The court emphasized that criminal liability cannot be imposed without clear allegations of culpability or managerial responsibility, affirming the necessity of judicious consideration before issuing processes.

ORDER :

R.N.Laddha, J.

1. This Petition under Articles 226 and 227 of the Constitution of India and Section 482 of the Code of Criminal Procedure, 1973, assails the legality, propriety and correctness of an order dated 4 March 2019 passed by the learned Designated MPID Court, Mumbai, issuing process against the Petitioners for the offences punishable under Sections 409 , 420, 467, 468, 471, 474, 477A, and 120B of the Indian Penal Code, and Section 3 of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999.

2. The prosecution alleges that numerous investors traded through brokers on the NSEL platform, where their funds were lent to designated borrowers who were required to maintain commodity stocks as collateral. These borrowers allegedly failed to maintain the stocks and later defaulted, causing heavy investor losses. It is further alleged that Petitioner No.2, a financial services company, knowingly participated in NSEL’s unlawful “pair-trade” scheme and induced clients to invest by giving false assurances of risk-free returns, proper due diligence, and a functioning Settlement Guarantee Fund, none of which actually existed.

3. The prosecution also asserts that Petitioner No.2 issued misleading stock confirmations to NSEL’s auditors, altered client codes without consent, and ignored regulatory duties. In collusion with NSEL, it allegedly created a system where no warehouse receipts or physical commodities backed investor funds. When defaults occurred, Petitioner No.2 neither contributed to the guarantee fund nor compensated its clients. Petitioner No.1, as a director of Petitioner No.2 during the relevant period, is alleged to be responsible for its operations and therefore vicariously liable for these acts.

4. Mr Amit Desai, the learned Senior Counsel appearing on behalf of the Petitioners, submitted that even assuming the entire charge sheet to be true, no prima facie grounds exist to proceed against the Petitioners. The Petitioners have been mechanically arrayed in the fourth charge sheet dated 25 December 2018, without any material indicating their involvement in the alleged offences. Apart from bald and unsupported allegations, the charge sheet discloses no material demonstrating complicity. The Petitioners are not the principal accused, yet are being compelled to face criminal proceedings solely because their names appear in the fourth charge sheet.

5. It is submitted that NSEL, incorporated in May 2005 by 63 Moons (formerly FTIL), commenced operations pursuant to the Government Notification dated 5 June 2007. As per Respondent No.2’s own case in the first charge sheet, NSEL alone launched the various contracts, including farmer, pair and e-series contracts. Petitioner No.2 had no role in conceptualising or launching these products. As a trading-cum- clearing member, Petitioner No.2 merely executed trades on behalf of its clients in its capacity as a broker, and settlement of contracts was exclusively NSEL’s responsibility. Respondent No.2’s own allegations in the fourth charge sheet further establish that 63 Moons provided the software through which pair contracts operated,