# THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES LTD

- **Citation:** [2022] 10 S.C.R. 465
- **Court:** Supreme Court of India
- **Decided:** 2022-04-22
- **Case number:** Civil Appeal Nos. 2748-49 of 2022
- **Bench:** Dr. Dhananjaya Y. Chandrachud, Surya Kant, Bela M. Trivedi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-maharashtra-v-63-moons-technologies-ltd-35588
- **Pages:** 72

## Headnote

Maharashtra Protection of Interest of Depositors (in
Financial Establishments) Act, 1999: ss. 2(c), 2(d), 4 and 5 - NSEL,
Financial Establishment or not - Respondent holds 99.99% of the
shareholding of NSEL company - NSEL started operating as an
exchange for spot trading in commodities - It launched contracts
for buying and selling of commodities on its trading platform with
different settlement periods - Subsequently, there was a fraud
involving settlement crises of Rs 5500 crores owed to over 13,000
sellers/investors on the trading platform of NSEL - NSEL defaulted
in payment of the outstanding dues - Since it did not have sufficient
money or property for attachment u/s. 4, the State attached properties
of the respondent which owns 99.99% of the shareholding of NSEL
- Petition by the respondents challenging the invocation of MPID
Act on the ground that the exchange is not a 'financial establishment'
u/s 2(c) - High Court quashed the Notification holding that the
NSEL only performed the role of a facilitator, in a manner similar to
the Bombay Stock Exchange; that NSEL did not receive money with
the obligation to return it on maturity; that the fact that VAT is
collected by the selling members from the buying members and TDS
is not deducted by NSEL indicates that NSEL is a mere pass-through
platform; that NSEL did not receive any deposits within the meaning
of s.2 (c) since NSEL did not receive the commodities or money to
be retained; that NSEL only received transaction and warehouse
charges which cannot be considered as a deposit, thus, the NSEL is
not a 'financial establishment' - On appeal, held: NSEL is a financial
establishment - Impugned notifications issued u/s. 4 of the MPID
Act attaching the properties of the respondent are valid - NSEL
receives 'money' in the form of Settlement Guarantee Fund that is
returned in money and service - SGF is not covered by the exceptions
of the s..2(c) thus, it would fall within the expression 'deposit' u/s
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[2022] 10 S.C.R.
2(c) - NSEL offers a multitude of 3services' in return for receiving
the commodity - Receipt of the commodities and holding the
commodities in the accredited warehouses is a 'deposit' u/s 2(c) -
Thus, the High Court erred in holding that only if the return includes
interest, bonus or any other added benefit, it would be a deposit for
the purpose of the MPID Act - High Court read the definition of
'deposit' narrowly without any reference to the salutary purpose of
the MPID Act - Thus, the order passed by the High Court is set
aside.
s. 2(c) and 2(d) - Definitions of Deposit and Financial
Establishment - Interpretation of.
s. 2(c) - Deposit under - Settlement Guarantee Fund -
Explained.
s. 2(c) - Deposit under - Receipt of commodities - Held: Receipt
of the commodities and holding the commodities (when the members
are put in constructive possession) in the accredited warehouses is
a 'deposit' u/s. 2(c) of the Act.
Allowing the appeals, the Court
HELD: 1.1 The notifications attaching the properties of the
respondent were issued under Section 4 of the Maharashtra
Protection of Interest of Depositors (in Financial Establishments)
Act, 1999. Section 4 covers only those situations where a financial
establishment is a defaulting entity. [Para 30][505-G]
1.2 Financial Establishment is defined as any person
accepting a deposit'. The definition excludes from its purview
(a) a corporation or cooperative society controlled or owned either
by the State or the Central Government; and (b) a Banking
Company as defined under Section 5(c) of the Banking Regulation
Act 1949. Since NSEL does not fall within any of the exceptions,
it would be a 'financial establishment' for the purposes of the Act
if it is a person accepting deposit. Section 3(42) of the General
Clauses Act 1897 provides an inclusive definition of 'person' to
include both incorporated and unincorporated companies. The
expression deposit is defined in Section 2(c) of the MPID Act

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 [2022] 10 S.C.R. 465
465
THE STATE OF MAHARASHTRA
v.
63 MOONS TECHNOLOGIES LTD.
(Civil Appeal Nos. 2748-49 of 2022)
APRIL 22, 2022
[DR. DHANANJAYA Y. CHANDRACHUD, SURYA KANT
AND BELA M. TRIVEDI, JJ.]
