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2019 (8) TMI 1038 - HC - Companies LawFinancial Establishment or not - National Spot Exchange Limited (NSEL) - whether the NSEL is a financial establishment within the meaning of Section 2(d) of MPID Act? - HELD THAT - The NSEL has not accepted any deposit and if it has not accepted any deposit then it would not fall within the definition of financial establishment . The NSEL has received money from the buyers at T 2 date and it was immediately paid to the sellers at T 2 date. However on T 25 date the parties who were sellers on T 2 date and who were under obligation to make payment on T 25 date failed to do so and it is not the NSEL but the sellers who receive the money from the buyers on T 2 date with an underlying obligation to make the payment of T 25 date but failed to do so and therefore at the most they could be referred to as financial establishment . The petitioner has admitted that the amount used to come to NSEL to be paid to the respective traders on the T 25 settlement date and the NSEL was entitled to charge its transaction charges. This would clearly dispel the case of the respondent State that the NSEL was accepting deposit and therefore it was a financial establishment. 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 o the notices issued to it it pin pointed towards the defaulters who are responsible for the loss to the investors and the said contention of the NSEL was found to be substantiated by the audit reports. 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 without deliberating on the core issue to be determined as a jurisdictional fact as to whether the entity was a Financial Establishment thereby permitting the authorities to proceed against it under the statue intended to govern Financial Establishments. Thus it can be concluded that the NSEL is not an Financial Establishment within the purview of the Maharashtra Protection of Interests of Depositors in Financial Establishments Act 1999.
1. ISSUES PRESENTED and CONSIDERED
The core issues considered in this judgment revolve around the applicability of the Maharashtra Protection of Interests of Depositors in Financial Establishments Act, 1999 (MPID Act) to the National Spot Exchange Limited (NSEL) and its promoter, 63 Moons Technologies Limited (formerly Financial Technologies (India) Limited). Specifically, the issues are: (a) Whether NSEL qualifies as a "Financial Establishment" under the MPID Act. (b) Whether NSEL accepted "deposits" as defined under the MPID Act. (c) The validity of the notifications issued under Section 4 of the MPID Act, attaching the properties of 63 Moons Technologies Limited. (d) The constitutional validity of Sections 4 and 5 of the MPID Act. 2. ISSUE-WISE DETAILED ANALYSIS (a) Whether NSEL is a "Financial Establishment": - Relevant Legal Framework: Section 2(d) of the MPID Act defines a "Financial Establishment" as any person accepting deposits under any scheme or arrangement. - Court's Interpretation: The Court analyzed the nature of transactions conducted by NSEL, which involved trading in commodities through an electronic platform. The Court found that NSEL acted as a facilitator for trading between buyers and sellers and did not accept deposits as defined under the MPID Act. - Key Evidence: The Court examined NSEL's bylaws, trading processes, and the role of brokers and clients. It noted that NSEL's operations were akin to those of stock exchanges, facilitating trade rather than accepting deposits. - Application of Law to Facts: The Court concluded that NSEL's receipt of funds was part of a trading process, not as deposits with an obligation to return with interest or profit, thus not fitting the definition of a "Financial Establishment." (b) Whether NSEL accepted "deposits": - Relevant Legal Framework: Section 2(c) of the MPID Act defines "deposit" as any receipt of money or acceptance of valuable commodity to be returned after a specified period with or without benefits. - Court's Interpretation: The Court found that the funds received by NSEL were payments for commodities traded, not deposits to be returned with benefits. - Key Evidence: The Court considered the trading mechanism, contract notes, and the absence of any promise of fixed returns by NSEL. - Application of Law to Facts: The Court held that NSEL did not accept deposits as it did not promise returns or hold funds for a specified period as deposits. (c) Validity of Notifications under Section 4 of the MPID Act: - Relevant Legal Framework: Section 4 of the MPID Act allows attachment of properties of a financial establishment or its promoters if deposits are not returned. - Court's Interpretation: The Court found the notifications attaching the properties of 63 Moons Technologies Limited to be based on the incorrect assumption that NSEL was a financial establishment accepting deposits. - Key Evidence: The Court noted that the properties attached exceeded the amount required to cover the alleged default, and no money trail linked the promoter to the alleged deposits. - Application of Law to Facts: The Court quashed the notifications, finding them unsustainable as they were based on a flawed premise. (d) Constitutional Validity of Sections 4 and 5 of the MPID Act: - Relevant Legal Framework: The challenge was based on alleged violations of Articles 14, 19, and 300A of the Constitution. - Court's Interpretation: The Court did not delve into the constitutional challenge in detail, as it found that NSEL was not a financial establishment, thus rendering the application of the MPID Act inapplicable. - Application of Law to Facts: The Court left the constitutional challenge open, focusing instead on the misapplication of the MPID Act to NSEL. 3. SIGNIFICANT HOLDINGS - "The Court finds that NSEL is not a financial establishment within the meaning of the MPID Act, as it did not accept deposits." - "The notifications issued under Section 4 of the MPID Act, attaching the properties of 63 Moons Technologies Limited, are quashed as they are based on the incorrect premise that NSEL was a financial establishment." - "The Court leaves the constitutional challenge to Sections 4 and 5 of the MPID Act open, as the primary issue of NSEL's status under the Act was dispositive."
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