TMI Blog2014 (12) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... oregoing, the plans/schemes of MVL is in the nature of a CIS as all the four conditions specified under Section 11AA (2) of the SEBI Act are satisfied. As find that the Company is engaged in the fund mobilising activity from the public by floating/sponsoring/launching 'collective investment schemes' as defined in Section 11AA of the SEBI Act. Therefore, have no hesitation in holding that MVL and its directors, viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are engaged in the fund mobilising activity by floating/sponsoring/launching, unregistered/unauthorised CIS, as defined in the Section 11AA of the SEBI Act. MVL Limited [PAN:AAFCM2372M] and its directors viz., Mr. Prem Adip Rishi [PAN:AGQPR9177H; DIN: 00020611], Mr. Praveen Kumar [PAN:ADQPK8192E; DIN: 01332414], Mr. Rakesh Gupta [PAN:AAJPG3712C; DIN: 00020638], Mr. Vinod Malik [PAN:ABLPM6562D; DIN: 01275161], Mr. Vinod Kumar Khurana [PAN:AAIPK7996F; DIN: 01863652], Mr. Vijay Kumar Sood [PAN:ACBPS9229G; DIN: 01325491] and Ms. Kalpana Gupta [PAN:AAGPG5434L; DIN: 02300348] shall abstain from collecting any money from the investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, January 07, 2012 and January 13, 2012, replied to the e-mail of SEBI and submitted that it is not receiving any contributions/payments from any alleged investors and is doing real estate business. It was also submitted that MVL had arrangements with its customers purely for sale and purchase of immovable property. MVL also submitted the copy of the brochure and agreement to sell along with the aforesaid letters. 3. In order to further analyse the case, SEBI vide its letter dated December 27, 2012 sought details like executed sale deed, bye laws, maintenance agreement pertaining to the assured return scheme and buy back scheme , details regarding money collected from the buyers (investors), the purpose of utilization of money, number of buyers and amount collected in each such plan or scheme, details of land purchased by MVL for the said project(s), etc. from MVL. However, MVL failed to provide the details/documents sought for by SEBI. 4. On the basis of material available on record, SEBI prima facie found that MVL, its directors namely Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loona from Alliance Corporate Lawyers and made submissions. They also filed certain documents like recent photographs of the project, 'list of clients/investors', mutation record of land, loan documents of banks, etc. During the course of hearing, MVL and its directors were asked to submit the documents such as floor plans, etc. of the project to mark the units allotted to the clients w.r.t. IT/Cyber space no./unit number. MVL was also asked to submit the complete details/documents in respect of the clients mentioned at serial numbers 118, 119 (instances where there is no buy back agreement) and 156, 157 (instances where there are buy back agreements) of the 'list of clients/investors' as submitted by it, during the course of personal hearing. MVL and its directors were granted fifteen (15) days' time to submit the details/documents. MVL vide its letter dated February 18, 2014, inter alia submitted the details / documents (i.e. copies of the application form and assured return agreement) for client no. 156 and 157 (instances where there are buy back agreements) and floor plans. It is noted that MVL along with this letter has not submitted any documents for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of 11,25,98,825. d. For the purpose of construction of IBC Project, MVL has availed financial assistance aggregating to 128 crore from Canara Bank and UCO Bank. The banks have determined the project cost as 216 crore out of which the cost of the land was determined as 32 crore which was acquired by MVL in the year 2008. e. The allottees of IT/cyber space are at all times entitled to transfer their allotment to any persons as they may intend to do. Further, the option to surrender the unit allotted to the investors and receiving their money back at a stipulated rate is not compulsorily applicable to the developer. The investment made in real estate project is not only made for earning any monthly income out of it, it is the appreciation in the value of the property which attracts any person to make investment in immoveable property. There is no arrangement between the purchasers and MVL to share any profit. f. MVL offers an assured return to investors in the project till the first lease rent become payable/the offer of possession. The payment of assured return is an additional tool of promoting the sale of the product especially where the location of the proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return the total payment to allottee, after forfeiting Earnest Money (i.e. 30% of the total consideration) and after deducting the amount of the assured return paid to the allottee. k. It is always obligatory on the part of the allottees to take NoC from the developer before giving effect to the transfer, lease etc. of the premises till the association of allottees/Housing Co-operative Society is formed as required by law. In the event of any breach or non performance of the terms of contract, the purchaser is at liberty to approach the competent court of law for enforcement of provisions of Specific Relief Act. l. Cases where