63 Moons gets relief from HC on assets’ attachment
Mumbai: In a victory for 63 Moons Technologies and its promoter & group CEO Jignesh Shah in the Rs 5,600-crore payment default case against National Spot Exchange (NSEL), the Bombay high court on Thursday held that NSEL is not a financial institution.
Hence, notifications for attachment of the company’s assets — including bank accounts and properties — under MPID Act stand quashed. “The HC order frees over Rs 2,200 crore worth of properties of 63 Moons, including bank accounts and securities, from attachment under MPID Act,” said its counsel Vikram Nankani. 63 Moons, formerly known as Financial Technologies (India), had last year challenged the attachment of its assets under the Maharashtra Protection of Interest of Depositers (In Financial Establishments) Act, 1999, or the MPID Act.
It challenged the six notifications issued by the Maharashtra government for the attachment as that it could be invoked only against ‘financial establishments’ which, it argued, NSEL was not. NSEL was a subsidiary of 63 Moons, which holds 99.99% of its shares. It accepted no deposits during the transaction and hence it cannot be termed a financial establishment.
A bench of Justices Ranjit More and Bharati Dangre held that NSEL indeed was not a financial establishment. The HC quashed the state’s action from 2016 to 2018 against 63 Moons under the MPID Act. The court order is about the FTIL properties and does not include the individuals’ (borrowers and defaulters) properties, said an EOW officer, adding, “We will appeal in the Supreme Court. We are seeking a legal opinion.”
The court also noted that the audit report conducted as part of investigations “clearly point a finger to the sellers/defaulters and disclose that it is these defaulters who have utilised the amount received by them for some other business purpose”.
The HC noted that the EOW has not disputed that attached properties are worth Rs 8,583 crore. These include over Rs 2,200 crore worth of the promoter’s properties up to November 2017, said the HC.
The state counsel Rafique Dada sought a stay of the judgment as he apprehended that if the attachments are lifted, the properties would be immediately disposed of by the petitioner who is the promoter of NSEL. But former attorney general for India Mukul Rohatgi and senior counsel Navroz Seervai, appearing for 63 Moons, strongly opposed it saying that once the court has held NSEL is not a financial establishment, the company should not be made to suffer further.
The HC declined to stay the judgment since it said it has, after an exhaustive analysis, held that “NSEL is not a financial establishment within the purview of the MPID Act”. The HC said, “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, it pointed towards the defaulters who are responsible for the loss to the investors and this contention was found to be substantiated by audit reports,” said the HC in a 139-page judgment.
The court, however, left the challenge to the constitutional validity of the MPID provisions open since it said it has held that NSEL is not a financial establishment.
Jignesh Shah, CEO of 63 Moons, reacting to the order, said, “Truth prevails.”. He added, “Exactly five years ago, on August 22, 2014, I got back my personal liberty with the order of bail...where the HC said..there was no money trail to NSEL, FTIL or me... One by one, the court of law is demolishing all these illegal actions.”
The HC said, “Merely because the brochure made a faint reference to 14% to 16% of yield and on this very presumption that the NSEL has accepted deposits and since the petitioner is a promoter of NSEL, the axe of the government agencies by attaching the properties has necessarily fallen on the petitioner, which we see is highly illegal and unsustainable.”
It added, “The NSEL has even instituted recovery suits against the defaulters. 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. We have no hesitation in concluding that the NSEL is not a financial establishment and resultantly, the petitioner — 63 Moons, who is a promoter of the said establishment — cannot be proceeded under the provisions of MPID Act.”
The Shah-led company had, through its counsel, argued that its properties and promoters cannot be attached sans any money trail being traced or any default by it. But the state counsel argued that attachment was “distinct” and that the promoters “who wear the cloak of manifest arbitrariness when monies of depositors are lost and cannot be repaid except by attaching the properties of promoters, the principle of restitution would come into picture to protect the need of depositors and the need to obviate the evil effect of financial establishment who operate to deprive investors of their investment have sufficient reasons to justify the enactment of the MPID Act”.
The HC said that the agency proceeded with the assumption that NSEL is a financial establishment, “without deliberating on the core issue” of whether it actually was. The company, which claims to be the leader in financial technology and creator of ‘Odin’ software, questioned the attachment of its bank accounts under MPID Act in April 2018. It questioned the other notifications too and the permissibility to attach its software ‘Odin’ and the income it generates.
NSEL had commenced services in 2008. The thrust of the petition before the HC was that it was only an online trading platform. It launched contracts for buying and selling of commodities on its online trading platform with varied settlement periods of up to 36 days from the trading date. Its case was that it “operated an exchange and brokers became members of the exchange and traded in commodities on their own account or on behalf of clients”.
But complaints were filed that NSEL had collected money by promising attractive returns to “depositors” and there was a failure to return when the time came. Through a battery of counsels including Nankani, Aabad Ponda and Sujay Kantawalla, 63 Moons argued that neither had it received any of the Rs 5,600 crore allegedly received by NSEL nor were any of its properties acquired out of that alleged “deposit”. The properties attached are worth Rs 8,548 crore said the company — more than sufficient to cover an outstanding of Rs 4,822 crore its lawyers argued.
On September 30, 2014, an FIR alleging criminal breach of trust and forgery through a criminal conspiracy was registered against NSEL. The allegation was that by unilaterally closing down the exchange, it defaulted repayment of about Rs 5,600 crore to 13,000 investors and the money was nothing but “deposit” and, hence, the provisions of MPID Act were invoked in October 2013.
