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TMI Blog2020 (3) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... ticularly its subsidiary Company 'National Spot Exchange Limited' (29th Respondent) has been conducted in a manner prejudicial to the public interest. As there is a dispute about the dates of their appointment functioning as Directors of the Company as given by the Appellants and as recorded by the Tribunal, we are of the view that their matter should be reconsidered by the Tribunal to find out whether they were engaged after 31st July, 2013 or prior to the same. Appeal disposed off. - Company Appeal (AT) Nos. 185 To 190 Of 2018 - - - Dated:- 12-3-2020 - S.J. Mukhopadhaya, Chairperson And Bansi Lal Bhat, Judicial Member S.N. Mukherjee, Sr. Adv. Abhijeet Sinha, Mohit Advani, Nooruddin Dhillon, Ms. Priyanka Vora, Prateek Gupta and Madhur Mahajan, Advs. for the Appellant. Ms. Pinky Anand, Rajesh Ranjan, Anoop Dawan, Ms. Snidha Mehra, Joel, Chakitan V.S. Papta, E. Nagachandran, Rajneesh Kumar Singh, Arvind Lakhawat and Anuj Tiwari, Advs. for the Respondent. JUDGMENT Sudhansu Jyoti Mukhopadhaya, The Union of India filed Company Petition before the erstwhile Company Law Board under sections 397-398, 401, 408 read with Section 388B of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r stake holders of 1st Respondent Company ('63 Moons Technologies Limited') as well as those of 'National Spot Exchange Limited'. 3. The Union of India filed appeal against the part of the substantive prayers of management control and disqualification of the present Board of Directors. 4. This Appellate Tribunal issued (notice on 27th June, 2018 and stayed operation of the impugned order dated 4th June, 2018 passed by Tribunal. As an interim arrangement, this Appellate Tribunal restored the committee set up by the Tribunal vide order dated 24th May, 2016. The Committee appointed consists of five members-one retired Hon'ble Judge of Supreme Court (Shri Justice G.P Mathur, one Government Nominee (Dr. Anup Pujari, retired IAS), both having individual veto powers and three other members representing 'M/s. Financial Technologies (India) Limited' ('FTIL'). Facts of the case: 5. 'National Spot Exchange Limited'- Respondent No. 29 was incorporated as a company under the Companies Act, 1956 by the 'Multi-commodity Exchange of India Ltd' (hereinafter referred as MCX ). MCX is an exchange founded and promoted by FTIL (now rename ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erations of the 'Forward Contracts (Regulation) Act, 1952' subject to the following conditions, namely:- (i) no short sale by members of the Exchange shall be allowed; (ii) all outstanding positions of trade at the end of the day shall result in delivery. (iii) the 'National Spot Exchange Ltd.', shall organize spot trading subject to regulation by the authorities regulating spot trade in the areas where such trading takes place. (iv) all information or returns relating to the trade and when asked for shall be provided to the Central Government of its designated agency. (v) the Central Government reserve the right to impose additional conditions from time to time as it may deem necessary; and (vi) in case of exigencies the exemption will be withdrawn without assigning any reason to public interest. 8. In gross violation of undertaking given by 'National Spot Exchange Limited' (29th Respondent) and Government exemption condition, in 2009, 'National Spot Exchange Limited' (29th Respondent) offered contracts with long term settlement periods including T+18, T+25 and T+36, where, T represents the trade day and the numbers 18, 25 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Warehouse Receipts are traded. 13. After the rejection of the Application of warehousing licence made by 'National Spot Exchange Limited' (29th Respondent), it represented to the WDR Authority that the 'National Bulk Holding Corporation', a group company of 'Financial Technologies (India) Limited' would undertake the warehousing activities for 'National Spot Exchange Limited' (29th Respondent). As a matter of fact, NBHC never undertook the warehousing for the paired contracts of 'National Spot Exchange Limited' (29th Respondent). After the collapse of 'National Spot Exchange Limited' (29th Respondent), 'Financial Technologies (India) Limited' divested its stake in NBHC. The effort was very clearly to deceive the public at large that there was some warehousing set up and everything was under control. 14. On 10th July, 2013, Mr. Jignesh Prakash Shah, the common Director of 'Financial Technologies (India) Limited' (1st Respondent) and 'National Spot Exchange Limited' (29th Respondent) made a detailed and comprehensive presentation to DCA and FMC, in terms, holding out the following: (i) 'National Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent guarantee fund, which, according to 'National Spot Exchange Limited' (29th Respondent), was represented as having ₹ 738.55 crores as on 1st August 2013, was found to have hardly ₹ 62 crores as on 4th August 2013. 