Maharashtra Protection of Interest of Depositors (in
Financial Establishments) Act, 1999: ss. 2(c), 2(d), 4 and 5 - NSEL,
Financial Establishment or not - Respondent holds 99.99% of the
shareholding of NSEL company - NSEL started operating as an
exchange for spot trading in commodities - It launched contracts
for buying and selling of commodities on its trading platform with
different settlement periods - Subsequently, there was a fraud
involving settlement crises of Rs 5500 crores owed to over 13,000
sellers/investors on the trading platform of NSEL - NSEL defaulted
in payment of the outstanding dues - Since it did not have sufficient
money or property for attachment u/s. 4, the State attached properties
of the respondent which owns 99.99% of the shareholding of NSEL
- Petition by the respondents challenging the invocation of MPID
Act on the ground that the exchange is not a 'financial establishment'
u/s 2(c) - High Court quashed the Notification holding that the
NSEL only performed the role of a facilitator, in a manner similar to
the Bombay Stock Exchange; that NSEL did not receive money with
the obligation to return it on maturity; that the fact that VAT is
collected by the selling members from the buying members and TDS
is not deducted by NSEL indicates that NSEL is a mere pass-through
platform; that NSEL did not receive any deposits within the meaning
of s.2 (c) since NSEL did not receive the commodities or money to
be retained; that NSEL only received transaction and warehouse
charges which cannot be considered as a deposit, thus, the NSEL is
not a 'financial establishment' - On appeal, held: NSEL is a financial
establishment - Impugned notifications issued u/s. 4 of the MPID
Act attaching the properties of the respondent are valid - NSEL
receives 'money' in the form of Settlement Guarantee Fund that is
returned in money and service - SGF is not covered by the exceptions
of the s..2(c) thus, it would fall within the expression 'deposit' u/s
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SUPREME COURT REPORTS
[2022] 10 S.C.R.
2(c) - NSEL offers a multitude of 3services' in return for receiving
the commodity - Receipt of the commodities and holding the
commodities in the accredited warehouses is a 'deposit' u/s 2(c) -
Thus, the High Court erred in holding that only if the return includes
interest, bonus or any other added benefit, it would be a deposit for
the purpose of the MPID Act - High Court read the definition of
'deposit' narrowly without any reference to the salutary purpose of
the MPID Act - Thus, the order passed by the High Court is set
aside.
s. 2(c) and 2(d) - Definitions of Deposit and Financial
Establishment - Interpretation of.
s. 2(c) - Deposit under - Settlement Guarantee Fund -
Explained.
s. 2(c) - Deposit under - Receipt of commodities - Held: Receipt
of the commodities and holding the commodities (when the members
are put in constructive possession) in the accredited warehouses is
a 'deposit' u/s. 2(c) of the Act.
Allowing the appeals, the Court
HELD: 1.1 The notifications attaching the properties of the
respondent were issued under Section 4 of the Maharashtra
Protection of Interest of Depositors (in Financial Establishments)
Act, 1999. Section 4 covers only those situations where a financial
establishment is a defaulting entity. [Para 30][505-G]
1.2 Financial Establishment is defined as any person
accepting a deposit'. The definition excludes from its purview
(a) a corporation or cooperative society controlled or owned either
by the State or the Central Government; and (b) a Banking
Company as defined under Section 5(c) of the Banking Regulation
Act 1949. Since NSEL does not fall within any of the exceptions,
it would be a 'financial establishment' for the purposes of the Act
if it is a person accepting deposit. Section 3(42) of the General
Clauses Act 1897 provides an inclusive definition of 'person' to
include both incorporated and unincorporated companies. The
expression deposit is defined in Section 2(c) of the MPID Act.
The statutory definition of the expression deposit comprises of
the following ingredients: (i) Any receipt of money or the
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acceptance of a valuable commodity by a financial establishment;
(ii) Such acceptance ought to be subject to the money or
commodity being required to be returned after a specified period
or otherwise; and (iii) The return of the money or commodity
may be in cash, kind or in the form of a specified service, with or
without any benefit in the form of interest, bonus, profit or in any
other form. These elements of the definition are followed by
specific exclusions contemplated in clauses (i) to (vii). Clause (i)
of the exceptions covers an amount which is raised by way of
share capital or by debenture, bond or other instrument governed
by the guidelines and regulations of SEBI. Clause (v) states that
money received in the ordinary course of business by way of
security deposit, dealership deposit, earnest money or advance
against an order of goods or services shall be excluded. The
exclusions in clause (i) to (vii) indicate that transactions which
would otherwise fall within the broad sweep of the definition are
excluded. [Para 31][506-F-G; 507-A; 508-B-F]
1.3 The definition of 'deposit' uses the phrase 'includes'
and 'shall be deemed to have always included'. The import of
this is to create a legal fiction by which actions which though not
included within the natural meaning of the expression are intended
to be included. The combined use of 'includes' and 'deemed to
have always included' while defining the term 'deposit' makes
the term inclusive and not restrictive. [Para 32][509-A-B]
1.4 The expression 'deposit' is conspicuously broad in its
width and ambit for it includes, not only any receipt of money but
also the acceptance of any valuable commodity by a financial
establishment under any scheme or arrangement. The expression
'any' is used in the substantive part of the definition of the
expression 'deposit' on five occasions namely; (i) Any receipt of
money; (ii) Any valuable commodities; (iii) By any financial
