I. Introduction

The objective behind introducing the Insolvency and Bankruptcy Code, 2016 (“IBC”) was to maximising value and protecting the rights of creditors. It aims to balance the interests of all stakeholders while enabling distressed firms to either restructure or exit efficiently. However, a recurring issue which lurks behind is the legal standing of secured creditors within this system, especially when their claims intersect with state laws relating to asset attachment.

Supreme Court in its recent ruling in the National Spot Exchange Ltd. v. Union of India, 2025 (“NSEL case”). The case revolved around the treatment of assets attached under special state and central statutes, specifically the Maharashtra Protection of Interest of Depositors in financial establishments Act, 1999 (“MPID Act”) and the Prevention of Money laundering Act, 2002 (“PMLA”) in the context of corporate insolvency proceedings. The main issue before the court was to determine whether secured creditors could enforce their rights over assets already attached under these statutes, or whether such enforcement would conflict with the moratorium and waterfall mechanism under Section 14 and Section 53 respectively.

In its judgment, the Supreme Court held that the MPID Act and PMLA would take precedence over the IBC, SARFAESI, and the Recovery of Debts and Bankruptcy Act, thereby denying secured creditors the right to enforce security over attached properties.

Supreme Court also held that the MPID Act and PMLA would take precedence over the IBC, SARFESI, and the Recovery of Debts and Bankruptcy Act,[1] meaning thereby, IBC’s moratorium would not override attachments made under these statues prior to the initiation of insolvency proceedings.

This judgment raises critical concerns about the consistency and integrity of the IBC’s design. Traditionally, secured creditors have enjoyed a privileged position under insolvency law, with Sections 52 and 53 offering a structured choice which was either to enforce security outside the liquidation estate or relinquish it and participate in the common distribution mechanism.[2] By allowing the enforcement of special statutes to interfere with this choice, the Court has arguably opened a backdoor for state-driven priorities to displace the collective resolution model envisaged by the IBC.

The ruling is particularly significant given the backdrop of systemic financial fraud and regulatory breakdown in the NSEL case. Thousands of investors were defrauded of over ₹5,600 crore due to the unauthorised trading of paired contracts, prompting investigative and enforcement action by multiple agencies.[3]While the state’s interest in securing assets for investor compensation is undeniably valid, it now stands at odds with the uniform creditor recovery process under the IBC. The Court’s endorsement of this disjunction invites further inquiry into the future of insolvency jurisprudence and the place of secured creditors within it.

II. Rights of Secured Creditors under the IBC

The IBC accords secured creditors a distinctly privileged position in the insolvency framework. At the heart of this structure lies Section 52, which offers a secured creditor the option to either (a) enforce its security interest outside the liquidation estate in accordance with applicable laws, or (b) relinquish such interest and participate in the distribution of assets under Section 53.[4] The law, therefore, acknowledges both the autonomy of secured creditors and the need for collective resolution where they choose to join the liquidation pool.

When opting for enforcement outside the estate, secured creditors are entitled to realise their security under existing laws, such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”) or the Recovery of Debts and Bankruptcy Act, 1993. This allows banks and financial institutions to bypass judicial approval, facilitating faster recovery through auction or possession of the mortgaged property.[5] The IBC does not inhibit this route, provided it does not obstruct the conduct of insolvency proceedings or contravene the moratorium under Section 14.

On the other hand, if secured creditors choose to surrender their security and fall in line with other claimants under Section 53, the Code grants them a top-tier priority in the waterfall. They rank second only to the insolvency resolution process costs and liquidation expenses.[6] This ensures that their claims are met before those of operational creditors, government dues, and shareholders.

The Supreme Court has previously upheld this dual-choice architecture as intrinsic to the Code’s creditor-driven ethos. In India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd., the Court recognised the commercial wisdom of financial creditors as paramount, reiterating that the Code’s object was to facilitate resolution rather than recovery.[7] At the same time, it affirmed that secured creditors possess enforceable rights that cannot be diluted arbitrarily by other statutes unless such interference is explicitly sanctioned.

