TaxTMI 
TaxTMI 
2016 (2) TMI 1121
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.... 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 weeks from the date of Appellant tendering all doc....
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.... 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 its directors (collectively referred to as "the noticees") also filed an application seeking further time for providing the documents. Thes....
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....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 repaid the complete amount due to them. (e) The applicant should submit quarterly report regarding the repayment made and also submit auditor's certification regarding th....
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....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 clubs/hotels/resorts. Since holiday is a growing business, PCL has taken the customer friendly step of allowing Room Nights to be utilised at any non-PCL property. PCL also allows its customers the flexibility of using the Room Nights for day picnics, restaurants, adventure trips, conferences....
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....ans, 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: a. PCL does not deal in 'securities' as defined in Section 2(h) of the Securities Contract (Regulation) Act, 1956. PCL is carrying on the business of time share holiday. The business of PCL cannot be regulated by SEBI as PCL does not operate or manage a 'collective investment scheme' or deal in 'securities'. It would not be within the ju....
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....e 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 not fall strictly within the purview of Collective Investment Scheme as presently defined". "Taking into consideration all the facts and circumstances of the new scheme proposed by the Queriest , I'm of the opinion that such a scheme does not amount to 'pooling of funds' for a scheme of arrangement under the corpus exceeding 100 crore rupees nor does it amount to a collective inves....
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....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, 9th 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 than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any be beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent; (Emphasis supplied) The Company has submitted that an ac....
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....e 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 accounts of payment of money and usage of promised room nights for each customer. * The amount received from a customer is shown as 'advance against sale of room nights' by the Company as the Company is selling the holiday option by taking advance payment and the customer is purchasing the same. The sale of holiday plan by the Company is recorded as 'advance against sale of room nights' in the books of account of the Company. f. Subsequently, the Company enters into separate Agreement with each customer wherein a holida....
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.... 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 as a facilitator for taking the insurance policies from the Insurance Company and shall assist the applicant in forwarding their claims with it. .... (v) Insurance benefit shall be given as per term and conditions of the Pancard Clubs-Sunrise Holiday option. ..." * Thus, PCL provides insurance coverage to all its holiday option customers from IRDA approved companies. PCL has tied up with such IRDA approved companies for Accidental Death, Mediclaim insurance and/or Life insurance. * Depending on the holiday option availed; the customers are entitled to one or several insurance options/benefits....
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.... 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 be provided a discount of 20% on the tariff rate of such clubs/hotels/resorts prevalent at the time of intimation of usage of room nights to the company. In such cases, the applicantshall have to submit a higher number of room nights equivalent to the 80% discounted value of the tariff rate of those clubs/hotels/resorts. Figures in fractions shall be considered as one room night. ... (i) Applicant can avail their room night's entitlement by giving a request in such manner and or in such form(s) as may be prescribed by the company. Applicantshall apply to the company at least thirty (30) days in advance to the company, of the date/s of their intended utilization of room nights giving the details of the ....
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....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 applicant. (d) The company in its discretion may give an option to its applicant to convert their unutilised room nights, to the extent of the surrender value, into shares, debentures or such securities of its group companies, as may be permitted by the regulations governing the issue of such shares, debentures or such securities. ..." 13. Additionally, the customers are also given discount cards, which can be used at the groups' properties. . 14. Thus, unlike other holiday options available in the market where the customers lose their money if they do not exercise their right of using the room nights partly or fully during the tenure for which the holiday options were taken, PCL's holiday option is flexible whereby if for any reason a customer is unable to us....
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.... 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 imply that the customer purchases its services with a view not to use and receive refund. 4. Regarding the rate of interest, mentioned in the SCN, as being offered on the contributions through the payment of surrender value, the Company submitted that the correct range is from 5.37% to 14.87%. The Company contended that the said rates are much less as compared to the market rate and therefore cannot suggest that the customer purchased the holiday plan for the purpose of investment and receiving profit. 5. Regarding payment of commission, the Company submitted that the statement in the SCN that the commission paid by Company is in the range of 28% of the amount collected is not factually correct. The Company submitted that "In the books of accounts, commission paid for advance sale of room nights/Holiday options has been....
