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In a setback to the Maharashtra government, the Bombay High Court yesterday set aside seven notifications issued by the Home Department last year to attach the properties of 63 Moons Technologies, promoter of National Spot Exchange Limited (NSEL), under Section 4 of the Maharashtra Protection of Interests of Depositors (In Financial Establishments) Act (MPID Act).
The Court also held that the NSEL was not a “financial establishment” within the purview of the MPID Act.
The attachment was directed based on an investigation conducted by the Mumbai Police’s Economic Offences Wing (EOW) into the alleged NSEL scam of nearly Rs. 5600 crore.
A Division Bench of justices Ranjit More and Bharati Dangre was hearing a writ petition filed by 63 Moons Technologies (formerly known as Financial Technologies India Ltd), founded by Jignesh Shah.
In its judgment, the Court held,
“We have no hesitation in concluding that the NSEL is not a financial establishment and resultantly, the petitioner, who is a promoter of the said establishment, cannot be proceeded against under the provisions of the MPID Act.”
Senior Counsel Rafiq Dada, appearing for the state, submitted that petitioner 63 Moons is a promoter of NSEL and holds 99.99% share capital. He submitted that the attachment of 63 Moons’ assets was justified as the NSEL itself did not own any of the assets. He submitted that around 13,000 investors of the NSEL were duped to the tune of Rs 5,600 crore.
Senior Advocates Mukul Rohatgi and Vikram Nankani, who had earlier argued for 63 Moons, had stated that NSEL was not a financial establishment, but an electronic platform for commodity trade.
The petitioners had also contended that the power exercised by the state government is malafide and claimed that the audit conducted by the EOW did not trace the money trail of the petitioner.
It was submitted on behalf of 63 Moons that while the outstanding default amount was around Rs. 4822 crore, the authorities had attached assets of over Rs. 8,500 crore, including properties of the petitioner and of the defaulter members. 63 Moons also submitted that it did not receive any part of the Rs. 5600 crore that was allegedly misappropriated by the company.
After perusing contentions raised by the petitioners, the Court noted,
“We are of the view that the clients trading on NSEL platform did not invest with the NSEL in form of fixed deposits, equity or debentures, but they traded commodities on the platform of NSEL.”
Justice Bharati Dangre, who authored the judgment, observed,
“The NSEL has always voiced its stand by stating that it is not a financial establishment and in response to the notices issued to it, the NSEL pointed towards defaulters who were responsible for the loss to the investors and the said contention of the NSEL was found to be substantiated by audit reports.”
Justice Dangre went on to observe that while the attachment was carried out on a premise that NSEL was a financial establishment, the audit report during the probe fixed the liability pertaining to trade obligation on the defaulters.
Pulling up government agencies, the Division Bench noted,
“On the presumption that NSEL had accepted deposits and since petitioner is promoter of NSEL, the axe of government agencies by attaching properties has necessarily fallen on the petitioner, which we see highly illegal and unsustainable.”
After the judgment was pronounced in chambers, Senior Counsel Rafiq Dada sought a stay on its operation. However, the same was opposed by Senior Counsel Navroz Seervai, who claimed that the petitioner had already faced the brunt and it should not be made to suffer further.
The Division Bench, while concluding the proceedings, declined the prayer to stay the operation of its judgment.
In October last year, the High Court had stayed the notifications calling for 63 Moons’ properties to be attached.
This April, the Supreme Court set aside the Union Government’s decision to merge NSEL with FTIL, now 63 Moon Technologies Ltd.
Read the judgment: