Illegal Arrest – Section 173 Of PMLA Act 2002

The Enforcement Directorate had arrested Mr Jignesh Shah on 12th July, 2016 under Section 173 of the Prevention of Money Laundering Act, 2002 (PMLA) on the grounds of non-cooperation with the investigation.

· The ED claims they arrested Mr Shah for further investigation.

· The charges presented by the ED were already there in the first charge sheet filed in the court. Do you arrest again to file a supplementary charge sheet?

· The power to file a supplementary charge sheet exists under the Section 173 of the Criminal Procedure Code (Cr PC).

·  This is outrageous as Section 173 of the Cr PC rests with only the police officials and not the ED.

·  The ED does not have the power to file a charge sheet nor can their charge sheet be of relevance because the court cannot take cognizance on the basis of a charge sheet.

·  The power to file a supplementary charge sheet exists only under Sec. 173(8). There is no analogous provision to Sec.173 (8) in chapter 15 of the Cr CP which deals with complaints.

· The entire approach of the ED based on non-existent powers (in the belief) that they can file subsequent complaints is bad in law.

For more information check 63 Moons Reviews.

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Is the state targeting Jignesh Shah?

The manner in which Jignesh Shah, the Founder of the financial infrastructure giant, 63 moons technologies ltd (formerly Financial Technologies India Limited), is being hounded, it only appears as if all the investigating agencies & regulators are hell bent on clutching him in every which way.

 Like seen in most Bollywood films, the episodes of Jignesh Shah’s arrests and subsequent releases, duplicate a probable villain-victim drama. When the CBI arrested Shah on September 20, 2016, for a two year old case and that too with regards to the licensing of his earlier venture MCX-SX that dated back to 2010, it was clear that there was a high-handed state action in targeting only one person time and again. While the CBI had registered an FIR in this regard in August 2014, what made it suddenly arrest Shah for a six year old matter is still not explained.

This was Shah’s third arrest in three years, ever since a setback to one of his subsidiaries in 2013, captivated almost all government agencies to go about their own ways in nabbing him.

While the CBI cited “non-cooperation” as a reason to arrest him, the nation’s premier and trusted investigating agency did not manage to find any criminality against Shah for allegedly influencing SEBI for renewal of the MCX-SX license, despite keeping him in custody for about a month. Moreover, Shah was the only person held by the CBI in this case, while none of the accused public servants or others were arrested. The CBI had already given a clean chit to the key decision makers in the preliminary inquiry, forcing the entire brigade against Shah.

Earlier in July this year, the Enforcement Directorate (ED) took Shah in custody for his alleged role in assisting defaulters in laundering of funds raised from thousands of investors on his subsidiary National Spot Exchange Ltd (NSEL) that resulted in a payment default of Rs 5,600 crore. The ED claimed that it had a fresh case against him. The ED had registered the case way back in May 2015 against Shah and 68 others but it arrested only Shah for reasons best known to it! What was more surprising was the fact that charges presented by the ED were already there in the first charge sheet filed in the court. Do you arrest again to file a supplementary charge sheet?

In May 2014, the Economic Offences Wing (EOW) – Mumbai, had taken Shah into custody on a charge of ‘non-cooperation’ and put him in jail for 108 days until the Hon’ble Bombay High Court released him on bail in August that year ruling that “no money had come to NSEL, FTIL or its promoters...The money has gone to the borrowers or bogus sellers…”

It takes a life to build a successful exchange, but Jignesh Shah contributed to multiple exchange institutes within 10 years across Asia, Africa, and the Middle East. The man, who put Indian markets on the World map, is now being restrained by a few competitors and some vested interests that feared his disruption and ideas and could not cope up with his creativity.

Targeting Jignesh Shah, who created ventures that generated millions of jobs and revenue to the economy, on charges like “non-cooperation”, is an irony in itself. It seems as an attempt to victimize him and move focus from his ahead-of-time creations. The nation’s top advocates, like Majeed Memon and KTS Tulsi, too have expressed their anguish over the investigative agencies’ approach of handling the matters.

