TaxTMI 
TaxTMI 
2016 (2) TMI 1121
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....992 ("the SEBI Act") and alleged that the Company had operated such CIS without registration from SEBI as mandated under section 12(1B) of the SEBI Act and regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 ("CIS Regulations"). In order to protect the interest of investors and to ensure only legitimate investment activities are carried on by the Company, SEBI had issued various directions vide the interim order. 2. The interim order was challenged by the Company (in Appeal No. 254/2014 with Misc. Appln. No. 104/2014) and its 6 directors (in Appeal No. 255/2014 and Misc. Appln. No. 105/2014) before the Hon'be Securities Appellate Tribunal ("Hon'ble SAT"). These appeals were disposed of by the Hon'ble SAT, vide a common Order dated September 17, 2014, whereby the interim order was set-aside with the following directions to SEBI and the appellants (i.e. Company and its directors): "56. ................................ Accordingly, we set aside the impugned ex parte interim order dated July 31, 2014 and direct WTM of SEBI to pass appropriate order on merits after hearing the Appellant as expeditiously as possible, preferably within a period of eight ....
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.... along with date (year) of its operation. Information on the source of funds for acquiring/construction of the asset. i. Details of Assets of group entities/subsidiaries of PCL. j. Year wise details of the commission paid to agents in the following format since incorporation of PCL till date. 4. The Company vide letter dated September 30, 2014 informed that the data sought is very old and voluminous and it would take time to furnish the information asked by SEBI. As the Company did not provide the required information/documents as sought by SEBI, a reminder dated October 10, 2014 was issued calling upon the Company to provide the information by October 16, 2014. The Company provided information through its letters dated October 16, 2014, October 21, 2014, October 29, 2014, October 31, 2014, November 7, 2014, November 13, 2014, November 18, 2014, November 21, 2014 and November 25, 2014. 5. However, the Company did not provide complete information as sought by SEBI. Hence, SEBI was constrained to file an application before the Hon'ble SAT seeking further orders as the Company had failed to comply with the request made for information/documents. The Company and....
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....dated October 16, 2015, after accepting the statements made by SEBI and the noticees, directed the noticees to file their replies to the SCN on or before December 31, 2015 and SEBI to pass final order on or before February 29, 2016 after affording opportunity of personal hearing to the noticees. The Hon'ble SAT, vide Order dated December 14, 2015 (in Misc. Appln. No. 332/2015 in Appeal no. 254/2014) permitted the Company to sell off/dispose/create charge in respect of assets (specified in Exhibit 4 of the Misc. Appln.) subject to complying with the following conditions: (a) The applicant should provide details of the customers to whom payment has to be made, the amount collected from such investors and the maturity amount being paid to these customers. (b) The applicant should obtain a valuation report of the assets specified in Exhibit 4 of the application from a government approved valuer. (c) The valuation given by the valuer should be kept as a reserve price for sale of a property and all the above said properties shall be disposed in a transparent manner such a public auction. (d) The applicant has to ensure that all the investors are being ....
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.... like tourist places, religious places as also business destinations to provide maximum choice to customers. * PCL has proper infrastructure at its registered office to cater to room night bookings for its customers for its all affiliated/contracted destinations. * PCL also has two clubs one each in Pune and Thane. * Moreover, PCL is in the process of developing 12 other projects in various parts of the Country. * PCL also proposes to enter into bilateral affiliations with renowned hotels. * The list of clubs/hotels/resorts with which PCL has affiliations and is accessible to the customers, is also displayed and regularly updated on website i.e. www.pclinfo.in. The details of new affiliates are updated regularly. * PCL's customers can utilize their Room Nights to avail of accommodation and leisure facilities at any hospitality property, including their stay at non-PCL hospitality properties and enjoy member-level access. The customer's rights of availing such services are almost entirely unfettered and on prior intimation to PCL; the relevant number of Room Nights is offset in accordance with the charges applicable by such other....
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....of India and that the Security Deposit was an advance received by such companies against the facility/Services provided/proposed to be provided cannot be treated as public deposit under the Reserve Bank of India Act. (f) PCL wrote letter dated 27th February, 2001 to SEBI enclosing application forms of various Plans, Memorandum of Associations and Articles of Associations, detailed note on facilities of all under the holiday options of the companies and seeking clarification from SEBI whether the proposed plans fall under the provisions of collective investment scheme or any other regulations of SEBI. (g) PCL wrote another letter dated 20th June, 2002 to SEBI giving detailed write-up of the company, concept of holiday options of varying tenures, terms and conditions of holiday plans. PCL enclosed Corporate Brochure of the company and tariff card of various hotels/resorts/clubs. (h) In response to a Complaint by Mr. Sanjay Dina Patil (then Member of Parliament), SEBI had written a letter dated 21st October 2013 stating that on examining PCL's matter in 2010-11, SEBI concluded that company's activities did not attract CIS Regulations. B. Contentions....
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....nt market rate of the room at that time. The right of usage of Room Nights is conferred upon the customer in exchange for monetary consideration, i.e. as a promise of performance of a service pursuant to the terms and conditions of the agreement. None of the plans approved by PCL involve any sharing of profit with the customer nor do they incentivize the customer in the event that the customer chooses to gift/sell their Room Nights. Thus merely because moneys are received from various people by the PCL for purchase of Room Nights, does not, amount to a "pooling of funds" as each customer has a separate contract and amount paid by each customer is the consideration for the facility avail by Room Nights. Moreover, it is settled that a contract should be read as a whole and any particular portion cannot be taken in isolation. e. The Company also sought written opinions from Judges, Senior Advocate, eminent jurists and renowned law firms, to confirm that its activities comply with various rules and regulations. The following were the opinions received: "Based on the facts and circumstances peculiar to the Pancard Clubs schemes we are of the opinion that the same may n....
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.... wherein it was found that the activities of the company do not attract SEBI (Collective investment Schemes) Regulations, 1999.". Nature of PCL's business has not undergone any change since the time period from 2002 till 2014. Therefore, it is unreasonable to consider the same activities illegal which were treated as being lawful till 2013." h. The Company has also contended that what in effect the Company is doing by receiving in advance a sum of money from the customer in exchange for which it agrees to provide a service in the future, is to create a chose in action as defined in equity or an actionable claim as defined under the provisions of Section 3 of the Transfer of Property Act, 1882 ("Transfer of Property Act"). The term chose in action has been defined in Black's Law Dictionary, 9^th Edition on page 275 as under: "chose in action" is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession." Section 3 of the Transfer of Property Act defines as actionable claim as follows: Section 3-'actionable claim" means a claim to any debt, other ....
