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TMI Blog2004 (7) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... ead Office at 2nd Floor, Vaishali Building, Community Centre, Paschim Vihar, New Delhi. 2. So far the activities of PGFL are concerned, the same have been depicted in a communication addressed by the PGFL to the Securities and Exchange Board of India (hereinafter referred to as 'the SEBI') dated 15-1-1990. PGFL is stated to be operating two kinds of schemes; firstly, a scheme involving sale/sale and development of agricultural land, and secondly, joint venture schemes. During the course of hearing of the instant writ petition on 28-5-2004, learned counsel for the petitioners informed the Court the PGFL had taken a decision to disband all schemes other than its operations relating to business connected with sale of agricultural land and/or sale and development of agricultural land. It is, therefore, that this Court, inter alia, passed the following order on 28-5-2004 :- "Learned counsel for the petitioners, during the course of arguments unilaterally offered to pay back all the deposits to the investors enrolled under all schemes other than the existing business of sale and purchase and development of land. According to learned counsel, the aforesaid action on behalf of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange, lease, mortgage, dispose of, turn to account or otherwise to deal with the property of the Company. The other objects include, to issue prefer and defer or any other such sub-stocks or securities based on or representing any shares, stocks or other assets, specially apportioned for the purpose, etc. 4. The only activity which the PGFL is presently engaged in is stated to be the sale of agricultural land and/or the sale and development of agricultural land. It is the contention of the PGFL, that it identifies and procures agricultural land, and transfers the title thereof in units measuring 1350 sq. feet (150 sq. yards)or multiples thereof, in favour of customers, by executing or securing sale deeds in conformity with applicable laws. The agreements executed by the PGFL with its customers, include the obligation of the PGFL, to develop and maintain the land transferred to customers for periods ranging from 5 to 10 years. The consideration payable by customers, is in lieu of the sale of a plot of land of 1350 sq. feet (150 sq. yards), and in lieu of its development besides related services. A customer has the option to pay for the unit of land sold to him either in lump s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled with SEBI latest by 15th January, 1998 and accordingly many companies have filed their information with us. From our records, we observe that no information has been filed by your company till date. The non-filing of information by companies which have floated schemes in this nature or collective investment schemes violates the provisions of the SEBI Act and action may be initiated against these companies under the relevant provisions of the Act. You are directed to immediately inform us the following : 1.Has your company collected funds from the public by issuing instrument like Agro Bonds, Plantations Bonds, etc ? 2.If so, why action should not be initiated against you for violating provisions of the SEBI Act ? We are enclosing a copy of the order passed under section 11B of the SEBI Act and a copy of the Public notice dated December 18, 1997. Your reply should reach within 15 days from the date of this letter failing which we shall be constrained to take action against you under the provisions of SEBI Act." The PGFL claims to have responded to the aforesaid letter issued by the Board through its communication dated 2-5-1998 (Annexure P.7 with CWP No. 4620 of 2002), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply of the PGFL, dated 9-1-1999, the Board forwarded an extract of a notice which had appeared in the "Indian Express" dated 8-1-1999 to the PGFL, through its covering letter dated 14-1-1999 (Annexure P.10 with CWP No. 4620 of 2002). Relevant extract of the aforesaid notice is reproduced hereunder :- "Notice to all plantation companies Agro Companies and Companies running collective investment schemes. This notice is being published pursuant to the directions of the Hon'ble Division Bench of Delhi High Court comprised of Justice Anil Dev Singh and Justice Mukul Mudgal in CWP No. 9639 of 1998 and CM No. 10177 of 1998 in CWP No. 3352 of 1998. Vide order dated 7th and 13th October 1998 in CWP No. 3352 of 1998 the Hon'ble Delhi High Court has directed that 1.All plantation companies, Agro Companies and companies running collective investment companies shall get themselves credit rated from credit rating companies approved by SEBI. 2.The company shall furnish list of their assets and liabilities. 3.That company shall furnish their list of directors alongwith details of their assets including date, cost and present value of acquisitions. 4.The companies are restrained from sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id orders passed by the Delhi High Court, the PGFL allegedly failed to furnish any reply to the show cause notice (dated 24-12-1998) issued by the Board to the PGFL, which prompted the Board to issue a communication dated 31-8-2000 (Annexure P.15 with CWP No. 4620 of 2002), requiring the petitioner to submit its reply to the show cause notice dated 24-12-1998 within 15 days of the receipt of the aforesaid letter. 8. On 11-9-2000 (Annexure P.16 with CWP No. 4620 of 2002), the PGFL responded to the show cause notice dated 24-12-1998, by asserting that its business was limited to sale and purchase of agricultural land, by entering into agreements with prospective buyers, on a consideration amount mentioned in the agreement. The prospective buyers, on compliance with the terms of the agreement, were entitled to get a piece of land transferred in their names, by executing registered sale deeds, in order to give them legal title. On the basis of the aforesaid factual position, it was asserted by the PGFL, that the underlying contract between the PGFL and a prospective buyer was, that of sale and purchase of agricultural land. It was, therefore, sought to be concluded that the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peaking order. As a consequence of the acceptance of the aforesaid offer, CWP No. 4620 of 2002 was disposed of in the following terms :- "(i )The Petitioners may file their reply to the show cause notices already served by the respondent on them within three weeks from today; (ii )In case the petitioners are asked, they would furnish the requisite information to the second respondent; (iii )In case, the petitioners make a prayer for the grant of an oral hearing, the competent authority shall grant an opportunity of hearing. It is clarified that if shall be open to the petitioners to raise such pleas as they may be advised, including those which have been raised in this petition; (iv )The matter shall be finality decided within four weeks from the date of conclusion of oral hearing. In the meantime, the operation of the impugned order shall be kept in abeyance; and (v )On the passing of the fresh order, the order at Annexure P-17 shall stand superseded." In furtherance of the directions issued by this court in CWP No. 4620 of 2002, the PGFL was granted a personal hearing by the Chairman of the Board on 11-11-2002. The Chairman of the Board again arrived at the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced on the record of the instant writ petition by the PGFL as Annexure P.6), wherein, in case of a dispute between the PGFL on the one hand and its customer/investor on the other, only the Civil Courts at Delhi could entertain and settle the same (after the determination of arbitration proceedings), to the exclusion of all other Courts. The Court's pointed attention, in this behalf, was invited to clause 21 of the sample sale agreement which is extracted hereunder : "21. Jurisdiction Further to the aforesaid Clause 20 for any consequent legal remedy, only Civil Courts at Delhi shall have jurisdiction to the exclusion of all other Courts." On the basis of the aforesaid factual position it is submitted that the instant controversy could have been raised, before the Delhi High Court, but certainly not before this Court. 