached under the PMLA and MPID Act by virtue of the provisions of the SARFAESI Act and the RDB Act. They relied on Section 26E of the SARFAESI Act, which stipulates that debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses, and other rates payable to the Central Government or State Government or local authority.

Arguments by NSEL and the State of Maharashtra:

• NSEL and the State of Maharashtra contended that the properties attached under the MPID Act should be available for the execution of decrees against the judgment debtors, notwithstanding the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC). They argued that the MPID Act, being a state law enacted to protect the interests of depositors, should prevail over the IBC in this specific context.
• They further argued that the properties of the Judgment Debtor/Garnishees having already stood attached under the provisions contained in Section 4 of the MPID Act, much prior to coming into force of the IBC, 2016 and there being no retrospective operation of Section 14 pertaining to Moratorium, such attached properties under the MPID Act would no longer be available as the properties of the Corporate Debtor to be considered for the purpose of Resolution Plan under the IBC.

Issues Framed by the Supreme Court

1. Whether the Secured creditors would have priority of interest over the assets attached under the Provisions of Prevention of Money Laundering Act, 2002, (PMLA) and Maharashtra Protection of Investors and Depositors Act, 1999 (MPID Act), by virtue of the Provisions of SARFAESI Act, 2002 and RDB Act, 1993;
2. Whether the properties of the Judgment Debtors and Garnishees attached under the Provisions of MPID Act, 1999 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.

Treatment of the Issue by the Court:

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Supreme Court Bar Association Vs. Union of India & Another [CITATION]*: The Court relied on this case to emphasize that while exercising powers under Article 142, express statutory provisions cannot be ignored, especially when there is a direct conflict.
• Shilpa Sailesh Vs. Varun Sreenivasan [CITATION]*: The Court considered the scope and ambit of power and jurisdiction of the Supreme Court under Article 142(1) of the Constitution of India.
• State of West Bengal and Ors. vs. Committee for Protection of Democratic Rights, West Bengal and Ors. [CITATION]*: The Court relied on this case to discuss the distribution of legislative powers between the Union and the State Legislature.
• M/s Hoechst Pharmaceuticals Ltd. and Ors. vs. State of Bihar and Ors [CITATION]*: The Court relied on this case to discuss the issue of repugnancy as contemplated in Article 254 of the Constitution of India.
• Kartar Singh vs. State of Punjab [CITATION]*: The Court relied on this case to discuss the doctrine of pith and substance.
• Rajiv Sarin and Another vs. State of Uttarakhand and Ors [CITATION]*: The Court relied on this case to discuss the issue as to when the repugnancy as contemplated in Article 254 would be attracted.
• Sonal Hemant Joshi and Ors. vs. State of Maharashtra and Ors. [CITATION]*: The Court relied on this case to uphold the constitutional validity of the MPID Act.
• State of Maharashtra vs. 63 Moons Technologies Ltd. [CITATION]*: The Court relied upon the earlier decision in case of Sonal Hemant Joshi and Ors. (supra), after discussing the various provisions of MPID Act particularly with regard to the definitions of “Deposit” and “Financial Establishment.
• K.K. Baskaran vs. State [CITATION]*: The Court relied on this case to discuss the identical legislation enacted by the State of Tamil Nadu, namely T.N. Protection of Interest of Depositors (in Financial Establishments) Act, 1997.
• Mardia Chemicals Ltd and Ors. vs. Union of India and Ors. [CITATION]*: The Court relied on this case to uphold the constitutional validity of the SARFAESI Act.
• Union of India and Another vs. Delhi High Court Bar Association and Others [CITATION]*: The Court relied on this case to hold that under Entry 45 of List -I, it is Parliament alone which can enact a law with regard to the conduct of business by the Banks.
• ITC Limited vs. Agricultural Produce Market Committee and Others [CITATION]*: The Court relied on the contention put forth by the Union of India was that ‘tobacco’ was covered solely by a later Special Central Legislation that is the Tobacco Boards Act, 1975 (List I- Entry 52 – Industries) denuding the State legislation to levy market fee on such Tobacco under the earlier enacted Bihar Agricultural Produce Markets Act, 1960 (List II – Entry 24 – Markets).
• State of West Bengal vs. Kesoram Industries Limited and Others [CITATION]*: The Court relied on this case to hold that though, the List-I has priority over List -III and List-II, and List -III has priority over List -II, the predominance of Union List would not prevent the State Legislature from dealing with any matter within List-II, even if it may incidentally affect any item in List-I.
• Insolvent Industries Ltd. vs. ICICI Bank and Another [CITATION]*: The Court made beneficial reference of the decision in this case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect the interests of the depositors who were defrauded in the NSEL scam. The Court emphasized the legislative competence of the State of Maharashtra to enact the MPID Act and the importance of upholding the federal structure of the Constitution. The Court also considered the fact that the properties attached under the MPID Act were intended to provide an effective and speedy remedy to the aggrieved depositors for the realization of their dues.