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.... identification documents like their PAN Card, Aadhar Card, Bank Account Statement, etc. for this purpose. A Sample Copy of the Application Forms for various holiday options containing the specific Terms and Conditions was annexed. d. After scrutinising the Application forms, the Company accepts the Applications and explains the particulars of the holiday options to the customers. e. Majority of the payments are received by Cheque(s)/Demand Draft. PCL accepts cash payments only in case of small amounts. * As per Clause 5 of the Terms and Conditions of Sunrise holiday option, "All the Cheque(s)/Demand Draft(s) towards the room nights booking and administration charges are to be drawn in favour of 'PANCARD CLUBS LITD.' payable at Mumbai/or places where the Regional Offices of the Company is situated. ..." * As per Clause 6 of the Terms and Conditions of Sunrise holiday option, "The Company shall issue a valid receipt for the cash payment in lieu of the temporary acknowledgment issued by the marketing person. ... " In case of receipt of cash, the same is immediately deposited in the Bank account of the Company. * PCL maintains independent a....
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....plicant in the age group of 61years to 70 years shall be extended the accidental insurance benefit on making payment of Rs. 100/- towards Age Relaxation Fees. (ii) LIFE INSURANCE BENEFIT: Applicant opting for Pancard Clubs-Sunrise Holiday shall be offered Life insurance benefit of Term Assurance i.e. for death only, from the Insurance Company for Rs. 25,000/-, subject to the application being in force. Applicable conditions are as under: (a) Admissible Age: Minimum 18 years and maximum 59 years. Age Relaxation is not allowed for life insurance benefit. The benefit of the life insurance is admissible till the expiry of the tenure or the applicant attains the age of 60 years or whichever is earlier. (iii) Claims for Accidental Death should be submitted to the company within (30) days of the death of the applicant. Delay in intimation/submission of claims may lead to non acceptance/rejection of claims. All such claims shall be settled through Insurance Company. Time limits mentioned above are subject to change and are as per discretion of Insurance Company. Please read the terms & conditions of Insurance company properly. (iv) The company shall act ....
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....day by the company, applicant is entitled to the following privileges and these can be exercised in the following manner: (a) Applicantshall be entitled to utilise Room Nights subject to the terms and conditions of Pancard Clubs-Sunrise Holiday. (b) Applicant can commence the utilisation of their room nights entitlement after 60 days from the date of acceptance of his application by the company. ... (e) Upon expiration of each month, applicant may act in the following manner (i) Surrender the unused entitlement and opt for surrender value (ii) Buy or utilize the various products and services of the company and its group companies. ... (g) Applicant can avail their room nights entitlement throughout the year and at any of the existing, contracted/affiliated clubs/hotels/resorts of the company. ... (h) Applicant can avail room nights at any of the existing/contracted/affiliated clubs/hotels/resorts, having a grading/category of upto two star, owned/managed by the company or its group company or its affiliates. At destinations where clubs/hotels/resorts is having a grading higher than two star category, the applicantshall ....
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....ights of equivalent value. The products and services inter alia include domestic & international tour packages, room nights of hotels banquets, conferences, meetings & seminar of the company and its group companies hotel/resort/clubs properties, subject its availability, Software Development etc. The terms and conditions for the exchange/barter/utilisation shall be framed by the company from time to time. Company's decision in this regard shall be final & binding. Government taxes, levies and other charges on purchase of the products/services shall be borne by the applicant. (c) Applicant may opt to convert their unused room nights to the extent of the surrender value entitlement into life membership of various clubs of the company/group as per list available with the Company by adjusting the differential amount, if any, between the amount due as surrender value under the Pancard Clubs-Sunrise Holiday and the life membership fee of various clubs of the company/group, if any, subject to the Company's prevailing terms and conditions applicable to such conversion. Government taxes, levies and other charges on purchase of the products/services shall be borne by the app....
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.... (sold between 1^st April 2014 to 31^st July 2015) have been switched to non-refundable category. Further, from August 2015, the Company had altogether stopped selling holiday option with surrender value option. The Company has contended that the holiday options sold since 1^st April 2014 do not fall within the scope and purpose of the definition of Collective Investment Scheme as such plans without surrender value are similar to the holiday options sold be companies like Mahindra Holidays, Sterling Holidays, etc. 2. The Company also stated that by way of abundant caution, it has sought legal opinion from legal luminaries who had confirmed that the present holiday plans of the Company do not fall within the scope and purport of collective investment scheme. 3. Regarding the allegation in the SCN that only 0.49% of room nights were actually utilized and the remaining room nights were surrendered and surrender value was paid to the customers, the Company submitted that the said figure was incorrect and mentioned that 3-4% of room nights have been utilized. The Company while admitting that the utilization numbers are much lower, it contended that the same would not i....
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....old by PCL merely for the purpose of investment to gain profits, income or produce. 40. Hence, there is no concept of any fixed or guaranteed return, much less, fantastic return of profit. The very fact that the holiday option entitled the customer to receive back the value for unutilised room nights as mentioned above would go to show that there is no intention to defraud the customer. Besides, there is not a single complaint to show that PCL has defaulted in honouring this contractual obligation to any customer. Hence, PCL has been successfully running its business for the past 18 years and selling the holiday options for the past 13 years without any pending complaints. In view of the above, (without prejudice to PCL stand, rights and contentions) before taking any steps for refund/winding up, it is essential that the procedure laid down under Regulation 73 is followed i.e. (1) an information memorandum (dated and signed by all directors) should be sent to the customers who have purchased the holiday options, detailing the state of affairs of the CIS, the amount repayable to each customer and the manner in which such amount is determined, (2) The information memorandum ....
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....filed a letter dated February 01, 2016 (i.e. yesterday) with SEBI requesting for inspection of documents and copies of such documents and requested for adjournment of the hearing as the company's application had to be considered by SEBI. When the learned advocate was informed of the time line (i.e. February 29, 2016) within which the order in the matter had to be issued as per directions of the Hon'ble SAT, he submitted that they would immediately approach the Hon'ble SAT for extension of time. 3. The learned senior advocate was advised that if the Hon'ble SAT does not extend the time for passing of the order, the personal hearing, as last and final opportunity, would be held on February 10, 2016 at 11 a.m. 4. SEBI shall expeditiously dispose of the above said application. In case, the noticees are allowed inspection of documents, the same shall be completed prior to the above mentioned date of hearing". 10. It is noted that Hon'ble SAT, vide Order dated February 08, 2016 (in Misc. Appln. No. 7/2016 in Appeal no. 254/2014), dismissed the application filed by the Company for extension of time. SEBI had granted the noticees an opportunity of inspection of documen....
