NSEL Investors Group v 63 Moon Technologies| Nobody's Case That Money Was Given For Deposit With An Obligation To Return: 63 Moon Technologies Tell Supreme Court

The High Court bench of Justices Ranjit More and Bharati Dangre in the writ preferred by 63 Moons Technologies Ltd had also observed that National Spot Exchange Limited is not a financial establishment under the Maharashtra Protection of Depositors in Financial Establishments Act, 1999 ("MPID Act, 1999").

In the writ petition before the High Court, 63 Moons had challenged the constitutionality of Sections 4 and 5 of the MPID Act and the action of attachment of properties belonging to NSEL by issuing notifications after invoking provisions of MPID Act.

The submissions were made before the bench of Justices DY Chandrachud, Surya Kant and Bela M Trivedi.

In the hearing today before a bench of Justices DY Chandrachud, Surya Kant and Bela Trivedi, submissions were made by the Senior Advocate(s) Mukul Rohatgi and AM Singhvi.

Nobody's Case That Money Was Given For Deposit With Obligation To Return; If Supreme Court Has Not Examined Single Provision Of MPID Act It Is Incorrect To Say That It Will Close Forever Posterity To Challenge The Provision Of The Act: Senior Advocate Mukul Rohatgi

Appearing for 63 Moons Technologies, promoter of NSEL (which is now defunct), Senior Advocate Mukul Rohatgi commenced his submissions by apprising the bench with regards to the functioning of the commodity stock exchange.

"So Commodity Exchange is an exchange where people buy commodities its like a Mandi. Now this was running- it's very much in pari materia like stock exchange. Commodity exchange is a platform where there are buyers and sellers of commodities. Transaction where buyer will pay and seller will give the goods. Huge quantity of goods in accredited warehouses. Money goes from the buyer through his broker. Money is not retained by me at all. Goods are in the warehouse showing kilos of dal. That receipt is given to the buyer and that constitutes transfer of title. My job is to facilitate sales like the sale of shares," submitted Senior Counsel.

Against this backdrop, Senior Counsel submitted that the issue before the Court was whether NSEL was covered under the provisions of MPID Act and within the definition of Financial Establishment under the Act.

Explaining the meaning of the term "Deposit", he further argued that NSEL neither received any deposits nor issued any promise to the customers to get interest on money on making deposits.

Rohatgi contended that, "I don't receive any deposits and do not issue any promise that you give me money for 1 year or 2 year and you'll get the interest. Deposit means something which is to be returned. Deposit to the party obliges the party to keep that and return. When money is given to the bank it has complete dominion. In that 1 year the dominion is with the bank and the bank can give the money to someone else. In my case, it is nobody's case that I take any deposit with the promise of return. I get commission out of this business."

Referring to K.K. Baskaran Vs. State represented by its Secretary, Tamil Nadu and Ors wherein the Supreme Court while deciding the legislative competence of Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 had also said that the State Legislature had competence to enact the MPID Act too, Senior Counsel submitted that if the Top Court had not even examined a single provision of the MPID Act, it would be incorrect to say that it would close forever the posterity to challenge the provisions of MPID Act.

"It was not seen by the SC that provisions of 2 acts are very diff. When appeal came from the TN case, the SC reversed it by saying that there is legislative competence. The Supreme Court said legislative competence is there. In the course of the judgment it said that Bombay and Tamil Nadu Act are pari materia. If the Supreme Court has not examined a single provision of my act it is incorrect to say that it will close forever the posterity to challenge the provision of the act. There are traders who engage brokers on both sides. They are not investors in that sense," he averred.

In this regard he also contended that the Court in Tamil Nadu's case was only concerned with the issue of legislative competence and there was no way that challenges in future to certain provisions if not examined by any other court are liable to be examined by constitutional court and this cannot be curtains drawn against me.

"1 question still remains, alternative remedy or not alternative remedy. Provisions that I wish to challenge, I cannot be foreclosed in challenging it," argued Rohatgi.

He further contended that NSEL was a real commodity which worked for 5 years but then the employees turned blind eye to the actual receipts which resulted in the scam.

"Really speaking your defense has to be established on trial. If there is no movement of goods, the Stock Exchange is aware that there is no movement of goods; it makes it worse for you as you become part of the transaction," remarked Justice Chandrachud the presiding judge of the bench.

"That is why NSEL was defunct. The hammer fell. Question is whether the word Financial Establishment r/w deposit is attracted to the principle or promoter because the body has got defunct. It is nobody's case that any money was given to me for deposit with an obligation to return. Nobody's case is that any money in the form of deposit to be returned with interest was ever given to the exchange because in this accommodation mean who benefitted are so called buyer & seller," responded Rohatgi.

Drawing court's attention to the FIR registered by Economic Offenses Wing ("EOW"), Rohatgi submitted that, "EOW conducted a forensic audit and then this collapse and they are on record to say that there are 24 defaulters who are not related to me at all and they have created a default of 5/6k crore and they have diverted it to their companies and no deposit has come to me. There is no EOW against me and it's nobody's case that a deposit has been made against me."

To further substantiate his contention, Senior Counsel contended that the 5 out of the 6 impugned notifications which were issued by an authority which was not competent to do so.

"I am only a platform taking 100 rupees per lakh. All the properties of the promoter are attached without any conclusion, finding examination. There was a lot of assuming that it was taken by 63 moons. I am guilty of allowing such a transaction and I'm facing the music. But facing that music does not mean that I'll face this music that everything of mine is attached to because I am a promoter. I am a listed company with 50k shareholding. My company is doing well. Merely because you are a subsidiary of one would not mean that you're bound by one," he further added.

Terming NSEL receiving the deposit as "far cry", Rohatgi said, "It's a far cry to say that I received the deposit. Allegation is that I have received a deposit and have failed to return on maturity. Notification under the act on which I am aggrieved is only money."

"But you received the deposit on the commodity. Ultimately we have to go by the definition of the act and that;s why it is an inclusive definition. This is the collateral which the buyer is guaranteed. You may be right that employees defrauded you. But the point is that once it comes to light that this whole thing was sham and not backed by collateral security, that's how the circle broke," remarked Justice Chandrachud at this juncture.

"No deposit of money was made by me with a promise to return for maturity, nobody's case that neither deposit of commodities was made with me with a promise to return," Rohatgi.

"Your client was Particeps criminis. You knew there are no warehouse receipts. You are using a facilitative regulatory mechanism and its investor's wealth which is coming. It's an indicator of how the system works," DYC J.

"I'm facing the trial," Rohatgi responded. He further added that the main focus of this case is whether I've taken a deposit of money to return the same on maturity and there was no such case by any party.

"If somebody has taken somebody's money then he is the person who has taken the deposit. Question of a commodity in the godown for the purpose of trade does not really arise when there were accommodation trades. That is how it has happened and in any case I have taken nobody's deposit and have not promised return to anybody," added Senior Counsel.

"The High Court has virtually acquitted you. Any trial judge who looks at the judgment will say that it is acquittal," remarked Justice Chandrachud.

While concluding his submissions, Rohatgi while highlighting the contents of the impugned notifications, said,

"I attacked the provisions of the act and the notifications- which also says at the end that the attachment is also of any income in future- not seen any attachment like that. Attachment is what you have. It's a civil death for 63 moons with 50k shareholders."

Senior Advocate AM Singhvi for 63 Moons Technologies had commenced his submissions with regards to the aspect of alternate remedy.

The matter would now be heard tomorrow i.e. March 30, 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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