As per case facts, the appellant challenged the attachment of properties under the MPID Act by a Special Judge. The appellant argued that their security interest as a secured creditor ...
No Acts & Articles mentioned in this case
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 210 OF 2026
ASREC (India) Limited
a Company incorporated under the
Companies Act, having its registered office
at Solitaire Corporate Bank, Bldg. No. 2
Unit No. 201-202A & 200-202B
Gr. Floor, Andheri-Ghatkopar Link Road,
Chakala, Andheri (East)
Mumbai 400 093. .. Appellant
versus
1. State of Maharashtra
(At the instance of EOW, Unit 5,
Mumbai) Through Government Pleader.
2. Amit Mukharjee & Ors.
Accused Persons in
MPID Case/01/2014, Pending before
The Hon’ble Special Judge for MPID
at Bombay, Mumbai.
3. The Sub-Registrar,
Office of Sub-Registrar,
Kothawada, Autonagar, Warangal.
4. The Tahsildar office of Mandal
Revenue Officer,
Near Police Station, Nallabelli,
Warangal-506349,
Telangana Warangal
5. National Spot Exchange Ltd. (NSEL)
Malkani Chambers Condominium,
Malkani Chambers, 1st floor,
VASANT
ANANDRAO
IDHOL
Digitally signed
by VASANT
ANANDRAO
IDHOL
Date: 2026.03.18
20:03:46 +0530
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off Nehru Road, Vile Parle, East,
Mumbai-400099.
6. Deputy Collector MPID,
Office of the Deputy Collector &
Competent Authority (NSEL), 3
rd
floor
MPID Branch, Old Custom House,
Mumbai – 400001 .. Respondents
Mr. Prathamesh Kamat along with Mr. Shashikant P. Choudhari
along with Mr. Kayush Zaiwalla along with Ms. Snehal Choudhari
and Mr. Atharva Nalawade, Advocates for Appellant instructed by
Maharashtra Law Associates.
Mr. R. M. Pethe, APP for the State.
Ms. Leena Patil, SPP for Respondent Nos. 1 and 2.
Mr. Arvind Lakhawat along with Mr. Jalpa Shah, Mr. Nimeet Sharma,
Ms. Himani Narula, Advocates instructed by MZM Legal LLP for
Respondent No. 5.
CORAM : R. M. JOSHI, J.
RESERVED ON : 12TH MARCH, 2026.
PRONOUNCED ON : 18TH MARCH, 2026.
JUDGMENT :
1. By consent of both sides, heard finally at the stage of
admission.
2. This Appeal filed under Section 11 of Maharashtra Pro tection
of Interest of Depositors (In Financial Establishments) Act, 1999 (for
short ‘MPID’ Act) taking exception to the judgment and order dated
08.01.2026 passed by the Special Judge under the Act in Misc.
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Application No. 1293/2022 in MPID Special Case No. 1/2014,
whereby attachment of properties (‘subject properties’ for short) by
different notifications under Section 4 of the Act is made absolute.
3. Appellant took exception to the attachment of the subject
properties set out in Annexure A to the Misc. Application No.
1293/2022 on the ground that the initiation of proceeding upon
registration of charge on 06.07.2012 with Central Registry of
Securitisation Asset Reconstruction and Security Interest of India
(CERSAI) is much prior to the action taken under Section 4 of the
MPID Act vide Gazette Notification No. NPI-1121/CR-541/Pol-11
dated 22.06.2015 as well as notices issued under Sections 4 and 5
dated 22.08.2015 and 05.09.2025. It is claimed that the said
registration precedes order dated 30.07.2018 by which National Spot
Exchange Limited (NSEL) raised its claim as a decree holder and
subsequent notice issued by Economic Offence Wing (EOW). T hus,
in short, it is the contention of the Appellant that since there is
already an order of creation of security interest of Appellant as
secured creditor under the provisions of Section 13 of SARFAESI Act,
the order of attachment passed under Section 4 of th e MPID Act
subsequent to which creation of interest would not sustain. It is
claimed by Appellant that subject properties are mortgaged by MSR
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Foods and such mortgage has been created much prior to the period
of crime wherein there is alleged non-refund of the deposits.
Appellant also took exception to the Notification under Section 4 of
the MPID Act of attachment of subject properties on the ground that
there is no subjective satisfaction recorded by the Competent
Authority for the purpose of attachment of properties in question. It
is claimed that the properties in question were acquired much prior
to the commission of the offence and as such it cannot be claimed
that the properties are purchased out of the crime money.
