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National Spot Exchange Ltd. v. Union of India

Writ Petition (Civil) · 2025 INSC 694Decided 15 May 2025
Writ Petition (Civil) No. 995 of 2019
Justice Bela M. Trivedi · Justice Satish Chandra Sharma

Background

The case arises from the 2013 National Spot Exchange Limited (NSEL) commodity trading scam, in which about 13,000 traders were defrauded of roughly Rs. 5,600 crore. A Supreme Court-appointed Committee has been recovering money from defaulters, whose properties were also attached by the Maharashtra government under the MPID Act (a state law protecting depositors) and by enforcement agencies under the Prevention of Money Laundering Act. Banks holding security interests over some of these properties (under SARFAESI/RDB laws) and secured creditors more broadly claimed their charge should rank ahead of the MPID Act attachment, and defaulters going through insolvency argued the IBC's moratorium should block execution against attached assets. The Court framed two priority questions to resolve these competing claims.

Decision Breakdown

The Court held, first, that secured creditors do NOT get priority over properties attached under the MPID Act: since SARFAESI/RDB Acts (a Union subject, "Banking") and the MPID Act (a State subject) operate in separate constitutional fields, the Central laws cannot be read to override a validly enacted State law protecting fraud victims, and in any event money attached under the MPID Act was not a "debt" within the meaning of the SARFAESI provision the banks relied on. Second, the Court held that properties attached under the MPID Act remain available for execution of decrees against defaulters despite the IBC's Section 14 moratorium, because there is no real inconsistency between the two statutes: the moratorium concerns the debtor-creditor relationship under the IBC, while MPID attachment operates independently to protect depositors. Both underlying Committee orders (dated 10 August 2023 and 8 January 2024) were accordingly upheld.

Lesson Learnt

When a fraud victim-protection law enacted by a State (like Maharashtra's MPID Act) validly occupies its own constitutional field, banks and other secured creditors cannot automatically claim priority over it merely by invoking central banking-recovery statutes: federalism principles mean each law is respected within its own domain rather than one mechanically overriding the other.

Official source (sci.gov.in)View Judgment (PDF)

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