In a fresh and significant development, the Bombay High Court in a latest, landmark and laudable judgment titled The State of Maharashtra Through the Deputy Collector & Competent Authority (NSEL) V/s Anil Kohil in Writ Petition No. 3396 of 2019 With Civil Application No. 29 of 2020 delivered recently on 9 November 2020 has pronounced in most certain terms that the National Company Law Tribunal has no jurisdiction to examine the legality or validity of action taken under Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 (MPID Act) and it is only the designated Court constituted under Section 6 of the said Act that will have exclusive jurisdiction to deal with the same. The Division Bench of Justice SC Gupte and Justice Madhav Tamdar quashed and set aside the order dated January 28, 2019 passed by the Member (Judicial), National Company Law Tribunal, Mumbai Bench directing the de-freezing of bank account in the name of Dunar Foods Ltd, which was freezed in relation to the National Spot Exchange Limited (NSEL) payment default crisis. This certainly has to be complied with now.
To start with, it is first and foremost enunciated in para 1 that, “In the present case a very interesting question arises as to whether action taken under the provisions of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 (hereinafter referred to as “MPID Act”) against a “Financial Establishment”, as contemplated under the MPID Act, can be challenged not before the Designated Court under the MPID Act but before the National Company Law Tribunal (hereinafter referred to as “NCLT”) by resorting to the remedy provided under the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as “I.B. Code”). On the application of a “Financial Creditor” as contemplated under I.B. Code, an Interim Resolution Professional (hereinafter referred as “IRP”) is appointed by NCLT by exercising power under section 7 of the I.B. Code against the Corporate Debtor as contemplated under I.B. Code, which is also the Financial Establishment under the MPID Act and de-freezing of the corporate Debtor’s account attached in MPID proceedings is ordered. This order is the subject matter of challenge in this petition.”
While setting the background, it is then put forth in para 4 that, “The State of Maharashtra through the Deputy Collector and Competent Authority (NSEL), by the present Writ Petition filed under Article 226 and 227 of the Constitution of India , has approached this Court challenging the legality and validity of the order dated 28/01/2019 passed by the Member (Judicial), National Company Law Tribunal, Mumbai Bench in M.A.No.1372/2018 in CP(IB)-1138(MB)/2017. By the said order, National Company Law Tribunal (NCLT) directed de-freezing of bank account No.1952320006245 in HDFC Bank, Karnal, Haryana, (hereinafter referred to as “said account”) in the name of Dunar Foods Ltd.”
While dealing with factual aspects, it is then laid down in para 5 that, “Some of the factual aspects set out in the petition are as follows :
(i) An FIR being C.R.No.216/2013 was registered against Financial Technologies (India) Ltd. (hereinafter referred to as “FTIL”) now known as “63 Moons Technologies Ltd.”, the National Spot Exchange Ltd. (hereinafter referred as “NSEL”), the Directors and key management persons of FTIL and NSEL, 25 borrowers/trading members of NSEL, some brokers of NSEL, and others, under sections 120B, 409, 465, 467, 468, 471, 474, 477(A) of the Indian Penal Code, by the M.R.A. Marg police station on 30/09/2013. In the said FIR, the first informant had alleged that NSEL had caused wrongful loss of about Rs.2.2 crores to himself, and wrongful loss of approximately Rs.5600 crores to more than 13000 investors. On the same day, i.e. on 30/09/2013, the investigation into the said case was transferred to Economic Offence Wing, Mumbai (hereinafter referred to as “EOW”), who registered EOW C.R. No.89 of 2013. The EOW applied the provisions of the MPID Act to the said C.R. in October 2013.
(ii) NSEL is a company registered under the Companies Act, 1956 having its registered office at Chennai, Tamil Nadu. The NSEL provided an electronic platform for spot trading in commodities, and used to operate from 16 States across the country. The NSEL was promoted by FTIL, now known as “63 Moons Technologies Pvt. Ltd.”, which holds 99.99% of the share capital of NSEL. The balance 0.01% of the share capital of the NSEL is held by the National Agricultural Co-operative Marketing Federation of India Ltd. (hereinafter referred as “NAFED”).