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....on 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 should explicitly state that customers desirous of continuing with the CIS shall have to give a positive consent within one month from the date of the information memorandum to continue with the CIS, (3) The investors who give positive consent shall continue with the CIS, (4) If positive consent to continue with CIS is received from more than 25% of total customers, the CIS will not be wound up." 8. The Company also submitted that the present proceedings were initiated by SEBI on the basis of a complaint dated July 2, 2013 forwarded by Mr. Sanjay Dina Patil (Member of Parliament). The Company submitted that copy of such complaint was given to it and contended that the allegations made in the complaint were erroneous as there was no investor complaint pending from its customers. The Company submitted that its customers were genuine and their whereabouts are avail....
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....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 documents on February 08, 2016, when their representatives inspected the documents which have been relied on by SEBI while issuing the SCN dated August 24, 2015. The noticees had also obtained the copies of the documents. SEBI also forwarded (vide e-mail dated February 09, 2016) certain documents including SEBI's letter dated October 21, 2013 to Mr. Sanjay Dina Patil. As already scheduled, the further hearing, as a last and final opportunity, was held on February 10, 2016. The record of proceedings of this hearing is as follows: 1. "One Mr. Sanskar Marathe, Advocate represented that he appears for the marketing agents of the Company. He was allowed to make a written representation, if any, by Monday (i.e. February 15, 2016) and personal hearing was not granted. 2. Mr. Pradeep Sancheti, Senior Advocate appeared for the Company. He filed two applications. One was for directing SEBI to produce documents as mentioned therein and the other application was a request f....
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....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 the nature of CIS. iv. SEBI is therefore estopped from taking a different view now. (e) Company's bonafides; (f) Rate of interest and commission as alleged in the SCN being incorrect; (g) SCN Demand notice by the service tax authorities-contending that two authorities cannot have conflicting views with respect to the business of the Company; (h) Schemes not satisfying section 11AA of SEBI Act; (i) Request for directing the procedure to be followed under regulation 73 of the CIS regulations. 12. With the liberty granted in the personal hearing on February 10, 2016, the marketing agents of the Company had filed their written submissions, inter alia submitting as under: (a) The SCN is not maintainable as it does not fall within the true spirit and definition of CIS under the SEBI Act. (b) The Company apparently provides insurance to all its customers from reputed insurance companies. Whenever, a contract provides for a component of insurance, such investment would be excluded from the purview of CIS. SEBI therefore does not have ju....
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....roductive and damaging. Such order would create panic among time share option holders and they would rush to pull out their money which in the normal course would have opted to utilize. The same would make the Company seriously vulnerable. (j) The marketing persons have requested SEBI not to issue directions against the Company or the other noticees. 13. The directors (noticees 2-7 in SCN) filed their written submissions vide letter dated February 18, 2016. They have adopted the reply dated December 30, 2015 filed by the Company and also reiterate the submissions made in the written submissions dated February 16, 2016 of the Company. Additional submissions made by these noticees are summarized below: (a) With respect to the first condition under section 11AA(2)(i) of the SEBI Act, they submitted that under Pancard's business model, each agreement with its customers is distinctly identifiable by the Company and each customer pays for availing of Pancard's hospitality services, in compliance with the prevalent Know Your Customer norms. There is no common pooling (Black's Law Dictionary, Ninth Edition defines a 'pool' in the following terms: "an association of individuals or enti....
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....bonds' or similar instruments evidencing rights over/ownership of certain assets which may or may not exist or hold as much value as promised. The intent of the law, it may be noted, is not to impinge on genuine business transactions. (e) The monies received are neither maintained in any common fund nor are invested for any specific purpose, but are considered as payments received for provision of services. Therefore, there is no 'pooling' or utilization solely for the purposes of a purported 'scheme or arrangement'. (f) In the instant case, there is no assurance of any returns or yield whatsoever by the Company, especially since the agreement is not predicated on any return of monies, but on the utilization of hospitality or related services for a pre-defined period, for which the consideration has been paid in advance by customers. The timeshare business allows its customers to lock in the ability to enjoy future holidays at prices determined today. This, it is submitted, is in the nature of any other standard form of contract for performance of services. The rights of usage, of hospitality and leisure activities, conferred on the customer in exchange for a consideration are ....
