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63 moons' assets can't be attached over NSEL scam: Bombay HC

The attachment was made as part of the Mumbai police's probe into the alleged Rs 5,600-crore NSEL scam.

, ET Bureau|
Updated: Aug 22, 2019, 10.10 PM IST
According to the Maharashtra government, 13,000 investors of the NSEL were duped to the tune of Rs 5,600 crore.
In a major setback to the Mumbai Police and thousands of investors, the Bombay High Court (HC) has held that National Spot Exchange Ltd (NSEL) is not a financial establishment under the purview of the Maharashtra Protection of Interests of Depositors in Financial Establishments (MPID) Act, 1999. Consequently, the HC ordered the state government to lift the attachment of moveable and immoveable properties of 63 moons, the promoter of the now defunct commodity spot exchange.

The ruling will also impact the attachment under MPID of 22 defaulting counterparties who owe over Rs 5000 crore to investors on NSEL. The NSEL payment crisis surfaced in July 2013 after two dozen big traders failed to settle obligations of 13000 investors as the underlying commodities backing their trades were virtually absent. The properties were intended to be disposed of by a competent authority to pay back the investors.

The Economic Offences Wing (EOW), based on the complaint of an investor, invoked the provisions of the MPID Act under which the defaulting counterparties were treated as borrowers and investors as lenders. Under the Act, EOW attached the assets of the exchange’s promoter 63 moons (then FTIL), apart from those of the defaulters, apart from arresting several people. The invocation of MPID and attachment of its properties under the Act was challenged by 63 moons.

After citing the bye-laws of NSEL, the HC observed, “…. we are of the view that the clients trading on the NSEL platform did not invest with the NSEL in form of fixed deposits, equity or debentures of NSEL but they traded commodities on the platform of NSEL. 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 pin-pointed towards the defaulters who are responsible for the loss to the investors and the said contention of the NSEL was found to be substantiated by the audit reports (commissioned by EOW).

“…Since the investors raised an alarm about the losses caused to them, as a knee jerk reaction, the NSEL and its promoter came to be proceeded under the provisions of the MPID Act without deliberating on the core issue to be determined as a jurisdictional fact as to whether the entity was a financial establishment, thereby permitting the authorities to proceed against it under the statute intended to govern financial establishments.

“…….When we have examined the issue in hand, 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 under the provisions of the MPID Act. Resultantly, we are constrained to quash and set aside the action to which the petitioner is subjected to by taking recourse to the provisions of the MPID Act.”

Jignesh Shah, mentor & chairman emeritus, 63 moons technologies, said, “….Exactly 5 years ago, on 22nd August, 2014, I got back my personal liberty with the order of the Hon'ble Bombay High Court which stated that there was no money trail to NSEL, FTIL or me. Also, the Hon'ble Bombay High Court then clearly stated that, `…the legality of the application of the provisions of the MPID Act to this case is not free from doubt...’ and also that ‘whether NSEL can be termed as a ‘financial establishment’ as defined under Clause (d) of Section 2 of the MPID Act, would need equally serious consideration.’

“However, since it was a bail order, the observation of the then BHC order, was not considered in the MPID matter. Exactly 5 years later, 63 moons, the company I founded, has got economic liberty from the attachment under MPID Act.”

When contacted, Rajvardhan, joint commissioner of police (EOW), said, “We are planning to file a review in the Supreme Court.” Asked about the impact of the order on attachments of the defaulting counterparties, he said, “The order is regarding 63 moons’ attached assets and whether it applies to the other parties is something I can’t comment upon.”

The share of 63 moons ended up 8% at Rs 105 apiece.

Also Read

NSEL an 'employee fraud', could be resolved in 6 weeks: Jignesh Shah

SC sets aside NSEL merger with 63 Moons

I didn't flee to London, groundwork ready for refund to NSEL claimants: Jignesh Shah

NSEL scam: 300 brokers face criminal action

63 moons' assets can't be attached over NSEL scam: Bombay HC

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