TaxTMI 
TaxTMI 
2022 (12) TMI 237
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....ation to regulate Time share companies. 2. The basis on which this petition has been instituted is that the rights of several million residents of India are adversely affected due to malfunctioning, fraud, misrepresentation and other wrongful and/or illegal activities of various Time Share Companies. 3. It has been submitted that though initially in 1999, Petitioner was registered as Sterling Resorts Timeshare Owners Welfare Association, for the protection of the interests of its members, in the year 2009, the name was changed to M/s. Securities & Timeshare Owners Welfare Association and the profile of the Petitioner society was broadened to encompass persons who had invested in time share products of other companies also. 4. Ms. Nappinai, Learned Counsel for petitioner-society would submit that petitioner is a public spirited association, set up for the protection of rights of investors in Time Share Companies and has worked for upholding the rights of Time Share Investors in general and protection of the rights of its members in particular. 5. Learned Counsel submits that Section 11-AA of the SEBI Act, which sets out the definition of a "CIS", clearly encompasses Time....
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....ection 11AA(1) of the SEBI Act. 10. In support of her contentions, Learned Counsel has placed reliance upon the following decisions: (i) M/s. Rose Valley Real Estate & Constructions Ltd. & Anr. Vs. Union of India & Ors. (2013 SCC Online Cal 13571) (Rose Valley Kolkata) (ii) Rose Valley Hotels and Entertainments Ltd. And Ors. Vs. State of Assam and Ors. [(2016) 1 Gauhati Law Reports 483] (Rose Valley Gauhati) (iii) Chandrasen Ganpatrao Bhise Vs. Securities and Exchange Board of India (Order dated 2nd March 2022 passed in Miscellaneous Application No.417 of 2020, Miscellaneous Application No.486 of 2020, Miscellaneous Application No.556 of 2021 and Appeal No.424 of 2020 by the Securities Appellate Tribunal, Mumbai) 11. She therefore submits that this Court issue mandamus or an order or writ in the nature of mandamus under Article 226 of the Constitution directing the Respondents, its officers, servants and agents to enforce the provisions of Section 11-AA of the SEBI Act and the CIS regulations against the Time Share Companies and in particular Time Share companies with over 100 crores turnover to be included explicitly for submitting to the complianc....
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....d., M/s Citrus Check Inn, Royal Twinkle Club Star Private Ltd.and Pancard Clubs Ltd., as and by way of instances where the SEBI has considered the schemes/activities of these companies as CIS under the garb of timeshare and taken action against them. 17. Mr. Rustomjee, refers to Section 2(1)(ba) of the SEBI Act under the definition clause to submit that CIS would mean any scheme or arrangement which satisfies the conditions specified under Section 11-AA of the SEBI Act and reiterates that all Time Share Companies cannot be considered as CIS unless they satisfy the conditions mentioned in section 11-AA and whether they satisfy the said conditions or not will have to be interpreted and analyzed according to the facts and circumstances of each scheme. Learned Counsel would submit that a reading of Section 11-AA shows that it deals only with any scheme or arrangement which would fall within the definition of a CIS and satisfies all the conditions mentioned therein. He submits that the scheme provided by different Timeshare Companies may differ from each other. That only upon a complete examination, the Respondent no. 1 can comment on whether the scheme or arrangement which has been ....
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....blished in 1988 through a Government resolution to promote orderly and healthy growth of the securities market and for investors' protection. SEBI has been monitoring the activities of stock exchanges, mutual funds, merchant bankers, etc., achieve these goals. The capital market has witnessed tremendous growth in recent times, characterized particularly by the increasing participation of the public Investors' confidence in the capital market can be sustained largely by ensuring investors' protection. With this end in view, Government decide to vest SEBI immediately with statutory powers required to deal effectively with all matters relating to capital market. As Parliament was not in session, and there was an urgent need to instill a sense of confidence in public in the growth and stability of the market, the President promulgated the Securities and Exchange Board of India Ordinance, 1992 (Ord. 5 of 1992) on 30th January 1992." 23. The functions of the Board are contained in Section 11 of the SEBI Act as under: "11. Functions of Board.-(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities....
