AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 1288
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....ted October 19, 2011 and October 27, 2011, in order to ascertain whether it was carrying on the activities of a 'Collective Investment Scheme' (hereinafter referred to as 'CIS'). The said email also drew the attention of MVL to the provisions of Section 12(1B) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'SEBI Act'). 2. MVL vide its letters dated November 04, 2011, December 09, 2011, January 07, 2012 and January 13, 2012, replied to the e-mail of SEBI and submitted that it is not receiving any contributions/payments from any alleged investors and is doing real estate business. It was also submitted that MVL had arrangements with its customers purely for sale and purchase of immovable property. MVL also submitted the copy of the brochure and agreement to sell along with the aforesaid letters. 3. In order to further analyse the case, SEBI vide its letter dated December 27, 2012 sought details like executed sale deed, bye laws, maintenance agreement pertaining to the "assured return scheme" and "buy back scheme", details regarding money collected from the buyers (investors), the purpose of utilization of money, n....
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....ever, the Company Secretary of MVL vide email dated December 17, 2013 requested SEBI to reschedule the hearing to any date after second week of January. Accordingly, the same was kept for January 17, 2014. The same was later postponed to January 23, 2014. On the date fixed for personal hearing, Mr. Sushil Aggarwal (V.P. (Legal), MVL) and Mr. Kapil Kher (Legal Consultant of MVL) appeared before me along with Mr. R.S. Loona and Mr. Ankur Loona from Alliance Corporate Lawyers and made submissions. They also filed certain documents like recent photographs of the project, 'list of clients/investors', mutation record of land, loan documents of banks, etc. During the course of hearing, MVL and its directors were asked to submit the documents such as floor plans, etc. of the project to mark the units allotted to the clients w.r.t. IT/Cyber space no./unit number. MVL was also asked to submit the complete details/documents in respect of the clients mentioned at serial numbers 118, 119 (instances where there is no buy back agreement) and 156, 157 (instances where there are buy back agreements) of the 'list of clients/investors' as submitted by it, during the course of personal....
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.... of the buyer after receipt of occupation certificate by MVL and on receipt of full price and other dues/charges from the allottee. c. It has sold IT/cyber spaces with different sizes to 232 buyers at an aggregate consideration of 54,67,39,100 under assured return plan. There are about 17 allottees who have invested under construction link installment scheme, without any assured return obligation on the part of MVL, for an aggregate amount of 11,25,98,825. d. For the purpose of construction of IBC Project, MVL has availed financial assistance aggregating to 128 crore from Canara Bank and UCO Bank. The banks have determined the project cost as 216 crore out of which the cost of the land was determined as 32 crore which was acquired by MVL in the year 2008. e. The allottees of IT/cyber space are at all times entitled to transfer their allotment to any persons as they may intend to do. Further, the option to surrender the unit allotted to the investors and receiving their money back at a stipulated rate is not compulsorily applicable to the developer. The investment made in real estate project is not only made for earning any monthly income out of it, it is ....
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....ever on the said lease rent and once the IT premises have been leased, the company shall have no liability of any nature, whatsoever, to make payment towards assured return to the buyer. If the allottee obstructs or neglects or defaults to sign the necessary documents of lease after the same have been finalized by MVL, then the company shall have the right to cancel the allotment/terminate the 'assured return agreement' and in such an event the developer shall return the total payment to allottee, after forfeiting Earnest Money (i.e. 30% of the total consideration) and after deducting the amount of the assured return paid to the allottee. k. It is always obligatory on the part of the allottees to take NoC from the developer before giving effect to the transfer, lease etc. of the premises till the association of allottees/Housing Co-operative Society is formed as required by law. In the event of any breach or non performance of the terms of contract, the purchaser is at liberty to approach the competent court of law for enforcement of provisions of Specific Relief Act. l. Cases where option of lease is not availed by MVL and possession of the cyber unit is ....