15. In conjunction with the sample sale agreement, learned counsel for respondent No. 2, also invited the Court's attention to the sample sale deed (placed on the record of the instant writ petition as Annexure P.7), wherefrom it was pointed out that the vendor therein was located in the State of Punjab, the authorised attorney of the vendor was employed in and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n parties in the writ petition and gave directions regarding credit rating, furnishing of lists of assets and liabilities, furni-shing of lists of their present directors along with details of the assets, and also restrained them from selling, disposing of, or alienating, their immovable properties or parting with the possession of the same. The companies were also directed not to float any new scheme, or to raise any further funds, without permission of the Court. So far as the existing schemes are concerned, the companies were directed by the Delhi High Court to strictly comply with the Board's direction dated 24-2-1998. By a further order dated 13-10-1998, (passed in S.D. Bhattacharya's case (supra)), the Delhi High Court accepted the plea of the Board to implead 592 companies, allegedly running plantation companies, agro companies etc., as well as companies running equitable investment schemes. While accepting the prayer made, the Delhi High Court, clarified that the order dated 7-10-1998 would also apply to plantation companies, agro companies and companies running equitable scheme irrespective of the fact that they were not amongst the 592 companies specifically ordered to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Haryana, a part of the cause of action definitely arises within the territorial jurisdiction of this Court. Fourthly, the PGFL had earlier filed CWP No. 4620 of 2002 in this Court, wherein it had impugned the order passed by the Board dated 20-2-2002. Neither respondent No. 2, nor any other respondent, had pressed the issue of the territorial jurisdiction of this Court, during the course of proceedings in the aforesaid writ petition. Fifthly, the order passed by the Board dated 6-12-2002, which has been impugned in the instant writ petition is the outcome of the directions issued by this Court on 29-4-2002 while disposing of CWP No. 4620 of 2002. Sixthly, the impugned order in the instant writ petition dated 6-12-2002, is an order in substitution/supersession, of the order dated 20-2-2002 (impugned in CWP No. 4620 of 2002), and since the territorial jurisdiction of this Court had not been disputed during the deliberations in CWP No. 4620 of 2002, the same cannot be disputed during the course of the present proceedings. 18. In order to substantiate his contention on the issue territorial jurisdiction, learned counsel for respondent No. 2 invited the attention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents of the State Government's proposal to acquire land for public purpose, did not constitute an integral part of the cause of action, sufficient to vest the Calcutta High Court with jurisdiction to entertain a petition under Article 226 of the Constitution, challenge the validity of the notification depicting the Government's intention to acquire land. In arriving at the aforesaid conclusion, it was noticed by the Apex Court that the notification issued by the State Government under section 52(1) of the aforesaid Act, became effective the moment it was published in the Official Gazette, as the notified land became vested in the State Government free from all incumbrances immediately on the issuance of the said notification. The notice served on the respondent, according to the conclusion recorded by the Apex Court, did not constitute an integral part of the cause of action, as it had no bearing on the validity of the notification issued by the State Government. Consequently, the Apex Court set aside the ad interim ex pate prohibitory order passed by the High Court, restraining the State Government from taking steps to take possession of the land of the respondent, after concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause of action had arisen within the territorial jurisdiction of the Calcutta High Court. The Supreme Court in the aforesaid judgment observed as under:- "8. From the facts pleaded in the writ petition, it is clear that NICCO invoked the jurisdiction of the Calcutta High Court on the plea that a part of the cause of action had arisen within its territorial jurisdiction. According to NICCO, it became aware of the contract proposed to be given by ONGC on reading the advertisement which appeared in the Times of India at Calcutta. In response thereto, it submitted its bid or tender from its Calcutta office and revised the rates subsequently. When it learnt that it was considered ineligible it sent representations, including fax messages, to EIL, ONGC, etc., at New Delhi, demanding justice. As stated earlier, the Steering Committee finally rejected the offer of NICCO and awarded the contract to CIMMCO at New Delhi on 27-1-1993. Therefore, broadly speaking, NICCO claims that a part of the cause of action arose within the jurisdiction of the Calcutta High Court because it became aware of the advertisement in Calcutta, it submitted its bid or tender from Calcutta and made representation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under :- "It is clear from the above constitutional provision that High Court can exercise the jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises. This provision in the Constitution has come up for consideration in a number of cases before this Court. In this regard, it would suffice for us to refer to the observations of this Court in the case of Oil and Natural Gas Commission v. Utpal Kumar Basu (SCC at p. 713) wherein it was held : 'Under Article 226 a High Court can exercise the power to issue directions, orders or writs for the enforcement of any of the fundamental rights conferred by Part III of the Constitution or for any other purpose if the cause of action, wholly or in part, had arisen within the territories in relation to which it exercises jurisdiction, notwithstanding that the seat of the Government or authority or the residence of the person against whom the direction, order or writ is issued is not within the said territories. The expression 'cause of action' means that bundle of facts which the petitioner must prove, if traversed, to entitle him to a judgment in his favour by the court. Therefore, in determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion considered the necessity to provide a quick and inexpensive remedy for the enforcement of the fundamental rights, enshrined in Part III of the Constitution of India. Finding that the prerogative writs which the Courts in England had developed, for dealing with issues of urgent and immediate nature, would be suitable for the purpose; Article 226 of the Constitution of India was conceived of to vest in High Courts the authority to issue writs, directions, or orders with the objective of enforcement of the fundamental rights and similar other rights. Despite the fact that wide powers (as indicated above) were conferred on High Courts under Article 226 of the Constitution of India, there were certain jurisdictional limitations, which substantially reduced the efficacy of the said remedy. 24. The Supreme Court for the first time interpreted the jurisdictional aspect of Article 226 of the Constitution of India in Election Commission, India v. Saka Venkata Rao AIR 1953 SC 210. The question determined by the Supreme Court in the aforesaid case was, whether the Madras High Court had validly entertained a writ petition under Article 226 of the Constitution of India, so as to restrain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Taxation of Income (Investigation Commission) Act, 1947, praying for the issuance of a writ of prohibition so as to restrain the Income-tax Investigation Commission, located at Delhi, from proceeding with the investigation of cases referred to it under the provisions of the aforesaid Act. The plea raised was, that the assessees against whom the investigation was initiated by the Commission, belonged to Uttar Pradesh. In the aforesaid view of the matter, the assessment proceedings of the petitioners relating to income-tax (including a reference therefrom), would lie to the High Court in the State of Uttar Pradesh. The Investigation Commission was located at Delhi, and on that account, proceedings against the Commission's orders would lie only to the High Court at Delhi. The Punjab High Court accepted the preliminary objection raised by the respondents and declined to entertain the petition on the ground that it had no jurisdiction in the matter. The Supreme Court, while determining the controversy, reiterated the legal position recorded in Election Commission, India's case (supra). 