9911796707
TMI Blog2019 (9) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... l entity (63 Moons Technologies Ltd.) conducts its own independent business and earns therefrom. Admittedly, the properties attached are not proceed of crime as defined under Section 2(1)(u) of PMLA. It is submitted on behalf of 63 MTL that the Directorate of Enforcement/ED attempts to make out a case for attachment of properties of 63 MTL purely based on a mis-interpretation of the concept of value of such property as employed in Sec. 2(1)(u). The principles of equivalent value, could apply only to a person who came into possession of the proceeds of crime. It cannot be applied to attach assets of 3rd party who is not the recipients of any proceed of crime. In the eyes of law, every public-sector company is a distinct/independent company. Doctrine of Tracing - HELD THAT:- Admittedly, no money (except a sum of 84 Crores ) has travelled from NSEL to 63 Moons Technologies Ltd. from the time NSEL was incorporated in 2005 till it became defunct in 2013 when its trading stopped and its operations were suspended as a result of action by the Department of Consumer Affairs. 84 Crores deposited in Bombay High Court represents rent, software, other shared services etc. The same is an admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said knowledge by the ED amounts to civil death of the company as well as the 63 MTL 58,000 shareholders with an independent Board of Directors who will suffer without their fault. Appeal allowed in part. X X X X Extracts X X X X X X X X Extracts X X X X ..... company) was incorporated in 1988. It is a public listed company with its shares listed on the BSE, NSE & ASE and has about 63,000 shareholders. '63 MTL' founded and promoted 9 exchanges in commodities and securities market worldwide. Multi Commodities Exchange ("MCX") was one such exchange in which the Appellant held 26% stake at the relevant point of time. 5. MCX, an erstwhile subsidiary of the FTIL incorporates NSEL (Respondent No. 2) in the appeals filed by '63 MTL' for carrying on inter alia the business of running a spot trading platform for commodities. 6. In September, 2005, the entire shareholding of Respondent No.2 was transferred by MCX to the '63 MTL'. This resulted in '63 MTL' becoming 99.99% shareholder (Respondent No.2). The National Agricultural Co-operative Marketing Federation of India holds 0.01%. NSEL applied for a license for establishment of e-marketing in the State of Gujarat under Sec. 31C (2) (B) of the Agricultural Produce Markets Act, 2007. The relevant authority under the Agricultural Produce Markets Act, 2007, directed that NSEL should neither be a subsidiary nor have as its shareholders, a commodity exchange recognized under FCRA. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atform facilitated the sale and purchase of commodities where trading members wishing to sell commodities ("Commodity Sellers"), or trading clients wishing to purchase commodities ("Trading Clients"), could sell/purchase commodities on the Exchange through their broker (the "Trading Member Broker"). The transactions were required to be settled by payment and delivery within a fixed period. 10. The procedure for transacting as mentioned, is as under:- i) In the first leg of the transaction, a Trading Client (through its Trading Member Broker), would purchase specified commodity from a Commodity Seller, for which the Commodity Seller was required to deliver the requisite commodity and the Trading Client (through its Trading Member Broker), was required to make payment of the purchase price within 2 days of the contract date (the "T+2 contract"). The Trading Client received a Delivery Allocation Report, which was based on a Warehouse Receipt issued by NSEL, representing the commodities deposited in the warehouse. ii) In the second leg of the transaction, the Trading Client (through its Trading Member Broker), would sell back to the same Commodity Seller the same commodity whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (appointed by NSEL pursuant to FMC's direction) submitted its Report on 21.09.2013. In its Report, it has been stated the following: (i) It has not "independently verified or validated" any information provided to it. (ii) The Report "did not constitute an audit" and therefore "cannot be relied upon to provide the same level of assurance as a statutory audit." (iii) Should additional information or documentation become available, which impacts upon conclusions reached in the Report, Grant Thornton reserves its right to amend its findings accordingly. 16. Admittedly, the Report contains prima facie allegations of wrongdoing by some officers of NSEL, including the MD & CEO. 17. FIR No. 216/2013 filed by with the MRA Marg, Police Station, Mumbai u/s 409, 465, 468, 471,474, 477A r/w 120B of IPC against NSEL and '63 MTL' on 30.09.2013, its directors and key officials of 25 defaulters of Respondent No. 2 and others. 18. Based on the FIR, both the Economic Offences Wing of the Mumbai Police ("EOW") as well as the Enforcement Directorate initiated investigations under the provisions of the Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of '63 MTL'. 24. The investigation was initiated by the relevant authority under the PMLA Act and pursuant thereto a Prosecution Complaint No. 04/2015 filed against NSEL and 67 others before the Competent Special Court. 25. The relevant details of investigation under PMLA are given as under:- a) Investigations under the PMLA, 2002 in this matter were initiated by conducting enquiries with NSEL. Upon enquiries with NSEL, it was gathered that NSEL was incorporated in 2005. The controlling shareholder of NSEL is M/s. Financial Technologies (India) Ltd. (FTIL) holding 99.99% of the shareholding of NSEL. The exchange offered an electronic platform for compulsory delivery based spot contracts in various agricultural and non-agricultural commodities. The basic idea was to provide a place where farmers, traders, corporate, processors, planters, manufacturers and importers can sell and buy their commodities at the best possible and competitive rates. NSEL undertook to provide services like quality certification, storage of goods and other customized value added service. NSEL allowed trades on various contracts with settlement cycle ranging from T+0 to T+36 days. Contracts were sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiries were made with Income Tax Department who had verified stock position with the various defaulters of NSEL. Ongoing through the report received from IT department, it was observed that no equivalent stock was found in any of the godowns of the defaulters. The godowns of the defaulters lacked the capacity to store the equivalent quantity of the goods. In many cases the godowns were locked and no stock verification was allowed. In some case, godowns could not be located at the given address. Similarly, audit conducted by SGS India Pvt. Ltd, the agency contracted by NSEL, also reported the inspection of the warehouses/stock as "aborted‟ (SGS was not permitted to audit the warehouse by the warehouse owner). This fact substantiates the charge of EOW, Mumbai Police vide their abovementioned FIR that the defaulting members were fabricating the warehousing receipts. f) During the investigation, Summons was issued to key management officials of NSEL and their statements were recorded under section 50of the PMLA, 