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....ilarly, Pancard cannot disallow the utilization of room nights by the customer in the manner that the customer deems fit. Accordingly, the sole authority and control over the management of room nights is in the hands of the customer. Pancard's customers may use the room nights during the relevant period at any time at their sole discretion subject to availability of rooms. The customers may choose to gift, sale, transfer their room-night entitlement to friends/relatives/third party completely at their discretion. Further, they are also free to utilize their room nights with any hospitality service provider of their choosing, on prior intimation to Pancard. (k) The above facts and circumstances establish that Pancard does not fulfil the criteria laid down in Section 11AA of the SEBI Act and hence is not a CIS and as such no certificate of registration from SEBI under Section 12(1B) of the SEBI Act is required to be obtained by the Company. (l) It was submitted that in the Indian context of timeshare operations, SEBI expressed its views on "Time Sharing Schemes" in an Agenda Memorandum to the Board titled 'Status Note on Collective Investment Schemes' for the meeting of 3 January....
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....anner. Further, two authorities have conflicting views with respect to the nature of business carried out by Pancard. SEBI considers the business of Pancard as a CIS whereas the Director General of Central Excise Intelligence is of the view that the activities rendered by Pancard are in the nature of services exigible to service tax under the Finance Act, 1994. The stand being taken by SEBI now is contrary to the view taken by RBI, opinion of leading jurists, principles of income tax and service tax and the view taken by SEBI view on previous occasions. (p) Further, Pancard till date has not received any complaint from its customers in this matter. Neither has there been any act or omission by the Company or Directors which was intended to defraud investors or adversely affect the integrity of the securities market. The Company has performed and honoured the obligations under the respective agreements with its customers. (q) As stated herein, in the present case, at the time of commencement of sale of holiday options Pancard itself had sought the opinion of various statutory authorities, including SEBI. Even SEBI from time to time was of the opinion that the activities of Panca....
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....on the interpretation of Section 11AA, if any company/person believes that they do not fall within the mischief of Section 11AA of the SEBI Act, it may be necessary for the appropriate authority, in this case SEBI, to consider and declare the scheme of the company as being a CIS. If this be so, it is only on such declaration that the company is operating a CIS, viz., that a declaration that all the provisions of Section 11AA (2)(i) to (iv) are satisfied by the scheme run by the company, would the opportunity to obtain provisional registration under Regulation 68 come into play. Similarly, a perusal of the Regulation 70 shows that for the purpose of obtaining provisional registration, the applicant must satisfy SEBI that its schemes of are in the nature of CIS. Hence, in the event of the applicant not considering the scheme as being in the nature of a CIS, neither Regulation 68 nor 70 would come into play or be in operation. (v) It is, therefore, respectfully submitted in the absence of a belief by the Company that its activities are in the nature of a CIS and a determination by SEBI that the Company's activities were indeed CIS, it is unreasonable to expect that the Company ought....
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.... the noticees to show cause as to why the schemes of the company should not be held to be CIS and if held so, to show cause why appropriate action including directions under sections 11, 11(4) and 11B of the SEBI Act read with regulation 65 of the CIS Regulations should not be issued. This order shall first proceed to determine whether the schemes, as alleged in the SCN, are CIS, under section 11AA of the SEBI Act. However, before proceeding further, there are few preliminary submissions (dealing with SEBI's jurisdiction, request for inspection/documents etc) which needs to be dealt with: I. SEBI's jurisdiction in the matter: The notices have contended that the present matter is specifically excluded from the scope and purview of the Collective Investment Scheme as set out in Explanation to section 12(1B) of the SEBI Act. This provision states as follows: ".... 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". According to the noticees, the holiday plans offered by th....