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....submissions pertained to - (a) Request for disclosure of documents, replies, complaints etc relied upon by SEBI to arrive at the conclusion that Time Share Scheme of the Company did not constitute Collective Investment Scheme after examining the case of the Company during 2010-2011; (b) Cross-examination of Sanjay Dina Patil who had filed complaint dated July 02, 2013; (c) SEBI's jurisdiction in the matter in view of Explanation to section 12(1B) of the SEBI Act; (d) Estoppel. The following were the events, according to the Company, that led to SEBI being estopped: i. The Company had written a letter on February 27, 2001 enclosing application forms of various plans and sought clarification from SEBI whether the same fell under the provisions of CIS or any other regulations. ii. The Company also sent a letter dated June 20, 2002 informing about the concept of holiday options, terms and conditions, brochure and tariff card of various hotels. iii. SEBI had confirmed vide letters dated February 04, 2013 (sent to MCA) and October 21, 2012 (reply to complainant, Mr. Sanjay Dina Patil) that the schemes of Company were not in t....
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....t penal. Therefore, passing penal orders would mean no benefit to customers and public at large as the result would in any case fail to uphold the spirit of the SEBI Act and the purpose for which it was enacted. (g) Customers are satisfied with the facilities/services offered by the Company and that many customers have their holiday options still operative and their tenure has not expired. If any adverse orders are passed against the Company, the holiday options purchased by the customers will be rendered redundant and they will suffer irreparable losses. Further, such adverse orders will also have a greater effect on the marketing persons (making these submissions here) and more than 5000 persons who are not before SEBI now. A list of marketing persons supporting the marketing persons making these submissions were attached. (h) Lot of customers have availed EMI option facility wherein EMI's are still pending in order to become a member, which in case of adverse orders would result in uncertainty of amounts already paid by the customers. (i) Any adverse order or restriction by SEBI at this juncture may prove to be counterproductive and damaging. Such orde....
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.... no company, whether public or private, listed or unlisted, in manufacturing, agriculture or service activities that may escape the unfettered and catch-all provision of Section 11AA(2)(i), far beyond what SEBI is legislatively allowed to regulate. The mandate of the Dave Committee Report was to assist SEBI in evolving a framework for the regulation of schemes that issued instruments like Agro Bonds and Plantation Bonds, and not business activities relating to timeshare and related leisure activities. Amongst its recommendations, it stated that, "committee wishes to make it clear that the substance of such arrangements should be relied upon to determine whether the scheme is a collective investment scheme or not." It is necessary to maintain the distinction between CIS (pooling) and collection of money for a business purpose. A builder may also collect money from its buyers, however it does not tantamount to pooling that happens in case of plantation schemes. (d) SEBI is empowered to address the situation where companies or persons float schemes offering a 'pie-in-the-sky' enticements to prospective investors and subsequently defrauding them, by offering them 'plantation/a....
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....ze the room nights or gift it to his friends and/or family, he is free to do so. (h) The title to the assets that form a part of the timeshare business remain with Pancard (or where applicable, with such other company with whom Pancard has entered into a tie-up arrangement) at all times. Moreover, the hotel properties in question form part of the hotel business and do patronize guests other than the various customers of Pancard's timeshare offerings. Hence the hotel properties are managed for the Company's hospitality business and are 'not managed on behalf of the applicants'. (i) Pancard does not operate any scheme or arrangement and the question of managing or operating it does not and cannot arise. Furthermore, the term 'managing' must take colour, for the purpose of interpretation, from the other provisions which mandate the requirement of 'pooling' of contributions. In the absence of there being any 'pooling', it is not possible to 'manage' such funds. (j) Pancard's customers are free to manage their own holiday plan and its utilization and therefore, have complete day-to-day control on the operation of the holiday plan. The Company has no control on....
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....of availing such services are almost entirely unfettered and on prior intimation to Pancard, the relevant number of room nights can be offset in accordance with the charges applicable by such other resorts/hotels. (n) Further, from an accounting perspective, the Company's business is to sell time share and provide holiday related facilities to its customers for a specified period each year, over a number of years, for which fee is collected either in full up front, or on a deferred payment basis. Admission fee, which is non-refundable, is recognized as income on admission of an applicant. Entitlement fee (disclosed under Deferred Income towards holiday facilities), which entitles the holder for the holiday facilities over the time share plan usage period, is recognized as income equally over the usage period. Requests for cancellation are accounted for when it is accepted by Pancard. In respect of instalments which are considered to be doubtful of recovery by the Company, the same is treated as a cancellation and accounted for accordingly. (o) It has never been the intention of Pancard to deceive SEBI or any statutory authority as the Company had approached all re....
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....cessary under the CIS Regulations. The information submitted by the Company, would indicate that the Company has not been engaged in any sham real estate business that is detrimental to the interests of investors, but has been providing genuine holiday options to its customers. (t) Further, had SEBI maintained since the beginning that timeshares, such as those in the form of holiday options being provided by the Company, were equivalent to a CIS, when Pancard had approached SEBI in 2002, the Company would have applied for registration under the CIS Regulations. However, it was only in the year 2013 that SEBI wrote a letter to Pancard alleging that it was mobilizing funds from the public in the nature of CIS. It is humbly submitted that, in such circumstances, it is unreasonable and unjust to pass any adverse order against the Directors, without providing the Company an opportunity to register. (u) Furthermore, reference may be made to Regulations 68 to 74 of the CIS Regulations which disclose that they are all part of a clear scheme. The scheme being that if any person has been operating a CIS, he could make an application for provisional registration. For this pu....
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....he customer could chose a particular scheme as per his requirement by buying "room nights" at a discounted price than the regular room tariff. 3. The customer could use the room nights or transfer/gift to a third party or surrender the same. 4. In the event of the customer surrendering the room nights, he is entitled to the "surrender value" as per the scheme opted by him payable at the end of the membership plan. It is also noted that the surrender value may also be utilised to get the product and services of the company and its associates. 5. It is pertinent to note that this 'surrender value' is always higher in value as compared to the 'offer price' used for purchase of room nights. The company also offers benefits like discount card, accidental death, insurance coverage, medi-claim coverage etc. The SCN has prima-facie observed that the schemes of the company are in the nature of Collective Investment Scheme in terms of section 11 AA(2) of the SEBI Act. The SCN alleged that the company and its six directors have contravened section 12(1B) of the SEBI Act and regulations 3 and 65 of the CIS Regulation. The SCN also alleged that the schemes of the c....
