9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (2) TMI 1348 - SC - Indian LawsValidity of notifications attaching the property of the respondent under Section 4 of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act 1999 (MPID Act) - forward contacts of one-day duration for sale and purchase of commodities traded on NSEL - respondent holds 99.99% of the shareholding of National Spot Exchange Ltd (NSEL) - NSEL is a 'financial establishment' or not? Whether NSEL is a 'financial establishment' within the meaning of Section 2(d)? - HELD THAT - Financial Establishment is defined as any person accepting a 'deposit'. The definition excludes from its purview (a) a corporation or cooperative society controlled or owned either by the State or the Central Government; and (b) a Banking Company as defined under Section 5(c) of the Banking Regulation Act 1949. Since NSEL does not fall within any of the exceptions, it would be a 'financial establishment' for the purposes of the Act if it is a 'person accepting deposit'. Having referred to the relevant bye-laws, we shall determine if NSEL receives 'deposits' as defined by Section 2(c) of the MPID Act. The bye-laws elucidate that NSEL receives both money and commodities from trading members. In order to decide if these receipts by NSEL could be regarded as 'deposits', the test of 'return' will have to be satisfied. The test is that the return be in cash, kind or service. It is not necessary that the return should be with the benefit of interest, bonus or profit. Therefore, if the financial establishment is obligated to return the deposit without any increments, it shall still fall within the purview of Section 2(c) of the MPID Act, provided that the deposit does not fall within any of the exceptions. The exception of relevance to our case is clause (v) which states that amounts received in the ordinary course of business by way of (a) security deposit; (b) dealership deposit; (c) earnest money; and (d) advance against order for goods or services shall be excluded from the purview of the term 'deposit'. The validity of the MPID Act was specifically dealt with in two decisions of this Court in State of Maharashtra v. Vijay C. Puljal 2005 (9) TMI 303 - HIGH COURT OF BOMBAY and SONAL HEMANT JOSHI AND ORS. VERSUS STATE OF MAHARASHTRA AND ORS. 2011 (5) TMI 1099 - SUPREME COURT . In both the decisions, this Court upheld the constitutional validity of the MPID Act in view of the earlier decision in Bhaskaran 2012 (11) TMI 205 - SUPREME COURT - In Soma Suresh Kumar v. Government of Andhra Pradesh 2013 (9) TMI 1292 - SUPREME COURT , a two judge Bench of this Court upheld the provisions of the Andhra Pradesh Protection of Depositors of Financial Establishments Act 1999 following the earlier decisions in Bhaskaran 2012 (11) TMI 205 - SUPREME COURT and New Horizons Sugar Mills Limited 2012 (11) TMI 206 - SUPREME COURT . Having discussed the judgments of this Court on the constitutional validity of the state legislations governing financial establishments offering deposit schemes, including the MPID Act, there is no reason for us to reopen the question. This Court has held that the MPID Act is constitutionally valid on the grounds of legislative competence and when tested against the provisions of Part III of the Constitution. The High Court observed that the decision of this Court in 63 Moons 2019 (5) TMI 522 - SUPREME COURT does not have any serious effect on the present proceeding, though this Court has discussed at length the modus operandi of NSEL in duping the trading members by throwing light on the structure of the exchange. Though it was observed that the question of constitutional validity was settled in Bhaskaran 2012 (11) TMI 205 - SUPREME COURT , New Horizons 2012 (11) TMI 206 - SUPREME COURT , Sonal Hemant Joshi 2011 (5) TMI 1099 - SUPREME COURT and Vijay Kulijal 2005 (9) TMI 303 - HIGH COURT OF BOMBAY , the challenge of the respondent to the constitutional validity of the MPID Act was still kept open by the High Court. Further, while referring to the earlier order of the Division Bench dated 1 October 2015, where it was prima facie recorded that NSEL is a ‗financial establishment for the purpose of the MPID Act, the High Court observed that it was not bound by the prima facie view. The primary ground for the Division Bench for arriving at a prima facie view was the representations made assuring a 14% to 16% yield. However, the High Court in its impugned judgment dispelled the argument on the ground that only a 'faint reference' was made to assured returns. Such an observation misrepresents the factual instances which are backed by documentary material. The appellant also contended that the writ petition filed by the respondent is not maintainable since there was an alternative remedy of raising an objection before the Designated Court under Section 7 of the MPID Act. Though there is merit in the argument of the appellant, since the High Court decided on the validity of the impugned attachment notifications on merits, and arguments have been addressed in the present proceedings, we have proceeded to decide the matter on merits. The impugned notifications issued under Section 4 of the MPID Act attaching the properties of the respondent are valid - Appeal allowed.