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....ction 12(1B) of the SEBI Act. Explanation to section 12(1B) of the SEBI Act was inserted vide the Securities and Insurance Laws (Amendment and Validation) Act, 2010- with effect from April 09, 2010. The events that led to this insertion are as follows: * SEBI passed an Order dated April 09, 2010, concluding that Unit Linked Insurance Policies (commonly referred as ULIPs) are a combination of investment and insurance and therefore the investment components are in the nature of mutual funds which can only be offered/launched after obtaining registration from SEBI under section 12(1B) of the SEBI Act. This order had restrained the 14 insurance companies from issuing any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new/and or additional subscription for any product (including ULIPs) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from SEBI * This SEBI order was objected to by the insurer companies and their regulator, IRDA. * The question of jurisdiction was then referred to the Hon'ble Supreme Court. * Before any decision, the Government ....
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....as explained above, asserts that if a product has components of investment and insurance; both provided by the same offeror, obviously an insurance company in this case as none else can offer a contract of insurance-the product will not be regulated by SEBI but by IRDA. The construction proffered by the noticees makes it possible for anyone to include an accident insurance and the whole product becomes free of both the regulators or alternatively all financial products gravitate to IRDA. The construction offered by the noticee will make it possible for a bank to offer accident insurance along with a deposit and claim that it cannot be regulated by RBI. Thus, it is obvious that the construction preferred by the noticees is not reasonable. Additionally, it needs to be noted that the provision is the "Explanation" to section 12(1B), which is not a penal provision. Therefore, the applicability of the said case laws here is doubtful. Further, the directions that are passed under sections 11 and 11B are remedial/preventive in nature issued in the interest of investors and securities market and are not penal in nature. In view of the above, it is concluded that SEBI would have jurisdicti....
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....SEBI was of the view that the holiday plan of company was outside CIS and that under bonafide belief, the Company had carried on its business for 16 years. SEBI is of the view that any economic activity would not constitute CIS provided the same is outside the purview of section 11AA of the SEBI Act. In the present case, SEBI's contention is that what noticee offers is a CIS in the guise of time share business. In the SEBI letter dated October 21, 2013 addressed to Mr. Sanjay Dina Patil, SEBI has stated that in view of the documents related to the Company's brochures and a few other complaints/reference received, SEBI was re-examining the matter and in the process of ascertaining whether the activities of the Company are in the nature of CIS as defined under section 11AA of the SEBI Act, as amended by the Securities Laws (Amendment) Ordinance, 2013. SEBI had also collected material from the Company (as sought vide SEBI letter dated September 17, 2013 and various letters thereafter) in pursuance of its detailed examination into the Company's activities/businesses. SEBI changed its prima facie opinion regarding the nature of the noticee's business on reconsideration of the documents....
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....at such documents are necessary for a fair trial. It was submitted that these documents were important to ascertain on what ground or for what reasons SEBI came to the conclusion after examining the documents of the Company that its holiday plans did not constitute CIS. The noticees have also submitted that an adverse inference can be drawn if a party refuses to furnish/produce for inspection relevant documents in its possession. I note that it is on record that SEBI had taken a previous view that the schemes of the Company did not constitute CIS. However, on a reconsideration of the case of the Company, SEBI having prima facie taken a view that these schemes constitute CIS, an interim order with reasons was issued. Further, a SCN has been issued which has referred to the material which formed the basis for the allegations made in the SCN. The noticees were afforded opportunity of inspection of documents and were also provided copies of such documents. Further, I would also restrict myself, in accordance with the principle of fair play, to such documents relied on in the SCN, while making my observations on the merits of the matter. In view of the same, I am of the view that no pr....