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....on to section 12(1B) of the SEBI Act is that any instrument or unit which provides a component of insurance issued by an insurer shall not be deemed to be a collective investment scheme. According to the company, the SCN was not warranted as it offers "insurance issued by an insurer" and therefore outside the purview of section 12(1B). As per the noticees, if there was any element of doubt as to who would provide such insurance, it was submitted that the insurance cover is obtained by the company by payment of premium to the respective insurance companies. The company further stated that these insurance companies are duly registered and recognized by the IRDA and contended that there is no further requirement under the SEBI Act so as to fall within the ambit of explanation to section 12(1B). The company stated that the SCN has contemplated penal action and contended that it is settled law that when there are two possible and reasonable construction, the court must lean towards that construction which exempts the party from penalty rather than the one which imposes penalty. The company placed reliance on the cases of Tolaram Relumal and another vs State of Bombay {AIR (1954) SC 4....
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.... be issued by an insurer. Therefore, the Explanation envisages a combined product which has to be issued by an insurer and it cannot be the case that the combined product is issued by an entity wherein the component of insurance is provided by some insurer. There is therefore, no ambiguity regarding who would offer the product as sought to be presented by the company. In the present case, the company offers a scheme (Holiday Plan/room nights) which has accidental insurance benefit offered by an insurer. The Company is not an "insurer" as defined in the section 2(9) of the Insurance Act, 1938, and therefore, such schemes would not be covered under the exemption provided under the explanation to section 12(1B). A reference is also made to the explanation made in section 2(h) of the of the Securities Contract (Regulation) Act, 1956 ('SCRA'), which provides that "securities" shall not include any ULIP or any instrument which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938. The noticees have referred to two case laws to submit that if two possible and ....
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....ement is a CIS or not. It is also to be noted that units or any other instrument issued by any CIS to the investors in such schemes would be a "security" under section 2(h) of the SCRA and section 2(1)(i) of the SEBI Act. SEBI has also framed the CIS Regulations for stipulating conditions for registration of CIS and other related matters. The moment the scheme satisfies the provisions of section 11AA of the SEBI Act, the Company launching and operating such schemes would come under the regulatory jurisdiction of SEBI and the applicable securities laws. In view of the above, the contention of the Company is misplaced. III. Estoppel: The noticees submitted that SEBI had, at various stages, confirmed that the activities of the company were not in the nature of CIS. The company has referred to SEBI's letters dated 04/2/13 (to MCA) and 21/10/13 (reply to Mr. Sanjay Dina Patil) in this regard. The Company submitted that the manner in which it carried on its business did not undergo any change and all documents pertaining to the company's holiday plan have been examined by SEBI more than once since 2010-11. According to the Company, whether the holiday plans are covered within the defi....
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....against the State of Bihar. It is now well known, the rule of estoppel has not application where contention as regards a constitutional provision or a statute is raised". The Hon'ble High Court of Orissa in Jatindra Prasad Das vs State of Orissa and others (decided on 15.11.2011-W.P. (civil) No. 21449/2011) has held that there can be no estoppel against statutes and the statutory provisions and therefore, the said statutory provisions cannot be ignored on the grounds of an earlier administrative decision or precedent. In the present case, SEBI may have taken a view earlier that the alleged schemes were not CIS. However, on a reconsideration of the business activities/schemes of the company, SEBI had changed its views and had initiated proceedings vide the SEBI interim order and the instant SCN. Therefore, the plea of estoppel would not hold good against the statutory provisions as may be applicable in this present matter. IV. Cross-examination of Sanjay Dina Patil: The noticees have requested to cross-examine the complainant. However, as the SCN does not rely on this complaint and the same have not been relied in this Order, I find this request to be infructuous. V. Req....
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...., 2013 to June 19, 2015, it is observed that it is offering following schemes to general public during the period 2002 to 2014. * Pancard Clubs- Comfort Membership for 3 years * Pancard Clubs- Luxury Membership for 6 years * Pancard Clubs- Premium Holiday Membership for 10 years * Pancard Clubs- Regular Holiday Membership for 10 years * Pancard Clubs- Royal Membership for 9 years * Pancard Clubs- Standard Membership for 9 years * Pancard Clubs- Supreme Holiday Membership for 9 years * Pancard Clubs- Golden Holiday Membership for 5 years * Pancard Clubs- Platinum Holiday Membership for 6 years * Pancard Clubs- Regal Holiday Membership for 9 years * Pancard Clubs- New Comfort Holiday Membership for 3 years * Pancard Clubs- New Luxury Holiday for 3 years * Pancard Clubs- New Royal Holiday for 9 years * Pancard Clubs-Delight Holiday for 6.3 years * Pancard Clubs-Relax Holiday for 3.3 years * Pancard Clubs-New Premium Holiday for 10 years * New Regular Holidays for 10 years * Sunrise Holiday for 5 years * Divine Holida....
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....ing the room nights No of applicants surrendered the room nights 2002-03 117,151,200 195,252 15,554 1 1 2003-04 173,715,200 289,525 19,890 68 27 2004-05 268,122,400 446,871 27420 66 27 2005-06 496,698,671 827,831 52,034 51 17 125,479 106,656,861 9,086 2006-07 989,856,575 1,649,761 87,227 87 40 255,969 217,573,606 7,121 2007-08 201,670,929 336,118 18,060 132 55 478,772 406,956,259 43,021 2008-09 59 26 902,379 767,021,944 60,708 2009-10 49 19 1,544,024 1,312,420,188 77,260 2010-11 3 1 412,425 435,561,200 18,955 2011-12 14,380 18,493,655 2,265 2012-13 9,888 8,404,670 1,130 2013-14 1,565 1,330,300 639 Total 2,24,72,14,975 37,45,3....
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....652,170 119 2007-08 59,561,205 212,719 3664 136 59 3559 996,445 65 2008-09 8,644,890 30,875 20 80 25 34439 9,658,775 552 2009-10 132,280 472 148 43 2342 655,760 23 2010-11 151 40 974 272,720 9 2011-12 104 8 62,363 52,384,671 3,825 2012-13 40 304,113 258,496,200 7,808 2013-14 378 26 321,085 272,922,190 6,954 Total 84,18,29,885 30,06,536 54,275 1,405 383 7,32,110 59,68,08,931 19,661 iv. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 84.18 crores from 54,257 customers/investors by selling 30,06,536 room nights under Royal Membership Plan. From the details it is seen that out of the 30,06,536 room nights sold, as on March 31, 2014 only 1,450 room nights were utilised by 383 investors and 7,32,110 room nights were surrendered and 22,73,021 room nights are about to be either utilised or surrendered. However, out of the total room nigh....