(iii) In the petition, a reference has been made to notification dated 05/06/2007 and further notification dated 06/02/2012 issued by the Department of Consumer Affairs, Ministry of Consumer Affairs, Government of India (hereinafter referred as “DCA”) by which exemption was granted to NSEL from the operation of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred as “FCRA”) for all forward contracts of one day duration for sale and purchase of commodities traded on its platform subject to certain conditions.
(iv) In the Writ Petition, the manner in which NSEL was working has been set out in detail.
(v) As per the FIR, during the initial contracts, member companies squared off the contracts on the dates of maturity. However, later on, these companies did not honour their commitments and caused wrongful loss of about Rs.5600 crores to about 13000 investors. The members of the NSEL fraudulently obtained huge funds from the NSEL against non-existent stocks of commodities. There was a semblance of trading, which was actually being done in non-existent goods, by issuing forged warehouse receipts. Further, the warehouses, which were an integral part of the NSEL as the commodities were required to be deposited in the exchange designated and certified warehouses as part of the pay-in obligations, lacked capacity and some of them had no stocks.
(vi) The NSEL vide their circular dated 14/8/2013 announced a settlement schedule. According to this schedule, NSEL had to make payouts of Rs.5,574.31 crores to its members. The settlement calendar announced by NSEL was spread over 30 weeks for pay-out on pro-rata basis to 148 members. The NSEL subsequently defaulted in all the payouts since the announcement of the settlement plan.
(vii) The investigation revealed that the mode of transaction that the NSEL was allowed by the Government of India was not followed by the NSEL, and that the NSEL had promised attractive returns to persons who had traded on the NSEL platform. The NSEL had assured them that if they entered into a contract on T+2, they would get an attractive return of 14% to 16% on the completion of the contract on T+25.”
While elaborating further, it is then set out in para 6 that, “As set out hereinabove, the FIR was registered on 30/09/2013, and after investigation, the EOW filed charge-sheet on 06/01/2014 in EOW. C.R. No.89/2013 in MPID Court, Mumbai. EOW thereafter filed supplementary charge-sheets from time to time including on 04/06/2014, 04/08/2014 and 27/12/2018. It is set out in the petition that as provisions of MPID Act were made applicable, the Government of Maharashtra vide notification dated 28/08/2014 issued under section 4 of the MPID Act attached several properties of several companies including Lotus Refineries Pvt. Ltd., White Walter Foods Pvt. Ltd., Shree Radhey Trading Co., Vimladevi Agrotech Ltd., Mohan India Pvt. Ltd., Tavishi Enterprises Ltd., Brinda Commodity Pvt. Ltd., Ark Import Pvt. Ltd., P..D.Agroprocessors Pvt. Ltd., Aastha Minmet India Pvt and Juggernaut Projects Ltd., White Water Foods Pvt. Ltd., Swastik Overseas, MSR Foods, Loil Continental, Loil Health Foods Ltd., Loil Overseas Foods Ltd., Spin Cot Textiles Pvt. Ltd., NCS Sugars Ltd., Metkore Alloys and Industries Ltd., Yathuri Associates, Namdhari Food Internation Pvt. Ltd., Amdhari Rice and General Mills and of Dunar Foods Ltd. It appears that during investigation, as and when the Investigating Agency got knowledge about properties of various companies/persons to which the provisions of MPID Act in relation to said FIR could be applied, necessary notifications under section 4 were issued by Government of Maharashtra attaching immovable and movable properties. By the notification dated 19/10/2018 various properties belonging to various parties were attached including of M/s.E.D. Agro Procedures Pvt. Ltd. and Dunar Foods Pvt. Ltd. including the said account. In this petition, we are concerned with defreezing of the said account which is subject matter of the impugned order dated 28/01/2019.”
