TaxTMI 
TaxTMI 
2015 (8) TMI 993
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....R Per: Justice J.P. Devadhar 1. Whether the Securities and Exchange Board of India ('SEBI' for short) by its order dated 22.08.2014 is justified in holding that the schemes floated by PACL Ltd. ("PACL" for short) constitute Collective Investment Schemes ('CIS' for short) under the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short) and assuming that the said schemes are CIS, whether SEBI is justified in holding that as a natural consequence, PACL and its promoters and directors, are liable to wind up the said schemes and refund the monies collected from the investors as per the terms of offer, without giving an opportunity to the appellants to register the said schemes in accordance with the regulation framed by SEBI is the basic question raised in all these appeals. 2. Appeal No. 368 of 2014 is filed by PACL and all other appeals are filed by the promoter/directors of PACL to challenge impugned order of SEBI dated 22.08.2014. Since the challenge in all these appeals is to the order of SEBI dated 22.08.2014, all these appeals are heard together and disposed of by this common order. 3. For the sake of convenience, facts set out in Appeal no. 368 of 2014 to th....
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....red to comply with the CIS Regulations. Apart from filing the aforesaid reply, PACL filed a Writ Petition before the Rajasthan High Court seeking an order directing SEBI to withdraw the notices dated 30.11.1999 and dated 10.12.1999. h) By an order dated 21.12.1999 Rajasthan High Court stayed the operation of the two notices dated 30.11.1999 and dated 10.12.1999. Thereafter, by its final order dated 28.11.2003 the Rajasthan High Court held that none of the conditions set out under Section 11AA(2) were satisfied in the present case and accordingly quashed both the notices dated 30.11.1999 and 10.12.1999 issued by SEBI. i) In the meantime, Delhi High Court passed an order on 16.11.2000 in the PIL filed before it whereby Justice K. Swami Durai (Retd.) was appointed to physically verify the genuineness of 14150 sale transactions entered into by PACL with various customers and also to supervise the registration of sale deeds executed in respect of those transactions. j) On 20.09.2002 Justice K. Swami Durai (Retd.) submitted his final report inter alia recording that the land which PACL proposed to transfer to its customers were in existence and PACL was in possession of the said lands....
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....t read with Regulation 65 of the CIS Regulations should not be issued against them for not complying with the provisions contained under the CIS Regulations. It is not in dispute that the delay in issuing the supplementary show cause notice has been condoned by the Apex Court by its order dated 27.09.2013. n) PACL as also the promoters and directors of PACL denied the allegations made against them in the show cause notices. After hearing PACL and its promoters and directors SEBI passed the impugned order on 22.08.2014 holding that the schemes run by PACL constitute CIS and as a natural consequence directed PACL/its directors and promoters to wind up the existing CIS and refund the monies which have been collected from the customers in violation of SEBI Act and the CIS Regulations, with promised return within a period of three months from the date of the said order. Challenging the aforesaid order all these appeals are filed. 4. Mr. Dwarkadas, learned Senior Advocate appearing on behalf of PACL argued by his oral and written submissions as follows:- a) Finding recorded in the impugned order that the appellant is running a CIS is factually incorrect. Assuming while denying that th....
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....al lands, PACL knows how and to what extent the land shall be developed and based on its expertise in the field, is able to advise an estimated realizable value. The number of sale deeds executed cannot be of much consequence, because, what was being tested was the business model of PACL. As long as PACL was giving its customers option to get sale deeds executed and come into possession of their land, the fact that a significantly large number of customers chose not to do so and instead chose to sell their land and receive the monies, will not take anything away from the real nature of the transaction i.e. the real estate transaction. e) Argument of SEBI that PACL instead of holding land in its name holds land in the names of related companies and that makes the availability of land for actual transfer to the investor seriously suspect has no basis, because, SEBI has not been able to point out a single investor grievance or complaint as regards the actual transfer of land when demanded. In fact in several cases, as verified by Justice K. Swami Durai, land was actually transferred to the investor, pursuant to duly registered sale deeds. In the absence of any specific case, where th....