26. The same issue came up for consideration before the Supreme Court again in Lt. Col. Kha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction of the High Court which can take action under Article 226. . . . 14. The seat of a Government is sometimes mentioned in the Constitution of various countries but many a time the seat is not so mentioned. But whether the seat of a Government is mentioned in the Constitution or not there is undoubtedly a seat from which the Government as such functions as a fact. What Article 226 requires is residence or location as a fact and if therefore there is a seat from which the Government functions as a fact even though that seat is not mentioned in the Constitution the High Court within whose territories that seat is located will be the High Court having jurisdiction under Article 226 so far as the orders of the Government as such are concerned. . . ." (p. 539) It is, therefore, obvious that in deciding the controversy in Lt. Col. Khajoor Singh's case (supra), the Supreme Court reiterated the legal position declared in Election Commission, India's case (supra) and in K.S. Rashid and Son's case (supra). 27. The suggestion to amend Article 226 of the Constitution of India, made by the Apex Court in Lt. Col. Khajoor Singh's case (supra), to make it more effective and realisti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the writ petition is filed must ascertain whether any part of the cause of action has arisen within the territorial limits of its jurisdiction. It depends upon the facts in each case." 29. It is clear from the conclusions drawn by the Apex Court that an answer to the question, as to whether, the cause of action or a part of the cause of action has arisen within the territorial jurisdiction of a Court, shall have to be determined on the facts of each case. 30. Applying the aforesaid dictum, to the facts and circumstances of the instant case, there can be no doubt, that a part of the cause of action, must be deemed to have arisen to the PGFL, within the territorial jurisdiction of this Court, since it is not disputed that hundreds of acres of agricultural land which are the subject-matter of the alleged sale/purchase activity of the PGFL are located within the territorial jurisdiction of this Court. The ownership rights in the aforesaid property is liable to be effected by the impugned order. It will again be affected one way or the other, by the outcome of the instant determination. Examined from a different angle, the impugned order dated 6-12-2002 has the effect of nullifying, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(h) of the aforesaid Act defined the term "securities" as under :- "(h )'Securities' include- ( i)shares, scrips, stocks, bonds, debentures, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) to (ic)** **** (ii )Government securities; and (iia) ****** (iii )rights or interests in securities;" 33. The Securities and Exchange Board of India (hereinafter referred to as "the Board"), was established in 1988 through a Government of India resolution to promote orderly and healthy growth of the security markets, and for investors' protection. The function of the Board included, monitoring of the activities of stock exchanges, mutual funds and merchant bankers etc., to achieve these goals. 34. The capital market experienced a tremendous growth in the early nineties, characterised by an increasing participation of the public. In order to sustain investors' confidence in the capital market, it was essential to ensure investors protection. The Government of India decided to vest the Board with statutory powers in 1992, so as to enable the Board, to deal with all matters relating to the capital market dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of options in securities; (h )allow the existing stock exchanges to establish additional trading floors outside their area of operation; ( i)make violation of the listing agreement as an offence." 36. Commencing from the early eighties, several concerns (for convenience, referred to as 'entities') were operating financial schemes in the market which assured customers of very high returns. Unwary customers were allured/tempted to invest in such financial schemes, through misleading advertisements and aggressive publicity. In 1997, when these entities started defrauding in making payments to their customers/investors, there was a huge uproar. As a result of the discontentment expressed in the public, the Union of India decided to regulate these financial schemes through the Board. It was in continuation of the aforesaid process, initiated by the Government of India, that a press release dated 18-11-1997 was issued declaring the determination of the Government to regulate entities, which were engaged in the sale of agro bonds and plantation bonds, etc., as "collective investment schemes". As per the aforesaid press release, the Board was to delineate the procedure for the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the purpose, namely:- "(a )Credit Rating Information Services of India Ltd. (CRISIL) (b )Information and Credit Rating Agency Ltd. (ICRA) (c )Credit Analysis and Research Ltd. (CARE) (d )Duff and Phelps Credit Rating India Pvt. Ltd." The Board issued a further direction requiring every entity which had obtained the afore-stated rating, to incorporate the determination of the rating agency in all of the documents/pamphlets/circulars/advertisements etc., which were distributed to the public for soliciting business for the entity so that the investors/customers had complete information about its activities, assets and liabilities etc. 39. On 31-12-1998, the Dave Committee submitted its report on "collective investment schemes". Based on the data made available to the Dave Committee, it arrived at the conclusion that the existing agro bonds, plantation bonds etc., which had broadly the following salient features, should be treated as "collective investment schemes":- (a )The scheme were typical open ended, broad disclosures made to the investors were not adequate to enable informed decisions. (b )The promoters themselves invested a minimal amount in such ventures and sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Committee, therefore, suggested a fresh definition for the term "collective investment schemes" by identifying three important characteristics thereof, namely, pooling of investments, management by entities, and absence of day to day control of the investors. While recommending the aforesaid definition, the Dave Committee acknowledged that some arrangement of the nature of time shares, club memberships, etc. would also fall within the definition of the term "collective investment schemes". It was, however suggested, that the Board should be given appropriate powers to grant exemption, to any class of arrangement, which was not desired to be regulated as a "collective investment scheme" including time shares, club memberships etc., while recommending a fresh definition for the term "collective investment schemes", the Dave Committee expressly noticed that it had observed that many of the existing "collective investment schemes" resorted to entering into multiple agreements with the investors, whereby the investor was given the ownership of land, and the entity was given the right to develop the same. The Dave Committee clarified that the substance of such agreements should be app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rustees on the activities of the schemes and the compliance with the regulations. (f )The CIMA should be bound to comply with the code of conduct prescribed in the regulations. (g )It should be ensured that the CIMA and its officers and employees, do not benefit from unfair use of information." 