TMI Blog2015 (8) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to comply with directions contained in impugned order of SEBI – Application dismissed – Decided against Applicant. - Misc. Application No. 88 of 2015 And Misc Application No. 129 of 2015 And Misc. Application No. 171 of 2015 And Appeal No. 368 of 2014 - - - Dated:- 12-8-2015 - J.P. Devadharand Jog Singh, JJ. For The Appellant : Mr. Janak Dwarkadas, Senior Advocate with Mr. Rajiv Nayar, Senior Advocate, Mr. L. S. Shetty, Ms. N. L. Shetty, Mr. N. L. Sabhnani, Mr. Abhishek Amritanshu, Mr. Amit Pawan and Mr. Rudreshwar Singh, Advocates, Mr. Chirag Kamdar, Advocate with Mr. Samir Ali Khan, Advocate, Mr. Gaurav Pachnanda, Senior Advocate i/b Mr. Devanshu Desai, Advocate, Mr. Srikant D. Padhi, Advocate i/b Mohanty Associates, Mr. T. R. Subramaniam, Senior Advocate with Mr. Sandeep Parekh, Mr. D. P. Mohanty, Mr. Shashank Prabhakar, and Mr. Shashank Patil, Advocates i/b Parekh Co. For The Respondent : Mr. Darius Khambata, Senior Advocate with Mr. Mihir Mody, Mr. Rushin Kapadia, Ms. Shruti Chiniwar, Mr. Akshay Patil, Mr. Jayesh Ashar and Mr. Harekrishna Ashar, Advocates i/b K. Ashar Co. ORDER Per: Justice J.P. Devadhar 1. Whether the Securities and Excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the PIL to get themselves Credit Rated from the Credit Rating Agency approved by SEBI and pending further orders all those companies and their directors were restrained from alienating or parting possession of their immovable properties. e) On 08.12.1998 PACL moved an application before the Delhi High Court seeking deletion of its name from the list of the respondents in the PIL on the ground that the business carried on by PACL did not fall within the scope of CIS. f) On 15. 10. 1999 the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 ( CIS Regulations for short) were framed and notified by SEBI. Thereafter by its communications/ orders dated 30.11.1999 and 10.12.1999 SEBI informed that the schemes floated by PACL were covered under CIS Regulations and called upon PACL to comply with and abide by the CIS Regulations, failing which consequential directions would be issued under Section 11B of SEBI Act and Regulation 65 of CIS Regulations. g) By its reply dated 13.12.1999, PACL submitted that the activities carried on by it were not covered under CIS and hence, PACL was not required to comply with the CIS Regulations. Apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court dated 28.11.2003, wherein it was held that the sale and purchase transactions carried on by PACL are not covered under CIS, SEBI filed Civil Appeal before the Apex Court. By its order dated 26.02.2013, Apex Court set aside the decision of the Rajasthan High Court and directed that the notices dated 30.11.1999 and 10.12.1999 be treated as show cause notices and permitted SEBI to issue supplementary show cause notice to PACL and its directors within the time stipulated therein and pass fresh orders in relation to the question as to whether the business activity carried on by PACL falls within the category of CIS or not and depending upon that, SEBI may proceed further in accordance with law. Apex Court further directed that before taking any future action SEBI shall give prior notice to PACL. m) Accordingly, SEBI conducted further investigation and issued a supplementary show cause notice on 14.06.2013 to PACL and its directors/former directors, calling upon them to show cause as to why the schemes of PACL should not be declared as CIS and if found to be CIS why appropriate action including direction under Section 11 and 11B of the SEBI Act read with Regulation 65 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of land was made by PACL some years after the monies were collected from the investors cannot by itself demonstrate any pooling of funds. In order to demonstrate pooling of funds, it is incumbent on SEBI to show that once monies are invested with PACL, they completely lose their identity. In case of PACL, each investor is allotted an identifiable piece of land, albeit subject to certain contractual caveats at a date subsequent to when the amount was paid. It is not the case of SEBI that even in a single case, the land allotted to the investor does not actually exist. Therefore, fact that the land is allotted subsequent to payment cannot be a ground to infer that the funds are pooled. d) Fact that insignificantly small number of sale deeds have been executed and verified by Justice K. Swami Durai cannot be a ground to infer that the business of PACL was essentially providing fixed return on investments. PACL is not providing any return to its customer and at best it facilitates the sale of land allotted to the customers if they wish to sell their land before getting the actual sale deed executed. Moreover, the land being sold are barren agricultural lands, PACL knows how and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination to a lower court with certain specific directions from the superior court, it is the bounden