TMI Blog2015 (6) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed for membership for availing the benefit of stay in the hotel. On the basis of incoherent material produced by the petitioner like format of the membership it is not possible to agree with the contention that the scheme is only a holiday management scheme and does not come under the purview of the collective investment scheme more so because of the fact that there is a term in the contract of refund of money with a lucrative rate of interest. If the interest on deposit was the alluring factor on the part of the investors then the case would squarely fall under sub-clause (ii) of sub-Section 2 of Section 11AA of the SEBI Act. These facts constitute a mixed question of law and fact and has to be decided by SEBI. We find that there was no difficulty for the petitioner to have submitted to this jurisdiction of the SEBI and produced all the records to convince the SEBI that the scheme is genuinely a holiday management scheme and does not constitute a collective investment scheme and thus could have excluded themselves from the jurisdiction of SEBI. Second contention that the members under the scheme are covered with accident insurance for a period of 1 to 2 years thus it is ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provisions of the enactment. Therefore it is always the legislative policy to give a delegated power in every enactment to the authorities to operate the provisions of the Act. Such a provision in itself cannot be considered illegal unless any regulation or rule is made by the delegated authority is in conflict with the main provision then such regulation can be held bad. The power to lay down the conditions regarding the scheme or arrangement in the context of the provisions of the Securities and Exchange Board of India Act, 1992 and the subjects it deals with cannot be considered as uncanalised and excessive delegation. In that view of the matter the writ petition is dismissed. - WP(C) 4298/2013 - - - Dated:- 25-6-2015 - K. Sreedhar Rao (ACJ) And P. K. Saikia, JJ. For the Petitioner : L. Nageswar Rao, S. Deb, S. Lodh, S. Chetia, JP More For the Respondent : S. C. Keyal (Assistant Solicitor-General of India), U. Rajbongshi, M. Hazarika JUDGMENT K. Sreedhar Rao (ACJ) The petitioner is a company registered under the Companies Act, 1956 with the head office in Kolkata and the regional office at Guwahati and branch offices in various parts of the state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (hereinafter referred to as RVRECL ). As per the aforesaid letter, RVHEL and RVRECL were stated to have collectively raised ₹1006.70 Crores from the public till February 2012. Further, RVHEL was stated to have launched a scheme titled Rose Valley Holiday Membership Plan (hereinafter referred to as HMP ) in the year 2010. Under the HMP, an investor can book a holiday package through payment of monthly installments and upon maturity or completion of tenure for monthly installments, such investor can either avail of the facilities i.e. room accommodation and services or opt for maturity payment i.e. a return on the investment with annualized interest. A brochure, application form containing the terms and conditions of the HMP alongwith a confirmation Certificate evidencing subscription to such HMP, were also annexed with the aforesaid letter. 2. As a matter of preliminary enquiry in order to ascertain whether or not RVHEL was carrying on activities of a collective investment scheme , SEBI vide letter dated March 1, 2013, advised RVHEL to submit the following documents relating to the HMP, by March 15, 2013, viz. - i. Total number of individuals who have subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replied to the abovementioned SEBI letter as under - Your letter under reference (SEBI letter dated March 19, 2013) is without Jurisdiction and uncalled for. It appears from your above letter that you are attempting to wrongfully proceed against us in a pre-decided manner by giving reference as Schemes of Rose Valley Hotels and Entertainments Ltd. without registration of SEBI . From the correspondence exchanged between yourself and us it is clear that you have not even considered the business of Rose Valley Hotels and Entertainments Ltd. coming under the purview of SEBI Act in any manner whatsoever. We deny that it is incorrect to say that the scheme of Rose Valley Hotels and Entertainments Ltd. do not come under your purview as alleged. We deny that you have any jurisdiction to enquire into the affairs of the company which as per your admission does not come under your purview. . 6. While the preliminary inquiry was in progress, SEBI received an ad interim Order dated June 12, 2013 (hereinafter referred to as Interim Order ), from the Government of Tripura. Vide the aforesaid Order, which was passed by the Sub-Divisional Magistrate Sadar, West Trip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to proceed with the instant matter, to determine whether or not the HMP offered by RVHEL is a collective investment scheme in accordance with section 11AA of the SEBI Act. 7.2 Section 11AA of the SEBI Act reads as follows: (1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) shall be a collective investment scheme. (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 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; (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. 