Secured Creditors Have No Priority Over MPID Attachments: Supreme Court Affirms Limits of Article 142 Powers
- REEDLAW
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The Supreme Court held that secured creditors have no priority over properties attached under the MPID Act and reaffirmed that its powers under Article 142 cannot be used to override substantive statutory provisions.
On 15-05-2025, the Division Bench of the Supreme Court, comprising Justice Bela M. Trivedi and Justice Satish Chandra Sharma, reviewed an appeal and observed that while Article 142 empowers the Supreme Court to do complete justice, it cannot be exercised to override substantive statutory provisions. In case of a conflict, the MPID Act, being a valid State law protecting depositors, is not automatically overridden by central laws like SARFAESI, RDB, or IBC unless repugnancy is established under Article 254. The Court further clarified that properties attached under the MPID Act prior to the IBC moratorium remain available for decree execution.
In a significant pronouncement arising out of the ₹5,600 crore payment default on the trading platform of National Spot Exchange Ltd. (NSEL), the Supreme Court examined the legality and scope of two orders issued by a Supreme Court-appointed committee under Article 142 of the Constitution. These orders, dated 10.08.2023 and 08.01.2024, addressed the complex interface of multiple overlapping legal frameworks, including the Prevention of Money Laundering Act (PMLA), the Maharashtra Protection of Interest of Depositors Act (MPID Act), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), the Recovery of Debts and Bankruptcy Act (RDB Act), and the Insolvency and Bankruptcy Code (IBC). NSEL, backed by 63 Moons Technologies Ltd., had obtained civil decrees and arbitral awards against defaulters, many of whose properties were simultaneously subject to attachment under various special statutes.
To streamline enforcement and protect investors, the Supreme Court had, through its order dated 04.05.2022, constituted a Single-Member Committee chaired by Justice (Retd.) Pradeep Nandrajog. This committee was empowered to execute all decrees and awards and liquidate attached properties, even overriding PMLA and MPID attachments if necessary. The Supreme Court framed two core questions for adjudication: first, whether secured creditors had priority over attached properties under PMLA and MPID by virtue of SARFAESI and RDB Acts; and second, whether such properties could still be subjected to execution proceedings despite the IBC moratorium under Sections 14 and 96.
In its analysis, the Court engaged deeply with the constitutional and statutory framework. It reaffirmed the scope of Article 142, emphasising its curative character intended to do "complete justice," but not at the cost of overriding express statutory provisions or legislative intent. Referring to landmark decisions, the Court observed that while it may harmonise conflicting rights through Article 142, it cannot legislate or disregard binding statutory prohibitions.
On the substantive questions, the Court addressed the apparent tension between central laws (SARFAESI, RDB, PMLA, IBC) and the state law (MPID). While noting the overriding provisions of central laws like Section 26E of SARFAESI and Section 31B of RDB, the Court maintained that such provisions did not automatically override the MPID Act, especially where it was validly enacted under the State List and aimed at safeguarding depositors’ interests, not merely debt recovery. Citing the principle of “pith and substance,” the Court concluded that the MPID Act, being primarily concerned with protecting depositors against fraudulent establishments, operated in a separate legislative field and could not be displaced by central laws aimed at banking or money laundering. The Court also clarified that properties attached under the MPID Act, particularly prior to the initiation of IBC proceedings, could be utilised to execute decrees despite the moratorium under Sections 14 and 96 of IBC.
The Supreme Court ultimately upheld the Committee’s findings that attachments under MPID and PMLA could take precedence over claims of secured creditors under SARFAESI and RDB Acts in specific contexts. Further, it held that properties attached prior to IBC moratorium vested in the Competent Authority and were available for liquidation to satisfy decrees. For properties attached post-moratorium or not yet attached, affected creditors would have to proceed under the IBC mechanism.
In conclusion, the Court recognised the pressing need to resolve conflicting claims of decree-holders, secured creditors, and statutory authorities in a manner that respects the boundaries of each statutory regime. It upheld the Committee’s decisions and reiterated that future invocations of Article 142 must remain within the constitutional framework, balancing equity without violating statutory mandates. This judgment provides essential clarity on the interplay between central and state laws in complex financial fraud scenarios and reiterates the judiciary's commitment to respecting legislative boundaries while achieving substantive justice.
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