Sts of sept 2019

1. MINUTES OF THE 23rd REVIEW MEETING ON THE
IMPLEMENTATION OF THE RECOMMENDATIONS OF THE STS ON
NSEL ISSUE HELD UNDER THE CHAIRMANSHIP OF
SECRETARY(EA) IN ROOM NO.131-A, NORTH BLOCK, NEW DELHI
AT 11:45 A.M. ON 9TH SEPTEMBER, 2019.
Shri Atanu Chakraborty, Chairman welcomed all the
participants and set about reviewing the progress made by each of the
investigating agencies with regard to their investigations into the NSEL
payment crisis.
2. Director (CD) presented the legal challenges brought in by the
recent court verdicts as follows:
a) Hon'ble Supreme Court in April 2019 rejected the order of MCA
to merge FTIL with NSEL on which Ld. Solicitor General has now
opined that no review may be filed. It was apprehended that the
MCA's pending proceedings for taking over the management of
FTIL may not be successful in view of the SC verdict.
b) Bombay High Court which held NSEL scheme to be a "deposit"
under Maharashtra Protection of Interest of Depositor's (MPID)
Act, 1999 in October 2015, vide its fresh judgment dated
22.08.2019, on a petition filed by the promoter of NSEL (FTIL or
63 Moons as it is called now) --reversed that position and ordered
for release of their assets attached. The Hon'ble court
maintained that if NSEL has not accepted any "deposit", then it
would not fall within the definition of 'financial establishment' as
per MPID Act. Against this, an SLP was filed by the Govt of
Maharashtra, on which Hon'ble Supreme Court directed to
maintain status quo and posted the case for 13th September
2019. The Competent Authority's concern that, with this HC
order, entire MPID case may be jeopardized since properties of
63 Moons /FT1L, NSEL, directors and managers of NSEL as well
as that of defaulters may have to be released, was highlighted. It
1.

2. was pointed out that there is no other credible alternate legal
action as Forward Contracts Regulation Act (FCRA) stands
repealed and the time period for taking any fresh proceedings
under. FCRA ended in September 2018. Hence, SEBI cannot
come in directly though they may be pressed into service of the
High Court Committee funded by NSEL. This means that FTIL's
argument of NSEL scam as "just an employee fraud" to be tried
under IPC sections of cheating etc. may eventually be settled as
the outcome. It was pointed out that the verdict has implications
on protection of market integrity as in future defaults, stock
exchanges can always take the plea that they are mere pass
through platforms. The alternate option of introducing a special
ordinance or Act like, TORTS Act 1992, introduced after Harshad
Mehta scam as there was no law existing at that point in time to
deal with such matters, would be a very time consuming
process.
c) On the apprehension about those whose assets were sold off in
the MPID proceedings coming back claiming compensation,
there was a general consensus that Principle of Estoppel would
apply.
3. It was pointed out by the Competent Authority that NSEL has
also filed another case in Supreme Court for transfer of assets
attached by ED and EOW to them SO that the High Court Committee,
funded by NSEL, can monitor the reimbursement. It was decided
that alienation of assets may be prevented and depending on the
Supreme Court hearings /orders on the matter, ED may file a
suitable counter affidavit in the matter in consultation with
Ministry of Law and Justice, who is made the first respondent in
the case. ED requested competent authority to share the details
of the case with them as they are yet to receive any notice in this
regard.
(Action: ED & Competent Authority)
4. The Enforcement. Directorate (ED) observed that. proceedings
under PMLA will not be affected by the High Court order of absolving
NSEL as a "financial establishment" under MPID Act. It was suggested
that if MPID invocation is revoked by the Supreme Court in an
affirmation of the HC verdict, ED can put in motion the recent
2