4. Learned Counsel for the Appellant at the outset sub mits that
the concerned establishment is not a Financial Establishment within
meaning of Section 2(a) of the MPID Act nor the amount involved can
be considered as ‘deposit’ under Section 2(d) thereof. It is submitted
that in absence of satisfying these twin conditions, MPID Act would
not apply to the present case. It is his further submission that the
attachment order dated 22.08.2015 records no subjective satisfaction
of the competent authority for the purpose of attachment of the
subject properties. He drew attention of the Court to the evidence
led before the Special Court, more particularly, evidence of the
Chartered Accountant Mr. Gandhi who, in his cross-exa mination,
has given admission to the effect that except for the balance-sheet,
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nothing was ascertained by him much less, the actual p roperties
held by the MSR Foods. To support this submission with regard to
‘reason to believe’ he relied upon judgment in case of The Income
Tax Officer vs. Lakhmani Mewal Das, (1976) 3 SCC 757
(paragraph No. 12) and judgment of Gujrat High Court in case of MV
Silvia Glory vs. Dan Bunkering (paragraph No. 35). It is his
contention that by virtue of mortgage deeds executed much prior to
commission of crime, the security interest therein stood vested in
favour of the Appellant which is a secured creditor. According to
him, pursuant to the claim made by the secured creditors that the
Appellant who has stepped into the shoes of the original secured
creditor State Bank of Hyderabad by virtue of deed of assignment
dated 30.09.2014, security interest in respect of the loan accounts of
M/s MSR Foods stood lawfully assigned to it. It is his further
contention that the mortgage over the subject properties was created
in the year 2005 i.e. much prior to the alleged crime and also
issuance of attachment notification under Section 4 of the Act on
22.06.2015 and 11.04.2016 and hence needs to be con sidered as
genuine. In order to support his submissions, he drew attention of
the Court to the documents on record in respect of the subject
properties which, according to him, indicate that the subject
properties were acquired much prior to the commission of crime and
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hence, it cannot be held that the properties are acquired out of the
proceeds of the crime so also its mortgage. In order to support his
submissions, he placed reliance on judgment of the Division Bench
of this Court in case of Chandrashekhar Parwardhan vs . State of
Maharashtra, 2004 SCC OnLine 4137. He also referred to
judgment of Division Bench of this Court in case of UCO Bank vs.
Kanji Manji Kolhari, 2008(4) Mh.L.J. 424 and judgment of Hon’ble
Supreme Court in case of Travancore Rayon Ltd. vs. Union of India,
(2008) 1 SCC 125, to argue that notice under Section 13(4) is not
mere show cause notice and it continues an action taken by
Bank/Financial Institution, for the purpose of NPA Act.
5. Learned Counsel for the NSEL and learned Counsel f or the
Competent Authority opposed the appeal. The first and the foremost
contention of learned Counsel for NSEL is that there is notification
issued by the Competent Authority in the year 2017 declaring MSR
Foods as Financial Establishment within meaning of Section 2(a) of
the MPID Act and the definition of deposit is wide enough to cover
the transaction in question and thus there is no substance in the
submission of learned Counsel for the Appellant in this regard. It is
submitted that the Supreme Court in case of NSE Ltd. vs. Union of
India, 2025 SCC OnLine SC 1137 , has settled the position of law
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that the provisions of MPID Act would prevail over SARFAESI Act. In
this regard, attention of the Court is drawn to the observations made
in the said judgment in paragraph Nos. 42 and 43 to the effect that
attachment of properties over which secured creditor is said to have
security interest, it could not be ‘debt’ as contemplated by Section
26E of SARFAESI Act and hence no priority interest can be claimed
by secured creditors. It is further submitted that in view of the
provisions of Section 13(6) of SARFAESI Act, right, title and interest
in the subject properties can be said to have vested only in case of
sale of such property and not at any prior stage thereto. According to
him, the Hon’ble Supreme Court in case of Travancore Rayon Ltd.
vs. Union of India & Another (supra), has dealt with the said
issue and it is held that vesting of the rights does not mean transfer
of title in the subject property in favour of secured creditor. It is his
submission that in view of the settled position of law with regard to
the interest of the depositors to be given precedence over the secured
creditors, there is no substance in the challenge to the impugned
order. It is his submission that before the Special Court, evidence is
led in order to indicate that out of total liability only an amount of
Rs. 32 Lakhs is recovered from MSR Foods and Rs. 8.82 Crores is the
balance amount. Similarly, there is evidence of money trail to M. S.
Rao and therefore, there is no perversity in the order passed by the
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Special Court. It is further argued that once notification is issued
under Section 4 of the MPID Act, the properties stand vested in the
Competent Authority and in such case, no other person including
secured creditors under the SARFAESI Act would be entitled to seek
any claim of precedence over such property. He took this Court
through judgments cited by learned Counsel for Appellant to argue
that in case of Chandrashekhar Patwardhan (supra) a finding is
recorded therein that property is not acquired from money of
investors and it belonged to relative of defaulter. According to him, in
case of UCO Bank (supra), Division Bench of this Court, it is only
held that security interest is created in favour of secured creditor but
in view of judgment in case of NSEL (supra), Supreme Court
concluded that there is precedence of the depositors under MPID Act
over secured creditors. Finally, it is argued that undisputedly, M. S.