43. The Dave Committee also recommended the procedure for launching a "collective investment scheme", which should include necessary disclosures in the offered documents, a registered Collective Investment Management should be eligible to launch a scheme only if it fulfils the following requirements:- "(a )The scheme should be approved by the trustee and a copy of the offer document must be filed with the Board. (b )All schemes must be rated by an approved credit rating agency. (c )No scheme shall be launched without appraisal by an empanelled appraising agency. (d )The schemes would have to be close ended, and must have a minimum duration of 3 years. (e )No scheme shall be open for subscription for more than 180 days. (f )The units of a "collective investment scheme" shall have to be listed on the recognized stock exchanges. (g )No guaranteed returns will be provided in the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii )the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv)the investors do not have day to day control over the management and operation of the scheme or arrangement. (3) Notwithstanding anything contained in sub-section (2), any scheme or arrangement- ( i)made or offered by a cooperative society registered under the Cooperative Societies Act, 1912 or a society being a society regis- tered or deemed to be registered under any law relating to cooperative societies for the time being in force in any State; (ii )under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934; (iii )being a contract of insurance to which the Insurance Act, 1938, applies; (iv )providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952; (v )under which deposits are accepted under section 58A of the Companies Act, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment scheme". If the petitioners succeed in establishing their aforesaid submission, the action taken by the Board, against the PGFL through the impugned order will have to be set aside. 47. The first and foremost submission of the learned counsel for the petitioner is that a scheme/arrangement to be described as a "collective investment scheme", must satisfy all the ingredients/characteristics enumerated in section 11AA(2) of the SEBI Act. The aforesaid contention of the learned counsel has not been disputed by the counsel representing the respondents. In order, therefore, to adjudicate upon the aforesaid controversy, the only exercise which has to be carried out is to determine whether the PGFL satisfies all the ingredients/characteristics expressed in sub-section (2) of section 11AA of the SEBI Act. 48. Before embarking upon the aforesaid exercise, it would first be essential to determine the nature of the activities of the PGFL. In order to enable this Court to examine the activities of the PGFL, learned counsel for the petitioners has invited the attention of this Court to two documents appended to the writ petition, namely, Annexures P.6 and P.7. Annexure P.6 is a samp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he unit/units of agricultural land purchased by them, as well as in exclusive possession thereof. In this context, it is pointed out, that in the first instance, the PGFL, on receipt of consideration from the customer/investor, is bound to issue an allotment letter, within a reasonable period (ordinarily not exceeding 270 days, under the "cash down payment plan"; and within a period not ordinarily exceeding 90 days, on of receipt of 50% of the consideration, under the "instalment plan"). The second step, is the execution of a sale deed. In this behalf it is pointed out, that the PGFL is under an obligation to execute a sale deed and thereby transfer the title of the plot of land, in the name every customer/investor. The PGFL also undertakes to supply the customer/investor with a certified copy of the sale deed, procured from the office of the concerned Sub-Registrar before whom it has been registered. Fourthly, the PGFL undertakes to notify the customers/investors, the factum of completion of development of the land, at least 30 days before the date of the expiry of the agreement, so as to enable the purchaser, to inspect the land sold to him, to verify whether or not the developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, he can also seek the assistance of the PGFL by making a written request (to the PGFL). Ninthly, in case of any dispute between the PGFL (on the one part), and the customer/investor (on the other), the sample agreement/sample sale deed, provide for adjudication of the same through arbitration. The PGFL is authorised to appoint an arbitrator for the settlement of a dispute, however, only a retired judicial officer can be appointed as an arbitrator. The determination at the hands of the arbitrator, is to be final and binding on the parties. In furtherance of the arbitration clause, the terms and conditions laid down denote, that the civil Courts at Delhi would have exclusive jurisdiction for any consequential legal remedy. 49. Relying upon the aforesaid factual matrix which constitutes the entire business activity of the PGFL as well as the relationship between the PGFL and its customers/investors learned counsel for the petitioners, reiterated that the business activities of the PGFL, are not in the nature of a "collective investment scheme" as defined under section 11AA(2) of the SEBI Act, but are simply in the nature of sale and purchase of agricultural land, by the PGFL to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI Act is concerned, the same can be applicable to properties, other than the agricultural land. Detailed submission, in dealing with the effect that the term "property" used in section 11AA(2)(ii) of the SEBI Act, insofar as its alleged inapplicability to agricultural land is concerned, has been dealt with by us under the head "Constitutional validity of section 11AA of the SEBI Act", at a later stage in this judgment. It is emphasised by learned counsel, that from the business activities of the PGFL (summarised above), it emerges that the PGFL assures its customers/investors of neither any profit, nor any income or produce. It is vehemently contended that customers/investors are sold a piece of agricultural land with no further incentive and definitely, no right to any profit/income/produce, whatsoever. It is, therefore, the submission of the learned counsel for the petitioners, that the activities of the PGFL are not in the nature of a "collective investment scheme" as the parameters specified in section 11AA(2)(ii ) of the SEBI Act are also not satisfied. 52. The next contention of the learned counsel for the petitioners is, that the property sold by the PGFL to its customers/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by the PGFL have all the mandatory features specified in the definition of a "collective investment scheme" under section 11AA(2) of the SEBI Act. In this behalf, it is pointed out that all the four mandatory features, have been brought out in the order of the Board dated 6-12-2002. Secondly, from the salient features of the business activity of the PGFL, pointed out in the order dated 6-12-2002, it is clear, that the PGFL while conducting its business activities issues unit certificates for purchase of "units" of agricultural land. Sales of agricultural land made by the PGFL, have a uniform size of 1350 sq. feet (150 sq. yards), in return of a common consideration i.e., a "unit price" of Rs. 5000. These units of sale/purchase, according to learned counsel, can easily be bought and sold on the stock exchange, like any other security. Making a reference to the report of the Dave Committee, it is submitted that many schemes have been structured in a way wherein the customer/investor is offered ownership of a piece of land or property, only to create a sense of security arising from owning a real estate. It is vehemently contended, that most of the times, the piece of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts liability by the sale of land, which does not belong to it. As a matter of ground reality, it is pointed out, the PGFL is using the same land for development of projects, such as resorts/golf courses and for colonisation etc. In this behalf, reference has been made to a reply dated 31-8-2002, submitted by the PGFL to the Board, wherein the following factual position stands acknowledged:- "During the year 1989, the company started joint venture business for different periodicities ranging from 5 to 7 years in which the funds contributed by the joint ventures have been utilised for purchase of agricultural land in different parts of the country and for development as well as maintenance of the same. In the process, company acquired about 9075 acres of land in the different parts of the country and developed the same by developing orchards having different kinds and variety of crops/fruits like mango, coconut and cashewnut etc. This type of activity starts fruiting after the gestation period of 4 to 5 years and to attain normal production it requires 7-8 years, as such requires long term funds. The company's projected fund flow statement also supports the same. However, company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s development. It is submitted, that it is not clear whether the aforesaid expenses are debited to the sale price charged for the agricultural land, or the amount charged for the maintenance and development