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Pancard Clubs Ltd., Sudhir Shankar Moravekar, Shobha Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise, Ramachandran Ramakrishnan Versus Securities and Exchange Board of India, Mumbai

Holiday schemes launched - club membership - SEBI directed the appellant to refund the money - Held that:- A perusal of the brochure made available to investors brings out the true nature of the scheme in question. Clause 16 of the said document categorically states that the Appellant reserves the right to modify/alter/amend/revoke the benefits/privileges and or the terms and conditions contained in whole or in part at its sole discretion or according to the prevailing market conditions/cost fac .....

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have no say in the day to day control of the scheme or over their investments. Once the contributions are made to the Company, those contributions are completely under the Appellant’s control and management. In our considered opinion, clause 16 proves beyond any doubt that complete control is conferred over the day to day management and operation of the scheme on the Appellant-Company and not the investors. - From an analysis of the facts and circumstances of the instant matter and the prov .....

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stion were started around 2001-2002. As such the appellant is clearly not an “existing” CIS and cannot derive any benefits from the same. Therefore, in the facts and circumstances of the present matter wherein the CIS, in violation of the Regulations, collected a rather enormous amount of approx 7000 crores, we find that the investors’ interest will not be served by making Regulation 73 applicable. The Impugned Order, therefore, deserves to be upheld. - The Appellant has disposed of its asse .....

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ppellants under the earlier schemes which in fact govern the relationships/obligations and entitlements. - The Interveners through their misc. applications have brought on record, though belatedly before this Tribunal, instances where the original receipts and the other documents of the investors were collected by the appellant company leaving the investors high and dry even without the documents. Shri Hazari has shown us many documents to bring home his points. The additional documents whic .....

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ordingly, upheld and the appeals are hereby dismissed. - Misc. Application No. 251 of 2016 And Misc. Application No. 276 of 2016 And Misc. Application No. 312 of 2016 And Misc. Application No. 335 of 2016 And Appeal No. 52 of 2016 With Appeal No. 53 of 2016, With Appeal No. 51 of 2017 - Dated:- 12-5-2017 - J. P. Devadhar (Presiding Officer), Jog Singh (Member), Dr. C. K. G. Nair (Member) For the Appellant : Pradeep Sancheti, Senior Advocate with Aayush Singhvi, Nikita Panhalkar, Advocates i/b Va .....

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nce, Pancard Clubs Ltd. i.e. Appeal No. 52 of 2016 is taken as the lead case. 2. Pancard Clubs Limited ( Appellant ), a group company of the Panoramic Group of companies, is an unlisted public company, which is engaged in the business of owning, developing and operating hotels, clubs and resorts across India and offering different holiday options and six of its directors, namely, Mr. Sudhir Shankar Moravekar, Ms. Shobha Ratnakar Barde, Ms. Usha Arun Tari, Mr. Manish Kalidas Gandhi, Mr. Chandrase .....

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nt Scheme ( CIS ) operated by them under the guise of a time sharing business under Section 11(1), 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 ( SEBI Act ) read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999 ( CIS Regulations ) mainly for violating Section 12(1B) of the SEBI Act read with Regulation 3 of the CIS Regulations. 3. Briefly stated, the facts of the case are that the Respondent had passed an ex-parte interim order dated July .....

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ctively. Vide a common order dated September 17, 2014, the Tribunal set aside the interim order directing SEBI to pass an appropriate order on merit, preferably within eight weeks of the Appellants submitting all documents/particulars to SEBI and after giving the Appellants an opportunity of a personal hearing. This Tribunal further directed the Appellants to maintain a separate account of amounts, which the Appellants may receive in respect of existing schemes in the meanwhile and to cooperate .....

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ged that the Company had launched a CIS without registering itself as a Collective Investment Management Company ( CIMC ), thereby violating Regulation 3 of the CIS Regulations and asked the Appellants to show cause as to why the schemes of the Company should not be declared as CIS and if such schemes are found to be CIS then why appropriate action including directions under Sections 11, 11(4) and 11B of the SEBI Act read with regulation 65 of the CIS Regulations should not be issued against the .....

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emes offered to its clients was indeed not a CIS, on the grounds that such plans/schemes did not satisfy the criteria required to be classified as a CIS. 6. With reference to Section 11AA of the SEBI act, the Appellants contend that first and foremost, the holiday plans offered to its customers entitle them to the utilization of room nights and/or other services, thereby, making the contract between the Company and the customers purely a contract for services. As a result, selling holiday plans/ .....