Issues Involved:
1. Whether NSEL is a 'financial establishment' under Section 2(d) of the MPID Act. 2. Whether the transactions on NSEL's platform constitute 'deposits' under Section 2(c) of the MPID Act. 3. Constitutional validity of the MPID Act. 4. Validity of the High Court's judgment quashing the attachment notifications. Issue-wise Detailed Analysis: 1. Whether NSEL is a 'financial establishment' under Section 2(d) of the MPID Act: The core of the dispute is whether NSEL qualifies as a 'financial establishment' under Section 2(d) of the MPID Act. The Supreme Court examined the definition of 'financial establishment,' which includes any person accepting deposits under any scheme or arrangement. The Court found that NSEL's operations, involving the receipt of money and commodities, fall within this definition. NSEL's activities were not mere facilitation of trades but involved accepting deposits with an obligation to return them in cash, kind, or service, thus qualifying it as a financial establishment. 2. Whether the transactions on NSEL's platform constitute 'deposits' under Section 2(c) of the MPID Act: The Court analyzed the definition of 'deposit' under Section 2(c) of the MPID Act, which includes any receipt of money or acceptance of valuable commodities to be returned after a specified period. The Court noted that NSEL's receipt of margin deposits and commodities, which were to be returned or used to provide services, falls within this definition. The Settlement Guarantee Fund (SGF) maintained by NSEL, though termed a 'security deposit,' was found to be used for broader purposes, thus constituting a deposit under the Act. The Court also rejected the argument that 'valuable commodities' should be limited to precious metals, holding that agricultural commodities traded by NSEL also fall within this term. 3. Constitutional validity of the MPID Act: The respondents challenged the constitutional validity of the MPID Act, arguing that it was arbitrary. The Supreme Court referred to its previous judgments, including Bhaskaran v. State and New Horizons Sugar Mills Ltd. v. Government of Pondicherry, which upheld similar state legislations. The Court reiterated that the MPID Act is constitutionally valid, emphasizing its purpose to protect depositors from fraudulent financial establishments. The Court held that the differences between the Tamil Nadu Act and the MPID Act are minor, and the principles established in Bhaskaran apply to the MPID Act as well. 4. Validity of the High Court's judgment quashing the attachment notifications: The Supreme Court found that the High Court erred in its interpretation of 'deposit' and 'financial establishment.' The High Court's narrow reading of Section 2(c) and its failure to consider the broad legislative intent of the MPID Act led to an incorrect conclusion. The Supreme Court held that NSEL's receipt of money and commodities, and its obligation to return them, constituted deposits under the Act. The Court also noted that the High Court's observations on the merits of the criminal proceedings were inappropriate, as the writ petition was limited to the applicability of the MPID Act. Consequently, the Supreme Court set aside the High Court's judgment and upheld the attachment notifications issued under Section 4 of the MPID Act, declaring them valid. Conclusion: The Supreme Court allowed the appeals, set aside the Bombay High Court's judgment, and upheld the attachment notifications under the MPID Act, confirming that NSEL is a financial establishment that accepted deposits within the meaning of the Act. The constitutional validity of the MPID Act was reaffirmed, and the broad legislative intent to protect depositors was emphasized.
|
