NSEL Case: Bombay High Court Allows SBI's SARFAESI Action Despite MPID Attachment

The Bombay High Court on Friday allowed State Bank of India (SBI) to proceed against secured assets attached in the National Spot Exchange Ltd. (NSEL) scam proceedings under the SARFAESI Act, holding that the bank's rights as a secured creditor cannot be lightly defeated.

Setting aside a March 8, 2023 order of the Maharashtra Protection of Interests of Depositors (MPID) special court, a Division Bench of Justices A.S. Gadkari and Kamal Khata held that SBI's earlier failure to deposit amounts pursuant to a 2017 order could not, in the facts of the case, deprive it of the right to be heard or non-suit it.

The court further held that no prejudice would be caused to any party since, if it is ultimately held in the MPID proceedings that the sale proceeds must go towards claims of NSEL depositors, SBI could be directed to account for and deposit the requisite amounts.

“In that view of the matter, we are of the opinion that the Appellant would be entitled to proceed against the secured assets in accordance with the SARFAESI Act, 2002 and recover the monies. No prejudice would be caused to any party, by permitting such course of action, for the reason that, in the event it is ultimately held that the sale proceeds are required to be appropriated towards the claims of the depositors of NSEL under the MPID proceedings, the Appellant, having unquestioned financial capacity, can be directed to account for and deposit the requisite amounts without delay,” the Court held.

The dispute arose after SBI sought permission to auction mortgaged properties securing financial assistance extended to Mynah Industries Ltd and related respondents following repeated defaults in repayment.

The borrower account was classified as a non-performing asset on February 27, 2015, after which SBI issued a demand notice under the SARFAESI Act and took symbolic possession of the secured assets.

Meanwhile, the Maharashtra Government provisionally attached the properties under the MPID Act through notifications issued between 2015 and 2017 in connection with the NSEL scam proceedings.

SBI argued that the mortgaged properties constituted secured assets over which it had priority rights and that the MPID Court had wrongly restrained it from exercising statutory remedies under the SARFAESI Act. The bank also said dues of Rs 183.38 crore remained outstanding as of April 30, 2023.

Agreeing with SBI, the High Court held that the properties had been mortgaged much earlier and that SBI's rights as a secured creditor could not be lightly defeated.

"It is not in dispute that the subject properties were mortgaged in favour of the Appellant much prior in point of time and constitute secured assets in respect of the financial assistance extended to Respondent Nos. 4 to 8. The Appellant therefore occupies the position of a secured creditor, whose rights cannot be lightly defeated.”

Accordingly, the court allowed the appeals and set aside the impugned MPID Court order.