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2019 (8) TMI 1038 - HC - Companies LawFinancial Establishment or not - National Spot Exchange Limited (NSEL) - whether the NSEL is a financial establishment within the meaning of Section 2(d) of MPID Act? - HELD THAT:- The NSEL has not accepted any deposit and if it has not accepted any deposit, then it would not fall within the definition of ‘financial establishment’. The NSEL has received money from the buyers at T+2 date and it was immediately paid to the sellers at T+2 date. However, on T+25 date, the parties who were sellers on T+2 date, and who were under obligation to make payment on T+25 date, failed to do so and it is not the NSEL but the sellers who receive the money from the buyers on T+2 date with an underlying obligation to make the payment of T+25 date but failed to do so and therefore, at the most, they could be referred to as ‘financial establishment’. The petitioner has admitted that the amount used to come to NSEL to be paid to the respective traders on the T+25 settlement date and the NSEL was entitled to charge its transaction charges. This would clearly dispel the case of the respondent State that the NSEL was accepting deposit and therefore, it was a financial establishment. The clients trading on the NSEL platform did not invest with the NSEL in form of Fixed Deposits, equity or debentures of NSEL but they traded commodities on the platform of NSEL. The NSEL has always voiced its stand by stating that it is not a Financial Establishment and in response o the notices issued to it, it pin pointed towards the defaulters who are responsible for the loss to the investors and the said contention of the NSEL was found to be substantiated by the audit reports. The NSEL has even instituted recovery suits against the defaulters. Since the investors raised an alarm about the losses caused to them, as a knee jerk reaction, the NSEL and its promoter came to be proceeded under the provisions of the MPID Act without deliberating on the core issue to be determined as a jurisdictional fact as to whether the entity was a Financial Establishment, thereby permitting the authorities to proceed against it under the statue intended to govern Financial Establishments. Thus, it can be concluded that the NSEL is not an Financial Establishment within the purview of the Maharashtra Protection of Interests of Depositors in Financial Establishments Act, 1999.
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