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.... 2010-11 47 28 43 12,096 9 2011-12 281 125 55,767 47,401,840 11,864 2012-13 108 141,451 120,233,750 31,781 2013-14 176 53 115,719 98,360,990 25,804 Total 32,79,81,320 11,71,362 2,48,605 864 535 3,13,835 26,62,93,926 69,663 iv. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 32.79 crores from 248605 customers/investors by selling 11,71,362 room nights under Standard Membership Plan. From the details it is seen that out of the 11,71,362 room nights sold, as on March 31, 2014 only 864 room nights were utilised by 535 investors and 3,13,835 room nights were surrendered and 8,56,663 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (3,14,699 room nights), 0.27% room nights were utilised and 99.72% of room nights were surrendered and estimated surrender value was opted. It can be seen that the tenure of the scheme is for period o....
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....613 99 97,408 8,01,80,213 5,750 iii. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 29 crores from 33,562 customers/investors by selling 10,35,757 room nights under Supreme Holiday Membership Plan. From the details, it is seen that out of the 10,35,757 room nights sold, as on March 31, 2014 only 613 room nights were utilised by 99 investors and 97,408 room nights were surrendered and 9,37,736 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (98021room nights), 0.62% room nights were utilised and 99.37% of room nights were surrendered and estimated surrender value was opted. It can be seen that the tenure of the scheme is for period of 9 years. Accordingly, out of the total room nights sold (141296) till 2004-05, which have completed the scheme tenure of 9 years, only 613 room nights were utilised and 97408 room nights were surrendered. E. Pancard Clubs- Golden Holiday Membership for 5 years (effective from16th April 2003). Current Average Tariff of One Hundred & Eighty Actual Price room nights Package Offer Price o....
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.... room nights sold, as on March 31, 2014 zero room nights were utilised and 15,055 room nights were surrendered and 425 room nights are pending for utilization or for surrender. However, out of the total room nights either utilised or surrendered till March 31, 2014 (15,055 room nights), 100% of room nights were surrendered and estimated surrender value was opted and not a single room night was utilised. F. Pancard Clubs-Luxury Membership for 6 years (effect from 1st April 2004): Current Average Tariff Actual Price for seven Room Nights Package Offer Price of the package at a Discount Entitlement of Room Nights Current Surrender Value for the Five Room Nights @ Rs. 850/- per Room Nights Rs. 7,000/- (1,000*7) Rs. 2975/- (425*7) 7 Rs. 5,950/- (850*7) i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 25% of the total room nights purchased by him in a single financial year. ii. The details of the year-wise room nights sold and redeemed during the period....
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....er Price of the package at a Discount Total Entitlement of Room Nights Total Entitlement of Room Nights per Month Current Surrender Value As on Today. Rs. 2,40,000/- (1,000*240) Rs. 1,02,000/- (425*240) 240 2 Rs. 850/- Per Room Night i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 30 days from the date of the membership. Member shall be entitled to utilise maximum of two room nights per month, against total of 240 room nights. Out of the quarterly entitlements, a member can surrender 50% of his entitlement immediately and balance at the end of membership period. ii. The details of the year-wise room nights sold and redeemed during the period 2002-03 to 2013 -14 is provided as under: (Regular Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2002-03 15,963,000 37,560 1,649 334,050 100 ....
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.... the membership. Further, an applicantshall be entitled to utilise a maximum of 25% of the total room nights purchased by him in a single financial year. ii. The details of the year-wise room nights sold and redeemed during the period 2003-04 to 2013 -14 is provided as under: (Platinum Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilized No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2003-04 15,748,700 28,634 9,193 2004-05 40,065,300 72,846 11,834 2005-06 75,966,010 138,120 19,025 4 2 424 232,950 13 2006-07 82,433,630 149,879 35,924 306,782 168,730,085 52,338 2007-08 280,947,395 510,813 55,003 2008-09 301,514,175 548,207 419 17 5 2009-10 165,461,365 300,839 0 1 1 118,57....
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....e period 2008-09 to 2013 -14 is provided as under: (New Regular Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2008-09 76,398,000 179,760 505 2009-10 171,161,900 402,734 1,106 6,588 5,599,850 1,437 2010-11 252,612,450 594,382 1,581 39,293 30,696,250 2,333 2011-12 226,250,300 532,354 1,335 777 14 75,305 62,208,050 4,247 2012-13 241,706,000 568,720 1,454 630 12 106,854 88,072,200 5,697 2013-14 213,659,400 502,728 1,137 400 19 135,489 111,361,050 6,850 Total 1,18,17,88,050 27,80,678 7,118 1,807 45 3,63,529 29,79,37,400 20,564 iv. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 118.17 crores from 7,118 customers/investors by selling 27,80,678 room nights und....
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....33 4,609 2009-10 2,754,000 6,480 62 20,089 16,700,185 4,255 2010-11 21 4 20,813 17,614,110 4,249 2011-12 39 8 19,597 16,646,500 4,248 2012-13 7 39,786 25,049,500 4,487 2013-14 235 9 38,274 32,532,900 4,357 Total 17,23,44,415 4,05,517 9,460 318 38 2,06,648 15,71,76,345 42,229 iii. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 17.23 crores from 9,460 customers/investors by selling 4,05,517 room nights under Premium Holiday Membership Plan. From the details, it is seen that out of the 4,05,517 room nights sold, as on March 31, 2014 only 318 room nights were utilised by 38 investors and 2,06,648 room nights were surrendered and 1,98,551 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (2,06,966 room nights), 0.15% room nights were utilised and 99.84% of room nights were surrender....
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....e surrendered and 57,222 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (1,28,572 room nights), 0.028% room nights were utilised and 99.97% of room nights were surrendered and estimated surrender value was opted. L. Pancard Clubs- New Comfort Holiday Membership for 3 years (with effect from May 22, 2007). Current Average Tariff for three Room Nights Offer Price of three Room Nights at a Discount Minimum Room Nights to be bought Estimated Surrender Value of three unused room nights @ Rs. 1,260/- per Room Night. Rs. 6,000/- (2,000*3) Rs. 2,700/- (900*3) 3 Rs. 3,780/- i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 33% of the total room nights purchased by him in a single financial year. ii. The details of the year-wise room nights sold and redeemed during the period 2007-08 to 2013 -14 is provided as under: (New Comfort Plan) Year T....
