TaxTMI 
TaxTMI 
2016 (2) TMI 1272
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....t the schemes operated by it are not covered under CIS. Since a common issue is involved in these two appeals filed by the company and its directors respectively, both are heard together and disposed of by this common decision. 2. This is the second round of litigation. In the first instance, the Appellants had approached this tribunal by way of Appeal Nos. 336 of 2015 and 359 of 2015 in which the Appellants challenged the ad-interim ex-parte order/directions, which, according to the Appellants, practically amounted to abrupt and arbitrary closure of the business bringing everything to a standstill without first hearing the Appellants. 3. By the ex-parte ad-interim order dated June 3, 2015, the appellant company and its Directors were called upon to do or to abstain from doing something. The same is relevant and is reproduced here in below for the sake of convenience:- * "Not to collect any fresh money from "customer"/investor under its existing scheme; * Not to launch any new scheme or plans in this company; * Not to raise any fresh moneys from any other existing company within the group; * Not to float any new companies to raise fresh mon....
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....10, 2015 and the WTM of SEBI is directed to hear the appellants on or before August 13, 2015 and thereafter pass appropriate order thereon and communicate the same to the appellants on or before 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." "...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." "...Both appeals are disposed of in the above terms with no order as to costs." 5. Pursuant to the above directions, the learned WTM of the Respondent has passed the present impugned order dated August 24, 2015, after hearing them and seeking their written submissions, basically reiterating the earlier ad-interim ex-parte order dated June 3, 2015 passed against the Appellants. The operative portion of the order dated August 24, 2015 is also repr....
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....nts, the learned WTM should have taken into consideration various components of the definition of CIS prescribed by law in the light of submissions and material submitted by the Appellant to repel the prima facie view of the Respondent that all the activities of the Appellant relating the time-sharing business amounted to a CIS. This has not been done and as such the prima facie view is based on conjecture, surmises and even suspicion. Similarly, the submissions of the appellants before the learned WTM regarding balance of convenience, which lies in favour of the appellants to continue the schemes in the larger interest of about 4.5 lacs members and irreparable loss that would be caused to the appellants and its members if the ad-interim ex-parte order is not recalled or modified, have been conveniently ignored by the learned WTM. 8. The learned senior counsel has, inter-alia, urged the following submissions before the tribunal on behalf of the appellants: (a) That the powers conferred upon the Respondents under Sections 11(1),11B and 11(4) of the SEBI Act, 1992 are to be used in extremely rare cases of urgency, and are not powers that can be resorted to on a regular ba....
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....own by the Hon'ble Supreme Court in S.L. Kapoor Vs. Jagmohan reported in AIR 1981 SC page 153 particularly paragraph 16 thereof. The submission of the appellant is that the respondent could not have drawn a conclusion merely on the basis of certain material without intimating the Appellant of the charge sought to be levelled against it because the information was gathered pursuant to SCN which did not contain any allegation with regard to such conclusions to be found in Para 9(c) of the impugned order in question. 10. Therefore, it is submitted by Shri Sancheti that the impugned order reflects a pre-conceived notion in the mind of the respondent and the opportunity afforded to the appellant by the learned WTM pursuant to the order of this Tribunal and the material and written submissions preferred by the appellants during that hearing are all meaningless because nothing has been considered by the learned WTM in passing the so called confirmatory order and has simply reiterated the stand taken by SEBI in the ad-interim ex-parte order. In this connection, our attention has been drawn towards the judgment of Hon'ble Supreme Court in the case of Nandkishore Vs. State of Biha....
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....ellant and not the basis of the impugned order. Therefore, their relevance cannot be over emphasised. 14. Similarly, learned senior counsel Shri Sen also submitted that the appellant should have obtained registration with SEBI prior to commencement of its activities of time sharing business as the same are in the nature of the CIS. We may, however, pertinently note that the appellants' request for applying registration under the CIS Regulations during the course of hearing, of course, without prejudice to their rights and contentions raised in their appeal, was flatly turned down by the learned senior counsel on instruction from his client i.e. the Respondent. 15. Shri Sen further contended that SEBI has ample powers to pass such orders under Sections 11(1), 11(4) and 11B of the SEBI Act 1992 read with Regulation 65 of SEBI (CIS) Regulations, 1999. Therefore, such orders cannot be impugned at this stage before the Tribunal when the final order has yet to be passed after completion of the on-going investigation. 16. Lastly, Shri Sen has placed reliance on an order dated August 21, 2015 passed in the case of Royal Twinkle Star Club Ltd. This order directs Royal Twinkle S....
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....missions and our findings thereon. 20. Regarding 7(a) that there was no emergent situation or extreme urgency for invoking and exercising powers conferred upon the Respondent by Sections 11(1), 11B and 11(4) of the SEBI Act, 1992 read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, and that there is a delay of 18 months in passing the impugned order by SEBI. This contention of Shri Sancheti does not seem to be very convincing. Although this Tribunal has consistently held that such powers should be invoked sparingly in the most deserving cases of extreme urgency and not in a routine manner and even for coming to a prima facie view as regards the nature of the appellants' activities of time sharing business to fall within the definition of CIS, there has to be sufficient material/evidence on record which could have motivated the respondent to form such a prima facie view which, in turn, has farreaching and damaging effect on the appellant's business. Such a prima facie view or prima facie finding by the respondent either in the show cause notice or in the impugned order has to be based on prudent and rational considerations. The jurisdicti....
