SBI seeks review of SC ruling denying secured creditors priority over attached assets
State Bank of India
has filed a petition seeking review of the Supreme Court's May 15 judgement that held that secured creditors will not have priority of interest over movable and immovable properties attached by the Maharashtra government under the provisions of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999.
SBI
said the decision needs to be reviewed as it creates a bad precedent, thereby undermining the certainty and sanctity of secured lending; violated established doctrines of repugnancy and exclusive legislative competence; eroded the priority rights of secured creditors, thus impacting India's credit system and
NPA resolution framework
.
'Section 238 IBC (
Insolvency and Bankruptcy Code
) gives it overriding effect over any other law. In case the moratorium is disturbed, and the assets are alienated, it would seriously jeopardise and frustrate the effective implementation of a Central Act viz. IBC,' the SBI said.
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The impugned judgment misapplied Article 246 by allowing a state law (MPID Act) to override or dilute Parliamentary laws—SARFAESI Act (2002) and RDB Act (1993), the review petition filed by counsel Sanjay Kapur stated.
'...enforcing a security interest is one of the prime objectives behind the enactment of the
SARFAESI Act
by the Parliament and it does not overlap with the objective of the MPID Act. However, if the attachment proceedings against the Secured Asset under MPID Act is allowed to be continued, it would directly disrupt the functioning/operation of the Parliamentary enactments viz. SARFAESI Act, IBC, etc, and would result in apparent repugnancy, in which case the parliamentary enactments would prevail,' the PSU bank said.
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While upholding the Maharashtra government's decision to attach the properties in the Rs 5,600-crore
National Spot Exchange scam
, which had affected over 13,000 investors in 2013, the
SC
had in May held that the state depositors law will override the provisions of Central
financial recovery statutes
, including the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the Recovery of Debts and Bankruptcy Act and IBC.
The top court said that "no priority of interest can be claimed by the secured creditors against the properties attached under the MPID Act, and that the provisions of MPID Act would override any claim for priority of interest by the secured creditors in respect of the properties which have been attached under the MPID Act."
It further held that properties of the judgment debtors and garnishees attached under the 1999 Act would be available for execution of decrees passed by a committee set up by the apex court despite a moratorium provision under Section 14 of IBC.
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