TaxTMI 
TaxTMI 
2019 (9) TMI 999
X X X X Extracts X X X X
X X X X Extracts X X X X
....s challenged the following Orders passed by the Adjudicating Authority, confirming the Provisional Attachment Orders (for short 'PAOs') passed by Respondent no.1 - ED attaching the properties of the Page 3 of 101 appellant‟ s parent company "63 Moons Technologies ltd" (formally known as Financial Technologies India Ltd.) to the tune of Rs. 1348.6 Crores:- (i) Order dated 09.03.2017 confirming PAO no. 17/16 dated 14.09.2016 in OC no. 645/16 (Appeal no. 1739/2017). (ii) Order dated 22.03.2017 confirming PAO no. 19/16 dated 30.09.2016 in OC no. 663/16 (Appeal no. 1738/2017). (iii) Order dated 14.07.2017 confirming PAO no. 1/17 dated 31.01.2017 in OC no. 697/17 (Appeal no. 1862/2017) (collectively "Impugned orders") 2. The second set of appeals bearing no. 1735/2017, 1736/2017 and 1860/2017 have been filed by "63 Moons Technologies Ltd." (for short "63 MTL"). With regard to the allegations of ED, the same will be tested at the time of trial under the schedule offence and PMLA. The charges are yet to be framed. In the meanwhile, '63 MTL' and Jignesh Shah & his family members are restrained not to sell, alienate or to create any third party rights in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d for a license for establishment of e-marketing in the State of Gujarat under Sec. 31C (2) (B) of the Agricultural Produce Markets Act, 2007. The relevant authority under the Agricultural Produce Markets Act, 2007, directed that NSEL should neither be a subsidiary nor have as its shareholders, a commodity exchange recognized under FCRA. Accordingly, the shareholding of MCX [a recognized commodities exchange under the Forward Contract Regulation Act, 1952 (hereinafter referred as 'FCRA' )] and its nominees were transferred to FTIL. It is the claim of NSEL that it was managed by a well-qualified and experienced MD & CEO and a group of senior officials having adequate experience in commodities markets. At the relevant time Mr. Anjani Sinha was NSEL's MD & CEO. It was alleged that NSEL functions from a separate office with a separate infrastructure and was not run as a division/department of NSEL but as an independent subsidiary. 7. Out of a Board comprising of 8 Directors, only 2 Directors (Mr. Jignesh Shah & Mr. Ramnathan Devrajan) were also Directors of the '63 MTL'. Both these Directors were non-executive Directors of NSEL. It is submitted that in pursuant to the listing agreem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se price within 2 days of the contract date (the "T+2 contract"). The Trading Client received a Delivery Allocation Report, which was based on a Warehouse Receipt issued by NSEL, representing the commodities deposited in the warehouse. ii) In the second leg of the transaction, the Trading Client (through its Trading Member Broker), would sell back to the same Commodity Seller the same commodity which had been earlier purchased in the T+2 contract (by handing over the same Delivery Allocation Report), for which the Commodity Seller was required to pay the purchase price and the Trading Client was required to deliver the requisite commodity within 25 days of the contract date (the "T+25 contract"). iii) As the contracts were paired, actual physical delivery of the specified commodity in the T+2 contract was not taken instead the parties traded on the basis of the Delivery Allocation Report issued by NSEL. The Delivery Allocation Report was surrendered in the T+25 contract in lieu of delivery of the sold commodity by the Trading Client (through its Trading Member Broker), to the original Commodity Seller. 11. As per by law 7.9.2: No doubt, it was stipulated that "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....MRA Marg, Police Station, Mumbai u/s 409, 465, 468, 471,474, 477A r/w 120B of IPC against NSEL and '63 MTL' on 30.09.2013, its directors and key officials of 25 defaulters of Respondent No. 2 and others. 18. Based on the FIR, both the Economic Offences Wing of the Mumbai Police ("EOW") as well as the Enforcement Directorate initiated investigations under the provisions of the Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999 and the Prevention of Money Laundering Act, 2002. 19. Enforcement Case Information Report (ECIR) No. 14/MZO/2013 was registered on 14.10.2013 against Respondent No.2, Directors and key officials of NSFL and 25 defaulters for investigation under PMLA Act. Appellant ('63 MTL' ) is neither mentioned as an accused, nor is there any allegation made qua it in the said ECIR. On 30.03.2015 a Prosecution Complaint was filed against NSEL and 67 others before the competent Special Court, PMLA. Subsequently on 27.07.2018, a supplementary Prosecution Complaint was filed against the Appellant before competent Special Court, PMLA. 20. Bombay City Civil on 27.11.2013 passed an Order in R.A. No. 5 of 2013 in C.R. 89/2013 (procee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ious agricultural and non-agricultural commodities. The basic idea was to provide a place where farmers, traders, corporate, processors, planters, manufacturers and importers can sell and buy their commodities at the best possible and competitive rates. NSEL undertook to provide services like quality certification, storage of goods and other customized value added service. NSEL allowed trades on various contracts with settlement cycle ranging from T+0 to T+36 days. Contracts were settled by delivery and payment after trade date referred herein above as "T". There were some contracts of the same commodity wherein members enter into a buy contract in T+1, T+2, T+3 and simultaneously enter into reverse contract in T+25 or T+34 or T+36. The Plant owners who needed funds against their stock inventory used to sell it on exchange platform on short duration contracts. Simultaneously, they bought same quantity of commodity under along duration contract on the same day, thereby ensuring that the stock remained with them by way of re-purchase. Simultaneously, the buyer of the short duration contract sold in long duration contract at a higher price thereby getting profit on its investment for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ehouse by the warehouse owner). This fact substantiates the charge of EOW, Mumbai Police vide their abovementioned FIR that the defaulting members were fabricating the warehousing receipts. f) During the investigation, Summons was issued to key management officials of NSEL and their statements were recorded under section 50of the PMLA, 2002. The gist of their depositions is as under:- (i) Shri Anjani Sinha, the former MD & CEO of NSEL, had vide his letter dated 09.2013 forwarded a copy of his affidavit dated 11.09.2013 regarding matters concerning NSEL. He had stated in his affidavit that he and his managing staff were solely responsible for the crisis at NSEL; that the defaulting members had in connivance with the employees of NSEL siphoned off the funds received from NSEL; that such funds were diverted to acquire real estate, repay existing loans, plant expansion, etc. Accordingly, statement of Shri Anjani Sinha was recorded under the provisions of Section 50 of the Prevention of Money Laundering Act, 2002 on 16.10.2013, wherein, he admitted the contents of his affidavit dated 11.09.2013 and stated that NSEL was a spot exchange organizing delivery based transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of NSEL; that