National Spot Exchange Ltd. vs. Union of India (15 May 2025)
Facts of the Case
The National Spot Exchange Ltd. (NSEl), a company incorporated in 2005 and promoted by 63 Moons Technologies Ltd., operated as a commodities exchange platform under an exemption from the Forward Contracts (Regulation) Act, 1952. The exchange arranged trades between buyers and sellers via registered brokers and had contracts with certain settlement periods. NSEL in 2013 shut down operations after receiving a direction from the Department of Consumer Affairs, revealing a gigantic payment default fraud involving more than 13,000 traders and an estimated loss of ₹5,600 crore. NSEL alleged default was due to 24 trading members who had defaulted on payments. There were subsequent criminal complaints and civil litigation, including a representative suit in the Bombay High Court. NSEL received decrees and arbitral awards amounting to about ₹3,365 crore. At the same time, the Enforcement Directorate (ED) and the Maharashtra State attached defaulters’ properties under the PMLA and MPID Act, respectively. With the issue of executing judgments across jurisdictions proving a challenge, NSEL went to the Supreme Court, which stepped in by constituting a high-powered committee to centralize proceedings for execution.
Issues:
- Whether secured creditors can assert priority of interest over properties levied under the PMLA and MPID Act, because of the provisions of the SARFAESI Act and RDB Act?
- Whether the properties of the judgment debtors and garnishees charged under the MPID Act can be used for enforcing decrees, even in the face of a moratorium placed by Section 14 of the IBC?
- Whether the moratorium under Section 96 of the IBC, over personal guarantors of corporate debtors, impacts the availability of attached properties for enforcement under the MPID Act?
Arguments from Both the Parties
Petitioner (NSEL) contended that the decrees it had received against delinquent trading members were enforceable and that consolidation before the Supreme Court Committee was imperative for speedy justice and fair distribution to investors. It underlined that attached properties be sold off to recover and distribute dues, considering the gigantic extent of investor losses. The petitioner pointed out the inefficacy of dispersed litigation and demanded joint execution under Article 142.
The respondents, being majorly secured creditors and state authorities, objected to the claim of the petitioner against certain attached properties. Secured creditors relied on Section 26E of the SARFAESI Act and Section 31B of the RDB Act to claim that their charge-holder rights took precedence over others. They contested the jurisdiction of the Supreme Court’s order under Article 142, stating that such exceptional powers cannot supersede specific statutory provisions, especially when these enactments—SARFAESI, RDB, IBC—codify rights of secured creditors. The ED and State of Maharashtra justified the actions under PMLA and MPID Act as valid exercises of their authority in pursuance of public interest, and contended that the provisions of these enactments have overriding effects.
Final Judgment:
The Supreme Court gave effect to the S.C. Committee’s orders, overriding the interests of secured creditors for the benefit of cheated investors. It ruled that secured creditors do not take precedence over properties seized under the PMLA and MPID Act, as a result of the overriding operation of Sections 71 and 14 of those respective acts. Assets already levied before the imposition of moratorium under the IBC would continue to vest with the Competent Authority and be open for enforcement by the Committee, whereas assets not yet levied or levied after the moratorium would have to be sought after under the IBC. The Court clarified that its Article 142 powers cannot trump substantive legislative provisions and should be exercised to deliver full justice without contravening public policy. It also underlined the necessity of harmonious construction between state and central laws, holding that where there is conflict, the public interest goals of the PMLA and MPID Act, for the protection of the depositors, override the recovery entitlements of secured creditors under SARFAESI and RDB Acts.
Full Judgment – https://indiankanoon.org/doc/102119179/