NSEL v 63 Moon Technologies : 1000s Of Crores Remain To Be Paid, Investors Group Tell Supreme Court

The Top Court bench of Justices RF Nariman, Surya Kant and V Ramasubramanian in 2019 had while issuing notice in the SLP had directed for maintenance of status quo which had existed on September 3, 2019.

In the hearing today, Advocate Jayant Mehta and ASG Vikramjit Banerjee made submissions before the bench of Justices DY Chandrachud, Surya Kant and Bela M Trivedi on behalf of NSEL Investors Action Group and State of Maharashtra.

Submission Of Counsels

Till Date Investors Are Waiting To Be Repaid; 1000's Of Crores Remains To Be Paid; Only 5% Out Of 5k-6k Crore Has Been Paid: Advocate Jayant Mehta

Advocate Jayant Mehta for the NSEL Investors Action Group submitted that under the MPID Act, 1999 there is a complete mechanism and machinery available in terms of notification issued u/s 4 for attachment of pty of any person.

To substantiate his contention, Mehta further referred to Section 5 of the MPID Act which deals with "Appointment of Competent Authority", Section 6 which deals with, "Designated Court" and Section 7 which deals with "Powers of Designated Court Regarding Attachment."

He further submitted that the judgment dated October 1, 2015 passed by Bombay High Court relating to dismissing the quashing petition filed by NSEL seeking quashment of the C.R registered with the EOW, Supreme Court's order dismissing the SLP with costs, judgement of amalgamation matter which found that these transactions are not commodity transactions but financial transactions, FMC order, NSEL's own document- presentation- contract, email exchanges, FIR and the chargesheet were present before the High Court.

Referring to K.K. Baskaran Vs. State represented by its Secretary, Tamil Nadu and Ors, Mehta said,

"Challenge was made in the writ petition to vires of section 4 & 5 of the MPID Act, 1999. It could not have been made in light of Bhaskarna's judgement as all of these aspects have been noted by this court and it was no longer res integra that the act is constitutional."

It may be noted that Advocate Jayant Mehta had submitted yesterday before the Top Court that the High Court in the impugned judgment proceeded to pronounce on the facts of the case when it was not called upon to do so. He further added that the issues as to whether NSEL was not a financial establishment and as to whether the deposits by NSEL fell under the definition of "deposits" mentioned u/s 2(c) of the MPID Act was not even a controversy before the High Court.

Mehta further submitted that the High Court proceeded on the basis as if the transactions by NSEL were in conformity with its bye laws but High Court did not follow how NSEL was violating its own bye laws.

"There is no escaping of proceedings under MPID Act but the High Court completely eschews all of what I've shown you and the Supreme Court's judgment is not determinative of financial transactions. I buy and I also sell at the same time. High Court proceeds on the basis as if the transactions went in the way by laws contemplated and it didn't follow how NSEL was violating its own bye laws," submitted Mehta.

Advocate Jayant Mehta further argued that in exercise of Art 226, High Court could not enter into the realm of disputed facts.

"High Court under art 226 ought not to have rendered these conclusions of facts which are contrary to the judgment of this court, of its own judgment, facts and record, without any basis and in teeth of the provisions of MPID Act in terms of deposit and financial establishment," submitted Mehta.

To conclude his submissions, Mehta said, "Till date investors are waiting to be repaid. 1000's of crores remains to be paid. 5% out of 5k-6k crore has been paid. Request to direct proceedings before designated court to be completed in an expeditious manner. Hapless investors continue to suffer."

MPID Act, 1999 Is Protective Legislation; Objective Is To Protect Investors; NSEL Not Only An Exchange But More Than Deposit Scheme: ASG Vikramjit Banerjee

Appearing for the State of Maharashtra, ASG Vikramjit Banerjee submitted that MPID Act, 1999 was a protective legislation with an objective to protect the investors. He further referred to the judgment in K.K. Baskaran Vs. State represented by its Secretary, Tamil Nadu and Ors. (2011) 3 SCC 793.

To substantiate his contention with regards to High Court's finding that NSEL is not a financial establishment, ASG relied on the definition of Deposit and Financial Establishment under section 2(c) and 2(d) of MPID Act, 1999 respectively and the brochure issued by NSEL titled as "Opportunity to Investors".

ASG in this regard argued that, "It's an extremely large- brochure which says that they're treating it as an investment. This is exactly what the act was supposed to stop. Entire basis for this is what the act was invented for. They solicited funds. Entire commodities can be deposited. Even in the Warehouse receipt, there are a number of places where it has been mentioned that they are deposits."

"Only the title is different. It's called an investment opportunity but the contents are the same. NSEL accepts commodities from the seller, issues warehouse receipts from the seller and accepts money from the buyer but how is this relevant?" asked Justice Chandrachud at this juncture.

"Will the contract of bailment amount to deposit under 2(c)? When A accepts money from B it's not a deposit. But this act also covers acceptance of some valuable commodity by any Financial Establishment to be returned on the condition that after a specified period or otherwise, either in cash or in kind or in the form of specified service with or without any benefit in the form of interest, bonus, profit, or in any other form. So it'll cover even a collective investment scheme," Justice Chandrachud further added.

"It's protective legislation. Objective is to ensure small investors and ensure that nothing happens," submitted ASG.

The bench at this juncture again posed a question to ASG with regards to the role of the Exchange.

"What is the role of the exchange? There are paired contracts. Under the 1st contract- seller agrees to sell the commodity on T. Then the T + 16 buyer has another contract with the same seller on which he will get the assured deal. Role of the exchange is to facilitate the transaction and the exchange is saying that I am holding the commodities. Then there is yield which is offered & according to you there is counter guarantee by the exchange that in case there is default on part of the seller in paying the yield exchange will be good for the money," remarked Justice Chandrachud.

"The High Court says that it's like the Bombay Stock Exchange but the Bombay Stock Exchange is only a facilitator. According to this, the definition may be very wide. It's not only acceptance and deposits of money but this covers a much broader canvass," Justice Chandrachud further added.

"It's not only an exchange but it's definitely more and more than a deposit scheme," submitted ASG.

The bench will now hear the matter on March 29, 2022.

Case Title: The State Of Maharashtra v. 63 Moons Technologies Ltd| Diary No.- 31272 - 2019 and NSEL Investors Action Group v. 63 Moons Technologies Ltd. And Anr.| SLP(C) No. 23502-23503/2019

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