they manipulated the stock and duped the entire exchange mechanism; that the members submitted false and fabricated stock offer letters, submitted false sale bills without actually offering the physical stock in connivance with the NSEL warehousing team; that the offer letters submitted by the defaulting parties to the Exchange at the time of sale of stock were not backed by physical stock. (iv) In order to ascertain the veracity of the claim made by Shri Anjani Sinha in his statement with regard to manipulation of the stock by defaulting members, statement of Shri Bihari Lal, Assistant Manager, Warehousing Department of NSEL was recorded under Section 50 of PMLA, 2002, on 26.10.2013. He inter-alia explained the activities of warehousing department in detail and stated that the selling members used to send stock offer letters on daily basis by e-mail to NSEL stating that the total quantity of goods traded on that day had been delivered to the designated warehouses. (v) Shri Jai Bahukhandi, Ex-Assistant Vice President of NSEL: During his statement recorded on 10.04.2014, he stated that he was responsible for all warehousing functions of NSEL; that he ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere recorded under Section 50 of the PMLA, 2002. The gist of their depositions is as under:- (i) Shri Jignesh Shah, Non-Executive vice chairman of NSEL During the investigation, statements of Shri Jignesh Shah were recorded on 15.04.2014, 12.07.2016, 13.04.2016, 14.07.2016, 15.07.2016, 17.07.2016; during which he inter-alia stated that he had founded Financial Technologies India Limited which used to deal in exchange software business; that his shareholding in FTIL through his family holding company i.e. La-fin (27%) and individually 18%; that NSEL was a spot exchange organizing delivery based transactions between various sellers and buyers through electronic network spread across the country; that he was the non-executive Vice- Chairman of NSEL; that the Board of Directors used to interact only with the Managing Director of NSEL; that Shri Anjani Sinha, Managing Director of NSEL was given a free hand to run the company; that NSEL was a loss making company for four years; that when NSEL started earning income especially from 2010-11, the Board had not made any specific inquiries regarding its reasoning; that Shri Anjani Sinha, MD & CEO of NSEL, Shri Amit Mukherjee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....documents available with IBMA except purchase invoices in respect of transactions with P. D oprocessors Pvt Ltd, White Water Foods Pvt Ltd, Shree Radhey Trading Pvt , Vimladevi Agrotech; that invoices to the tune of Rs. 20 crores had been raised by IBMA on LOIL Group towards ....... Charges provided in 2012-13 that there is no details available with .... With regard to actual nature of services provided by IBMA to LOIL group; that IBMA had also received Rs. 10 Crores from Mohan Infracon Pvt Ltd, a group company of one of the defaulter i.e. Mohan India group; that the said funds were not labeled as income from trade as there is no corresponding business transaction with the said company Mohan Infracon Pvt Ltd; that this amount later adjusted towards liability; that Anjani Sinha was holding independent charge of NSEL & IBMA; that however, he was answerable to Board of Director of FTIL whom he was submitting quarterly compliance reports. (iii) Shri Mukesh P Shah, internal auditor of NSEL from 2009-10 to 2011-12 and the statutory auditor from 2007-08 to 2008-09 and 2012-13- During statement recorded on 20.10.2015, he stated that he had received detailed management rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the plants of the company to NSEL; that as all goods traded by them on NSEL exchange were ultimately re-purchased by them, no deliveries were ever effected, and no stock was transported to the NSEL warehouse; that their employees used to prepare and email the stock offer letter to NSEL, stating that equivalent stock has been delivered to the NSEL warehouse; that funds received from NSEL were utilized in their business activities. (iv) Shri Narayan Nageswara Rao, Managing Director of NCS Sugar Mills Ltd. - During his statements recorded on 14.05.2015 & 19.05.2015 , he deposed that M/s NCS Sugars Ltd had sold sugar through contracts launched on the NSEL platform without having corresponding physical stock of the same; that the said sale transactions were only paper transactions; that the funds received from NSEL through such bogus sale transactions were diverted for the purpose business needs including purchase of raw materials, payment of bank loans & interest, capital expenditure required for the plant, payment of taxes, etc. (v) Shri Inder Singh. Director of M/s Namdhari Food International Pvt Ltd: - During his statement recorded on 20.01.2015,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....another Dunar group company) also a client of M/s P D Agroprocessors Pvt Ltd, purchasing the said goods in corresponding T+25 contracts; that the next transaction would be vice-versa to square off the pay in-payouts of M/s Dulisons Foods and M/s Dunar Cereals; that as facilitation towards the services rendered, Shri Amit Mukherjee, ex-AVP of NSEL, asked him to arrange a foreign trip to Bangkok for him (Shri Amit Mukherjee), his wife (Smt. Bonhi Mukherjee), children, parents & some other relatives that he booked the trip to Bangkok in April, 2013, through a travel agent M/s Vishwas Travels Delhi, and paid an amount of approx. Rs. 7 Lakhs from the account of M/s Prime Zone Developers Pvt. Ltd. towards air tickets and hotel charges for the said trip of around 7-8 days. viii) Shri Ghanta Kamesware Rao, Director of Spincot Textiles Pvt. Ltd.- During his statement recorded on 11.07.2014 & 21.07.2014he submitted that no equivalent stocks were either maintained or delivered to the said NSEL designated godowns and trade was carried out on the basis 'of paper transactions declaring M/s Spincot Textiles Pvt Ltd as the seller of the goods in T+ 2 contracts and M/s BSPN Exports Pvt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urchase of property at Karnal, etc. (xi) Shri Kamal Kant Dewan. Director of White Water Foods Pvt Ltd. - During his statement recorded on 06.06.2014, Shri Kamal Kant Dewan submitted that M/s White Water Foods Pvt Ltd became NSEL member and started trading on the NSEL exchange; that no equivalent stocks were either maintained or delivered to the designated NSEL godown and trade was carried out on the basis of paper transactions declaring one of their clients as the seller of the goods in T+ 2 contracts and another as the purchaser of the said goods in corresponding T+25 contracts; that the funds received from NSEL were utilized towards their business needs including purchase of raw materials, payment of bank loans & interest, capital expenditure, payment of taxes, etc. (xii) Shri Gaqan Suri, Director of Yathuri Associates- - During his statement recorded on 04.03.2014 and 08.03.2014, he disclosed that his firm was controlled by his brother in law, Shri Onkar Anand; that he used to get around Rs. 1 lakh to Rs. 1.50 lakh per month from Shri Onkar Anand. (xiii) Shri Onkar Anand. Director of Rahul Sales and Narainqarh Sugar Mills - - During his statem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8.04.2016, the Hon‟ble Supreme Court in Civil Appeal No.4391-4392 of 2016 confirmed CLB's order dated 30.06.2015. 