Rao is an accused and the subject properties are his properties and
therefore properties of Financial Establishment and hence, there is
no merit in the Appeal.
6. Learned Counsel for the Competent Authority, apart from
adopting above arguments, submitted that the order passed by the
Special Court is well reasoned order and the same has been passed
on rightly assessing the evidence led before it. In such
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circumstances, there is no substance in the challenge to the
impugned order. She placed reliance on order dated 15.12.2025
passed by Division Bench of this Court in Criminal Appeal No.
263/2013 and others, in case of ICICI Bank Ltd. vs. State of
Maharashtra.
7. In order to appreciate the rival contentions, it would be
relevant to take note of the background in which the offence came to
be registered and order impugned is passed.
8. It is not in dispute that NSEL provided an electronic platform
for trading of commodities between willing buyers and sellers
through members/brokers representing them. The Depart ment of
Consumer Affairs issued notification dated 05.06.2007 exempting
NSEL under Section 27 of the Forward Contract (Regulat ion) Act,
1952, exempting forward contract of one day duration for sell and
purchase of commodities traded on NSEL from operation of the
produces of FCRA. In October 2008, NSEL commenced its operation.
As per the scheme applicable, the trading on the exchange platform
of NSEL could be undertaken by the registered members of the
exchange either on their own behalf or on the behalf of their clients.
At the request of the clients, the members of NSEL wo uld place
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orders for buying /selling commodities and the orders placed would
get matched automatically on NSEL exchange platform based on the
price and time priority and it was resulted in a trade. Later on,
however, it was found that there used to occur contract extending the
said forward contract not for a period of one day but for a period of
30 days. On 27.04.2012, the Department of Consumer Affairs,
Government of India, issued a show cause notice to NSEL as to why
action should not be initiated against it for promoting transaction in
the alleged violation of exemption granted to it under FCRA under
notification dated 05.06.2007. An undertaking was obtained from
NSEL that no further contract shall be launched until further
instructions and all existing contracts shall be settled on due dates.
Accordingly, an undertaking was given by NSEL on 22.07.2013. On
31.07.2013, NSEL suspended its exchange operation and called upon
its members to complete their respective delivery and payment
obligations for the outstanding trades as on 31.07.2013. As on that
day, 13000 persons who traded on the platform of NSE L claim to
have been duped by about 24 trading members and the said default
amounted to Rs. 5,600 Crores.
9. First Information Report came to be registered with M.R.A.
Police Station vide Crime No. 216/2013. This offence came to be
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transferred to EOW and was renumbered as Crime No. 8 3/2013. In
connection with several claims, suits came to be filed by the traders
who were allegedly duped on the trading platform. Having regard to
the nature and volume involved in the crime in question, the
investigation continued for a substantial period and as and when role
of entities was revealed, the appropriate Government by issuing
notification declared the said entities as Financial Establishment. As
far as MSR Foods is concerned, it was declared as Financial
Establishment by notification issued in the year 2017.
10. Insofar as the contention of learned Counsel for the Appellant
with regard to MSR Foods being not a Financial Establish ment is
concerned it is falsified by the documentary evidence on record i.e.
by notification dated 31.03.2017 issued by the appropriate
Government whereby MSR Foods is declared as Financial
Establishment. The term Financial Establishment is defined under
Section 2(d) of the Act which reads as under :-
“Financial Establishment”:
It means any person accepting the deposit under
any Scheme or Arrangement or in any other manner but
does not include a Corporation, Co-operative Society
(owned or controlled by the State or Central Government
or Banking Company)
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The aforestated definition indicates that any person accepting
deposits under any scheme or arrangement or in any other manner,
except the Corporation or Co-operative Society owned or controlled
by the State or Central Government or Banking Company, is a
Financial Establishment. On the face of it, such declaration of MSR
Foods as a Financial Establishment cannot be faulted with.
Section 2(c) of the Act defines ‘Deposits’ which reads as under:-
“Deposits” :
It includes any receipt of money by way of deposit or
loan or in any other form by a Company but does not
include such categories of amount as may be prescribed in
consultation with the Reserve Bank of India.
11. A bare perusal of these provisions indicates that the definition
of deposits is wide and inclusive in nature. It is wide enough to cover
the transactions in question. This Court, therefore, finds no
hesitation to hold that MSR Foods is a Financial Establishment
within meaning of Section 2(d) of the MPID Act and the defaulted
amount is a deposit under Section 2(c) thereof. The provisions of
MPID Act, therefore, have been rightly invoked in this case.
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12. As far as reliance placed by NSEL Ltd. on judgment of Hon’ble
Supreme Court in case of NSEL Ltd. (supra), it would be relevant to
consider the issue raised before the Supreme Court while challenging
the order passed by the Supreme Court Committee. It would be
fruitful to refer to Paragraph Nos. 15 to 20 of the said judgment,
which read thus :-
“15. As transpiring from the impugned order dated 10-
8-2023 passed by the SC Committee, one Modern India
Ltd., Shree Rani Sati Investment and Finance Pvt. Ltd.,
Modern Derivatives and Commodities Pvt. Ltd., and F.