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....ted that the right, title and interest in the premises will be transferred on execution of the sale deed in favour of the buyer after receipt of occupation certificate by MVL and on receipt of the full price and other dues/charges from the allottee. It has also been said that the buyer may choose any of the payment plans, like down payment plan/construction linked plan/assured return plan. b. I have perused the sample copy of the application for provisional registration of IT/Cyber space in the IBC project (as submitted by MVL) which contains the details such as name and father's name of the applicant, address, payment mode. The application is a pre printed document which reads as under: "I/we/am/are desirous of obtaining allotment of an IT/Cyber space in India Business Centre ... ... I/we request that I/we may provisionally be allotted an IT/Cyber space tentatively measuring ... (super area). ... ..." The application form inter alia contains the following terms and conditions: "2. That the Applicant(s) has/have satisfied himself/herself/themselves about the interest and right of the Company in the land on which the said India Business Centre....
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....dentified even in this document. The 'assured return agreement' contains the following clauses: "ii. Developer is in the process of developing the Project Land and constructing an IT Complex, ...in accordance with the building plans which is sanctioned by Competent Authority. ... iv. the Allottee(s) has opted for the Assured Return Scheme .... v. Under the Assured Return Scheme, the Allottee(s) is desirous of allotment and purchase of the IT space admeasuring tentatively ___ sq. ft. super area on the ___ floor of the Complex ... ... vii. The Allottee(s) is aware that upon registration of conveyance deed he shall only acquire undivided and impartible pro-rata share in the entire land underneath the IT project. ... 1.2 ... super area of Premises as mentioned herein above is subject to modifications and final confirmation of the same shall be made upon completion of Complex/at the time of offer of possession of Premises. ... 2.1 ... the Developer shall be fully entitled to lease the Premises to any third party as per the terms of this Article. 2.2 ... the Allottee(s) shall not grant the P....
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.... offered at the rate of 42/- per sq. ft. per month till the tenant is inducted, possession is delivered to it, the lease commences and the rental is received by the allottee(s) from the tenant. I note that that the 'assured return agreement' itself contains the provision for buy back. MVL in its reply has submitted that the assured return is linked to the execution of the first lease of the premises. Thereafter, the role of MVL ends as per the contract for sale and it has no right or title in the said land. MVL has also submitted that 'assured return plan' means an assurance to the allottees that the premises being acquired by them will readily fetch rent and will give return on investment. For buy back, it is seen (from the clause 3.10 of the 'assured return agreement') that the allottee after expiry of 30 months from the date of the assured return agreement gets an option for cancellation of the IT/cyber space allotted to him. As noted from the clauses of the agreement, the allottee, upon exercise of the option becomes entitled to the 'buy back price' and the simple interest at the rate not exceeding 5%. MVL has submitted that as ....
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....divided and impartible proportionate share in the land underneath the building in the same proportion which the super area of the premises ... The ALLOTTEE(S) shall not be entitled to seek partition of the land underneath the project. ... ... ... 16. That the ALLOTTEE(S) shall only be entitled to transfer, assign or lease or part with possession of the premises with the prior consent of the developer, ... ... ... 18. That in case of allottee has opted for assured return plan till first lease, it shall be the absolute discretion of the DEVLOPER to lease out the entire building/a particular floor ... ... ... ... 20. That the ALLOTTEE(S) covenants with the DEVELOPER that he shall raise no objection to the DEVELOPER raising finance/loan by creating charge/mortgage on the said premises. ..." f. MVL has argued that the amount received by it from the buyers is classified as consideration against 'stock in trade' and not as deposits received from the general public or loan or borrowing from creditors. It has been said that the amount collected from the investors is utilized for the general business purpose including the....