18. On 27th August, 2013, the FMC directed a forensic audit of 'National Spot Exchange Limited' (29th Respondent), and at the suggestion of 'National Spot Exchange Limited' (29th Respondent), 'Grant Thornton LLP' was appointed as the Forensic Auditor. Government of India, on 30th September 2013, ordered inspection of the books of accounts of 'National Spot Exchange Limited' (29th Respondent) and 'Financial Technologies (India) Limited' under section 209A of the Companies Act. On the same day, the Economic Offences Wing [ EOW ] registered cases against Directors and key management personnel of the 'National Spot Exchange Limited' (29th Respondent) and 'Financial Technologies (India) Limited', trading members of 'National Spot Exchange Limited' (29th Respondent), and brokers of 'National Spot Exchange Limited' (29th Respondent) under various provisions of the Indian Penal Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board is an independent Board. In fact, it is worse than actual abetment when the disaster took place. In exhibition of the said loyalty and as if to provide for a Subsistence Allowance to Shri Jignesh Prakash Shah (Respondent No. 2), the present Board has agreed to provide a sum of ₹ 25 Lakhs per mensem to him, for ostensibly 'rendering legal advice to the Company ('Financial Technologies (India) Limited'). This is besides the company funding to the litigation arising against the Members of the Board, present and past of 'Financial Technologies (India) Limited', for their misadventures and misdemeanours for which they are personally liable. Liability of Directors of FTIL: 23. According to Union of India, the liability of Directors of 'Financial Technologies (India) Limited' falls under three categories based on the time at which they occupied the posts and these are enumerated below:- a. Directors on the board of 'Financial Technologies (India) Limited' prior to 31-7-2013 (i.e. the date on which NSEL suspended trading and closed its spot exchange operations) b. Directors on the board of 'Financial Technologies (India) Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Limited' (29th Respondent). g. Respondent No. 1 outward entails were routed through an outbox called FT outbox through which all emails of all Respondent No. 1-group companies were routed. h. The business model of Respondent No. 29 was wholly dependent on the software provided by the Respondent No. 1. The Exchange Technology and the Member Technology, both provided by Respondent No. 1 to Respondent No. 29 and its trading clients, might have been suitable for MCX, which had permission to deal with long duration contracts and was under the regulatory control of the Forward Markets Commission ( FMC ). However, for the business of Respondent No. 29, which was to operate in the strict confines of the exemption notification, any software that provides/permits a transaction of T+2 or longer was per se unsuitable. The said two technologies, which were in fact employed by Respondent No. 29, were designed for, and thus permitted, longer duration trades, which were impermissible under the statutory exemption notification dated 5-6-2007. i. 'National Spot Exchange Limited' (29th Respondent), with full knowledge of the Board of Directors of Respondent No. 1 offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o were hitherto present on the Board. The previous board appointed these directors to present a sham cleansing after the SCN issued by the FMC on 4-10-2013 and these appointments were made in anticipation of the order dated 17-12-2013. (f) The Directors appointed after 31-7-2013 continued to defend reckless printing of warehouse receipts which is one of the proof of the mammoth fraud at 'National Spot Exchange Limited' (29th Respondent) as well as the illegal financing business whereby loans were granted to persons who could not otherwise have availed credit from banks/Financial Institutions. 26. Directors of 'Financial Technologies (India) Limited' who were key managerial personnel and those who are liable in any event: (a) That the erstwhile Companies Act, 1956 subscribed to the concept of 'Officer who is in default' (Section 5). It is submitted that the persons who were defined by presumption as officers in default with regard to any punishment or penalty were to mean all the following i.e. a) the managing Director or Managing Directors b) the Whole-time Director or Whole-time Directors c) the Manager d) the Secretary (e) any person in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. It was submitted that the Respondent Directors through 'Financial Technologies (India) Limited' have subverted the proper functioning of 'National Spot Exchange Limited' (29th Respondent) which has resulted in the shutting down of the Spot Exchange and it was necessary in public interest to safeguard the outstanding positions of trade and the inventory valued at ₹ 6000 crores. Stand of the Appellant- Mr. Jignesh Prakash Shah (2nd Respondent) 29. According to Mr. Jignesh Prakash Shah, was a non-executive vice-chairman of NSEL and was not involved in the day to day management of NSEL. As such he only got information as to the working of NSEL in the meetings of the Board of Directors of NSEL. No information pertaining to the alleged wrongdoings was provided to Mr. Jignesh Prakash Shah either directly or in the Board Meetings of NSEL. The minutes of NSEL's Board which were also placed before 63 moons' Board for post facto noting purpose only did not reveal any wrongdoings. As such there is nothing to show that Mr. Jignesh Prakash Shah was aware about the alleged wrongdoings at NSEL. Hence, he cannot be said to be responsible for the same. Also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le considering an application under these sections is not bound by the public perceptions of the persons/companies against whom such applications have been filed. As such the order passed by the FMC cannot be the basis of an order under section 388B. In any case, the FMC's order declaring Mr. Jignesh Prakash Shah has been challenged before the Hon'ble Bombay High Court which petition (WP No. 363 of 2014) has been admitted and is pending. 