Rs. 5.6K-cr scam: Bombay HC says NSEL is not a financial establishment

The bench, therefore, struck down several notifications issued by the collector, Mumbai City, between September 2016 and May 2019, attaching properties worth Rs. 8,548 crore, belonging to 63 Moons Technologies Limited.

The Bombay high court (HC) on Thursday declared that the National Spot Exchange (NSEL) was not a financial establishment as contemplated under the Maharashtra Protection of Interests of Depositors (in Financial Establishments) (MPID) Act, 1999.

HC said no action under MPID Act could have been taken against its promoter, 63 Moons Technologies Limited, formerly Financial Technologies (India) Limited, in the alleged Rs. 5,600-crore scam. (HT FILE)

The HC said that therefore, no action under MPID Act could have been taken against its promoter, 63 Moons Technologies Limited, formerly Financial Technologies (India) Limited, in the alleged Rs. 5,600-crore scam.

“We are of the view that the clients trading on NSEL platform did not invest with the NSEL in the form of fixed deposits, equity or debentures but they traded commodities on the platform,” said the division bench of justice Ranjit More and justice Bharati Dangre while holding that provisions of the MPID Act, 1999 were not applicable to 63 Moons Technologies.

The bench, therefore, struck down several notifications issued by the collector, Mumbai City, between September 2016 and May 2019, attaching properties worth Rs. 8,548 crore, belonging to 63 Moons Technologies Limited. The attachments were made with a view to recover the dues of “investors” from the promoter.

Acting on a complaint filed by one of the investors, Pankaj Saraf, a first information report (FIR) was registered against NSEL on September 30, 2014 alleging that by unilaterally closing down the exchange, NSEL had defaulted in repayment of approximately Rs. 5,600 crore to approximately 13,000 investors.

On October 24, 2013 provisions of the MPID Act were invoked claiming that the money collected by NSEL from the investors was “deposit” as contemplated under the Act. Thereafter, 63 Moons Technologies Limited, was roped in the case, since its subsidiary NSEL, did not have sufficient money or property to return the deposits or make repayments to the investors. Thereafter, the district collector issued various notifications under section 4 of the MPID Act, in order to make repayments to the defrauded investors. 63 Moons Technologies Limited had filed petitions challenging the validity of the notifications.

The promoter contended that NSEL was not a “financial establishment,” as contemplated under MPID Act, but an electronic platform enabling online trade in commodities in forward contracts and no amounts were received by NSEL, so as to come under ambit of the MPID Act. Besides, 63 Moons contended that it had not received any part of the sum of Rs. 5,600 crore alleged to have been received by NSEL.

The HC accepted their contentions and declared that NSEL was not a financial establishment so as to attract provisions of the MPID Act.