TaxTMI 
TaxTMI 
2015 (6) TMI 1138
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....tract offered the facility of free stay in its hotels for a period between 3 and 4 days with extra payment for food and other entertainments. The terms of the scheme also declare that after completion of the subscribed period if for any reason the subscriber is unable to avail the benefit of stay in hotels the amounts subscribed would be refunded with an agreed rate of interest as per the agreement. 2) In the writ petition the total number of subscription to the scheme is not stated. However, it is stated that about 2,50,000 persons in the state of Assam have subscribed to the HMP scheme. One of the subscribers lodged a complaint against the petitioner company alleging fraud. The Bureau of Investigation(Economic Offences) of the state of Assam took up investigation, conducted raids and searches and in course of the investigation has found the petitioner company collected about Rs. 1006.70 crore till February, 2012 from various subscribers. The documents seized in the search proceedings were sent to the Security Exchange Board of India(SEBI) and on the basis of which the SEBI passed the impugned order which is as follows. "WTM/SR/ERO - CIS/11/07/2013 BEFORE THE ....
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....tment and towards interest. 3. RVHEL vide letter dated March 15, 2013, replied that it was in 'Time Share' business, which does not come under the purview of SEBI. In this regard, RVHEL drew reference to a meeting organised on February 11, 2013, at the instance of the Secretary, Institutional Finance and Programme Implementation Department, Government of Jharkhand at Ranchi (hereinafter referred to as "Joint Secretary, Govt. of Jharkhand") to discuss the business activities of RVHEL, which was attended by representatives of SEBI and RVHEL. RVHEL submitted that since the SEBI representative present at such meeting had mentioned that 'Time Share' Schemes do not come under SEBI purview, it was at a loss to understand the reasons behind SEBI's advice to furnish various information in connection with the 'Time Share' business. 4. Subsequent to receipt of the abovementioned letter dated March 15, 2013, SEBI vide letter dated March 19, 2013, replied to RVHEL as under - i. It was incorrect to state that SEBI had already concluded that the scheme of RVHEL did not come under its purview since the object of the meeting organised on February 11, 2013, was to brie....
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....ffect against the Agartala Regional Office of RVHEL - "1. The Rose Valley, Agartala, is henceforth restrained from collecting or mobilizing any kind of monetary deposits from the public under any of the plan or schemes of the Rose Valley Hotels and Entertainments Ltd., or of any other subsidiary comprised in the Rose Valley Group, until requisite statutory registrations, licenses and permissions are obtained, and produced to the satisfaction of the Competent Authority as defined under the Financial Establishments Act and until such restriction is revoked by a subsequent Order. 2. The Rose Valley, Agartala, shall make all due payment of entitlements of all its existing depositors against the plans/schemes such depositors hold under any nomenclature by the 31^st July, 2013 and submit a compliance report accordingly to the Competent Authority as defined under the Financial Establishments Act. 3. Rose Valley Hotels and Entertainments Ltd., the Rose Valley Group as a collective entity, or any of the subsidiary companies of the Rose Valley Group, including the Directors and Associates, are hereby restrained from executing sale, transfer or alter the moveable an....
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....der the HMP i.e. standard, silver, gold, platinum and diamond, to intended investors. ii. When an investor subscribes to a particular plan offered under the HMP, he is required to make monthly payments on advance or installment basis towards provisional allotment of facilities i.e. room accommodation and services, at resorts or hotels owned and managed by RVHEL. iii. The HMP plan once subscribed to, cannot be cancelled nor can the money paid in lieu of the facilities offered be claimed, before the expiry of tenure for such plan. iv. Upon maturity or completion of tenure for payment of monthly installments in respect of the relevant HMP plan, the investor becomes entitled to the facilities offered therein. However, such investor may also cancel the HMP booking upon maturity or completion of tenure for monthly installments, in lieu of maturity payment for non-utilization of the facilities i.e. the equivalent accumulated credit value under the HMP inclusive of annualized interest. For example, when an investor opts for maturity payment in the event of cancellation of the HMP booking under a particular scheme (HA4-5-STD), after making the payment of 60 monthl....
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....purview. In this regard, I note that vide letter dated March 19, 2013, RVHEL was informed that it was incorrect to state that SEBI had concluded that its scheme did not come under SEBI's purview since the object of the meeting organised on February 11, 2013, was to brief the Joint Secretary, Govt. of Jharkhand, on the Writ Petition pending at Kolkata High Court between SEBI and RVRECL. RVHEL was also informed that pursuant to the aforesaid meeting, SEBI had written to that authority vide letter dated February 13, 2013, to advise RVHEL to furnish relevant documents in order for SEBI to ascertain whether it comes under the purview of 'collective investment schemes' as specified in the SEBI Act. 7.6 I note that although RVHEL has submitted that it is in 'Time Share' business and therefore outside SEBI's purview, the main characteristics of a 'collective investment scheme' are found in the HMP offered by it. In this context, it may be pertinent to refer to the observations of the Hon'ble Supreme Court of India in P.G.F Limited & Ors. vs. UOI & Anr. (MANU/SC/0247/2013), wherein it had observed: "...sub-section (2) of Section 11 AA, which defi....