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....mpliance with the directions given by the Apex Court, because, fresh notice was required to be given only after decision was taken on merits that PACL was running a CIS. Prior to the passing of the impugned order it was brought to the notice of WTM that two tier procedure has to be followed, however, the WTM failed and neglected to follow the two tier procedure prescribed by the Apex Court. If there was any doubt regarding the two stage hearing prescribed by the Apex Court, SEBI ought to have sought clarification from the Apex Court. j) By disobeying the directions of the Apex Court and fusing what was otherwise contemplated as two separate hearing, the WTM has effectively taken away the right of the appellant to file an appeal and thus the impugned order is in violation of the principles of the natural justice. Relying on a decision of the Apex Court in case of Institute of Chartered Accountants of India vs L. K. Ratna reported in (1986) 4 SCC 537 it is submitted that failure to comply with natural justice in the trial body cannot be cured by a sufficiency of natural justice in an appellate body. Above view of Apex Court is based on the observation of Megarry J in leary vs Nation....
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....ning a CIS, was duty bound to afford an opportunity to PACL to register its business and conduct CIS activity as per the provisions of law. During the course of hearing before this Tribunal, PACL had made without prejudice offer to seek registration under CIS Regulations, however, the same was turned down by SEBI on the ground that it is too late in the day to do so. Although SEBI had right to reject application for registration, such rejection could be only after affording a hearing as mandated under Regulation 12 of the CIS Regulations. Therefore, ordering winding up of legitimate business carried on by PACL since 1999, without giving an opportunity to comply with the requirements of registration under the CIS Regulations is nothing but malafide exercise of power. m) There is no dispute that PACL is legally entitled to challenge the impugned decision of SEBI before this Tribunal and if aggrieved by the decision of this Tribunal to challenge the same before the Apex Court and till the issue of CIS is finally determined by this Tribunal and thereafter the Apex Court, the business of PACL could not be directed to be wound up. n) In partial compliance of the impugned order, PACL ha....
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....cause notice and thereafter consider as to whether the activities of PACL were CIS; v) even while so remitting the matter to SEBI, the Apex Court permitted PACL to carry on its activities. Thus, for the first time by the impugned order it is held by SEBI that PACL is running a CIS and therefore, occasion for PACL to seek registration arose only after the impugned order subject to right of appeal before this Tribunal. q) Fact that the two orders dated 30.11.1999 and 10.12.1999 which were quashed by the Rajasthan High Court are liable to be treated as show cause notices pursuant to the order of the Apex Court would not mean that the decision of SEBI contained in the orders dated 30.11.1999 and 10.12.1999 that PACL is running CIS, stand revived. In fact, the Apex Court remanded the matter by specifically directing that the issue of CIS should be decided first and thereafter further step be taken after issuing fresh notice. Thus, it is only on 22.08.2014 when the impugned order came to be passed that PACL was running a CIS, the question of seeking registration arose. Since, PACL was functioning legitimately (having been declared not to be a CIS) as per the order of the Rajasthan High ....
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....(2) to 73(8). Since the WTM has overlooked the above procedure, impugned order is liable to be quashed and set aside. By disregarding the procedure prescribed under Chapter IX, prejudice is caused not only to PACL but also to the investors whose rights to decide for themselves has been arbitrarily taken away. It is trite law that if a stature provides for a thing to be done in a particular manner, then, it has to be done in that manner and in no other manner. In this connection reliance is placed on a decision of the Apex Court in case of J. Jayalalithaa vs State of Karnataka reported in (2004) 2 SCC 401. u) Argument of SEBI that the power to wind up the CIS dehors Chapter IX of CIS Regulations exist in regulations 65 and Section 11B of SEBI Act is untenable for two reasons. First, that is not the finding recorded in the impugned order. In the impugned order winding up is directed as a 'natural consequence' to the finding that PACL is running a CIS. Second reason is that if the contention of SEBI is accepted, it would have the effect of rending entire Chapter IX nugatory. It is a cardinal principle of interpretation that a statute has to be read in a manner that meaning could be g....