establishment; (iv) With or without any benefit; and (v) In any
other form. [Para 33][509-B-E]
1.5 The repeated use of the expression 'any' by the statute
while defining both the above expressions is a clear reflection of
the legislative intent to cast the net of the regulatory provisions
of the law in a broad and comprehensive manner. Unlike many
other state enactments which govern the field, clause (c) of Section
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
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2 of the MPID Act comprehends within the meaning of a deposit
not only the receipt of money but of any valuable commodity as
well. [Para 35][509-F-G]
1.6 According to the second ingredient of Section 2(c), the
money or commodity must be liable to be returned. However,
such return need not necessarily be in the form of cash or kind
but also in the form of a service, with or without any benefit such
as interest. It needs to be recalled that clause (v) of Section 2(c)
states that a deposit of money or commodity made as a security
deposit, dealership deposit or an advance amount is excluded
from the definition of the phrase 'deposit'. To illustrate, if a
member of a financial establishment deposits Rs. 25,000, and
that money is returned on cessation of membership by making
deductions, the issue of whether the deposit is a security deposit
or of the nature covered under Section 2(c) should be determined
with reference to the structure of operation and functioning of
the financial establishment. It is to be noted that the definition
also states that the return may be with or without interest or any
benefit. Therefore, the submissions made by both the sides on
whether NSEL had through its representations assured a 16%
return on trading in the platform is immaterial for the purpose of
determining if NSEL accepted deposits. [Para 36][510-B-E]
1.7 The bye-laws elucidate that NSEL receives both money
and commodities from trading members. In order to decide if
these receipts by NSEL could be regarded as 'deposits', the test
of 'return' will have to be satisfied. The test is that the return be
in cash, kind or service. It is not necessary that the return should
be with the benefit of interest, bonus or profit. Therefore, if the
financial establishment is obligated to return the deposit without
any increments, it shall still fall within the purview of Section 2(c)
of the MPID Act, provided that the deposit does not fall within
any of the exceptions. The exception of relevance is clause (v)
which states that amounts received in the ordinary course of
business by way of (a) security deposit; (b) dealership deposit;
(c) earnest money; and (d) advance against order for goods or
services shall be excluded from the purview of the term 'deposit'.
[Para 37][510-E-F; 511-A-B]
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1.8 The trading members pay NSEL a margin deposit and
NSEL maintains a Settlement Guarantee Fund-SGF. Regulation
4.12 states that only transactions of those members who have
paid the margin deposit and security deposit shall be considered
as valid. Therefore, the payment of margin deposit and security
deposit is 'mandatory' for a person to trade on NSEL's platform.
Regulation 4.12 refers to the SGF as a 'security deposit'. Similarly,
bye-law 12.2.1 stipulates that each member shall contribute a
minimum security 'deposit'. However, merely because the SGF
is referred to as a security 'deposit', the exception would not
automatically be applicable. The meaning of the phrase 'security
deposit' takes colour from the surrounding phrases. Clause (v)
to sub-Section 2(c) excludes security deposit, dealership deposit,
earnest money, and an advance against an order for goods and
services from the ambit of the phrase 'deposit'. The concepts
used in sub-Section 2(c) (v) fall in two categories: (i) token
amounts paid to indicate the earnest to purchase (earnest money
and advance money), and (ii) payments required to meet exigent
situations of default by a party (dealership deposit and security
deposit). [Para 38][511-C-F]
1.9 The features of the SGF indicate that the fund is used
to cover those expenses, which are beyond the utilization which
is made out of a regular security fund. Unlike a security deposit
between a landlord and a tenant where the fund is used to meet
the 'essential obligations' of the landlord such as repair work
and deductions are made when the tenant has outstanding
payments, NSEL uses the deposit to cover the payment
obligations of the trading member (buyer) to another trading
member (seller) since NSEL is a counter party to the transactions.
However, NSEL uses the fund to cover functions beyond its role
as a counter-party. For example, the fund is used to cover loses
faced by the NSEL in the settlement operations, investments are
made in securities, and the fund is allotted in various segments
of trading, where the funds are also utilised to cover loses, if any,
in the segment. Therefore, these three features of the SGF
indicate that though the SGF is termed as a 'security deposit' in
nomenclature, its features do not represent a security deposit.
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Since NSEL receives 'money' in the form of SGF that is returned
in money and services, and is not covered by the exceptions, it
would fall within the expression 'deposit' as defined in u/s 2(c).
[Para 41][512-G-H; 513-A-C]
1.10 A person who wishes to trade in the platform of NSEL
is required to place the commodities in the accredited warehouse
of NSEL. NSEL would then provide the trader with a warehouse
receipt. When the buyer's offer and the seller's offer is matched,
NSEL would debit the amount from the buyer member's pay in
obligations and it would be credited to NSEL's exchange
settlement account. The Operations Department would confirm
with the Delivery Department if the requisite quantity of a
particular commodity of the seller is available. After such
confirmation, the Operations Department would release the
purchase price to the selling broker's designated bank account.
