NCLT cannot examine validity of actions taken under MPID Act: Bombay HC

NCLT cannot examine validity of actions taken under MPID Act: Bombay HC

The High Court of Bombay has struck down a National Company Law Tribunal (NCLT) order in Jan 2019 de-freezing a company's bank account attached in connection with the National Spot Exchange Limited (NSEL) case.

The Court said that the NCLT has no jurisdiction to examine the validity of actions taken under the Maharashtra Protection of Interest of Depositors (In Financial Establishments), Act 1999, (hereinafter referred to as the MPID Act).

A bench of Justices SC Gupte & Madhav Jamdar set aside the NCLT order and stated "...it is only the Designated Court constituted under the MPID Act that will have exclusive jurisdiction..."

The NCLT had de-freezed the bank account of Dunar Foods Ltd. The Mumbai police's Economic Offences Wing had attached the account in connection with the NSEL case.

The State Bank of India had initiated proceedings against the company under the Insolvency & Bankruptcy Code, 2016, (IBC) for a defaulting on a debt of Rs. 758.73 crore.

The Deputy collector, who is a competent authority under the MPID Act, moved the High Court challenging the NCLT order, saying the tribunal has no jurisdiction to order the de-freezing.

As a background to the case, The NSEL provided an electronic platform for spot trading in commodities, and 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. (NAFED).

An FIR was registered against 63 Moons Technologies Ltd, NSEL, the Directors and key management persons of FTIL and NSEL 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 (IPC) in September 2013.

In the FIR, it was alleged that the members of the NSEL fraudulently obtained huge funds from the NSEL against non-existent stocks of commodities. In the said FIR, it was alleged that NSEL had caused wrongful loss of approximately Rs.5600 crores to more than 13000 investors and the case was transferred to the Economic Offences Wing (EOW).

The Court held, "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 Insolvency and Bankruptcy Code (IBC) 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 Interim Resolution Professional (IRP) and directed to comply with provisions of sections 13 and 15 onwards of the IBC. 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 IBC would commence."

In February 2018, Dunar Foods Ltd. filed an application through IRP under section 9 of MPID Act before the Designated Court seeking direction to defreeze the bank accounts of Dunar Foods Ltd.

The said application was rejected by the learned Special Judge (MPID Act) City Civil and Sessions Court for Greater Bombay. However, it was clarified that IRP was at liberty to raise objections before the Court under section 7 of the MPID Act.

Meanwhile the IRP for Dunar Foods Ltd. filed an application under section 60(5), 14(1a) and 74(2) of the IBC before the NCLT, seeking direction to de-freeze their account under MPID Act and to handover all assets of Dunar Foods Ltd.

"It is clear that the appropriate forum to challenge the attachment of the account of the Respondent is the Designated Court under MPID Act where the Respondent can raise all contentions on merits and also can point out the provisions of IB Code and the effect of the same on the steps taken under the MPID Act. It will be for the MPID Court to consider the interplay of the provisions of the MPID Act and the IBC and rule on the matter."

"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."

The Court observed that the only remedy for the IRP was to approach the designated court under Section 7 of the MPID Act.