30. The National Company Law Tribunal (hereinafter referred to as NCLT), on 24.06.2016, which took over from CLB while modifying the order dated 30.06.15, constituted a committee ("NCLT Committee") to, inter-alia, monitor and approve the treasury operations of the Appellant. The NCLT Committee comprises of : (i) Two Independent Directors of the Appellant; (ii) Managing Director of the Appellant; (iii) Retired Judge of the Hon‟ble Supreme Court and (iv) A nominee of the Union of India inter-alia to monitor and approve treasury operations of the Appellant. The Retired Judge of the Hon‟ble Supreme Court and nominee of the Union of India have individual veto powers in the NCLT Committee. By order dated June, 2018, NCLT disposed of the C.P. No. 1 of 2015. The said order has been challenged by '63 MTL' as well as UOI and the same is pending adjudication before the NCLAT. Vide order dated 27.06.2018, NCLAT has stayed the order dated 04.06.2018 and continued the aforesaid interim arrangement. 31. EOW on 18.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....take any coercive action against the '63 MTL' and to grant an opportunity for personal hearing to the Appellant prior to any such proposed action. 40. '63 MTL' on 14.09.2016 filed a Criminal Writ Petition No. 3218 of 2016 against ED as a preemptive measure in anticipation of an attachment order, inter-alia seeking a writ of Mandamus directing the Respondent No.1, to offer a pre-decisional hearing before taking any action of attachment of the property. The intimation regarding filing of the writ was served upon ED on the same day and the ED was well aware about the filing about the said Writ Petition. 41. NCLT Committee in its meeting approved the treasury operations of the "63 MTL‟. The said approval also included the liquidation of some of the investments which were part of the Provisional Attachment Order No.17/2016 and reinvestment of the same in other instruments is obtained. Pursuant to the approval given by the NCLT Committee, '63 MTL' issued instructions on 15/16.9.2016 to various Financial Institutions for the liquidation of some of the investments and reinvestment of the same in other instruments. 42. In the meanwhile, Provisional Attachment Order bearing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a further anomaly, the SCN in the Post Script No. 03 mentioned that the "Notice along with Relied upon documents (RUD) shall be served by the complainant directly to all defendants as per law. Only Advance notice has been sent to defendants." and the Complaint along with some statements and relied upon documents came to be served upon them only on 08.12.2016, that is, just two weeks before the 23.12.2016 when they were required to appear before the Adjudicating Authority. Accordingly, they sought extension of time for filing its reply to the Complaint before the Adjudicating Authority. 50. Complaint along with the relied upon documents finally came to be served upon the '63 MTL' on 8.12.2016. They filed its reply to the Show Cause Notice dated 09.11.16 in O.C. No.663/16 and they also filed two Miscellaneous Applications seeking copy of the Relied Upon Documents and also for Cross-Examination of certain persons. 51. Adjudicating Authority allowed 1st OC No. 645/16, confirming 1st PAO i.e. PAO 17/16 on 9.3.2017. 52. Adjudicating Authority allowed 2nd OC No. 663/16, confirming 2nd PAO i.e. PAO 19/16 on 22.3.2017. 53. PAO No.1 of 2017 was issued by the Respondent No.1 on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icating Authority are sustainable or not in the light of these facts. 62. Firstly, we will refer the case put up by NSEL before many authorities and before us in their ground of appeals and their written submission. Case of NSEL who is referred as respondent a) The FMC Order was passed way back in December 2013 when investigations in the payment defaults at NSEL's exchange platform were at nascent stage. Thereafter, criminal investigations by the EOW-Mumbai culminating in filing of 3 (three) chargesheets dated 06.01.2014, 02.06.2014 and 04.08.2014, and the investigation by R-1 culminating in the Complaint No. 4 of 2015, have revealed the true and different picture that the entire fraud was perpetrated by the 24 defaulters who abused the trading platform provided by the Appellant by colluding with few employees of the Appellant. All this material and findings of investigation were placed on record by the Appellant in its reply before the Adjudicating Authority. However, the Adjudicating Authority failed to consider the same and went on to record adverse findings against the Appellant majorly based on the FMC Order. It is stated that FMC Order was passed in a com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of NSEL is not even the subject matter of the EOW-FIR and hence is not the subject matter of any Scheduled Offence as is also evident from Para 6.1 and 6.2 of the Complaint itself. Therefore, the Authority failed to appreciate that the gross income of Rs. 736.66 Crores pertaining to the Non-Exchange business of NSEL cannot be characterised as "proceeds of crime" as defined under Section 2(1)(u) of the PMLA. e) The Adjudicating Authority failed to appreciate that the Exchange Business of NSEL comprised of trading in commodities in the Traders‟ Contracts, e-Series Contracts and Other Contracts. The only contracts where payment defaults of more than Rs. 5,000 Crores have occurred and which are the subject matter of the Scheduled Offences registered vide the EOW-FIR and under investigation by the Complainant ED (as is evident from Para 6.1 and 6.2 of the Complaint itself), are the Traders‟ Contracts, and that NSEL's gross income for the period of FY 2008-09 to FY 2013-14 from the Traders‟ Contracts was only Rs. 245.81 Crores. The balance income of NSEL from the Exchange Business for the period of FY 2008-09 to FY 2013-14 being Rs. 129.50 Crores was derived f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on-defaulting trading-counterparties in T+25 contracts is still outstanding. This outstanding amount also includes the various charges leviable by NSEL from these defaulting members. For these outstanding/unsettled transactions, NSEL has not "actually received‟ income from any of the defaulting members yet, although an income of about Rs. 85 lacs against these unsettled trades has been booked in NSEL's books of account because the same are prepared on "accrual basis‟ and not on "actual receipt‟ basis. Therefore, NSEL has not yet actually received income from the Scheduled Offences alleged in the instant case, and accordingly NSEL cannot be said to be recipient of any alleged "proceeds of crime" as defined under Section 2(1)(u) of the PMLA. In absence of any proceeds of crime being traced to the Appellant, the Respondent had no jurisdiction to pass the PAO under Section 5 of the PMLA either against the Appellant or against its parent company. h) The Adjudicating Authority failed to appreciate that Para 7.1 of the Complaint (which corresponds to Para 8 of the PAO) contains incorrect facts contrary to the record. Para 7.1 states that, "on going through the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... altogether exempted from all the provisions of the FCRA by virtue of the Exemption Notification - which by itself did not prescribe any time limit for delivery and settlement of the trades. It was further submitted that NSEL was not allowing short-sale as alleged in the show