We hope and pray that the agencies are just and fair in their dealings.

Reference -ShantanuGuhaRay:(2016): ‘The Target Book’: New Delhi: Publisher: AuthorsUpfront

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Is it right to forcefully takeover the Board of 63 Moons?

The government had filed a petition under Section 397 & 398 read with Sections 388D, 388C, 401, 402, 403, 406 and 408 of the Companies Act, 1956 before the Principal Bench of the Company Law Board, now National Company Law Tribunal (NCLT), in New Delhi seeking removal and super session of the Board of Directors of 63 moons on the following two grounds:

1. Attempts to thwart the Amalgamation Process

    The MCA has alleged that although the 63 moons Board is attempting to frustrate the ultimate object of proposed merger, which if affected, would provide suitable recompense to the victims of the defaults. 63 moons Board is also accused of diverting funds from 63 moons and illegally selling valuable assets of 63 moons. It has also alleged that 63 moons Board is attempting to sell/dispose/alienate/ hive off valuable assets of 63 moons: i.e. approval of postal ballots notice for shareholder to sell Bourse Africa and attempt to hive off 63 moon's most popular software, ODIN.

     2. Mismanagement & Oppression Perpetrated By 63 Moons – Mcx Was Sold At Loss

     Though the MCA had applied for restraint on sale of Bourse Africa, ODIN and other assets by way of an application in Section 396 Petition, the Hon’ble Bombay High Court did not grant that relief. It must be noted however that the sale of stake in Bourse Africa has been promulgated due to regulatory issues that arose as a result of the FMC order. In fact the process for sale of stake in Bourse Africa commenced long before the Draft Order dated 21st October, 2014 for amalgamation of NSEL with 63 moons was even passed. In affidavit in reply MCA stated that MCA do not have objection for sale of investments if it is directed by the regulators.  With respect to ODIN, the information was in the public domain prior to filing of the Writ Petition by 63 moons challenging the Draft Order.

The MCA says that 63 moons’ current Board is opposing the merger hence justify taking over 63 moons’ management, conveniently setting aside the fact that the merger of NSEL with 63 moons is still sub-judice. Again, the MCA’s draft order invoking Section 396 of the Act doesn’t anywhere say why a merger of NSEL with 63 moons is in public interest. The MCA also ignored that 63 moons has the fiduciary responsibility to protect the interest of 63,000 shareholders, over 1,000 employees and other stake holders. 63 moons has been lawfully opposing the merger with humble submission to restrain from any hasty decision when the matter is sub-judice.

The MCA has alleged that due to mismanagement of NSEL by 63 moons and its directors, the FMC passed an order and 63 moons had to divest in a number of commodity exchanges in India and overseas, which caused a loss of investment, which raises a serious doubt on the viability of 63 moons. It has also alleged that 63 moons’ divestment in MCX is in complete contravention to the FMC order which only stated that 63 moons is not “Fit & Proper’ (but didn’t direct divestment), but 63 moons sold its entire stake (26%) at a loss of Rs. 290 crore. Such actions by the 63 moons Board raise serious apprehensions of the continuance of Board.

The MCA itself in its petition states that FMC directed 63 moons is not fit & proper to continue to hold 2% or more paid-up equity capital in MCX and therefore to salvage the value of MCX, without prejudice 63 moons divested its shareholding in MCX.  The FMC and other regulators forced 63 moons to exit, despite the FMC Order being sub-judice and despite 63 moons contesting the same vigorously in the relevant regulatory / appellate authority. It is absurd that compliance with regulatory orders by 63 moons to salvage value of its investments in time – before they are rendered worthless by regulatory wrath such as cancellation of license, renewal of contracts, issuance of new contracts or putting shares in escrow followed by auction etc. – is being used against 63 moons and its Board.