Going forward, it is then put forth in para 7 that, “When the said investigation by EOW was going on and when the authorities were taking action under MPID Act, simultaneously on 27/06/2017, the State Bank of India, a Financial Creditor of M/s. Dunar Foods Ltd., invoked the jurisdiction under section 7 of the I.B. Code for the defaulted financial debt of Rs.758,73,62,546/- outstanding against the Corporate Debtor M/s.Dunar Foods Ltd. In the said proceedings, by the order dated 22/12/2017, the said petition was admitted by the NCLT and Mr. Anil Kohli was appointed as IRP and directed to comply with provisions of sections 13 and 15 onwards of the I.B. Code. It was further directed that as the petition was held fit for “admission”, hence as a consequence Moratorium as prescribed under section 14 of the I.B.Code would commence. It was further directed that on enforcement of Moratorium, certain prohibitions were applicable, such as institution of any Suit before a Court of Law, transferring of any Asset of the Debtor, encumbering any rights over the assets of the Debtor. However, it was also clarified that the supply of essential goods of services to the Corporate Debtor shall not be terminated during Moratorium period. It shall be effective till completion of the Insolvency Resolution Process or until the approval of the Resolution Plan as prescribed under section 31 of the I.B. Code. Accordingly, the said petition stood admitted. The Corporate Insolvency Resolution Process commenced from the date of the order.”
In hindsight, it is then mentioned in para 8 that, “It is significant to note that on 20/02/2018, M.A.No.237/2018 was filed by Dunar Foods Ltd. through IRP under section 9 of MPID Act before the Designated Court under MPID Act, seeking direction to defreeze the bank accounts of Dunar Foods Ltd. attached pursuant to the notifications issued by the Home Department of Government of Maharashtra under the MPID Act from time to time and seeking further direction to the Competent Authority designated under MPID Act to forthwith handover all assets of Dunar Foods Ltd. to the Applicant. By the order dated 28th December, 2018, passed by the learned Special Judge (MPID Act) City Civil and Sessions Court for Greater Bombay passed below Exhibit-1 in Miscellaneous Application No.237 of 2018, the said application was rejected, however, it was clarified that IRP was at liberty to raise objections before the Court under section 7 of the MPID Act.”
Of course, what cannot be ignored is then stated in para 9 that, “In the meanwhile, on 12/11/2018, M.A.No.1372 of 2018 in C.P.No.1138/I & BC/NCLT/MB/MAH/2017 was filed by IRP for Dunar Foods Ltd. under section 60(5), 14(1a) and 74(2) of I.B. Code before the NCLT, seeking direction to de-freeze the said account of the corporate debtor attached pursuant to the notifications issued by the Home Department, Government of Maharashtra under MPID Act from time to time and consequential directions to the Respondent, being the Competent Authority designated under MPID Act, to forthwith handover all assets of Dunar Foods Ltd. to the Applicant. It is further prayed that action be directed to be initiated under section 74(2) of the Code against the concerned officers of the corporate debtor for deliberate and willful violation of section 14 of the Code. A detailed reply dated 15/01/2019 was filed by the Deputy Collector and Competent Authority (NSEL) to M.A.No.1372/2018. By the impugned order dated 28/01/2019, passed by the learned Member (Judicial) NCLT, Mumbai Bench, M.A.No.1372/2018 was partly allowed by directing defreezing of the said account. The said order is challenged by the State of Maharashtra through Deputy Collector and Competent Authority, (NSEL) in the present writ petition.”
To put it succinctly, it is then pointed out in para 28 that, “The Respondents have also relied on the judgment of the Designated Court under the MPID Act at Bombay City Civil and Sessions Court, Mumbai in Roofit Industries Limited Vs. The State of Maharashtra in MPID Special Case No. 34 of 2004. A perusal of said order dated 18.08.2017 passed by the Special Judge, MPID Act clearly shows that provisions of I.B. Code were pointed out to the Court and after giving hearing to Competent Authority, depositors, objectors and others, Competent Authority and EOW were directed to hand over certain properties to the Applicant in the said case who claims to be an Interim Resolution Professional appointed by the NCLT for Roofit Industries Ltd. The operative portion of said order dated 18.08.2017 is reproduced herein below:-
1. Application is allowed.
2. Competent Authority and EOW is directed to hand over to applicant/intervener the custody and charge of the immovable properties mentioned at Sr. No. 8,10, 12,16,17,18,19, 20 and 23 of the notification dtd. 06.05.2016 alongwith all documents, record etc., within two weeks from today. They are further directed to handover to applicant office equipment, computers, furnitures and fixture in premises at Sr.5 and 24 of the notification.