3. amendment introduced in Section 8(8) of PMLA wherein the investors
could move PMLA Special Court for restitution of property attached by
ED which is worth around Rs. 3000 crore. It was informed that ED
was not intentionally attaching the assets on account of overlapping
attachments by MPID, and hitherto the intention was to facilitate
payments through the MPID Court /Competent Authority. On the
question that ED still has not set up the mechanism for
implementation of Section 8(8), representative of ED suggested that a
mechanism for implementation can he worked out for implementation
of the restitution. It was felt that depending on the outcome of SC
proceedings, a suitable decision could be taken in this regard and
on the ongoing proceedings for transfer of overlapping assets to
Competent Authority's account. In the meanwhile, ED was
advised to take suitable legal opinion on the matter.
(Action: ED, CBDT and DEA)
5. It was apprehended that with the HC order declaring NSEL as
not a financial establishment, the FIU's efforts of making NSEL as a
"reporting entity" for PMLA purposes may suffer. However, FIU
indicated that PMLA cases will not be affected by the HC verdict.
Competent Authority pointed out that FIU may use para 55.3 of the
SC verdict on NSEL -FTIL merger case wherein SC stated that there is
no doubt that such paired contracts were, in fact, financing
transactions which were distinct from sale and purchase transactions
in commodities and were, thus, in breach of both the exemptions
granted to NSEL, and the FCRA.
6. A question was raised as to how scam tainted companies are
allowed to change their names and create smokescreens which
amounts to confusing regulatory authorities. It was felt that MCA
may review the legal position in this regard.
(Action: MCA)
7. Both Competent Authority and ED requested that MCA may go
slow on the insolvency proceedings in respect of defaulter entities as it
will complicate the restitution mechanism given the default waterfall
prescribed under Insolvency and Bankruptcy Code (IBC). Further,
once IBC proceedings are initiated, the rest of the proceedings will
have to take a backseat. MCA was advised to look into this issue in
3

4. detail. It was also suggested that suitable amendments may be
made in the IBC to take care of the interest of investors affected
by such frauds.
(Action: MCA & DEA)
8. MCA indicated that on the pending proceedings for taking
control of the management of FTIL, courts have expressed the concern
on the expertise MCA has in running a technology company and to
elaborate as to what MCA wants to achieve through the process. It
was suggested that all relevant material against FTIL and its
board's involvemealtin NSEL matters be gathered and put in front
of the judicial authorities for defending public interest and of the
expedient requirement for avoiding alienation of assets as NSEL
had expressly provided the guarantee for each of the transactions
carried out in its platform, whether they incorporated the same in
byelaws or not.
(Action: MCA & DEA)
9. Considering the fact that adequacy of attachment has been
taken up as a ground for absolving NSEL and FTIL in the court cases,
Director (CD) mentioned about the report filed by Competent Authority
on the suspect valuation of attached assets which has been sent to
EOW for their comments. It was also mentioned that MCA could
utilise this report in filing the review petition in the court, if they so
desire. EOW was asked to submit its observations in this regard.
[Action: EOW]
10. Director (CD) raised the question as to how NSEL and FTIL are
claiming in the court that there is no money trail leading to them
when it is a matter of record that many of the defaulters were related
to the senior management team of NSEL and FTIL used to benefit from
the usage charges for the software /services being used by NSEL.
Competent Authority added that the bank statements prove that NSEL
misappropriated the settlement guarantee fund, which was meant for
ensuring settlements on the exchange, by investing them for its own
cause and such investments have not been brought back for the
benefit of investors. It was suggested that such information may be
used while filing review petitions. It was advised that
4

5. investigating and enforcement agencies may share their inputs to
competent authority for successful defence of the case.
[Action: MCA, CA, EOW, SFIO, SEBI]
I I. SERI clarified that the NSEL scheme was examined at their end
and it was found that SEBI cannot treat the paired contract scheme as
a Collective Investment Scheme since there was no pooling of money.
SEBI opined that since IiC verdict suggest recourse to FCRA, perhaps
one may be able to reopen the case under FORA and SEBI had already
registered a case with EoW under FCRA against the brokers. SEBI was
asked to examine the implications of the HC judgment on them
and in general on securities markets.
[Action: SEBI]
12. The representative from Fit! stated that they have no role to play
as such in the disbursement process, and hence may be excused from
attending the meetings. It was decided that they may be excused for
the time being, subject to sending monthly updates on the progress of
the case.
[Action: DEA & FLU]
13. Competent Authority requested that Income Tax Department
may be asked to enable free of cost bulk PAN verification for CA to
make payments directly to investors. CBDT was asked to facilitate
the same.
[Action: CBDT]
14. The meeting ended with a vote of thanks to the Chair. The list of
participants is attached.