This autonomy is unfettered, any parallel proceedings that may jeopardise the corporate debtor’s resolution or liquidation process is restricted by IBC. Section 238 establishes an overriding effect over other laws “notwithstanding anything inconsistent therewith,” allowing it to displace conflicting statutory schemes.[8].

III. Interplay between the IBC and Asset Attachment Laws

A critical fault line in the Indian Legal landscape seems to be the growth of friction between insolvency law and state-led asset attachments. While the IBC attempts to centralise claims resolution and maximise asset value through a structured process, parallel statutes, especially those concerning criminal law and investor protection, frequently intervene by freezing assets under investigation. Due to this, secured creditors find themselves entangled in jurisdictional stand-offs.

Several laws enable the state to attach or confiscate property on the grounds of fraud, misappropriation or public interest. These include the PMLA, the MPID Act, and other state-specific legislations aimed at safeguarding investor money. Once such attachment orders are passed, they often take precedence over civil enforcement, including insolvency claims.

Courts have been inconsistent in resolving this overlap. In P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., the Supreme Court acknowledged that criminal proceedings cannot be stayed under the IBC’s moratorium.[9] However, it left open the extent to which state attachment laws could override creditor rights under the Code. A key source of this conflict lies in the interpretation of Section 238 of the IBC, which gives the Code primacy over “inconsistent” laws. Courts have held that where the objective of another statute diverges fundamentally from that of the IBC, such as protecting defrauded investors or punishing economic offences—Section 238 may not apply.[10] This reasoning has led to a de facto erosion of the IBC’s supremacy in certain enforcement contexts, particularly in cases involving alleged fraud or financial scams.

One such example is The Directorate of Enforcement v. Manoj Kumar Agarwal, where the Delhi High Court upheld the attachment of assets by the ED under the PMLA even though they formed part of the liquidation estate. The Court reasoned that proceeds of crime cannot be allowed to benefit creditors, regardless of their security status.[11] In contrast, in Directorate of Economic Offences v. Binay Kumar Singhania, the Calcutta High Court ruled in favour of the Resolution Professional, holding that attached properties must be released to enable resolution under the IBC.[12]

The lack of a settled judicial approach has left creditors in a precarious position. Where state authorities attach assets during or prior to the initiation of insolvency proceedings, the effectiveness of resolution plans and the value realisation for creditors suffer greatly. In particular, secured creditors find their security rendered ineffective, unable to access collateral that is otherwise protected under the Code. It is in this conflicted space that the recent NSEL ruling intervenes. The NCLT and CoC would find themselves negotiating with a fragmented estate, significantly reducing recoveries for all stakeholders.[13]

IV. Assessing the Future Trajectory of Creditor Rights in a Dual-Regulatory Ecosystem

1. The Expanding Role of Enforcement Statutes

Post-NSEL, there has been a visible trend where state and central agencies move swiftly to secure assets under penal statutes, even before any commercial resolution is considered. In high-profile insolvency cases involving alleged fraud, such as those concerning DHFL and ABG Shipyard, enforcement agencies have attached properties well before resolution professionals could take control under the IBC. This reflects a growing reality where enforcement statutes are no longer merely ancillary but operate as de facto gatekeepers to insolvency assets.

Such pre-emptive action creates confusion about who controls the corporate debtor’s estate, undermining the clean-slate objective and reducing asset realisation potential. It also adds to the compliance and litigation burden on resolution professionals and delays the approval of resolution plans.

2. Reassessing the Scope of Section 238 of the IBC

One immediate question arising from the Supreme Court’s approach in NSEL is whether Section 238, which grants overriding effect to the IBC in cases of inconsistency, has been weakened in substance. Critics argue that the Court adopted an overly narrow reading of “inconsistency”, one that does not take into account the IBC’s broad objective of maximising asset value and promoting timely resolution.[14]

If every penal or investor-protection statute can operate in parallel without being overridden, it leaves the insolvency framework vulnerable to constant disruption. Going forward, courts and the legislature must engage in a principled determination of “field overlap”, rather than treating each statute in silos.

