NSEL scam: 63 moons board cannot be superseded, says NCLT

In a significant ruling, the Chennai Bench of NCLT has dismissed the Centre’s plea to supersede the board of 63 moons technologies (formerly Financial Technologies India Ltd). However, it allowed the government to nominate a maximum of three directors.

The government may nominate not more than three directors to take care of the interest of all stakeholders and also to protect the interest of the investment of 63 moons in its subsidiaries, the NCLT has said.

63 moons has 14 directors, including four former IAS Secretaries; one former Supreme Court judge and one former High Court judge.

In its 36-page order, the National Company Law Tribunal made it clear that the relief sought by the petitioner (Central Government) — for oppression and mismanagement — under Section 397 and 398 of Companies Act 1956 are “not sustainable”. This is because the petitioner cannot be treated as a member for the purpose of the petition under Sections 397 and 398, NCLT said.

The petition alleging oppression and mismanagement should be made by members/shareholders subject to the qualifications mentioned under Section 399(1)(a) of the Companies Act 1956, according to the NCLT.

Moreover, the petitioner (the Central government) has not alleged any grounds which would warrant the winding up of the companies, which is a prerequisite for granting relief under Section 397 and 398, the NCLT said.

Citing the Supreme Court ruling in Hanuman Prasad Bagri vs Bagress Cereals(P) Ltd, the NCLT pointed out that it has been held in this case that petitioners must make out a case for winding up of the company on just and equitable grounds. Otherwise, no relief can be granted.

In view of this settled position of law, no order regarding the prayer that Jignesh Shah and other respondents were acting in an oppressive manner against 63 moons and the National Spot Exchange Ltd was warranted, the NCLT ruled.

Not fit and proper

While declining to grant relief for supersession of the board, the NCLT, at the same time, declared Jignesh Shah (former Chairman-cum-Managing Director) and nine other respondents as “not fit and proper” persons to hold office as director or any other office connected with the conduct and management of 63 moons and National Spot Exchange Ltd. They are also not eligible for appointment as directors in any other company, the NCLT ruled.

63 moons reaction

Welcoming the NCLT order, S Rajendran, MD & CEO, 63 moons, said: “We are extremely happy to note that NCLT has rejected MCA’s prayer to supersede the board of 63 moons in connection with the payment defaults that occurred at one of our subsidiaries, National Spot Exchange Ltd (NSEL) in 2013. This judicial order in fact confirms the opinion given by the Law Ministry in June 2014 to MCA, of non-applicability of Section 397 and many such sections on FTIL”.

This is the first high profile case after Satyam Computers where the government wanted removal of the board. Recently, the NCLT ordered removal of the Unitech board, but the Supreme Court stayed the NCLT order. Later, the government informed the Supreme Court that it will withdraw the petition filed at the NCLT to takeover the management of Unitech Ltd.

It may be recalled that the government had moved the Company Law Board to supersede the board of 63 moons after the ₹5,600-crore NSEL scam came to light in July 2013. NSEL is a subsidiary of 63 moons technologies.

Independently, the Centre had also moved against the amalgamation of NSEL with 63 moons technologies under Section 396 of the Companies Act 1956. This matter is before the Supreme Court with hearing for its admission slated for August 29.

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