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as a return on his investment, rather, a promise of performance of a service. Additionally, the surrender value i.e. the amount received by the customer in case he redeems the room nights credited to his name at the end of the maturity period of his plan, although higher than the initial price of the plan, does not represent sharing of income/profits/produce or property arising out of the holiday plan/schemes within the meaning of clause (ii) of sub-section 2 of section 11AA of the SEBI Act. The .....

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time to time. The decision of the company with respect to the surrender value shall be final. 7. Thirdly, with regard to clause (iii) of subsection 2 of Section 11AA of the SEBI Act, the Appellants argue that the customers have complete autonomy with respect to the time, mode or manner of utilizing the holiday plans/schemes. Further, the title to the properties associated with these plans/schemes resides with the Appellant and its associate companies, thereby, implying that the properties are m .....

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se the option of gifting such services to friends or family too. According to the Appellants, these factors support their submission that the customers who have invested in the holiday plans/schemes are in control of the day-to-day management or operation of the schemes they choose within the meaning of clause (iv) of subsection 2 of section 11AA of the SEBI Act. 8. The Appellants refer to the Explanation to Section 12 (1B) of the SEBI Act, which reads as follows: .... a collective investment sc .....

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ide the jurisdiction of SEBI altogether. 9. Lastly, the Appellant submits that in the event SEBI concludes that the Company s holiday schemes are CIS, the Company should be permitted, under Regulation 73 of the CIS Regulations, to submit a draft information memorandum for approval of SEBI and to seek the consent/approval of its members. 10. Per Contra, the Respondent has placed reliance on the financial statements of the Company to establish the pooling of funds . It is submitted by the Responde .....

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inferred that the business activities of the Company i.e. buying, developing and operating hotels, are run with the help of monies received from customers paying for the holiday plans/schemes and the Appellants pool in such monies for the purposes of the scheme itself. The Respondent further submits that surrender value was in fact, offered and availed of by 97% of the customers along with certain other insurance benefits. It can, therefore, be construed that customers have made contributions or .....

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the Respondent, contribution once paid is solely managed by the Company and not by its customers. The Respondent further submits that the ability to control the time, mode and manner of utilizing the holiday plans/schemes by the customer is merely an entitlement available to the customer and does not give him any right to control his contribution. The Respondent has further relied on clause 16 of the brochure/offer document of the schemes of the Company wherein the Company has reserved the righ .....

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on to Section 12 (1B) of the SEBI Act is concerned, the Respondent submits that the Appellants obtained the insurance cover by payment of premium to the respective insurance companies and then offered it to its customers. Further, the Respondent submits that if the construction offered by the Appellants were to be considered, a bank could start offering accident insurance along with a deposit and claim that RBI could not regulate it. 13. With respect to the applicability of Regulation 73 of the .....

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ent which satisfies the conditions referred to in sub-section (2)[or sub-section (2A)] 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 sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.] (2) Any scheme or arrangement made or offered by any [person] under which,- (i) the contributions, or paym .....

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e investors do not have day-to-day control over the management and operation of the scheme or arrangement. [(2A)] 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 Act.] (3) Notwithstanding anything contained in sub-section (2) [or sub-section (2A)], 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 so .....

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oyees Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952); (v) under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956); (vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956); (vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982 (40 of 1982); (viii) under which contributions made are .....

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lations: Provided that any person sponsoring or causing to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment schemes operating in the securities market immediately before the commencement of the Securities Laws (Amendment) Act, 1995, for which no certificate of 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 th .....

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hall carry on or sponsor or launch a collective investment scheme. Regulation 73 of the CIS Regulations (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 collective investment scheme. (2) The existing Collective Investment Scheme to .....

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llective investment scheme. (4) The Board may specify such other disclosures to be made in the information memorandum, as it deems fit. (5) The information memorandum shall be sent to the investors within one week from the date of the information memorandum. (6) The information memorandum shall explicitly state that investors desirous of continuing with the collective investment scheme shall have to give a positive consent within one month from the date of the information memorandum to continue .....

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the date of the information memorandum. (9) On completion of the winding up, the existing collective investment scheme shall file with the Board such reports, as may be specified by the Board. 16. The concept of CIS was envisaged at a time when innocent investors were getting lured into investing their life savings in schemes floated by various entities, assuring such investors of huge profits. The Dave Committee was formulated to draft a report that propounded the regulation of such entities i .....

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tion 11AA of the SEBI Act. 17. A reading of Section 11AA of the SEBI Act shows us the conditions which need to be fulfilled before any scheme launched by an entity is classified as a CIS viz. first, monies collected by investors are pooled and utilized for the purposes of the scheme; second, the investors contribute to a scheme with the intention of receiving profits in the form of money, produce or property; third, the contributions from investors are being managed on their behalf and lastly; a .....