cause notice in as much as the sellers are required to deposit the commodities sold on T day in exchange-designated warehouses on T+1 day. If they do not do so then they are not entitled to receive the sale-consideration on T+2 day or say T+25 day. It is further submitted that the said Show Cause Notice has not been adjudicated till date. No Court of law has held till date that NSEL was in violation of the Exemption Notification dated 05.06.2007. j) The Adjudicating Authority failed to appreciate that in terms of Section 2(c) of the FCRA, a Forward Contract is a contract for delivery of goods which is not a Ready Delivery Contract. A Ready Delivery (or a Spot) Contract is defined under Section 2(i) of the FCRA as a contract which provides for delivery of goods and payment of price within 11 days after the date of the contract. However, the proviso to Section 2(i) of the FCRA clearly states that if a c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....NSEL. Further, it is evident from the material available with the Complainant that the policy decisions concerning the running of NSEL, including the launching of the contracts traded on the NSEL plat- form, were taken by the then MD and CEO of NSEL, Mr. Anjani Sinha and the same has been asserted by Mr. Anjani Sinha on several occasions. Further, the statement of Mr. Amit Mukherjee dated 10.04.2014 (Sr. No. 7 of relied upon documents) clearly establishes that the role of business development and finding new members for NSEL was performed by him and he used to take instructions from Mr. Anjani Sinha. Mr. Jignesh Shah had no role whatsoever in the same and was never involved in making any presentations or assurances about the business model or products of NSEL. Further, NSEL never promoted pairing of contracts for fixed returns. On the contrary, NSEL - vide its Circulars dated 07.02.2012 and 06.08.2012- had prohibited its members from issuing any advertisement which promised fixed return. Further the findings of the Ld. Adjudicating Authority are also contradictory to the Complaint dated 30.03.2015 filed by the Complainant under Section 45 of the PMLA before the Special Court (which....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the board of its material subsidiary. Accordingly, in addition to Mr Jignesh Shah, Mr Ramanathan Devarajan was appointed as a "non-executive‟ director to the Board of NSEL. Both Mr Shah and Mr Devarajan were also directors on the Board of FTIL. Thus, the Board of NSEL comprised of 8 (eight) directors of which there were only 2 (two) directors who were common to the Board of FTIL and both of them were non-executive directors having no role whatsoever in the day to day affairs/operations of NSEL, which were run by the professional executive management team of NSEL headed by the then MD and CEO Mr. Anjani Sinha. The Adjudicating Authority also failed to appreciate that FTIL did not approve the actions of NSEL in its board meetings. The factual position is that when NSEL became a "material subsidiary‟ of FTIL in April 2011, then as per the Listing Agreement, the already approved final minutes of the board of NSEL were started being placed on post-facto basis in the board meetings of FTIL only for the purpose of noting and not for the purpose of any approval as alleged. It is pertinent to mention that the so called "paired contracts‟ were launched in Septembe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e any irregularity, there was no reason/occasion for the Board of NSEL to imagine that there were any irregularities or other untoward actions taking place on NSEL's exchange platform. p) The Adjudicating Authority failed to appreciate the following documentary evidence submitted to it by the Appellant along with its Reply demonstrates that the Board of NSEL was not in knowledge of the missing commodities until mid-August 2013 because the then executive management team of NSEL headed by the then MD&CEO of NSEL Mr Anjani Sinha never informed the Board of NSEL about the same: (i) Minutes of NSEL's Board meeting dated July 30, 2013, wherein Mr. Sinha - when questioned by the Board - confirmed to the entire Board that commodities worth more than Rs. 6,000 Crores are lying in various warehouses and there is no cause to worry. (ii) Email dated August 4, 2013 sent by Mr. Sinha in his capacity as the MD&CEO of NSEL to the regulator FMC, wherein he had sent an excel sheet to FMC confirming that stock worth more than Rs. 6,000 Crores were there in various warehouses. The excel sheet contained warehouse-wise stock position. (iii) Mr. Sinha maintained that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from mid-August 2013 that there was considerable stock shortage, filing of police complaint against the errant employees etc. q) The Adjudicating Authority failed to appreciate that the withdrawal of Rs. 236 Crores by the Appellant from its own Settlement Guarantee Fund ("SGF") does not amount to 'proceeds of crime' in the hands of the Appellant as per the PMLA. A bare perusal of the definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA reveals that it must be derived from and out of a Scheduled Offence. In the instant case, in terms of Bye-law 12 of the Appellant's exchange, the exchange was required to maintain SGF, which comprised of contributions made by the members of the exchange. On 28.03.2013, Rs. 236.5 Crores was withdrawn by the Appellant out of the SGF to repay the overdraft facility provided by HDFC Bank to the Appellant. The said overdraft facility was used by the Appellant for making payment for purchase of cotton from farmers as part of the procurement services provided by the Appellant to NAFED which is a Govt. of India undertaking. In fact, the entire amount of Rs. 236 Crores was replenished by the Appellant back into the SGF by 25.04.2013, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per both the IT Report and the SGS Report, adequate stock of commodities was found in case of 3 (three) defaulters namely Sankhya Investments, Metcore Alloys & Industries Ltd. and Topworth Steels & Power Ltd.; (ii) As per both the IT Report and the SGS Report, less than adequate stock of commodities was found in some cases. Nevertheless, stock was existent; (iii) As per both the IT Report and the SGS Report, only in few cases, no underlying stock of commodities was found; (iv) The Statements of some of the defaulting members relied upon by the Complainant in Para 7.4 of the Complaint (such as Shri Mohit Agarwal of Aastha group, Shri Kailash Agarwal of Ark group, Shri Inder Singh and Shri Jai Singh of Namdhari group, Shri Ranjeev Agarwal of PD Agro group etc.) also confirm that initially these defaulting members used to deliver the goods to NSEL-designated warehouses. It is only subsequently on being told by some staff members of NSEL not to bother about keeping the stock that they stopped depositing the goods in NSEL's designated warehouses. Had the very business model of NSEL required only "paper transactions‟ as alleged in the Complaint then where....