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2013 (11) TMI 884 - AT - Companies LawRegistration under Section 12(1B) of the SEBI Act, 1992 and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 - Appellant launched Collective Investment Schemes without obtaining any registration - Collective 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 - Whether or not the business carried on by the Appellants is in the nature of CIS - Held that:- contributions of the customers are quite evidently pooled together and then utilized for the purposes of the scheme carried on by the Appellants. The fact that neither the area nor the location of a particular plot of land being supposedly sold to the investor is mentioned in the 'Certificate of Property' provided for our perusal demonstrates that the money received from a particular investor is not utilized for the purchase and development of one particular plot, but for all the land owned by the Appellants in general. Even from the application form we observe that there is no space ear-marked therein with respect to specifics of the plot allotted to the investors. Further, the plot of land has all along been denoted as a 'proportionate undivided interest'. All of the above denotes that the business of the Appellants is not really in the nature of regular real estate. Appellants unequivocally assure the investors of high returns in the form of profits which may be immovable property - The investors therefore seem to be contributing to the scheme with the clear view of receiving profits, whether in the form of returns or of property whose value increases owing to the developmental activities carried on by the Appellants - when each customer/investor is a recipient of 'property' it is apparent that each customer/investor is admittedly a recipient of one of the benefits contemplated under Section 11AA(2)(ii), namely, 'property'. 'Certificate of Property' is more in the nature of a certificate of investment - certificate falls completely within the scope of the definition of the terms "securities" as provided in Section 2(h) of SCRA which as amended by the Securities Laws (Amendment) Act, 2004, w.e.f. October 12, 2004, now includes units or any other instrument issued by any Collective Investment Scheme to the investors in such schemes. Therefore, the certificate issued to the investors readily falls within the meaning of the expression "securities". Property in question, the investment involved and the management thereof are all in the hands of the Appellants with the customers having no role to play whatsoever, since the scheme is operated by the Appellants on the customers' behalf. In this connection, we note that the Supervision Agreement executed between the Appellants and their customers states that during the period of development, although the customer may inspect the land, he would so only after informing the company of such intention and after giving due notice to the Appellants. Further, the agreement in question also states that there shall be no interference of the investor as regards the working, management, control and supervision of the land in question in any manner. Further, the fact that a power of attorney giving an authorized representative of the Appellants the authority to execute documents and deeds on behalf of the customer is executed by all investors proves beyond a shred of doubt that the property along with the contribution received under the scheme is managed by the Appellants. Role of the customers is no more than that of hapless investors, standing and observing the show from the sidelines as it is run by the Appellants - Appellants were/are under an obligation to apply for registration with the SEBI as per the requirements laid down in the CIS Regulations and the SEBI Act. In this connection, it is pertinent to note that in the interpretation of such regulatory measures, like the CIS Regulations in hand, the most important task is to determine the 'pith and substance' of the provisions concerned, i.e., their true and essential character - Closing or winding up such CISs is an extreme measure to be resorted to in rare cases of adamant companies who do not wish to abide by the CIS Regulations, in the matter of registration and other conditionalities laid down therein. Considering the large number population involved and the long and tedious process of implementing the scheme of repayment involved which would entail a number of steps before money is finally received by the investors, including going through more than one and a half applications; ascertaining the amount / money to be paid in each and every case; disposing off the property; writing and dispatching cheques to the investors etc., we are inclined to grant them a longer period of time than that provided by SEBI - Order modified - Decided partly in favour of appellant.
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