Bombay High Court Rejects NSEL Plea To Adopt Committee Mechanism To Assess Liability In ₹937 Crore Suit

The Bombay High Court on Monday rejected a notice of motion filed by National Spot Exchange Limited (NSEL) seeking application of a committee mechanism to its recovery suit involving alleged fraudulent and collusive commodity transactions against its former trading member, N.K. Proteins Ltd. and its promoters, directors, and related entities.

Holding that the notice of motion was premature and that pleadings must be completed and issues framed before such relief can be considered, Justice Gauri Godse observed:

“The prayers in this Notice of Motion are premature. After the pleadings are complete and the issues are framed, this court, at an appropriate stage during the trial, may consider whether the facts and circumstances of the case warrant the invocation of the powers under section 75, read with Order XXVI of the CPC, to appoint a court Commissioner.”

The suit seeks recovery of approximately Rs. 937 crore, with NSEL alleging that the defendants, acting as trading members and clients on its platform, engaged in fraudulent and collusive trades, defaulted on payment obligations, and wrongfully benefited from transactions executed on the exchange.

The dispute arises in the backdrop of the 2013 NSEL crisis, where multiple trading members allegedly defaulted on settlement obligations following suspension of contracts.

NSEL had relied on an order dated September 2, 2014 passed in a representative suit, under which a three-member committee was constituted to determine liabilities of defaulters. It sought application of a similar mechanism in the present case to determine the extent of liability.

The dispute traces back to regulatory actions in July–August 2013, when the Central Government directed suspension of certain contracts and supervised settlement of trades. NSEL had earlier initiated proceedings, including an arbitration petition in September 2013, which was later withdrawn with liberty to pursue a civil suit.

Opposing the plea, the defendants argued that the committee lacked adjudicatory powers and that the dispute, involving serious allegations of fraud and contested liability, required a full-fledged trial.

Accepting the defendant's contentions, the court held that allegations of fraud must first be examined to determine liability and that the case is not merely one of account reconciliation. It noted that no aggrieved investors are parties to the present suit and that applying the representative suit mechanism would serve no purpose, requiring the matter to proceed to trial.

The court said:

“In the present case, considering the allegations of fraud, the court must first examine the issue of fraud to ascertain whether defendant no. 1 is liable to make any payment. The question in the present suit is not only of the adjustment of the accounts. No aggrieved investor is a party to the present suit for applying public policy principles in the public interest. Hence, no purpose would be served by applying the order passed in the representative suit to the defendants herein.”

The court accordingly dismissed the notice of motion, leaving the suit to proceed in accordance with law.