option of lease is not availed by MVL and possession of the cyber unit is delivered to the allottee, the allottee undertakes not to sub divide the area/premises agreed to be allotted to it and where the allottee transfers the premises by way of mortgage, tenancy, license, gift or in any other manner in favour of any person then such person shall also be bound by the terms of the buyer's agreement. m. The IBC project is currently in final stages of its completion and any assured return will come to an end shortly. The allottees would be put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of IT/Cyber space in the IBC project (as submitted by MVL) which contains the details such as name and father's name of the applicant, address, payment mode. The application is a pre printed document which reads as under: I/we/am/are desirous of obtaining allotment of an IT/Cyber space in India Business Centre ... ... I/we request that I/we may provisionally be allotted an IT/Cyber space tentatively measuring ... (super area). ... ... The application form inter alia contains the following terms and conditions: 2. That the Applicant(s) has/have satisfied himself/herself/themselves about the interest and right of the Company in the land on which the said India Business Centre is being constructed and has/have understood all limitations and obligations in respect thereof. ... 3. That the Applicant(s) has/have seen and accepted the typical plans, which are tentative and indicative and may be changed, ... ... if and when as directed by the Competent Authority and/or Architect at any time 4. ... ... . Confirmation of booking of space on any floor by the company shall be considered as allotment of space and developer shall not be bound to give a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... floor of the Complex ... ... vii. The Allottee(s) is aware that upon registration of conveyance deed he shall only acquire undivided and impartible pro-rata share in the entire land underneath the IT project. ... 1.2 ... super area of Premises as mentioned herein above is subject to modifications and final confirmation of the same shall be made upon completion of Complex/at the time of offer of possession of Premises. ... 2.1 ... the Developer shall be fully entitled to lease the Premises to any third party as per the terms of this Article. 2.2 ... the Allottee(s) shall not grant the Premises on lease to any third Party or deal otherwise with the Premises without obtaining the written consent of Developer. 2.3. The Allottee(s) hereby authorizes Developer to enter into and execute letter of intent, agreement to lease and lease deed or any other documents in favour of the lessee in terms of the ARA and also receive Security Deposit on behalf of the Allottee(s). ... 3.1 Assured Return: The Developer shall pay to the Allottee(s) an Assured Return at the rate of 10/- per sq. ft. per month of super area of premises till the receipt of full/to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the premises being acquired by them will readily fetch rent and will give return on investment. For buy back, it is seen (from the clause 3.10 of the 'assured return agreement') that the allottee after expiry of 30 months from the date of the assured return agreement gets an option for cancellation of the IT/cyber space allotted to him. As noted from the clauses of the agreement, the allottee, upon exercise of the option becomes entitled to the 'buy back price' and the simple interest at the rate not exceeding 5%. MVL has submitted that as the return is not attractive, the allottees prefer to stick to the terms for acquiring title in the premises. As per MVL only 46 of its customers have opted for buy back plan and no one has exercised this option till the date of reply. MVL has not submitted the sample documents of customers who have not entered into the 'buy back' agreement (i.e. the customers at serial number 118 and 119). d. It is observed that in a regular real estate transaction, whenever, a plot/land/flat is sold, the developer clearly demarcates the area of plot/land/flat to be allotted to its customers. In other words the plot/land/fla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LLOTTEE(S) covenants with the DEVELOPER that he shall raise no objection to the DEVELOPER raising finance/loan by creating charge/mortgage on the said premises. ... f. MVL has argued that the amount received by it from the buyers is classified as consideration against 'stock in trade' and not as deposits received from the general public or loan or borrowing from creditors. It has been said that the amount collected from the investors is utilized for the general business purpose including the construction of the project. It has also been said that the absolute right in the project shall be transferred only after registration of sale deed in favour of the investors as MVL has engaged contractors/consultants for the purposes of completion of the project and managing the affairs of the construction. According to MVL, managing the affairs of construction by more than 200 investors may create total confusion and chaos. MVL has submitted that though the allottees are not concerned with the construction activity (as the company has agreed to deliver premises on completion of the project), they will certainly participate in the maintenance and upkeep of the buildings/common