duty of such lower court to follow the directions of the superior court with specificity and in entirety. In support of the above contention reliance is placed on the decision of the Apex Court in the case of Tirupati Balaji Developers (P) Ltd. Vs State of Bihar reported in (2004) 5 SCC 1. h) By its order dated 26.02.2013 Apex Court gave directions to SEBI as follows:- (i) pass fresh order as to whether the business activity of PACL falls under the category or CIS or not; ii) depending on that order proceed further in accordance with law and; iii) before taking any further action, give fresh notice to PACL. Since fresh notice is not issued after declaring that PACL is running a CIS, impugned order is in direct violation of the Apex Court directions. i) Supplementary show cause notice issued on June 14, 2013 to the effect that appropriate action including direction under Section 11 and 11B of SEBI Act read with regulation 65 of the CIS Regulations would be taken in the event that the schemes of PACL were found to be CIS, cannot be said to be in full compliance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first time on 22.08.2014 that the business carried on by PACL constitutes CIS and therefore it was imperative to provide an opportunity to comply with the provisions of law regulating the activities of CIS. Pertinently, CIS in not a prohibited activity, but a regulated activity. It is not per se illegal and the public policy does not require that all CIS activity should be stopped. Therefore, without giving an opportunity to register, WTM could not have as a natural consequence directed to wind up the CIS carried on by PACL. By taking away PACL s right to seek registration under CIS Regulations and by virtually directing PACL to shut down its business, the fundamental right of PACL to carry on business guaranteed under Article 19(1)(g) of the Constitution of India is infringed. l) It is not in dispute that on registration PACL could carry on CIS business legally. Since the business of PACL commenced in 1995 and continued to be carried on legitimately from 1999 onwards pursuant to the orders passed by the Delhi High Court, Rajasthan High Court and thereafter by the Apex Court till the date of the impugned order, the WTM, after holding on 22.08.2014 that PACL is running ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty Ltd. Vs SEBI (Appeal No. 124 of 2013 decided on 23.07.2013). Argument of SEBI that the aforesaid decision of this Tribunal in Alchemist is per incuriam on account of it being contrary to regulation 68 of the CIS Regulations, is in correct, because the said decision is based on a holistic reading of the complete scheme of the regulations. A holistic reading of the regulations would necessarily involve considering regulations 9,10 and 12 etc. Regulation 12 specifically provides for an opportunity of hearing even if registration is to be refused. p) Argument of SEBI that PACL has been operating CIS prior to 1999 and continued to operate those CIS even after 1999 without availing the opportunity of registration under CIS Regulations and thereafter, launched new schemes without registering under CIS Regulations is without any merit because i) PACL has always contended that it is not a CIS ii) that stand of PACL was upheld by Rajasthan High Court which quashed the two orders issued by SEBI in 1999 iii) SEBI attempted on two occasions to obtain stay of the business of PACL which was refused by the Apex Court on both occasions iv) Apex Court directed SEBI to issue supplementary sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent appeal. Since PACL has been carrying on business in a bonafide and legitimate manner duly permitted by orders of Rajasthan and Delhi High Courts. Right to seek registration in respect of CIS existing before the CIS Regulations came into force being an inherent right, SEBI is not justified in abrogating that right by the impugned order. t) Argument of SEBI that regulation 65 of the CIS Regulations is a supervening power and overrides Chapter IX is without any merit. Regulation 68 of the CIS Regulations contains a deeming fiction. That deeming fiction created by statute must be taken to its logical end without allowing the imagination to boggle. To give full effect to that legal fiction, viz PACL is an existing CIS, all rights flowing from the CIS Regulations for existing CIS s must be observed. There has to be a determination as to whether or not PACL is entitled to register itself as a CIS, as provided in regulation 68 to 72 of the CIS Regulations, which is an obvious and necessary precursor, to determining eligibility of PACL to register itself as a CIS. Winding up under the circumstances set out under regulation 73 is subject to following the procedure prescribed under re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandatory procedure set out therein. Therefore, argument of SEBI that regulation 65 is a supervening power is incorrect. w) Right of PACL to contend that it is not a CIS cannot be confiscated in