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....t obtained any certificate of registration under the CIS Regulations for its fund mobilizing activity from the public, under the HMP offered by it. 7.8 Upon a consideration of the aforementioned paragraphs, I am of the view that RVHEL is prima facie engaged in fund mobilising activity from the public, by floating or sponsoring or launching 'collective investment schemes' as defined in section 11AA of the SEBI Act without obtaining a certificate of registration from SEBI as required under section 12(1B) of the SEBI Act and the CIS Regulations. I, therefore, find that SEBI has full jurisdiction to proceed against RVHEL in the instant matter. 8. I note that RVHEL was advised to respond to the preliminary enquiry conducted by SEBI, on two occasions through SEBI letters dated March 1, 2013 and March 19, 2013. However, on both occasions, RVHEL did not cooperate with SEBI as is evident from its refusal to submit the documents sought vide the aforesaid letters. In these circumstances, I find that reasonable opportunity has been afforded to RVHEL to respond to SEBI and its refusal do so, when considered in the context of the abovementioned prima facie finding, lead....
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....d, for mandating/directing them, to forthwith stop the illegal and unlawful atrocities and harassments, perpetrated upon the petitioners, and the officials of the petitioner-Company, by the Police, and other authorities of the State of Assam, and also for mandating/directing them, to forthwith revoke/rescind the impugned Order/Show Cause Notice dated 11.07.2013(Annexure-P6 supra). II) Issue Rule, calling upon the respondents and each one of them, to show cause as to why a Writ of Certiorari and/or in the nature thereof, shall not be issued, for directing them, to transmit the records, relevant to the subject matter of this writ petition, for rendering substantive and conscionable justice to the petitioners, and for quashing/setting aside the impugned Order/Show Cause Notice dated 11.07.2013(Annexure-P6 supra). III) Issue Rule, calling upon the respondents and each one of them, to show cause as to why a Writ of Prohibition and/or in the nature thereof, may be issued, for restraining/prohibiting them, from acting in any manner, in furtherance of the impugned Order/Show Cause Notice dated 11.07.2013(Annexure-P6 supra). IV) In the Ad-interim and thereafter, o....
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....dentification of spouse & children, 2 Nos. of Stamp size current photograph are to be furnished to the Company along with the duly completed application. 8. ROSE VALLEY HOLIDAY MEMBERSHIP PLAN is transferable subject to information to the company and compliance of formalities of new membership and payment of Rs. 150/- as charges towards administrative expenses. 9. ROSE VALLEY HOLIDAY MEMBERSHIP PLAN is in accordance with the terms and conditions and also as mentioned on the back of the main part of the application form subject to the payment of total price and entitlement of privileges thereto respectively and are binding upon the parties. 10. All bookings are subject to availability and payment of full membership fees. Subject to availability of rooms the Company shall issue itinerary mentioning the name of the hotel/resorts and room no. as per choice of member as well as schedule of arrival and departure(according to check-out time) respectively at least 7(seven) days before their arrival at such hotel/resorts. Applicant may enjoy such accommodation and service after 30 days of enrolment to the plan according to the Company norms as per the respective Plan. ....
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....ication for booking of a room accommodation & services etc. 19. Rose Valley Hotels & Entertainments Ltd will provide accidental Insurance Coverage for minimum of Rs. 25,000/-(Rupees twenty five thousand) and a maximum of Rs. 50,000/-(Rupees fifty thousand) to the member for a period of 2(two) years for booking under the STANDARD, SILVER, GOLD, PLATINUM & DIAMOND plans and as such, the applicant shall be entitled for free insurance coverage benefits from a recognize Insurance Company, as per their terms and conditions. Slab for Insurance Coverage are as follows: Entitlement of Privileges[Room(s) accommodation & Service] Insurance coverage Upto Rs. 25,000/- Rs. 25,000/- Above Rs. 25,000/- Rs. 50,000/- 20. However, for 1(one) year plan under "Standard - S4" the Insurance Coverage will be for a period of only one year. 21. Applicant(s) are requested to note that the discount, services and other facilities provided for shall be in force till utilization and without any interruption but subject to act of God or by other reasons beyond the reasonable control of the Company. 22. Applicant(s) is/are at liberty to gift his....
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....sed. (iv) When the notice is issued by the SEBI a single member of it could not have passed the ad-interim ex-parte order without a specific authorisation in writing to that effect in view of the provisions contained in Section 19 of the Act. 6) The conditions stipulated in sub-Section (2) of Section 11AA of the Securities and Exchange Board of India Act, 1992 is extracted here under for convenient reference. "(2) Any scheme or arrangement made or offered by any company under which, - (i) the contributions, or payment 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.". It is argued....
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....tract which stipulates the benefit of accident risk insurance coverage. Therefore the HMP scheme cannot be termed as a collective investment scheme within the definition of subSection (2) of Section 11AA of the Securities and Exchange Board of India Act, 1992. 8) With reference to the interim order passed by the SEBI the learned senior counsel referred to the provisions of Section 11B of the Securities and Exchange Board of India Act, 1992, which reads as under. "[11B. Power to issue directions. - Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary - (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions,- (a) to any person or class of persons referred to in section 12, or associated with the securities market; or (b) to any company ....