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management company from floating or sponsoring a CIS. Regulation 73 provides for the manner of repayment and winding up of existing collective investment schemes in certain cases viz. failure to make an application to SEBI regarding registration, refusal of SEBI to grant provisional registration or failure to comply with provisions of Regulation 71 after obtaining a provisional registration from SEBI. 18. Now, we shall examine the question of whether or not the holiday scheme/plan floated by th .....

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applying this to the facts of the present case, first and foremost, as regards the contributions made by investors being pooled and used for the scheme, the Appellants argue that since the contract between the Company and the investors is purely for service (construed on the basis of the entitlement conferred on the investors to utilize room nights), selling holiday plans/schemes for consideration cannot be termed as pooling of funds and therefore, would not classify as a scheme or arrangement .....

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hotels and resorts, thereby expanding their inventory of properties on offer in the holiday scheme by utilizing the proceeds of the impugned scheme. Needless to say that the corpus of money accumulated by the Appellants by way of contributions to the holiday scheme is well above the limit of INR 100 crore set under the proviso of clause 1 of subsection 2 of Section 11AA of the SEBI Act, crossing which, a scheme is deemed to be a CIS. At this point, extracts from two precedents being relevant ar .....

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der the guise of development of land…. …. In these circumstances, the conclusion of the Division Bench in holding that the nature of activity of the PGF Limited under the guise of sale and development of agricultural land did fall under the definition of collective investment scheme under Section 2(ba) read along with Section 11AA of the SEBI Act was perfectly justified and hence, we do not find any flaw in the said conclusion. The judgment of this Tribunal in NGHI Developers India .....

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, whether to buy more land or to develop the land already in possession of the Appellants. In this regard, it is noteworthy that the Appellants first seek contributions from members of the public based on the standard agreement and the application form. On receiving contributions, they issue certificates confirming the receipt of the amount of money paid by the customers to the Appellants. This money, in turn, is utilized by the Appellants to further buy land after pooling the investments of all .....

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matter of NGHI Developers, the Tribunal stated that irrespective of whether the money collected is utilized for the purpose of buying land or developing land that has already been purchased, the fact still remains that money collected from investors is pooled to buy/develop land, thereby, establishing the existence of a scheme. 20. Applying the ratio delivered in the matters mentioned above, we find that the collection of monies from applicants of the holiday scheme floated by the Appellants and .....

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an amount which would be higher in value than his initial investment. In the case of Rose Valley Hotels & Entertainments Ltd and Ors. ( Rose Valley Hotels ), the following was held by the Hon ble High Court of Gauhati: "19) There is no credible material placed by the petitioner to convince the court that all the members who have subscribed had the dominant intention of enjoying the stay at the hotels. Only on the basis of the format of an application for subscription of membership it c .....

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is of incoherent material produced by the petitioner like format of 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 rates of interest. If the interest on deposit was the alluring factor on the part of the investors then the case would squarely fall under subclause .....

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ared profitable and attractive to the investors, then the scheme would have fallen squarely under sub-clause (ii) of sub-section 11AA of the SEBI Act. 23. In the instant matter, the surrender value offered to investors harbours the terms of refund of deposit along with an interest component. Additionally, based on the statistics provided by the Appellants on the schemes floated by them, we see that a whopping 97% of investors availed the benefits of the surrender value as opposed to the services .....

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w profits from the scheme. 24. With respect to the third criterion defining a CIS under Section 11 AA (2) of the SEBI act viz. that the investments are managed by the company in question on behalf of the investors, the Appellants contend that the contributions made by customers are not managed by the Appellants in as much as the customers have complete autonomy with respect to the time, mode or manner of utilizing the holiday plans/schemes. It is a matter of record that the Appellants manage the .....

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towards, during its development. However, there were certain caveats which were attached the this right, viz., due notice to be given to the Appellants before such inspection; investors not to interfere as regards the working, management, control and supervision of the land in question etc. These restrictions imposed on the supposed entitlement of the investors to inspect the land were enough for this Tribunal to ascertain that the control over management activities and operation of the scheme .....

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cilities in various locations. Therefore, the investors do not use their investments for their purposes of their own supposed property, but the Appellant actually applies and manages the investors money in manner it deems fit. 25. Coming to the fourth and final ingredient of Section 11AA of the SEBI Act viz. the day-to-day control over the management and operation of the scheme, the submissions made by the Appellant are limited to the extent of elucidating the benefits available to the customer .....