the manner suggested by SEBI. If this Tribunal or ultimately the Apex Court holds that PACL is not running a CIS, then implementing the order of SEBI before such order being passed by this Tribunal or Apex Court would directly affect the fundamental right guaranteed by the Constitution to PACL to carry on its business. PACL is entitled to equal protection of law and in this case the law laid down in the CIS Regulations provides for an opportunity of registration and that opportunity is taken away arbitrarily in violation of Article 14 of the Constitution. x) Having rejected the without prejudice proposal submitted by PACL on 11.08.2014 by offering to repay the money to the eligible customers, the WTM could not have relied upon the said without prejudice proposal to support the conclusion arrived at namely, that the natural consequence of the activities of the appellant being found to be a CIS was to immediately prevent the entity from continuing with such activity and to direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as to whether the business of PACL is covered under CIS and Second stage was to depend on the outcome of the first stage i.e. if PACL was running a CIS then to issue fresh notice and take fresh proceedings to determine the consequential action to be taken. Instead of following the two stage procedure prescribed by the Apex Court, the WTM has held that PACL is running a CIS without obtaining registration under CIS Regulations and as a natural consequence ordered winding up which is directly in violation of the Apex Court order. Since, specific procedure prescribed by the Apex Court is not followed, the impugned order is liable to be set aside in its entirety and require the WTM to decide afresh both the issues independently. b) There is no provision for determination by SEBI as to whether an entity is running a CIS or not. Therefore, the Apex Court devised the two stage procedure. In terms of the Apex Court order the WTM was bound to follow both the procedures. Since the WTM failed to follow the second procedure, impugned order is bad in law. c) Neither the SEBI Act nor the CIS Regulations postulate that running CIS is ipso facto illegal. The only requirement under those pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIS then every real estate company constructing flats would have to be held to be running a CIS, which can certainly not be the case. g) The business activities of PACL do not satisfy the conditions prescribed under Section 11AA (2) of the SEBI Act, because, PACL admittedly has a huge land bank and therefore it is not as if the payment made by the investors is pooled for the purpose of the scheme. There is no question of making payment under the scheme to receive profit from the scheme as the transaction is simpliciter that of sale and purchase of land and it is just that the payment of consideration by the customer is planned as per his needs. There is no scheme or arrangement as such but a straight forward real estate transaction with the various plans only being with respect to the mode of payment of the consideration amount. If the meaning which is being sought to be given by SEBI to Section 11AA(2)(ii) of the Act is to be accepted then every transaction of sale and purchase of property would amount to a CIS. h) Once the transaction is complete and the sale deed is executed, PACL does not manage the property and it is the customer who is in charge. The example of a trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indeed real estate transactions, then whatever was the scope of enquiry entrusted to him, does not make any difference. If findings are recorded on questions of fact, and these findings are not disputed, and these findings of fact lead to certain inferences/conclusions, then such inferences cannot be ignored only because it was not the scope of the enquiry to make such conclusions. k) It has been argued on behalf of SEBI that even if Justice K. Swami Durai report were to be accepted, it certifies the genuineness of only 0.03% of the cases and in the balance 99.97% cases, sale deeds have not been executed and therefore report of Justice K. Swami Durai does not held PACL. What the report shows is that PACL was the owner and in possession of land, it was executing sale deeds in favour of its customers after developing the agricultural lands and the customers were coming into physical possession of their lands and doing whatever they wanted, be it constructing cottages, planting trees etc. This report therefore proves the bonafides of the business model of PACL. What percentage of customers actually chose to get sale deeds executed or what percentage chose to opt out and sell the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation with SEBI, and once that is done, there is no bar on running a CIS. When law provides that a CIS can seek registration and continue its activities then such a right cannot be taken away by the regulator. In the impugned judgment and order, the WTM has categorically held that natural