Pudumjee Investments Company Pvt. Ltd. has filed a
suit on the Original Side of the Bombay High Court,
impleading Financial Technologies India Ltd. (now
known as 63 Moons Technologies Ltd.) as Defendant 1
and NSEL as Defendant 2, apart from 36 other
individuals and companies who were impleaded as
Defendants 3 to 38. The said suit was registered as
Suit No. 173 of 2014. NSEL – Defendant 2 took out
third-party notices in the said suit against its Trading
Members who had defaulted in their funds “Pay-in”
obligations, resulting in decrees being passed against
such Trading Members and their lands by the Bombay
High Court in favour of NSEL. Additionally, in some
cases the arbitral awards were obtained by NSEL
against some of the defaulting Trading Members.
Therefore, such defaulting Trading Members of NSEL
were the judgment-debtors, on whom the liability was
affixed in respect of the third-party proceedings in Suit
No. 173 of 2014. In separate actions, the Enforcement
Directorate under the provisions of the PMLA and the
competent authority under the provisions of the MPID Act
had also attached the properties belonging to the
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judgment-debtors who were the defaulting Trading
Members of NSEL.
16. During the course of execution proceedings before
the SC Committee, a few financial creditors of some of
the judgment-debtors (the secured creditors) had filed
applications seeking intervention on the ground that in
the capacity as secured creditors they would have
priority of interest of the charge over the attached
properties of the judgment-debtors.
17. In view of the aforestated factual matrix, the SC
Committee raised an issue as to “Whether the secured
creditors would have priority of interest over assets
attached under the provisions of PMLA, 2002, and the
MPID Act, by virtue of the provisions of the Securitisation
and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (hereinafter referred to as
“the SARFAESI Act, 2002”) and the Recovery of debts
and Backruptcy Act, 1993 (hereinafter referred to as “the
RBD Act”)
18. The SC Committee addressing the said issue
concluded vide the order dated 10-8-2023 that given the
overriding effect, the secured property being in the
nature of proceeds of crime, as held by the attachment
orders, no priority of interest can be claimed by the
secured creditors against such attached property. As
regard the properties attached under the MPID Act, on
which the secured creditors laid their claims, the SC
Committee further concluded that he provisions of the
MPID Act, would override any claim for priority of
interest by the secured creditors in respect of the
property which has been attached under the MPID Act.
19. It further appears that during the course of
proceedings before the SC Committee another issue that
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was raised for determination was “whether properties of
the judgment-debtor and garnishees attached under the
MPID Act would be available to the said Committee for
execution of decrees against the judgment-debtor in
terms of the order dated 4-5-2022, passed by the
Supreme Court, in WP (C)No. 995 of 2019, in view of the
commencement of moratorium under Section 14 of the
Insolvency and Bankruptcy Code, 2016 (“IBC” for short),
on account of the initiation of insolvency proceedings
against the judgment-debtors.” A similar issue also
arose with regard to the commencement of the interim
moratorium under Section 96 IBC in respect of the
garnishees in their capacity as personal guarantors of a
corporate debtor.
20. The SC Committee vide the order dated 8-1-2024
concluded inter alia that as regards the properties which
were attached under Section 4 of the MPID Act prior to
imposition of the respective dates of moratorium of the
judgment-debtor or garnishee under Section 14 or
Section 96 IBC, the property having been vested in the
competent authority appointed by the State of
Maharashtra, such properties were not liable to be made
part of insolvency proceedings, and could be available to
the said Committee for realisation in terms of the order
dated 4-5-2022 passed by the Supreme Court. It further
concluded that as regards the properties which were
sought to be attached after the date of commencement of
moratorium (if any) or assets of
judgment-debtor/garnishee/corporate debtor which
were not yet attached under the provisions of the MPID
Act, the decree-holder would be entitled to pursue its
claim as a financial creditor/secured financial creditor,
as the case may be in such individual cases under the
provisions of IBC.”
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It is clear from the said observations that in the light of
secured creditors claim of priority of interest of charge over the
attached properties of judgment debtor, objection was raised and
determined by the Committee. It is pertinent to note that in the said
order of Committee, it is not clear as to whether any prior order was
passed under SARFAESI Act. However, from observations in
Paragraph No. 20 above, it can be seen that the properties attached
under Section 4 of MPID Act were prior to imposition of respective
dates of moratorium of judgment debtor or garnishee under Section
14 or Section 96 IBC and hence, property was already vested in
Competent Authority appointed by the State of Maharashtra.