2002. The gist of their depositions is as under:- (i) Shri Anjani Sinha, the former MD & CEO of NSEL, had vide his letter dated 09.2013 forwarded a copy of his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... housing section of NSEL, he stated that business development team was responsible for development of the market, introduction of new members, identifying new commodities, carrying out ground level due diligence of the parties and if found fit, to introduce them to the Exchange system; that identifying and approving warehouses, maintaining stock in the warehouses, keeping control and vigil on actual commodity inward and outward along with current stock level and to upload actual stock statement on the website. On being asked to explain the reasons for crisis in NSEL, Shri Anjani Sinha stated that the defaulting members were in collusion with the warehousing staff of NSEL; that they manipulated the stock and duped the entire exchange mechanism; that the members submitted false and fabricated stock offer letters, submitted false sale bills without actually offering the physical stock in connivance with the NSEL warehousing team; that the offer letters submitted by the defaulting parties to the Exchange at the time of sale of stock were not backed by physical stock. (iv) In order to ascertain the veracity of the claim made by Shri Anjani Sinha in his statement with regard to manipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Amit Mukherjee had told her that Shri Jai Shankar Srivastav had paid for the flat situated at 1202 in Samarpan Royale and the Range Rover. In view of the findings of the Income Tax Authorities and M/s. SGS and the depositions of Shri Anjani Sinha and Shri Bihari Lal and other key management official of NSEL in their respective statements and scrutiny of documents, it became evident that all the defaulter members were dealing on NSEL platform without having physical stock of their commodity or were having almost no quantity. g) During the investigation, summonses were issued to Directors of NSEL and their statements were recorded under Section 50 of the PMLA, 2002. The gist of their depositions is as under:- (i) Shri Jignesh Shah, Non-Executive vice chairman of NSEL During the investigation, statements of Shri Jignesh Shah were recorded on 15.04.2014, 12.07.2016, 13.04.2016, 14.07.2016, 15.07.2016, 17.07.2016; during which he inter-alia stated that he had founded Financial Technologies India Limited which used to deal in exchange software business; that his shareholding in FTIL through his family holding company i.e. La-fin (27%) and individually 18%; that NSEL was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all times, the NSEL management stated that the warehouses had adequate stocks. During the statement recorded on 05.07.2016, he submitted that IBMA is the step down subsidiary of NSEL and engaged in bullion trading; that initially the stake of NSEL in IBMA was 10% to 20% which was gradually increased to 61% later; that IBMA was trading cum clearing member of NSEL; that IBMA undertaken certain transactions with defaulter Members i.e. Louts Refineries Pvt Ltd, N. K Proteins Pvt Ltd, P. D Agro processors Pvt Ltd, White Water Foods Pvt Ltd, Shree Radhey Trading Pvt. Ltd, Vimladevi Agrotech; that there are no supporting documents available with IBMA except purchase invoices in respect of transactions with P. D oprocessors Pvt Ltd, White Water Foods Pvt Ltd, Shree Radhey Trading Pvt , Vimladevi Agrotech; that invoices to the tune of ₹ 20 crores had been raised by IBMA on LOIL Group towards ……. Charges provided in 2012-13 that there is no details available with …. With regard to actual nature of services provided by IBMA to LOIL group; that IBMA had also received ₹ 10 Crores from Mohan Infracon Pvt Ltd, a group company of one of the defaulter i.e. Mohan In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of raw wool stock, no physical stock of raw woo! was delivered to the warehouse and trade was carried out on the basis of warehouse receipts generated by them. (iii) Shri Arun Sharma, Director of M/s. Lotus Refineries Pvt Ltd. - During his statement recorded on 27.05.2014 he stated that M/s Lotus Refineries Pvt Ltd became a member of NSEL and started trading on the NSEL exchange in March, 2012, which continued upto March, 2013; that they used to trade in Cotton seeds, Soyabean, Palm Oil, Mustard Seeds and Mustard Oil; that they had provided various premises and warehouses adjacent to the plants of the company to NSEL; that as all goods traded by them on NSEL exchange were ultimately re-purchased by them, no deliveries were ever effected, and no stock was transported to the NSEL warehouse; that their employees used to prepare and email the stock offer letter to NSEL, stating that equivalent stock has been delivered to the NSEL warehouse; that funds received from NSEL were utilized in their business activities. (iv) Shri Narayan Nageswara Rao, Managing Director of NCS Sugar Mills Ltd. - During his statements recorded on 14.05.2015 & 19.05.2015 , he deposed that M/s NCS S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e NSEL warehouse; that in subsequent trades, no physical stock of paddy/ice was delivered to the warehouse and trade was carried out on the basis of warehouse receipts generated by them that as per the need of the finances required; that he used to instruct his subordinate staff to punch the trades and prepare documentation accordingly; that the paper transactions for the contracts were launched declaring M/s Dulisons Foods (a Dunar group company) as the client of M/s P D Agro processors Pvt Ltd, selling the paddy in T+2 contracts and M/s Dulisons Cereals (another Dunar group company) also a client of M/s P D Agroprocessors Pvt Ltd, purchasing the said goods in corresponding T+25 contracts; that the next transaction would be vice-versa to square off the pay in-payouts of M/s Dulisons Foods and M/s Dunar Cereals; that as facilitation towards the services rendered, Shri Amit Mukherjee, ex-AVP of NSEL, asked him to arrange a foreign trip to Bangkok for him (Shri Amit Mukherjee), his wife (Smt. Bonhi Mukherjee), children, parents & some other relatives that he booked the trip to Bangkok in April, 2013, through a travel agent M/s Vishwas Travels Delhi, and paid an amount of approx. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is the contracts were launched declaring one of their clients of M/s Swastik Overseas Corporation as the seller of the goods in T+3 contracts and another client as the contracts were launched declaring one of their clients of M/s Swastik Overseas Corporation as the seller of the goods in T+3 contracts and another client as the purchaser of the said goods in corresponding T+36 contracts; that the funds received from NSEL were utilized towards providing loans and advances to business entities, investment in agricultural cultivation, purchase of property at Karnal, etc. (xi) Shri Kamal Kant Dewan. Director of White Water Foods Pvt Ltd. - During his statement recorded on 06.06.2014, Shri Kamal Kant Dewan submitted that M/s White Water Foods Pvt Ltd became NSEL member and started trading on the NSEL exchange; that no equivalent stocks were either maintained or delivered to the designated NSEL godown and trade was carried out on the basis of paper transactions declaring one of their clients as the seller of the goods in T+ 2 contracts and another as the purchaser of the said goods in corresponding T+25 contracts; that the funds received from NSEL were utilized towards their bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o NSEL designated godowns against the NSEL trades execute by them. 26. It is the case of '63 MTL' that '63 MTL' that the entire flow of money has been reflected to have gone to the defaulters. 