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....s and shall be paid after the expiry of tenure under the scheme. b) The applicant may opt to exchange or barter or utilise the products and services of the company or group companies. c) The applicant may opt to convert his unutilised room nights to the extent of surrender value entitlement into life membership of various clubs of the company/group. Further, in the scheme details provided at E, G, I, J and R of point No 7 of the instant show cause notice, the applicant can surrender certain room nights/or certain percentage of room nights immediately and balance at the end of membership period. Under all these above mentioned schemes, the applicants are also offered free insurance benefits from IRDA approved Insurance Companies. 7. From the details of scheme wise analysis, the following facts are observed: A. Pancard Clubs-Comfort Membership for 3 years (with effect from 1st July, 2002): Current Average Tariff Actual Price for five 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. 5,000/- (1,000*5) Rs. 3000/- (600*5) 5 Rs. 4,250/- (850*5) ....
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....Tariff Actual Price for Eighteen Room Nights Package Offer Price of the package at a Discount Entitlement of Room Nights Current Surrender Value for Eighteen Room Nights @ Rs. 850/- per Room Night. Rs. 18,000/- (1,000*18) Rs. 5,040/- (280*18) 18 Rs. 15,300/- (850*18) 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 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. Members can avail their room nights entitlements throughout the year and at any of the existing, affiliated or proposed clubs/resorts of the noticee no. 1. iii. The details of the year wise room nights sold and redeemed during the period 2002-03 to 2013 -14 is provided as under: (Royal 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 2002-03 105,058,800 375,210 10,581 20 ....
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....otal room nights purchased by him in a single financial year. ii. Members can avail their room night entitlements throughout the year and at any of the existing, affiliated or proposed clubs/resorts of the noticee no. 1. iii. The details of the year wise room nights sold and redeemed during the period 2002-03 to 2013 -14 is provided as under: (Standard 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 2002-03 38,219,160 136,497 28,085 7 5 2003-04 46,724,120 166,872 38,335 27 21 2004-05 42,609,320 152,176 17,966 68 36 2005-06 57,008,754 203,603 46,418 39 20 486 136,045 120 2006-07 114,124,366 407,587 92,985 91 57 81 68,565 43 2007-08 28,425,080 101,518 24,065 78 41 40 11,200 15 2008-09 870,520 3,109 751 17 12 180 50,400 15 2009-10 33 29 68 19,040 12 2010-11 47 28 43 12,0....
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....02-03 10,854,480 38,766 6,408 2003-04 12,754,000 45,550 2,670 3 2 6 1,700 1 2004-05 15,954,275 56,980 2,119 5 2 2005-06 28,070,873 100,253 2,898 9 5 597 167,040 139 2006-07 82,809,432 295,748 9,836 20 8 352 98,525 77 2007-08 137,329,055 490,461 9,630 6 3 1,653 462,725 44 2008-09 2,237,970 7,993 1 24 8 791 221,480 30 2009-10 29 8 534 149,658 15 2010-11 1,680 6 10 5 658 184,200 10 2011-12 386 30 13,837 11,761,370 718 2012-13 22 35,627 30,283,205 2,944 2013-14 121 6 43,353 36,850,310 1,772 Total 29,00,11,765 10,35,757 33,562 613 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 roo....
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.... 2011-12 786 668,350 8 2012-13 2013-14 Total 88,23,600 15,480 77 0 0 15,055 1,24,95,045 506 iii. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 88.23 lakhs from 77 customers/investors by selling 15,480 room nights under Golden Holiday Membership Plan. From the details it is seen that out of the 15,480 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 Ni....
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....oom nights were surrendered and estimated surrender value was opted. G. Pancard Clubs- Regular Holiday Membership for 10 years (effect from 1st April 2004): Current Average Tariff Actual Price for two hundred & forty room nights Package Offer 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 r....
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....tled 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 1 118,570 65,213,485 6,137 2010-11 68,672,117 124,858 8 2 115,524 98,195,075 8,568 2011-12 10,450 19 0 34 10 223,420 189,906,939 8,237 2012-13 &....
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....ered 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 under New Regular Holiday Membership Plan. From the details, it is seen that out of the 27,80,678 room nights sold, as on March 31, 2014 only 1,807 room nights were utilised by 45 investors and 3,63,529 room nights were surrendered and 24,15,342 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 (3,65,336 room nights), 0.49% room nights were utilised and 99.50....