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....ime being in force in this regard: Provided that the Board, for the purpose of furnishing any information to any authority outside India, may enter into an arrangement or agreement or understanding with such authority with the prior approval of the Central Government; (j) performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government; (k) levying fees or other charges for carrying out the purposes of this section; (l) conducting research for the above purposes; (la) calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions; (m) performing such other functions as may be prescribed. (2-A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in Section 12) which intends to ....
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....ny transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached. (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation: Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or subsection (2-A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. (4-A) Without prejudice to the ....
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....e life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of Section 2 of the Insurance Act, 1938 (4 of 1938). (ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interests in securities; (emphasis supplied) 26. Section 2(ba) was also inserted in the SEBI Act by Act 31 of 1999 which defines collective investment scheme as under:- "collective investment scheme" means any scheme or arrangement which satisfies the conditions specified in section 11AA". 27. Section 11AA was inserted in the SEBI Act by the said Act 31 of 1999 which refers to Collective Investment Scheme, is quoted as under:- "Collective Investment Scheme- (1) Any scheme or a....
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....on 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 Funds 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." (emphasis supplied) 28. The Statement of Objects and Reasons explaining the necessity to effect the above amendments is also usefully quoted as under: "In the last few years there have been substantial improvements in the functioning of capital markets in India. Market and credit risks have been reduced by requirement of adequate capitalisation, margining and establishment of clearing corporations in stock exchanges, etc. Systemic improvements have been made by introduction of screen based trading and depositories to allow book entry transfer of securities, etc. However, there are inadequate advanced risk management tools. With a view to provide such tools and to strengthen and deepen markets, there is an urgent need to in....
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....h are always cash settled would also be classified as wagers under the said Act. Due to this, no proceedings to enforce an index future contracts either by an exchange against a defaulting broker or client against his broker would stand the legal scrutiny before the court of law. The Committee was, therefore, of the view that there was no harm in having an overriding provision as a matter of abundant caution. They, therefore, suggested the incorporation of the following provision in the Bill, namely: "Notwithstanding anything contained in any other Act, contracts in derivatives as per this Act shall be legal and valid'. (ii) The Committee was convinced that stock exchanges which are presently working would be better equipped to undertake trading in derivatives in a sophisticated environment. They further observed that most of these exchanges have already been modernised having state-of-the-art technology, the facility of depository and clearance house and moreover, since they are in a better position to handle the risk profiles of the retail investors, institutional investors and corporate bodies, it would be prudent to allow trading in derivatives by such exchang....
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....g of rooms for a fixed duration of nights/days depending upon the scheme opted by its customers. As quoted above in Section 11AA (2), schemes or arrangements under which the contributions or payment made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement, which contributions/payments are made with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement, which is managed on behalf of the investors, the investors not having day-to-day control over the management and operation of the scheme or arrangement, may be considered CIS. 32. Therefore, whether Time share activities can be considered as a CIS is a question that would depend upon the facts and circumstances of each case and whether they satisfy the said conditions or not will have to be interpreted and analyzed according to the facts and circumstances of each scheme by the Regulator, that is SEBI. Every holiday management scheme or time share scheme will not necessarily be a collective investment scheme until and unless it meets the criteria set out in Section 11AA of the SEBI Act. Therefore even though ....
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....ittee's Interim Report dated 31st December, 1998 had observed in Chapter II with respect to the definition of CIS that, "(w)hile finalizing the definition, the Committee recognizes that it may be possible that some arrangements of this nature like time shares, club memberships etc. would also get covered in the definition" and therefore this Court should enforce the provisions of Section 11AA of the SEBI Act and the CIS Regulations against Timeshare companies. 37. In this context it would be worthwhile to refer to the case of Rose Valley Kolkata (supra) where the Calcutta High Court, while considering a challenge to the constitutional validity of section 2(1)(ba), section 11AA, the third proviso to section 11(4)(f) and section 12(1B) of the SEBI Act, Regulations 2(1)(b)(i), 3, 5, 9, 13, 14, 65, 73 and 74 of the CIS Regulations inter alia on the ground that section 11AA had been couched in such language that it conferred unguided power and / or discretion / discriminatory application to select an entity as carrying on the activity (such as arrangements in the nature of time shares, club memberships) of what is termed as a CIS as the same were not included in the exempted categori....
