NSEL crisis: Scam settlement may take years

Written by fe Bureau | Mumbai | Updated: Oct 19 2013, 21:18pm hrs
Even though the Economic Offences Wing (EOW) of the Mumbai police has invoked the stringent Maharashtra Protection of Interest of Depositors (MPID) Act in the Rs 5,600-crore NSEL crisis, which is promoted by Jignesh Shah's Financial Technologies India Ltd (FTIL), any recovery of dues could take years. Legal experts say while the MPID Act enforcement ensures that the NSEL 'scam' accused are not able to dispose of the attached assets, the procedures involved may delay the outcome.

The MPID Act ensures that the properties attached continue to rest with the state government and the accused establishments do not dispose of the assets. However, the MPID cases heard in the designated courts do not get a precedence of timeline, said an expert.

The MPID Act empowers the EOW to seize movable and immovable assets of the accused. It has a special provision that assets, once seized, can be liquidated if the promoters vanish and distribute the proceeds to investors. There is no such provision in Indian Penal Code (IPC) or the Code of Criminal Procedure (CrPc). The Act, which came into existence in 1999, draws its roots from similar Acts established by other states like Tamil Nadu and Pondichery and is aimed at investor

protection. According to the Act, its provisions are applicable to any financial establishment that offers assured returns against deposits made by the investors. Experts said the intent of MPID Act was to cover ponzi schemes that are not collective investment schemes and, hence, fall outside the purview of Sebi.

Exchange is a platform to facilitate a trade and if you look at the MPID provisions, it also talks about commodities if there has been a promise of delivering them after taking money. If the promise has not been kept, it means investors are duped. MPID will be applicable on everyone named in the FIR, said Balsing Rajput, deputy commissioner of police, EOW. The MPID Act was last invoked in the Rs 2500-crore City Limouzin scam in 2010-11 when thousands of investors were defrauded by being offered fixed returns on an investment scheme. Other instances where the Act has been used include Raj Investment Services, Kirloskar Investment & Finance and Shivaji Estate Live Stocks and Farms.

As the Act gained prominence, a consortium of 29 companies, mainly non-financial institutions, challenged it in the Bombay High Court in 2005. The court concluded that the enactment of such a law was beyond the jurisdiction of the state legislature. However, the Supreme Court reversed the Bombay High Court's order and upheld the Act in August 2011.

Legal experts, however, point out that recovering money via the Act will not be easy. They point out that properties of the accused can only be attached if it is proven that money from the scam was used for procuring these assets. The proceeds could be in any form cash, kind or service. It could be benami, so we need to prove the money trail, check the title document etc, said Rajput of EoW.

Even after assets are attached, the process of liquidation is a lengthy one. Generally, assets seized under the Act need to be notified through the Maharashtra government. Details of the seized assets are then sent through the collector's office after which the government notifies the same. Eventually, based on an order from the MPID court, assets need to be auctioned. Even disbursal of the money recovered eventually may take time because the Act does not guide for a pro-rata distribution, which is likely to be demanded by the NSEL investors, said Neerav Manikar of M Neerav and Associates.