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....said unit. From a perusal of the floor plan, it is noted that the area allocated to each of its investors have not been mapped in the floor plans and only the units allotted to investors picked up on sample basis are mapped i.e. the investors/clients at serial numbers 118, 119, 156 and 157 of the 'list of clients/investors' as submitted by MVL. During the personal hearing, MVL was also advised to submit the complete details/documents in respect of the investors mentioned at serial numbers 118 & 119 (instances where there is no buy back agreement) and 156 & 157 (instances where there are buy back agreements). Though MVL has submitted the 'application form' and 'assured return agreement' for investors at serial numbers 156 and 157, it has not submitted any documents for the investors at serial numbers 118 and 119 (instances where there is no buy back agreement). Further, MVL has depicted the 'area allotted' only to investors at serial numbers 118, 119, 156 and 157 only. At this stage, I must refer to the application form which only mentions the area and floor number of the unit. No details of any unit number or IT/cyber space number as mention....
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....0/625. The units in the submitted floor plan of the 6th floor are numbered from 01 to 137 and it is not possible to map the IT space number allotted to Mr. Manoj Kumar and Mr. Dinesh Chand on the floor plan as submitted by MVL. Further, it is also noted that the list of 232 allottees as submitted by MVL during the personal hearing does not find mention of the names of the said two persons. i. I note that MVL has stated that it gives a 'buy back option' to its customer. In the case of buy back, it is seen from the 'clause 3.10' of the 'assured return agreement' that the allottee after expiry of 30 months from the date of the assured return agreement gets an option for cancellation of the IT/cyber space allotted to him. MVL has submitted that as the return is not attractive, the allottees prefer to stick to the terms for acquiring title in the premises. MVL has submitted that out of 232 allottees (who have entered into 'assured return agreement'), 46 allottees have opted for 'buy back' option but no one has exercised this option till the date of reply. As mentioned earlier, SEBI during the course of personal hearing, had sought the cop....
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....all proportionately be reduced. An analysis of the above data for the said investor reveals that if she opts for buy-back, she will get a return of about 96% after 30 months. I have also perused the documents of investor/client at serial no. 157 as submitted by MVL, who has purchased 1,000 sq.ft. at 40,74,000/- and the buy-back price offered to her is 4,704 per sq.ft., which, comes to 47,04,000/-. The assured return of 42/- per sq.ft. per month has been agreed by MVL. In view of the same, if this investor/client opts for buy-back, she will get a return of only 15.5%. Taking note of the same, the argument of MVL that the investors/clients do not opt for buy-back as it provides a return of 5%, do not find merit. As seen from the samples analyzed above, the investors/clients of MVL are getting return in the range of 15% - 96%. Further, it is also noted that MVL does not have any rationale for varying offers on return for investors who opted for similar plan/scheme, around the same time. k. Having considered the above, I now proceed to deal with the charge leveled against MVL in the SCN i.e. it is operating CIS without obtaining registration from SEBI. Before....
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....IS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the regulation, within a period of two months from the date of the notification. No entity was allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI. l. Now, it is required to be determined whether the scheme of MVL is in the nature of CIS. For testing the same, the relevant provisions in this regard needs to be considered first. The definition for 'collective investment scheme' was inserted in the SEBI Act, 1992, vide the Securities Laws (Amendment) Act, 1999 w.e.f. February 22, 2000. According to the definition, CIS means any scheme or arrangement which satisfies the conditions specified in Section 11 AA of the SEBI Act, which provides as under: "(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or [subsection (2A)] Inserted by Securities Laws (Amendment) Ordinance, 2014 shall be a collective investment scheme. [Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under the exemptions from ....
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....MVL in the floor plans has also not indicated the units allocated to each of its investors and only makes a mention about the investors/clients at serial numbers 118, 119, 156 and 157. It is an admitted fact that the construction of the project is being undertaken by MVL. From the scheme of its business as submitted by MVL and the documents furnished in this proceedings, it is noted that against the payment of consideration, the customers are allotted units in the IBC Project. MVL has undertaken to hand over the units in IBC Project to the customers after the conveyance and identifying prospective lessees for the operational convenience of its customers. It has been said that the maintenance of the common areas in the building and the project land on possession will be handed over to the 'association of allottees'. It has also been said that a 'maintenance agency' will be appointed for maintaining the IBC project after the exit of MVL. Though MVL vide its submissions say that its IBC Project is real estate transaction, the following aspects of this project also differentiates the same from a pure real estate deal: • the space is not id....