32. It was submitted that before granting relief under section 242(1), the UOI is required to satisfy the dual condition of Section 242(1)(a) and (b) The Company Petition states that the public purpose sought to be served is the expedition of the recovery process and settlement of the dues of the creditors of 'National Spot Exchange Limited' (29th Respondent), prevent '63 Moons Technologies Ltd.' from opposing the amalgamation and also, by way of abundant caution to prevent any further attempts being made by the Respondent Nos.2 to 28 to thwart the recovery process of NSEL, and fraudulent sale of assets of the Respondent No. 1 Company. The Supreme Court in its decision dated 30th April 2019 passed in Civil Appeal No. 4476 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Devendra Kumar Agarwal 27-5-2013 10th Respondent Mr. Berjis Minoo Desai 21-11-2014 11th Respondent Mr. Anil Chandanmal Singhvi 7-11-2014 13th Respondent Ms. Nisha Dutt 20-11-2014 14th Respondent Mr. Sunil Hasmukhlal Shah 20-11-2014 15th Respondent Mr. Prashant Desai 7-11-2014 16th Respondent Mr. Jigish Shantilal Sonagara 21-11-2014 37. Learned counsel for the Appellants submitted that these Respondents (Appellants herein) should have been granted similar treatment as given to 28th Respondent- Mr. Chandran Thumparambil Nair, who was appointed as Company Secretary w.e.f. 10th October, 2013. 38. At this stage, it is required to be noticed that 28th Respondent-Mr. Chandran Thumparambil Nair was appointed as Company Secretary w.e.f. 10th October, 2013 onwards. In this background, the Tribunal held that he cannot be charged with the kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the R1 company in its subsidiaries. With respect to relief No. 17.1(a), (c) and (d) 5. Respondent Nos. 5 to 8, 17 to 28 have joined FTIL Board after the trading in NSEL was suspended on 31-7-2013 and no specific allegations against them has been made by the petitioner. In view of this, no relief as sought by the petitioner under relief No. 17(a) to (d) is granted against these respondents. 6. Regarding R12 it is seen that he was a company secretary from 30-10-2008 to 26-9-2013. He was only an officer in the employment of R1 Company and cannot be attributed to have any major say in the decision making of the R1 Company. In view of this no relief as sought for by the petitioner is granted against R12. The post of Company Secretary was also not considered as a KMP during the period in which the acts of default have occurred in the subsidiary company R29(NSEL). CP 1/2015 hereby stands disposed of together with all connected CAs, IAs with the above orders/directions. 42. Learned counsel appearing on behalf of '63 Moons Technologies Limited' while raised similar issue submitted that unless the conditions prescribed in Section 242(1)(b) of the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No. 1 and 29 made a detail and comprehensive presentation to DCA and FMC. All the acts which were against prejudicial to the public interest has been highlighted by the Central Government/Union of India, as noticed in the preceding paragraphs and not disputed by the Respondents. 46. In these background, the Respondent No. 1- '63 Moons Technologies Limited' and Respondent No. 2-Mr. Jignesh Prakash Shah or other Respondents who were functioning against one or other post in '63 Moons Technologies Limited' cannot say that they had no knowledge about 'National Spot Exchange Limited' who has 100% shareholding in NSEL. The report of the forensic audit conducted on 21st September, 2013 shows the damning facts and figures as to the real operations of 'National Spot Exchange Limited' (29th Respondent). It shows that they are not a commodity exchange, but an illegal financing scheme, and that no commodities were really in stock. 47. In the circumstances, it cannot be stated that the Tribunal has not formed opinion that the action of the Company and particularly its subsidiary Company 'National Spot Exchange Limited' (29th Respondent) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 2013. Their dates of appointment are 21st November, 2014, 7th November, 2014, 20th November, 2014 and 20th November, 2014 respectively. However, in the impugned judgment dated 4th June, 2018, it is shown that they were functioning as Directors of the Company, as under: - Respondent Position From To R2 Ex- MD and also chairman Emeritus and Mentor of the Respondent No. 1 Company 31-1-2012 20-11-2014 R3 Whole Time Director of R1 Company 31-1-2012 20-11-2014 R4 Whole Time Director of R1 Company 27-9-2012 20-11-2014 R9 Director- R1 Company 01-12-1990 29-9-2010 R10 Director- R1 Company 15-9-1994 21-2-2014 R11 Director- R1 Company 31-1-2001 20-7-2013 R13 Director- R1 Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R9 Mr. Devendra Kumar Agrawal 27-5-2017 R10 Mr. Berjis Minoo Desai 7-11-2014 R11 Mr. Anil Chandanmal Singhvi 7-11-2014 R13 Ms. Nisha Dutt 20-11-2014 R14 Mr. Sunil Hasmukhlal Shah 20-11-2014 R15 Mr. Prashant Desai 7-11-2014 R16 Mr. Jigish Shantilal Sonagara 21-11-2014 54. In that view of the matter, while we uphold the impugned order dated 4th June, 2018, with regard to Respondent No. 2- Mr. Jignesh Prakash Shah, Respondent No. 3- Mr. Dewang Sunderraj Neralla, Respondent No. 4- Mr. Manjay Prakash Shah and appointment of Government nominee not more than three Directors to the board of '63 Moons Technologies Limited' to take care of the interest of all stakeholders and also to protect the interest of the investment of the '63 Moons Technologies Limited' in its subsidiaries, however, the part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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