consequence of his finding that PACL was running a CIS, would be to direct it to stop its activity and refund monies to is investors. When the Regulations provide that any person can run a CIS subject only to registration then even if the WTM found that PACL was running a CIS, he had to give the opportunity of registration to PACL. Even if PACL was running a CIS, it could continue to do so, as long as it sought and obtained registration with SEBI. The impugned order is therefore completely in breach of the regulations and therefore fit to be set aside. A direction of winding up and refund of monies can never be the natural consequence of a finding that a person is running a CIS. p) SEBI had also originally offered registration to PACL by notices dated 30.11.1999 followed by second notice dated 10.12.1999. It is therefore apparent that at least in 1999, the understanding of SEBI also was that ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration as CIS only when SEBI declared that PACL was running a CIS. Since, the WTM has failed to give an opportunity to register as CIS the impugned order is bad in law. s) Argument of SEBI that PACL had two windows of opportunity under the regulations, once under regulation 5 in the year 1999 and the second time in 2014 under regulation 74A and since PACL did not avail this opportunity, it has missed the bus is without any merit. When there was a positive declaration that PACL is not running a CIS, then PACL was not expected to seek registration. Since the proceedings were pending before the WTM, SEBI could very easily have conveyed to PACL that it had a two month opportunity for registration. However, the WTM merrily proceeded without even a whisper in this regard. t) Regulations 68 to 72 provide for an existing CIS to seek registration and provide the procedure for making such application. Once the WTM held that PACL was running a CIS, the next step, as per the regulations, would have been for PACL to seek registration under regulation 68 read with regulation 5. This opportunity has been denied to PACL by the impugned judgment and order and therefore the same is fit to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers under regulation 65 as also under Section 11B but that does not mean that these powers can be used to frustrate the other provisions of the regulations. An interpretation whose effect is that one provision completely abrogates another provision can never be a correct interpretation. y) Argument of SEBI that it has the power under regulation 9(d) not to consider an application for registration if the applicant is not a fit and proper person for grant of registration and this was such a case is fallacious, because to invoke this power, there has to be first, an application by PACL seeking registration; and secondly, a consideration by SEBI of such application by PACL; and thirdly, an order giving reasons for invoking such power. Admittedly, none of above three grounds are available in the present case and thus it can be safely said that there was no invocation of regulation 9(d) by SEBI and SEBI could not have invoked the said regulations. z) Argument of SEBI that PACL is not disclosing its assets despite directions by this Hon ble Tribunal is completely incorrect. In the affidavit filed before this Tribunal on 07.03.2015 it was pointed out that much prior to the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the pool, it is apparent that all contributions or payments have not been pooled or utilized for the purposes of the scheme. In such a case Section 11AA 2(i) (ii) would have no application at all because, the said Section applies only if the contributions are pooled as a whole and not in part. c) Once the investments or property or contribution covered by Justice K. Swami Durai (Retd.) report are excluded, from the purview of CIS then it is apparent that the ingredient of Section 11AA(2)(iii) are also not complied with or available so as to hold that rest of the investments or property or contribution are covered by CIS. d) Report of Justice K. Swami Durai (Retd.) clearly shows that the customers have day to day control over the management and operation of the scheme. Since that report is accepted, it is apparent that the requirement of Section 11AA (2)(iv) are not complied and it could not be said that the scheme floated by PACL constituted CIS. e) WTM of SEBI is not justified in approbating and/or reprobating by accepting the report of Justice K. Swami Durai (Retd.) and excluding the contributions or payments made by the customers from the purview of the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers of PACL. It is stated in the affidavit that the members of the Association are satisfied with the activities of PACL qua its customers, because, PACL has been allotting land to its customers faithfully. Customers have been investing in large numbers emboldened by the fact that the High Court as well as the Apex Court have permitted PACL to carry on its business activities. It is further stated in the affidavit that even if the business carried on by PACL is held to be CIS, the Association must be heard before deciding the future course of action. If PACL does not seek registration or registration is refused then the procedure prescribed under regulation 73 of the CIS regulations must be followed by forwarding the information memorandum to the customers so that they can make an informed decision as to what they would want to do with their money. It is further stated in the affidavit that by that time the Association is confident that more than 25% of the customers of PACL would want to continue with the schemes. 