TaxTMI 
TaxTMI 
2015 (8) TMI 1499
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....efore August 24, 2015. It is made clear that the hearing shall be restricted to the question as to whether the prima facie view contained in the ex parte ad interim order dated June 3, 2015 on the grounds set out therein can be sustained after hearing the appellants or not. 5. It is made clear that if the WTM of SEBI fails to hear the appellants on or before August 13, 2015 and fails to pass and communicate the final order on or before August 24, 2015, the ex parte ad interim order dated June 3, 2015 shall forthwith come to an end directed the noticees to file reply to the interim order, if any, on or before August 10, 2015, SEBI to hear the noticees on or before August 13, 2015 and pass appropriate order thereon and communicate the same to on or before August 24, 2015...." [Emphasis Supplied] 2. In compliance with the directions of Hon'ble SAT, SEBI communicated the date of personal hearing as August 10, 2015, to the noticees. The noticees requested to postpone the hearing. The request of the noticees was considered and the date of personal hearing was rescheduled to August 13, 2015. 3. A brief background of the case is given below: "a. Securities an....
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....t by Citrus; * to furnish all the information/details sought by SEBI within 15 daysfrom the date of receipt of this order including the following: i. Full list of "customers"/investors with complete particularssuch as PAN, address, telephone numbers etc., ii. Details of rooms available for occupancy/accommodationprovided/projected to be provided, iii. Year-wise number of "customers"/investors (1) who haveactually availed the holiday accommodation under the plan(s)/subscribed to the plan(s) (2) who have encashed their points into cash. iv. Details of assets held by Citrus and its group companies, v. Full details of Mirah Group (as stated in the Clause 29 ofthe "Offer Document") including full inventory of its assets, vi. Details of charges created on its assets by Citrus, vii. Details of amounts mobilized as on March 31, 2014 andMarch 31, 2015 under its various Holiday plans/schemes, viii. Details of commission paid on amounts mobilized above, ix. Details of agents along with their addresses, etc., x. Audited Accounts for the financial years i.e. FY 2012-13,2013-14, and 2014-15; xi. In....
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.... appeal before the Hon'ble SAT, challenging the interim order. As no reply to the interim order was received from the Company, within the time granted, SEBI proceeded further and granted an opportunity of personal hearing to Citrus and its directors on August 10, 2015. The same was communicated to Citrus vide letter dated July 14, 2015. However, Citrus vide its letter dated July 16, 2015, intimated about the date of hearing in the appeal filed before Hon'ble SAT, against the interim order, as September 01, 2015 and requested for postponement of the personal hearing after such date. Vide this letter the notices requested for inspection of the relied upon documents and submitted that any personal hearing at this stage would be premature. f. SEBI vide e-mail dated August 05, 2015, forwarded the copies of the complaints to Citrus. In the meantime, Hon'ble SAT vide its order dated August 06, 2015, had directed SEBI to decide the case of the Company, whether the prima facie view contained in the interim order can be sustained after the personal hearing. In compliance with the order of Hon'ble SAT and the timelines fixed, SEBI vide email dated August 07, 2015, com....
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....utilisation was either eliminated altogether or at least be minimised. With that objective, Citrus was incorporated on September 26, 2011 and had commenced the business in April 2012, i.e. much before passing of the SEBI's order against Royal Twinkle Star Club Limited (hereinafter referred to as 'Royal') on March 07, 2014. Citrus is in the business of 'sale of holidays'. When a customer makes payment to Citrus, he purchases a holiday entitlement certificate/holiday plan/time share holiday. Citrus has approximately 4,50,000 members/holiday seekers under different holiday plans and as on March 31, 2013, it had generated sales/revenue to the tune of Rs. 770 Crores. Further, as of March 31, 2015, the amount generated though sales/revenue is about Rs. 1,600 Crores and the payments from the members/holiday seekers are often in the form of equated monthly installments. Citrus has an inventory of 2,33,965 rooms available for use by its customers. Citrus, after deducting various expenses incurred for achieving the sales of the holiday plans, earns certain profit on such sales and also pays income tax on the said profit. The income tax authorities have recognized and asse....
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....urchasing the same. The sale of holiday plan by Citrus is recorded as 'sale proceeds in the books of account of Citrus and is not credited to any sort of subscription fund or share capital fund. e. It has not sold any holiday plans/time share holidays to its customers since June 03, 2015. Citrus is using its assets only in the ordinary course of business and Citrus has not disposed off any of its assets after the passing of the Order. f. SEBI has not demonstrated the manner in which the business of Citrus ishampering the interest of alleged investors. Further, there was no emergent situation or case of extreme urgency for passing of the interim order as SEBI had received the first complaint dated January 17, 2014. SEBI had entered into extensive correspondence with Citrus from February 18, 2014, however, there was no mention of any complaints and has failed to provide Citrus with the copies of the complaint. It was incumbent upon SEBI to provide the copies of the complaints to Citrus to enable it to redress and/or respond to the alleged grievances. Citrus vide its letters dated August 07, 2014 and August 22, 2014, had sought an opportunity for personal he....
