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63 moons Assets Cannot be Attached under MPID Act in NSEL case, Rules Bombay HC

Moneylife 2019-08-23 00:00:00
In a major relief to 63 moons Technologies Ltd (erstwhile Financial Technologies India Ltd), the Bombay High Court has ruled that since National Spot Exchange Ltd (NSEL) is not a financial institution, attachment of the properties of 63 moons under the Maharashtra Protection of Interests of Depositors (MPID) Act should be vacated.   The two-judge bench of Bharati H Dangre and Ranjit More ruled that the MPID Act is not applicable in terms of NSEL as it is not a financial institution. It says, "We have considered the arguments of the learned senior counsel appearing on both sides and we are of the express view that on exhaustive discussion, we have already concluded that NSEL is not an 'financial establishment' within the purview of the MPID in Financial Establishments Act, 1999, and in such circumstances, we decline the prayer made by the learned senior counsel (Rafique) Dada."   In July 2016, the economic offences wing (EOW) of Mumbai police had attached assets worth Rs7,063 crore belonging to FTIL, owned and funded by Jignesh Shah. In a statement issued that time, the ministry of finance, had said, “So far, 831 properties worth Rs7,063 crore have been attached by EOW, Mumbai police under MPID Act, out of which, attachment of 711 properties worth Rs6,115 crore have been notified.”   According to 63 moons, the Bombay HC noted that despite the forensic audit commissioned by the EOW tracing the entire money trail to the defaulters, the state attached properties of 63 moons, which was not legally sustainable. It says, "...(the) High Court has also noted that after going through the documents, it leaves no doubt in our mind that the transaction was between two persons i.e. buyer and seller through medium of NSEL; and the Court is satisfied that the NSEL has not accepted any deposit and if it has not accepted any deposit, then it would not fall within the definition of 'financial establishment'."   "...(the) High Court has held that NSEL was a commodities exchange where commodities were traded between willing buyers and sellers acting through their brokers. The Court has noted that the state and the investigating agencies have simply assumed and proceeded on the basis that NSEL acted as financial establishment without verifying this jurisdictional fact before attaching properties of 63 moons," the statement isssued by the company says.   63 moons Technologies is in the business of developing and selling technology products for facilitating trading on exchanges such as stock and commodity exchanges and claims to have more than 63,000 shareholders and over 800 employees.    "It has been the stand of the company that the authorities have wrongly interpreted an exchange (NSEL) as a financial establishment and called trading operations a deposit-taking activity," says S Rajendran, managing director of 63 moons, adding "For reasons best known to the people at the helm of affairs, 63 moons was suffocated for the last five years crippling its ability to do new business in the interest of all stakeholders. Vested interest tried to stop even our existing business by freezing all bank accounts. At last, the judiciary has upheld the truth."   In April this year, the Supreme Court had set aside the 2016 order passed by the ministry of corporate affairs (MCA) for merging (erstwhile) FTIL, which is now 63 Moons Technologies, with NSEL.   In its order, the apex court mentioned three grounds as stated by the Union government for the merger between FTIL and NSEL. These includes, restoring and safeguarding public confidence, giving effect to business reality of the case by consolidating the business of FTIL and NSEL, and preventing FTIL from distancing itself from NSEL and for facilitating NSEL in recovering dues from defaulters by pooling human and financial resources of FTIL and NSEL.   The government has contineously claimed that that these three grounds contribute a facet of 'public interest' in the context of provisions of Section 396 of the Companies Act.   The Supreme Court, however, observed that the first and second ground, as mentioned by the High Court, were not even contained in the draft order of amalgamation. Even otherwise, it was held that these grounds were in breach of Section 396(3) and (4) of the Companies Act.   It was further held that so far as the third reason is concerned, the SC said that the reason by itself was for the purpose of private interest of a group of investors and traders, as distinct from public interest.   "In the context of compulsory amalgamation of two or more companies, the expression 'public interest' would mean the welfare of the public or the interest of society as a whole, as contrasted with the "selfish" interest of a group of private individuals…. For all these reasons, we find that no reasonable body of persons properly instructed in law could possibly arrive at the conclusion that the impugned order has been made in public interest," the bench said in the order.   Earlier in December 2017, the Bombay High Court had upheld order passed by MCA for merger of FTIL (now 63 Moons Technologies), with NSEL.   In February 2016, the MCA had ordered merge of FTIL with NSEL under Section 396 of the Companies Act. However, this was challenged by 63 Moons Technologies in the Bombay HC.