27. On 30.06.2015, CLB granted ad-interim reliefs to the UOI, directing the '63 MTL' not to sell / alienate / create third party rights in its assets and investments till further order. 28. In the meanwhile, on 4.12.2015, cognizance is taken by the Special Court based on Complaint No. 4/2015. 29. On 18.04.2016, the Hon‟ble Supreme Court in Civil Appeal No.4391-4392 of 2016 confirmed CLB's order dated 30.06.2015. 30. The National Company Law Tribunal (hereinafter referred to as NCLT), on 24.06.2016, which took over from CLB while modifying the order dated 30.06.15, constituted a committee ("NCLT Committee") to, inter-alia, monitor and approve the treasury operations of the Appellant. The NCLT Committee comprises of : (i) Two Independent Directors of the Appellant; (ii) Managing Director of the Appellant; (iii) Retired Judge of the Hon‟ble Supreme Court and (iv) A nominee of the Union of India inter-alia to monitor and approve treasury operations of the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preferably by the same evening. However, no-details were mentioned as to for what purpose the information was sought by the Enforcement Officer. 38. On 9.9.2016, Enforcement Officer sent another e-mail at about 3.31 pm, requesting the '63 MTL' through representative of Respondent No.2, to provide all bank accounts of the Appellant and IBMA urgently by the same evening. 39. '63 MTL' vide its Solicitors letter dated 13.09.16 requested the Respondent No.1 not to take any coercive action against the '63 MTL' and to grant an opportunity for personal hearing to the Appellant prior to any such proposed action. 40. '63 MTL' on 14.09.2016 filed a Criminal Writ Petition No. 3218 of 2016 against ED as a preemptive measure in anticipation of an attachment order, inter-alia seeking a writ of Mandamus directing the Respondent No.1, to offer a pre-decisional hearing before taking any action of attachment of the property. The intimation regarding filing of the writ was served upon ED on the same day and the ED was well aware about the filing about the said Writ Petition. 41. NCLT Committee in its meeting approved the treasury operations of the "63 MTL‟. The said approval also inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g O.C. No.663/16 was filed before the Adjudicating Authority, PMLA, New Delhi. 49. Show Cause Notice under Section 8(1) of PMLA was issued in OC no.663/16 on 9.11.2016. While the SCN received on 09.11.2016 distinctly stated that "copy of the complaint and annexure/relied upon documents thereto are enclosed herewith", as a matter of fact, no such complaint, annexures or relied upon documents were received along with the SCN as per the '63 MTL' who also stated that as a further anomaly, the SCN in the Post Script No. 03 mentioned that the "Notice along with Relied upon documents (RUD) shall be served by the complainant directly to all defendants as per law. Only Advance notice has been sent to defendants." and the Complaint along with some statements and relied upon documents came to be served upon them only on 08.12.2016, that is, just two weeks before the 23.12.2016 when they were required to appear before the Adjudicating Authority. Accordingly, they sought extension of time for filing its reply to the Complaint before the Adjudicating Authority. 50. Complaint along with the relied upon documents finally came to be served upon the '63 MTL' on 8.12.2016. They filed its reply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 in the said application continued the interim order dated 01.08.2017. They also filed application being I.A. No.4694 of 2018 on 27.07.2018 seeking release of properties attached vide PAO No. 17/2016 (dated 14.9.16); PAO No.19/2016 (dated 30.0.16) and PAO No.1/2017 (dated 31.1.17) since the said attachment under Section 5(1) of PMLA has expired /lapsed. 61. These are the facts mentioned above, now we have to decide as to whether three orders passed by the Adjudicating Authority are sustainable or not in the light of these facts. 62. Firstly, we will refer the case put up by NSEL before many authorities and before us in their ground of appeals and their written submission. Case of NSEL who is referred as respondent a) The FMC Order was passed way back in December 2013 when investigations in the payment defaults at NSEL's exchange platform were at nascent stage. Thereafter, criminal investigations by the EOW-Mumbai culminating in filing of 3 (three) chargesheets dated 06.01.2014, 02.06.2014 and 04.08.2014, and the investigation by R-1 culminating in the Complaint No. 4 of 2015, have revealed the true and different picture that the entire fraud was perpetrated by the 24 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while the balance gross income of ₹ 736.66 Crores pertains to the Non-Exchange Businesses of NSEL. d) Insofar as the present case is concerned, the payment defaults of more than ₹ 5,000 Crores - which form the centre point of the entire case - have occurred only on the Exchange platform of NSEL. The entire Scheduled Offences registered vide the EOW-FIR pertain only to the Exchange business of NSEL. Admittedly, the Non-Exchange Business of NSEL is not even the subject matter of the EOW-FIR and hence is not the subject matter of any Scheduled Offence as is also evident from Para 6.1 and 6.2 of the Complaint itself. Therefore, the Authority failed to appreciate that the gross income of ₹ 736.66 Crores pertaining to the Non-Exchange business of NSEL cannot be characterised as "proceeds of crime" as defined under Section 2(1)(u) of the PMLA. e) The Adjudicating Authority failed to appreciate that the Exchange Business of NSEL comprised of trading in commodities in the Traders‟ Contracts, e-Series Contracts and Other Contracts. The only contracts where payment defaults of more than ₹ 5,000 Crores have occurred and which are the subject matter of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es over a period of six years cannot be termed as "proceeds of crime" as defined in Section 2(1)(u) of the PMLA. g) The Adjudicating Authority failed to appreciate that as per the EOW-FIR as well as Para 6.1 and 6.2 of the Complaint, the alleged Scheduled Offences of forgery and criminal conspiracy in the instant case relate only to the unsettled transactions in the Traders‟ Contracts where the payment of more than ₹ 5,000 Crores by the defaulting members to their non-defaulting trading-counterparties in T+25 contracts is still outstanding. This outstanding amount also includes the various charges leviable by NSEL from these defaulting members. For these outstanding/unsettled transactions, NSEL has not "actually received‟ income from any of the defaulting members yet, although an income of about ₹ 85 lacs against these unsettled trades has been booked in NSEL's books of account because the same are prepared on "accrual basis‟ and not on "actual receipt‟ basis. Therefore, NSEL has not yet actually received income from the Scheduled Offences alleged in the instant case, and accordingly NSEL cannot be said to be recipient of any alleged "proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was