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cate upon the fact of its involvement in money laundering. Therefore, a mere prima facie satisfaction or the existence of a reasonably probable case cannot be the basis for passing an order under Section 8(2).The Adjudicating Authority ought to have reached a material satisfaction as to the existence of the circumstances warranting the issuance of the PAO under Section 5 and duly adjudicated upon the involvement of the property attached in money laundering. Further, Section 8(2) mandates the Adjudicating Authority to "consider the reply of the aggrieved person‟ and "take into account all the documents‟ and then "record a finding‟ whether the all or any of the properties attached are involved in money laundering. The Authority under the garb of taking only a prima facie view, has failed to appreciate a number of documents brought on record by the Appellant and has gone against the mandate of Section 8(2). The Adjudicating Authority has instead only reiterated the prima facie view taken by R-1 while issuing the PAO and simply omitted to determine if the attached properties were involved in money laundering as mandated under Section 8 of the PMLA. 64. It is submit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity over all the affairs of NSEL enabling it to appoint all the Directors on the board of NSEL, through them effective control over the functioning of NSEL. The NSEL board comprising Key Management Personals of FTIL (as S/Shri Jignesh Shah, Joseph Messy) has all the authority to frame the bye-laws, rules and regulations of the company. FTIL regularly approved the actions of NSEL in its Board meetings. Shri Jignesh Shah is holding 27% shares of FTIL through companies controlled by him apart from personal holding of 18% of FTIL. In this way, Jignesh Shah holds 45% shareholding in FTIL. FTIL has total assets of Rs. 2800 Cr. If we consider for interest of other public shareholders of FTIL, it is clear that Directorate has attached assets only to the extent of shareholding of Mr Jignesh Shah i.e 45% i.e equivalent to attachment of this directorate. This Directorate has not attached complete assets of FTIL of 2800 Crores. It may be noted here that Jignesh Shah has complete control over affairs of FTIL. Further, he was on board of FTIL which approved new paired contract launched at NSEL platform; these contracts were contrary to the approvals given to NSEL by the Government. From the fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e country." As such, equivalent value of any such property is defined as proceeds of crime and accordingly, properties of the FTIL were attached under section 5 of the PMLA. By virtue of the said definition of the proceeds of crime, the subject properties to be termed as involved in the money laundering as defined under section 3 of the PMLA. The said argument of Awasthi that the bonds were attached equivalent value and not from direct proceed of crime. 70. It is also stated by him on behalf of his client that the NSEL, subsidiary and holding of FTIL, was acting as agent of the FTIL and there was no genuine transaction on the platform of the NSEL. The FTIL has used the NSEL for purpose of sham transactions under the guise of paired contract. All circulars launched on the NSEL were discussed in the board meeting comprising key Management Personals of FTIL in the Board of NSEL and the board used to ratify and approve the same. By virtue of its shareholding of 99.99% in NSEL, FTIL has complete authority over all the affairs of NSEL enabling it to appoint all the Directors on the board of NSEL, through them effective control over the functioning of NSEL. The NSEL board comprising....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contrast, the second and third kinds of properties mentioned above would ordinarily be "untainted property" that may have been acquired by the suspect legitimately without any connection with criminal activity or its result. The same, however, are intended to fall in the net because their owner is involved in the proscribed criminality and the tainted assets held by him are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained. This is why for such untainted properties (held in India or abroad) to be taken away, the rider put by law insists on equivalence in value. From this perspective, it is essential that, before the order of attachment is confirmed, there must be some assessment (even if tentative one) as to the value of wrongful gain made by the specified criminal activity unless it be not possible to do so by such stage, given the peculiar features or complexities of the case. The confiscation to be eventually ordered, however, must be restricted to the value of illicit gains from the crime. For the sake of convenience, the properties covered by the second and third categories may be referred to as "....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... if the enforcement authority under PMLA has not been able to trace the "tainted property" which was acquired or obtained by criminal activity relating to the scheduled offence for money-laundering, it can legitimately proceed to attach some other property of the accused, by tapping the second (or third) above-mentioned kind provided that it is of value near or equivalent to the proceeds of crime. But, for this to be a fair exercise, the empowered enforcement officer must assess (even if tentatively), and re-evaluate, as the investigation into the case progresses, the quantum of "proceeds of crime" derived or obtained from the criminal activity so that proceeds or other assets of equivalent value of the offender of money-laundering (or his abettor) are subjected to attachment to such extent, the eventual order of confiscation being always restricted to take over by the Government of illicit gains of crime, the burden of proving facts to the contrary being on the person who so contends." ......................................... .................................... ................................... "160. But, in cases where the enforcement autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IL is charged with the offence of money laundering and also NSEL is fully and wholly owned by FTIL. Therefore, the attachment on the properties of FTIL is legal. The properties of FTIL can‟t be released just on the ground that FTIL and NSEL are separate legal entity. The Hon‟ble Supreme Court has rejected the amalgamation of both the entities in totally separate case and separate legal provisions and context. This Tribunal has to decide the matter considering the overall case, role of the FTIL and NSEL and provisions of the Prevention of Money Laundering Act, 2002. 75. Mr. Awasthi has referred Section 71 of the Act - Section 71 of the PMLA reads as under:- "Act to have overriding effect:- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force." He submits that it is clear that the provisions of the PMLA override the provisions of any other law being in force. In this case, the other law like Companies Act, the provisions of the PMLA will have overriding effect. 