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....f this Act, or the rules or the regulations made thereunder shall be allowed to be attached. (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation: Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company(not being intermediaries referred in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned.]". Clause (a) deals with suspending the trading of any security in a recognised stock exchange. The investment in question made does not come within the definition of ....
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....2) of Section 11AA which lays down the cumulative conditions to constitute the collective investment scheme under the Act. The amendment which incorporates proviso to sub-Section (1) of Section 11AA has overriding effect and limits the effect and purport of the substantive provision in sub-Section (2) of Section 11AA. In this regard it is argued that a proviso to a Section or sub-Section should always be subordinate to the Section or sub-Section and it cannot eclipse or override the contents of the Section or sub-Section. Therefore the incorporation of proviso to sub-Section (1) of Section 11AA is bad in law. In this regard the learned senior counsel relied on the decisions of the Supreme Court in Dwarka Prasad v. Dwarka Prasad Saraf(1976) 1 SCC 128 para 16 to 21 ~ it is laid down that a proviso cannot expand or limit the principal provision ~ Madhu Gopal v. VI Addl. Dist. Judge(1988) 4 SCC para 7 ~ it is laid down that a proviso cannot take away the substantive rights conferred by the main provision ~ and J.K. Industries v. Chief Inspector of Police(1996) 6 SCC 665 para 34 ~ it is laid down that a proviso should not be read as providing something by an addition to the main provisi....
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....und is only a make-believe stipulation to escape from the purview of being called a collective investment scheme. (vi) The petitioner has not furnished all the names and identities of all the investors to prove the bona fide and genuineness of the scheme and how many members have subscribed to different categories of the scheme. (vii) The insurance component investment under the terms of the scheme is only limited for 1 to 2 years whereas the scheme would be for 3 to 5 years. Copies of the insurance policy produced before the Court are vague; it does not mention about who are the members covered by the policy. The policy only mentions the number of persons covered under the insurance but not the names and identities. (viii) The policy in respect of the 24.90 lakh investors is not produced before the Court; only as a token a few vague insurance policies are produced which do not contain the names and identities of the persons for whose benefit the insured has taken the insurance. (ix) The terms regarding the coverage of accident insurance is only a ploy devised by the petitioner to make-believe that the contract imbibes a component of insurance on....
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.... the HMP scheme. The petitioner's company has produced only a format of an application for subscriptions belatedly. The names and identities of all the investors under the HMP scheme is not furnished. The terms of the scheme give the benefit of holiday stay in the hotels to the members after they have successfully paid the entire amount agreed under the scheme. In the alternative the terms also enable the members to take refund of the amount invested with interest at the rate of 17.6 per cent per annum. The terms of the scheme disclose that the refund of deposited amount with interest will be given if for any reason the member is not able to avail the benefit of stay in the hotels and it is at the discretion of the petitioner. There is no material before the court to show that all the investors who have become members have invested only with a dominant intention of availing the benefit of the stay or whether they were lured by an attractive rate of interest which is almost double the banks' rate given on the deposits. The petitioner of course states that because of some Ponzi schemes were exposed and CBI investigations have been directed, therefore to save the morale of the petitio....
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....rs. The holiday investment scheme ranges between 3 to 5 years, whereas the insurance coverage is only for 1 to 2 years. The entire subscription period is not covered by the accident insurance. The petitioner has not produced all the policies issued by the insurers in respect of all the investors. Since the insurance certificates produced are vague and there is no details of names and identities of the members whose risk is covered under the said policies the plea of insurance accident coverage appears to be a facade contrived by the petitioner to keep the scheme outside the definition of the collective investment scheme so as to exempt itself from the jurisdiction of SEBI and this aspect of dubious insurance coverage requires an inquiry. 22) The authority of the Whole-time Member who passed the interim order is challenged seriously on the ground that without having proper delegation of powers the Whole-time Member alone could not have passed the interim order when the SEBI has issued the notice. In reply to the said contention the counsel for the SEBI has produced a notification issued by the SEBI wherein the powers of the Board are delegated to the Whole-time Member under Secti....
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....ome' Tax, New Delhi. The matter ultimately went to a Full Bench of the Punjab High Court in Commissioner of Income Tax v. Ram Swarup in which after reviewing the entire case law and examining the various aspects relevant to the question the view expressed by Chagla, C.J. in the Bombay case was accepted as correct. Similarly in Jummar Lal Surajkaran v. Commissioner of Income Tax, Hanuman Investment Company v. Commissioner of Income Tax, and Joseph' John v. Commissioner of Income Tax, the considerations which prevailed in Keshavlal Pramchand's case were accepted as correct". 25) The Supreme Court in S. Sundaram Pillai and others v. V.R. Pattabiraman and others[(1985) 1 SCC 591], after recording a catena of decisions of the Supreme Court on the point, in para 43 summarises the legal purport of the proviso for different purposes in the following manner. "43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well established. To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment; (2) it may entirel....