Simultaneously, a Delivery Allocation Report would be issued to
the buyer's broker or the buyer. Once the VAT invoice is paid,
NSEL would issue a Delivery Note authorizing the Buyer to take
delivery from the designated warehouse or if the buyer chooses,
he can take constructive possession of the commodity. There is
nothing in the definition of the term 'deposit' to mean that the
acceptance of the commodity should be accompanied by a transfer
of title to the commodity. Even if the financial establishment is
only in 'custody' of the commodity, it would still fall within the
purview of the phrase 'acceptance of commodity'. On the
acceptance of custody of the commodity, NSEL has to provide
various services such as an obligation to keep the commodity
safe and without any damages. Additionally, the Operations
Department and the Delivery Department will have to coordinate
while matching the contracts. Similarly, after the delivery note is
sent to the buyer, the commodity is either delivered to the buyer
or the buyer is put in constructive possession of the commodity.
The phrase 'warehouse receipt' is defined in Bye-law 2.96 as a
document evidencing that the commodity is being held by NSEL
in the approved warehouse. Clause (b) to Bye law 4.20 states
that if the outstanding transactions have not been settled by giving
or receiving deliveries, then it (the commodity) shall be auctioned
by buying-in or selling-out as per the Business Rules of the
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Exchange. Bye-law 10.11 states that the commodities shall be
delivered to and delivery taken from only the designated
warehouses. Therefore, NSEL offers a multitude of 'services' in
return for receiving the commodity. The receipt of the
commodities and holding the commodities (when the members
are put in constructive possession) in the accredited warehouses
is a 'deposit' under Section 2(c) of the Act. [Para 42][513-D-H;
514-A-C]
1.11 The expression valuable commodity is not defined by
the statute. There is no valid basis to accept the submission of
the respondent that the expression should only comprehend
within it precious metals such as gold and silver. If the legislature
intended to so restrict the definition of the expression valuable
commodity, it could have used an explanation importing an
artificial meaning to the expression. However, the legislature has
desisted from doing so. A valuable commodity is a commodity
which has significant value. This does not refer only to the intrinsic
value of the commodity. Whether or not a commodity is valuable
has to be determined bearing in mind the salutary object and
purpose of the Act which is to protect the interest of depositors.
It is in this context that it becomes necessary to adopt a purposive
construction which would give effect to the meaning and content
of the law. Any attempt to read the definition in a restrictive sense
would be contrary to legislative intent. The intent of the legislature
is to define the expression deposit' as well as the expression
financial establishment' in a comprehensive and all-encompassing
manner. Therefore, the phrase valuable commodity' cannot be
restricted to only mean precious metals. Agricultural commodities
which NSEL trades in will fall within the purview of the term.
[Para 43][514-D-G]
1.12 The paired contracts were designed as a unique trading
opportunity by NSEL under which a trader would, for instance,
purchase a T+2 contract (with a pay-in obligation on T+2) and
would simultaneously sell a T+25 contract (with a pay-out of funds
on T+25). The price differential between the two settlement dates
was represented to offer an annualized return of about 16%. NSEL
categorically represented that all trades were backed by collaterals
in the form of stocks and its management activities included
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selection, accreditation, quality testing, fumigation and insurance.
Therefore, NSEL represented that on receiving money and
commodities, the members would receive assured returns' and
a service'. Though NSEL has been receiving deposits', it has
failed to provide services as promised against the deposits and
has failed return the deposits on demand. Therefore, the State of
Maharashtra was justified in issuing the attachment notifications
under Section 4 of the MPID Act. [Para 45][517-E-H]
1.13 The High Court has formed an erroneous opinion that
firstly, only if the return includes interest, bonus or any other
added benefit, it would be a deposit for the purpose of the MPID
Act. However, Section 2(c) states that the return may be with or
without any benefit in the form of interest, bonus, profit or in any
other form. The definition does not stipulate that there must be
an added benefit, rather that the added benefit is irrelevant for
the purpose of the definition; secondly, that for the purpose of u/
s 2(c), the receipt of the commodity or money must be retained
by itself. The definition does not provide any such embargo.
Rather, the definition is broadly worded to include even the
possession of the commodities for a limited purpose. The High
Court has read the definition of 'deposit' narrowly without any
reference to the salutary purpose of the MPID Act.The impugned
judgment of the Bombay High Court is set aside. The impugned
notifications issued under Section 4 of the MPID Act attaching
the properties of the respondent are valid. [Para 61, 66][535-CE; 536-F]
63 Moons Technologies v. Union of India (2019) 18
SCC 401; New Horizon Sugar Mills Ltd. v. Government
of Pondicherry (2012) 10 SCC 575 : [2012]
8 SCR 874; KK Bhaskaran v. State (2011) 3 SCC 793
: [2011] 3 SCR 527; State v. KS Palanichamy (2017)
16 SCC 384 : [2017] 4 SCR 34; PGF v. Union of India
(2015) 13 SCC 50 : [2013] 6 SCR 32; Mohinder Singh
Gill v. CEC (1978) 1 SCC 405 : [1978] 2 SCR 272;
Indra Sarma v. VKV Sarma (2013) 15 SCC 755 : [2013]
14 SCR 1019; Vijay C. Puljal v. State of Maharashtra
(2005) 4 CTC 705 (Bom); New Horizons Sugar Mills
Limited v. Government of Pondicherry (2012) 10 SCC
575 : [2012] 8 SCR 874; State of Maharashtra v. Vijay
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C. Puljal (2012) 10 SCC 599; Sonal Hemant Joshi v.