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....iday 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 surrendered and estimated surrender value was opted. K. Pancard Clubs- Regal Holiday Membership for 9 years (effective from 1st April 2005): Current Average Tariff for three Room Nights Offer Price of three Room Nights at a Discount Minimum Room Nights to be bought Current Surrender Value of three nights as on Today @ Rs. 850/- per Room Night. Rs. 3,000/- (1,000*3) Rs. 1,300/- 3 Rs. 2,550/- 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 the membership. Members can avail their room nights entitlements throughout the year and at any of the existing, affiliated or proposed clubs/resorts of the noticee no. 1. ii. The deta....
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.... 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 Total amount collected No of room nights sold No of applicants No of room nigh t 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 1,189,351,500 1,321,502 100,393 2 2 2008-09 436,504,800 485,005 38,308 31 14 2009-10 523,550 582 54 25 11 1,520 1,367,700 31 2010-11 16 8 1,064,703 1,341,525,320 85,953 2011-12 577,500 642 213 702,869 885,614,330 47,475 2012-13 23,692 29,851,800 3,672 2013-14 12,497 15,746,710 1,537 Total 1,62,69,57,350 18,07,731 1,38,968 74 35 18,05,281 2,27,41,05,860 1,38,668 iii. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 162.69 crores from 1,38,968 customers/i....
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....d, as on March 31, 2014 only 438 room nights were utilised by 178 investors and 14,33,764 room nights were surrendered and 10,78,252 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 (14,34,202 room nights), 0.030% room nights were utilised and 99.96% of room nights were surrendered and estimated surrender value was opted. N. Pancard Clubs- New Royal Holiday for 9 years (with effective from May 22, 2007) Current Average Tariff for One Room Nights Offer Price of One Room Nights at a Discount Minimum Room Nights to be bought Estimated Surrender Value of One unused room nights @ Rs. 2,700/- per Room Night. Rs. 6,000/- (2,000*1) Rs. 2,700/- (900*3) 3 Rs. 2,700/- 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 p....
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....ments after 60 days from acceptance of his application by the company. As per 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. Upon expiration of tenure of under 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 explained at Para 5 (ii) provided 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: (New Premium 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 2008-09 102,000 240 2 ....
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....s under: (Delight Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilized No of applicants utilize d the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2008-09 1,538,802,000 1,709,780 97,149 2 1 2009-10 2,261,222,183 2,512,469 119,711 21 8 342 307,515 35 2010-11 2,501,593,980 2,779,549 112,881 62 21 4,218 3,796,600 73 2011-12 2,983,030,433 3,314,478 121,795 1,803 219 6,347 5,712,300 84 2012-13 3,271,972,500 3,635,525 134,590 8,326 537 30,975 27,877,900 2,110 2013-14 3,868,821,180 4,298,690 134,576 13,448 1,310 7,903 7,112,520 111 Total 16,42,54,42,276 1,82,50,491 7,20,702 23,662 2,096 49,785 4,48,06,835 2,413 v. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 1642.54 crores from 7,20,702 customers/investors by selling 1,82,50,491 room nights under Delight Holiday Membership Plan. From the details it is seen that out of the 1,82,50,491 room nights sold, as on March 31, 2014, only 23,662 room nights were utilised....
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....98 5,433,349 271,292 4,840 787 721,853 909,534,700 64,746 2012-13 5,779,355,400 6,421,506 302,747 30,545 1,819 2,763,229 3,481,668,864 179,127 2013-14 7,979,647,700 8,866,275 346,528 43,146 4,186 4,277,304 5,389,403,500 222,967 Total 27,16,70,01,773 3,01,85,557 14,81,808 78,672 6,858 77,64,456 9,78,24,70,694 4,66,921 iv. From the above table, it can be seen that noticee no. 1 has mobilised around Rs. 2716.70 crores from 14, 81,808 customers/investors by selling 3,01,85,557 room nights under Relax Holiday Plan. From the details, it is seen that out of the 3,01,85,557 room nights sold, as on March 31, 2014 only 78,672 room nights were utilised by 6,858 investors and 77,64,456 room nights were surrendered and 22,34,24,429 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 (78,43,128 room nights), 1.003% room nights were utilised and 98.99% of room nights were surrendered and estimated surrender value was opted. R. Sunrise Holiday for 5 years (with effect from February 05, 2009): Current Average Tariff for one hundred and twenty room nights ....