76. It is stated by him that the proceeding initiated by MCA against FTIL are civil in nature whereas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trail of the default amount to the 24 Defaulters. The Report establishes that the entire default amount is traced to the Defaulters. Details of the same are herein below: Liability of defaulter as per EOW Forensic Audit Report Sr. No. Defaulter Liability asper EOW Forensic Audit Report (Rs. In Crores) Date of Forensic Audit Report 1 Aastha Minmet India Pvt. Ltd 243.07 14-Feb-18 2 Juggernaut Projects Limited 3 ARK Imports Private Limited 719.42 1-Mar-18 4 MSR Food Processing 9.05 5-Feb-18 5 Swastik Overseas Corporation 100.83 8-Feb-18 6 White Water Foods Pvt. Ltd. 84.87 6-Feb-18 7 Yathuri Associates 424.64 13-Feb-18 8 Mohan India Pvt Ltd 922.11 5-Apr-18 9 Tavishi Enterprises Pvt Ltd 10 P D Agro Processors Pvt Ltd 680.02 26-Feb-18 11 Lotus Refineries Pvt Ltd 252.56 31-Mar-18 12 NCS Sugars Limited 58.85 20-Feb-18 13 Spin Cot Textiles Pvt Ltd 38.26 5-Feb-18 14 N K Proteins Ltd 968.82 29-Mar-18 15 LOIL Continental Foods Ltd. 720.38 30-Mar-18 16 LOIL Overseas Foods Limited 17 LOIL Health Foods Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nation of Liability by HCC (B) Order Date Arbitration Award (C) Order Date Total of Decree and Arbitration award (A+B+C) Amount Crystallized by HCC and accepted by Hon'ble BHC Order Date Amount Crystallized By HCC and pending acceptance by Hon'ble BHC Report Date of HCC 1 N K PROTEINS LTD 2 MOHAN INDIA PVT LTD 922.00 11-01-18 922.00 3 TAVISHI ENTER-PRISES 4 LOIL CONTINENTAL FOOD LTD 320.02 26-04-18 & 30-07-18 5 LOIL HEALTH FOODS LTD 265.87 26-04-18 6 LOIL OVERSEAS FOODS LTD 77.24 26-04-18 7 ARK IMPORTS PVT LTD 719.37 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....LS & POWER PVT. LTD. → Rs. 175.25 Crs. 2. SANKHYA INVESTMENTS → Rs. 7.23 Crs. These defaulters were members of NSEL and defaulted on their payment obligations on the NSEL-Exchange platform. 81. It is submitted that from the aforesaid, it is clear that the money trail of the default of Rs. 5,600 crores, has been traced to the defaulters on NSEL's exchange and not NSEL. 82. It is submitted on behalf of '63 MTL' that the amount of Rs. 1,254.60 crores traced to NSEL are not 'proceeds of crime' under Sec. 2(1)(u) of the PMLA as the said property is not derived, either directly or indirectly by NSEL as a result of any alleged criminal activity, on NSEL's exchange, i.e. the default of Rs. 5,600 crores, as seen above. Therefore, if the aforesaid amount is not 'proceeds of crime' under the PMLA, then any provisional attachment of assets of "equivalent value‟ of the '63 MTL' /Appellant by Respondent No.1 by way of the PAOs, is illegal and ultra vires the scheme of the Act. 83. The said arguments of Mr. Awasthi have no force. On the one side, he says that proceed of crime traced to NSEL as per the case of respondent no. 1, on the other hand the respondent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....October 2008. On 27.04.2012, the Department of Consumer Affairs ["DCA"] issued a show cause notice to NSEL as to why action should not be initiated against it for permitting transactions in alleged violation of the exemption granted to it under the FCRA. NSEL replied to the show cause notice on 29.05.2012 stating that it had not violated the exemption granted to it. Without adjudicating upon the show cause notice, on 12.07.2013, the DCA directed NSEL to give an undertaking that no further contracts shall be launched until further instructions, and that all existing contracts will be settled on due dates. This was effectively a "freezing" order. On 22.07.2013, NSEL gave an undertaking to the DCA. 3. Earlier, in January 2013, representatives of MMTC Ltd., a Government of India undertaking, which was one of the trading 3 members of NSEL, visited some of the warehouses which were at different locations in order to verify stocks therein and reported existence of full commodity stock in the said warehouses. Sometime in July 2013, 13,000 persons who traded on the platform of NSEL claimed to have been duped by other trading members (being 24 in number), who defaulted in payment of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ous nature 5 have been recorded against the appellant, and the fraud perpetrated is to the tune of INR 5500 crore. 5. On 06.01.2014, the Economic Offences Wing, Mumbai, filed chargesheets against the Managing Director and CEO of NSEL, Shri Sinha, the Head of Warehousing of NSEL, Shri Babu Kanvi, and two other defaulters. In the chargesheet, it was revealed that the aforesaid three employees of NSEL, in exchange for monetary kickbacks, had colluded with the defaulters to enable them to trade on NSEL's platform without depositing adequate goods in the warehouses, in breach of rules and byelaws of NSEL. 6. On 18.08.2014, the FMC, vide a letter to the Union of India, suggested that FTIL and NSEL be merged. Meanwhile, in the representative Suit No. 173 of 2014, vide order dated 02.09.2014, the Bombay High Court appointed a three-member committee consisting of Mr. Justice V.C. Daga, Mr. J. Solomon, and Mr. Yogesh Thar for ascertaining and crystallising the liability of the defaulters and to assist in recovery of debts from the defaulters. This committee continues to function even on date. Thus, in addition to INR 3365 crore, i.e., the total of decrees and arbitration aw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....EBI"] w.e.f. 28.09.2015. On the same day, the FCRA was also repealed. Thus, SEBI was now vested with the powers of the FMC which is to be governed by the Securities and Exchange Board of India Act, 1992 ["SEBI Act"]. 8. FTIL and NSEL were granted a hearing on their objections to the impugned draft amalgamation order by a committee consisting of Shri Pritam Singh, Additional Secretary to the Government of India, and 8 Shri H.P. Chaturvedi, Joint Secretary and Legal Advisor, Ministry of Law and Justice in October 2015, pursuant to a Bombay High Court order in the Writ Petition 2743 of 2014 pending before it. 9. On 12.02.2016, a final amalgamation order was passed in terms of Section 396(3), thereby merging FTIL and NSEL, wherein all assets and liabilities of NSEL would become assets and liabilities of FTIL. The writ petition already filed was amended on 28.03.2016 to include a challenge to this order. On 04.12.2017, the impugned judgment of the Bombay High Court was passed in which the said writ petition was dismissed. 55.3. We have seen that neither FTIL nor NSEL has denied the fact that paired contracts in commodities were going on, and by April to July, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tices u/s 4 & 5 of the MPID Act to the persons whose assets have been attached as above. Thus, the process of liquidation of the attached assets has started. • Bombay High Court has appointed a 3- 95 member committee headed by Mr. Justice (Retd.) V.C. Daga and 2 experts in finance and law to recover and monetize the assets of the defaulters. • Rs. 558.83 crores have been recovered so far, out of which Rs. 379.83 crore have been received/recovered from the defaulters and Rs. 179 crore were disbursed by NSEL to small traders/investors. 8.2. Enforcement Directorate: • ED has traced proceeds of crime amounting to Rs. 3973.83 crore to the 25 defaulters; • ED has attached assets worth Rs. 837.01 crore belonging to 12 defaulters; • As per the recent amendment in the PMLA, the assets attached by ED can be used for restitution to the victims. 8.3. The above status indicates that the said enforcement agencies are working as per their mandate......." 