Bombay High Court
National Spot Exchange Ltd vs Lotus Refineries Private Ltd. And ... on 6 February, 2023
Bench: G.S. Patel, Dr. Neela Gokhale
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
Arun
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 403 OF 2023
WITH
INTERIM APPLICATION NO.160 OF 2023
IN
WRIT PETITION NO. 403 OF 2023
1. Lotus Refineries Private
Ltd,
Through its Managing Director,
Registered Address at 204, Boomerang
Building, Chandivali Farm Road,
Andheri (East), Mumbai.
2. Arun Kumar Sharma
Managing Director of Lotus Refineries
Pvt Ltd, Registered Address at 204,
Boomerang Building, Chandivali Farm
Road, Andheri (East), Mumbai ...Petitioners
~ versus ~
1. State of Maharashtra,
Through Home Secretary, Govt of
Maharashtra Second Floor, Mantralaya,
Mumbai - 400 032.
Page 1 of 17
6th February 2023
::: Uploaded on - 08/02/2023 ::: Downloaded on - 08/02/2023 13:01:13 :::
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
2. Deputy Collector &
Competent Authority
(NSEL),
Under MPID Act 1999, Third Floor,
MPID Branch, Old Customs House,
Mumbai - 400 001. ...Respondents
WITH
WRIT PETITION (L) NO. 26896 OF 2022
Namdhari Rice & General
Mills
Through its Partner Daljeet Singh S/o
Shri Mahender Singh, A Company
having its Office at Dabwali Road, Jiwan
Nagar, District Sirsa, Haryana. ...Petitioner
~ versus ~
1. State of Maharashtra,
Through Home Secretary, Govt of
Maharashtra Second Floor, Mantralaya,
Mumbai - 400 032.
2. Deputy Collector &
Competent Authority
(NSEL),
Under MPID Act 1999, Third Floor,
MPID Branch, Old Customs House,
Mumbai - 400 001. ...Respondents
Page 2 of 17
6th February 2023
::: Uploaded on - 08/02/2023 ::: Downloaded on - 08/02/2023 13:01:13 :::
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
A PPEARANCES
for the petitioner in Mr VV Gautam, with Isha
both writ petitions Vashisth & Dilip H Shukla.
for respondent-state Mr AL Patki, Addl GP with Mr
in wp/403/2023 SB Gore, AGP.
for respondent-state Ms Jyoti Chavan, AGP.
in wpl/26896/2022
for applicant/ Mr Arvind Lakhawat, with
intervenor Nimeet Sharma, i/b MZM
Legal LLP.
CORAM : G.S.Patel &
Dr Neela Gokhale, JJ.
DATED : 6th February 2023
ORAL JUDGMENT (Per GS Patel J): -
1. Writ Petition No. 403 of 2023 is filed by a corporate entity
Lotus Refineries Private Limited ("Lotus Refineries") and one
Arun Kumar Sharma, its managing director. The reliefs sought are
at page 29:
"(a) Issue a writ of mandamus or any other appropriate
writ/s or orders/directions to quash the notifications dated
28.08.2014, 22.06.2015, 13.01.2016 and 02.01.2019, issued
by the Respondent No.1, under Section 4(1), 5(1), 8 and 12
of Maharashtra Protection of Interest of Depositors (in
Financial Establishment) Act, 1999, qua petitioner (whereby
the Respondent No.1 attached the movable and immovable
properties of the Petitioner No. 1 & 2, by invoking section
4(1), 5(1) and 8 of the Act ibid), being ultra vires to the
provisions of Article 246 read with Entry No. 48 of List-1 of
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
7th Schedule of Constitution of India, Article 300A of
Constitution of India, provisions of sections 2(c), 2(d), 3,
4(1), 5(1), 8 & 12 of MPID Act, 1999 and section 2(12),
2(24) and 6 read with Entry No. 68 and 102 of Schedule-C
of Maharashtra Value Added Tax Act, 2002.
(b) declare that the Petitioner No.1 is not Financial
Establishment in terms of Section 2(d) of the MPID Act
and the amount paid by buyers of goods at spot trading at
electronic platform of National Spot Exchange Ltd, towards
transaction to the Petitioner No.1, is not deposit in terms of
Section 2(c) of MPID Act, 1999.
(c) stay the operation and execution of notifications
dated 28.08.2014, 22.06.2015, 13.01.2016, and 02.01.2019,
issued by the Respondent No1, qua Petitioners, till the final
disposal of the instant petition."