63 moons, without prejudice to its rights, divested its holdings in companies as a result of regulatory directions to do so. In the case of MCX, there have been numerous letters from MCX insisting that 63 moons divest its holdings in short time as a result of the FMC Order. Pertinently, those letters also say that the regulator, i.e. FMC is not permitting launch of any new contracts to MCX unless compliance of divestment is made. Accordingly, FMC had threatened to bring down the value of 63 moons’ holding to almost nil had it not complied with the direction of divestment. The Board of 63 moons divested from MCX in manner where the loss caused to 63 moons and its shareholders was significantly reduced.

None of the members of 63 moons have made an application that the Company’s affairs in a manner oppressive to any member or members; however MCA invoked the Section under Sec 408 without validating how the affairs of the Company being conducted either in a manner which is oppressive to any members of the Company or in a manner which is prejudicial to the interests of the Company or to public interest. 

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Why is 63 Moons being targeted?

With discrepancies worth Rs 5600 cr, NSEL crisis not only reduced NSEL into a defunct body, but also unduly brought parent company, 63 moons, to bear for flawed corporate governance. Ever since, multiple government agencies appointed to investigate and catch wrongdoers have either fallen off-track or misled by vested interests.

The most unsettling of verdicts has been the proposed merger between 63 moons and NSEL that forces 63,000 unassuming shareholders to cover for irregularities accrued at NSEL. There has been no explanation whatsoever on this unjust step, which has been issued in “interest of public”. This leaves us with no other explanation but assuming that the Government has been blindfolded, and their faulty system which is making one pay for deeds of others, is on a vacation. Amid setting a baffling example across the globe on handling corporate cases, the Government is also turning a blind eye towards the 63k shareholders.

Ideally, the recourse here should center on recovering dues from real defaulters --the brokers-- who are charged with conflicting investor claims and client complaints, rather than passing verdict of a merger. Do we expect the Government to wake up anytime soon? With new situations unveiling almost every day, there are a few questions that remain unanswered still…

• Is it fair to impose harsh and unjust actions on 63 moons for payment defaults at one of its subsidiaries?

• Is it consistent with the local legislative and legal framework? 

• Is it in accordance with the established conventions and practices? 

• Is it in the good spirit of domestic and global corporate law?

• Has the regulator | government contemplated similar initiatives for companies that have experienced crisis that are much more grave and serious?

• Why deprive the genuine investors and shareholders of 63moons their due share in the progress of the company?

Reference: ShantanuGuhaRay:(2016): ‘The Target Book’: New Delhi: Publisher: AuthorsUpfront

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Contradiction of Section 396 | 63 Moons

The Ministry of Corporate Affairs (MCA) initiated a move in October 2014 on the recommendation of the Forwards Market Commission (FMC), for a merger of NSEL with its parent company, 63 moons. The speed at which the draft merger order was processed after the FMC’s recommendation raises eyebrows behind the ill-brained motives.

FORCED ORDER

This order has challenged the constitutional validity of Section 396 of the Companies Act, 1956. Under the Section 396 of the Companies Act – “The Central Government holds power to provide for amalgamation of companies in public interest, whereas every member or creditor (including a debenture holder) of each of the companies shall have the same interest in the company.”

It can hardly be said that Section 396 was meant to fasten third-party unproven liabilities on a healthy company with a view to adversely affect the stakeholders of such healthy company, its creditors, and employees. This is clear from Section 396(3), which mandates that if the rights and interests of shareholders of both the companies are adversely affected, then they are to be compensated by the resulting company. Hence, any use of Section 396 which is against the interest of its shareholders, creditors, employees, and which (if proved) not to be in the essential public interest may defeat the shareholders and creditors of a company, thereby affecting the government’s focus on ease of doing business.

MCA’s own circular dated April 20, 2011, for the compulsory merger of government companies under Section 396 requires that the companies concerned and an overwhelming majority of their shareholders and creditors must be consenting to the merger. In this case, 63 moons, NSEL, and thousands of shareholders of 63 moons (constituting 80% of its capital) have opposed the merger. In view thereof, to go ahead with the merger will clearly be discriminatory vis-a-vis government companies.

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