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....l as negate the objection to the entertainability of the writ petition because of availability of an alternative remedy. That apart, in Govt. of A.P. v. Laxmi Devi, reported in (2008) 4 SCC 720, the Court has reiterated the principle that mere likelihood of abuse of discretionary power conferred under statute would not render the statutory provision unconstitutional. Mr. Mitra and Mr. Kuhad are thus right in their submission that the challenge to the provisions of the SEBI Act is devoid of merit. 110) In this connection, the decision in P.G.F. Limited (supra) may once again be referred to. Introduction of Section 11AA has been upheld not only on the ground of competence of the Parliament but the Court found it to be a step in the right direction for saving the gullible investors from falling prey to unregulated and uncontrolled schemes leading to their ruination (paragraphs 37, 38, 40 and 42). The reason for devising exclusionary operation of activities of certain classes, as in sub-section (3) of Section 11 AA, has also been clearly discussed as evident from paragraph 39 thereof and I see no reason to dilate thereon. 111) Insofar as the charge of excessive delega....
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....uthority within a fortnight thereafter." (emphasis supplied) 38. We are therefore of the view that, once the Parliament has included the provisions with respect to CIS after considering the Dave Committee report and which provisions have been held to be intra vires in the decision of Rose Valley Kolkata (supra) as quoted above, it would not be necessary for us to dwell any further on this aspect. 39. In view of the above discussion, in our considered view, the reliance by the Learned Counsel for the Petitioners on the decision of Rose Valley Kolkata (supra) does not advance the case of the Petitioners. 40. Learned Counsel for the Petitioners has also relied upon the decision of the Gauhati High Court in the case of Rose Valley Gauhati (supra). In our view the decision does not assist the case of the Petitioners as that was a case where there was a specific finding that on the basis of the form of membership it was not possible to agree with the contention that the scheme was only a holiday management scheme not coming within the purview of CIS more so because there was a term in the contract that as an alternative to enjoying the stay in the hotels, there was an option ....
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....egment of the population that they may touch, require a separate regulation as canvassed by the Learned Counsel for the Petitioners, that clearly in our view is not the job of the Courts. The Supreme Court in the case of Mallikarjuna Rao and Ors v. State of Andhra Pradesh & Ors., (1990) 2 SCC 707, has categorically held that the High Courts or the Administrative Tribunals cannot issue a mandate to the Government to legislate nor recommend / advise / direct legislation on a subject nor even require the executive to exercise its rule making power in any manner. Paragraphs 11 and 13 of the said decision are usefully quoted as under: "11. The observations of the High Court which have been made as the basis for its judgment by the Tribunal were only of advisory nature. The High Court was aware of its limitations under Article 226 of the Constitution of India and as such the learned Judge deliberately used the word "advisable" while making the observations. It is neither legal nor proper for the High Courts or the Administrative Tribunals to issue directions or advisory sermons to the executive in respect of the sphere which is exclusively within the domain of the executive unde....
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....earned great respect and acquired great credibility in the eyes of public because of their innovative efforts to protect and preserve the fundamental rights of people belonging to the poor and marginalised sections of the society. 76. The second phase of public interest litigation started sometime in the 1980s and it related to the Courts' innovation and creativity, where directions were given to protect ecology and environment. There are a number of cases where the Court tried to protect forest cover, ecology and environment and orders have been passed in that respect. As a matter of fact, the Supreme Court has a regular Forest Bench (Green Bench) and regularly passes orders and directions regarding various forest cover, illegal mining, destruction of marine life and wild life, etc. Reference of some cases is given just for illustration. 96. In the 1990s, the Supreme Court expanded the ambit and scope of public interest litigation further. The High Courts also under Article 226 followed the Supreme Court and passed a number of judgments, orders or directions to unearth corruption and maintain probity and morality in the governance of the State. The probity in gov....