2. Writ Petition (L) No. 26896 of 2022 is by another commercial
entity, a partnership firm called Namdhari Rice and General Mills
("Namdhari Mills"). No individual is joined as the second
Petitioner. This may have some bearing on the last submission made
before us, noted below. Prayer clauses (a), (b) and (c) are virtually
identical to those in the Lotus Refineries Petition. They read thus.
"(a) Issue a writ of mandamus or any other appropriate
writ/s or orders/directions to quash the notifications
Exhibit "EE" and Exhibit "FF", dated 28.08.2014,
22.06.2015 and 02.01.2019, issued by the Respondent No.1,
under Section 4(1), 5(1), 8 and 12 of Maharashtra
Protection of Interest of Depositors (in Financial
Establishment) Act, 1999, qua petitioner (whereby the
Respondent No.1 attached the movable and immovable
properties of the Petitioner and their partners, by invoking
section 4(1), 5(1) and 8 of the Act ibid), being ultra vires to
the provisions of Article 246 read with Entry No. 48 of List-
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
1 of 7th Schedule of Constitution of India, Article 300A of
Constitution of India, provisions of sections 2(c), 2(d), 3,
4(1), 5(1), 8 and 12 of MPID Act, 1999 and section 2(12),
2(24) and 6 read with Entry No.20 of Schedule-C of
Maharashtra Value Added Tax Act, 2002.
(b) declare that the Petitioner is not Financial
Establishment in terms of Section 2(d) of the MPID Act
and the amount paid by buyers of goods at spot trading at
electronic platform of National Spot Exchange Ltd.,
towards transaction to the Petitioner, is not deposit in terms
of Section 2(c) of MPID Act, 1999.
(c) stay the operation and execution of notifications
dated 28.08.2014, 22.06.2015 and 02.01.2019, issued by the
Respondent No.1, qua Petitioner, till the final disposal of
the instant petition."
3. We do not understand why the Namdhari Mills Petition is as
yet on a lodging number. All objections are to be removed by Friday,
11th February 2023. If not, for this reason alone, there will be an
order of costs against Namdhari Mills in the amount of Rs.15,000/-
payable to National Spot Exchange Limited ("NSEL").
4. Interim Application No. 160 of 2023 is by the National Spot
Exchange Limited. It seeks impleadment. This is opposed.
5. As the prayers themselves indicate, both Lotus Refineries and
Namdhari Mills assail Notifications dated 28th August 2014, 22nd
June 2015, 13th June2016 and 2nd January 2019 under the
Maharashtra Protection of Interest of Depositors (In Financial
Establishments) Act 1999 ("the MPID Act").
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
6. According to the Writ Petitioners, neither is a "financial
establishment" covered by the MPID Act. They took no deposits
within the meaning of that Act. No notification could therefore be
issued against them.
7. A copy of the MPID Act is annexed to the Lotus Refineries
Petition. A few provisions are relevant and may be extracted below.
8. Section 2(c) defines deposit thus.
"(c) "deposit" includes and shall be deemed always to
have included any receipt of money or acceptance of any
valuable commodity by any Financial Establishment to be
returned after a specified period or otherwise, either in cash
or in kind or in the form of a specified service with or
without any benefit in the form of interest, bonus, profit or
in any other form, but does not include--
(i) amount raised by way of share capital or by
way of debenture, bond or any other instrument
covered under the guidelines given, and regulations
made, by the SEBI established under the Securities
and Exchange Board of India Act, 1992:
(ii) amounts contributed as capital by partners of
a firm;
(iii) amounts received from a scheduled bank or a
co-operative bank or any other banking company as
defined in clause (c) of section 5 of the Banking
Regulation Act, 1949;
(iv) any amount received from, --
(a) the Industrial Development Bank of
India,
(b) a State Financial Corporation,
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
(c) any financial institution specified in or
under section 6A of the Industrial
Development Bank of India Act, 1964,
or
(d) any other institution that may be
specified by the Government in this
behalf;
(v) amounts received in the ordinary course of
business by way of, --
(a) security deposit,
(b) dealership deposit,
(c) earnest money,
(d) advance against order for goods or
services;
vi) any amount received from an individual or a
firm or an association of individuals not being a body
corporate, registered under any enactment relating to
money lending which is for the time being in force in
the State; and
(viii) any amount received by way of subscriptions
in respect of a Chit.
Explanation I.-- "Chit" has the meaning as assigned
to it in clause (b) of section 2 of the Chit Funds Act, 1982;
Explanation II.-- Any credit given by a seller to a
buyer on the sale of any property (whether movable or
immovable) shall not be deemed to be deposit for the
purposes of this clause;"
9. Section 2(d) defines Financial Establishment in the following
words.