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.... is malafide and has no basis. As regards the fourth undated complaint, it has been said by Citrus that the incomplete copy of the same has been given to Citrus. The complaint consists of three pages, the second page is a blank page. The font on the first page of the complaint defers from the third page drastically. h. The interim order forces Citrus to commit breach of its contractual obligation, as Citrus without availability of fund will not be in a position to provide the hotel rooms at deep discounted rates. i. The Hon'ble Gauhati High Court had taken a prima facie view that the activities of timeshare business does not fall within the purview of the term 'CIS'as defined under SEBI Act and that SEBI does not have jurisdiction to take any action in the affairs of the business of the company involved therein. Hon'ble Gauhati High Court vide order dated August 01, 2013, read with order dated November 06, 2013 (continued from time to time) had stayed/suspended Respondent's directions with regards to collections of monies etc. SEBI had appealed against the above referred order dated August 01, 2013, by way of Special Leave Petition (SL....
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....s details of all the schemes/plans floated by Royal. Though that being the case SEBI has not made any reference to the schemes of Royal. SEBI has not made any effort to compare the holiday plans/time share plans offered by Citrus to the schemes of Royal or any other company. n. The term 'inviting subscription' and 'invest' is a misnomer as Citrus is in the business of selling holiday plans/time share plans and neither invites subscription nor has any investors. Citrus is engaged in the business of selling of holiday packages/time share holidays and has no investors. All persons who purchase their holidays from Citrus are the customers of Citrus. The hotel room/facilities/resorts are owned by its group companies/business associates. Citrus does not own any hotel facilities. The holiday plan/time share plans offered by Citrus in order to fall within the purview of the definition of CIS, it must meet all the requirements enumerated in Section 11AA(2) of the SEBI Act. o. The amount received from a customer is shown as sale proceeds by Citrusas Citrus is selling the holiday plan and the customer is purchasing the same. The sale of holiday plan....
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....the customer is purchasing the same and is not credited to any common/corpus fund which is set aside for any particular purpose. The amounts received from customers as sale proceeds by Citrus is neither pooled nor utilized solely for the purpose of holiday plan/time share holiday. The amounts are used only when a customer 'decides to avail the facilities offered to him', till that time, the money may be used for the purposes other than 'providing holiday plan/time share holidays'. All the above ingredients of 'pooling' are absent in totality as regards the transaction of purchase of holiday entitlement certificate from Citrus by a customer. r. Under the holiday plans/time share holidays of Citrus, the amounts paid bythe customers entitle them to redeem points which can be used for holidays and dining out options. In the event of the customer choosing not to avail these services he may avail of the rent out option i.e. the plan holder is allowed to 'rent out' unutilised portion of the holidays if he wishes for, full rent out option or for partial rent out option. The unutilised portion of the holiday plan facilities are rented out b....
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....annot be regulated by SEBI as it does not relate to securities. Transactions of sale of holiday plans would quiet clearly not fall within the ambit of such activity and therefore there being no activity related to securities, the business of Citrus could not be regulated by SEBI." 6. Hon'ble SAT has given the mandate to SEBI to decide the question 'whether prima facie view contained in the ex-parte ad interim order dated June 03, 2015, on the grounds set out therein can be sustained after hearing the appellants or not'. Therefore, I proceed further to consider the same, in the light of submissions made by Citrus and the material available on record in seriatim: "A. Directions in the interim order are causing irreparable loss to the reputation and goodwill of Citrus, etc.: SEBI initiated enquiry against Citrus in 2014 beginning. For the same, relevant information were sought from Citrus vide SEBI letter dated February 18, 2014, in order to confirm whether the alleged business activities of Citrus are in the nature of CIS. A prima facie finding was made in the interim order that Citrus allegedly runs a CIS, based on the information/evidences obtained ....