Fact:Law Ratio

The Supreme Court’s decision was more influenced by legal considerations (65%) than factual aspects of the case (35%).

Logical Reasoning:

Issue 1: Priority of Secured Creditors vs. PMLA and MPID Act

Start -> MPID Act is a validly enacted state law -> MPID Act aims to protect depositors’ interests -> SARFAESI Act and RDB Act are central laws -> Federal structure of Constitution mandates upholding state legislative powers -> MPID Act prevails over SARFAESI Act and RDB Act -> No priority for secured creditors

Issue 2: Availability of properties attached under MPID Act for execution of decrees

Start -> MPID Act operates independently of IBC -> Attachment under MPID Act vests properties in Competent Authority -> IBC’s moratorium provisions do not override MPID Act’s attachment -> Properties attached under MPID Act are available for execution of decrees

The Court’s reasoning was based on the legislative competence of the state, the purpose of the MPID Act, and the need to uphold the federal structure of the Constitution. The Court also considered the fact that the properties attached under the MPID Act were intended to provide an effective and speedy remedy to the aggrieved depositors for the realization of their dues.

The Supreme Court held that 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 Supreme Court also 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 plenary powers of this Court under Article 142 of the Constitution are inherent in the Court and are complementary to those powers which are specifically conferred on the Court by various statutes though are not limited by those statutes.”

“The Constitution of India deserves to be interpreted, language permitting, in a manner that it does not whittle down the powers of the State Legislature and preserves the federalism while also upholding the Central supremacy as contemplated by some of its articles.”

“Thus, a conjoint reading of Section 4, 5 and 7 of the MPID Act, makes it clear that though Section 4(2) states about the attached properties being vested in the Competent Authority appointed by the Government, such vesting would be subject to the orders passed by the Designated Court.”

Key Takeaways

• The MPID Act, as a validly enacted state law, prevails over the SARFAESI Act and RDB Act in protecting depositors’ interests.
• Properties attached under the MPID Act are available for the execution of decrees, notwithstanding the moratorium under Section 14 of the IBC.
• The Supreme Court emphasized the importance of upholding the federal structure of the Constitution.

Directions

The Supreme Court directed that the IAs challenging the orders dated 10.08.2023 and 08.01.2024 passed by the S.C. Committee be dealt with and decided in light of the findings recorded in this judgment.

Development of Law

The Supreme Court clarified that the MPID Act, enacted by the State Legislature to protect the interests of depositors, would prevail over central legislations like the SARFAESI Act and RDB Act. This reaffirms the legislative competence of states to enact laws for specific subject matters and upholds the federal structure of the Constitution.

Conclusion

The Supreme Court’s judgment in National Spot Exchange Limited vs. Union of India (2025) clarifies the priority of secured creditors versus the attachment of assets under the PMLA and MPID Act in the context of the NSEL scam. The Court held that the MPID Act prevails over the SARFAESI Act and RDB Act, and that properties attached under the MPID Act are available for the execution of decrees, notwithstanding the moratorium under Section 14 of the IBC. This decision reinforces the legislative competence of states and the importance of protecting depositors’ interests.