Applicability of MPID Act on NSEL by Bombay HC

The most anticipated judgment that came on Thursday in the NSEL crisis case, where the Bombay High Court had dismissed the plea by Financial Technologies (India) Limited in questioning the applicability of the Maharashtra Protection of Interest of Depositors in Financial Establishment Act (MPID) to the Rs 5,600-crore NSEL payment crisis. This also means the Act will apply on all exchanges in the country.

Bombay High Court

The NSEL Crisis came to light on 31 July 2013, the Economic Offences Wing (EOW) of the Mumbai Police found 13,000 trading clients had invested money in the spot exchange. According to media reports, the petition argued that as the money was not taken for NSEL’s purposes, it couldn’t be considered a deposit. Acceptance of money as a ‘deposit’ is mandatory for levying charges under the MPID law. FTIL had also said the so-called investors had bought commodities and paid tax on that.

Meanwhile, this was the third blow for FTIL in the last two days after HC restrained FTIL from disbursing dividend and pay hikes to the shareholders and its executives respectively. Whereas on Thursday, the Registrars of Companies (RoC) rejected FTIL proposal to change its name to 63 moon Technologies.

“This is a welcome judgment. We hope the properties attached by the EOW and other government agencies will be sold for paying investors’ money. Today’s court order has revived our hope for getting the money back,” said Ketan Shah, founder, NSEL Investors Action Group (NIAG). EOW had attached properties worth Rs 6,000 crore, the valuation being at the time of attachment.

The Bombay High Court completed the hearing on July 8 on this matter and reserved the order which was pronounced on 1st October, 2015.

Mr. Prakash Chaturvedi, Managing Director and Chief Executive Officer of NSEL, said : “We are awaiting the court order and further legal course of action shall be taken after studying the court order. We have full faith in the judicial system of the country and we believe that the truth will prevail.”

Once MPID is made applicable, the existing owners cannot liquidate attached properties. The district collector issues orders to auction these, using the proceeds to pay depositors/investors.

“Now, the government would liquidate the attached property and pay investors’ money,” said Arun Dalmia, Secretary, NSEL Investors Forum.

Jay Bhatia, a legal expert and former counsel of the government of India on NSEL case, said, “The applicability of MPID Act on one exchange will be applicable on all exchanges in the country.”

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