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....efund monies collected...". Since the proposal dated 11.08.2014 was made without prejudice to all rights and contentions of PACL, the proposal and admissions made therein cannot be the basis to deprive or take away the right of PACL to register under the CIS Regulations, assuming such a right exists. y) Section 23 of the Evidence Act 1872 specifically provides that admissions will not be relevant where they are given with an express condition that such admissions will not be given in evidence. Consequently, the proposal submitted by PACL being explicitly 'without prejudice', the admission contained therein could not be relied upon in the impugned order. In support of the above contention reliance is placed on a decision of the Calcutta High Court in case of Ajit Kumr Bose vs Snehalata Biswas reported in (1968) ILR 1 Cal 127. z) Apart from the above, it would be wholly iniquitous to deprive PACL of its right under the CIS Regulations to register as a pre-existing CIS, only on account of the admissions contained in the without prejudice proposal. An admission must be accepted as a whole or not at all. In the present case, since the proposal was categorically rejected, it was imper....
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....tered with SEBI. Therefore, even if it is held that PACL is running a CIS, the procedure prescribed under Chapter IX of the CIS Regulations ought to have been followed by involving PACL and its investors. Failure on part of WTM to follow the second stage procedure is therefore contrary to the dictum laid down by the Apex Court as also the provisions contained in Chapter IX of the CIS Regulations. Once the Apex Court has prescribed a procedure for doing a thing in a particular manner then, it has to be done in that matter alone and it is not open to SEBI to follow one part and ignore the other part. d) SEBI is not justified in contending that PACL has raised the plea of two stage procedure belatedly, because, there was no occasion for the appellants to presume that the WTM would not follow the two stage procedure prescribed by the Apex Court. It is only when it became apparent that the WTM may bypass the special procedure, the WTM was reminded of his obligation to follow the two stage procedure. However, WTM failed to follow the two stage procedure in defiance of the Apex court order. e) Argument of SEBI that by not following the two stage procedure, principles of natural justice ....
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.... again be relevant in this context as the builder constructs the flats and retains it in his possession till all payments are made by the customer and thereafter, the flat is transferred to the customer, and the customer comes in control and is free to manage the flat. Similar is the case with PACL. However, if the meaning which is being sought to be given by SEBI to Section 11AA(2) (iii) of the Act is to be accepted then every transaction of sale and purchase of property would amount to a CIS. Similarly, Section 11AA(2)(iv) is clearly not attracted as once the land is sold, the investors have full day to day control over the land, which they have purchased. This fact is clearly proved by the report of Justice K. Swami Durai. Since the requirements of Section 11AA(2) of the SEBI Act are not met in the case of PACL, it could not have been held that PACL has been running a CIS. i) The fact that PACL has not been running a CIS is clearly demonstrated by the reports submitted by Justice K. Swami Durai. A perusal of the said final report (pgs 122-132 of the appeal paperbook) indicates that all the objections of SEBI were found to be "unfounded and untenable". Justice K. Swami Durai vis....
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....ng which is not within the control of the company and is immaterial. As long as the customers of PACL have the option of getting sale deeds and coming into possession and they actually exercise this option and either get sale deeds executed in their favour or choose to opt out, no fault can be found with the business model of PACL per se. It is a real estate transaction simpliciter and cannot be held to be a CIS. l) Much has been said by contending that the land being sold is indeterminate and can be changed by PACL at any stage and therefore this is not a genuine real estate transaction. It is submitted that from the documents produced and relied by SEBI itself, which indeed were supplied to it by PACL, it is apparent that shortly after a customer approaches PACL, a specific plot is allotted to him or her and this is the plot, which is actually sold to that particular customer. Although there may be a clause in the agreement that PACL can change the location of the plot, this has never been done and the customers have been sold the plots, which they have allotted and there is no material to show otherwise. m) It has further been argued on behalf of SEBI that the realizable value....