56.2. What concerned the FMC in August 2014 has, by the date of the final amalgamation order, been largely redressed without amalgamation. The "emergency ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t would be in essential public interest to amalgamate NSEL with FTIL." It will be seen that all the expressions used in relation to "public interest" have relation only to the businesses of the two companies that are sought to be amalgamated. What is important to note is that there is no interest of the general public as opposed to the businesses of the two companies that are referred to. It is important to notice that the leveraging of combined assets, capital, and reserves is only to settle liabilities of certain stakeholders and creditors when the order is read as a whole, and given the fact that the businesses of the two companies were completely different. So far as achieving economy of scale and efficient administration is concerned, it is difficult to see how this would apply to the fact situation in this case where NSEL is admittedly a company which has stopped functioning as a commodities exchange at least with effect from July, 2013 with no hope of any revival. Thus, the consolidation of businesses spoken 100 about does not exist as a matter of fact, as NSEL's business has come to a grinding halt, as has been observed by the FMC and the Central Government itself.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cial system, by consolidating the businesses of NSEL and FTIL" is no part even of this answer given, but a gloss given by the High Court itself relatable to this answer. Similarly, when it comes to reason (b), "giving effect to business realities of the case" contained in the answer to objections does not contain "by consolidating the businesses of FTIL and NSEL", nor does it contain "and preventing FTIL from distancing itself from NSEL, which is, even otherwise, its alter ego". On the contrary, the High Court itself mentions, in paragraph 355, that "this is also not a case where the Central Government has, in fact, lifted the corporate veil, despite the alleged non-existence of the circumstances justifying lifting of such corporate veil", and further, "this is not a case where the Central Government has lifted the corporate veil and sought to apportion any liability upon either NSEL or FTIL". For all these reasons, we find that no reasonable body of persons properly instructed in law could possibly arrive at the conclusion that the impugned order has been made in public interest. 59.5. So far, we have gone by the Central Government order as it stands. The Bombay High Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the other hand, NSEL has never paid a single dividend ever since its inception. Post amalgamation, therefore, dividend payable to the shareholders of FTIL is bound to come down. Correspondingly, the "marketable value‟ of such shares will also fall. 85. In reply, it is submitted on behalf of respondent no. 1 that the Hon‟ble Supreme Court vide order dated 30.04.2019 has set aside the Order of the Hon'ble Bombay High Court and rejected the merger of M/s National Spot Exchange Limited (NSEL) with M/s 63 Moons Technologies Ltd. (Formerly known as Financial Technologies India Ltd - FTIL). In this regard, the question, which was raised in bunch of appeals and Writ Petitions before the Hon‟ble Supreme Court, as to the applicability and construction of Section 396 of the Companies Act, 1956, which deals with compulsory amalgamation of companies by a Central Government Order when this becomes essential in the public interest. 86. It is also submitted by the respondent no. 1 that the issue regarding involvement of NSEL or FTIL in money laundering was not even raised or discussed before the Hon‟ble Supreme Court. Further, criminal aspect of involvement of NSEL, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....these facts revealed during the course of investigation, which has now been established after the above mentioned observations of the Hon‟ble Supreme Court in its Order dated 30.04.2019, attachment of the properties of FTIL has been made and the same has been confirmed by the Adjudicating Authority. 89. It is difficult to hold that the attachment of assets of 63 Moons Technologies Ltd. (erstwhile Financial Technologies (India) Ltd.) is illegal and ultra vires the statutory definition of "Proceeds of crime". "Proceeds of Crime" in the hands of NSEL if dissipated can only be substituted by other properties of National Spot Exchange ltd. (NSEL) itself. There is no concept of "equivalent" attachment in the hands of another legal entity. The said legal entity (63 Moons Technologies Ltd.) conducts its own independent business and earns therefrom. 90. Para 56.1 of Supreme Court Judgement reads as under:- 56.1. What is important to note is that by the time the final order of amalgamation was passed, i.e., on 12.02.2016, the final order itself records: "8.1.Economic Offences Wing, Mumbai: • Total amount due and recoverable from 24 defaulters is Rs. 5689.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld apply only to a person who came into "possession" of the proceeds of crime. It cannot be applied to attach assets of 3rd party who is not the recipients of any proceed of crime. In the eyes of law, every public-sector company is a distinct/independent company. 92. It is submitted on behalf of '63 MTL' that NSEL was a Separate legal entity having independent management, '63 MTL' was not controlling the functioning of NSEL. The position regarding a holding and a subsidiary has been adequately dealt with by the courts as under: a. Balwant Rai Saluja and Anr. V. Air India & Ors. (2014) 9 SCC 407 (Issue raised was as to whether the workmen engaged in the statutory canteen, through a contractor, would be treated as employees of the principal establishment, the SC examining the inter-se relationship of holding and subsidiary Company and whether the workman of the subsidiary can be termed as employees of the principal establishment held that the wholly owned subsidiary is a distinct legal entity and negated the doctrine of "piercing the corporate veil") b. Electronics Corporation of India v. Secretary, Revenue Department, Government ofAndhra Pradesh. (1999)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....does not involve in the day- to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability Under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the Company, one who actively looks after the dav-to-dav activities of the Company and particularly responsible for the conduct of its business. Simply because a person is a Director of a Company, does not make him liable under the N.I. Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence Under Section 141 of the N.I. Act. 95. It is submitted that the Jignesh Shah had no role to play in policy decision of NSEL. In this regard, the following facts are referred: a. Affidavit of Anja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perty is taken or held outside the country, then the property equivalent in value held within the country)." 17. It is clear from the language of Section 2(u) of the PML Act that the expression "proceeds of crime" refers to a property, which is "derived or obtained" by any person as a result of criminal activity. Therefore, in order to pass an order of provisional attachment, it was necessary for the ED to have reasons to believe that the property sought to be attached was "derived or obtained" from any scheduled crime. 