State of Maharashtra (2012) 10 SCC 60; Soma Suresh
Kumar v. Government of Andhra Pradesh (2013) 10
SCC 677: [2013] 10 SCR 328 - referred to.
Bryan A Garner, Black's Law Dictionary (11 ed.
Thomson Reuters) - referred to.
Case Law Reference
(2019) 18 SCC 401
referred to
Para 11 (xii)
[2012] 8 SCR 874
referred to
Para 13 (iii)
[2011] 3 SCR 527
referred to
Para 13 (iii)
[2017] 4 SCR 34
referred to
Para 13 (iii)
[2013] 6 SCR 32
referred to
Para 13 (iii)
[1978] 2 SCR 272
referred to
Para (14 ix b)
[2013] 14 SCR 1019
referred to
Para 32
[2012] 8 SCR 874
referred to
Para 55
(2012) 10 SCC 599
referred to
Para 56
(2012) 10 SCC 601
referred to
Para 56
[2013] 10 SCR 328
referred to
Para 56
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.274849 of 2022.
From the Judgment and Order dated 22.08.2019 of the High Court
of Judicature at Bombay in Writ Petition No.508 of 2017 and Writ Petition
No.1181 of 2018.
With
Civil Appeal Nos.2750-51 of 2022
Vikramjit Banerjee, ASG, Jayant Mehta, Sr. Adv., Rahul Chitnis,
Sachin Patil, Aaditya A. Pande, Geo Joseph, Ms. Shwetal Shepal,
Siddhartha Sinha, Tathagat Sharma, Ms. Jahnvi Prakash, Prashant Rawat,
Aditya Mishra, Abhishek Mahajan, Ms. Sanjana Saddy, Bhushan Shah,
Sanyat Lodha, Advs. for the Appellant.
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
LTD.
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Dr. A. M. Singhvi, Sr. Adv., Mahesh Agarwal, Ankur Saigal, Arvind
Lakhawat, Ms. Priyanka Vora, Ms. Misha Rohatgi, Amit Bhandari, Ms.
Mansi Taneja, Ms. Ayushi Amod, Karan Verma, E. C. Agrawala, Ms.
Anindita Mitra, Akhil Sachar, Sangram Singh, Ms. Jasmine Damkewala,
M/s Legal Options, Advs. for the Respondent.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
CONTENTS
A.
Facts ......................................................................... 3*
B.
Submissions.............................................................17*
C.
Analysis....................................................................25*
C. 1 Framework of the MPID Act .......................25*
C. 2 Framework of NSE ........................................27*
C. 3 Definitions of 'Deposit' and 'Financial
Establishment': Interpretation of Section 2(c) and 2(d)
of the MPID Act .....................................................40*
C. 3.1 Settlement Guarantee Fund: Deposit
under Section 2(c) of the MPID Act ...46*
C. 3. 2 Receipt of commodities: Deposit under
Section 2(c) of the Act ...........................49*
C.4
Uncovering the Conspiracy ..................................55*
C. 4.1 The Grant Thornton Report .....................55*
C. 4. 2 63 Moons Judgment .................................56*
C. 5 Constitutional Validity of the MPID Act ..............65*
C. 6 The High Court's Judgment ..................................71*
1. The appeal arises from a judgment dated 22 August 2019 of
the Bombay High Court, by which certain notifications attaching the
property of the respondent under Section 4 of the Maharashtra Protection
of Interest of Depositors (in Financial Establishments) Act 19991 have
been quashed. The respondent holds 99.99% of the shareholding of
National Spot Exchange Ltd2. At the core of the dispute is whether
1 "MPID Act"
2 "NSEL"
* Ed. Note : Pagination is as per the original Judegement.
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NSEL is a 'financial establishment' within the meaning of Section 2(d)
of the MPID Act.
A. Facts
2. NSEL is a company incorporated under the Companies Act
1956, and is a wholly owned subsidiary of Financial Technologies (India)
Limited, which is now known as 63 Moons Technologies Limited3. On 5
June 2007, the Union of India issued a notification under Section 27 of
the Forward Contracts (Regulation) Act 19524 exempting forward
contacts of one-day duration for sale and purchase of commodities traded
on NSEL from the application of the provisions of the enactment. NSEL
started operating as an exchange for spot trading in commodities. NSEL
launched contracts for buying and selling of commodities on its trading
platform with different settlement periods, ranging from T+0 to T+36
days. 'T' indicates the trade date, that is the date on which the trade
took place and +0 or +36, indicates the number of business days after
the trading day when the delivery of the commodity and the payment of
price is made.