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....ing a CIS, it was only required to register itself with SEBI. Now that the Hon'ble Supreme Court, by a consent order dated 26.02.2013, has revived these two notices dated 30.11.1999 and 10.12.1999, and in these two notices SEBI is requiring PACL to seek registration, SEBI cannot be allowed to say that PACL cannot now seek registration. The moment the Hon'ble Supreme Court revived the two notices and directed SEBI to proceed in terms thereof, the offer of registration given in the said two notices also got revived and SEBI cannot be permitted to back away. SEBI cannot be allowed to say that it would adjudicate on the two notices but would not provide PACL the opportunity specifically provided in the two notices. q) If at all SEBI was of the view that although the two notices had been revived but the opportunity of registration could still not be provided to PACL, despite the regulations and despite the order dated 26.02.2013, nothing prevented SEBI from seeking a clarification from the Hon'ble Supreme Court. Failure to do so and its subsequent conduct, indicates that SEBI had decided that it cared two hoots about the orders of the Hon'ble Supreme Court. The cavalier attitude of SEB....
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....stration or was denied registration by SEBI or failed to comply with conditions of provisional registration if granted, it had to be wound up in the specific manner provided by regulation 73. In such a case, regulation 73 provides for a detailed and specific procedure which has to be followed. As is evident, the entire procedure prescribed under Chapter IX, particularly regulation 73 has been given a complete go bye by the WTM in the impugned judgment and order. Regulation 73 had been placed in the statute book with a particular object and this object was to create a situation where the investors could make an informed decision as to what they wanted to do with their investment, after all information was provided by the CIS, under the supervision of SEBI. The very object of the regulations is being sought to be defeated by the impugned directions, which are ex-facie in breach of the regulations. v) Argument of SEBI that the without prejudice proposal sent by PACL would be deemed to be one under regulation 74 also is of no avail because even if that were the case, even then the procedure prescribed by regulation 73 cannot be given a go by. w) Argument of SEBI that powers under reg....
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....re/godown where title deeds of lands purchased by PACL and its associate companies were kept. CBI simply took away everything in sight. After doing so, CBI has been opening the huge tin boxes one by one and thereafter issuing seizer memos. Whatever seizure memos have been supplied by CBI so far, have been sent by PACL to SEBI and as and when the seizure memos are being provided, they are being sent to SEBI. Since the CBI team took away whatever was there, therefore PACL is handicapped in providing the details of these assets on its own. What this entire exercise however shows is that the assets are substantial, that is why it is taking so long to prepare even seizure memos and they are safe, being in custody of the CBI. Accordingly, Mr. Nayar submitted that the impugned order ought to be quashed and set aside. 6. Mr. Subramaniam learned Senior Advocate appearing on behalf of appellants in Appeal No. 95 of 2015 while adopting the argument of the counsel for other appellants submitted orally and by written submissions as follows:- a) In the impugned order the Whole Time Member ("WTM") of SEBI has accepted the findings recorded in the report of Justice K. Swami Durai (Retd.) that t....
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....a finding which is unsustainable and impossible to arrive at. f) Regulations 68 to 74 contained in Chapter IX of the CIS Regulations envisage that where any company/person believes that the scheme floated by it does not fall within the mischief of Section 11AA, then it is open to SEBI on consideration of material facts to declare that the said scheme satisfies all the provisions of Section 11AA (2)(i) to (iv) and thereafter give an opportunity to obtain provisional registration under regulation 68. Therefore, unless there is a declaration that the scheme that is operated is a CIS, neither regulation 68 nor regulation 70 would come into play. g) Regulation 69 is inapplicable in the instant case, as PACL has not launched any new CIS after the declaration of the schemes of PACL as CIS. h) Winding up of any existing CIS under regulation 73 arises only if there is failure to apply for registration or if provisional registration is not granted or, having obtained provisional registration has failed to comply with the conditions set out in regulation 71. In the impugned order, WTM of SEBI has ignored the procedure prescribed under regulation 73. i) In the impugned order PACL is denied....