3. The Case for Asset Ring-Fencing and Legislative Clarification

The situation calls for a legislative solution that can bridge the growing friction. One possible reform is the statutory ring-fencing of assets that are subject to legitimate security interests or resolution plans approved under the IBC, shielding them from post-facto attachments unless the resolution itself is proven to be fraudulent.

A precedent in this regard can be found in Singapore’s Insolvency, Restructuring and Dissolution Act, 2018, which allows court-supervised moratoriums to prevail over certain criminal proceedings to protect the corporate debtor’s restructuring prospects.[15] Similarly, UK’s Corporate Insolvency and Governance Act 2020 introduced restrictions on creditor action during restructuring periods, recognising that enforcement must occasionally take a backseat to economic revival.

Indian law could take cues from these models and enact a harmonisation clause that mediates between creditor rights and state enforcement, especially when both claim to be acting in the public interest.

4. Credit Risk and Market Behaviour

The erosion of secured creditor primacy may also have a downstream effect on credit risk assessment, particularly in sectors prone to regulatory action or political scrutiny. Financial institutions may begin to charge higher interest rates, demand stricter covenants, or altogether avoid sectors where post-default asset access is uncertain.

These kinds of reactions result in the loss of MSMEs and companies in emerging industries, where regulatory frameworks are still evolving. It is also likely to deter foreign creditors, who often rely on enforceability of security interests as a proxy for rule-of-law standards in emerging markets.

V. Conclusion: Striking a Balance between Commercial Finality and Justice

The NSEL judgement has undoubtedly triggered a watershed moment in India’s insolvency regime. It highlights that insolvency law does not operate in isolation, but alongside a wider legal framework that includes, economic, social and criminal laws. The challenge, therefore, lies not in asserting the dominance of one legislative instrument over another, but in developing a coherent and coordinated regulatory ecosystem. The clean slate principle is not a judicial favour but a tool to ensure business continuity and value recovery. When courts allow post-resolution attachments, as seen in the Anil Agarwal decision, it creates uncertainty and undermines investor trust.[16] A more balanced approach would involve legal reforms and clearer judicial guidance to align enforcement actions with the objectives of resolution under the IBC.

[1] National Spot Exchange Ltd. v. Union of India, 2025 SCC OnLine SC 113.

[2] Insolvency and Bankruptcy Code, 2016, §§ 52, 53.

[3] “SBI Seeks Review of SC Ruling Denying Secured Creditors Priority over Attached Assets,” The Economic Times (May 15, 2025),

[4] Insolvency and Bankruptcy Code, 2016, § 52.

[5] See Transcore v. Union of India, (2008) 1 SCC 125

[6] Insolvency and Bankruptcy Code, 2016, § 53(1)(b).

[7] India Resurgence ARC (P) Ltd. v. Amit Metaliks Ltd., (2021) 19 SCC 672.

[8] Insolvency and Bankruptcy Code, 2016, § 238.

[9] P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258.

[10] Rotomac Global (P) Ltd. v. Director, Directorate of Enforcement, 2019 SCC OnLine NCLAT 1545.

[11] Ashok Kumar Sarawagi v. Enforcement of Directorate, 2022 SCC OnLine NCLAT 3453.

[12] Directorate of Economic Offences v. Binay Kumar Singhania, 2021 SCC OnLine NCLAT 159.

[13] Arka Majumdar et al., Supreme Court’s Decision in National Spot Exchange Limited v. Union of India: Priority of Secured Creditors in Flux?, IBC – NCLAT Fortnightly Summary, Mondaq, https://www.mondaq.com/india/insolvencybankruptcy/1630702/supreme-courts-decision-in-national-spot-exchange-limited-v-union-of-india-priority-of-secured-creditors-in-flux.

[14]Ashish Dasgupta, “IBC and Enforcement Laws: Inconsistent or Interlocking?”, LiveLaw (2023), https://www.livelaw.in/columns/ibc-and-enforcement-laws-inconsistent-or-interlocking-230489.

[15] Insolvency, Restructuring and Dissolution Act 2018 (Singapore), Part 5, §§ 64–70.

[16] Anil Agarwal Foundation v. State of Orissa, (2023) 20 SCC 1