TMI Blog2013 (11) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - 123 & 124 of 2013 - - - Dated:- 23-7-2013 - JOG SINGH AND A.S. LAMBA, JJ. For the Appellant : S.K. Kapur, Vinay Chauhan, Prateek Jalan, Rishad Medora and Prashant Ingle. For the Respondent : Shiraz Rustomjee, Mihir Mody and Akhilesh Singh. ORDER:- PER : Jog Singh Both the instant appeals have been preferred by three Appellants, namely, Alchemist Infra Realty Limited (Appellant No. 1), Mr. N. Madhav Kumar, Director (Appellant No. 2) and Mr. Brij Mohan Mahajan, Director (Appellant No. 3). In Appeal No. 123 of 2013, the Appellants have only challenged the action of the Respondent in returning outright their request for a consent order without any consideration whatsoever as required by the two circulars dated April 20, 2007 read with Circular dated May 25, 2012. In Appeal No. 124 of 2013, however, Appellants have mainly challenged the impugned order dated June 21, 2013 by which the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and supervise the said land for a particular period of time and a management fee is also charged by Appellant No. 1 for performing this task, on behalf of the purchasers. Thereafter, the deed of conveyance is passed on to the Appellant No. 1 and a Certificate of Property is issued to the purchaser by Appellant No. 1, in which the expected value of the said piece of land after the expiry of a fixed period of time is also mentioned. 5. After expiry of the agreed fixed period of time, agreed between the two parties, the purchaser has the option of requesting Appellant No. 2 to identify a suitable party for disposing of the said land at a mutually agreed price. Not only this, a Special Power of Attorney is also executed by Appellant No. 1 in favour of the nominee by the two parties in question which is duly notarized. Therefore, it is contended on behalf of Appellant No. 1 that all the ingredients of a 'sale' as defined under the Transfer of Property Act, 1882 are present in the instant case. If the development period is over, the purchaser of land is free to sell it to whosoever he thinks proper. It is submitted to be a mere prudent business practice prevailing in similar trades in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Appellant No. 1 receives money as consideration by virtue of the business transactions entered into by and between the purchasers and the Appellant No. 1; (d) The Appellant No. 1 does not guarantee any profit to the purchaser. Moreover, the sale consideration being received by the Appellant No. 1 is not being managed by the Appellant No. 1 on behalf of the purchasers; 8. Referring to the latest ruling of Hon'ble Supreme Court in the case of P.G.F. Ltd. v. Union of India Anr. [2013 AIR SCW 2420] decided on March 12, 2013, l learned senior counsel Mr. S.K. Kapur has taken a lot of pains to distinguish it through a threadbare analysis of P.G.F. Ltd. case (supra) vis- -vis the case of Appellant No. 1. For the sake of convenience the points raised by Mr. S.K. Kapur, learned senior counsel can be summarized as below: (a) In the case of PGF, sale of land was not immediately made, the same was dependent on certain other time bound contingencies, whereas, in the case of Appellant No. 1 sale of land is immediate; not dependent on any time bound contingency; (b) In the case of PGF, the company continued to retain absolute control over the land, whereas, Appellant N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel, we feel it appropriate to mention certain developments in the matter. Firstly, the Appellants have approached the Hon'ble High Court of Jharkhand at Ranchi raising some grievances connected with the present matter. A Single Bench of the Hon'ble High Court of Jharkhand at Ranchi, by an order dated May 10, 2013 directed the Respondent to conclude the enquiry within six weeks from the date of receipt of a copy of the order. The Appellants have preferred Letters Patent Appeal before the Division Bench of the same High Court against the order dated May 10, 2013 but the same is stated to have been withdrawn by the Appellants in the recent past. Therefore, we do not consider it necessary to deal with this aspect any further. Secondly, the Appellants have also approached the Hon'ble High Court of Delhi seeking a direction to the Respondent to objectively consider the request of the Appellants for a consent order in the matter, in terms of, inter alia, paragraph 21 of the Show Cause Notice dated November 21, 2012 issued to the Appellants by the Respondent. However, this submission was not recorded in the order dated June 5, 2013 by the High Court probably due to inadvertence. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement'. To enter this agreement minimum land holding should be of 300 sq ft (if not specified otherwise) and additional holdings should be in the multiples of 100 sq. ft. Presently the lease amount is fixed at Rs. 3300/- per annum for a period of 3 years on an area of 300 sq.ft. The amount will be increased proportionately in accordance with the land holdings. This amount will be made available to the 'allottee' in equated monthly installments spread through the lease period." 