The Bombay High Court on Monday allowed an appeal by the Maharashtra government that sought equitable distribution of wealth from seized assets in Maharashtra Protection of Interest of Depositors (MPID) (In Financial Establishments) Act cases to small depositors and set aside a special MPID Court order which denied such a request.
While doing this, the court directed the Competent Authority (CA) in the 2013 National Spot Exchange Limited (NSEL) to make payments from the available amount to 6,445 depositors whose outstanding is within Rs. 2 lakh and Rs. 10 lakh on priority basis.
A Division Bench of Justices S S Shinde and Manish Pitale Monday passed a judgment on state’s appeal, along with appeal filed by one Rabibai Mohamad Ismail, a small investor, aggrieved by the October 22, 2020 and November 3, 2020 orders passed by the designated court for MPID cases in Mumbai.
The CA formed by the state home department for attachment and liquidation of assets had submitted before the trial court that funds collected through liquidation were distributed during the period 2014-15 in such a manner that 608 investors, whose outstanding amounts were less than Rs 2 lakhs were paid (total Rs.9.35 crore) and they were ‘first satisfied’ .
Moreover, 50 per cent of the outstanding amounts of 6445 investors, whose outstanding amounts were more than Rs.2 lakh but less than Rs 10 lakh, were also paid.
In so far as 5682 investors, whose outstanding amounts were more than Rs.10 lakh, were concerned, about 6.5 per cent of the outstanding amounts (6 per cent of Rs 5048. 47 crore) were paid to them.
“Thus, during the initial phase, when distribution of amounts were made, the smallest of investors had their dues satisfied entirely,” the HC noted.
However, an outstanding amount of nearly 172.88 crore for investors claiming amounts between Rs 2 lakh to Rs. 10 lakh were yet to be paid.
Special Public Prosecutor Avinash Avhad, representing state government, through CA, submitted that the MPID Court had erred in passing the impugned order, whereby the prayer of CA for graded distribution of amounts to investors was rejected. He submitted that as the MPID law was to protect small investors, and therefore, the CA was justified in seeking graded distribution of available funds in favour of small investors.
The respondent NSEL Investors Action Group, through senior counsel Venkatesh Dhond, however, argued that the equitable distribution meant equal distribution of available money among all depositors and any artificial classification or graded distribution cannot be permitted.
After hearing submissions, Justice Pitale, who authored the ruling for the benc, observed, “The largest number of investors are those whose outstanding amounts fall between Rs 2 lakhs and Rs 10 lakhs. It becomes clear that if the prayer of the CA for distribution of money in a graded manner is accepted, it would satisfy almost entirely the dues payable to them. The term ‘equitable’ is not the same as ‘equal’.”
“We are of the opinion that when this definition is kept in mind, it becomes clear that the approach adopted by the designated court in proceeding on the basis that equitable distribution would necessarily mean equal distribution, is not correct… the purpose of enacting the MPID Act is to deal with the crisis faced by the middle class and poor depositors, who stand duped on the promise of unprecedented high attractive interest rates on deposits,” the bench observed
The HC held, “The beneficial nature of the legislation to protect the interest of small investors has to be taken into consideration because it is generally such small depositors, who are at the receiving end in such scams.”
After the NSEL Investors Action group sought stay on operation of judgment so as to file an appeal before the Supreme Court, the bench allowed the same and kept the order in abeyance for a period of two weeks.