of the land. Eighthly, the consideration for a unit of land is uniformly taken as Rs. 1750, whereas there can be no uniformity in respect of land value, because the land sold is situated in different places all over India, and further because, there can be no uniformity due to factors like different time of purchase/sale, varying rates, varying needs of purchasers, different rate of stamp duty and registration charges in different States etc. This, according to the learned counsel for the respondents, demonstrates trappings of a "collective investment scheme". Ninthly, the cost of development of a unit of land is uniformly taken as Rs. 3250, whereas there can be no uniformity in respect of development of land because development of level land would need lower financial inputs, than land located on a hillock or in a river-bed or where the land is undulating. Similarly, irrigation facilities can be installed by incurring less expense on level land, when compared to other kinds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it had been prepared/drawn by D. Naveen Krishna, a Document Writer, and a resident of district Nirmal (in the State of Andhra Pradesh). Furthermore, it would be pertinent to mention, that in the sale deed under reference, neither the Khewat number, nor the Khasra number, and nor the Khatoni or Killa number, nor any other means adopted by the Revenue Authorities, have been disclosed, to identify the land sold by the PGFL to the purchaser/vendee Pankaj Karnatak. In the real sense, therefore, the land in question purchased by Pankaj Karnatak, cannot even be identified. In view of the aforesaid factual position, the genuineness of the sale of agricultural land to the vendee Pankaj Karnatak is clearly shrouded in grave suspicion. In case of a dispute with a third party, it would be practically impossible for the vendee, to establish his title to the agricultural land allegedly purchased by him from PGFL. A further examination of the ground realities reveal that the purchaser/vendee Pankaj Karnatak is a resident of New Delhi (in the Union Territory of Delhi), whereas the land purchased by him is hundreds of miles away in village Vellugudari (in the State of Andhra Pradesh). Can Panka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs/investors is only a fictional contemplation, (which is far away from reality), is apparent from the manner in which the agricultural land sold by the PGFL to its purchaser Pankaj Karnatak (vide Annexure P.7) has been identified/demarcated. It would be pertinent to mention that the sale deed (Annexure P.7) in its schedule demarcates the agricultural land sold to Pankaj Karnatak as under :- "Bounded by : East : 5' Wide Road, West : 5' Wide Road, North : Plot No. 140, South : Plot No. 142." The impracticality, for the vendee to put the agricultural land purchased by him, for use as agricultural land, is obvious from the fact that the land is inaccessible for agricultural purposes. It would not be possible for any four-wheeled vehicle, be it a bullock cart, a tractor, a tempo, or a truck, to ply on a 5 feet wide road (by which the land purchased by the vendor is bound), without trespassing over a private adjoining property. Accessibility to the agricultural land purchased by Pankaj Karnatak would, therefore, be limited by reaching it on foot, or on a two-wheeler, be it a bicycle, a scooter or a motor-cycle. The absurdity of the situation is demonstrated from the practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of sale and purchase documents, between the PGFL and its customers/investors, the more one realises that the transactions in question are merely a paper transaction. Suffice it to state, that the PGFL itself acknowledged through its communication dated 31-5-2002 that out of a total of 15,99,505 investors, 13,63,244 investors had discontinued. The aforesaid figures lead one to infer that 85% of the customers/investors having realised the true characteristics of the PGFL, severed their ties with it. The aforesaid illustrations are sufficient to draw the conclusion that the alleged business activity of sale and purchase of agricultural land by the PGFL is an effective camouflage over its real activities. In view of the above, we have no doubt in our mind that the projection by the PGFL, that it is engaged in sale and purchase of agricultural land and/or sale and development of agricultural land, is not a truthful expression of its activities. The aforesaid conclusion leads us to infer, that the activities which were earlier being carried on by the PGFL, (before aggressive regulation aimed at consumer protection were introduced through the legislation), would have been subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h customer/investor depicting the manner of utilization of a sum of Rs. 3250 charged by it for the maintenance of the development of the land sold to him. It is obvious that the cost of development of each unit of agricultural land sold by the PGFL to each customer/investor cannot be uniform, because development of level land would need lower financial inputs, than development of lands located on a hillock, or in a river-bed, or where the land is undulating. Likewise the existing level of fertility of land, or the cause of infertility of land, will determine the amount required to convert it into productive land. Reclaiming different kinds of waste land will also require different financial inputs. Similarly, irrigation facilities can be installed by incurring less expenses for level land when compared with other kinds of lands. It is, therefore, obvious that although the PGFL demands a specified sum of Rs. 3250 from each customer/investor for the maintenance and development of the land sold to him, it actually pools the amount taken from all the contributors and utilizes it collectively for its customers/investors, spending more on some and less for others. Insofar as the consolid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormed us, that expenses towards commission and other marketing expenses were being debited to the total amount (Rs. 5000) received from the customers/investors. This response of the learned counsel further cements the conclusions recorded above. It, therefore, emerges that Rs. 5000 is not divisible into two separate components as alleged, and that, the entire amount is pooled together for the purposes of the totality of the scheme/arrangement carried out by the PGFL. Viewed in any manner, it is clear, that in its activities allegedly limited to, sale and purchase of agricultural land and/or sale and development of agricultural land, the PGFL accepts "contributions" from customers/investors, for collective utilisation, and further, that the PGFL pools the investments made by customers/investors with the aim/object of carrying out the purpose of the overall scheme/arrangement. It is, therefore, not possible for us to accept the first contention of the learned counsel for the petitioners. 59. The second contention of the learned counsel for the petitioners is based on the mandatory requirement of a "collective investment scheme" expressed in section 11AA(2)(ii) of the SEBI Act. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the learned counsel for the petitioners is that the PGFL does not "manage", the agricultural land sold by it, to its customers/investors. It is emphatically pointed out that the PGFL merely "maintains" and "develops", at the option of its customers/investors, the agricultural piece of land sold to them. It is also the contention of the learned counsel for the petitioners, that the activities carried out by the PGFL (which constitute maintenance and development), should not be confused with the responsibility of "management". While dealing with the issue, whether or not the sale/transaction executed by the PGFL, with its customers/investors, is merely a paper transaction, we have already recorded, that the alleged activity of sale and purchase conducted by the PGFL, is in the nature of an arrangement so as to enable the PGFL to continue with its earlier objectives i.e. with its activities before the introduction of the instant scheme/arrangement, and that the alleged sale and purchase of agricultural land and or development of agricultural land, is a mere paper transaction (for details refer to para 56 above). It is clear also from the reasons recorded while drawin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said conclusions, it also needs to be highlighted, that the activities of the PGFL also satisfy all the ingredients and tests which the Dave Committee had suggested in its report dated 31-12-1998, (for details see under head - 'Regulation of "collective investment schemes" in India') for identifying a "collective investment scheme". In view of the aforesaid deliberations, the questions posed hereinabove, are hereby answered in favour of the Board, and against the PGFL. V. Constitutional validity of section 11AA of the SEBI Act 63. Dr. A.M. Singhvi, learned counsel for the petitioners, entered appearance to canvass only one issue on behalf of the petitioners, namely, the constitutional validity of section 11AA of the SEBI Act. In sum and substance, his primary contention is based on the premise, that the amendment of the principal SEBI Act through the Securities Laws (Amendment) Act, 1999, whereby schemes which carried on activities of sale and purchase of agricultural land and/or development of agricultural land, were brought within the purview of the SEBI Act, were beyond the legislative competence of the Parliament, in conjunction with the aforesaid submissions, learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o control by the Board. This according to learned counsel is not, permissible at the hands of the Parliament, under Article 246 of the Constitution of India. 