f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn agreement' for investors at serial numbers 156 and 157, it has not submitted any documents for the investors at serial numbers 118 and 119 (instances where there is no buy back agreement). Further, MVL has depicted the 'area allotted' only to investors at serial numbers 118, 119, 156 and 157 only. At this stage, I must refer to the application form which only mentions the area and floor number of the unit. No details of any unit number or IT/cyber space number as mentioned in the 'floor plan' has been mentioned either in the 'application form' or in the 'assured return agreement' as submitted by MVL for its client at serial number 156 and 157 (i.e. the instances of buy back agreements) which were picked up on sample basis. I note that MVL during the personal hearing was asked to submit the complete details/documents of the said clients; however, the buyer's agreement has not been submitted by MVL for such clients (which identifies the IT/Cyber space no.). At this juncture, it is relevant to refer to the clause stated in the 'assured return agreement' i.e. The developer shall execute the Buyer Agreement in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncellation of the IT/cyber space allotted to him. MVL has submitted that as the return is not attractive, the allottees prefer to stick to the terms for acquiring title in the premises. MVL has submitted that out of 232 allottees (who have entered into 'assured return agreement'), 46 allottees have opted for 'buy back' option but no one has exercised this option till the date of reply. As mentioned earlier, SEBI during the course of personal hearing, had sought the copies of complete details/documents in respect of the clients mentioned at serial nos. 118, 119 (i.e. instances where there are no 'buy back' agreement) and 156, 157 (i.e. instances where there are 'buy back' agreements). It is observed that MVL has provided the copies of the documents of customers at serial nos. 156 and 157 only (where there are buy back agreements) and has failed to provide the documents of customers at serial nos. 118 and 119 (i.e. the customer who said to have not entered into the 'buy back' agreement) inspite of granting sufficient opportunities. From the same and from the samples of the 'application form' and 'assured return agreement' as sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind merit. As seen from the samples analyzed above, the investors/clients of MVL are getting return in the range of 15% - 96%. Further, it is also noted that MVL does not have any rationale for varying offers on return for investors who opted for similar plan/scheme, around the same time. k. Having considered the above, I now proceed to deal with the charge leveled against MVL in the SCN i.e. it is operating CIS without obtaining registration from SEBI. Before proceeding further in the matter, it is necessary to note the background of CIS Regulations and how the provisions came to be framed. Several entities were mobilizing huge money by issuing various instruments and offering very high rates of return inconsistent with the normal rate of returns and then misutilizing these funds, for the purposes not disclosed at the time of inviting the investments, thereby not only causing loss to the investors who lost their life savings to such unscrupulous entities, but also eroding the confidence of the general public. Considering the high element of risk associated with such schemes, the Government of India felt that it was necessary to set up an appropriate Regulatory framework to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions specified in Section 11 AA of the SEBI Act, which provides as under: (1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or [subsection (2A)] Inserted by Securities Laws (Amendment) Ordinance, 2014 shall be a collective investment scheme. [Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under the exemptions from CIS sub-section (3), involving a corpus amount of one hundred Crore rupees or more shall be deemed to be a collective investment scheme.] Inserted by Securities Laws (Amendment) Ordinance, 2014 (2) Any scheme or arrangement made or offered by any [person] Substituted for 'company' by The Securities Laws (Amendment) Ordinance, 2014 under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be handed over to the 'association of allottees'. It has also been said that a 'maintenance agency' will be appointed for maintaining the IBC project after the exit of MVL. Though MVL vide its submissions say that its IBC Project is real estate transaction, the following aspects of this project also differentiates the same from a pure real estate deal: the space is not identified at the time of making application; only 'area' is mentioned in the application; MVL does not state as to in which part of an undivided floor the 'area' so allotted to the customer lies (floor plan does not form part of the application form or the agreement); the agreement does not specify as to how the customer will take the possession/use exclusively/sell exclusively such unidentified space on an undivided floor. These facts indicate that MVL pools the investment of its customers and utilizes the same for its IBC project. It is noted that the assured return agreement/buy back assurance by MVL are all without identifying the specific IT space location in the