2025 (11) TMI 532 - AT - SEBI

Appellants ordered to refund 1,100 investors with 9% interest after oil spillage made teak saplings impossible

SAT directed the appellants to refund 1,100 investors who approached them, ordering repayment with interest at 9% per annum instead of 12%, after finding ... Claim for refund of the monies received from the investors - with an offer to plant a teak wood plant and the investors would get benefits mentioned in the prospectus - prayer for reduction in rate of interest less than 12% - HELD THAT:- According to the appellants 1100 investors have approached and appellants have sought reduction in rate of interest to refund the monies received from those 1100 investors. It was argued that the land was rendered useless due to oil spillage and the teak saplings could not be grown. The investors have been waiting for about three decades. Considering all these aspects, we are of the view that ends of justice would be met by directing the appellants to refund 1100 investors who have approached the appellants with 9% interest per annum instead of 12%. ISSUES PRESENTED AND CONSIDERED 1. Whether monies collected from investors under an offer to plant teak saplings constituted a collective investment scheme within the regulatory framework, attracting SEBI's directions to refund and consequent enforcement powers. 2. Whether, having been directed by SEBI to refund investors and after the CIS Regulations, 1999 came into force, the respondent could retain investor monies where no effective refund or registration was undertaken. 3. Whether the rate of interest directed by the regulatory authority (12% per annum) on refunds is appropriate, and if reduction of that rate is permissible for a subset of investors who have come forward to claim refunds. 4. Whether directions for deposit/repayment applicable to the whole investor class could be modified in respect of investors who have already approached the appellant for refund. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation as Collective Investment Scheme and Applicability of SEBI Directions Legal framework: The CIS Regulations, 1999 and SEBI's December 7, 2000 direction to entities operating collective investment schemes to refund monies where no registration was sought or obtained; SEBI's statutory authority to issue show cause notices and pass remedial orders under the CIS regulatory scheme. Precedent Treatment: No specific judicial precedents were applied or distinguished in the text; the Tribunal proceeded on statutory/regulatory provisions and the administrative record. Interpretation and reasoning: The Tribunal treated the offer to plant teak saplings for investors and to provide benefits as falling within the regulatory regime, given SEBI's direction and the absence of registration. The appellant had solicited money from a large number of investors at fixed amounts per sapling and failed to act on SEBI's December 2000 communication; SEBI received complaints and subsequently initiated proceedings. The Tribunal accepted the characterisation implicit in SEBI's actions and found the regulatory direction to refund applicable. Ratio vs. Obiter: Ratio - the finding that the collection of monies under the described scheme attracted the CIS regulatory regime and SEBI's refund direction. No obiter on alternative characterisations. Conclusion: The scheme fell within the regulatory ambit that justified SEBI's direction to refund investors and to proceed with enforcement where no compliant registration/refund occurred. Issue 2 - Obligation to Refund and Retention of Investor Funds after Regulatory Direction Legal framework: SEBI's power to require refund of monies received by entities operating as CIS and to take enforcement action where directions are ignored; the duty of entities to comply with refund directions once ISA/SEBI has communicated such direction. Precedent Treatment: None cited; the Tribunal relied on the statutory/regulatory record and admitted facts. Interpretation and reasoning: The Tribunal emphasised the undisputed admission that the appellant had received monies from investors at specified amounts and had not taken effective action after the regulatory direction. Given the admitted receipt, the Tribunal concluded there was no right for the appellant to retain monies belonging to investors. The Tribunal noted SEBI's ongoing complaints, show-cause processes and eventual adjudication as consistent with enforcement of the refund obligation. Ratio vs. Obiter: Ratio - entities that have received investor monies under a CIS and failed to comply with SEBI refund directions cannot retain such monies; they are liable to refund with interest as ordered by the regulatory authority. Conclusion: The appellant was not entitled to retain investor funds and must refund amounts collected in compliance with SEBI's directions. Issue 3 - Appropriate Rate of Interest on Refunds and Discretion to Modify Rate for a Subset of Investors Legal framework: SEBI's adjudicatory and remedial powers include directing refunds with interest; the Tribunal's power on appeal to modify directions where just and equitable in the circumstances. Precedent Treatment: No prior judicial rates or authorities were invoked; the Tribunal evaluated reasonableness and equities in the factual matrix before it. Interpretation and reasoning: The WTM had directed refunds with 12% per annum interest. The appellant sought reduction of interest for those investors (1100) who had approached the appellant pursuant to recent newspaper publications and for whom refunds could be effected promptly. The Tribunal balanced the investors' legitimate expectation to receive refunds with reasonable interest against practical justice considerations given the delay (investors had waited decades) and partial voluntary compliance by the appellant. The Tribunal found that, in the interests of justice, the rate could be reduced to 9% per annum for the identified subset (1100) who had come forward; all other directions and the 12% rate remained effective for other investors. Ratio vs. Obiter: Ratio - the Tribunal may, in exercise of appellate/modifying powers, reduce the interest rate directed by the regulator for a defined subset of claimants where equitable considerations and promptness of claim justify a different rate; however, the general principle that investors have a legitimate expectation of refund with reasonable interest remains undisturbed. Obiter - no general rule altering the statutory or regulatory benchmark for interest was laid down beyond the facts. Conclusion: The Tribunal modified the WTM's order by directing refunds to the 1100 investors who approached the appellant with interest at 9% per annum from the date of receipt of money until repayment; the 12% interest direction stands for the remaining investor class. Issue 4 - Scope of Modification: Deposit/Directions for Remaining Investors and Finality of Other Findings Legal framework: Appellate authority's power to uphold, modify or set aside directions issued by the regulator; principle that admitted facts (receipt of monies) constrain appellants' rights. Precedent Treatment: None applied; the Tribunal adhered to statutory/regulatory record and equitable considerations. Interpretation and reasoning: The appellant requested that directions requiring deposit/payment to remaining investors be set aside. The Tribunal rejected any wholesale setting aside, observing the admitted receipt of monies and the absence of entitlement to retain investor funds. The Tribunal limited its modification to the interest rate for the subset of investors who had come forward; all other findings and directions in the impugned order were left undisturbed. The Tribunal thereby sustained the regulatory remedy for the class while tailoring relief where immediate restitution could be effected. Ratio vs. Obiter: Ratio - modification on appeal limited to specific equitable adjustments does not nullify the regulator's core directions where the appellant admits receipt of investor monies; other directions remain operative. Obiter - the decision does not pronounce on alternative mechanisms for compliance or timelines beyond the factual refund order made. Conclusion: Directions for refund and enforcement against the appellant remain operative for the investor class generally; only the interest rate for the 1100 investors who approached the appellant was reduced to 9% per annum. All other findings in the impugned order continue to bind the appellant.