63 Moons was roped in as a subsidiary since NSEL lacked sufficient assets to repay.
Hence, notifications for attachment of the company’s assets — including bank accounts and properties — under MPID Act stand quashed. “The HC order frees over Rs 2,200 crore worth of properties of 63 Moons, including bank accounts and securities, from attachment under MPID Act,” said its counsel Vikram Nankani. 63 Moons, formerly known as Financial Technologies (India), had last year challenged the attachment of its assets under the Maharashtra Protection of Interest of Depositers (In Financial Establishments) Act, 1999, or the MPID Act.
It challenged the six notifications issued by the Maharashtra government for the attachment as that it could be invoked only against ‘financial establishments’ which, it argued, NSEL was not. NSEL was a subsidiary of 63 Moons, which holds 99.99% of its shares. It accepted no deposits during the transaction and hence it cannot be termed a financial establishment.
A bench of Justices Ranjit More and Bharati Dangre held that NSEL indeed was not a financial establishment. The HC quashed the state’s action from 2016 to 2018 against 63 Moons under the MPID Act. The court order is about the FTIL properties and does not include the individuals’ (borrowers and defaulters) properties, said an EOW officer, adding, “We will appeal in the Supreme Court. We are seeking a legal opinion.”
The court also noted that the audit report conducted as part of investigations “clearly point a finger to the sellers/defaulters and disclose that it is these defaulters who have utilised the amount received by them for some other business purpose”.
The HC noted that the EOW has not disputed that attached properties are worth Rs 8,583 crore. These include over Rs 2,200 crore worth of the promoter’s properties up to November 2017, said the HC.
The state counsel Rafique Dada sought a stay of the judgment as he apprehended that if the attachments are lifted, the properties would be immediately disposed of by the petitioner who is the promoter of NSEL. But former attorney general for India Mukul Rohatgi and senior counsel Navroz Seervai, appearing for 63 Moons, strongly opposed it saying that once the court has held NSEL is not a financial establishment, the company should not be made to suffer further.
The HC declined to stay the judgment since it said it has, after an exhaustive analysis, held that “NSEL is not a financial establishment within the purview of the MPID Act”. The HC said, “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, it pointed towards the defaulters who are responsible for the loss to the investors and this contention was found to be substantiated by audit reports,” said the HC in a 139-page judgment.
The court, however, left the challenge to the constitutional validity of the MPID provisions open since it said it has held that NSEL is not a financial establishment.
Jignesh Shah, CEO of 63 Moons, reacting to the order, said, “Truth prevails.”. He added, “Exactly five years ago, on August 22, 2014, I got back my personal liberty with the order of bail...where the HC said..there was no money trail to NSEL, FTIL or me... One by one, the court of law is demolishing all these illegal actions.”
The HC said, “Merely because the brochure made a faint reference to 14% to 16% of yield and on this very presumption that the NSEL has accepted deposits and since the petitioner is a promoter of NSEL, the axe of the government agencies by attaching the properties has necessarily fallen on the petitioner, which we see is highly illegal and unsustainable.”
It added, “The NSEL has even instituted recovery suits against the defaulters. 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. We have no hesitation in concluding that the NSEL is not a financial establishment and resultantly, the petitioner — 63 Moons, who is a promoter of the said establishment — cannot be proceeded under the provisions of MPID Act.”
The Shah-led company had, through its counsel, argued that its properties and promoters cannot be attached sans any money trail being traced or any default by it. But the state counsel argued that attachment was “distinct” and that the promoters “who wear the cloak of manifest arbitrariness when monies of depositors are lost and cannot be repaid except by attaching the properties of promoters, the principle of restitution would come into picture to protect the need of depositors and the need to obviate the evil effect of financial establishment who operate to deprive investors of their investment have sufficient reasons to justify the enactment of the MPID Act”.
The HC said that the agency proceeded with the assumption that NSEL is a financial establishment, “without deliberating on the core issue” of whether it actually was. The company, which claims to be the leader in financial technology and creator of ‘Odin’ software, questioned the attachment of its bank accounts under MPID Act in April 2018. It questioned the other notifications too and the permissibility to attach its software ‘Odin’ and the income it generates.
NSEL had commenced services in 2008. The thrust of the petition before the HC was that it was only an online trading platform. It launched contracts for buying and selling of commodities on its online trading platform with varied settlement periods of up to 36 days from the trading date. Its case was that it “operated an exchange and brokers became members of the exchange and traded in commodities on their own account or on behalf of clients”.
But complaints were filed that NSEL had collected money by promising attractive returns to “depositors” and there was a failure to return when the time came. Through a battery of counsels including Nankani, Aabad Ponda and Sujay Kantawalla, 63 Moons argued that neither had it received any of the Rs 5,600 crore allegedly received by NSEL nor were any of its properties acquired out of that alleged “deposit”. The properties attached are worth Rs 8,548 crore said the company — more than sufficient to cover an outstanding of Rs 4,822 crore its lawyers argued.
On September 30, 2014, an FIR alleging criminal breach of trust and forgery through a criminal conspiracy was registered against NSEL. The allegation was that by unilaterally closing down the exchange, it defaulted repayment of about Rs 5,600 crore to 13,000 investors and the money was nothing but “deposit” and, hence, the provisions of MPID Act were invoked in October 2013.
63 Moons was roped in as a subsidiary since NSEL lacked sufficient assets to repay.
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