Bombay HC says MPID Act applicable on NSEL

Investors hope govt will proceed to liquidate attached properties and use it to pay them

The high court here has dismissed the plea of National Spot Exchange Ltd (NSEL) in questioning the applicability of the Maharashtra Protection of Interest of Depositors in Financial Establishment Act (MPID) to the Rs 5,600-crore payment crisis. This also means the Act will apply on all exchanges in the country.

After the NSEL payment crisis erupted in July 2013, the city police’s economic offences wing (EOW) found 13,000 trading clients had invested money in the spot exchange. EOW attached the property of NSEL, the borrowers, directors and its promoter, Financial Technologies (India) (FTIL), and also booked officials of NSEL and some broking firms.

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.

This is the third blow for FTIL in two days. The same HC had on Wednesday restrained it from disbursing dividend to shareholders or pay rises to senior staffers. And, on Thursday, the government rejected its proposal to change the company’s name, for a fresh start, to 63 moon technologies.

“This is a welcome judgement. 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 HC hearing on Thursday’s order was concluded on July 8.

Prakash Chaturvedi, managing director of NIAG, said: “Further legal course of action shall be taken after studying the court order. We have full faith in the judicial system and 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."