MPID Act Overrides Income Tax, PMLA Claims: Bombay High Court Upholds Release of Seized Rs. 60 Crore for Investor Repayment

The Bombay High Court while upholding the release of seized Rs. 60 Crore for investors repayment, held that the Maharashtra Protection of Interest of Depositors Act, 1999 (MPID Act) overrides Income Tax and PMLA claims. The Bench of Justice A.S. Gadkari and Justice Shyam C. Chandakhas dismissed an appeal filed by the Deputy Director of Income Tax (Investigation), affirming that funds seized during an income tax search could be released for the benefit of investors under the Maharashtra Protection of Interest of Depositors Act, 1999 (MPID Act). The bench held that the MPID Act has overriding effect over other statutes such as the Income Tax Act, 1961 and the Prevention of Money Laundering Act, 2002 in matters involving protection of depositors. The bench while dismissing the appeal filed by the Income Tax Department against an order of the Special MPID Court in connection with the dispute arising from transactions linked to the National Spot Exchange Ltd. (NSEL). The dispute traces back to a survey conducted by the Income Tax Department under Section 133A of the Income Tax Act at the premises of certain companies, including Mohan India Pvt. Ltd. and Tavishi Enterprises Pvt. Ltd., in August 2013. Subsequently, a search operation under Section 132 led to the seizure of approximately ₹59.53 crore from several bank accounts. The tax authorities claimed that the seized funds were required to recover potential tax liabilities arising from ongoing assessment proceedings. Meanwhile, investigations were also underway by the Economic Offences Wing of Mumbai Police in connection with alleged irregularities related to the NSEL payment crisis, which had affected thousands of investors. Authorities alleged that the companies had received large sums of money from the exchange but had failed to repay them. In the course of proceedings, the companies entered into a settlement agreement with NSEL in October 2013. Under the settlement, they acknowledged liability and agreed to repay ₹771 crore to the exchange over a specified period. They sought the release of the seized funds so that the amount could be transferred to an escrow account maintained for repayment to investors. The Special MPID Court accepted the plea and allowed the application directing the release of the seized amount so that it could be deposited in the escrow account for the benefit of investors. The court reasoned that the funds represented money belonging to investors and that the settlement arrangement aimed to secure their interests. The Income Tax Department challenged this order before the Bombay High Court, arguing that the money had been lawfully seized under the Income Tax Act and was required to satisfy potential tax liabilities. It also contended that the MPID Court lacked jurisdiction to order the release of funds seized during tax proceedings. Rejecting the appeal, the High Court held that the MPID Act was enacted specifically to safeguard the interests of depositors and therefore carries overriding effect when conflicts arise with other statutes. The Court noted that it was undisputed that the funds in question had been received from NSEL and were connected to investor deposits. It further observed that the settlement agreement acknowledged the liability owed to the exchange and intended to facilitate repayment to investors. Referring to constitutional principles and statutory provisions, the Bench emphasized that the MPID Act provides special powers to courts to ensure that assets connected to fraudulent financial establishments are used to compensate victims. The Court also cited judicial precedents affirming that state legislation enacted to protect depositors cannot be rendered ineffective by other laws merely because those laws fall within the domain of Parliament. Case Details Case Title: Dy. Director of Income Tax (Inv.) Versus Mohan India Pvt. Ltd. Citation: JURISHOUR-385-HC-2026(BOM) Case No.: CRIMINAL APPEAL NO. 220 OF 2014 Date: 10/03/2026 Counsel For Petitioner: A.K. Saxena Counsel For Respondent: Vinay J. Bhanushali Click Here To Read Order Read More: NCLT Allows Reliefs to Successful Bidder in Going Concern Sale of Company Under Liquidation

MPID Act Overrides Income Tax, PMLA Claims: Bombay High Court Upholds Release of Seized Rs. 60 Crore for Investor Repayment

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