8. Mr. Gaurav Pachnanda learned Senior Advocate appearing on behalf of Mr. Balkaran Singh (applicant in Misc. Application No. 129 of 2015 in Appeal No. 368 of 2014) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may quote Section 11(1), 11(2) as amended by Act 9 of 1995, Section 12(1B) inserted by Act 9 of 1995 and 11AA (1) (2) inserted to SEBI Act by Act 31 of 1999 which read thus:- 11. Functions of Board (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for- (c) registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds; Section12(1B) (with effect from 25.01.1995) Section 12 (1B)No person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment scheme including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations: Provided that any person sponsoring or causing to be sponsored, carrying or caused to be carried on any venture capital funds or collective investment scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed form seeking registration within a period of two months from 15.10.1999. 16. PACL incorporated on 13.02.1996 (i.e. after Section 12(1B) came into force) launched its first scheme on 30.05.1996 without obtaining registration from SEBI. Over the next 15 years PACL floated 67 schemes. Out of 67 schemes floated by PACL, schemes 1 to 9 commenced on 30.05.1996 were closed on 30.09.2002. Schemes 10 to 27 commenced on 30.05.1996 were closed on 15.12.1997. Remaining schemes floated after 01.10.2002 had varying tenure, some of which have already been closed. 17. Since some of the schemes floated by PACL were existing on the date on which CIS Regulations came into force on 15.10.1999, PACL was required to seek registration within two months of CIS Regulations coming into force, only if the schemes were covered under CIS. When SEBI by its communications dated 30.11.1999 and 10.12.1999 informed that the schemes floated by PACL were covered under CIS and called upon PACL to comply with SEBI Act and CIS Regulations, by seeking registration within the stipulated time in terms of regulation 5 read with regulations 68 or wind up the schemes and repay the amount collected from the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, trees, plants, saplings etc., use of fertilizers and pesticides, irrigation, harvesting and other activities allied and incidental thereto. At the time of investment by the investor, PACL neither had ownership of the land nor was it identified. Investment was invited on the assurance that PACL would arrange the land for the investor. PACL offered the land units at a uniform price irrespective of the location and condition of the land. PACL offered profits by way of appreciation in the price of land unit, in certain cases earning from the produce of the land and at the end of investments tenure, offered to buy-back the land at a value which was informed to the investor as an expected value at the time of investment. 20. As rightly contended by counsel for SEBI, following facts noticed in the impugned order establish that the contributions made by the investors were pooled and utilized for the purposes of the scheme as provided under Section 11AA(2)(i) of the SEBI Act:- a) PACL collects money from customers/ investors against the purported sale of plot/land. The application form and the agreement are the primary documents taken by PACL from a customer for subscribing to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indeterminate, expected value of land is mentioned in the registration letter, which indicates that PACL pools the money received from the customers. e) In all documents pre-printed by PACL, namely Clause 7(g) of the Rule book, Condition No. 16 of the General Terms and conditions of the application form and clause 1 of the Agreement printed by PACL specifically provide that the land units offered to its investors being smaller in size and the land laws prohibit division of land into smaller units or division into smaller sizes may not be otherwise feasible or practical, the ownership of land will be transferred to the applicant/ land Unit Holder in joint holdings out of the larger land units as may be permissible. Thus, the customers/ investors would have the requisite shares along with other allottees/ transferees in a particular piece of land. f) Clause 14 of the Agreement stipulates that PACL shall keep accounts with reference to income expenditure incurred or to be incurred