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2013 (3) TMI 390 - SC - Companies LawCollective investment scheme as defined under Section 2(ba) read along with Section 11AA of the SEBI Act - vires of Section 11AA of the SEBI Act challenged - PGF Limited contested that since indisputably the business of the PGF Limited was sale and development of agricultural land, the same would be governed by Entry 18 of List II, namely the State subject and, therefore, the Central Legislation brought about by the Parliament in introducing Section 11AA of the SEBI Act cannot be sustained - Held that:- Sub-section (2) of Section 11 AA defines a collective investment scheme disclose that it is not restricted to any particular commercial activity such as in a shop or any other commercial establishment or even agricultural operation or transportation or shipping or entertainment industry etc. The definition only seeks to ascertain and identify any scheme or arrangement, irrespective of the nature of business, which attracts investors to invest their funds at the instance of someone else who comes forward to promote such scheme or arrangement in any field and such scheme or arrangement provides for the various consequences to result there from. As a matter of fact the provision does not make any reference to agricultural or any other specific activity and, therefore, at the very outset it will have to be held that the submission based on Entry 18 of List II, while challenging the vires of Section 11AA, is wholly misconceived. The fallacy in the submission of the PGF Limited is that it proceeds on the footing as though the said provision, namely, Section 11AA was also intended to cover an activity relating to agriculture and its development and, therefore, the provision conflicts with Entry 18 of List II of the State List to be struck down on that score. Inasmuch as the said Section 11AA seeks to cover, in general, any scheme or arrangement providing for certain consequences specified therein vis-a-vis the investors and the promoters, there is no question of testing the validity of Section 11AA in the anvil of Entry 18 of List II. The said submission made on behalf of the appellants is, therefore, liable to be rejected on that sole ground. Seeking to cover any scheme or arrangement by way of collective investment scheme either in the field of agricultural or any other commercial activity, the purpose is only to ensure that the scheme providing for investment in the form of rupee, anna or paise gets registered with the authority concerned and that by operating such scheme or arrangement the person who makes the investment is able to really reap the benefit and that he is not defrauded. Those schemes, which would fall under sub-section (2) of section 11AA would consist of a marketing strategy adopted by those promoters, by reason of which, the common man who is eager to make an investment falls an easy prey by the sweet coated words and attractive persuasions of such marketing experts who ensure that those who succumb to such persuasions never care to examine the hidden pitfalls under the scheme, which are totally against the interests of the investors, apart from various other stipulations, which would ultimately deprive the investors of their entire entitlement, including their investments. Thus by no stretch of imagination the above factors, which weighed with the Parliament to introduce section 11AA can be held to be done with a view to affect any particular category of business activity much less the activity of agriculture. Therefore, one cannot countenance the stand of the PGF Limited that what it sought to carry out under its scheme was merely sale and development simplicitor of agricultural land and not a collective investment scheme. In the light of our above conclusions on this ground it will have to be held that section 11AA is a valid provision, not suffering from any infirmity, as it does not intrude into the specific activities of sale of agricultural land and its development. There is no scope to apply Entry 18 of List II of Seventh Schedule in order to strike down the said provision on the ground of legislative competence. A conspectus consideration of the scheme of development of the land purchased by the customers at the instance of the PGF Limited and the promised development under the agreement disclose that there was wholesale uncertainty in the transactions to the disadvantage of the investors' concerned. The factors, which weighed with the Division Bench in this respect definitely disclose that PGF Limited under the guise of sale and development of agricultural land in units of 150 sq. yrds. i.e. 1350 sq. ft. and its multiples offered to develop the land by planting plant, trees etc., and thereby the customers were assured of a high amount of appreciation in the value of the land after its development and attracted by such anticipated appreciation in land value, which is nothing but a return to be acquired by the customers after making the purchase of the land based on the development assured by the PGF Limited, part with their monies in the fond hope that such a promise would be fulfilled after successful development of the bits of land purchased by them. The above conclusion can be culled out from the sample documents placed by the appellants before the Court. The appellants, however, failed to supply any material till date to demonstrate as to how and in what manner any of the lands said to have been sold to its customers were developed and thereby any of the customer was or would be benefited by such development. It is quite apparent that the customers who were attracted by such schemes/arrangement invested their monies by way of contribution with the fond hope that the various promises of the PGF Limited that the development of the land pooled together would entail high amount of profits in the sense that the value of developed land would get appreciated to an enormous extent and thereby the customer would be greatly benefited monetarily at the time of its sale at a later point of time. In these circumstances, the conclusion of the Division Bench in holding that the nature of activity of the PGF Limited under the guise of sale and development of agricultural land did fall under the definition of collective investment scheme under Section 2(ba) read along with Section 11AA of the SEBI Act was perfectly justified and hence, no flaw in the said conclusion. Such frivolous challenges always result in prolongation of the litigation, which enables such unscrupulous elements who always thrive on other peoples money to take advantage of the pendency of such litigation preferred by them and thereby gain, on the one side, unlawful advantage on the monitory aspect and to the disadvantage of innocent victims, and ultimately, gain unlawful enrichment of such ill-gotten money by defrauding others.In effect, such attempts made by invoking the extraordinary jurisdiction of the writ Courts of many such challenges, mostly result in rejection of such challenges.It is, therefore, imperative and worthwhile to examine at the threshold as to whether such challenges made are bona fide and do require a consideration at all by the writ courts by applying the principle of 'lifting the veil' and as to whether there is any hidden agenda in perpetrating such litigation. The Writ Court should examine such other grounds on the above lines for consideration while considering a challenge on the ground of vires to a Statute or provision of law made before it for the purpose of entertaining the same as well as for granting any interim relief during the pendency of such writ petitions. Appeal stands dismissed with cost of ₹ 50,00,000/- (Rupees fifty lacs only) to be deposited by the PGF Limited with the Registry of the Supreme Court within eight weeks from the date of receipt of copy of this judgment.
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