Collective investment scheme compliance failures justified winding up where provisional registration conditions and investor safeguards were not met.

Failure to satisfy the conditions attached to provisional registration under the collective investment scheme framework justified winding up the schemes and repayment to investors. The appellant had not appointed eligible trustees or achieved the prescribed net worth, both of which were essential because scheme assets were required to be held in trust for investors rather than in the names of company functionaries. It also continued to mobilize funds without a final registration certificate and circulated misleading information memoranda despite required corrections. These regulatory breaches made continuation of the schemes impermissible and supported the direction to wind up and repay investors.

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Issues: Whether the appellant, having failed to comply with the conditions attached to provisional registration and having continued to mobilize funds without a final certificate of registration, could be permitted to continue its collective investment schemes, or whether the direction to wind up the schemes and repay investors was justified.

Analysis: The appellant had obtained only provisional registration subject to specific conditions, including creation of a trust, appointment of eligible trustees, compliance with valuation and accounting norms, and achievement of the prescribed minimum net worth. The admitted failure to appoint trustees and to meet the net worth requirement was fatal, because the regulatory scheme required the assets of the schemes to be held in trust for investors and not in the names of company functionaries. The record also showed that the appellant had continued to accept unit capital and raise funds from investors despite the absence of a registration certificate under Regulation 10, which was contrary to the regulatory prohibition on mobilizing funds before full registration. Further, the information memoranda circulated to investors were found to contain misleading statements intended to induce continued investment, and the appellant also failed to incorporate the Board's suggested corrections.

Conclusion: The direction to wind up the schemes and repay the investors was upheld and the appeal was dismissed.

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