pertaining to the development and maintenance of the entire project site. This clause suggests that PACL pools the money and carries out the purported development on large scale. g) The Agreement p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In these circumstances, in the absence of any material to contradict the contents of the Rule Book which is like a manual containing standard operating procedure, reliance placed on the said Rule Book cannot be faulted. b) Clause 4(a) of the printed application form states that in case PACL commits breach of the agreement by not allotting the property in favour of the customer in the manner agreed to, customer shall be entitled to terminate the agreement, in which event PACL shall refund the amounts paid by customer together with simple interest at the rate of 12.5% from the date of agreement. c) Admittedly customers of PACL have the option to retain or sell the plot as they deem fit on expiry of the agreement. On execution of the sale deed, the sale deeds are held by the custodial services company and the customers only get a certified copy of the sale deed. Although PACL contended that the sale deeds are deposited with the custodial services company only in cases where the tenure of the agreement is continuing and further installments are yet to come, it is noticed in the impugned order that out of the 500 sample transactions provided by PACL, sale deeds of 334 customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms and Conditions in the application form stipulates that if PACL commits breach by not completing the development in the agreed manner the investor would be entitled to get refund together with 12.5% interest per annum from the date of agreement. The customer is not entitled to make any claim for any produce during the period of first six years. Thus, only customers who have opted for the plots beyond the period of six years have right to be credited with sale proceeds of the produce pertaining to the period beyond six years after deduction of direct/indirect harvesting, marketing, transportation cost, market taxes and levies etc. and service charges amounting to 5% of the gross proceeds. c) The customer has the option to retain or sell the plot on expiry of the agreement. Under Clause 13 of the agreement PACL pays the land tax and other public dues/levies payable in respect of the property for and on behalf of the customer and get the same reimbursed from the customer. Under Clause 21 of the agreement the facility of opting out is available to the customers under the cash down payment plans. The payments received under the said plan are refundable immediately to the customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th PACL. Clause 13 stipulates that customers shall have right to retain or sell the land on expiry of the tenure of the agreement. Clause 14 stipulates that PACL shall have first charge on the said property on account of its unpaid installments for services and development charges and other incidental expenses. Clause 15 stipulates that PACL has right to discontinue/ change/ amend/ modify or alter prospectively any of the Rules/Regulations and plans with or without notice to the investors. Clause 16 stipulates that in case of joint sale deed, the title deeds of the land shall be kept in the safe custody of the trustees appointed by PACL. These conditions contained in the General Terms and Conditions of the application form are also incorporated in the agreement which the investor executes with PACL. b) Clause 1 of the agreement stipulates that only symbolic possession of the plot shall be handed over to the investors or customers immediately after the registration. Clause 3 of the agreement gives absolute discretion to PACL to manage development of the property including survey, demarcation, fencing, clearing, cultivation, planting and raising of crops, etc., use of fertilizers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 11AA is not intended to affect sale and development of agricultural land, but to protect the interest of investors by regulating the schemes so that gullible investors reap the promised benefits and are not defrauded. Therefore, reliance placed by the WTM on decision of the Apex Court in case of PGF Ltd. cannot be faulted. 