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.... the period 2007-08 to 2013 -14 is provided as under: (New Luxury Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilized No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2007-08 1,572,129,900 1,746,811 94,021 4 2 2008-09 688,654,500 765,172 37,671 29 9 2009-10 424,100 471 28 20 8 3,306 2,975,000 68 2010-11 31 20 1,731 1,557,600 45 2011-12 154 42 310 558,650 14 2012-13 48 147 263,700 5 2013-14 200 49 1,428,270 2,570,886,150 68,160 Total 2,26,12,08,500 25,12,454 1,31,720 438 178 14,33,764 2,57,62,41,100 68,292 iii. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 226.12 crores from 1,31,720 customers/investors by selli....
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.... 1,12,35,960 374 iii. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 540.52 crores from 8,66,189 customers/investors by selling 60,05,825 room nights under New Royal Holiday Membership Plan. From the details it is seen that out of the 60,05,825 room nights sold, as on March 31, 2014, only 15,325 room nights were utilised by 6,250 investors and 10,263 room nights were surrendered and 59,80,237 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (25,588 room nights), 59.89% room nights were utilised and 40.10% of room nights were surrendered and estimated surrender value was opted. It can be seen that the tenure of the scheme is for period of 9 years and the scheme is effective from May 22, 2007. Accordingly, it can be concluded that the plan is not ripen enough for surrendering the unutilised room nights. It can be seen that out of the total room nights sold only 0.25% of room nights were actually utilised. O. Pancard Clubs-New Premium Holiday for 10 years(with effect from May 22, 2007) Current Average Tariff for Eighty room Night....
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.... sold, as on March 31, 2014 only 369 room nights were utilised by 38 investors and 44,154 room nights were surrendered and 3,59,585 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (44,523 room nights), 0.82% room nights were utilised and 99.17% of room nights were surrendered and estimated surrender value was opted. P. Pancard Clubs-Delight Holiday for 6.3 years (with effect from May 02, 2008): Current Average Tariff for three room nights Offer Price of three room nights at a discount Minimum room nights to be bought Estimated surrender value of three room nights @ Rs. 1800/- per room nights Rs. 6,000/- (2,000*3) Rs. 2,700/- (900*3) 3 Rs.5,400/- i. As per the terms and conditions for the scheme, an applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 33% of the total room nights purchased by him in a single financial year. ii. Upon expiration of tenure of the aforementioned scheme, the applicant may surren....
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....ot ripen enough for surrendering the unutilised room nights. It can be seen that out of the total room nights sold only 0.12% of room nights were actually utilised. Q. Pancard Clubs-Relax Holiday for 3.3 years (with effect from May 02, 2008): Current Average Tariff for three room nights Offer Price of three room nights at a discount Minimum room nights to be bought Estimated surrender value of three unused room nights @Rs.1260/- per room nights Rs. 6,000/- (2,000*3) Rs. 2700/- (900*3) 3 Rs.3780 i. As per the terms and conditions for the scheme, an applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 33% of the total room nights purchased by him in a single financial year. Upon expiration of tenure of the aforementioned scheme, the applicant may surrender his unutilised room nights and noticee no. 1 in its discretion may give an option to its applicant to convert his unutilised room nights, to the extent of surrender value, into shares, debentures (this is in addition to the three more options as explained....
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....r 60 days from acceptance of his application by the company. As per the terms and conditions for the scheme, an applicantshall be entitled to utilise a maximum of 2 room nights per month. Out of the monthly/quarterly entitlements, an applicant can surrender 50% of his entitlement immediately and the balance room nights at the expiry of the tenure. ii. Upon expiration of tenure of the aforementioned scheme, the applicant may surrender his unutilised room nights and noticee no. 1 in its discretion may give an option to its applicant to convert his unutilised room nights, to the extent of surrender value, into shares, debentures (this is in addition to the three more options as explained at Para 5(ii) provide to the customers). iii. The details of the year- wise room nights sold and redeemed during the period 2008-09 to 2013 -14 is provided as under: (Sunrise Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2008-09 4,428,00....
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....e a maximum of 33% of the total room nights purchased by him in a single financial year. For availing the room nights, at the affiliated destination, applicantshall have to pay exchange fees of Rs. 150 per room nights. iii. Upon expiration of tenure of the aforementioned scheme, the applicant may surrender his unutilised room nights and noticee no. 1 in its discretion may give an option to its applicant to convert his unutilised room nights, to the extent of surrender value, into shares, debentures (this is in addition to the three more options as explained at Para 5 (ii) provided to the customers). iv. The details of the year wise room nights sold and redeemed during the period 2009-10 to 2013 -14 is provided as under: (Divine Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilized No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2009-10 234,219,415 260,244 113,646 8 6,825 1 2010-11 689,986,965 766,652 124,289 ....
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....monthly option and Rs. 75/-per quarter for quarterly option for each such delayed payment. ii. Upon expiration of tenure of the aforementioned scheme, the applicant may surrender his unutilised room nights and noticee no. 1 in its discretion may give an option to its applicant to convert his unutilised room nights, to the extent of surrender value, into shares, debentures (this is in addition to the three more options as explained at Para 5 (ii) provided to the customers). iii. The details of the year-wise room nights sold and redeemed during the period 2012-13 to 2013 -14 is provided as under: (Dezire Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2012-13 375,000 417 341 2013-14 35,177,600 39,086 7,762 Total 3,55,52,600 39,503 8,103 ....
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.... according to the Company, the rate of interest were in the range of 5.37% to 14.87%. However, what is important to note is that the investor receives the 'surrender value' which carries interest on the amount (offer price) paid to the Company and that the surrender value is higher that the contribution paid by the investor. 17. The SCN has prima facie observed that the schemes of the Company satisfied all the conditions mentioned under section 11AA(2) of the SEBI Act and are therefore in the nature of collective investment schemes. It therefore becomes necessary to refer to the provisions of section 11AA of the SEBI Act in order to determine whether the schemes/plans launched and carried out by it is a "Collective Investment Scheme". The said provision is reproduced below: "Collective investment scheme. 11AA. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) 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 sub-section (3), involving a corpus amount of one hundred crore ....
