TMI Blog2016 (2) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants 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. 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 schemes covered by the CIS Regulations, and further direct SEBI to grant provisional certificate of reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 moneys under the schemes; To immediately submit the full inventory of the assets obtained through money raised by Citrus; Not to dispose off or alienate any of the properties/assets obtained directlyor indirectly through money raised by Citrus; Not to divert any funds raised from public at large, kept in bank account(s)and/or in the custody of Citrus or group companies or promoters or LLPs or Proprietary concerns or any person directly or indirectly controlled through shareholding or management by citrus; To furnish all the information/details sought by SEBI within 15 days from the date of receipt of this order including the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 reproduced below:- 12. As also noted earlier the documents/details submitted by the Company have to be examined in detail, in the light of submissions made and the discussion in the interim order. In view of the same, I am convinced that the directions in the interim order in respect of the entities need to be continued, till further directions. These directions have been imposed in the interest of investors and to ensure that the noticees do not continue with the money mobilization activities through its plans/schemes. SEBI is directed to conduct an investigation into the operations of the Company, in order to form a final view as to whether the activity of the Company is in the nature of CIS as prima facie observed in the interim order. SEBI is advised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dified, 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 basis. (b) That the business carried on by the appellant of time sharing does not amount to CIS as per the definition presented by SEBI. The Appellant carries on two types of time-sharing schemes and some of them do not involve any element of refund of profit and hence no promise of any return by the Appellant. Such schemes have always treated as not covered by the CIS Regulations or the definition thereof in Section 11 AA by SEBI itself. (c) That the impugned order is based on conjectures and farfetched surmises that have not been justified in the order by analysing the facts of the present case. The impugned order must be a well-reasoned and speaking order which can be justified on the basis of the reasons contained therein and not on the basis of new submissions put forth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Bihar reported in (1978) 3 SCC page 366 at paragraph 19 and the case of Bank of India Vs. Degal Suryanarayana reported in (1999) 5 SCC page 762, paragraph 11. These rulings have been cited by the learned counsel to impress upon us that no conclusion could be drawn by the respondent on the basis of surmises, conjectures and/or suspicion. It is also argued by Shri Sancheti that the impugned order doesn't take into consideration the contentions of the appellants regarding balance of convenience and irreparable loss. 11. Shri Sancheti, learned senior counsel for the appellant has referred to following judgments:- Pancard Clubs Ltd. vs. SEBI (SAT Appeal No. 254 of 2014 dated September17, 2014) Zenith Infotech Ltd. Ors. Vs. SEBI Ors. (SAT Appeal No. 59 of 2013dated July 23, 2013) Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations, 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 Star Club Ltd. and its directors, who are common with the Appellant, not to carry on with the CIS Schemes earlier floated by Royal Twinkle Star Club Ltd. The order in the case of Royal Twinkle Star Club Ltd. also restrains its directors from accessing the capital market. It is also submitted on behalf of the Respondent that pursuant to plans/schemes of Citrus as well as Royal Twinkle, a substantial amount is redeemable. Further, elaborating this point, it is contended by Shri Sen that in case of redeemable schemes, the initial amount made by the investors/members is liable to be refunded with certain additional amount as interest. Shri Sen has also produced an undated brochure to explain various details pertaining to Royal Twinkle and compared the same with that of Citrus. It is brought to our notice that the brochure issued by Royal Twinkle men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent 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 jurisdictional facts required for invoking powers to issue ad-interim ex-parte directions in the nature of temporary injunction have to be brought on record by unambiguous and un-controverted material. After going through the pleadings and the impugned orders, we, however, note that there is a delay on the part of the appellant itself to submit documents before the SEBI. Some of the documents were supplied by the appellant even after the ex-parte order came to be passed against it. Since the investigation itself is going on in the matter undertaken by SEBI and has not yet achieved finality, both the parties should cooperate in expediting the matter so that the respondent can pass final orders after completing fact finding exercise as per law. 21. In this connection, Shri Sancheti has also relied upon judgment of this Tribunal in the case of Pancard (supra). That decision is somewh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted 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 companies was furnished by the respondent to the appellant nor any summary statement or material was sought from the appellant by the learned WTM before passing the impugned order. In this regard we may pertinently refer to the judgment of Hon'ble Supreme Court in the case of Commissioner of Central Excise, Bangalore Vs. Brindavan Beverages (P) Ltd. Reported in (2007) 5 SCC, page 388, paragraphs 10-14 in particular. Para 14 of the said judgment of the Hon'ble Supreme court states that- 14. there is no allegations of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the Department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 but not supplied to the Noticee is illegal and vitiates the whole proceedings. The submission of the respondent that the complaints were only a trigger point for taking action in question against the appellant, therefore, cannot be countenanced. We, therefore, direct respondent to supply legible copy of the material/complaints relied upon by it in the show cause notice forthwith and before starting investigation in question. 27. As regards 7(e) it is contended that the respondent has travelled beyond the show cause notice inasmuch as it has taken into consideration an order dated August 21, 2015 pertaining to Royal Twinkle Star Club Ltd. after the appellant had already concluded hearing on August 13, 2015 when no such order dated August 21, 2015 could have been in existence. It is argued that the two companies are entirely different legal entities in the eyes of law. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration 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 therein, the question of permitting the appellants to seek registration at this belated stage does not arise. 30 . When we look at the historical background of the concept of Collective Investment Scheme, we find that no definition of CIS was incorporated in the SEBI Ordinance when it was promulgated on 30th January, 1992. However, Chapter IV, which deals with Power and Functions of the Board specifically provided in Section 11(2)(c) about registering and regulating of the working of Collective Investment Schemes. Later on by way of an amendment in the year 1995, Section 12(i)(b) was inserted which provided that no person shall carry on a collective investment scheme unless a certificate of registration from the SEBI was obtained in accordance with the Regulations. Such Regulations, however, came into existence only in the year 1999 which also mandated registration of various col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 redeems the points under the holiday plan in question and finally an order to that effect is passed by SEBI after holding the investigation into the whole matter as directed by the learned WTM in para 12 of the impugned order itself. 34. Similarly, the appellant has stated on oath in his affidavit that he would not deal with the assets except for the purpose of meeting day-to-day obligations and liabilities in the normal course of business. The appellant also undertakes to maintain a separate account of amounts which the appellant might receive in respect of existing schemes. The same would also be furnished to SEBI on quarterly basis. The appellant also undertakes not to float any new schemes except in accordance with law. 35. At this stage, it would also be worthwhile to note that the hearing before the learned WTM pursuant to this Tribunal's order dated August 6, 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding 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 schemes covered by the CIS Regulations, and further direct SEBI to grant provisional certificate of registration as provided under the CIS Regulations forthwith, and eventually on receipt of final investigation report, if found appropriate, grant final registration as per law, so that the schemes being operated by the Appellants are henceforth regulated so that the investors' interests are effectively and properly protected by SEBI. Till the date of granting provisional registration, the Appellants may continue to receive subscription amount from the investors under the existing schemes. However, the accounts/records of the amounts collected thereunder, shall be maintained in a separate account and appellants shall not launch any new scheme except in accordance with law. The appellants shall also not alienate or create any encumbrance or third party rights on any of their pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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