3. The Competent Authority and EOW are directed to hand over amount of Rs.40 Lakhs alongwith accrued interest, if any to the applicant, within two weeks from today.
4. The Competent Authority is directed to the represent all depositors/investors before the applicant/intervener and to file the claims on their behalf. CA shall do all acts necessary for safeguarding and protecting the interest of depositors in Roofit Industries.
Date: 18.08.2017 A. S. Kaloti
Special Judge, M.P.I.D. Act & Addl. Sessions Judge,
City Civil & Sessions
Judge At Bombay.
Thus, even the said order, on which reliance is placed by the Respondents, shows that the IRP in that case approached the Designated Court under the MPID Act and after hearing all the parties, an order was passed and certain directions in the interest of depositors as contemplated under the MPID Act were also issued.”
For the sake of clarity, it is then clarified in para 29 that, “The learned counsel for the Petitioner has also relied on the judgment of NCLAT in the case of JSW Steel Ltd.(supra) wherein it has been held that the action of Directorate of Enforcement did not meet the criteria under Section 32-A (1) (b) of I.B. Code. However, in the present case, the Designated Court under MPID Act will examine the said aspect and therefore, the said judgment is not applicable to the present case.”
In the ultimate analysis, the Bench then holds in para 30 that, “Thus, in view of the above discussion, we hold that the NCLT has no jurisdiction to examine legality or validity of action taken under MPID Act and it is only the Designated Court constituted under Section 6 of the MPID Act that will have exclusive jurisdiction to deal with the same. Therefore, the impugned order passed by the NCLT is without jurisdiction and therefore, amenable to a challenge in our writ jurisdiction.”
Quite significantly, it is then held in para 31 that, “Thus, it is clear that the only remedy for Respondent-IRP is to approach the Designated Court under Section 7 of the MPID Act. Therefore, the impugned order passed by NCLT by which the said account was directed to be de-freezed, is without jurisdiction. The learned AGP has rightly relied on the judgments in Whirlpool Corporation (supra), Harbanslal Sahnia (supra), Committee of Management(supra) and Godrej Sara Lee Ltd. (supra) wherein it is consistently held that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of Habeas Corpus, Mandamus, Prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for “any other purpose”. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions, one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any fundamental right or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.”
Now coming to the concluding paras. Para 32 states that, “In view of above discussion, we quash and set aside the order dated 28/01/2019 passed by the NCLT in M.A.No.1372/2018 in C.P.No.1138/I & BC/NCLT/MB/MAH/2017 by which the said account was directed to be de-freezed. The Respondents can approach the Designated Court under section 7 of the M.P.I.D. Act seeking appropriate reliefs. We have not dealt with the merits of the case and the contentions in that behalf are expressly kept open. Rule is made absolute in above terms with no order as to costs.” Finally, it is then held in the last para 33 that, “In view of disposal of the Writ Petition, Civil Application No.29 of 2020 does not survive and is disposed of as such.”
Quite rightly, the two Judge Bench of the Bombay High Court comprising of Justice SC Gupte and Justice Madhav Tamdar have substantiated this notable judgment with logical and learned reasons rightly while also noting that the only remedy for the IRP now is to approach the designated court under Section 7 of the MPID Act and set aside the NCLT’s order. It has rightly held that NCLT has no jurisdiction to examine the legality or validity of action taken under MPID Act. It has to be now complied with. There can certainly be no ever denying or disputing it!