7.3. RVHEL has submitted that it is in Time Share business and therefore wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EL is alleged to have taken recourse to unilateral and spontaneous cancellation of bookings of hotels in a routine manner so as to make returns to the investors under the HMP. Further, the Interim Order states that complaints from the public have also been received by the Government of Tripura inter alia alleging RVHEL failed to entertain claims from such investors for maturity payment, on time. 7.4 From the abovementioned details in respect of the HMP offered by RVHEL, I note that - i. RVHEL operates investment plans through the HMP, which it offers to the public. The contribution in the form of monthly installments made by investors in response to plans offered under the HMP are pooled and utilized for the purpose of the HMP; ii. Such contributions towards plans offered under the HMP are made by the investors with a view to receive profits or income in the form of returns with annualized interest i.e. maturity payment. iii. The resorts and hotels, which are part of the HMP, are wholly owned and managed by RVHEL Further, the contributions made by investors to the HMP are managed on their behalf, by RVHEL. iv. RVHEL has complete control on the plans offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting investments or contributions from investors for investing in any asset which will inter alia result in a return on such investment. In this regard, the activity of fund mobilization under the HMP by RVHEL with a resultant promise of returns when considered in light of the other features of the HMP, as discussed in the preceding paragraphs, prima facie falls within the ambit of 'collective investment scheme' as defined under section 11AA of the SEBI Act. 7.7 I note that in terms of section 12(1B) of the SEBI Act, no person shall sponsor or cause to be sponsored or cause to be carried on a 'collective investment scheme' unless he obtains a certificate of registration from the Board in accordance with the regulations . Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as CIS Regulations ), provides that no person other than a Collective Investment Management Company which has obtained a certificate under the CIS Regulations shall carry on or sponsor or launch a 'collective investment scheme'. Therefore, a person can launch or sponsor or cause to sponsor a 'collective investment scheme' only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the powers conferred upon me under sections 11(1), 11B and 11(4) of the SEBI Act read with Regulation 65 of CIS Regulations, hereby direct RVHEL and its Directors: a. not to collect any more money from investors including under the existing schemes; b. not to launch any new schemes; c. not to dispose of any of the properties or alienate any of the assets of the schemes; d. not to divert any funds raised from public at large which are kept in bank account(s) and/or in the custody of the company. 11. The above directions shall take effect immediately and shall be in force until further orders. 12. This Order shall also be treated as a show cause notice. RVHEL and its Directors may show cause as to why appropriate directions under the SEBI Act and CIS Regulations including directions in terms of Regulations 65 and 73 of the CIS Regulations, should not be taken against them. 13. RVHEL and its Directors shall, within 15 days from the date of receipt of this Order, file their reply, if any, to this order. RVHEL and its Directors may also indicate, in such reply, whether they wish to avail an opportunity of personal hearing in the matter. Plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal price for such accommodation and services availing installment facilities under the respective plan of the Company viz. ROSE VALLEY HOLIDAY MEMBERSHIP PLANS - STANDARD, SILVER, GOLD, PLATINUM DIAMOND according to the capacity of the applicant. No changes shall be entertained towards the plan once selected by the applicant. 2. The intending Member is to apply in prescribed Form for preferred class or membership of the Company s HOLIDAY PLAN. 3. The membership fees for various category of Membership will appear from the chart appended to the application for Membership. 4. The membership is offered on the basis of Advance booking of room of various hotels/resorts of the Company. 5. The intending members can pay the membership fees as prepaid booking or by way of monthly installments. In case of monthly installments the facilities of membership can be availed only upon payment of all installments. 6. In case of installment payment after receiving the Payment of 1 st installment the Company will issue an acknowledgement Pay-in-slip for such Payment in respect of provisional membership and subsequently issue a ROSE VALLEY HOLIDAY MEMBERSHIP PLA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enure of the respective plan. Defaulters are however not entitled to such benefits under any circumstances. 13. The applicant shall have to pay installments in time and strictly according to the respective membership plan of the Company and upon His/her failure the Company may charge permissible amount for delayed payment or rescind the contract. 