66. In order to substantiate the aforesaid contention, learned counsel has invited the Court's attention, to the historical background depicting the march of events and the evolution of the SEBI Act in its present form, commencing from the enactment of the Securities Contract (Regulation) Act, 1956. It was highlighted, that the object of legislation initially was to promote the development of the securities market as well as to regulate securities market. According to learned counsel, Parliament could legitimately legislate on the subject of "securities". In this behalf, reference is made to Entry 48 of the Union List, which is extracted hereunder :- "48. Stock exchange and future markets." The pointed and repeated, submission of learned counsel is, that the PGFL is merely engaged in the activity of sale and purchase of agricultural land, and/or seal and development of agricultural land, therefore, to include an entity like the petitioner, within the definition of the term "collective investment scheme", would amount to, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Transfer of property other than agricultural land; registration of deeds and documents. 7. Contracts including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land." Learned counsel wishes to emphasize, on the basis of the subjects enumerated in the aforesaid entries, that the framers of the Constitution, clearly expressed through the aforesaid entries (under the Union List and the Concurrent List), that the State Legislatures should have exclusive domain on the subject of agricultural land. Thus viewed, it is sought to be concluded, that Parliament has no power to legislate on matters related to agricultural land or matters connected therewith including land improvement. In view of the aforesaid submission, it is contended, that the amendment through which Parliament added section 11AA to the SEBI Act, has to be struck down, as being ultra vires the legislative competence of Parliament. 68. To substantiate the proposition canvassed in the foregoing paragraph, reliance was also placed on the judgment rendered by the Federal Court in Hindu Women's Rights to Property Act, 1937, In re A.I.R. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as clearly beyond the scope of the powers vested with the Parliament, to enact a law, regulating the activities of the PGFL. 69. Learned counsel for the petitioners also, invited the Court's attention to Entry 48 of the Union List (already extracted above), so as to assert, that it was well within the legislative domain of the Parliament to legislate on issues relating to "stock exchanges" and "future markets", and therefore, well within the domain of Parliament to legislate on matters pertaining to promotion, development and regulation of the securities market, as well as interests of investors in securities, however, since the activities of the PGFL do not fall within the framework of Entry 48 of the Union List, but are fully encompassed, within the subject expressed in Entry 18 of the State List, the inclusion of the activities of entities like the petitioner-company, for regulation through the Board under section 11AA of the SEBI Act, would amount to an act of transgression by the Parliament into the legislative domain of the State Legislatures. In conjunction with the aforesaid submission it is pointed out, that the SEBI Act was enacted under Entry 48 of the Union List, and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution of India, would not have, such an effect. In fact, according to learned counsel, various entries under the Union List and the Concurrent List (all referred to and extracted above) when read in conjunction with Entry 18 of the State List, lead to the clear conclusion, that the framers of the Constitution did not desire Parliament to legislate on matters relating to agricultural land or on matters connected therewith including land improvement. Reliance, in this behalf, was placed again on the judgment rendered in McDowell & Co.'s case (supra), wherein the Apex Court observed : "37. We may in this connection refer to the Constitution Bench decision of this Court in Calcutta Gas Co. (Proprietary) Ltd. v. State of W.B. AIR 1962 SC 1044 which furnishes a complete answer to the petitioners' contentions on this score. The West Bengal Legislature passed an Act (West Bengal Oriental Gas Company Act, 1960) [15 of 1960] with a view to take over the management and control of the undertaking of the Oriental Gas Company. Notifications were issued under the Act taking over the Company which was questioned by way of a writ petition in the Calcutta High Court. The writ petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate gives full and effective scope of operation for both the entries in their respective fields, while that suggested by learned counsel for the appellant deprives Entry 25 of all its content and even makes it redundant. The former interpretation must, therefore, be accepted in preference to the latter. In this view, gas and gasworks are within the exclusive field allotted to the States. On this interpretation the argument of the learned Attorney General that, under Article 246 of the Constitution, the legislative power of State is subject to that of Parliament ceases to have any force, for the gas industry is outside the legislative field of Parliament and is within the exclusive field of the Legislature of the State. We, therefore, hold that the impugned Act was within the legislative competence of the West Bengal Legislature and was, therefore, validly made.'" (p. 733) The Supreme Court in McDowell & Co.'s case (supra), proceeded to further hold : "'As we have indicated earlier, that the expression "industry" in Entry 52 of List I bears the same meaning as that in Entry 54 of List II, within the result that the said expression in Entry 52 of List I also does not take in a gas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI Act as ultra vires the legislative competence of Parliament, learned counsel for the petitioners advanced an alternative contention, whereby, the petitioners' purpose would be served, and the necessity of striking down section 11AA of the SEBI Act, avoided. According to the learned counsel, section 11AA of the SEBI Act would be constitutionally valid if the term "property", expressed in sub-section (2)(ii) thereof, is read down in a manner, so as to exclude agricultural property therefrom. It is the submission of the learned counsel for the petitioners, that by adopting the aforesaid course of interpretation, the object sought to be achieved by the Parliament to regulate securities, and future markets through section 11AA of the SEBI Act would be saved. Stated in other words, the alternative contention of the learned counsel for the petitioner is that the term "property" used in section 11AA (2)(ii) should be read down, so as to exclude agricultural land therefrom, and by doing so, the activities of the PGFL will automatically stand excluded from the purview of the SEBI Act. 73. Mr. G.E. Vahanvati, Solicitor General of India entered, appearance on behalf of respondent No. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irregularities in respect of a particular company, the Government of India appointed a Commission of inquiry presided over by Justice S.R. Tendulkar. The said Commission, at a later stage, was headed by Justice Vivian Bose. The report submitted by the Commission, unearthed the intrigue, abuse of trust, jugglery of company funds, misuse and abuse of position of power in the management and affairs of the company in question, as also criminal breach of trust in respect of funds of the company, as well as, the manner of misutilisation of corporate funds and finances for personal advancement. This report led to the Companies (Amendment) Act, 1965, which drastically increased Governmental control, over private sector companies. The Companies (Amendment) Act, 1975 introduced section 58A. In exercise of power conferred by section 58A (read with section 647 of the Companies Act), the Central Government enacted Deposit Rules. Rule 3A of the Deposit Rules, required every company to deposit or to invest, a sum not less than 10 per cent of the amount of its deposit maturing during the year ending on the 31st of March next following, in a manner indicated by the rule, with the objective of prot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latory measure if a company for the benefit it enjoys of an enabling power to invite deposits from public is asked to keep in deposit ten per cent of the deposits maturing in a year the same would be deprivatory and therefore arbitrary. . . . But as noticed in the Statement of Objects and Reasons while introducing the 1974 Amendment Act which incorporated section 58A in the Companies Act, it was designed to meet cases of abuse or distortion of system, which have, of late, assumed comparatively serious proportion, and stringent measure of control has become inevitable. This is in accord with the report of the Jenkin's Committee in the United Kingdom in which it was observed that the company is not a field of legislation in which finality is to be expected, as the law falls (sic fails) to be applied to a growing and challenging subject-matter and growing use of the company system as an instrument of business and finances and the possibilities of abuse inherent in that system. A vigilant Parliament keeping a close watch over this corporate sector wielding considerable economic power has to take steps by doses to eradicate the abuses of economic power by these corporations. More insid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject or the purpose for which the power was conferred under section 58A on the Central Government." (p. 188) 75. In the same context as noticed above, learned counsel placed reliance on the judgment of the Supreme Court in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 1 SCC 424. In the aforesaid case, the respondent company issued an Endowment Certification Scheme under which a subscriber was required to pay an annual subscription for a number of years. (varying between a minimum of 10 years to a maximum of 30 years). On the expiry of the maximum period, a sum of money described as the "endowment sum" was payable to the subscriber by the respondent-company. Every subscriber was also entitled to be paid a guaranteed fixed bonus. A certificate acquired "surrender value" after the expiry of three years from the date of commencement, after subscription for two full years had been paid. A certificate which had not acquired "surrender value" would lapse on non-payment of instalments, whereupon the amount already paid by the subscriber would stand forfeited to the respondent-company. A "lapsed certificate" could, however, be revived at any time, before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's newspaper to be greeted by advertisements inviting deposits and offering interest at astronomic rates. On January 1, 1987, one of the national newspapers published from Hyderabad, where one of us happened to be spending the vacation, carried as many as ten advertisements with 'banner headlines', covering the whole of the last page, a quarter of the first page and conspicuous spaces in other pages offering fabulous rates of interest. At least two of the advertisers offered to double the deposit in 30 months, 2000 for 1000, 10,000 for 5000, they said. Another advertiser offered interest ranging between 30 per cent to 38 per cent for periods ranging between six months to five years. Almost all the advertisers offered extra interest ranging between 3 per cent to 6 per cent if deposits were made during the Christmas-Pongal season. Several of them offered gifts and prizes. If the Reserve Bank of India considers the Peerless Company with eight hundred crores invested in government securities, fixed deposits with National Bank etc. unsafe for depositors, one wonders what they have to say about the mushroom non-banking companies which are accepting deposits, promising most unlikely retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t recorded the following observations in connection with investor protection: "The present petitions have perhaps brought to the force for the first time a public interest aspect of the issue of shares and debentures. In the past decades, investors in shares and equities constituted a very limit section of the public and consisted of two extreme types - either persons who could shrewdly apprise the merits of each issue and take a considered decision or persons who just wanted to invest and get a return for their moneys but were indifferent to the terms and condition of such investment. The position has changed in recent years. There has been a vast increase in the number of members of the public who have surplus money to invest; the size of the issues had assume macro-proportions; and the types of instruments are also becoming more and more sophisticated. Entrepreneurs, with legal and expert assistance at their command, could easily trap unwary investors and the developments of a public interest lobby that can scrutinise issue carefully and advise prospective investors on their comparative merits and demerits may not be entirely undesirable.... But we have no hesitation in saying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in issue has been enacted does not expressly fall in any of the entries, in any of the three lists, in the Seventh Schedule of the Constitution. 80. In order to buttress his submission, learned counsel for respondent No. 1, first placed reliance on the decision of the Apex Court in Second GTO, Mangalore etc. v. D.H. Nazareth [1970] 1 SCC 749. The respondent in the aforesaid case was the owner of a coffee plantation. He made a gift by way of a registered deed dated 22-1-1958, of a coffee plantation and other properties in favour of his sons. The market value of the entire gifted property was Rs. 3,74,080, whereas, the market value of the coffee plantation, which was also the subject-matter of the aforesaid gift, was Rs. 3,24,700. The gift tax authorities demanded a sum of Rs. 35,612 as gift tax payable by the respondent. In case other coffee plantation was excluded from tax liability, the respondent would have to pay a gift tax of Rs. 15,761. In order to attain the aforesaid objective, the respondent challenged the right of Parliament to impose gift tax on lands. The plea raised on behalf of the respondents was based on the ground that Entries 18 and 49 of the State List, fall in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and agricultural land or income from agriculture exclusively by the states in contrast with Entries 82, 86, 87 and 88 where the taxes are imposed on properties other than agricultural land or income from agriculture. It is submitted, therefore, that the general scheme of division of taxing and other entries by which land particularly agricultural land and income therefrom is reserved for the States shows that taxes on lands and buildings read liberally must also cover taxes in respect of gifts of land particularly agricultural land and buildings. If the entry so read can be reasonably said to include the tax, then there can be no question of recourse to the residuary powers of Parliament." (p. 752) Having concluded that Gift Tax Act, 1958, did not transgress into the subject-matter expressed in Entries 18 and 49 of the State List, and further that it was not beyond the legislative competence of the Parliament to enact the same, the Court recorded the following observations :- "9. The Constitution divides that topics of legislation into three broad categories: (a) entries enabling laws to be made, (b) entries enabling taxes to be imposed, and (c) entries enabling fees and stamp d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, whether the amendment of the definition of the term "assets", by withdrawing the exemption in respect of agricultural