SEBI Tribunal: Appellants Violated CIS Regulations, Ordered to Refund Investors

The Tribunal found that the Appellants' business constituted a Collective Investment Scheme (CIS) under Section 11AA of the SEBI Act. It held that the Appellants violated Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations by not obtaining a certificate of registration from SEBI. The Tribunal upheld SEBI's order directing the Appellants to refund all money collected from investors and granted them six months to make the payments to approximately thirty thousand investors, with a requirement to submit a report to SEBI on the payments made. The appeal was dismissed with no costs.

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Issues Involved:
1. Whether the business of the Appellants constitutes a Collective Investment Scheme (CIS) u/s 11AA of the SEBI Act.
2. Whether the Appellants violated Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations by not obtaining a certificate of registration from SEBI.
3. Whether the Appellants should be directed to refund the money collected from investors.

Summary:

Issue 1: Whether the business of the Appellants constitutes a Collective Investment Scheme (CIS) u/s 11AA of the SEBI Act.
The Securities and Exchange Board of India (SEBI) conducted an investigation into the activities of NGHI Developers India Limited and its representatives, concluding that they were engaged in fund mobilizing activity from the public by launching CISs as defined in Section 11AA of the SEBI Act. The Appellants argued that they were engaged in the real estate business and that their agreements with customers were for the sale and purchase of land, not a scheme. However, the Tribunal noted that the money collected from customers was pooled and used for the scheme, and the customers had no control over the management and operation of the scheme. The Tribunal referred to the Supreme Court's judgment in PGF Ltd. vs Union of India, which held that similar activities constituted a CIS. The Tribunal concluded that the Appellants' business was indeed a CIS.

Issue 2: Whether the Appellants violated Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations by not obtaining a certificate of registration from SEBI.
The Tribunal noted that Section 12(1B) of the SEBI Act requires all persons intending to float any scheme or arrangement in the nature of a CIS to obtain a certificate of registration from SEBI. Regulation 3 of the CIS Regulations states that only a Collective Investment Management Company shall sponsor CISs. The Appellants did not obtain the required certificate of registration from SEBI. Therefore, the Tribunal found that the Appellants violated Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

Issue 3: Whether the Appellants should be directed to refund the money collected from investors.
The Tribunal upheld SEBI's Impugned Order directing the Appellants to refund all the money collected from investors along with the returns due. However, considering the arduous process involved in executing the scheme of repayment to about thirty thousand investors, the Tribunal granted the Appellants six months' time to make the payments to their investors. The Appellants were also directed to submit a report to SEBI detailing the payments made to investors at the end of the six-month period. The Tribunal modified the Impugned Order to this extent and dismissed the appeal with no costs.

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