Secured creditors do not have priority over assets attached under the MPID Act; properties under MPID Act are available for execution despite IBC moratorium.

JUDGMENT :

BELA M. TRIVEDI, J.

1. While considering the validity of the orders dated 10.08.2023 and 08.01.2024 passed by the Supreme Court Committee appointed by this Court vide the order dated 04.05.2022, following two questions were framed by this Court to be heard in priority on the basis of the categorisation of the Applications filed in the captioned Writ Petition vide the Order dated 02.04.2024.

“(i) 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; (In view of order dated 10.08.2023 passed by the Committee)

(ii) 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; (In view of the Order dated 08.01.2024 passed by the Committee)”

2. The genesis of the Writ proceedings, is the scam which took place at the Commodity Exchange Platform of the Petitioner Company – National Spot Exchange Limited (NSEL), a company registered under the Companies Act, 1956, on 18.05.2005. It is promoted by 63 Moons Technologies Limited (Formerly Financial Technologies India Limited), which holds 99.99% of total share capital of the company and the National Agricultural Cooperative Marketing Federation of India Limited (NAFED) holds 0.01% of total share capital of company. The Exchange Platform of the NSEL committed payment defaults and fraud aggregating to about Rs.5,600 Crores vis-à-vis their trading counterparts numbering about 13,000 traders who traded through its Members/ brokers.

PRELUDE

3. Brief facts germane for deciding the above stated two priority questions of law are as under: -

i. The Petitioner – National Spot Exchange Limited (hereinafter referred to as the “NSEL”) provided an electronic platform for trading of commodities between willing buyers and willing sellers through NSEL’s Members/brokers representing them. On 05.06.2007, the Department of Consumer Affairs issued an Exemption Notification to the NSEL under Section 27 of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred to as “ FCRA ”), exempting forward contracts of one day duration for sale and purchase of commodities traded on the NSEL from operation of the provisions of the FCRA . The NSEL commenced its operations in October, 2008.

ii. The trading on the Exchange Platform of the Petitioner could be undertaken only by the registered Members of the exchange either on their own behalf or on behalf of their clients. At the request of their clients, the Members of NSEL would place orders for buying/ selling commodities. When the orders placed by willing buyers and willing sellers of a particular commodity would get matched automatically on NSEL’s Exchange Platform, based on the price and time priority, it would result in a trade.

iii. The NSEL launched contracts for buying and selling of commodities with different settlement periods ranging from T+0, T+1, T+2 days to T+36 days. In the said Contracts, ‘T’ meant the Trade date, that is the date on which the trade is executed on the exchange and ‘+ 2’ or ‘+ 25’ referred to the number of business days, after which the delivery of the commodity and payment of price (that is settlement of transaction) was to be affected by the buying Member and the selling Member as the cas