3. NSEL offered 'paired' contracts. Such contracts enabled
traders either by themselves or through their brokers, to simultaneously
enter into paired contracts, such as of T+2 and T+25 duration. The seller
through his broker puts the commodities on sale and the buyer through
his broker looks to purchase commodities of specific requirements. NSEL
then pairs the buyer and the seller if there is a match between the
requirement of the buyer and the available commodities with the seller.
The buyer and the seller simultaneously enter into T+2 and T+25 contracts.
For example, if 'A' (the buyer) wants to buy one ton of basmati rice, he
would trade on NSEL's platform through his broker. The platform would
identify that 'B' (the seller) has an offer to sell the quantified commodity.
NSEL would then match both the contracts. The date of matching of the
contracts is termed as the trade date or 'T'. 'A' must then pay the price
of the commodity to NSEL, which checks if 'B' has deposited the stock
in a warehouse accredited to NSEL for delivery within two days. Once
NSEL has confirmed that 'B' has deposited the stock in the warehouse,
it transfers the money to 'B'. Simultaneously, the same parties enter into
a T+25 contract by which 'A' (who was the buyer in the T+2 contract)
would sell the same quantity of commodity purchased to 'B' (who was
3 "FCIL or 63 Moons"
4 "FCRA"
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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the seller in the T+2 contract). The difference between the purchasing
cost and the selling cost is the profit that the trading member acquires
through the trade. A flow chart indicating a representation of the
transaction is set out below:
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4. A detailed step-wise trading process of the paired contracts is
indicated below:
(i)
A trading member of NSEL who wishes to trade in the
platform is required to place a specific quantity of the
commodity in a warehouse accredited to NSEL. The
warehouse would then generate a warehouse receipt;
(ii)
The registered trading member or his broker who had placed
his commodity in the warehouse could on the basis of the
standard proforma contracts offered by NSEL place offers
for sale of the commodity on the platform, stipulating the
price and quantity offered;
(iii)
The buying trading member or his broker would input buy
orders of a particular commodity and quantity on the NSEL
trading platform;
(iv)
When a sale offer and a buy offer coincide, the exchange
would be matched by NSEL, stipulating the commodity, the
price, and the quantity;
(v)
The Exchange would communicate all the trades effected
at the end of the day;
(vi)
On the next day, an obligation report recording the pay-in
and delivery obligations would be forwarded to the trading
members;
(vii)
On the day after (that is, settlement date), NSEL would
debit the trading member's designated settlement account
for the amount of the buying member's pay in obligations
and it would be credited to NSEL's exchange settlement
account. NSEL's Operations Department would inform
NSEL's Delivery Department of the selling member's
delivery obligations. Based on the intimation, NSEL's
Delivery Department would confirm to the Operations
Department if the requisite quantity of the particular
commodity is available according to the Warehouse
receipts. After such confirmation, the Operations
Department would release the purchase price to the selling
broker's designated bank account. Simultaneously, a
Delivery Allocation Report would be issued to the buyer's
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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broker or the buyer informing him that the commodity
purchased was allotted to him; and
(viii) NSEL would then send the buyer's details to the selling
trading Member and the selling trading member would
arrange for the non-member client/seller to generate a VAT
paid sale invoice of the commodity. On the basis of the
Delivery Allocation Report and the VAT Paid Invoice, NSEL
would issue a Delivery Note authorizing the buyer to take
delivery from the designated warehouse. If the buyer choses
to not take delivery, he would be put in constructive
possession of the commodity where he would be entitled to
take possession at any time.
5. On 27 April 2012, the Department of Consumer Affairs5 issued
a show cause notice to NSEL on why action should not be taken against
it for permitting transactions in violation of the exemption notification.
On 12 July 2012, the DCA directed NSEL to give an undertaking that no
contracts shall be launched until further instructions, and that all existing
contracts must be settled on the due dates. In July 2013, about 13,000
persons who traded on the platform of NSEL claimed that other trading
members had defaulted in the payment of approximately Rs 5,600 crores.
NSEL issued a circular on 31 July 2013 suspending its spot exchange
operations. It stated that the delivery and settlement of all pending
contracts would be merged and the contracts would be settled after the
expiry of 15 days. NSEL published a statement on 6 August 2013
representing that it had sufficient stocks valued at Rs 6,032 crores in its
warehouses. A new pay-in schedule was announced by NSEL on 14
August 2013 by which the Exchange commenced the pay-in schedule
from 16 August 2013 and pay-out schedule from 20 August 2013, in the
same manner every week. It was also represented that the members
would be entitled to get simple interest on their outstanding dues with
effect from 16 August 2013 on a reducing balance at 8% per annum till
the end of the settlement calendar. The notification is extracted below:
"National Spot Exchange Limited
Circular
August 14, 2013
5 "DCA"
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Settlement Schedule
In terms of the provisions of the rules, Bye-Laws and Business
Rules of the Exchange and further to circular no. NSEL/TRD/
2013/065/ dated July 31 2013, the Members of the Exchange are
hereby notified that the Exchange has finalised the following
revised schedule for settlement of outstanding dues payable to
the members.