11. The Respondent submits that after having perused all documents submitted by the Appellants the following points emerge: i. While applying, the investors necessarily have to execute a supervision/development agreement with the Company. Without executing the same, an investor would not be eligible to file the applications; ii. The plot of land as mentioned in the conveyance deed cannot be identified. The investor does not know where his property is a he gets only an undivided interest in a large land holding; iii. On termination of the development agreement, there is no indication that the land will get conveyed fully to the investor. On the other hand, the investor gets the optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme. (2) Any scheme or arrangement made or offered by any company under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view 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 co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State; (ii) under which deposits are accepted by non-banking financial compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person concerned has been given a reasonable opportunity of being heard.' CIS Regulations : "3. No person other than a Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme. 73. (1) An existing collective investment scheme which: (a) has failed to make an application for registration to the Board; or (b) has not been granted provisional registration by the Board; or (c) having obtained provisional registration fails to comply with the provisions of regulation 71; shall wind up the existing scheme. (2) The existing Collective Investment Scheme to be wound up under sub-regulation (1) shall send an information memorandum to the investors who have subscribed to the schemes, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount if determined. (3) The information memorandum referred to in sub-regulation (2) shall be dated and signed by all the directors of the scheme. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal registration is obtained from SEBI. Finally, Regulation 73 provides that in case a company carrying on business in the nature of a CIS does not wish to obtain provisional registration with the SEBI, it may devise a scheme of repayment of money collected from investors in accordance with the CIS Regulations. 17. At this stage it would be pertinent to note a submission, regarding the interpretation of said Regulation 73, by Mr. Kapur, the learned senior counsel appearing for the Appellants, that it applies 'only' to CISs which were in existence in the year 1999 when the CIS Regulations were legally enforced by publication in the Official Gazette. We have thoroughly pondered over this submission and even revisited the CIS Regulations to unearth their true import. And we note that the CIS Regulations in question were promulgated by the Government of India to protect the interests of lacs of gullible investors who are prompted to invest in such schemes by advertisement, publicity etc. Therefore, we are of the considered opinion that a wider interpretation, which is in tune with the underlying purpose envisaged by the said Regulations, has to be adopted. We, therefore, hold that Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 imperative that the transaction of the PGF Limited vis-a-vis its customers has necessarily to be examined as to its genuineness by subjecting itself to the statutory requirement of registration with the second respondent followed by its monitoring under the regulations framed by the second respondent. All the above factors disclose that the activity of sale and development of agricultural land propounded by the PGF Limited based on the terms contained in the application and the agreement signed by the customers is nothing but a scheme/arrangement. Apart from the sale consideration, which is hardly 1/3rd of the amount collected from the customers, the remaining 2/3rd is pooled by the PGF Limited for the so called development/improvement of the land sold in multiples of units to different customers. Such pooled funds and the units of lands are part of such scheme/arrangement under the guise of development of land. It is quite apparent that the customers who were attracted by such schemes/arrangement invested their monies by way of contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also examine the account books other records and based on such inspection, enquiry and investigation issue any further directions in accordance with law. Whatever amount deposited by the PGF Limited pursuant to the interim orders of this Court relating to joint venture scheme shall be kept in deposit by the second respondent in an Interest Bearing Escrow Account of a Nationalized Bank. The second respondent shall also verify the records of the PGF Limited relating to the refund of deposits of the customers who invested in the joint venture schemes and ascertain the correctness of such claim and based on such verification in the event of any default noted, appropriate further action shall be taken against the PGF Limited for settlement of the monies payable to such of those investors who participated in any such joint venture schemes operated by the PGF Limited. It will also be open to the second respondent while carrying out the above said exercise to claim for any further payment to be made by the PGF Limited towards settlement of such claims of the participants of the joint venture schemes and charge interest for any delayed/defaulted payments. As far as the deposit made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,90,000/-and it mobilized Rs.815.23 crores under joint venture schemes from 01.04.1996 to 30.06.2002. The future