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.... Memorandum of Understanding ('MOU' for short) executed on 19th February 2015 by and between M/s. Pearl Group (i.e. PACL Ltd. and its subsidiaries/ associate companies including its directors Mr. Tarlochan Singh, Mr. Sukhdev Singh, Mr. Gurmeet Singh, Mr. Subrata Bhattacharya and Mr. Gurjant Singh Gill and Mr. Balkaran Singh, the said Mr. Balkaran Singh has been appointed as an Additional Director on the Board of PACL with effect from 5th February 2015 along with one Mr. Anil Choudhary Legha as Additional Director. Without allowing the application for impleadment, we permitted counsel for Mr. Balkaran Singh to make submissions as intervener. Accordingly, counsel for Mr. Balkaran Singh submitted that as per MOU dated 19th February 2015 Mr. Balkaran Singh was to hold 65% shareholding of PACL and the remaining 35% shareholding of PACL was to be with the Pearl Group. Counsel further submitted that Mr. Balkaran Singh will be taking complete control of the management and the Board of Directors of PACL and is at present actively participating in the day to day affairs of PACL. He further submitted that steps are being taken to ensure that funds for repayment to the eligible investors are m....
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.... registration was required prior to such commencement, may continue to operate till such time regulations are made under clause (d) of sub-section (2) of Section 30." (emphasis supplied) Section11AA(1)&(2)(with effect from 22.02.2000) "Collective Investment Scheme 11AA. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) shall be a collective investment scheme. (2) Any scheme or arrangement made or offered by any company under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day-to-day control over the management and operation of the scheme or arrangement." 14. Prior to insertion of Section 11AA to the SEBI Act with effect from 22.....
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.... of SEBI by filing Writ Petition before the Rajasthan High Court. The Rajasthan High Court initially stayed the said communications of SEBI dated 30.11.1999 and 10.12.1999 and ultimately by its order dated 28.11.2003, quashed the aforesaid communications of SEBI by holding that the schemes floated by PACL were not covered under CIS. In the meantime in a PIL filed before the Delhi High Court it was alleged that various companies including PACL were running CIS without obtaining certificate of registration from SEBI. On receiving report submitted by Justice Swami Durai (Retd.) to the effect that 14150 sale deeds executed by PACL in favour of its customers were genuine, the Delhi High Court dropped PACL from the list of respondents in the PIL filed before it. Delhi High Court has not considered the question as to whether the schemes floated by PACL were CIS or not. 18. Apex Court by its order dated 26.02.2013 set aside the aforesaid decision of the Rajasthan High Court and directed SEBI to treat the two communications dated 30.11.1999 and 10.12.1999 as show cause notices and pass fresh order on the question as to whether the business carried on by PACL falls under the category of CIS....
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....pment and maintenance of the said plot shall be by PACL. Customer cannot enter into an agreement unless he/she enters into development agreement with PACL. b) At the stage of submitting the application form and entering into agreement, PACL does not identify the land to be sold to an applicant. On the contrary the agreement records that PACL is in the process of 'making arrangement for purchasing/procuring the land'. Thus, the documents on record reveal that on the date of application/agreement, PACL is only making arrangements for procuring the land. If the transaction of PACL were real estate transactions, then PACL would have disclosed the location of the land/land availability at the time of application itself. By not providing such details at the time of application and informing about the same after passage of substantial time indicates that PACL pools the money received from the customers for purchasing the land. c) The registration letter also does not identify the land or even the specific State in which the land will be allotted. It only provides for the plot size. The registration letter also provides for the 'expected value' of the land which has not yet been allotted....