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....o be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (81,507 room nights), 0.028% room nights were utilised and 99.97% of room nights were surrendered and estimated surrender value was opted. S. Divine Holiday for 66 months (with effect from May 01, 2009): Current Average Tariff for four room nights Offer Price of four room nights Minimum room nights to be acquired Minimum amount to be paid Current Estimated surrender value @Rs.1200/- per room nights Rs. 8,000/- (2,000*4) Rs. 3,600/- (900*4) 4 Rs. 3,600/- Rs.4,800/- i. The applicantshall have to complete his payment towards the committed number of room nights in a maximum period of 36 months from the date of first payment. Persons completing all the 36 payments for the committed number of room nights shall be considered as a valid applicant and shall be formalised for and eligible for the benefits of the scheme. In the event of non-payment of instalment consistently, the applicantshall be levied a late fee of Rs. 15 per month for each such delayed payment. ii. Applicant can commence utilising his room night entitlements after 60 days from ....
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....6 months and the scheme is effective from May 01, 2009. 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 0.16% of room nights were actually utilised. T. Pancard Clubs-Dezire Holiday for 37 months (with effect from March 01, 2013): Current Average Tariff for Nine room nights Offer Price of nine room nights at a discount Minimum room nights Payment Facility Monthly basis Quarterly basis Rs. 18,000 (2,000*9) Rs. 8,100 9 Rs. 300 Rs. 900 i. The applicant can choose option of monthly or quarterly payment of the room night instalment at the time of obtaining the room nights. The applicantshall have to complete their payment towards the committed number of room nights in a maximum period of 27 months from the date of first payment. Person completing all the 27 payments for the committed number of room nights shall be considered as a valid applicant and shall be formalised for and eligible for the benefits of the scheme. In the event of non-payment of instalment consistently, the applicantshall be levied a late fee of Rs. 25 per month for monthly opt....
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....8,100 12.98% 15 New Premium Holiday 10 34,000 68,000 7.18% 16 Delight Holiday 6.3 2,700 5,400 11.63% 17 Relax Holiday 3.3 2,700 3,780 10.73% 18 Sunrise Holiday 5 1,08,000 2,16,000 14.87% 19 Divine Holiday 5.5 3,600 4,800 5.37% 20 Dezire Holiday 3.083 8,100 11,100 10.76% The SCN alleged that in case of surrender of room nights, the investor is expected to receive an interest rate of 5.37 % to 25.99% (if compounded annually) depending upon the scheme. The Company has stated that the 'return' in New Luxury Holiday scheme should be 12.25% (tenure as per SCN was 3 years, whereas it was 6 years as per Company) against 25.99% mentioned in the SCN and also that the same for Regal Holiday Membership scheme (tenure as per SCN is 9 years, as per Company is 7 years) is 10.10% as against 7.77% mentioned in SCN. Therefore, 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 ha....
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....ct, 1938 (4 of 1938), applies; (iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952); (v) under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956); (vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956); (vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982 (40 of 1982); (viii) under which contributions made are in the nature of subscription to a mutual fund; (ix) such other scheme or arrangement which 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....
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....iday option sold by the Company cannot be termed as 'scheme or arrangement'. (b) The Company maintains independent accounts of payment of money and usage of promised Room Nights by its customers. Therefore, it cannot be termed as pooling of funds from general public. (c) The amount received by PCL from customers is shown as 'advance against sale of room nights' in the books of accounts maintained by PCL and the said position is represented to the tax authorities. The Income Tax Department is contending that the advances received by PCL from customers are 'revenue receipts' and are liable to be included in taxable income for the year of receipt itself. The issue is pending before 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)(....