floor as the entities are not allotted the unit number as depicted by MVL in the floor pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. - The second condition, under Section 11AA(2), is that 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. In this regard, I note that MVL offers assured return to its investors under the assured return plan and the same is given every month to the allottee by MVL on the contribution or investment made by the allottee till the first lease rent becomes payable. MVL in its reply has submitted that assured return plan is a type of assurance to the allottees that the premises will readily fetch rent and will give return on the investment. MVL also provides buy back option to its investors. MVL in the 'application form' has stated that it does not to give any unit no. of the space allotted, which, hints that the customers are making application only with the objective of receiving returns/profits. Under those circumstances, it is clear that the investor makes payment with a view to receive the profits/income/property on their initial investments that may accrue to them as applicable, thus the second condition as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its customers are not pure real estate transactions, rather they satisfy all the ingredients of a CIS as defined under Section 11AA of the SEBI Act. In this regard, I place my reliance on the observations of the Hon'ble Supreme Court, made in the matter of PGF Limited Ors. Vs. Union of India Anrs. (Civil Appeal No. 6572 of 2004): Therefore, the paramount object of the Parliament in enacting the SEBI Act itself and in particular the addition of Section 11AA was with a view to protect the gullible investors most of whom are poor and uneducated or retired personnel or those who belong to middle income group and who seek to invest their hard earned retirement benefits or savings in such schemes with a view to earn some sustained benefits or with the fond hope that such investment will get appreciated in course of time. Certain other Section of the people who are worstly affected are those who belong to the middle income group who again make such investments in order to earn some extra financial benefits and thereby improve their standard of living and on very many occasions to cater to the need of the educational career of their children. 38. Since it was notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on monitor such schemes and arrangements in order to ensure proper statutory control over such promoters and whatever investment made by any individual is provided necessary protection for their investments in the event of such schemes or arrangements either being successfully operated upon or by any misfortune happen to be abandoned, where again there would be sufficient safeguards made for an assured refund of investments made, if not in full, at least a part of it. ... ... In the light of our above conclusions on this ground it will have to be held that Section 11AA is a valid provision, not suffering from any infirmity, as it does not intrude into the specific activities of sale of agricultural land and its development. ... ... It is needless to state that as per the agreement between the customer and the PGF Limited, it is the responsibility of the PGF Limited to carry out the developmental activity in the land and thereby the PGF Limited undertook to manage the scheme/arrangement on behalf of the customers. Having regard to the location of the lands sold in units to the customers, which are located in different states while the customers are stated to be from diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Act are satisfied. I, therefore, find that the Company is engaged in the fund mobilising activity from the public by floating/sponsoring/launching 'collective investment schemes' as defined in Section 11AA of the SEBI Act. Therefore, I have no hesitation in holding that MVL and its directors, viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are engaged in the fund mobilising activity by floating/sponsoring/launching, unregistered/unauthorised CIS, as defined in the Section 11AA of the SEBI Act. 10. With the above observations, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(1), 11(4) and 11B thereof and Regulation 65 of the SEBI (Collective Investment Scheme) Regulation, 1999, hereby issue the following directions: a. MVL Limited [PAN:AAFCM2372M] and its directors viz., Mr. Prem Adip Rishi [PAN:AGQPR9177H; DIN: 00020611], Mr. Praveen Kumar [PAN:ADQPK8192E; DIN: 01332414], Mr. Rakesh Gupta [PAN:AAJPG3712C; DIN: 00020638], Mr. Vinod Malik [PAN:ABLPM6562D; DIN: 01275161], Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hibited from buying, selling or otherwise dealing in securities market, till all the Collective Investment Schemes of MVL Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them. ii. SEBI would make a reference to the State Government/Local Police to register a civil/criminal case against MVL Limited, its promoters, directors and its managers/persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and iii. SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the company, MVL Limited. iv. SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder. f. Without prejudice to the above, MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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