TaxTMI 
TaxTMI 
2013 (7) TMI 1078
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....ate of passing the Impugned Order, failing which appropriate action shall be initiated against them. Brief facts leading to the dispute are that Appellant No. 1 is a public limited company incorporated under the Companies Act, 1956 and claims to be engaged in the business of sale and purchase of real estate and its development. It has an authorized share capital of Rs. 2 crore as on March 31, 2011 along with a paid up capital of Rs. 50 lac. On receiving complaints regarding the Appellants' activities of collecting money from the public, the Respondent conducted an investigation into Appellant No. 1's affairs calling for certain documents and details from the Appellants. On the basis of the information provided by the Appellants, the Respondent inferred that the former were engaged in fund mobilizing activity from public, by floating/ sponsoring/ launching CIS as defined in Section 11AA of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"). Subsequently, the Respondent passed an ad-interim ex-parte order dated July 9, 2012 forbidding the Appellants from further launching any CIS and directing them to stop collection of money in any form from the public. The or....
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....representing the investors' interest in the nature of 'Securities' is issued by the Appellants. It is submitted that the standard agreement to be executed between the Appellants and their customers does not refer to any 'scheme'. It is also submitted the Appellants develop the land by undertaking plantation activities, providing irrigation etc. as required under the agreement. 4. Further, the Appellants state that the documents submitted to the Respondent such as the agreement and the allotment letter clearly show that the intention of the parties was to enter into a contract of sale and purchase of land, and the fact that no sale deed has been executed does not mean allotment letters are not binding or valid. It is submitted that the agreement provides for execution of a sale deed "only on the expiry of minimum stipulated period" which the company claims to have not yet expired. The Appellant submits that the Respondent has erroneously concluded that land is acquired by the Appellants after pooling their customers' contributions solely on the basis of a recital clause in the standard agreement which reads as under:- The Company has made arrangem....
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....ndling before delivery or sale as the case may be. This evidences the sharing of income. The Respondent submits that the plots of land developed by the Appellants are not sold at different prices, rather it appears from the scheme carried on by the Appellants that the land is sold as "a homogeneous commodity at a fixed price, which is feasible only if the land transactions are veil for running a CIS and not a genuine sale of agricultural land". The Respondent goes on to deal with the judgment dated March 12, 2013 of the Hon'ble Supreme Court in the matter of PGF Limited vs. Union of India in which, according to Respondent, the Hon'ble Supreme Court in facts and circumstances similar to the case in hand held that the business of PGF Ltd. was in the nature of CISs. On the basis of the aforesaid the Respondent has concluded that the Appellants have indeed launched CISs to collect money from the public. 9. Finally, the Respondent submits that the Appellants have carried on CISs without first getting registered with SEBI and obtaining a Certificate of registration under Section 12(1B) of the SEBI Act and the CIS Regulations. It is, therefore, the Respondent's submission t....
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....ensuring that no chinks remained in the proverbial armour worn by hapless investors who predominantly turn out to be people belonging to low and middle level income groups or retired senior citizens putting their life savings at risk with the hope of reaping huge profits. 13. Sections 11AA and 12(1B) of the SEBI Act alongwith Regulations 3, 73 and 74 of the CIS Regulations being pertinent to the case in hand are reproduced hereinbelow:- Securities and Exchange Board of India Act, 1992:- 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 schem....
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....of doubts, it is hereby declared that, for the purposes of this section, a collective investment scheme or mutual fund shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer.] (2) Every application for registration shall be in such manner and on payment of such fees as may be determined by regulations. (3) The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations: Provided that no order under this sub-section shall be made unless the person concerned has been given a reasonable opportunity of being heard. CIS Regulations: 3. No person other than a Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme. 73. (1) An existing collective investment scheme which: (a) has failed to make an application for registration to the Board; or (b) has not been granted provisional registration by t....
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....rs should have contributed their money with the objective of deriving profits in any form, whether "income, produce or property"; the entire working and operation of the scheme is managed by the concerned company on behalf of the investors; and the investors have no modicum of control over daily activities with respect to the arrangement in question. Section 12(1B) succinctly provides that all persons intending to float any scheme or arrangement in the nature of a CIS, shall do so only after obtaining a certificate of registration from SEBI. Further, Regulation 3 of the CIS Regulations, states that only a Collective Investment Management Company shall sponsor CISs. Regulation 73 provides for the winding up of an existing scheme in certain cases viz., failure to make an application for registration to SEBI; refusal of SEBI to grant provisional registration; or failure to comply with the provisions of Regulation 71 once provisional registration is obtained from SEBI. Finally, Regulation 74 provides that in case a company carrying on business in the nature of a CIS does not wish to obtain provisional registration with the SEBI, it may devise a scheme of repayment of money collected fr....