made in the show cause notice dated 27.04.2012 issued by the Ministry of Consumer Affairs, Govt of India to the then MD & CEO of NSEL. The said Show Cause Notice was replied in detail by the then MD & CEO of NSEL vide reply dated 23.05.2012 explaining how NSEL was not in violation of any of the conditions of the Exemption Notification. As per the said reply, contracts having settlement period of more than 11 days were not in violation of the FCRA because NSEL was altogether exempted from all the provisions of the FCRA by virtue of the Exemption Notification - which by itself did not prescribe any time limit for delivery and settlement of the trades. It was further submitted that NSEL was not allowing short-sale as alleged in the show cause notice in as much as the sellers are required to deposit the commodities sold on T day in exchange-designated warehouses on T+1 day. If they do not do so then they are not entitled to receive the sale-consideration on T+2 day or say T+25 day. It is further submitted that the said Show Cause Notice has not been adjudicated till date. No Court of law has held till date that NSEL was in violation of the Exemption Notification dated 05.06.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T+2 to T+36 days) were well within the four corners of the FCRA as well as the Exemption Notification dated 05.06.2007, and there was nothing circuitous about it as alleged. k) The Adjudicating Authority failed to appreciate that NSEL was promoted by MCX (and not by FTIL) on 18.05.2005. In or around September, 2005 entire shareholding of MCX in NSEL was transferred to FTIL. Mr. Jignesh Shah was only occupying the position of a Non-executive Vice Chairman in NSEL. Further, it is evident from the material available with the Complainant that the policy decisions concerning the running of NSEL, including the launching of the contracts traded on the NSEL plat- form, were taken by the then MD and CEO of NSEL, Mr. Anjani Sinha and the same has been asserted by Mr. Anjani Sinha on several occasions. Further, the statement of Mr. Amit Mukherjee dated 10.04.2014 (Sr. No. 7 of relied upon documents) clearly establishes that the role of business development and finding new members for NSEL was performed by him and he used to take instructions from Mr. Anjani Sinha. Mr. Jignesh Shah had no role whatsoever in the same and was never involved in making any presentations or assurances about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. Adjudicating Authority that FTIL - as a 99% shareholder of NSEL - controlled the functioning of NSEL is baseless. n) The Adjudicating Authority failed to appreciate that with effect from April 2011, NSEL became a "material subsidiary‟ of FTIL as per the Listing Agreement. Therefore, in compliance with the provisions of the listing agreement, 1(one) independent director from the Board of FTIL was required to be appointed on the board of its material subsidiary. Accordingly, in addition to Mr Jignesh Shah, Mr Ramanathan Devarajan was appointed as a "non-executive‟ director to the Board of NSEL. Both Mr Shah and Mr Devarajan were also directors on the Board of FTIL. Thus, the Board of NSEL comprised of 8 (eight) directors of which there were only 2 (two) directors who were common to the Board of FTIL and both of them were non-executive directors having no role whatsoever in the day to day affairs/operations of NSEL, which were run by the professional executive management team of NSEL headed by the then MD and CEO Mr. Anjani Sinha. The Adjudicating Authority also failed to appreciate that FTIL did not approve the actions of NSEL in its board meetings. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of NSEL confirming compliance with all the laws. Additional- ly, since November 2011, every 15 (fifteen) days, a detailed data-sheet from NSEL's executive management used to go to the regulator FMC detailing the name, location and stock position of each of the ware- houses. However, no questions were ever raised by the FMC. Thus, as so many checks and filters were in place and yet the same did not raise any "red flags" or notice any irregularity, there was no reason/occasion for the Board of NSEL to imagine that there were any irregularities or other untoward actions taking place on NSEL's exchange platform. p) The Adjudicating Authority failed to appreciate the following documentary evidence submitted to it by the Appellant along with its Reply demonstrates that the Board of NSEL was not in knowledge of the missing commodities until mid-August 2013 because the then executive management team of NSEL headed by the then MD&CEO of NSEL Mr Anjani Sinha never informed the Board of NSEL about the same: (i) Minutes of NSEL's Board meeting dated July 30, 2013, wherein Mr. Sinha - when questioned by the Board - confirmed to the entire Board that commodities worth more than ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for colluding with them in defrauding and abusing the Exchange's trading platform. (x) Thus, the Board of NSEL was not aware of the missing commodities. As soon as it received complaints about the same, it took all reasonable steps such as appointment of reputed stock verification firm SGS, constitution of Internal Inquiry Committee on getting to know from SGS's reports from mid-August 2013 that there was considerable stock shortage, filing of police complaint against the errant employees etc. q) The Adjudicating Authority failed to appreciate that the withdrawal of ₹ 236 Crores by the Appellant from its own Settlement Guarantee Fund ("SGF") does not amount to 'proceeds of crime' in the hands of the Appellant as per the PMLA. A bare perusal of the definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA reveals that it must be derived from and out of a Scheduled Offence. In the instant case, in terms of Bye-law 12 of the Appellant's exchange, the exchange was required to maintain SGF, which comprised of contributions made by the members of the exchange. On 28.03.2013, ₹ 236.5 Crores was withdrawn by the Appellant out of the SGF to repay the overdraft f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SGS Report - both of which have been relied upon by the Complainant and form part of the RUD - do not support such sweeping conclusion of the Complainant. In fact, the following facts and material on record forming part of the RUD clearly demonstrate that the business model of NSEL's exchange platform was not intended to permit trading against non-existent/fictitious stock: (i) As per both the IT Report and the SGS Report, adequate stock of commodities was found in case of 3 (three) defaulters namely Sankhya Investments, Metcore Alloys & Industries Ltd. and Topworth Steels & Power Ltd.; (ii) As per both the IT Report and the SGS Report, less than adequate stock of commodities was found in some cases. Nevertheless, stock was existent; (iii) As per both the IT Report and the SGS Report, only in few cases, no underlying stock of commodities was found; (iv) The Statements of some of the defaulting members relied upon by the Complainant in Para 7.4 of the Complaint (such as Shri Mohit Agarwal of Aastha group, Shri Kailash Agarwal of Ark group, Shri Inder Singh and Shri Jai Singh of Namdhari group, Shri Ranjeev Agarwal of PD Agro group etc.) also confirm that initially th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 223;. Therefore, the sufficiency of material, and