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....lely' for the purpose of any specific Options. The exact manner in which the funds received from the customers towards purchase of room-nights are "deployed" by PCL is not governed by the terms of any scheme. There is also no specification by PCL or by the customers on how the funds should be utilized. The amounts paid represents the income, and is utilized by PCL for the general business of PCL, and it is the duty of PCL to ensure that the customers are able to stay for the room-nights he has paid for. In other words, there is no prior demarcation that the amount paid by the customers would be utilized only for the purpose of the particular Option 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 und....
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.... use the room nights and the substantial numbers surrender the room nights and receive the 'surrender value'. As mentioned above, the provision to surrender the room nights is an integral part of the schemes. Therefore, it can be concluded that the Company pools the monies from the customers and utilizes for the scheme and other related businesses/activities including for paying the 'surrender value' to the customers who surrender the room nights. Further, as per the schemes of the Company, the customer does not immediately get to utilize the rooms and has to wait for a particular period (as per the scheme) only after which the customer 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 oste....
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....by noticee no.1. This indicates that most of the investors in the said schemes invested on account of the promise of assured returns. Thus, it is clear that the contributions made by investors towards schemes offered by noticee no.1 are with the view to receive profits or income." The Company had contended the following to say that its schemes do not satisfy the second condition: (a) "The primary object of the Company for introducing the above-mentioned plan was to sell the holiday option which could be utilised for availing faculties/services offered at hotels/resorts/clubs etc. The customer was provided 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 o....
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.... of reciprocal promises, devoid of any promise of a yield, whether variable or fixed. Thus, the customers do not receive any profits, income, produce or property, whether movable or immovable from such scheme or arrangements. (j) It is submitted that the each and every member purchasing the holiday plan from PCL would undoubtedly seek certain benefits in return of the contributions or payments made to acquire the holiday plans. This is so in case of every single entity selling holiday plans. It is rather naïve or assumed that customers 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 submissio....
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.... which are purchased by him. If the intention of the Company was to promote utilization or holiday plans then it should have ideally deducted charges/expenses from the contribution paid by the customer. It is a common understanding that all service providers deduct money (for administration, expenses, penalty etc.) if a person does not avail the services of the provider, like hotels, airlines, etc. The Company states that it has treated the investors' money as advance (for room/holiday plan). Therefore, 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 cont....
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....me, mode and manner of using the holiday option. Thus, there are no investors and there are no contributions managed on behalf of investors. (b) The holiday option is sold by PCL to the customers. The sale proceeds received are reflected as 'advance against sale of room nights'. This being a purely a sale transaction, there is no question of managing scheme or arrangement on behalf of investor. (c) The title to the assets that form a part of the time share business 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 t....
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....ing part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors by the Company and the investors do not have day-to-day control over the management and operation of the scheme or arrangement, thereby satisfying the third and fourth conditions under section 11AA(2)(iii) & (iv) of the SEBI Act, 1992. 21. The SCN has alleged that the schemes of the Company are "deemed to be CIS" as the 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....
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....isfy the provisions of section 11AA of the SEBI Act. Further, the 'actionable claim' argument will concern only a miniscule minority as an overwhelming majority never use the rooms. 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 bu....
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....es and identities of all the subscribers, their social status, their annual income, etc to find out how many persons have genuinely subscribed for membership 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 u....
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.... had from time to time opined that the Company's activities were not governed by the CIS Regulations and therefore under this bonafide belief, the 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 in....
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....quences or concerns. I have perused such submissions. Regulation 73 of the CIS regulations comes under Chapter IX of the CIS Regulations 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 i....
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....cheme run by the Company is a CIS and that only on such declaration would the opportunity to obtain provisional registration 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 ....
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....Company and also in launching and carrying on the 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 t....
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....uted by the investors. This 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, Chandrase....
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....ties 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 restraint imposed in sub-paragraph (f) above, till all the Collectiv....