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....icultural land propounded by the PGF Limited based on the terms contained in the application and the agreement signed by the customers is nothing but a scheme/arrangement. Apart from the sale consideration, which is hardly 1/3rd of the amount collected from the customers, the remaining 2/3rd is pooled by the PGF Limited for the so called development/improvement of the land sold in multiples of units to different customers. Such pooled funds and the units of lands are part of such scheme/arrangement under the guise of development of land. It is quite apparent that the customers who were attracted by such schemes/arrangement invested their monies by way of contribution with the fond hope that the various promises of the PGF Limited that the development of the land pooled together would entail high amount of profits in the sense that the value of developed land would get appreciated to an enormous extent and thereby the customer would be greatly benefited monetarily at the time of its sale at a later point of time. It is needless to state that as per the agreement between the customer and the PGF Limited, it is the responsibility of the PGF Limited to carry out the developmental activ....
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....he joint venture schemes and ascertain the correctness of such claim and based on such verification in the event of any default noted, appropriate further action shall be taken against the PGF Limited for settlement of the monies payable to such of those investors who participated in any such joint venture schemes operated by the PGF Limited. It will also be open to the second respondent while carrying out the above said exercise to claim for any further payment to be made by the PGF Limited towards settlement of such claims of the participants of the joint venture schemes and charge interest for any delayed/defaulted payments. As far as the deposit made by the PGF Limited with the second respondent on the ground that the such amount could not be disbursed to any of the investors for any reason whatsoever the second respondent, based on the verification of the records of the PGF Limited, arrange for refund/disbursement of such amount back to the participants of the joint venture schemes with proportionate interest payable on that amount. The above directions are in addition to the directions made by the Division Bench of the High Court." 54. Having noted the conduct of the....
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....proximately. The above details have been noted by the second respondent while mentioning the submission of the PGF Limited in its order dated 06.12.2002. Thus, we are convinced that the PGF Limited deliberately did not furnish the amounts till this date what was collected from the customers who made their investments in the so-called venture of sale and development of agricultural lands. Therefore, it is explicit that the PGF Limited was playing a hide and seek not only before the second respondent, but was also taking the Courts for a ride. We have noted in more than one place in our order that inspite of our repeated asking the appellants did not come forward to disclose the details of any development it made in respect of the lands alleged to have been sold to its customers. There is also no valid reason for not disclosing the details before the court. As in one of its activities, namely, joint venture scheme alone, it had mobilized Rs. 815.23 crores, it can be easily visualized that in its activities of sale and development of land such mobilization would have far exceeded several thousand crores. In such circumstances, the appeal is liable to be dismissed which may have costs.....
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....e sought to distinguish the judgment with respect to PGF Ltd. on the basis of certain reasons which are dealt with hereinbelow. The Appellants submit that in the present case the land is first purchased by the Appellants with its own funds. With respect to this submission, we state that the concept of CIS as envisaged by the legislature does not take into account any such variable. The fact stands that the money collected from the customers of the Appellants ostensibly for the purpose of purchase of land is pooled together and then utilized for the purposes of the scheme, whether to buy more land or to develop the land already in possession of the Appellants. In this regard, it is noteworthy that the Appellants first seek contributions from members of the public based on the standard agreement and the application form. On receiving contributions, they issue certificates confirming the receipt of the amount of money paid by the customers to the Appellants. This money, in turn, is utilized by the Appellants to further buy land after pooling the investments of all customers. This leads to the conclusion that there is in fact a scheme in place which involves pooling of the investments ....
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....or our perusal, it is categorically mentioned that "that land ownership alongwith its possession will ordinarily be transferred by the Company in name of Customers by means of registered sale deed within a reasonable period after allotment." Admittedly, this has not been done in a single case. To supplement this finding, we note that in the letters of allotment provided for our perusal the Appellants clearly state that the right to change the location of the plot of land allotted to the alleged buyer would continue to vest in the Appellants. If the right to transfer a particular plot of land does not change hands from the Appellants to its customers, we fail to see how it can be deemed to be a bonafide transfer of land. Further, in PGF Ltd., as is noted above, the Hon'ble Supreme Court reached the finding that the company itself was managing the daily operations regarding the land with no control vested in the buyers. Similarly, in the case before us, we note that the day to day management and operation of the land is completely in the hands of the Appellants and the investors have absolutely no role to play in any capacity whatsoever. Therefore, in view of the discussion above....