liabilities towards joint venture schemes was projected in a sum of Rs.655.41 crores. Total outstanding liabilities payable to investors under the old closed schemes as on 30.06.2002 was stated to be Rs.497 crores. As against the above, till 31.10.2002, the PGF Limited stated to have made a net payment of Rs.115.93 crores leaving the balance due in a sum of Rs.393.69 crores approximately. The above details have been noted by the second respondent while mentioning the submission of the PGF Limited in its order dated 06.12.2002. Thus, we are convinced that the PGF Limited deliberately did not furnish the amounts till this date what was collected from the customers who made their investments in the so-called venture of sale and development of agricultural lands. Therefore, it is explicit that the PGF Limited was playing a hide and seek not only before the second respondent, but was also taking the Courts for a ride. We have noted in more than one place in our order that inspite of our repeated asking the appellants did not come forward to disclose the details of any develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the same to be divided into several plots and has been carrying on diverse types and kinds of activities thereat, giving substantial yields and profits." 22. 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. At this stage it is pertinent to quote the Hon'ble Punjab and Haryana High Court, which held in the case of P.G.F. Ltd. (supra) that, "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'". Further, we note that the 'Certificate of Property' which happens to be the only instrument held by the investor, states clearly that "the Estimated value of the said undivided share after development is expected to be not less than Rs. (Rupees ..) on expiry of tenure under the said Agreement". This leads us to the indisputable conclusion that the scheme carried on by the Appellants involves investment by its customers with the hope of recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e most important task is to determine the 'pith and substance' of the provisions concerned, i.e., their true and essential character. The whole scheme of CIS as enshrined in the SEBI Act, 1992 and the CIS Regulations, 1999 as already discussed hereinabove is the welfare of millions of innocent investors by duly protecting their interests. The legislative intent and idea of the Parliament as well as SEBI seem to bring more transparency to the affairs of various CISs by duly regulating the same. 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. 25. In light of the above, we have no hesitation in upholding the impugned order dated June 21, 2013 finding no legal infirmity with the same. Now, keeping in view the large number of investors involved, i.e., around one and a half million, 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 applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s context, it is argued that a consent application can be returned only on the grounds mentioned in Clauses 8 and 9 of circular dated May 25, 2012 for rectification and resubmission. 28. On the other hand, learned senior counsel for the Respondent, Mr. Rustomjee, submits that this appeal itself is not maintainable. Learned senior counsel submits that paragraph 21, as contained in SCN dated November 21, 2012 is a "standard form" clause and as such would not give a right to any person to get his matter resolved through the consent mechanism. 29. Having heard both the learned counsel for the parties at length, we are of the considered opinion that, in the facts and circumstances of the case, SEBI should not have returned the request of the Appellants made pursuant to paragraph 21 of the SCN and in accordance with the two circulars dated April 20, 2007 and May 25, 2012 issued by SEBI for a consent order un-ceremoniously. We appreciate that there was a time-frame prescribed by the Hon'ble High Court of Delhi to pass a final order in the matter on or before June 26, 2013, but the application for consent order in question was preferred by the Appellant before SEBI only on June 11, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIS Regulations, not be issued to the Appellants. Paragraph 3 of SEBI's note contains Regulation 73 of the CIS Regulations, which authorises SEBI to direct the Appellants in a given case to wind up a CIS scheme and refund money to investors within a specified period, in case any existing company operating a CIS has failed to make an application for registration. It is suggested in paragraph 3 of SEBI's note that "it may not be appropriate to consider applications (in respect of CIS violations) without the applicant(s) first making the refund to the investors, as mentioned in CIS Regulations. Only thereafter, if it may desire so, it can seek a settlement of enforcement proceedings. However, it appears in the present case that no such refunds have been made". 33. Thus, paragraph 2 speaks of allegations against the Appellants and also deals with directions to be issued to a company which has violated Section 12 (1B) of the SEBI Act and Regulation 3 of the CIS Regulations. While paragraph 3 deals with Regulation 73 of CIS Regulations regarding powers of SEBI to issue directions for violations of section 12(1B) of the SEBI Act and Regulation 73 of the CIS Regulations. 34. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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