land, was within the competence of the Parliament. Learned counsel, invited the attention of this Court to the submission made by Mr. Palkhiwala, while relying on the Constituent Assembly debate, to the effect, that the three Lists of the Seventh Schedule, were exhaustive in nature and that the residuary power to legislate on residuary issue, could relate only to a matter which arose, or came to be recognised, after the promulgation of the Constitution. Stated in other words, residuary powers (according to the plea advanced in the aforesaid case), would not cover a subject-matter, which was identifiable at the time of framing of the Constitution of India. The aforesaid contention was sought to be repelled by the Apex Court with the following observations :- "28. We do not think it is a legitimate manner of interpretation. The debates show that notwithstanding that certain taxes were known to the members of the Constituent Assembly they were not mentioned in the final list. Yet it can hardly be argued that they would not fall within the residuary powers." (p. 79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Mills Co. Ltd's. case (supra), Peerless General Finance and Investment Co. Ltd's. case (supra ) and Narindra Kumar Maheshwari's case (supra), emphatically pointed out that the Apex Court has recognised the necessity of legislation for purposes of consumer/investor protection. In fact, the Supreme Court went on to the extent of describing the aforesaid issue as a constitutional obligation, of the State to protect the socially and economically weaker segment of the society against exploitation. In the aforesaid view of the matter, it is contended that "investor protection" constitutes an exclusive subject by itself for purposes of legislation. Since the aforesaid subject-matter does not fall in any of the entries of the State List and the Concurrent List, Parliament alone can legislate on the said subject, under Article 248 of the Constitution of India, read with Entry 97 of the Union List. In conjunction with the aforesaid factual/legal position, learned counsel invited our attention to the objects and reasons for enacting the SEBI Act in 1972, as well as the conditions which necessitated various amendments from time to time leading upto the inclusion of section 11AA in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State List i.e., Entry 18 under State List. The solitary contention of the learned counsel for the petitioners, while repudiating the submissions advanced on behalf of the respondents is, that in a situation where a subject-matter is earmarked for legislation, at the hands of the State Legislature i.e., under the State List, Parliament is precluded from effecting legislation in connection therewith. Furthermore, the residuary clause under the Union List i.e., Entry 97 of the Union List, as well as, Article 248 of the Constitution of India cannot, be invoked in a situation wherein the subject governed by the legislation finds mention in the State List. 84. In order to substantiate his aforesaid contention, learned counsel for the petitioners placed reliance on the decision rendered by the Apex Court in Union of India v. Harbhajan Singh Dhillon [1971] 2 SCC 779, (the controversy involved in the instant case has been narrated above, while dealing with the same, on the basis of a reference thereto, by the learned counsel for the respondents). The Supreme Court while dealing with the interpretation of Entry 97 of the Union List, as well as article 248 of the Constitution of India, laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual background, which had resulted in the enactment of the TADA Acts. The legislation is stated to have been enacted after prolonged debate in both Houses of Parliament, where it was highlighted, that ordinary criminal laws were inadequate to meet with the activities of terrorists, which had astronomically increased with the passage of time. The activities of the terrorists were allegedly aimed at breaking down of the constitutional machinery disrupting life and liberty. On the basis of the aforesaid factual matrix, the TADA Acts were stated to have been enacted under Entries 1, 2 and 2A of the Union List, read with Entries 1 and 2 of the Concurrent List. Dealing with the issue of legislative authority of Parliament, the Apex Court observed as under :- "...While examining the question of legislative competence of Parliament to make a law, the proper approach is to determine whether the subject-matter of the legislation falls in the State List which Parliament cannot enter. 59. If the law does not fall in the State List, Parliament would have the legislative competence to pass the law by virtue of the residuary powers under Article 248 read with Entry 97 of the Union List and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arent that the foundation thereof is based on the alleged "sole activity" being carried on by the PGFL, i.e., sale and purchase of agricultural land and/or sale and development of agricultural land. Under the head - "Is the business activity of the PGFL "collective investment scheme"?, in this judgment, we have already recoded that the alleged "sole activity" of sale and purchase of agricultural land and/or sale and development of agricultural land, at the hands of the PGFL, is a sham and a mere paper transaction. In the aforesaid view of the matter, the very foundation of the submissions of the learned counsel for the PGFL, on the issue of Constitutional validity of section 11AA of the SEBI Act, falls to the ground, and therefore, requires no further examination. Be that as it may, in the following paragraphs, we have examined the issues raised on behalf of the petitioners, in respect of the Constitutional validity of section 11AA of the SEBI Act, by assuming that the activity of the PGFL, is what has been projected on its behalf, namely, sale and purchase of agricultural land and/or sale and development of agricultural land. 89. In Delhi Cloth & General Mills Co. Ltd. case (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct enumerated under the State List, is in our view based on a misconceived foundation. The pith and substance rule is relatable to the objects and reasons of a legislation, and not to the activities of a party. The activities of a party are totally irrelevant, to the applicability, of the pith and substance rule. Stated in other words, while examining the issue of legislative jurisdiction, it is the pith and substance of the legislation, and not the pith and substance of the activities of a party, which are relevant. In drawing our conclusion, therefore,the relevant question to be examined would be, whether the pith and substance of the legislation under challenge is "investor protection", and sale and purchase of agricultural land is an activity ancillary thereto; or whether, the pith and substance of the legislation under challenge, is sale and purchase of agricultural land and 'investor protection' is ancillary thereto. In answering the aforesaid quarry, the conclusion undoubtedly is in favour of the former i.e., the pith and substance of the legislation in question is "investor protection", whereas sale and purchase of agricultural land and/or development of agricultural land i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n's case (supra), Kartar Singh's case (supra) and Naga Peoples Movement of Human Rights case (supra ), namely, that in case the subject-matter of legislation does not fall in any entry under the State List, Parliament alone will have the authority to legislate thereon. Since no Entry under the State List and the Concurrent List in the Seventh Schedule of the Constitution of India, relates to the subject of "investor protection", we find the ascertion on behalf of respondent No. 1, to the effect that Parliament had the right to legislate on the subject in hand, under Article 248 of the Constitution of India, read with Entry 97 of the Union List in the Seventh Schedule of the Constitution, because Entries 1 to 96 of the Union List also do not cover the instant subject of legislation. 93. In view of the conclusions recorded hereinabove, we find no merit in the contention of the learned counsel for the PGFL on the issue of vires of section 11AA of the SEBI Act. VI Conclusions: 94. On the basis of our determination of the various issues raised, by learned counsel, representing the rival parties before us, our conclusions can be summarised as under :- Firstly, the preliminary objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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