This schedule has been prepared taking into account the exigencies
emerging from sudden closure of trading operation, liquidity problem
accentuated by withdrawal of buyers credit limits by the banks
from the members, who are in pay in and the extensive discussion
done by the members who have to complete pay in and members
who have to receive the payments. Considering the challenges,
the revised schedule of settlement has been prepared to ensure
reduction in payment rist and meet the settlement obligation:
1.
The Exchange will commence the Pay-in schedule from
Friday, the 16th August, 2013 and pay-out from Tuesday,
the 20th August, 2013 and thereafter in the same manner
every week.
2.
The Exchange shall effect pay out on a pro-rata basis every
week based on the money recovered as per the settlement
calendar attached herewith. These payments are subject
to realization of cheques of the members, who have to
complete pay-in. In case any payment is not realised, then
the Exchange shall take measures as per its Rules and Bye
laws.
3.
All funds realized up to Friday every week starting from
August 16, 2013 shall be disbursed on Tuesday of the
subsequent week.
4.
The schedule has taken into account all promised or
expected payment from the members, who have given postdated cheques or letters of commitment.
5.
Members/clients shall be entitled to get interest on their
outstanding dues with effect from 16th August 2013 on
reducing balance method, based on simple interest rate of
8% per annum till end of settlement calendar. Interest
amount shall be paid at end of the settlement.
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
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6.
A detailed settlement Calendar is being enclosed herewith.
For and on behalf of
National Spot Exchange Ltd.
Santhosh Mansingh
Asst. Vice President"
6. By a Notification dated 19 September 2014, the Central
Government withdrew the exemption granted on 23 July 2008. The
Forward Markets Commission6 recommended to DCA that steps be
taken to ascertain the quantity and quality of commodities at accredited
warehouses, the financial status of buyers and trading members, and
that liability be fixed on the promoters of NSEL, i.e 63 Moons. On 27
August 2013, FMC directed a forensic audit of NSEL by Grant Thornton
LLP. The Union of India ordered an inspection of accounts of NSEL
and 63 Moons under Section 209A of the Companies Act. The Economic
Offences Wing registered cases against the directors and key
management personnel of the NSEL and 63 Moons and against trading
members and brokers of NSEL under the provisions of the Indian Penal
Code and the MPID Act.
7. Pankaj Ramnaresh Saraf, a Director of Vostak Far East
Securities Prvt. Ltd., a company involved in the business of investment,
trading, and financing filed a complaint7 on 30 September 2013 against
the directors and persons holding key management posts in NSEL, 25
borrowers/trading members and some brokers of NSEL for offences
under Sections 120B, 409, 465, 468,471,474 and 477A of the Indian Penal
Code 1860. The complainant stated that he had primarily been transacting
in T+2 and T+25 contracts. He further stated that since NSEL suspended
trading and deferred settlement of all one-day forward contracts by fifteen
days, he had not received payment of Rs 202 lakhs that was due to him
under various contracts. On 14 August 2013, he was informed by his
broker that NSEL had issued a settlement schedule for the payment of
outstanding dues after seven months. He alleged that the commodities
were traded by providing 'false' warehouse receipts of 'non - existent
commodities'. It was also alleged in the complaint that NSEL held the
commodities in warehouses accredited to it as a 'trustee' on behalf of
the depositors (buyers) and that the misappropriation is a criminal breach
6 "FMC"
7 FIR No 216 of 2013
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of trust. In addition to the above, he also alleged that the Settlement
Guarantee Fund8 had been misused by NSEL.
8. The FIR was later transferred to the Economic Offences Wing9
of Mumbai Police. The case was registered and Sections 3 and 4 of the
MPID Act were added to the FIR. The case was transferred to the
Special Court constituted under the MPID Act.10 NSEL filed a writ
petition challenging the invocation of the MPID Act on the ground that
the exchange is not a 'financial establishment' under the provisions of
the Act. By an order dated 1 October 2015, the petition was dismissed
by a Division Bench of the High Court on the following grounds:
(i)
The material collected by EOW during the course of the
investigation revealed that NSEL did not carry out its
exchange operations according to the bye-laws. It was
prima facie evident that NSEL represented to the traders
that they would be provided security free loans and that
they would receive fixed returns of 14% to 16% pa;
(ii)
The record indicates that the transactions were not
accompanied by physical delivery of goods. In many cases,
the accounts of NSEL and the suppliers of the goods did
not tally. The record also indicates that there were multiple
accommodation entries due to collusion between NSEL and
the trading members;
(iii)
Section 2(d) of the MPID Act defines 'financial
establishment' as any person accepting any deposit under
a scheme. Section 2 (c) of the MPID Act provides an
inclusive definition of the term 'deposit'. Since NSEL
assured the traders that their investments in paired contracts
would secure them a return of 14 to 16% pa, the receipt of
the returns would prima facie fall within the definition of
'deposit'; and
(iv)
A charge-sheet and supplementary charge-sheets have been
filed. NSEL has an alternative remedy of applying for
discharge before the trial Court.