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....ch the Central Government may, in consultation with the Board, notify,] shall not be a collective investment scheme". 18. The first condition, under section 11AA(2) of the SEBI Act, is that the contributions or payments made by the investors by whatever name called are pooled and utilized for the purposes of the scheme or arrangement. With respect to this condition, the SCN had observed as follows: "14. It is observed that the noticee no. 1 is operating investment plans through its Holidays Plans, which it offers to the public. Holiday Plan Certificates of confirmation are issued to individual investors who purchase the Holiday Plans. Noticee no. 1 has submitted that during the financial years 2002-03 to 2013-14 raised a sum of Rs. 7034.67 crores from a total of 51,55,516 investors under its twenty schemes mentioned above. Under the various Holiday Plans, room nights are awarded by noticee no. 1 to investors who purchase the Holiday Plans, and if the investor desires, the room nights can be rented out or surrendered to noticee no. 1. It is seen from the balance sheet since 2001-02 to 2013-14 that the noticee no 1 has share capital of Rs. 50,12,12 and meager loan amount ....
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.... the Hon'ble Apex Court. The Income Tax department is taking a position that "Merely because the advance amount collected is liable to be refunded in certain contingencies and circumstances, does not mean that it is not a receipt. It is a revenue receipt." Whichever interpretation is accepted, the above clearly shows that the consideration received by PCL is either 'advance against sale of room nights' or 'revenue receipts' but it does not amount to 'pooling of funds' with the meaning of Section 11AA(2)(i). (d) PCL enters into simple agreements with customers for provision of service in return for a consideration by the customers. PCL carries out a straightforward transaction in two legs, wherein first the consideration is received and subsequently, the Room Nights are credited in favour of the customer which may be drawn down depending on the requirement and wishes of the customer. They are service-level agreements evidencing a customer's right to avail of hospitality facilities at a later date. Moreover, the Service Tax Department has issued show cause notice proposing to treat the amount received by PCL as "Hospitality Services". Since, the holiday option being sold in ....
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.... availed by the customer or for any specific Option. (i) Therefore, the time share holidays sold by PCL do not fulfil any of the criteria set out in section 11AA(2)(i)". The Company also submitted that the amounts paid by the members are not utilised 'solely' for the purpose of any particular holiday plan availed by the member and that the amount received is utilized by the Company for developing properties worldwide to provide world class facilities to all its members. The business of PCL is not restricted to provide holiday plans under the holiday plan schemes referred to above. The business of the PCL, inter alia includes hospitality and hotel business whereby the hotel and club facilities are offered to members at large for a consideration. Thus, according to the Company, the contention of SEBI that the funds are utilized solely for the purpose of 'scheme or arrangement' is untenable. I have considered such submissions. The Company has admitted receiving contribution from customers, under its schemes, towards offering room nights as alleged in the SCN. The Company has also stated that it owns/operates 42 hospitality properties across the world and has access to o....
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....mer becomes entitled to use room nights. In this regard, I wish to refer to the following observations made by the Hon'ble SAT in the case of NGHI Developers India Limited decided on July 23, 2013: "19. .............. 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 t....
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....ded certain further features for his benefit. (b) The customers purchase the holiday option which can be utilised over a period of time, inter alia, for booking rooms in hotels/resorts. Only if the holiday option is left unutilised, the customers get surrender value at the end of the tenure of the plan. Thus, there is no 'principal amount' and consequently no 'interest' paid to the customers. (c) In case the customers utilise the holiday option, there is no question of refund of consideration and consequently there would be no payment of surrender value. (d) Therefore, none of the options proposed by the Company involve any profit-sharing with the customers. The rights of usage, hospitality and leisure activities, conferred on the customer in exchange for a consideration are not as a return on his consideration amount, but as a promise of performance of a service pursuant to his fulfilment of the terms and conditions of the agreement. (e) Therefore, there is mere conferral of rights of enjoyment and usage of rooms and ancillary hospitality services to the customers. The monies paid by the customers were only towards the performance of the promise....
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....tomers would pay consideration without any reciprocal benefit. However, there exists no profit-sharing model between the PCL and its members. (k) Irrespective of whether the properties developed by PCL are running well or otherwise PCL is obliged to provide the relevant benefits under the holiday plan availed by the member. Thus, drawing a correlation between the profits earned by PCL and the returns/facilities provided to members is baseless and without any justification. (l) The Company has therefore contended that its holiday plans do not satisfy the second condition under section 11AA(2)(ii) of the SEBI Act". I have considered such submissions. The Company has not disputed the surrender value being part of the schemes. The Company has also admitted that only 3-4% (though it is 0.49% as per SCN; the Company has no explanation why SCN calculations are wrong but has only made a bald assertion) of its customers have availed the room nights under the schemes and that the majority of customers (97% of customers, even as per the Company) have surrendered the room nights and were entitled for the 'surrender value'. Further, the following observation in the SCN is a....
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....erefore, the 'surrender' is something akin to cancellation or unwillingness of the customers in such case to utilize the services of such provider, the surrender value should be always lower than the initial amount paid. However, as per the schemes of the Company, the surrender value is higher than the contribution made by the customer. Considering that the scheme offers the benefit called the "surrender value" (higher in value than the contribution of investor) and also as more than 97% of the customers have received the surrender value, and further that the Company has admittedly offered "insurance benefits" to its customers, it can be definitely said that the customer have made the contributions or payments to the schemes of the Company with a view to receive benefits/profits/income, from such scheme or arrangement. The Company has also submitted that the returns under its schemes were in the range of 5.37% to 14.87% and there was nothing lucrative about the same. The Company has also contended that it would be improper to classify its holiday plans as Ponzi schemes. In this regard, I note that the second condition does not mention about any rates of return that would be r....
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....s remain with PCL (or where applicable, with its group company or with the company with whom PCL has a tie up) at all times. Moreover, the hotel properties in question form part of the hotel business and do patronize guests other than the various customers of PCL. Hence the hotel properties are managed for PCL's hospitality business and are not 'managed on behalf of the customers'. (d) Therefore, the time share holidays sold by PCL do not fulfil any of the criteria set out in Section 11AA(2)(iii)". As regards, section 11AA(2)(iv) of the SEBI Act, the Company had stated the following: (a) "The holiday option can be utilised at any time, mode or manner. Moreover, the customers have complete freedom in dealing with the holiday option. A customer can choose to utilise the holiday option to avail various facilities at various hotels, resorts and clubs of PCL. (b) A customer also has the option has the option to gift the holiday option to near and dear ones. (c) A customer also has the option to opt for exchange/barter the services. (d) Moreover, PCL does not impose restrictions and its customers are free to utilise the holiday option durin....
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....he Company had pooled more than one hundred crore rupees and which are not registered with SEBI and also not covered under section 11AA(3) of the SEBI Act. In this regard, I refer to the following provisions of section 11AA of the SEBI Act: 11AA. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) 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 sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme. The SCN has already mentioned that the Company had mobilized Rs.7035 crore during the period 200203 and 2013-14 under the schemes which have been found to be collective investment schemes. The following details taken from the SCN are relevant to note here: Sl. No Financial Year Income from membership and annual subscription fee Provision for surrender value payable Advance against sale of room nights Current liability Holiday members surrender value Marketing expenses Figures a....