14. The expression booking where used herein shall always be provisional and will remain in force till final confirmation for such accommodation services etc. 15. Correspondence will be made with the applicants at the address given in the Application Form but in case of any change thereof should be intimated by the applicant to the Company for the convenience of the parties. 16. The concerned applicant in respect of the Plan is to inform to the Company on the prescribed Form about his/her final desire to avail room accommodation services etc after the payment of last installments and the Company after getting such information, will issue a clearance certificate for final confirmation within 7(seven) days(subject to availability of rooms) mentioning the name of Hotel/Resorts as well as schedule of arrival and depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefits in respect of the Plan. 25. The tenure of the ROSE VALLEY HOLIDAY MEMBERSHIP PLAN is according to the respective plans, mentioned on the back of Applicant Form. 26. A non-refundable processing fees of ₹ 100/- only shall be charged extra. 27. Disputes, if any, are to be referred to the Arbitrator to be appointed by the Company and the decision of the Arbitrator shall be final and binding upon the Parties hereto in accordance with the provisions of the Arbitration and Conciliation Act, 1996. 28. All disputes are subject to Kolkata Jurisdiction. . 5) Shri L. Nageswar Rao, the learned senior counsel arguing for the petitioner, urged the following contentions in support of the prayers made in the writ petition. (i) The subscriptions collected under the HMP would not come within the purview of the collective investment scheme as envisaged in section 11AA(2) of the Securities and Exchange Board of India Act, 1992. (ii) The terms of the contract in the HMP scheme envisage coverage of accident risk to the subscriber of a scheme for a period of 1 to 2 years by a policy of insurance. The insurance component offered under the scheme makes the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) The learned senior counsel referred to the provisions of sub-Section (1B) of Section 12 of the Securities and Exchange Board of India Act, 1992 which reads as follows. [(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 cause to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment scheme operating in the securities market immediately before the commencement of the Securities Laws(Amendment) Act, 1995 for which no certificate or registration was required prior to such commencement, may continue to operate till such time regulations are made under clause (d) of sub-section (2) of section 30.]. [Explanation. - For the removal of doubts, it is hereby declared that, for the purposes of this section, a collective investment scheme or mutual fund shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9) The learned senior counsel further referred to the provisions of Section 11(4) of the Securities and Exchange Board of India Act, 1992 which are as follows. [11(4). - Without prejudice to the provisions in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:- (a) suspend the trading or any security in a recognized stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (c) suspend any office-bearer of any stock exchange or selfregulatory organisation from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (e) attach after passing of an order on an application made for approval, by the Judicial Magistrate of first class having jurisdiction, for a period not exceeding one month, one or more bank a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner did refund to some of the investors with interest because wild rumours were spread about some Ponzi schemes the investors started demanding the refund of their investments along with interest. The petitioner with sobriety to avoid unnecessary legal tangle made refund of deposits to some of the investors and such refunds should not be viewed to conclude that the investments are basically for interest earning and not for HMP scheme. 11) The learned senior counsel for the petitioner referred to the amended proviso to sub-Section (1) of Section 11AA and sub-Section (2A) of Section 11AA of the Securities and Exchange Board of India Act, 1992, which reads as follows. Proviso to sub-Section (1) of Section 11AA:- Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme . Proviso to sub-Section (2A) of Section 11AA :- Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that under Section 19 when the SEBI has initiated proceedings therefore a single member could not have passed the impugned order without a specific authorisation. The impugned order does not refer to the grant of authorisation to the member who passed the impugned order. In that view the impugned order suffers from lack of jurisdiction. 