STATE OF MAHARASHTRA Vs. 63 MOONS TECHNOLOGIES LTD

JUDGEMENT

(1.) A. Facts......................................................

(2.) NSEL is a company incorporated under the Companies Act 1956, and is a wholly owned subsidiary of Financial Technologies (India) Limited, which is now known as 63 Moons Technologies Limited (FCIL or 63 Moons). On 5/6/2007, the Union of India issued a notification under Sec. 27 of the Forward Contracts (Regulation) Act 1952 (FCRA) exempting forward contacts of one-day duration for sale and purchase of commodities traded on NSEL from the application of the provisions of the enactment. NSEL started operating as an exchange for spot trading in commodities. NSEL launched contracts for buying and selling of commodities on its trading platform with different settlement periods, ranging from T+0 to T+36 days. T indicates the trade date, that is the date on which the trade took place and +0 or +36, indicates the number of business days after the trading day when the delivery of the commodity and the payment of price is made.

(3.) NSEL offered paired contracts. Such contracts enabled traders either by themselves or through their brokers, to simultaneously enter into paired contracts, such as of T+2 and T+25 duration. The seller through his broker puts the commodities on sale and the buyer through his broker looks to purchase commodities of specific requirements. NSEL then pairs the buyer and the seller if there is a match between the requirement of the buyer and the available commodities with the seller. The buyer and the seller simultaneously enter into T+2 and T+25 contracts. For example, if A (the buyer) wants to buy one ton of basmati rice, he would trade on NSELs platform through his broker. The platform would identify that B (the seller) has an offer to sell the quantified commodity. NSEL would then match both the contracts. The date of matching of the contracts is termed as the trade date or T. A must then pay the price of the commodity to NSEL, which checks if B has deposited the stock in a warehouse accredited to NSEL for delivery within two days. Once NSEL has confirmed that B has deposited the stock in the warehouse, it transfers the money to B. Simultaneously, the same parties enter into a T+25 contract by which A (who was the buyer in the T+2 contract) would sell the same quantity of commodity purchased to B (who was the seller in the T+2 contract). The difference between the purchasing cost and the selling cost is the profit that the trading member acquires through the trade. A flow chart indicating a representation of the transaction is set out below: