Supreme Court ruling on MPID Act

Sedition law

MUMBAI: A recent Apex Court ruling interpreting the term “deposit” under a Maharashtra law may increase the number of cases before various courts and tribunals.

Earlier, the Supreme court denies 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.

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 the transaction per se, Chandwani said.

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(MARCH – APRIL 2022)


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