IBC Moratorium Does Not Bar MPID Attachment Proceedings In NSEL Scam: Bombay High Court

The Bombay High Court recently held that the interim moratorium under the Insolvency and Bankruptcy Code cannot bar attachment proceedings initiated under the Maharashtra Protection of Interest of Depositors (MPID) Act in connection with the National Spot Exchange Limited (NSEL) payment crisis.

A Division Bench of Justice A.S. Gadkari and Justice Shyam C. Chandak dismissed an appeal filed by Dulisons Cereals, a proprietorship firm through its proprietor Kanta Gupta, challenging an order of the Special MPID Court rejecting its application seeking a stay of proceedings for attachment of its properties.

“The IBC admittedly not having any retrospective effect cannot reach back in time and assert any right of application on such assets which are now in effect State property for the purpose of the provisions of the MPID Act. As a result, the moratorium provisions under the IBC would have no effect on the properties attached under the provisions of the MPID Act or the further attachment,” the court observed.

The case arises from the NSEL payment crisis of August 2013, where settlement defaults led to losses of about Rs.5,600 crore to nearly 13,000 investors.

Investigations into the 2013 NSEL payment crisis showed that several trading members had raised funds through commodity transactions that were later found to be backed by non-existent stocks and forged warehouse receipts.

During the probe, a forensic audit traced about Rs.13.60 crore that had moved from PD Agro Processors Pvt Ltd, one of the trading members on the exchange, to Dulisons Cereals. Authorities treated the transfer as part of the diversion of investor funds and, on that basis, initiated proceedings under Section 8 of the MPID Act seeking attachment of the firm's properties to secure recovery for depositors.

Dulisons, however, contended that the proceedings could not continue once insolvency action was initiated against its proprietor. It pointed out that State Bank of India had filed an application in 2021 under Section 95 of the Insolvency and Bankruptcy Code against Kanta Gupta, which triggered an interim moratorium under Section 96, and argued that the MPID attachment proceedings were liable to be stayed during that period.

Rejecting the contention, the court held that the MPID Act and the Insolvency and Bankruptcy Code operate in different legal spheres and that attachment proceedings under the MPID Act are not proceedings for recovery of a debt arising out of a debtor-creditor relationship. The bench held that the moratorium under Section 96 applies only to proceedings in respect of a “debt”, whereas proceedings under the MPID Act are intended to protect depositors who have been defrauded and to secure properties transferred malafide.

Referring to the report of the Supreme Court-appointed committee in the NSEL matter, the bench observed that attachment of properties under the MPID Act vests the assets in the state for the benefit of depositors and such action falls outside the realm of a debtor-creditor relationship.

In related proceedings, a Rs.1,950-crore settlement scheme for NSEL traders approved by the NCLT in November 2025 and upheld by the NCLAT in January 2026 was allowed to stand by the Supreme Court, which declined to interfere while leaving attachment proceedings under laws such as the MPID Act and the Prevention of Money Laundering Act unaffected.

Observing that persons accused in large financial fraud cases often attempt to delay proceedings to reap “illegal and unethical benefits”, the court dismissed the appeal and imposed costs of Rs.10 lakh on Dulisons Cereals.

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