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....mittedly, PACL is an aggregator of land. Thus, the terms and conditions of the agreement which PACL enters into with its investors clearly shows that PACL pools the money collected from the customers for the purpose of its scheme i.e. procuring large tracts of land and developing the same. h) In the impugned order it is recorded that 64% of the total consideration is towards development and other charges and 36% of the consideration is towards the cost of the plot. Thus, cost of development of the land is more than the cost of the land itself. Clause 14 of the agreement provides that PACL shall keep accounts with reference to the income and expenditure incurred or to be incurred pertaining to the development and maintenance of the entire project. Thus, it is evident that 64% of the total consideration is pooled in, purportedly for development of entire project site. In these circumstances, decision of WTM that the schemes floated by PACL satisfy the conditions set out under Section 11AA(2)(i) cannot be faulted. 21. Similarly decision of the WTM that the schemes run by PACL satisfy the conditions set out under Section 11AA(2)(ii) deserves acceptance for the following reasons:- a....
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.... copy of the sale deed. It is noticed from sample transactions that at the end of the term PACL returned the amount to its customers which is equivalent to the estimated realizable value as mention in the ledger of the said customer, without deducting the land tax and other public dues incurred by PACL. d) Criteria for fixing the 'expected value/estimated realizable value' is not specified by PACL. Assuming that PACL does not provide assured return, mere promise of expected value higher than the amount invested makes it clear that the contributions are made with a view to earning profit. Since the customers of PACL make contributions/ payment with a view to receive the profits, income and returns on their initial investments, decision of the WTM that the second condition stipulated under Section 11AA(2)(ii) of the SEBI Act stands satisfied cannot be faulted. 22. Decision of the WTM that the schemes run by PACL satisfy the conditions set out under Section 11AA(2)(iii) deserves acceptance for the following reasons:- a) It is admitted by PACL itself that the customers who invest their money with PACL are mandatorily required to give the right of development and maintenance in favo....
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....alue without making any deduction of 20% as stated in the agreement. d) Thus, the three main elements of the scheme floated by PACL i.e. i) acquisition of land ii) development of land iii) sale of land, are managed by PACL on behalf of the investors. e) Mr. Sukhdev Singh, Managing Director of PACL on 14th May, 2013 stated before SEBI that all business plans are inclusive of land cost and development charges and therefore there is no scope for the customer to opt for self development of the plot in the existing plans. PACL has not produced any document evidencing the alleged self development option being implemented. f) PACL manages and provides the facilities and services such as irrigation and drainage system, pipelines, electrical lines, motor pump sets, temporary sheds, structures etc. g) Even-though the customer is stated to be an absolute owner and in exclusive possession of the agricultural land sold to him, in fact the customer has no exclusive ownership rights over the aforesaid facilities and in fact, has been barred from interfering with the aforesaid facilities and services in any manner, by the terms and conditions recorded in the sample agreements to sell and the s....
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....location of the land at any point of time. Even otherwise since large number of customers approximately 5.85 crore in number, own small pieces of lands ranging from 150 square yards to 3000 square yards, it is not feasible for any investor to have control over the land of PACL or the development activities carried on by PACL. d) In all 500 random sample documents examined by SEBI, PACL had acquired special Power of Attorney in its favour from the purchaser. In the absence of any document produced by PACL evidencing implementation of the alleged self development option, the WTM has drawn adverse interference that PACL used to take special Power of Attorney from all the customers with a view to keep the transactions within its control. e) PACL obtains the authority from its customers for development and maintenance of the plots of land. The land remains in the possession of PACL and only a symbolic possession of the plots are handed over to the customer, on the ground that the fragmentation of the plot into smaller sizes may not be practical or permissible under the applicable revenue laws. f) On execution of the sale deed PACL has stated t hat, the sale deeds are held with its cu....