98. It is argued on behalf of '63 MTL' that in the absence of even an allegation of a money trial, assets of FTIL/63 MTL cannot be attached merely because it is the holding company. a. As per R-1's own case mentioned in the prosecution complaint, the entire money trail has been traced to defaulters. b. There is admittedly no nexus between the alleged crime & property attached. c. The only inflow of money from NSEL to 63MTL is Rs. 84 crores ( which was on account of payment towards rent, electricity, AMC & software licenses), the same has also been deposited before the Hon‟ble Bombay High Court. d. There is in fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(confirming CLB order) iii. NCLT Order dated 16.06.2016 - EgJZ23/CCNCLT Committee approved Treasury operations 102. "63 MTL‟/ FTIL was not an accused; either in the Scheduled Offence or in the PMLA Offence at the time of issuance of PAOs at the initial stage. a. 63 MTL / FTIL was initially named in the FIR b. Therefore, role of 63 MTL / FTIL has been investigated by the Economic Offences Wing of Mumbai Police ("EOW"). However, 63 MTL has not charge sheeted yet by EOW despite a lapse of more than 5 years. EOW has so far filed the following chargesheets before the designated court: i. Chargesheetdated06.01.2014 ii. First Supplementary Chargesheet dated 02.06.2014 iii. Second Supplementary Chargesheet dated 04.08.2014 c. 63 MTL/ FTIL was not even a suspect in the ECIR dated 14.10.2015 d. Subsequently, in the Prosecution Complaint dated 30.03.2015, 63 MTL / FTIL has been left out, and no role attributed to 63 MTL. i. Even after investigation, no money trail has been found to 6 3MTL 103. On the date of the confirmation of the three PAOs, namely 09.03.2017, 22.03.2017 & 14.07.2017, admittedly the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that 63 Moons Technologies Ltd. holds 99.99% shareholding in NSEL cannot be a ground to attach the assets of 63 Moons Technologies Ltd. Para 59.3 and para 59.5 of judgement of the Hon‟ble Supreme Court in Civil Appeal no. 4476 of 2019 dated 30th April, 2019 (63 moons & ors vs UOI & ors) are reproduced hereunder:- "59.3. It is important to note that grounds (a) and (b) are both culled out in answer to objections raised by FTIL. The precise objection raised and the answer given are quoted here in below: "7.2.1. FTIL has challenged the background and reasons for the amalgamation as the power under section 396 of the Act has been used only in case of Government companies alone. This argument does not derogate from the scope of the statutory provisions. The statutory provisions of section 396 of the Act are being invoked in essential public interest to safeguard the interest of all stakeholders in the captioned company. The present status and composition of the Boards of FTIL and NSEL have been noted. However, the fact that the Boards had not acted with an independent mind to collect information and put the system under a robust technology is borne out of the si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tering of public confidence and the purpose of establishing Commodity Exchange has been defeated". First and foremost, what is important to notice is that the "business realities" of the case are what is contained in "the recommendations of the FMC". We have seen that these recommendations are in the form of a letter dated 18.08.2014, in which the "business reality" is the fact that dues of INR 5600 crore have to be paid, and that NSEL does not have the wherewithal to do so. Thus, its parent company's financial resources ought to be used to effect such payment. This "business reality", therefore, speaks only of the private interest of the investors/traders who have been allegedly duped (which fact will only be established in suits filed by them in 2014), and nothing beyond (which would show some vestige of public interest). Equally, the grave shattering of public confidence and purpose of establishing commodity exchanges having been defeated, according to the Central Government, is a gloss on the FMC order dated 17.12.2013. If this were so, one would have expected a resuscitation or revival of the commodities exchange of NSEL, which could have been achieved by takeover of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., "which are an integral and essential part of Indian economy and financial system, by consolidating the businesses of NSEL and FTIL" is no part even of this answer given, but a gloss given by the High Court itself relatable to this answer. 109 Similarly, when it comes to reason (b), "giving effect to business realities of the case" contained in the answer to objections does not contain "by consolidating the businesses of FTIL and NSEL", nor does it contain "and preventing FTIL from distancing itself from NSEL, which is, even otherwise, its alter ego". On the contrary, the High Court itself mentions, in paragraph 355, that "this is also not a case where the Central Government has, in fact, lifted the corporate veil, despite the alleged non-existence of the circumstances justifying lifting of such corporate veil", and further, "this is not a case where the Central Government has lifted the corporate veil and sought to apportion any liability upon either NSEL or FTIL". For all these reasons, we find that no reasonable body of persons properly instructed in law could possibly arrive at the conclusion that the impugned order has been made in public interest." 107. It is admitted pos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igh Court, the amount of Rs. 84 crores which is the license fee, has been deposited by the '63 MTL' , as per the direction of the Court. 110. We have requested Mr. Awasthi many times that in case any other amount has been diverted by the National Spot Exchange Ltd.(NSEL) to the '63 MTL' , the respondent would be entitled to attach the said amount. There is no positive answer given by Mr. Awasthi, except it is stated that the investigation is still one. 111. It is admitted position that the Bombay HC granted bail to Jignesh Shah in Criminal Bail Application 1263/2014. In the Order, the BHC interalia, observed that "though the case has been projected as a "scam of Rs. 5600 crores,‟ it needs to be kept in mind that these amounts have not been received by NSEL.....The money invested has not come to NSEL, but has gone to the borrowers i.e. bogus sellers. It is the borrowers who have benefited by the transactions and the money of the "investors‟ has gone to them." 112. This Tribunal has also gone through the details of the investigation as well as the statements of witnesses, including officials of NSEL, under Section-50 of the PMLA, 2002. Shri Anjani Sinha, the form....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts to civil death of the company as well as the '63 MTL' 58,000 shareholders with an independent Board of Directors who will suffer without their fault. Not only that, the employees of the Company will also lose their job in case the Company will not be allowed to continue its business if the attachment will continue. It is also pertinent to mention that in the impugned order, all important legal issues by NSEL and '63 MTL' have neither been discussed nor decided as per law. The order appears to be non-application of mind without appreciating the law. In the impugned order, all the issues raised by NSEL have not been legally dealt by the Adjudicating Authority. 116. It is always open to the ED to attach addl. amount other than Rs. 84 crores which has already been deposited, if after the investigation it is found that more money has been transferred from NSEL to '63 MTL'. We are also conscious about the fact that the main allegation of the respondent is against one Mr. Jignesh Shah and his family members, who have the major shareholding in the Company '63 MTL' , however, as per settled law, these are two different entities in the eyes of law. 117. Having considered the entire ....