the degree of satisfaction that the Adjudicating Authority is required to meet, are much higher than that of the Deputy Director exercising its power under Section 5, since the Adjudicating Authority is not only required to determine the true colour of the property attached, but even has to adjudicate upon the fact of its involvement in money laundering. Therefore, a mere prima facie satisfaction or the existence of a reasonably probable case cannot be the basis for passing an order under Section 8(2).The Adjudicating Authority ought to have reached a material satisfaction as to the existence of the circumstances warranting the issuance of the PAO under Section 5 and duly adjudicated upon the involvement of the property attached in money laundering. Further, Section 8(2) mandates the Adjudicating Authority to "consider the reply of the aggrieved person‟ and "take into account all the documents‟ and then "record a finding‟ whether the all or any of the properties attached are involved in money laundering. The Authority under the garb of taking only a prima facie view, has failed to appreciate a number of documents b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... launch the contracts are contrary to the actual facts. From the facts, it was apparent that all circulars launched were discussed in the board meeting comprising key Management Personals of FTIL in the Board of NSEL and the board used to ratify and approve the same. By virtue of its shareholding of 99.99 % in NSEL, FTIL was the complete authority over all the affairs of NSEL enabling it to appoint all the Directors on the board of NSEL, through them effective control over the functioning of NSEL. The NSEL board comprising Key Management Personals of FTIL (as S/Shri Jignesh Shah, Joseph Messy) has all the authority to frame the bye-laws, rules and regulations of the company. FTIL regularly approved the actions of NSEL in its Board meetings. Shri Jignesh Shah is holding 27% shares of FTIL through companies controlled by him apart from personal holding of 18% of FTIL. In this way, Jignesh Shah holds 45% shareholding in FTIL. FTIL has total assets of ₹ 2800 Cr. If we consider for interest of other public shareholders of FTIL, it is clear that Directorate has attached assets only to the extent of shareholding of Mr Jignesh Shah i.e 45% i.e equivalent to attachment of this director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country." As such, equivalent value of any such property is defined as proceeds of crime and accordingly, properties of the FTIL were attached under section 5 of the PMLA. By virtue of the said definition of the proceeds of crime, the subject properties to be termed as involved in the money laundering as defined under section 3 of the PMLA. The said argument of Awasthi that the bonds were attached equivalent value and not from direct proceed of crime. 70. It is also stated by him on behalf of his client that the NSEL, subsidiary and holding of FTIL, was acting as agent of the FTIL and there was no genuine transaction on the platform of the NSEL. The FTIL has used the NSEL for purpose of sham transactions under the guise of paired contract. All circulars launched on the NSEL were discussed in the board meeting comprising key Management Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antage and dishonestly gained, is tainted property acquired "directly" by a scheduled offence and consequently "proceeds of crime". Any other property acquired using such bribe as consideration is also "proceeds of crime", it having been obtained "indirectly" from a prohibited criminal activity within the meaning of first limb of the definition. 107. In contrast, the second and third kinds of properties mentioned above would ordinarily be "untainted property" that may have been acquired by the suspect legitimately without any connection with criminal activity or its result. The same, however, are intended to fall in the net because their owner is involved in the proscribed criminality and the tainted assets held by him are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained. This is why for such untainted properties (held in India or abroad) to be taken away, the rider put by law insists on equivalence in value. From this perspective, it is essential that, before the order of attachment is confirmed, there must be some assessment (even if tentative one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not the same property as of the first kind, it having been picked up from among other properties of the accused, the intent of the legislature being that it must be of the same "value" as the former. The third kind does use the qualifying words "equivalent in value". Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense. 110. Thus, it must be observed that, in the opinion of this court, if the enforcement authority under PMLA has not been able to trace the "tainted property" which was acquired or obtained by criminal activity relating to the scheduled offence for money-laundering, it can legitimately proceed to attach some other property of the accused, by tapping the second (or third) above-mentioned kind provided that it is of value near or equivalent to the proceeds of crime. But, for this to be a fair exercise, the empowered enforcement officer must assess (even if tentatively), and re-evaluate, as the investigation into the case progresses, the quantum of "proceeds of crime" derived or obtained from the criminal activity so that proceeds or other assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and. In this case, FTIL itself is accused in scheduled offence and this Directorate has also filed prosecution complaint against them for the offence of money laundering as defined u/s 3 of the PMLA before the Hon‟ble Special Court. The same has been taken cognizance by the Special Court after applying its mind. 73. It is submitted on behalf of respondent that in view of said judgement, the property of a person, who is not even an accused in the case, if the property is having nexus with the accused charged with the offence of money laundering. The same has been confirmed by the above mentioned judgement of the Hon‟ble Delhi High Court also. 74. It is stated that in this case, FTIL is charged with the offence of money laundering and also NSEL is fully and wholly owned by FTIL. Therefore, the attachment on the properties of FTIL is legal. The properties of FTIL can‟t be released just on the ground that FTIL and NSEL are separate legal entity. The Hon‟ble Supreme Court has rejected the amalgamation of both the entities in totally separate case and separate legal provisions and context. This Tribunal has to decide the matter considering the overall case, ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No.1 is: 1112.03 crores + 236.5 crores - 84 crores = ₹ 1,254.6 crores. 