Mumbai: Mumbai police’s Economic Offences Wing (EOW) has seized ₹ 2,000 crore of assets belonging to the former Financial Technologies (India) Ltd (FTIL), a week after the arrest of its founder Jignesh Shah in a money laundering case.
The assets seized under the Maharashtra Protection of Interest of Depositors Act (MPID Act) include the Mumbai headquarters of FTIL, renamed 63 Moons, two persons aware of the development said on condition of anonymity.
“FTIL liquid assets such as banks’ fixed deposits, accounts and FTIL headquarters have been attached under the MPID Act," said one of the two persons, a senior EOW official. The second person confirmed the development without going into details.
The seizure of assets followed the arrest last week of Shah in connection with the ₹ 5,574.35 crore fraud at National Spot Exchange Ltd (NSEL), which was 99.99% owned by FTIL.
Shah was arrested by the Enforcement Directorate (ED), a specialized financial investigation agency under the ministry of finance, which said it had found evidence of money laundering against Shah under the Prevention of Money Laundering Act, 2002 (PMLA). Shah has been remanded to judicial custody till 1 August.
This is the second time Shah has been arrested in connection with the NSEL fraud. He was arrested by the EOW in May 2014 and granted bail by the Bombay high court three months later.
On Tuesday, FTIL responded immediately to the EOW’s decision to seize assets, which it said was legally untenable.
“We have received a letter from EOW dated 18/7/2016 at 6 pm today on 19/7/2016 securing assets of FTIL. 63 Moons is a listed company having 63000+ shareholders and about 1000+ employees. We will take all legal remedies to protect their interest. There is no legal basis for the said action and we will be moving court soon on the said letter," said an FTIL spokesperson.
Investors who lost money in the NSEL fraud welcomed the asset seizure.
“This is a very welcome development, and a long-standing demand of all aggrieved investors. We sincerely believe that the thrust of the action now should be on liquidation of assets, and monies returned to investors without further delay," said Madhu P. Desai, trustee, NSEL Aggrieved and Recovery Association.
The NSEL fraud surfaced in July 2013 when trading was halted on the commodities bourse in all but its e-series contracts. These, too, were suspended a week later. The suspension may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL had been doing that.
The EOW in 2014 seized assets worth ₹ 5,200 crore belonging to suspected defaulters Mohan India Pvt. Ltd, Loil Group firms, N.K. Proteins, PD Agroprocessors Pvt. Ltd and Tavishi Enterprises Pvt. Ltd, among others.
The ministry of corporate affairs on 12 February ordered a merger between FTIL and NSEL, seeking to make FTIL responsible for the liabilities of the fraud-hit commodities bourse.
It was the first attempt by the government to force a merger between two private entities, using a provision of the Companies Act that allows it do so in public interest.
The merger has been held up by legal processes.
On 2 May, the Bombay high court extended a stay on the merger as the central government needed time to examine and file a reply to an FTIL submission in the court.
On Tuesday, the government filed a reply to the submission, saying NSEL’s function largely depended on FTIL, the promoter, and it did not have a separate corporate identity.
EOW has attached FTIL assets under section 4 of the MPID Act that says assets of the promoter, director, partner and manager of a deposit-taking financial institution can be seized. The MPID court has labelled NSEL a deposit-taking institution.
“In this case, EOW has attached assets after holding FTIL liable for loss to the investors," said R.S. Loona, a partner at law firm Dhaval Vussonji Alliance.
“While the attachment will help the NSEL investors, it will have a negative impact on the FTIL shareholders. FTIL is a listed entity and the rights of its shareholders will be compromised. The government, while proceeding in this case, will need to balance out the rights of the (NSEL) investors and of the (FTIL) shareholders," added Loona.