25. Strong reliance was placed by counsel for appellants on the report submitted by Justice K. Swami Durai (Retd.) to Delhi High Court on the basis of which the Delhi High Court had deleted the name of PACL from the list of respondents in the PIL filed before the Delhi High Court. The task assigned to Justice K. Swami Durai (Retd.) by the Delhi High Court was to ascertain genuineness of 14150 sale transactions entered into by PACL with its customers. Fact that 14150 sale transactions were found to be genuine by Justice K. Swami Durai does not affect the merits of the impugned order because, whether the schemes floated by PACL were covered under CIS or not, was neither an issue raised nor considered by Justice K. Swami Durai. Only issue considered therein was, whether, the 14150 sale deeds executed by PACL were genuine or not. In fact pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s covered by the Justice K. Swami Durai s report have been excluded in the impugned order, appellants are not justified in contending that 99.97% sale transactions cannot be declared to be covered under CIS. 28. Reliance placed on the decision of the Rajasthan High Court dated 28.11.2003 holding that the schemes of PACL are not covered under CIS is misplaced. That decision was rendered while considering the prima facie view of SEBI in the year 1999 that the schemes of PACL are covered under CIS. Much water has flown thereafter. Various factors noticed in the impugned order passed after detailed investigation on 22.08.2014 were not before the Rajasthan High Court. Therefore, reliance placed on the Rajasthan High Court decision which is set aside by the Apex Court is totally misplaced. 29. Finding of fact recorded in the impugned order is that in t he guise of selling agricultural lands, PACL has collected 49,100 crore from 5.85 crore customers over a period of 15 years and so far PACL has issued sale deeds in respect of 19284 investors. According to PACL, value of the total lands held by PACL in the form of stock in trade as on 31.03.2014 was 11,706.96 crore. Lands held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proposal made by PACL. 32. For all the aforesaid reasons the decision of SEBI in holding that PACL is not engaged in genuine sale of agricultural land but is engaged in running sham CIS and accordingly directing PACL to wind up its existing schemes and refund money to the customers with the promised returns cannot be faulted. 33. Appellants however strongly contend that assuming the schemes operated by PACL constitute CIS, then, as per the Apex Court order, SEBI could initiate proceedings and pass consequential order, only after the decision of SEBI holding that the schemes operated by PACL constitute CIS is upheld ultimately by the Apex Court. 34. Para 4 8 of the Apex Court order dated 26.02.2013 on which considerable arguments were advanced by counsel on both sides read thus:- 4. After hearing the respective counsel and after noticing the orders dated 30.11.1999 and 10.12.1999 impugned in the writ petition filed before the High Court, which were set aside by the order impugned in these appeals, as well as, the order dated 24.06.2002 which order also got merged in the order impugned in these appeals, it was suggested to the learned counsel whether the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. However, where a person in the guise of carrying on real estate business is found to be carrying CIS which is sham and detrimental to the interests of investors, then, permitting such person to seek registration or permitting that person to wind up the scheme by following the procedure prescribed under the CIS Regulations would be travesty of justice and wholly prejudicial to the interests of investors. 38. Argument of the appellants is that the Apex Court order contemplated two stage hearing i.e. in the first stage to pass an order on the question as to whether the schemes of PACL constitute CIS or not and if held to be CIS, then initiate second stage proceedings for passing consequential order, only if the decision of SEBI holding that the schemes of PACL are covered under CIS is finally upheld by the Apex Court. There is no merit in the above contention, because, protection of investor interest is the paramount consideration under the SEBI Act and once it is found that the CIS operated is detrimental to the interest of investors, then SEBI instead of following the procedure prescribed under CIS Regulations, is duty bound to take immediate steps to protect the interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay the money collected from the investors with promised return cannot be faulted. 41. It is contended on behalf of the appellants that the value of the total lands held by PACL as disclosed in the without prejudice offer made during the course of hearing before the WTM was based on book value and not based on market value. When asked as to what would be the market value of the lands held by PACL, counsel for the appellants stated that they are not in a position to state the market value of the lands, because, the land documents are in the custody of CBI. Although the land documents are in the custody of CBI, admittedly the lands are in the custody of PACL and if appellants are unable to state the value of the lands in their custody, it is reasonable to hold that the barren lands acquired by PACL continues to be barren land. Thus, it is apparent that as against the amount of 49,100 crore collected from 5.85 crore investors promising them agricultural land, the value of the land held by PACL as on 31.03.2014 only is 11,706.96 crore. Since the lands held by PACL are wholly disproportionate to the amounts collected from the customers and there is nothing on record to suggest tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If on hindsight SEBI considers that in case of Alchemist winding up could be ordered only under regulation 65 and not under regulation 73, then, in the first instance SEBI must have the audacity to state that its decision in case of Alchemist Infra Realty Ltd. (supra) to the extent it ordered winding under regulation 73 was per incuriam. SEBI cannot merely state that it has now altered its view and continue to contend that the decision of this Tribunal in case of Alchemist (supra) is per incuriam. In other words, without admitting that its decision in case of Alchemist directing winding up under Regulation 73 was per incuriam i.e. the said decision was rendered in ignorance or forgetfulness of regulation 68, SEBI is not justified in alleging that the decision of this Tribunal in case of Alchemist is per incuriam. 44. Argument of the appellants that they have a fundamental right to carry on CIS under the Article 19(1)(g) of the Constitution of India by seeking registration of CIS operated by them under CIS Regulations is without any merit because right to carry on business is subject to carrying on business in accordance with law and in the present case, once it was found that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proviso to Section 11AA(1) inserted with retrospective effect from 18.07.2013. As per the proviso to Section 11AA(1), pooling of funds under any scheme involving corpus amount of 100 crore or more which are not registered and not covered under Section 11AA(3) are deemed to be an existing CIS. Regulation 74A provides that such deemed CIS shall comply with Chapter IX of CIS Regulations by seeking registration under regulation 5 within two months of regulation 74A coming into force. Obviously, pooling of funds under any scheme involving corpus amount of 100 crore or more which satisfy the conditions set out under Section 11AA(2) would be outside the purview of deeming fiction introduced under the proviso to Section 11AA(1). Regulation 74A is restricted to CIS which are deemed to be CIS under the proviso to Section 11AA(1) and 74A is not intended to offer amnesty to the CIS which were covered under Section 11AA(1) prior to the insertion of proviso to Section 11AA(1) of SEBI Act. Since the schemes operated by PACL satisfy the conditions set out under Section 11AA(2) the said schemes would be CIS covered under Section 11AA(1) and therefore appellants are not justified in contending t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating a CIS after the CIS Regulations came into force, without obtaining a certificate of registration, then, in the interest of investors, SEBI may under Section 11/11B of SEBI Act direct that person either to wind up the CIS or comply with the CIS Regulations by seeking certificate of registration from SEBI. c) Admittedly, some of the schemes floated by PACL were existing on 15.10.1999. In respect of those schemes, PACL was required to make an application seeking certificate of registration under regulation 5, only if the schemes floated by PACL constituted CIS under the SEBI Act. d) By two communications dated 30th November, 1999 and 10th December, 1999 SEBI informed PACL that the schemes floated by PACL were CIS and called upon PACL to comply with SEBI Act and CIS Regulations by seeking registration in terms of regulations 5 read with regulation 68 or wind up the schemes and repay to the customers as stipulated under regulation 73/74 of the CIS Regulations. e) Since the aforesaid communications were stayed and ultimately set aside by the Rajasthan High Court on 28th November, 2003 on ground that the schemes floated by PACL were not CIS, PACL was not required to obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACL, even if, the CIS run by PACL are sham and detrimental to the interest of investors. We do not agree with the aforesaid interpretation of the Apex Court order put forth by the appellants. j) In the present case, in the guise of selling agricultural land, PACL has collected 49,100 crore from 5.85 crore customers by promising them that the investments in the schemes of PACL are highly profitable. Admittedly, value of the total lands held by PACL in the form of stock in trade as on 31.03.2014 was 11,706.96 crore. In such a case, permitting PACL to operate CIS by seeking registration under CIS Regulations would have be travesty of justice. Accordingly, no fault can be found with the decision of SEBI in directing PACL to wind up all existing schemes and refund the monies collected from the investors with the return which are due to its investors. k) Appellants are directed to comply with the directions contained in the impugned order of SEBI dated 22.08.2014 within a period of three months from today. 50. For all the aforesaid reasons Appeal Nos. 368 of 2014, 369 of 2014, 370 of 2014 and 95 of 2015 as well as the Miscellaneous Application Nos. 88 of 2015, 129 0f 2015 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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