Consequently, it is held that such properties were not liable to be
made part of insolvency proceedings. However, thereafter it is
categorically held by the Committee that as regards to the properties
which were sought to be attached after the date of commencement of
moratorium (if any) of assets, of Judgment Debtor, the decree holder
would be entitled to pursue its claim as financial creditor/secured
creditor, as the case may be in such individual cases under
provisions of IBC. The orders dated 10.08.2023 and 08.01.2024,
came to be confirmed and upheld by Supreme Court. In this
backdrop, Hon’ble Supreme Court while answering the issue as to
whether the secured creditor would have priority of interest over the
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assets attached under the provisions of MPID Act by virtue of
provisions of SARFAESI Act has held that the provisions of MPID Act
would prevail over the latter act. Consequently, in paragraph No. 66
of the said judgment it is held thus :-
“In that view of the matter, it is held that no
priority of interest can be claimed by the secured creditor
against the properties attached under MPID Act and that
the provisions of MPID Act would over ride any claim for
priority of interest by secured creditor in respect of the
properties which have been attached under MPID Act.”
13. These observations are made while answering the ques tion as
to whether the secured creditor would have priority of interest over
the assets attached under the MPID Act. With utmost respect, the
issue as to whether the properties in respect of which the secured
interest is already enforced and vested into the secured creditor
under the provisions of Section 14 of the SARFAESI Act before
passing of order under MPID Act has not been raised a nd hence
considered. Pertinently, when the order passed by Committee
upholding right of secured creditor after the date of commencement
of moratorium or assets of Judgment Debtors which were not
attached under MPID Act, are held to be available for pursuing claim
of secured financial creditor in such individual cases, is upheld there
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is reason to hold that the same analogy/principle would ap ply in
case of the rights already vested in secured creditor under
SARFAESI Act.
14. It is relevant to take note of the fact that insofar as the subject
properties in question are concerned, admittedly, prior to issuance of
notification under Section 4 of the MPID Act, there was mortgage in
favour of secured creditor in respect of the properties of MSR Foods
and pursuant to the provisions under Section 14 of the Act, the
secured interest is vested into the secured creditor i.e. Appellant who
has stepped into the shoe of secured creditor and the creditor has
obtained possession of properties in the year 2014. As far as NSEL
is concerned, its claim also is that of a secured creditor by virtue of a
decree passed by High Court dated 30.07.2018 in Suit No.
173/2014. Thus, a distinction will have to be drawn in respect of
claim of NSEL as creditor but not secured creditor and claim of
Competent Authority under the provisions of MPID Act. NSEL
cannot therefor, claim precedence over the claim of Appellant, who is
admittedly a secured creditor.
15. Needless to emphasise that SARFAESI Act is a compl ete code
in itself which provides for the remedy under Section 17 thereof to
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any person including borrower who is aggrieved by any me asures
referred to in sub-section 4 of Section 13 taken by the secured
creditor or his authorised officer under this Chapter. This Court is
not informed that the order passed by the competent authority under
SARFAESI Act invoking provisions of Section 14 thereof has not been
taken exception to till date by any party. Thus, it can be safely said
that at this stage the same still holds field and has attained finality.
Now, the question arises as to whether it would be ope n for the
Competent Authority or Court under Section 7 of the M PID Act to
pass an order of attachment by invoking Section 4 of the Act which
would over ride and nullify the order passed under Section 13 of the
SARFAESI Act. Once it is accepted that the SARFAESI Act is a
complete and self-contained code, question arises as to whether
without challenge to the action under Sections 13 and 14 under the
provision/remedy prescribed under the said Act, the same could be
set aside or over-ridden by any subsequent action of attachment of
the subject properties in any other law including MPID Act. In
considered view of this Court, said question must be answered in
negative. The reason therefor is that there is a provision under
Section 17 of the SARFAESI Act raising challenge to such action and
such action would only be challenged under the said Act and cannot
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be allowed to be over-ridden by any subsequent attachment of the
subject properties under MPID Act.
16. In absence of any such steps being taken as provid ed by the
said act, it would not be open for any other authority under the
different statute to either directly or even indirectly set aside the
order passed therein.
17. A question therefore would arise as to whether it w ould be
open for the Competent Authority to attach the subject properties,
which are already attached and secured interest is vested in secured
creditor in that regard. In case, the contention of NSEL and
Competent Authority is accepted that order passed under Section 4
of MPID Act would prevail over the order passed under provisions of
SARFAESI Act, it would lead to creating a situation of a conflict in
two different statutes and ultimately it will culminate into a situation
wherein the authorities under the different act would be permitted to
over ride/set aside the order passed earlier in time which, in
considered view of this Court, is wholly impermissible in law.
18. It is relevant to note that in the order dated 15.12.2025, passed
in case of ICICI Bank (supra), relied by learned Counsel for
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Competent Authority, when possession was attempted to be taken
under Section 14 of the Act, the property was already attached by
State of Maharashtra under MPID Act. In this backdrop of the facts,
the challenge to impugned order therein was rejected. For difference
in facts in both cases, the said judgment has no application to the
present case.