"(d) "Financial Establishment" means any person
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
accepting deposit under any scheme or arrangement or in
any other manner but does not include a corporation or a
co-operative society owned or controlled by any State
Government or the Central Government or a banking
company as defined under clause (c) of section 5 of the
Banking Regulation Act, 1949;"
10. Then there are Sections 3 and 4 which read as follows.
"3. Any Financial Establishment, which fraudulently
defaults any repayment of deposit on maturity along with
any benefit in the form of interest, bonus, profit or in any
other form as promised or fraudulently fails to render
service as assured against the deposit, every person
including the promoter, partners, director, manager or any
other person or an employee responsible for the
management of or conducting of the business or affairs of
such Financial Establishment shall, on conviction, be
punished with imprisonment for a term which may extend
to six years and with find which may extend to one lac of
rupees and such Financial Establishment also shall be liable
for a fine which may extend to one lac of rupees.
Explanation--For the purpose of this section, a
Financial Establishment, which commits default in
repayment of such deposit with such benefits in the form of
interest, bonus, profit or in any other form as promised or
fails to render any specified service promised against such
deposit, or fails to render any specific service agreed against
the deposit with an intention of causing wrongful gain to
one person or wrongful loss to another person or commits
such default due to tis inability arising out of impracticable
or commercially not viable promises made while accepting
such deposit or arising out of deployment of money or
assets acquired out of the deposits in such a manner as it
involves inherent risk in recovering the same when needed
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
shall, be deemed to have committed a default or failed to
render the specific service, fraudulently.
4. (1) Notwithstanding anything contained in any
other law for the time being in force,--
(i) where upon complaints received from the
depositors or otherwise, the Government is satisfied
that any Financial Establishment has failed,--
(a) to return the deposit after maturity or
on demand by the depositor; or
(b) to pay interest or other assured benefit;
or
(c) to provide the service promised against
such deposit; or
(ii) where the Government has reason to believe
that any Financial Establishment is acting in a
calculated manner detrimental to the interest of the
depositors with an intention to defraud them;
and if the Government is satisfied that such Financial
Establishment is not likely to return the deposits or make
payment of interest or other benefits assured or to provide
the service against which the deposit is received, the
Government may, in order to protect the interest of the of
the depositors of such Financial Establishment, after
recording reasons in writing, issue an order by publishing it
in the Official Gazette, attaching the money or other
property believed to have been acquired by such Financial
Establishment either in its own name or in the name of any
other person from out of the deposits, collected by the
Financial Establishment, or if it transpires that such money
or other property is not available for attachment or not
sufficient for repayment of the deposits, such other
property of the said Financial Establishment or the
promoter, director, partner or manager or member of the
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
said Financial Establishment as the Government may think
fit.
(2) On the publication of the order under sub-sections
(1), all the properties and assets of the Financial
Establishment and the persons mentioned therein shall
forthwith vest in the Competent Authority appointed by the
Government, pending further order from the Designated
Court.
(3) The Collector of a District shall be competent to
receive the complaints from his District under sub-section
(1) and he shall forward the same together with his report to
the Government at the earliest and shall send a copy of the
complaint also to the concerned District Police
Superintendent or Commissioner of Police, as the case may
be, for investigation."
11. Section 5 deals with the appointment of Competent
Authority. Section 6 has provisions for a Designated Court. Section
7 sets out the powers of the Designated Court regarding
attachments and includes, inter alia, the issuance of a notice and the
right of a person affected to show-cause or to object.
12. We consider now the respective position of NSEL vis-à-vis
Lotus Refineries and Namdhari Mills. NSEL was incorporated
under the Companies Act 1956 on 18th May 2005. It provided an
electronic platform for a commodities exchange from 15th October
2008. There is a long history of trouble involving NSEL and its
holding company now known as 63 Moons Technologies Limited.
We need not enter into that. This has been the subject matter of
many litigations and Government actions. In July 2013, NSEL
suspended commodities trading on its platform following certain
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
directives by the Department of Consumer Affairs of the
Government of India. By this time, it had outstanding contracts that
required settlement. These were said to have been executed before
trading was suspended. On that suspension, it seems that about two
dozen trading members of NSEL failed to meet their pay-in
obligations to NSEL. The total amount was roughly in the region of
Rs.5400 crores towards their respective trading counterparts under
various commodities purchase contracts. Two members paid up
within a month without disputing their liability. The remaining 22,
including Lotus Refineries and Namdhari Mills, failed to meet their
payment obligations. NSEL declared them defaulters in accordance
with its Bye-laws, Rules and Regulations.