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....ing Resorts and Country Club are allowed to continue to operate similar schemes but the appellants are restrained form operating similar schemes. It is true that the WTM of SEBI has failed to consider these arguments in the confirmatory order. However, during the course of arguments it is brought to our notice that in the schemes floated by Club Mahindra, Sterling Resorts, Country Club etc. there is no provision for refunding the amount invested with promised return, whereas, in certain schemes operated by appellants, there is provision for seeking refund with promised return. Thus, the schemes in question are not fully comparable with the schemes floated by Club Mahindra, Sterling Resorts, Country Club etc. 23. As regards 7(c), on the question of commonality of Directors of Royal Twinkle Star Club Ltd. and the appellant company, namely, Citrus Check Inns Ltd., it is submitted by the learned senior counsel that the impugned order does not discuss any comparative data of the holiday plans of the two companies. It is argued that neither any information in the nature of comparative data or analysis with regard to the similarities/dissimilarities of the holiday plan of the two compa....
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....we note that during the hearing of the matter before this Tribunal on 5th and 6th August 2015, the respondent without giving any inspection of the original documents, vide e-mails dated August 5, 2015, forwarded photocopies of incomplete complaints. The appellant has not been in a position to decipher the nature of the complaints or the details of the complainants so as to redress the same in case they are genuine. Moreover, no explanation was ever sought from the appellants on those complaints before passing the impugned order. This according to the appellant, amounts to violation of the principles of natural justice. Similarly, copy of the reference received from RBI received on December 17, 2014 as mentioned in the SCN has never been supplied to the appellants though relied upon by the respondent. 26. After considering the rival submissions of the parties on this point, we find some force in the contention raised by Shri Sancheti. We note that the Hon'ble Supreme Court, in the case of M.A. Jackson Vs. Collector of Customs, reported in (1999) 1 SCC, specifically in paragraphs 6-9, has been pleased to hold that any reliance on documents referred to in the show cause notice ....
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.... It is a matter of record that Royal Twinkle closed its operations prior to the commencement of the new and re-modelled schemes launched by Citrus. Prima facie, both the companies are different and have separate legal existence. In this connection, the judgment of Hon'ble Supreme Court, in the case of Brindavan Beverages (supra) has already been discussed hereinabove. 28. Furthermore, we note from the pleadings that Citrus has started many holiday schemes w.e.f. April 1, 2012 which include refundable as well as non-refundable flexible plans offered to its customers. This aspect has not at all been considered by the learned WTM. 29. Point number 7(f) takes us to an important aspect involved in the matter. During the hearing of the matter before this Tribunal, the Appellant has filed a Miscellaneous Application dated 15 September 2015 stating that it is willing to seek registration from SEBI without prejudice to its contention that the schemes are not covered under CIS. Shri Sen, learned senior counsel for SEBI, on instructions, submitted that since the appellants have operated CIS in violation of CIS Regulations without seeking registration within the time stipulated there....
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.... for SEBI to take corrective measures and permit a company which even after operating CIS without obtaining registration is willing to seek registration and carry of CIS in accordance with law. 32. Next, during the course of hearing the appellant has filed an affidavit stating on oath that a sizeable number of customers are substantially using the holiday plans. The number of users in the last three years has constantly increased from about 800900 in the first year to about 3500 in the second year. The number of users has crossed 73000 members in the third year. In the fourth and fifth year the appellant is expecting that atleast 50 % of the members would be using the holiday plans, which would substantially reduce the liability of the appellant to refund the money as per the basic modality of business adopted by the appellant and agreed to between the appellant and its members. 33. The appellant in its affidavit dated September 23, 2015 has specifically stated on oath that as per the audited balance sheet of the previous year, the appellant has total assets of about rupees sixteen hundred eighty crores which are sufficient to meet the liability of refund even if no member re....
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....ably within one week from today and further direct SEBI to grant provisional registration to the Appellants as per the procedure prescribed under the CIS Regulations so that interest of investors/customers do not suffer, especially when it is found by SEBI that the business carried on by the appellants prima facie to be in accordance with law except that the said business is carried on without seeking registration from SEBI. Depending on the investigation report, SEBI may consider grant of final registration to the Appellants in accordance with law in due course of time. Needless to say that SEBI shall make an endeavor to complete the pending investigation expeditiously against the appellants so that the prima facie view of SEBI regarding the business activities of the appellants attains finality before hand in one way or the other. 37. For all the aforesaid reasons, while upholding the prima facie view of SEBI that the business carried on by the appellants constituted CIS, we set aside the directions given by SEBI in the impugned orders dated June 3, 2015 and August 24, 2015 and direct the Appellants to make an application for registration with SEBI in respect of the refundable....