79. It is stated on behalf of appellants that the aforesaid alleged "proceeds of crime" traced to NSEL are in relation to NSEL's earnings and repayment of overdraft facility and are in no way connected to the default of ₹ 5,600 crores on NSEL's exchange. It is stated on behalf of '63 MTL' that the entire money trail of ₹ 5,600 crores has been traced to the 24 defaulters on NSEL's exchange, and not a single rupee has been traced to NSEL or the '63 MTL' herein. In this regard, reference is made to the following: a. The EOW, Mumbai Police, has commissioned a forensic audit report to establish a money trail of the default amount to the 24 Defaulters. The Report establishes that the entire default amount is traced to the Defaulters. Details of the same are herein below: Liability of defaulter as per EOW Forensic Audit Report Sr. No. Defaulter Liability asper EOW Forensic Audit Report (Rs. In Crores) Date of Forensic Audit Report 1 Aastha Minmet India Pvt. Ltd 243.07 14-Feb-18 2 Juggernaut Projects Limited 3 ARK Imports Private Limited 719.42 1-Mar-18 4 MSR Food Processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination of Liability by HCC (B) Order Date Arbitration Award (C) Order Date Total of Decree and Arbitration award (A+B+C) Amount Crystallized by HCC and accepted by Hon'ble BHC Order Date Amount Crystallized By HCC and pending acceptance by Hon'ble BHC Report Date of HCC 1 N K PROTEINS LTD 2 MOHAN INDIA PVT LTD 922.00 11-01-18 922.00 3 TAVISHI ENTER-PRISES 4 LOIL CONTINENTAL FOOD LTD 320.02 26-04-18 & 30-07-18 5 LOIL HEALTH FOODS LTD 265.87 26-04-18 6 LOIL OVERSEAS FOODS LTD 77.24 26-04-18 7 ARK IMPORTS PVT LTD 719.37 20-07-15 719.37 - - 8 P D AGROPROC ESSORS PVT. LTD - 633.75 16-08-18 - 633.75 - - 9 YATHURI ASSOCIATES 264.96 18-12-14 134.64 30-07-18 - 399.60 - - 10 LOTUS REFINERIES PVT LTD 252.47 21-09-18 252.47 - - 11 JUGGERNAUT PROJECTS LTD. 145.00 23-12-14 - 145.00 - - 12 AASTHA MINMET INDIA PVT LTD 12.50 23-12-14 - 12.50 - 75.57 26-12-18 13 METKORE ALLOYS & INDUSRIES LTD. - 83.46 14-09-18 14 SWASTIK OVERSEAS CORPORATION 91.19 18-12-14 - 91.19 - - 15 WHITE WATER FOODS PVT LTD 84.82 23-07-18 - 84.82 - - 16 NAMDHARI FOOD INT. PVT LTD 51.02 27-02-17 - 17 NAMDHARI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est. The relevant paras 1-9, 55.3,56.1,56.2, 59, 59.5 and 72 are reproduced below:- 1. Leave granted. 2. This batch of appeals and writ petition raises questions as to the applicability and construction of Section 396 of the Companies Act, 1956, which deals with compulsory amalgamation of companies by a Central Government order when this becomes essential in the public interest. The appellant, 63 Moons Technologies Ltd. (hereinafter referred to as "FTIL", which name was changed to 63 Moons Technologies Ltd. on 27.05.2016), is a 99.99% shareholder of the National Spot Exchange Ltd. (hereinafter referred to as "NSEL"), and is a listed company. About 45% of the shareholding of FTIL is held by Shri Jignesh Shah and family, and about 43% of the shareholding is held by members of the Indian public. Approximately 5% of the shareholding is held by institutional investors. FTIL is a profitable company, having a positive net worth of over INR 2500 crore, and is in the business of providing software which is used for trading by brokers and exchanges across the country. FTIL has about 900 employees, and a Board of Directors which is different from the Board of Directors of its wholly own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s release in which Shri Sinha, its CEO/MD, made a statement that he and his management team were responsible for all operations at NSEL. On 27.08.2013, the FMC directed a forensic audit of NSEL by Grant Thornton LLP, and the Union of India, on 30.09.2013, ordered inspection of the books of accounts of NSEL and FTIL under Section 209A of the Companies Act. On the same day, the Economic Offences 4 Wing ["EOW"] registered cases against Directors and key management personnel of the NSEL and FTIL, trading members of NSEL, and brokers of NSEL under various provisions of the Indian Penal Code and the Maharashtra Protection of Interest of Depositors Act, 1999 ["MPID Act"]. Several suits were filed by the traders who allegedly have been duped, the most important of which is Suit No.173 of 2014 pending in the Bombay High Court, which is a representative suit filed under Order I Rule 8 of the Code of Civil Procedure, 1908 ["CPC"]. NSEL also filed third-party notices in the said suit for recovery of INR 5600 crore against 24 defaulter traders. It has also filed various arbitration proceedings against them, and is in the process of recovery of INR 3365 crore out of INR 5600 crore, which are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught not to be traded on commodities exchanges at all. On 15.10.2014, Dr. K.P Krishnan, Additional Secretary, Department of Economic Affairs, wrote a letter to the Ministry of Corporate Affairs stating that FTIL and NSEL appear to be maintaining separate identities for a fraudulent purpose, i.e., to deprive investors of their money. As a result, there is a need to lift the corporate veil in order to unearth the fraud, as a result of which, amalgamation of two companies, where one has defrauded market participants and the other company is cash-rich and capable of addressing the payment crisis more effectively. It was therefore proposed to merge FTIL and NSEL under Section 396 of the Companies Act. On 21.10.2014, a draft order of amalgamation, made in accordance with Section 396(3) of the Companies Act, was 7 circulated to the relevant stakeholders. As a result, FTIL filed Writ Petition No. 2743 of 2014 on 10.11.2014, in which it challenged the impugned draft order. On 27.11.2014, the Bombay High Court directed the parties to maintain status quo. On 16.12.2014, the Union of India filed an affidavit in reply, categorically confirming that the impugned draft order has been made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at NSEL had full stock as collateral; 10-20% of open position as margin money; and that the stock currently held in NSEL's 120 warehouses was valued at INR 6000 crore, all of which turned out to be incorrect. 87 Further, there is no doubt whatsoever that in July, 2013, as a result of NSEL stopping trading on its exchange, a payment crisis of approximately INR 5600 crore arose. The further question that remains is whether, given these facts, the conditions precedent for the applicability of Section 396 were followed. 56.1. What is important to note is that by the time the final order of amalgamation was passed, i.e., on 12.02.2016, the final order itself records: "8.1.Economic Offences Wing, Mumbai: * Total amount due and recoverable from 24 defaulters is ₹ 5689.95 crores. * Injunctions against assets of defaulters worth ₹ 4400.10 crore have been obtained. * Decrees worth ₹ 1233.02 crore have been obtained against 5 defaulters. * Assets worth ₹ 5444.31 crore belonging to the defaulters have been attached of which assets worth ₹ 4654.62 crore have been published in Gazette under the MPID Act for liquidation under the supervision of MPID ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the FMC and the Government in 2013- 2014, has been largely redressed in 2016, by the time the amalgamation order was made. Also, the Central Government order does not apply its mind to the essentiality aspect of Section 396 at all. In fact, in several places, it refers to "essential public interest" as if "essential" goes with "public interest" instead of being a separate and distinct condition precedent to the exercise of power under Section 396. On facts, therefore, it is clear that the essentiality test, which is the condition precedent to the applicable to Section 396, cannot be said to have been satisfied. 