MUMBAI: The Bombay high court recently stayed a special court order, directing the Economic Offences Wing of the Mumbai police to attach properties of IIFL Commodities Ltd, which had purportedly received deposits worth ₹326.22 crore for investing in the National Spot Exchange Limited (NSEL).
According to the police, between 2008 and 2013, NSEL appointed 25 members as sellers and allowed them to trade on the exchange. It was alleged that the sellers in collusion with the NSEL management traded fictitious stocks on the exchange by raising fake documents and defrauded about 13,000 investors to the extent of ₹5,600 crore.
Acting on a plea filed by an investor, Arvind Bahl, who had invested in NSEL through IIFL Commodities, the special court, set up under the Maharashtra Protection of the Interests of Depositors (In Financial Establishments) (MPID) Act, 1999, had on May 6, 2023, issued orders to the competent authority and the state government to take steps to attach properties of IIFL Ltd.
IIFL Commodities then moved to the HC challenging the special court order, pointing out that the plea filed by Bahl was opposed by the Competent Authority on the ground that the approximate value of already attached properties was ₹8,000 crore—way more than to meet the repayment requirement of ₹5,600 crore to around 13,000 investors. The authority had quantified the deposits received by IIFL Commodities at ₹326.22 crore.
The firm had urged the vacation bench of justice Sharmila Deshmukh and justice Gauri Godse to stay the attachment order, contending that initiating proposal for attachment of properties of a financial institution was a prerogative of the Competent Authority and the state government and the special court could not have issued the attachment order, especially when the authorities had opposed to the plea filed by Bahl.
Accepting the contention, the bench stayed the May 6 order, observing that the MPID Act does not empower the special court to direct the authorities to attach properties of a financial institution merely on receipt of an application directly filed by an investor.
The bench said conjoint reading of sections 4, 5 and 7 of the MPID Act, indicated that it is for the government to arrive at a satisfaction that the financial establishment had failed to return the deposits received from depositors or to pay the interest or other assured benefits or to provide the service promised against such deposits, and upon such satisfaction, it is for the government to publish an order that all the properties and assets of the financial establishment shall vest in the competent authority.
The HC added that under the scheme of the MPID Act, after the order is issued by the government, the competent authority applies to the special court along with all the details of the properties and only on receipt of such an application that the designated court can issue notice of attachment to the financial establishment and make the attachment order absolute after hearing the establishment.