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....7, 2014, against one Royal Twinkle Star Club Limited vide which these persons were directed not to collect funds from the investors and not to launch any new schemes. I note that during the course of examination, SEBI had also compared the holiday plans of Citrus with that of Royal and the same were prima facie found to be similar in nature. I note that the Royal in its submission had argued that it had not launched any new holiday plans/times share holidays or scheme since April 2012 and neither had it been accepting any new customers on and from April 2012. Interestingly, during the enquiry, it was revealed that Citrus commenced its business in April 2012 (admitted by Citrus). These facts pointed towards a strong suspicion that Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis in order to divert the attention of SEBI, in the matter of Royal had started the fund mobilization activities through Citrus. On an analysis of the documents submitted by the Company, SEBI reached the prima facie conclusion that Citrus is operating CIS, without obtaining the certificate of registration. Thus, in order to prevent any d....
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....ing examination. Further, this aspect has also been dealt by the Hon'ble Gauhati High Court in its order dated June 25, 2015 in the matter of Rose Valley Hotels & Entertainments Limited & Ors. v. State of Assam [W.P. (C) 4298/2013], as referred in the paragraph 7 below. Before concluding on this, let me also refer to the communications that were exchanged with Citrus prior to the passing of the interim order: - SEBI vide its letter dated February 18, 2014, had sought variousdetails/information from the Company. Citrus after seeking extension of time for submitting the details on various occasions i.e. March 03, 2014, March 20, 2014, April 21, 2014 and May 28, 2014 submitted certain details on June 19, 2014 i.e., the Memorandum and Articles of Association of the Company, details of the past and present directors of the Company, copies of brochures/application forms of a few holiday plans of Citrus, certified copies of audited financial statements and income tax returns for the financial years 2011-12 and 2012-13. - SEBI vide its letter dated July 23, 2014 and August 05, 2014, hadissued reminders to Citrus for furnishing of the remaining information which were n....
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....rakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis (who are the directors of Citrus also) to have run an unregistered CIS and directed these not to collect funds from the investors and not to launch any new schemes. This fact pointed to the close association between the operations of Citrus and Royal. - SEBI once again asked Citrus for the information relating to the number of customers who had actually availed the services (accommodation) under the plans by way of a letter dated January 15, 2015. In reply, Citrus vide its letter dated January 30, 2015, submitted the details regarding the plans of the Company (i.e. Sapphire, Orange, Lemon, Fragrance and Emerald) and sought time to submit the specific information as asked. - Further, vide e-mails dated March 05, 2015 and March 19, 2015,Citrus again sought time for submitting the information. However, Citrus failed to submit the information relating to 'number of customers who had actually availed the services (accommodation) under the plans as sought by SEBI, despite repeated reminders prima facie appeared to be a deliberate tactic. The interim ....
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....ns have genuinely subscribed for membership for availing the benefit of stay in the hotel. On the basis of incorrect material produced by the petitioner like format of the 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 rate of interest. If the interest on deposit was the alluring factor on the part of the investor then the case would squarely fall under sub clause (iii) of sub section 2 of section 11AA of the SEBI Act. These facts constitute a mixed question of law and fact and has to be decided by SEBI." [Emphasis supplied] 8. The noticees have further argued that the SEBI Act and CIS Regulations deal with securities, which are marketable on the securities market and relate only to movable assets like shares, bonds, derivatives, units of mutual fund schemes, etc. It has been said that the transactions of sale of holiday plans would clearly not fall within the ambit of such activity and therefore there being no activity related to securities, ....
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....015 continues to sustain, I also note that SEBI has passed an order dated August 21, 2015 against Royal and its directors, namely, Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis directing as under: "...a. Royal Twinkle Star Club Limited and its Directors, namely, Mr. OmprakashBasantlal Goenka [PAN: AECPG3854J], Mr. Prakash Ganpat Utekar [PAN: AALPU9100E], Mr. Venkatraman Natrajan [PAN: ACUPV4686K] and Mr. Narayan Shivram Kotnis [PAN: ABIPK5022D] 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. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of four (4) years. c. Royal Twinkle Star Club Limited and its Directors, namely, Mr. OmprakashBasantlal Goenka, Mr. Pr....
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....l Policeto register a civil/criminal case against Royal Twinkle Star Club Limited, its promoters, directors and its managers/persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and - SEBI would make a reference to the Ministry of Corporate Affairs,to initiate the process of winding up of the company, Royal Twinkle Star Club Limited. - SEBI shall initiate attachment and recovery proceedings under theSEBI Act and rules and regulations framed thereunder...." [Emphasis supplied] It is observed that the directors of Citrus are the same as those of Royals'. In such circumstances, Citrus and its directors cannot be allowed to carry on with their fund mobilization activities from the public under any guise. 11. In the light of the discussion above, the documents and details available on record, the prima facie view taken in the interim order is correct. Further, the directions of not collecting any funds from the investors under the existing schemes/existing company within the group and not to launch any new schemes or plans, is in the interest of lay investors who ....