19. It would be different situation wherein no order has been
passed under the SARFAESI Act on the claim of a secured creditor
including interim measures of attachment of subject properties, and,
in that case, it is not open for the secured creditor to oppose any
order passed under MPID Act before the Special Court. Apart from
this, there could be another eventuality wherein after commission of
the crime, in order to defeat the claim of the depositors, a mortgage
is executed in respect of the properties in question and collusive
proceeding is filed under SARFAESI Act and order is obtained
therein, still in such case, it could be said that there would not be
any right of precedence to the secured creditor. This however, cannot
be made applicable to the cases wherein admittedly there is no nexus
between the crime and acquisition of properties and mortgage came
to be executed much prior to occurrence of the offence. In such case,
unless contrary is shown, it needs to be accepted as genuine
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transaction which would give right to the secured creditor to avail the
remedy available under the SARFAESI Act. However, in such case
too, if there is no order passed by the authority under the SARFAESI
Act, even by way of interim measure, it could not be said that
secured interest is vested into the creditor under the provisions of
SARFAESI Act and the order passed under Sections 4 a nd 5 of the
MPID Act would prevail and it would not be open for the secured
creditor to claim precedence.
20. It needs to be recorded that unless the Competent
Authority/Special Court finds that the creation of mortgage in
respect of a particular property is in order to circumvent the
provisions of MPID Act and to defeat interest of depositors, in such
case, it would be open for the Court to hold that since the
transaction in question being not bonafide but intended overcoming
of the provisions of MPID Act, the order under Section 4 would
prevail. This however, cannot be permitted in absence of any such
finding recorded by the Competent Authority and affirmed by Special
Court under Section 7 of the Act.
21. In the instant case, admittedly, the mortgage in question is of
the year 2005. The offence is committed after incorporation of NSEL
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and grant of permission to it to enter into transaction in the year
2008. Thus, it can be said that the properties were purchased by
MSR Foods much prior to commission of crime and hence not
acquired from deposits. Similarly, the mortgages are executed much
prior to the offence hence, need to be accepted as transaction.
Undeniably, the secured creditor has already invoked the provisions
of SARFAESI Act and order under Section 13 came to be obtained in
the year 2014 i.e. prior to passing of order under MPID Act. In such
circumstances, it cannot be said that by passing of the order of
attachment under Section 4 of the Act, the order passed under
SARFAESI Act gets superseded. In considered view of this Court,
once an order is passed under the provisions of SARFAESI Act, any
challenge thereto is permissible only under the provisions of same
statute. Without taking recourse of the said remedy and unless
order is passed setting aside of such order, it would not be open for
the Competent Authority to pass any order of attachment under
Section 4 of MPID Act and any such order if passed would become
inconsequential.
22. It is rightly canvassed by learned Counsel for NSEL that
Section 4 of the Act enables the competent authority to pass
appropriate order of attachment of properties on default of return of
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deposits. According to him, the said provision can be divided in two
different parts i.e. attaching money or other property believed to have
been acquired by such Financial Establishment or if it transpires
that such money or other property is not available for attachment or
not sufficient for payment of deposits, such other properties of the
Financial Establishment or Promotors, Directors etc. may be
attached. It would be relevant to take note of provisions of Section 4
of the Act which reads thus :
“Section 4 : Attachment of properties on default of
return of deposits :
(1) Notwithstanding anything contained in any other
law for the time being in force, -
(i) where upon complaints received from the depositors
or otherwise, the Government is satisfied that any
Financial Establishment has failed,-
(a) to return the deposit after maturity or on demand
by the depositors; or
(b) to pay interest or other assured benefit; or
(c) to provide the service promised against such
deposit; or
(ii) where the Government has reason to believe that
any Financial Establishment is acting in a calculated
manner detrimental to the interest of the depositors with
an intention to defraud them;
and if the Government is satisfied that such Financial
Establishment is not likely to return the deposits or make
payment of interest or other benefits assured or to provide
the service against which the deposit is received, the
Government may, in order to protect the interest of the
depositors or such Financial Establishment, after
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recording reasons in writing, issue an order by publishing
it in the Official Gazette, attaching the money or other
property believed to have been acquired by such Financial
Establishment either in its own name or in the name of
any other person from out of the deposits, collected by the
Financial Establishment, or if it transpires that such
money or other property is not available for attachment or
not sufficient for repayment of the deposits, such other
property of the said Financial Establishment or the
promoter, director, partner or manager or member of the
said Financial Establishment as the Government may
think fit.
(2) On the publication of the order under sub-section
(1), all the properties and assets of the Financial
Establishment and the persons mentioned therein shall
forthwith vest in the Competent authority appointed by
the Government, pending further order from the
Designated Court.
(3) The Collector of a District shall be competent to
receive the complaints from his District under sub-section
(1) and he shall forward the same together with his report
to the Government at the earliest and shall send a copy of
the complaint also to the concerned District Police
Superintendent or Commissioner of Police, as the case
may be, for investigation.”
Section 7 provides for powers of Designated Court regarding
attachment. It lays down procedure for making attachment absolute.