59. When it comes to "public interest" as opposed to the "private interest" of investors/traders, who have not been paid, the amalgamation order dated 12.02.2016 makes interesting reading. The satisfaction as to public interest is stated in the very beginning of the order as follows: "Whereas the Central Government is satisfied that to leverage combined assets, capital and reserves, achieve economy of scale, efficient administration, gainful settlement of rights and liabilities of stakeholders and creditors and to consolidate businesses, ensure coordination in policy, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , NSEL is not left with any viable, sustainable business while FTIL has the necessary resources to facilitate speedy recovery of dues. 2.13.3. In the above background, a proposal had been received from FMC, vide letter dated 18-08- 2014, proposing the merger of NSEL with FTIL by the Central Government under the provisions of Section 396 of the Companies Act, 1956. The proposal has been supported by the Department of Economic Affairs (DEA), Ministry of Finance, FMC has proposed the merger/amalgamation of NSEL with FTIL in essential public interest so that the human/financial resources of FTIL are also directed towards facilitating speedy recovery of dues from the defaulters at NSEL and the FTIL takes responsibility to resolve the payment crisis at NSEL at the earliest. 59.5. So far, we have gone by the Central Government order as it stands. The Bombay High Court, in stating reasons (a), (b), and (c) as grounds of public interest, has gone much further than even the answer given to the objections that are contained in the order itself. "Restoring/safeguarding public confidence in forward contracts and exchanges, which are an integral and essential part of the Indian economy and fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em, by consolidating the businesses of NSEL and FTIL" is no part even of this answer given, but a gloss given by the High Court itself relatable to this answer. 109 Similarly, when it comes to reason (b), "giving effect to business realities of the case" contained in the answer to objections does not contain "by consolidating the businesses of FTIL and NSEL", nor does it contain "and preventing FTIL from distancing itself from NSEL, which is, even otherwise, its alter ego". On the contrary, the High Court itself mentions, in paragraph 355, that "this is also not a case where the Central Government has, in fact, lifted the corporate veil, despite the alleged non-existence of the circumstances justifying lifting of such corporate veil", and further, "this is not a case where the Central Government has lifted the corporate veil and sought to apportion any liability upon either NSEL or FTIL". For all these reasons, we find that no reasonable body of persons properly instructed in law could possibly arrive at the conclusion that the impugned order has been made in public interest. 72. In fact, the Government order dated 12.02.2016 itself reflects the net worth of NSEL as INR 8.86 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spot deliveries. Apart from the Grant Thornton report and the FMC order, we have also seen that Shri Jignesh Shah, on 10.07.2013, made representations to the DCA and the FMC, in which he stated that NSEL had full stock as collateral; 10-20% of open position as margin money; and that the stock currently held in NSEL's120 warehouses was valued at INR 6000 crores, all of which turned out to be incorrect. Further, there is no doubt whatsoever that in July, 2013, as a result of NSEL stopping trading on its exchange, a payment crisis of approximately INR 5600 crore arose. The further question that remains is whether, given these facts, the conditions precedent for the applicability of Section 396 were followed." 87. It is alleged that the Hon‟ble Court has clearly observed that paired contracts were, in fact, financing transactions which were distinct from sale and purchase transactions in commodities and were, thus, in breach of both the exemptions granted to NSEL, and the FCRA. Further, the Hon‟ble Court also observed that Shri Jignesh Shah, on 10.07.2013, made representations to the DCA and the FMC, in which he stated that NSEL had full stock as collateral; 10-20% of ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orth ₹ 3 crore have been attached/secured for attachment by the EOW; * MPID Court has already issued notices u/s 4 & 5 of the MPID Act to the persons whose assets have been attached as above. Thus, the process of liquidation of the attached assets has started. * Bombay High Court has appointed a 3- 95 member committee headed by Mr. Justice (Retd.) V.C. Daga and 2 experts in finance and law to recover and monetize the assets of the defaulters. * ₹ 558.83 crores have been recovered so far, out of which ₹ 379.83 crore have been received/recovered from the defaulters and ₹ 179 crore were disbursed by NSEL to small traders/investors. 8.2. Enforcement Directorate: * * ED has traced proceeds of crime amounting to ₹ 3973.83 crore to the 25 defaulters; * ED has attached assets worth ₹ 837.01 crore belonging to 12 defaulters; * As per the recent amendment in the PMLA, the assets attached by ED can be used for restitution to the victims. 8.3. The above status indicates that the said enforcement agencies are working as per their mandate……." 91. Admittedly, the properties attached are not proceed of crime as defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are about the fraud and they may also be involved. It is stated as under:- a. NSEL had 8 Directors of which only 2 are common with 63MTL. b. Those 2 common Directors were also "Non-Executive". c. Effective control of NSEL was with the MD & CEO of NSEL - Anjani Sinha. d. With Respect to the contracts launched, circulars etc., only post facto information was given to 63MTL & the minutes of Board meetings of NSEL were placed for noting purposes only in terms of mandate of the listing agreements. e. See: i. Secretarial compliance report Pg.l854/Appeal 1735/III-IV ii. Section 70 PMLA- "Person Incharge" 94. The Hon'ble Supreme Court in its order has mentioned the role of non-executive Director in Pooja Ravinder Devidasani Vs. State of Maharashtra [(2014) 16 SCC 1] as under: 17. There is no dispute that the Appellant, who was wife of the Managing Director, was appointed as a Director of the Company- M/S Elite International Pvt. Ltd. on 1st July, 2004 and had also executed a Letter of Guarantee on 19th January, 2005. The cheques in question were issued during April, 2008 to September, 2008. So far as the dishonor of Cheques is concerned, ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct in 2013 when its trading stopped and its operations were suspended as a result of action by the Department of Consumer Affairs. ₹ 84 Crores deposited in Bombay High Court represents rent, software, other shared services etc. The same is an admitted position by the Respondent No.1. The Hon‟ble Bombay High Court by order dated 12.06.2015 directed the deposit of this amount. Therefore, there would be no issue of doctrine of tracing. 97. The Hon‟ble Delhi High Court in M/s. Himachal EMTA Power Limited Vs. UoI & Ors (W.P.