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....red the question as to whether the schemes floated by PACL constitute CIS or not. Therefore, reliance placed on the report submitted by Justice K. Swami Durai is totally misplaced. 26. It is relevant to note that Justice K. Swami Durai in his several reports had directed PACL to apply for and obtain the requisite encumbrance certificate from the concerned Sub-Registrar which would reflect that the names of investors have been duly entered in the land records. There is no indication that even one such certificate was obtained by PACL in respect of 19284 sale deeds registered. Therefore, fact that 19284 sale deeds verified by Justice K. Swami Durai have been excluded from the purview of the impugned order would not in any affect the decision of SEBI in holding that the schemes floated by PACL constitute CIS. 27. It was strenuously argued by counsel for appellants that once part of the properties belonging to PACL are excluded from the purview of the impugned order (by accepting report of Justice K. Swami Durai) it cannot be said all conditions set out under Section 11AA (2) have been satisfied. There is no merit in the above contention, because, firstly, customers who were excluded....
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....s unilaterally entitled to change the location of the plot allotted to a customer. Thus, a person to whom a plot of land is allotted in Tamil Nadu may be unilaterally altered by PACL and allotted a plot of land situate either at Orissa or Rajasthan. Since the agreement contained a buy-back option at a predetermined price, the WTM arrived at a conclusion that the alleged land transactions are nothing but sham CIS transactions. 30. SEBI was duty bound to protect the interest of investors by ensuring that the investors get back their money with promised returns. Since the disparity between the amounts collected from the customers by promising fertile agricultural lands with high returns and the lands actually held PACL was abnormal and inspite of colleting ' 49,100 crore from 5.85 crore customers over the past 15 years since PACL had executed only 19284 sale deeds, the WTM was justified in directing PACL to stop collecting money from the investors so that no more gullible investors become victims of the schemes operated by PACL. The WTM was also justified in directing PACL to wind up the existing schemes and refund money to the customers with promised return. 31. The without prejudi....
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....ndent company will fall within the category of Collective Investment Scheme (hereinafter being referred to as "CIS"). Further, depending upon the outcome of any such fresh orders to be passed by the appellant, further proceedings can be initiated by the appellant in accordance with law. 8. We also make it clear that the appellant shall pass fresh orders as regards the business activity of the first respondent Company as to whether it falls under the category of CIS or not and depending upon the ultimate order to be passed it may proceed further in accordance with law. The appellant shall before taking any further action give prior notice to the first respondent Company." 35. From the aforesaid order it is clear that the Apex Court required SEBI, first to hear PACL on the issue as to whether the schemes of PACL fall within the category of CIS or not and thereafter depending upon that decision proceed to take further course of action after giving prior notice to PACL. 36. In the ordinary course, further course of action that could be taken after holding that the schemes of PACL constitute CIS were, either to direct PACL to comply with CIS Regulations by seeking registration under ....
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....ions arises. Even in such cases, consequential order like provisional registration has to be passed immediately after holding that the schemes are covered under CIS and SEBI cannot wait till the issue relating to CIS is finally determined by the Apex Court. Any scheme once held to be covered under CIS has to be regulated forthwith by SEBI and it is not open to SEBI to wait till its decision holding that the schemes are covered under CIS is upheld by this Tribunal or ultimately by the Apex Court. 39. In the present case, facts on record demanded immediate action under Section 11/11B of the SEBI Act and if immediate action was not taken interests of crores of investors would have been jeopardy. Therefore, in the facts of present case, decision of SEBI in invoking jurisdiction under Section 11/11B of SEBI Act read with regulation 65 of CIS Regulations immediately after concluding that the schemes floated by PACL are covered under CIS, cannot be faulted. Consequently, question of permitting registration under regulation 68 read with regulation 5 or to direct winding up under regulation 73/74 of the CIS Regulations did not arise in the present case. 40. It is contended on behalf of th....