13. Lotus Refineries was in default in an amount of over Rs.252
crores. Namdhari Mills had a pay-in obligation of about Rs. 10.39
crores.
14. Arbitration between Lotus Refineries and NSEZL
commenced. Lotus Refineries was the claimant in arbitration. A sole
Arbitrator made an award on 21st September 2018 in a sum of over
Rs. 252 crores in favour of NSEL with interest at 15% per annum.
There was in addition an award of arbitral fees and costs. Lotus
Refineries challenged that arbitral award in this Court in
Commercial Arbitration Petition No. 281 of 2019. That petition was
admitted on 4th June 2019. There was no immediate stay following
the amendment to the Arbitration and Conciliation Act, 1996, but
Lotus Refineries was allowed to file an application for stay. Lotus
Refineries did so, but unsuccessfully: its stay application was
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
dismissed on 19th June 2019. A Special Leave Petition from that
order failed on 2nd December 2019. This means that the Section 34
Petition is still where it was. It has been so for nearly three years.
15. Now that there was no stay on execution of the arbitral award
against Lotus Refineries, NSEL filed a Commercial Execution
Application No. 468 of 2019 to enforce that award. Some properties
were outside Mumbai in Chandigarh and NSEL moved against
those properties as well. In the meantime, Lotus Refineries' claim
against NSEL was rejected by a separate arbitral order dated 30th
September 2021. Lotus Refineries has challenged that rejection in
another Commercial Arbitration Petition no. 710 of 2021. That has
not been moved at all.
16. The scene now shifts to the Supreme Court. On 4th May
2022, the Supreme Court had before it an Article 32 Petition Writ
Petition (C) No. 995 of 2019. The order made that day is in two
parts. First there is the dismissal of certain Interim Applications.
Then in the Writ Petition itself, there is a detailed order following a
request by the Supreme Court to work out a protocol for a solution
regarding investors' funds and in respect of which decrees had been
passed. Some groundwork was done by the opposing side. Most
issues were agreed before Supreme Court. In exercise of its power
under Article 142 to achieve a holistic solution for the speedy
recovery of outstanding amounts to be distributed to investors --
and this phrasing is important -- the Supreme Court fashioned a
detailed order with as many as 19 separate points. Chief Justice
Pradeep Nandrajog, former Chief Justice of this Court, had agreed
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
to serve as the high-power committee constituted under that order.
Paragraph (vii) of the Supreme Court order is important for our
purposes. It is at pages 23 and 24 of the NSEL' Interim Application
and it reads thus:
"(vii) In execution of the above decrees/orders/arbitral
awards, the Supreme Court Committee shall be entitled
to sell the properties of the judgment-debtors
notwithstanding the attachment thereof by respondent
No.2 (ED) under the PMLA and/or by respondent No.3
(State of Maharashtra) under the MPID Act, to the
extent of recovering the amount of the
decree/order/arbitral award."
(Emphasis added)
17. To summarize: NSEL has an award against Lotus Refineries.
There is a challenge pending but there is no stay on execution.
Against Namdhari Mills there is a decree of Rs. 10.39 crores, also
not stayed. Lotus Refineries' claim against NSEL has been
dismissed in arbitration. A challenge is pending. No relief has yet
been obtained. Execution has been pursued by NSEL both in this
Court and in Haryana but now everything is consolidated before the
Supreme Court Committee of Chief Justice Pradeep Nandrajog in
view of the Supreme Court Order of 4th May 2022.
18. The argument before us is with reference to the four MPID
Notifications in question from 2014 to 2019. They are more or less
identical in the operative portion. The listing of properties may be
different but that does not matter significantly. We will take the 28th
August 2014 Notification at Exhibit "U" at page 354. The operative
portion reads thus:
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
" NOTIFICATION
MAHARASHTRA PROTECTION OF INTEREST OF
DEPOSITORS IN FINANCIAL ESTABLISHMENT
ACT, 1999
No.MPI. 2014/CR-541/Pol 11.--Whereas,
complaints have been received from number of depositors
against National Spot Exchange Ltd., LT Tower, C.T.S. No.
256, and 257, Suren Road, Chakala, Andheri (East),
Mumbai - 93, (hereinafter referred to as "the said Financial
Establishment"), had collected the Fund and have defaulted
to return the said deposits made by the depositors, on
demand;
And whereas, the State Government is satisfied that
the said Financial Establishment and it's
Chairman/Directors not likely to return the deposits to the
depositors and hence the Government has to protect the
interests of the depositors;
And whereas, the properties specified in the
Scheduled appended hereto are alleged to have been
acquired by the said Financial Establishment and it's
Chairman/Directors from and out of the deposits collected
by the said Financial Establishment;
Now, therefore, in exercise of the powers conferred
by sub-section (1) of the Section 4 and Sub-section (1) of
Section 5 of the Maharashtra Protection of Interest of
Depositors (in Financial Establishment) Act, 1999 (Mah.
