Collective investment scheme finding under SEBI law where pooled funds, assured returns and promoter control triggered registration requirements.

Investor funds pooled into an IT/cyber space project with assured monthly returns and buy-back rights satisfied the ingredients of a collective investment scheme under Section 11AA of the SEBI Act. The agreements did not identify specific units at the time of investment, only tentative area and floor details, while the promoter retained control over construction, leasing, maintenance and post-completion management. The arrangement was therefore treated as a collective investment scheme requiring SEBI registration, and operating it without registration breached the SEBI regulatory framework.

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Issues: Whether the project and schemes floated for sale of IT/cyber space with assured return and buy-back features constituted a collective investment scheme, and whether the entity operated such scheme without registration from SEBI.

Analysis: The arrangement was examined against the ingredients of Section 11AA of the SEBI Act. The application form, assured return agreement and buyer's agreement did not identify specific units at the time of investment; they referred only to area and floor, with the actual unit numbers remaining tentative. The funds collected from investors were pooled for the project, and the entity itself undertook construction, leasing, maintenance and post-completion management, while investors had no day-to-day control over the scheme. The agreements also provided assured monthly returns and a buy-back feature, showing that contributions were made with a view to earn income or property benefits rather than to acquire a clearly demarcated real estate unit in a conventional sale transaction.

Conclusion: The arrangement satisfied all the conditions of a collective investment scheme under Section 11AA of the SEBI Act, and the entity was held to have operated an unregistered collective investment scheme in breach of the SEBI regulatory framework.

Ratio Decidendi: Where investor contributions are pooled into a project, the specific asset is not identifiable at the time of investment, returns are assured, and the promoter retains control over management and deployment of funds, the arrangement falls within the definition of a collective investment scheme requiring SEBI registration.

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