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....ms. The law is very clear in this regard. Any person who wishes to launch a CIS could do so after obtaining registration from SEBI as mandated under sections 11(2)(c) and 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations and in compliance with the applicable law. Any persons who has launched CIS and carried on with such activity, without registration, shall wind up and refund the monies as per the scheme of the CIS Regulations. 24. I also note that Hon'ble SAT, vide Order dated February 03, 2016, made in Appeals Nos. 436 & 437 of 2015 (Royal Twinkle Star Club Private Limited and others vs. SEBI) had upheld the decision made in the SEBI Order dated August 21, 2015 that the appellants have floated and operated CIS without registering with SEBI and hence in violation of CIS Regulations. What is important to note is the following portion, wherein Hon'ble SAT has summarized the business model of Royal Twinkle: "3. Briefly stated the facts of the case are that; the Appellant-company started its business of selling of holidays plans on 6th May, 2008. The Appellant i.e. RTSCL belongs to Mirah Group of Companies which is stated to be engaged in various business acti....
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....for availing the benefit of stay in the hotel. On the basis of incoherent material produced by the petitioner like format of membership it is not possible to agree with the contention that the scheme is only a holiday management scheme and does not come under the purview of the collective investment scheme more so because of the fact that there is a term in the contract of refund of money with a lucrative rates of interest. If the interest on deposit was the alluring factor on the part of the investors then the case would squarely fall under sub-clause (ii) of sub-section 11AA of the SEBI Act...." 26. It is also important to note that the Hon'ble Supreme Court in the matter of PGF Limited vs. UoI and another (ref. MANU/SC/0247/2013, has observed ".....the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act." The Hon'ble Supreme Court further observed "Inasmuch as the said Section 11AA seeks to cover, in general, any scheme or a....
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....e Company had carried on its business of selling holiday plans from 2002 onwards. The Company has requested that no harsh steps should be taken against it and that the procedure under regulation 73 of the CIS Regulations ought to be followed. In support of the submissions, the noticees placed reliance in the order of Alchemist Infra Realty Limited & Ors. vs. Securities Exchange Board of India [(2013) SCC Online SAT 50], passed by the Hon'ble SAT: "17 At this stage it would be pertinent to note a submission, regarding the interpretation of said Regulation 73, by Mr. Kapur, the learned senior counsel appearing for the Appellants, that it applies 'only' to CISs which were in existence in the year 1999 when the CIS Regulations were legally enforced by publication in the Official Gazette. We have thoroughly pondered over this submission and even revisited the CIS Regulations to unearth their true import. And we note that the CIS Regulations in question were promulgated by the Government of India to protect the interests of lacs of gullible investors who are prompted to invest in such schemes by advertisement, publicity etc. Therefore, we are of the considered opinion that a wid....
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....tions dealing with "Existing Collective Investment Schemes". In terms of regulation 68, any person who has been operating a collective investment scheme at the time of commencement of the regulations shall be deemed to be an existing collective investment scheme and shall also comply with the provisions of this Chapter. Regulation 73(1) prescribes that an existing collective investment scheme which has failed to make an application for registration to SEBI or has not been granted provisional registration by SEBI or having obtained provisional registration fails to comply with the provisions of regulation 71 shall wind up the existing collective investment scheme. It is an admitted position that the Company was incorporated in the year 1997 and commenced its activities from the year 2001. Therefore, it cannot be said that the schemes of the Company are existing collective investment scheme. Therefore, the provisions of regulation 73 are not applicable to the schemes of the Company. The noticees have referred to the observations made by the Hon'ble SAT in the matter of Alchemist Infra Realty Limited. However, in a more recent case pertaining PACL, the Hon'ble SAT has clearly laid dow....
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....ion under regulation 68 come into play. Regulation 70, according to the noticees, shows that for the purpose of obtaining provisional registration, the applicant must satisfy that its schemes are in the nature of CIS. These submissions too are without merit in view of ample clarity made in regulation 68 of the CIS Regulations regarding who is an 'existing collective investment scheme'. It is an admitted position that the Company had launched and was carrying on schemes, in the nature of CIS, from 2002. Therefore, the provisions which are applicable to the 'existing CIS' would not be applicable to the Company. 29. The schemes, as alleged in the SCN, are found to be in the nature of CIS in terms of section 11AA of the SEBI Act. The Company has not been permitted to offer/launch and carry on CIS as it has not obtained registration from SEBI as required section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. In view of the violations and considering the scheme of regulations 65 and 73 of the CIS Regulations along with the observations of Hon'ble SAT (made in the PACL case), such unauthorized schemes are liable to be wound up and the Company shall repay the customers/....
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....e unregistered CIS schemes. In terms of section 291 of the Companies Act, 1956, the board of directors of a company shall be entitled to exercise all such powers and do all such acts and things as the company is authorized to exercise and do. Therefore, the board of directors shall be responsible for the conduct of the business of a company and liable for any non-compliance of law and such liability shall devolve on individual directors. Accordingly, a director who is part of a company's board shall be responsible and liable for all acts carried out by a company unless exemptions are provided. The present case involves a Company that has mobilized public funds from gullible investors through its unregistered collective investment schemes. In this regard, the following observations made by the Hon'ble High Court of Madras in Madhavan Nambiar vs Registrar of Companies (2002 108 Comp Cas 1 Mad) are important to note: "13. .... A director either full time or part time, either elected or appointed or nominated is bound to discharge the functions of a director and should have taken all the diligent steps and taken care in the affairs of the company. 14. In the matter of....
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....s action is in the interest of investors so that their interests are not harmed if that company defaults in paying the returns. Further, an unauthorized scheme cannot be allowed to continue. 34. In view of the findings and conclusions made in paragraph 25 and 27 above, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 and Sections 11(1), 11B and 11(4) thereof and regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, hereby dispose off the SCN dated August 24, 2015 issued to the Company and directors with the following directions: (a) Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan, shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the scheme which have been identified as a Collective Investment Scheme in this Order. (b) Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatra....
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....nventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form. (f) Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of 4 years. (g) In the event of failure by Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan, to comply with the above directions, the following actions shall follow: - Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan shall remain restrained from accessing the securities market and would further be prohibited from buying, selling or otherwise dealing in securities, even after the period of 4 years of restrain....