XVI of 2000) (hereinafter referred to as "the said Act") the
Government of Maharashtra hereby attaches the properties
of the said Financial Establishment and in the name of it's
Chairman/Directors and in the name of Sashikant Sadashiv
Kulkarni's wife as specified in the Schedule."
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
19. Lotus Refineries is mentioned in the Schedule that follows. So
are other companies and entities. Lotus Refineries is not singled out.
Eight of its properties, including a motor car, are listed.
20. The argument before us is that Lotus Refineries itself was not
the 'financial establishment'. It had no depositors. Therefore, it fell
entirely outside the MPID Act. Consequently, no notification could
have been issued against its properties. But this argument overlooks
the indebtedness of Lotus Refineries (and Namdhari Mills) to
NSEL. Even in 2014, NSEL had settlement claims against Lotus
Refineries and Namdhari Mills. Neither of them met their pay-in
obligations (although two other entities did without protest) NSEL
already had claims against both these entities and therefore was
entitled to recovery even under the very Bye-Laws, Rules and
Regulations under which Lotus Refineries and Namdhari Mills had
traded. There arose the question of moving against all available
assets and this was done by the State Government to protect the
interest of depositors, an interest that the Supreme Court order now
demonstrably seeks to achieve, i.e., a public purpose that has not
ever been questioned and cannot be questioned. . In any case, we
note that, after a fuller investigation, and there are proceedings
against both even under the Prevention of Money Laundering Act,
there has been a tracing to Lotus Refineries and Namdhari Mills.
After 2017, Lotus Refineries and Namdhari Mills are both held to be
financial establishments under the MPID Act. These are
Notifications dated 31st March 2017 and 24th May 2018 and they
are not challenged before us.
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
21. The next argument is that the Notification under the MPID
Act and indeed all the Notifications from 2014, do not provide a
mandate for attachment of the properties. No such mandate can be
inferred. On the face of it, this submission is incorrect and has only
to be stated to be rejected.
22. There is another issue that stares one in the face. The Lotus
Refineries Petition was filed only in March 2022. The Namdhari
Mills Petition was filed in August 2022. Without a word of
explanation as to the delay, they now raise a challenge to
Notification issued as long as ago as 2014, 2015, 2016 and 2019. In
itself this is sufficient reason to reject both these Writ Petitions. No
explanation is indeed possible for this kind of delay. The reason we
say this is that at least of these entities, Lotus Refineries, has taken
steps under Section 7 of the MPID Act and raised objections as
contemplated by that Section. Paragraph 7 of the Lotus Refineries
Petition at page 27 says, to our great surprise, that there is no other
alternative and equally efficacious remedy. It does not even mention
the Section 7 objections. It says that on 16th March 2022, the
Supreme Court had granted Lotus Refineries liberty in its separate
Article 32 Petition challenging these very Notifications to approach
this Court. In fact, that order shows that Lotus Refineries sought to
withdraw its Article 32 Writ Petition with liberty to seek appropriate
remedies. This is not the same as saying that the Supreme Court
had 'directed' Lotus Refineries to approach this Court. In any case,
there is no direction that this Court is bound to accept any petition
Lotus Refineries files challenging the MPID Notifications.
6th February 2023
Lotus Refineries Private Ltd & Anr v State of Maharashtra & Ors
16-oswp-403-2023+-J.doc
23. We see no merit at all in these Petitions.
24. An oral application is made for amendment to challenge the
Maharashtra Government collection of Value Added Taxes or VAT
on various transactions. There is no such prayer in the Petition
before us. We say nothing in that regard. It is open to the Petitioners
to take whatever steps they are advised in that respect.
25. On behalf of the two corporates, and we had this clarified, a
submission is made that the impugned Notifications are also a
violation of the corporate entities' alleged fundamental rights under
Article 21 of the Constitution of India. A company and a
partnership firm are, we are told, are being deprived of their 'life
and personal liberty' without following the procedure established by
law. That submission has only to be stated to be rejected.
26. The Petitions are devoid of merits. They are rejected.
27. In light of this, the Interim Application for intervention or
impleadment is infructuous and does not survive.
28. No costs.
(Dr Neela Gokhale, J) (G. S. Patel, J)
6th February 2023
