2013 (7) TMI 1090 - Board - Companies Law

Summary

Issues Involved:
1. Whether the activities of RVHEL constitute a 'collective investment scheme' u/s 11AA of the SEBI Act.
2. Jurisdiction of SEBI over RVHEL's 'Time Share' business.
3. Compliance with SEBI's directives and submission of required documents by RVHEL.
4. Interim measures to protect investors' interests.

Summary:

Issue 1: Whether the activities of RVHEL constitute a 'collective investment scheme' u/s 11AA of the SEBI Act.

SEBI received a letter from the ADGP, Assam Police, indicating that RVHEL and RVRECL had raised Rs. 1006.70 Crores from the public. RVHEL launched the Rose Valley Holiday Membership Plan (HMP) in 2010, allowing investors to book holiday packages through monthly installments, with options for room accommodation or maturity payment with annualized interest. SEBI initiated a preliminary inquiry to determine if RVHEL's activities constituted a 'collective investment scheme'.

Upon examination, SEBI found that the HMP involved pooling of investor contributions for the scheme, with returns in the form of annualized interest, managed by RVHEL, and without day-to-day control by investors. Therefore, SEBI concluded that the HMP had all the ingredients of a 'collective investment scheme' as defined u/s 11AA of the SEBI Act.

Issue 2: Jurisdiction of SEBI over RVHEL's 'Time Share' business.

RVHEL claimed that its 'Time Share' business did not fall under SEBI's purview. However, SEBI clarified that the meeting on February 11, 2013, was to brief the Joint Secretary, Govt. of Jharkhand, on a Writ Petition and not to conclude on SEBI's jurisdiction. SEBI reiterated that the characteristics of a 'collective investment scheme' were present in RVHEL's HMP, making it subject to SEBI's regulations.

The Hon'ble Supreme Court in P.G.F Limited & Ors. vs. UOI & Anr. observed that the definition of a 'collective investment scheme' is not restricted to any particular commercial activity but includes any scheme attracting investments for returns. Thus, SEBI found that RVHEL's HMP prima facie fell within the ambit of a 'collective investment scheme'.

Issue 3: Compliance with SEBI's directives and submission of required documents by RVHEL.

SEBI advised RVHEL to submit documents related to the HMP on March 1, 2013, and March 19, 2013. RVHEL refused, claiming SEBI's jurisdiction was not applicable. SEBI found RVHEL's refusal to submit documents as an attempt to conceal the true nature of its fund mobilizing activities. SEBI concluded that RVHEL was engaged in fund mobilizing through a 'collective investment scheme' without obtaining the necessary registration, violating section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations.

Issue 4: Interim measures to protect investors' interests.

SEBI emphasized the need to protect investors and prevent fraudulent activities. Consequently, SEBI directed RVHEL and its Directors to:

a. Not collect any more money from investors under existing or new schemes;

b. Not launch any new schemes;

c. Not dispose of or alienate any properties or assets of the schemes;

d. Not divert any funds raised from the public.

These directions were to take effect immediately and remain in force until further orders. The Order also served as a show cause notice, requiring RVHEL and its Directors to respond within 15 days and indicate if they wished to avail an opportunity for a personal hearing.