8 "SGF"
9 "EOW"
10 The case was registered as MPID Case 1 of 2014
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
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9. The State of Maharashtra issued a notification on 21 September
2016 under Section 4 of the MPID Act by which the properties of the
respondent were attached. The relevant extract of the notification is
reproduced below:
"No. MPI 2016/C.R.541/B/Pol II:- Whereas complaints have been
received from number of depositors against M/s La-Fin Financial
Services Pvt. Ltd. and M/s La-Financial Services Pvt. Ltd.
(hereinafter referred to as "the said Financial Establishment")
complaining that they had collected the Fund and have defaulted
to return the said deposits made by the depositors , on demand;
And whereas, the State Government is satisfied that the said
Financial Establishment and its Chairman/Directors are not likely
to return the deposits to the depositors and hence the Government
has to protect the interests of the depositors;
And whereas the properties in the Scheduled appended hereto
are alleged to have been acquired by the said Financial
Establishment and its Chairman/Directors from and out of the
deposits collected by the Financial Establishment;
Now, therefore, in exercise of the powers conferred by sub-Section
(1) of Section 4, Section 5 and Section 8 of the Maharashtra
Protection of Interest of Deposits (in Financial Establishment)
Act, 1000 (Mah. XVI of 2000) (hereinafter referred to as "the
said Act") the Government of Maharashtra hereby attaches the
properties of the said financial Establishment and in the name of
its Chairman/Directors as specified in the Schedule."
10. The Supreme Court on 26 October 2016 dismissed as
withdrawn, the Special Leave Petition filed against the order of the
Bombay High Court. The appellants filed a Writ Petition before the
Bombay High Court challenging the notification dated 21 September
2016 issued under Section 4 of the MPID Act attaching the properties
of the respondent. The validity of Sections 4 and 5 of the MPID Act
was challenged on the ground that they are violative of Articles 14, 19
and 300-A of the Constitution. The reliefs sought in the writ petition are
extracted below:
"a. The Hon'ble Court may declare that Sections 4 and 5 of the
MPID Act are violative of Articles 14 and 19 of the Constitution
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and Article 300-A of the Constitution and consequently issue a
Writ of Mandamus and/or any other appropriate Writ, Order or
Direction restraining the Respondent Writ, Order or Direction
restraining the Respondent, its servants and/or agents from acting
in pursuance of those provisions;
b. In view of Prayer A above, issue a Writ, Order or Direction
under Article 226 of the Constitution quashing and setting aside
the Impugned Notification dated 21.09.2016 (being Exhibit-S
herein) issued by the Respondent exercising the power under
Section 4 of the MPID Act;
c. In the alternative, issue a Writ, Order or Direction in the nature
of Certiorari or any other appropriate Writ, Order or Direction
under Article 226 of the Constitution quashing and setting aside
the Notification dated 21.09.2016 as being ultra-vires Section 4
and 5 of the MPID Act.
11. The State of Maharashtra issued further notifications dated 4
April 201811, 7 April 201812, 11 April 201813, 19 April 201814, 15 May
201815 and 19 October 201816 under Sections 4 and 5 of the MPID Act,
attaching the properties of the respondent to recover the defaulted money.
The Writ Petitions were heard together and disposed of by a Division
Bench of the Bombay High Court by a judgment dated 22 August 2019.
The petition was allowed on the following grounds:
(i)
The pay-in amount received from the buyer was only for
the purpose of passing it over to the seller on the same
date. This amount would not fall within the purview of
Section 2(c) of the MPID Act in terms of which a 'deposit'
must be the receipt or acceptance of a valuable commodity
which would be 'repaid' by the financial establishment after
a specified period;
(ii)
NSEL only performed the role of a facilitator, in a manner
similar to the Bombay Stock Exchange. NSEL did not
11 Notification No. MPI/1118/C.R-394/Pol-11
12 Notification No. MPI-1118/C.R. 329/Pol-11
13 Notification No. MPI-1118/C.R. 434/Pol 11 read with corrigendum bearing MPI No.
1118/C.R.-434/Pol 11 dated 19 April 2018.
14 Notification No. MPI 1118/C.R. 4999 Pol 11
15 Notification No. MPI-1118/C.R. 597/Pol 11
16 Notification No. MPI 1118/CR 1040/Pol 11
THE STATE OF MAHARASHTRA v. 63 MOONS TECHNOLOGIES
LTD. [DR.