It contemplates issuance of notice, hearing of aggrieved parties,
examination of parties by adopting summary procedure an d after
investigation under sub-section (5) to pass order.
- 26 -
23. The scheme of the Act therefore indicates that the competent
authority on having satisfied that any property believed to have been
acquired by such Financial Establishment, can attach the same
under Section 4 of the Act. Here in this case, admittedly, the
properties in question are acquired much prior to the commission of
crime and as such, on the face of it, it cannot be said that there is
reason to believe that the properties have been acquired by such
Financial Establishment out of the deposits collected by it. Thus,
this Court has no hesitation to hold that the first part of Section 4 of
the Act has no application to the present case.
24. At this stage, it would be relevant to take note of the
notification by the competent authority under Section 4 of the Act
dated 31.03.2017. Relevant portion thereof is reproduced
hereunder :-
“No. MPI. 2016/C.R. 541/B/Pol.11 – Whereas complaints
have been received from number of depositors against
National Spot Exchange Ltd. and Defaulter Companies M/s
Metkore Alloys and Industries Lt., M/s Mohan India Ltd.,
M/s NCS Sugar Ltd., M/s Namdhari Foods International
and M/s Namdhari Rice and General Milsl, M/s Shree
Radhey Trading, M/s N. K. Proteins Ltd., M/s P. D.Agro
Processors Ltd., M/s Yathuri Associates Ltd, M/s White
Water Foods Ltd., M/s P. D. Agro Processors Ltd., M/s
Swastik Overseas Corporation, M/s Spin-Cot Textiles Ltd.,
M/s Vimaladevi Agrotech Ltd., M/s Swastik Overseas
Corporation, M/s Spin-Cot Textiles Ltd., M/s MSR Food Ltd.,
M/s N. K. Proteins (Brand), M/s Dunar Foods Ltd. (Brand),
- 27 -
M/s Lakshmi Energy and Foods Ltd. (Brand) (hereinafte r
referred to as “the said Financial Establishment”)
complaining that they had collected the Fund and have
defualted to return the said deposits made by the depositors
on demand;
And whereas, an offence has been registered against
the accused at E.O.W. Mumbai vide C.R. No. 89/2013, u/s
409, 465, 467, 468, 471, 474, 477(A), 120(B) IPC r/w 3
and 4 of Maharashtra Protection of Interest of Depositors (In
Financial Establishment) Act 1999:
And whereas, the State Government is satisfied that
the said Financial Establishment and its
Chairman/Directors are not likely to return the deposits to
the depositors and hence the Government has to protect the
interests of the depositors;
And whereas, the properties specified in the Schedule
appended hereto are alleged to have been acquired by the
said Financial Establishment and its Chairman/Directors
from and out of the deposits collected by the said Financial
Establishment.
Now, therefore, in exercise of the powers conferred by
sub-section (1) of section 4, section 5 and section 8 of the
Maharashtra Protection of Interest of Depositors (in Financial
Establishment) Act, 1999 (Mah. XVI of 2000) (hereinafter
referred at as “the said Act”) the Government of
Maharashtra hereby attaches the properties of the said
Financial Establishment and in the name of its
Chairman/Directors as specified in the Schedule.”
25. It is the contention of learned Counsel for NSEL that the
present case is covered by the second part of Section 4 of the Act. It
is his submission that MSR Foods is a propriety concern of Mr. M.
S. Reddy and therefore, there cannot be any distinction made in
respect of the ownership of the property for Financial Establishment
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and its Directors, Promotors, Partners etc. It is his submission that
all properties of MSR Foods become properties of Financial
Establishment of M.S.Rao and hence, there is no justification for the
Appellant to challenge the order under Section 4 of the Act.
26. No doubt, the record indicates that MSR Foods is a propriety
concern of Mr. Rao and hence, his properties could be considered as
the properties of Financial Establishment. As stated above, MSR
Foods is declared as Financial Establishment by virtue of notification
for the year 2017. Thus, it can be said that Mr. Rao in the name of
MSR Foods is a Financial Establishment. As noted above, Section 4
permits attachment of properties acquired from or out of deposits
collected by Financial Establishment. So, if there is reason to believe
that properties are acquired from such deposits, there would be no
difficulty to confirm the said attachment. However, in order to apply
second part of provision, it must transpire that such money or
property which is acquired from deposits is not available or not
sufficient and it is only then other properties even of Financial
Establishment could be attached under the said provision. Needless
to say that every word used by legislature must be given due
weightage as legislature is expected not to use any word without
reason. Thus, in case there is a need to attach properties even of
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Financial Establishment, which are not acquired from depo sits of
question, it must transpire that such money and proper ties from
deposit are not available or not sufficient and then the other
properties could be attached. The ordinary meaning of word
‘transpire’ is becoming known of the fact. Thus, it is necessary for
Competent Authority to conclude so and then the same must be
reflected in the order of attachment. Moreover, it must be so
established before the Special Court seeking affirmation of
attachment of properties.