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....only 65,93,37,925 from the customers. From the same, it can reasonably concluded that the payments received from the customers were being pooled by MVL and utilized solely for its scheme. Further, I also note that the banks have given a term loan of 128 crore for the construction against the security of "entire assets including land, building, ..., other assets, current assets, future receivables, etc.". A reading of the same makes it clear that MVL has created charge of banks on its assets (movable and immovable) pertaining to the IBC project, that is being sold to its investors. In view of the above, the first condition that 'contributions or payments made by the investors, by whatever name called, are pooled and utilised for the purposes of the scheme/arrangement, as stipulated in Section 11AA(2)(i) of the SEBI Act is satisfied. - The second condition, under Section 11AA(2), is that 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. In this regard, I note that MVL offers assured return to its investor....
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....he IBC project is being managed by MVL, the investors do not have any role in their management. The allottees do not have any day to day control on the construction of IBC project, though in the terms of the agreement they are entitled to commercial space when it is developed. It is seen that MVL is entitled to lease the premises to any third party and the investor does not have any right to either lease the property to any third party or to deal with the premises otherwise without the prior written consent of MVL. This makes it clear that the customer does not have day to day control over the plot of land/property as the same remained in the custody/use of MVL which satisfies the fourth and last condition as stipulated in Section 11AA(2)(iv) of the SEBI Act. n. Considering the above discussion, it can be said that the transactions between MVL and its customers are not pure real estate transactions, rather they satisfy all the ingredients of a CIS as defined under Section 11AA of the SEBI Act. In this regard, I place my reliance on the observations of the Hon'ble Supreme Court, made in the matter of PGF Limited & Ors. Vs. Union of India & Anrs. (Civil Appeal No. 6572 o....
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.... such investment based on any promise under the scheme or arrangement is truly operated upon in a lawful manner and that by operating such scheme or arrangement the person who makes the investment is able to really reap the benefit and that he is not defrauded ... ... It is, therefore, apparent that all other schemes/arrangements operated by all others, namely, other than those who are governed by sub-section 3 of Section 11AA are to be controlled in order to ensure proper working of the scheme primarily in the interest of the investors. ... ... 42. Therefore, in reality what sub-section (2) of Section 11AA intends to achieve is only to safeguard the interest of the investors whenever any scheme or arrangement is announced by such promoters by making a thorough study of such schemes and arrangements before registering such schemes with the SEBI and also later on monitor such schemes and arrangements in order to ensure proper statutory control over such promoters and whatever investment made by any individual is provided necessary protection for their investments in the event of such schemes or arrangements either being successfully operated upon or by any misfortu....
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.... p. At this stage, I refer to a complaint received by SEBI on May 16, 2014, wherein it has been alleged that since the year 2012, MVL has regularly defaulted on payment of agreed assured return. In another investor complaint received by SEBI on August 31, 2014, the complainant alleged that MVL is not giving the assured returns, assured rental income to its customers and that MVL has advised for cancellation of the 'buyers' agreement' and 'assured returns agreement' pertaining to IBC Project. A copy of these complaints have been forwarded by SEBI to MVL. The contents of these complaints further strengthens the observations made above that the IBC Project is not purely a real estate transaction. q. In view of the foregoing, I am of the considered view that the plans/schemes of MVL is in the nature of a CIS as all the four conditions specified under Section 11AA (2) of the SEBI Act are satisfied. I, therefore, find that the Company is engaged in the fund mobilising activity from the public by floating/sponsoring/launching 'collective investment schemes' as defined in Section 11AA of the SEBI Act. Therefore, I have no hesitation in holding that MVL ....
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.... its investors as directed above. d. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are also directed to immediately submit the complete and detailed inventory of the assets owned by MVL Limited. e. In the event of failure by MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, to comply with the above directions contained in subparagraphs (a) to (d) above, the following actions shall follow: i. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, shall remain restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities market, till all the Collective Investment Schemes of MVL Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them. ....