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....reliance was placed by counsel for appellants on decision of this Tribunal in case of Alchemist Infra Reality Ltd. (supra). In that case, the scheme floated by Alchemist, after the CIS Regulations came into force was held to be CIS and since the said CIS was carried on without obtaining registration from SEBI, the CIS was ordered to be wound up under Section 11,11B of SEBI Act read with regulation 65 and 73 of CIS Regulations. While upholding the order of SEBI and rejecting the argument of Alchemist that regulation 73 cannot be applied to a CIS floated after the CIS Regulations came into force, this Tribunal in para 17 held that the provisions for winding up contained in regulation 73 is applicable to CIS existing at the time when the CIS Regulations were introduced as also to the CIS which may have been launched at any point of time thereafter. Whether a CIS floated and operated after the CIS Regulations came into force without obtaining registration from SEBI was entitled to seek registration under regulation 73 read with regulation 68 was neither an issue raised by Alchemist nor decided by this Tribunal. Only issue raised and decided by SEBI as also by this Tribunal in Alchemist....
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....n the stipulated time. 45. In support of the contention that SEBI was bound to follow the directions contained in the Apex Court order in entirely, reliance was placed on a decision of the Apex Court in the case of Tirupati Balaji Developers (P) Ltd. (supra). That decision has no relevance to the facts of the present case, because of the overriding power conferred on SEBI under Section 11/11B of SEBI Act to take appropriate steps to protect the interest of investors. By no stretch of imagination it can be said that the Apex court directed SEBI to consider granting registration or winding up the schemes of PACL under the CIS Regulations, even if the schemes were operated in a manner which were prejudicial to the interest of investors. Therefore, the directions given by the Apex Court in relation to the consequential order being subject to the powers of SEBI to take remedial measures in the interest of investors under Section 11/11B, in the facts of present case, no fault can be found with the decision impugned in these appeals. 46. Similarly, decision of the Apex Court in case of L.K. Ratna (supra) is distinguishable on facts. Admittedly, by show cause notices dated 30.11.1999, 10....
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.... at present the Association represents more than 4.5 lac customers of PACL and the said customers are satisfied with the activities of PACL qua its customers. It is also stated that PACL has been allotting land to its customers faithfully. When questioned as to whether the members of the Association have got sale deeds executed in their favour even though the period specified in the schemes have expired, counsel for the Association had no answer. Since, all the sale deeds executed by PACL have been verified by Justice K. Swami Durai and have been excluded in the impugned order, it is apparent that the claims made by the members of the Association is without any merit. In these circumstances, contention put forth by the Association cannot be sustained. Thus, in the facts of present case, decision of SEBI in holding that in the guise of running real estate business PACL is running sham CIS which are detrimental to the interest of investors and accordingly directing PACL and its directors to wind up the existing CIS and refund the money collected from the customers with promised return cannot be faulted. 49. To sum up:- a) By inserting Section 12(1B) to SEBI Act legislature has made....
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....rmitted SEBI to issue supplementary show cause notice to PACL after carrying out necessary inspection, investigation, inquiry and verification of the accounts and other records of PACL. Apex Court further directed SEBI to pass fresh orders on the question as to whether the schemes floated by PACL were covered under the category of CIS or not and depending upon that decision proceed further in accordance with law and before taking any future action SEBI was directed to give prior notice to PACL. Accordingly, on completion of investigation, SEBI issued supplementary show cause notice on 14th June, 2013 and after hearing the appellants impugned order was passed on 22.08.2014. g) For the reasons stated in the impugned order, decision of SEBI that in the guise of running real estate business, PACL is running sham CIS which are detrimental to the interest of investors and consequently directing PACL to wind up the existing CIS and refund the money collected from the investors with promised return cannot be faulted. h) Argument of the appellants that the decision of the Apex Court dated 26th February 2013 contemplated two tier procedure is not correct. Apex Court order required SEBI to ....