27. In this backdrop, coming back to the notification dated
31.03.2017, perusal thereof indicates that the satisfaction of the
competent authority i.e. the State Government for the purpose of
attachment of the subject properties was that the Financial
Establishment is not likely to return the deposits of the depositors
and hence, the Government has to protect the interest of the
depositors. Secondly, the properties specified in the Schedule
appended thereto are alleged to have been acquired by the said
Financial Establishment from and out of the deposits collected by the
said Financial Establishment. There is no satisfaction recorded that
there is no money or property from deposit and, therefore other
properties, which are not acquired from deposits are attached.
- 30 -
28. It is thus clear from the said notification that the sole basis of
issuance of notification and attachment of the properties in question
is that the Government is satisfied that the Financial Establishment
is not likely to return the deposits to the depositors and that the said
properties have been acquired from and out of the deposits collected
by the said Financial Establishment.
29. Now, it is admitted fact that the properties in question are not
acquired from and out of the deposits collected by the Financial
Establishment. Thus, the first part of Section 4 of the Act has no
application to the present case. Now, question arises as to whether
before issuance of notification it was transpired to the competent
authority and the State Government that the money or other
properties were not available for attachment or were not sufficient
for repayment of the deposits and therefore, the other properties
than the one acquired from and out of the deposits collected by the
Financial Establishment would be attached. As recorded above,
Notification dated 31.03.2017 is silent on this aspect. Thus, before
attachment of the properties in question which are now admittedly
not acquired from and out of the deposits collected by the Financial
Establishment, there is no satisfaction recorded by the Government
- 31 -
about the properties acquired from the deposits being not available
for attachment and therefore, the second part of Section 4 came to be
invoked. Apart from the fact that no such satisfaction has been
recorded by the State Government, even evidence led before the
Special Court justifying the said attachment does not indicate so.
30. Perusal of record indicates that Mr. Uday Gandhi, C hartered
Accountant, led his evidence indicating that the properties in
question belong to MSR Foods. He, however, admits that other than
the transaction mentioned in the bank statements and contract
notes, no information was provided to him. He further accepts that
EOW has furnished him documents which are reflected in his report
and that he has not examined and verified the books of accounts of
MSR Foods. According to him, since he has not examined the books
of accounts of MSR Foods, he cannot tell the details of movable or
immovable properties of MSR Foods. Once these admissions are
given by the witness and as there is no other evidence to indicate
that there are no properties available other than the attached
properties belonging to the Financial Establishment i.e. Mr. Rao, it
cannot be said that it was transpired that such money or other
property is not available for attachment which is acquired from the
deposits in question. As admitted by the witness, the forensic audit
- 32 -
report states about the liability of MSR Foods but does not indicate
the assets of MSR Foods. Moreover, perusal of Forensic Audit Report
itself indicates that defaulter has not submitted Bank Accounts and
other relevant record. There is no audited balance-sheet before
Auditor to determine properties of MSR Foods. The said evidence on
record, therefore, more than clearly indicates that there is no
material on record in order to hold that other than the attached
properties, there is no money or other property available for
attachment which were acquired from deposits.
31. In this backdrop, now admittedly, the security interest has
been created in favour of Appellant through State Bank of Hyderabad
by order dated 21.04.2014 passed under Section 13 of the SARFAESI
Act. Pursuant to the said order, the possession of the properties in
question has gone to the Appellant. Apart from the possession,
rights are vested in the Appellant for further transfer of the said
rights to the third party on sale of the subject properties. As
discussed hereinabove, it was not open for any other authority but
for the authority under the provisions of SARFAESI to set aside the
order and de-vest the said properties on the basis of subsequent
order of attachment even under MPID Act. Thus, the order of
attachment passed by Competent Authority under Sectio n 4 of the
- 33 -
Act is inconsequential and in any case, it would not override the
order under SARFAESI Act.
32. The impugned order does not take into consideration these
aspects and more particularly the fact that there is no evidence on
record to show that there are no other properties available for
attachment and hence, the properties in question would be attached.
Since the order in question is admittedly not covered by the first part
of Section 4 of the Act, it was incumbent on the part of the NSEL to
substantiate that there is no money or other property acquired from
deposits is available with Mr. Rao/MSR Foods in order to satisfy the
repayment of deposits and therefore, the properties in question could
be attached. Finally, consequence of upholding order under MPID
Act is that the said authority practically set aside the order passed
under SARFAESI Act irrespective of the fact that Section 17 provides
for challenge to such interim measures and such challenge can be
undertaken not only by the borrower but by any person.
33. In view of above discussion, the Appeal must succeed. Hence,
the following order :-
ORDER
(i) The impugned order is set aside.
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(ii) It is declared that the impugned notifications of
attachment of subject properties under Section 4 of the
Act are illegal and hence set aside, qua properties of
Appellant.
( R. M. JOSHI,J. )
dyb
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