Supreme Court Commences Hearing Pleas Against Lifting Attachment Of Properties Of 63 Moon Technologies

The Supreme Court on Tuesday commenced hearing the Special Leave Petitions preferred by the State of Maharashtra and NSEL Investors Action Group assailing Bombay High Court's order of freeing attachment of assets of 63 Moons Technologies.The High Court had also observed that National Spot Exchange Limited is not a financial establishment under the Maharashtra Protection of Depositors in Financial Establishments Act, 1999 ("MPID Act, 1999"). The Special Leave Petition was listed before the bench of Justices DY Chandrachud, Surya Kant and Bela M Trivedi.The bench of Justices Ranjit More and Bharati Dangre of Bombay High Court had delivered the impugned judgment on August 22, 2019 in the writ petition filed by 63 Moons Technologies Ltd engaged in the business of developing and selling technology products of facilitating trading on exchanges such as stock exchange and commodity exchange.In the writ petition, 63 Moons had challenged the Constitutional validity of Sections 4 and 5 of the Maharashtra Protection of Interests of Depositors in MPID Act being violative of Article 14, 19 and Article 300A of the Constitution and the action of attachment of properties belonging to NSEL by issuing notifications after invoking provisions of MPID Act.The Top Court bench of Justices RF Nariman, Surya Kant and V Ramasubramanian in 2019 had while issuing notice in the plea had directed for maintenance of status quo which had existed on September 3, 2019.In the hearing today, Advocate Jayant Mehta made submissions on behalf of NSEL Investors Action Group.NSEL Was In Cohorts With Sellers, Investors Were Being Lured By Assured Returns & NSEL Was Raising Money For The Sellers: Advocate Jayant MehtaAdvocate Jayant Mehta commenced his submissions by contending that the High Court in the impugned judgement proceeded to pronounce on the facts of the case when it was not called upon do so. He further added that the issues as to whether NSEL was not a financial establishment and as to whether the deposits by NSEL fell under the definition of "deposits" mentioned u/s 2(c) of the MPID Act was not even a controversy before the High Court. To further substantiate his contention, Mehta apprised the bench with regards to the contracts also called as "paired contracts" launched for buying and selling of commodities on its trading platform with different settlement periods ranging from T+0 days to T+36 days by NSEL. He further submitted that under these contracts, a quantity of particular commodity was to be brought and sold on the exchange of T+2 basis and at the same time, the buying trading member and the selling trading member would resell the commodity on T+25 basis.Against this backdrop, Mehta said, "NSEL comes up with a scheme that there would be 2 types of contract. What I buy today which is settled in T+ 2 i also sell in T + 25. This is how they started paying the contracts. NSEL counter guarantees every transactions. While NSEL is required to ensure that these commodities are to be available fairly, what happens is that there are no commodities. What is being sold is sale contract - underlying commodities. When it comes out as a scam, NSEL comes up with the press conference saying none has to worry. NSEL said that allow us to do repaying in a methodological method. We have enough security." "Question before the HC was whether prima facie case has been made out under MPID Act. What they found is that by pairing in contracts you're now trading in commodity but allowing people to raise short term loans by the seller from the purchaser which the seller would re pay at T + 25," Counsel further submitted.Pointing out to the High Court's observation of noting as to how the contracts were being formed on the exchange, Mehta submitted that the exchange was not just functioning as exchange for commodity trade but there was something more to it. "Unknown to the purchaser of Bi contract there are no commodities backing the contract. Commodities are held in trust by NSEL. NSEL has systems in place where commodities are being backed by the Contract. NSEL was in cohorts with the sellers and investors were being lured by assured returns and NSEL was raising money for the sellers," submitted Counsel.It was also his contention that the constitutionality of the provisions of MPID Act was not res integra before the HC but the issue was whether NSEL's transactions were covered by the provisions of MPID Act or not. He also submitted that the High Court was not called upon to give certificate of good character to NSEL or 63 moons.During the course of hearing, Mehta further drew Court's attention to the Top Court's judgement of setting aside the compulsory amalgamation of National Spot Exchange Ltd (NSEL) with its parent company Financial Technologies India Ltd (later name changed as 63 Moons Tech Ltd) ordered by the Union Ministry in 2016 by invoking section 396 of the Companies Act 1956.Referring to Section 2(c) and Section 2(d) of MPID Act which deals...

Supreme Court Commences Hearing Pleas Against Lifting Attachment Of Properties Of 63 Moon Technologies

Shruti Kakkar

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