2020 (3) TMI 920 - AT - SEBI

Tribunal Upholds WTM Decision on Unregistered Investment Scheme

Siddharth Sanghi Versus Securities and Exchange Board of India

The Tribunal upheld the decision of the Whole Time Member (WTM) in a case involving a Collective Investment Scheme (CIS) where a company was found to be ... Money mobilization - money collected by the Company for teak plantation scheme was in the nature of Collective Investment Scheme (CIS) as defined in section 11AA of the Securities and Exchange Board of India Act - scheme was being carried on without requisite registration under the SEBI Act - HELD THAT:- In Appeal No. 378 of 2017 were appointed as directors for a limited period between 2008 and 2009. During this period, no amount was collected under the CIS. There is no finding that the amount collected had matured during the period when these appellants were the directors. Consequently, in our opinion, these directors could not be fastened the liability to refund the amount as they had neither collected the money nor were responsible for disbursement of the money to the investors at that stage. Admittedly the said appellants after their resignations are not involved in the affairs of the company. Consequently, no direction could be issued to them to wind up the investment scheme or to restrain them from selling the assets of the company in which they are not the directors. The impugned order in so far as the appellants in Appeal is concerned cannot be sustained. Appellants in Appeal No. 55 of 2018 and 56 of 2018 no interference is required in the impugned order. The investment made by the investors had matured in 2012 during the period when the appellants were the directors in the company and were responsible for the refund of the money. The appellants failed to refund the amount and therefore are liable to refund the amount alongwith interest as directed by the WTM. The contention that they were not responsible for the affairs of the company or that they had never participated in any Board's meeting is only an afterthought which has been raised without any cogent proof. In fact, the appellant did not file any reply and only sought time to collate the particulars and file a detailed reply which he failed to do so. The appellant in Appeal No. 55 of 2018 only made a bald assertion that he was not responsible for the day to day operations and management of the company without filing any resolution of the Board of Directors to show the he did not participate in any meeting. In any case, the amounts had matured during the period they were directors and thus, were responsible for the refund of the money to the investors. The decisions relied upon them that they were only liable to the extent of collection made by them is not applicable to the instant case as they are liable for the refund of the money collected by the company which was liable to be refunded during the period when the said appellants were directors. Consequently, Appeal lacks merit. Issues:- Determination of liability for refund in a collective investment scheme.- Responsibility of directors in refunding investor money.- Applicability of direction to wind up the scheme and restrain directors from holding positions in listed companies.Analysis:Issue 1: Determination of liability for refund in a collective investment schemeThe Securities and Exchange Board of India (SEBI) received complaints regarding money mobilization by a company for a teak plantation scheme, deemed a Collective Investment Scheme (CIS) under the SEBI Act. The Whole Time Member (WTM) found the scheme unregistered and ordered its winding up, directing the company and directors to refund investors' money with returns. The Tribunal upheld the WTM's decision, emphasizing the need for compliance with SEBI regulations and refund obligations.Issue 2: Responsibility of directors in refunding investor moneyIn Appeal No. 378 of 2017, directors argued against liability, citing brief tenures and lack of involvement in fund collection or maturity. The Tribunal ruled in their favor, noting their limited roles and absence of responsibility post-resignation. However, directors in Appeal Nos. 55 and 56 of 2018 were held accountable for failing to refund money collected during their tenures, rejecting claims of non-involvement or lack of participation in the company's affairs. The Tribunal stressed the directors' obligation to refund matured amounts to investors.Issue 3: Applicability of direction to wind up the scheme and restrain directors from holding positions in listed companiesDirectors in Appeal Nos. 55 and 56 of 2018 were found liable for refunding investors based on the maturity of amounts during their directorships. Their attempts to limit liability to collections made during their terms were dismissed, emphasizing their responsibility for total refunds. The Tribunal upheld the WTM's directions, underscoring the directors' accountability for refunding investor funds and complying with SEBI regulations. The judgment differentiated between directors based on their involvement and tenure, ultimately upholding the refund obligations for directors directly associated with the scheme during the refund period.