14) Per contra, Smt. M. Hazarika, the counsel for the SEBI, repelling the contentions raised by the learned senior counsel for the petitioner submitted the following grounds. (i) In the first place the petitioner has not disclosed all relevant and material facts; but belatedly filed the format of application for membership, which contains the terms and conditions. (ii) It is admitted by the petitioner that out of 21.90 lakh investors 4.13 lakh of them have been refunded the deposited money with interest. (iii) The term that the investor would avail the benefit of stay in a hotel for a certain period on completion of the investment period is nothing but a camouflage and perfidious stipulation. The rate of interest offered on the refund is very lucrative and attractive ~ 17.65 per cent per annum, almost double the rate offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme acquired in violation of these regulations; (c) requiring the person concerned to dispose of the assets of the scheme in a manner as may be specified in the directions; (d) requiring the person concerned to refund any money or the assets to the concerned investors along with the requisite interest or otherwise, collected under the scheme; (e) prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specified period. . 16) The power given to the Board under the Regulations should be read in conjunction with the powers given under Sections 11(4) and 11B of the Act. The impugned order which puts restrictions on the petitioner is fully in consonance with the provisions of Regulation 65. 17) The counsel for the SEBI produced a circular (no.SEBI/LAD/DRAII/242/2010 dated 3 rd May, 2010) by which the powers under Sections 11(1) and 11B are delegated to be exercised by the whole-time member, therefore submitted that the contention that the whole-time member has no power to pass the impugned order is an untenable argument. The prayer in the writ petition against the police not to investigate into the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l produced by the petitioner like format of the membership it is not possible to agree with the contention that the scheme is only a holiday management scheme and does not come under the purview of the collective investment scheme more so because of the fact that there is a term in the contract of refund of money with a lucrative rate of interest. If the interest on deposit was the alluring factor on the part of the investors then the case would squarely fall under sub-clause (ii) of sub-Section 2 of Section 11AA of the SEBI Act. These facts constitute a mixed question of law and fact and has to be decided by SEBI. 20) We find that there was no difficulty for the petitioner to have submitted to this jurisdiction of the SEBI and produced all the records to convince the SEBI that the scheme is genuinely a holiday management scheme and does not constitute a collective investment scheme and thus could have excluded themselves from the jurisdiction of SEBI. 21) The second contention that the members under the scheme are covered with accident insurance for a period of 1 to 2 years thus it is argued that in view of the insurance component and in view of Explanation to subSection (1B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations. The argument was elaborated further by referring to the true nature and function of a .proviso which was to except or take out a particular portion from the field dealt with by the section. Chagla, C.J., who delivered the judgment of the Bombay Bench, had no difficulty in coming to the conclusion that on the language of the proviso itself and on the scheme of the Act the Legislature in enacting the so called proviso was enacting a substantive provision dealing with the mode of computing the profits and gains chargeable under the head profits and gains of business profession or vocation and that the Legislature had provided that when profits and gains were computed the loss sustained in a speculative transaction must not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions. The learned Chief Justice further referred to the mischief which was aimed at by the Legislature in enacting the proviso. In recent times businessmen were known to buy speculative losses in order to reduce their profits and the Legislature wanted to put an end to that mischief which could only be don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 104 of the judgment the Supreme Court has made the following observations. 104. Once the aforementioned conclusion is arrived at, it would not be necessary to construe the proviso appended to Sub-section (1) of Section 20 in its own language. Proviso, as is well known, has four functions, as has been noticed by this Court in S. Sundaram Pillai v. V.R. Pattabiraman MANU/SC/0387/1985: [1985] 2 SCR 643. 27) The ratio laid down by the Supreme Court in the above said decisions makes it clear that the effect of a proviso need not necessarily be truncated when its plain meaning suggests that it is a substantive enactment although mis-called as a proviso. In that view of the matter we do not find any merit in the argument that proviso to sub-Section (1) of Section 11AA of the SEBI Act is repugnant to the Section and therefore held to be bad in law. 28) With regard to the delegation of powers to the Board incorporated under sub-Section 2A of Section 11AA to frame regulations cannot be considered as excessive delegation because in any statute or rule framed by the legislature the framers cannot anticipate and foresee every kind of situation that may arise in the operation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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