MUMBAI :
A recent Supreme Court ruling interpreting the term “deposit” under a Maharashtra law may increase the number of cases before various courts and tribunals, legal experts said.
Late last month, the apex court set aside a Bombay high court order and upheld the Maharashtra government’s decision attaching the assets of 63 Moons Technologies Ltd under the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act or the MPID Act.
The state government had attached these assets under the MPID Act, which aims to protect the middle class and poor depositors, and allows for graded distribution of seized funds among them, after thousands of investors lost money in the National Spot Exchange Ltd (NSEL) scam. The promoter of NSEL, 63 Moons Technologies, moved the high court, which struck down the attachment saying NSEL is not a financial establishment as it did not accept deposits. However, the top court said the high court lost sight of the fact that Section 2(c) of the MPID Act defines ‘deposit’ in broad terms. The high court has read the definition of ‘deposit‘ narrowly without any reference to the salutary purpose of the MPID Act, it said.
“The impugned notifications attaching the respondent’s properties made under Section 4 of the MPID Act are valid on the grounds of legislative competence, the Supreme Court said. When the writ petition was limited to the question of whether NSEL is a financial establishment for the purposes of the MPID Act, the apex court said the high court should not have made any observations on the merits of criminal proceedings.
“The 63 Moons Technology case perhaps witnessed a relaxed interpretation of the provisions entailed within the MPID Act when the matter proceeded to the Supreme Court. Section 2(c) when read with Section 4 lays down a wide ambit for the term ‘deposit’ along with several exclusions. The primary norm of interpretation empowers the judiciary to deviate from the written word only when the circumstances call for it. The broad recognition of the different forms of transactions within the purview of Section 2(c) altered the entire premise of NSEL,” said Sonam Chandwani, managing partner, KS Legal & Associates.
The provision was seen to have three vital ingredients and this decision will serve as a precedent for future transactions. The same is likely to apply to all financial establishments within the scope of the MPID Act. Thus, exchanges and brokers accepting margins would fall within the meaning of a deposit only if it satisfies the ingredients as well as the test of return. Naturally, this construction will be restricted to the application of the Act and not the nature of transaction per se, Chandwani said.
“The bench did pose a query to us whether MPID will apply to NSE or BSE or other Securities and Exchange Board of India-regulated entities such as mutual funds or brokers. We submitted that MPID will apply to every entity that fails to return monies, securities, valuable commodities or services as promised. If the sectoral regulator fails to ensure that aggrieved investors/depositors are recompensed, MPID can and should be invoked. Only those instruments/underlying and entities that are explicitly excluded would fall outside the ambit of MPID. The bench also elaborated that this is a welfare statute and hence must be interpreted very widely. The legislative intent is very clear and must be given its fullest effect. The constitutional validity of the MPID Act has also once again been upheld, though the bench did express that the issue has been settled long ago and is no longer open to challenge,” said Chirag Shah, counsel, Mansukhlal Hiralal & Co, who represented the appellant NSEL Investors Action Group (NIAG) in the Supreme Court.
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