NSEL Scam: Bombay High Court Quashes Special Court's 'Mechanical' Summons To Amit Rathi
The Bombay High Court on Wednesday set aside summons issued in 2019 to Amit Rathi and Anand Rathi Commodities Ltd. in a criminal case stemming from the 2013 collapse of the National Spot Exchange Ltd. (NSEL).
A single bench of Justice RN Laddha ruled that the Special MPID Court's order in the Economic Offences Wing (EOW) case was mechanical and failed to provide any sufficient reasons for it to proceed against Rathi.
The court found that the order was “wholly unreasoned and devoid of any indication of judicial application of mind” and that it “does not disclose the opinion formed by the learned Judge, nor does it set out the context or the basis on which the alleged offence was considered to be prima facie made out.”
It reiterated that issuing process “is not an empty formality” and “cannot be passed as a matter of routine or mechanical exercise.”
The criminal proceedings are linked to the 2013 shutdown of NSEL, an electronic marketplace where buyers and sellers traded one-day forward contracts in commodities. In July 2013, the government ordered NSEL to stop offering these contracts. When trading was suspended on July 31, 2013, 24 members failed to return investor funds, triggering a payment default of more than Rs 5,600 crore and affecting thousands of traders.
NSEL had recently secured approval from NCLT, Mumbai for a Rs 1,950 crore one-time settlement for 5,682 affected traders on November 28, after the tribunal held that the proposal met statutory requirements and did not violate public policy.
In the criminal case before the MPID Court, investigators alleged that Anand Rathi Commodities induced clients to invest in NSEL's paired contracts and altered client codes. Rathi was alleged to be responsible for the firm's conduct as its director during the period in question.
Counsel appearing for Rathi and the brokerage, argued that the chargesheet did not show any role played by Rathi and the brokerage in misleading investors or participating in a conspiracy.
He submitted that NSEL alone created and operated the trading system that later collapsed and that no investor had alleged inducement by the petitioners. The State maintained that a prima facie case existed and that the firm had earned Rs 12.5 crore in brokerage during the relevant period.
The court noted that its inherent powers under Section 482 of the Criminal Procedure Code exist “to prevent abuse of the process"
After examining the MPID court's order, the court said the summons was invalid because it lacked the basic reasoning required under law.
Subsequently, it held, “The impugned order issuing process against the Petitioners cannot be sustained in law.”
It directed the Special Court to reconsider the material and issue a fresh order in accordance with law.
Case Title: Amit Anand Rathi and Anr vs State of Maharashtra and Anr
Case Number: Criminal Writ Petition No.555 of 2020
For Petitioners: Senior Advocate Amit Desai along with Advocates Sajal Yadav, Anukul Seth, Gopalkrishna Shenoy, Arpit Mutha and Aayushya Geruja, instructed by Harsh Ghangurde
For Respondents: Special Public Prosecutor Avinash Avhad along with Addutional Public Prosecutors Mahesh Rawool and SV Walve