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Informist, Thursday, May 15, 2025

 

NEW DELHI – The Supreme Court Thursday said secured creditors would not have priority of interest over movable and immovable properties worth INR 85.48 billion attached by the Maharashtra government under the provisions of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999. The properties, which belonged to the defaulter directors and sister concerns of the National Spot Exchange Ltd., were attached by the government to ensure recovery of monies allegedly lost by genuine trading clients on the exchange.

 

"In that view of the matter, it is 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 court said. It further held that properties of the judgment debtors and garnishees attached under the 1999 Act would be available for execution of decrees passed by a committee set up by the apex court despite a moratorium provision under Section 14 of the Insolvency and Bankruptcy Code, 2016.

 

The case has its genesis from 13,000 people, trading on the National Spot Exchange's commodity exchange platform, claiming to have been duped by 24 trading members of the exchange. These 24 trading members had defaulted in payment of their obligations amounting to approximately INR 56 billion to the 13,000 people.

 

Since multiple suits and decrees were passed in the case, the Supreme Court, in 2022, set up a committee to which all the proceedings for execution of decrees and arbitral awards were transferred. In execution of these decrees and awards, the committee would be entitled to sell properties of the judgment debtors, the court had said.

 

During the course of execution proceedings before the committee, a few secured creditors of some of the judgment debtors filed applications seeking intervention on the ground that in their capacity as secured creditors, they would have priority of interest of the charge over the attached properties.

 

In 2023, the committee concluded that the secured property being in the nature of proceeds of crime, as held by the attachment orders, no priority of interest could be claimed by secured creditors on such property. The committee further held that the provisions of the 1999 Act would override any claim for priority of interest by secured creditors in respect of the attached property.

 

In addition, the committee said properties that were attached under the 1999 Act prior to the imposition of the respective dates of moratorium of the judgment debtor or garnishee under the 2016 Code were not liable to be made part of insolvency proceedings. These two findings by the committee were upheld by the apex court Thursday.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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