(C) 5537/2018 & CM Nos. 21583/2018 & 33487/2018) has held as under:- 16. A plain reading of Section 5(1) of the PML Act indicates that an order of provisional attachment can be passed only where the concerned officer has reasons to believe on the basis of material in his possession that: (a) any person is in possession of proceeds of crime; and (b) such proceeds are likely to be concealed, transferred, or dealt with any manner which would result in frustrating any proceedings relating to confiscation of such proceeds of crime. The expression "proceeds of crime" is defined under clause (u) of Section 2 (1) of the PML Act as under: "Section 2 (u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession of any proceeds of crime; and ii) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter III of the PMLA b. In the present case there is no material on record to satisfy condition (a). c. No reasons to believe have been or could have been furnished in respect of the invocation of Section 5(1) or the Second proviso thereto, specially keeping in mind the fact that the entire day to day operation of 63MTL is monitored by committee appointed by the NCLT. This Tribunal may call for the file of the Investigation Officer to verify and check there would be no reasons to believe recorded by the Investigating Officer or ED for the invocation of Section 5 at all. 101. Admittedly, all assets & investments, in any event, secured, and all treasury operations of 63 MTL/FTIL are monitored Decision for carrying out the treasury operations which included the switching of the funds from one investment to another were approved by the Committee Appointed by the NCLT comprising - one ex-judge of the Supreme Court and one nominee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has obtained decrees worth ₹ 3500 crores against defaulters and is recovering the same before the Hon‟ble Bombay High Court. The Bombay High Court vide order dated 2nd September, 2014 in Notice of Motion No. 240 of 2018 in Suit no. 173 of 2014 between Modern India ltd. Vs Financial technologies ltd. has appointed a committee, headed by Justice V.C. Daga (Retd. Judge of the Hon‟ble Bombay High Court) to overlook the same. 105. Counsel for '63 MTL' and NSEL alleged that the case of Enforcement Directorate is flawed and it is not that NSEL is a defaulter. The Hon‟ble Bombay High Court where the suits are pending has not given any adverse finding against NSEL or 63 Moons Technologies Ltd. It is submitted by both sets of appellants that the conditions of Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA) for attachment, whether provisional or final to the assets of 63 Moons Technologies Ltd. is not possible. It is argued that the attachment is completely outside the preview of Section 5 of PMLA, 2002 and, therefore, the attachment must be released so that 63 Moons Technologies Ltd., who has 63,000 shareholders with an independent board of directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest. By all intents and purposes, the way both the companies were being managed, owned and controlled, NSEL is the alter ego of FTIL and thus, the two companies have been practically one entity. All stakeholders were also looking at them as one entity. The amalgamation u/s. 396 of the Act only formalizes this practical reality in essential public interest." xxx xxx xxx "7.2.8. The FTIL has questioned the jurisdiction of the Central Government to decide on the question of fraud and claimed that it has to be proved beyond reasonable doubt by adducing necessary particulars; the Central Government is invoking section 396 of the Act in essential public interest for the merger of NSEL, which is an almost wholly-owned subsidiary of FTIL. The merger is not an adjudication on the alleged fraud. The merger is targeted to achieve its stated objectives for long term sustainability in the best interest of the stakeholders." (emphasis in original) It will be noticed that the objection raised in paragraph 7.2.1 is that Section 396 can be used in the case of Government companies alone, whereas the answer given is that this cannot be so, given the business realities of the case and the FMC order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "alter ego‟ argument impacts public interest. For all these reasons, therefore, neither reason (a) nor reason (b) ought to detain us any further. Reason (c) is, therefore, the only reason that really remains, as is contained in the letter of 18.08.2014 by the FMC to the Central Government. We have already seen that this reason, by itself, is the protection of the private interest of a group of investors/traders, as distinct from public interest." "59.5. So far, we have gone by the Central Government order as it stands. The Bombay High Court, in stating reasons (a), (b), and (c) as grounds of public interest, has gone much further than even the answer given to the objections that are contained in the order itself. "Restoring/safeguarding public confidence in forward contracts and exchanges, which are an integral and essential part of the Indian economy and financial system, by consolidating the businesses of NSEL and FTIL," is not contained in the answer given to objections in the order. First and foremost, restoring public confidence is no part of the order. What is mentioned is only the fact that public confidence has been shattered, as is reflected by the FMC order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant. The Retired Judge of the Hon‟ble Supreme Court and nominee of the Union of India have individual veto powers in the NCLT Committee. By order dated June, 2018, NCLT disposed of the C.P. No. 1 of 2015. The said order has been challenged by '63 MTL' as well as UOI and the same is pending adjudication before the NCLAT. Vide order dated 27.06.2018, NCLAT has stayed the order dated 04.06.2018 and continued the aforesaid interim arrangement. 109. Admittedly, as of today, two interim orders passed by the CLB as well as EOW which are continuing and have not been vacated. As far as the judgement referred by Mr. Awasthi in the case of Axis Bank (supra) is concerned, the said judgement does not help the case of the respondent as admittedly, under the scheme of Section 5(1) of the Act, which mandates that the property involved in the money laundering are also to be attached if any person is in possession of proceed of crime. No doubt, if the proceed of crime is parked with the '63 MTL' or in the possession of '63 MTL' , then said judgement will help the case of the respondent. However, in the present case, as per the investigation as well as the judgement referred by the HonR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the former MD & CEO of NSEL and his managing staff were responsible for the crisis as well as the borrowers who have benefitted by the prosecution and the money of the investment has gone to them. In view of the above, at the same time, we do not wish to give the clean chit to Shri Jignesh Shah who was the major shareholder of NSEL as we feel that it is a matter of trial. Since the matter is under investigation, whatever money has been transferred to '63 MTL' , has already been deposited as per the directions of High Court. In case, during the investigation, it is found that more money has been parked or transferred, the same may also be attached at the end of '63 MTL'. Thus, the balance has to be strike at this stage in order to secure the amount. 115. There is also no finding by the adjudicating authority that on the basis of investigation, any other amount has been transferred by NSEL to '63 MTL' or any evidence is available in this regard. Once the two authorities i.e. CLB as well as EOW have already restrained the '63 MTL' , '63 MTL' not to sell or alienate or to create any third party right in assets and interest, the attaching of huge money with the said kno ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