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ed in whole or in part at its sole discretion or according to the prevailing market conditions/cost factors. It is, therefore, clearly borne out that the Company has complete control over activities pertaining to the scheme as is rightly brought forth by the Respondent in its submission with reference to clause 16 of the brochure/offer document of the scheme. The underlying philosophy of the fourth ingredient is that the day to day management of the money pooled under the scheme and the scheme s .....

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the investors. 26. From an analysis of the facts and circumstances of the instant matter and the provisions of Section 11AA of the SEBI Act, we find that the holiday schemes launched by the Appellants fall squarely within the definition of a CIS as set out in Section 11AA(2) of the SEBI Act. We, therefore, have no hesitation in upholding the said finding of the Respondent in the Impugned Order. 27. We have given our thoughtful consideration to the last submission of both parties regarding the ap .....

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t 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 lakhs of gullible investors who are prompted to invest in such schemes by advertisement, publicity etc. Theref .....

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isdiction over all such CISs which do or do not conform to the requirements of registration etc. laid down in the said Regulations irrespective of the date of launch of a scheme which according to SEBI has all the trappings of a CIS, and this conclusion has been reached by the Respondent in accordance with law and in the facts and circumstances of the case. 28. The Respondent on the other hand has relied on the matter of PACL Ltd vs SEBI, an extract of which is reproduced herein: 42. Strong reli .....

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that regulation 73 cannot be applied to a CIS floated after the CIS Regulations came into force, this Tribunal in para 17 held that the provisions for winding up contained in regulation 73 is applicable to CIS existing at the time when the CIS Regulations were introduced as also to the CIS which may have been launched at any point of time thereafter. Whether a CIS floated and operated after the CIS Regulations came into force without obtaining registration from SEBI was entitled to seek registr .....

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emist Infra Realty Ltd. (supra) PACL has a right to seek registration under CIS Regulations cannot be accepted . 29. In the matter of Alchemist vs SEBI, the appellant therein was a public limited company developing high quality infrastructure and real estate within India as well as abroad. SEBI held that Alchemist was actually carrying on an unregistered CIS in contravention of provisions of section 12(1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations. Alchemist submitted that it .....

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e SEBI Act. 30. In the matter of PACL Ltd vs SEBI, under the guise of selling agricultural land, PACL collected INR 49,100 crore from 5.85 crore customers by promising them that their investments in the schemes of PACL would be highly profitable. PACL was executing sale deeds in favour of the customers and getting these verified through Justice K. Swamidurai. However, PACL did not take any steps to ensure that the subject land was in the real owner s name as required by Justice K. Swamidurai. PA .....

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ein: 37…….. 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. 31. From an analysis of the facts of both matters viz. Alchemist an .....

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case of Alchemist, this Tribunal saw the transactions between Alchemist and its investors as genuine transfers under a non-registered CIS Scheme. The matter in Alchemist revolved solely around whether or not the schemes floated by Alchemist came under the definition of a CIS under Section 11AA of the SEBI Act. At this point, it is noteworthy to highlight an extract from the case of PACL Ltd vs SEBI. 38….. There is no merit in the above contention, because, protection of investor interest .....

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uestion of following the procedure prescribed under the CIS Regulations arises. 32. Before we look at the applicability of Regulation 73 to the present matter, we find it necessary to turn our attention to the case of SEBI vs Gaurav Varshney decided on July 15, 2016. In the said case, the Hon ble Supreme Court quashed criminal proceedings against the appellants therein because SEBI itself had considered the company in which the appellants were directors was an existing CIS and since the appellan .....

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d not engaged themselves, in an activity of collective investment before 25.1.1995, continued till the concerned persons/entities successfully obtained the required certificate of registration, under the Collective Investment Regulations. Our conclusion hereinabove emerges from, inter alia, the following salient features. Firstly because, the Statement of Objects and Reasons of the Securities Laws (Amendment) Act, 1995, which resulted in the insertion of sub-Section (1B) in Section 12 of the SEB .....

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eme(s), till after they had obtained a certificate of registration. Thirdly because, of the use of negative words in sub-Section (1B) - No person shall… , denotes mandatory intent, with reference to those not already engaged in collective investment operations. Fourthly because, of the use of negative words in conjunction with the word shall , further makes the legislative intent absolutely clear, and also, mandatory, with reference to those not already engaged in collective investment op .....

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2(1B) of the SEBI Act, the court drew a clear distinction between existing schemes i.e., schemes which came into existence prior to 1995 and new schemes i.e., schemes which came into existence after 1995 and stated that that the bar created under Section 12(1B), forbidding persons who had not engaged themselves, in an activity of collective investment before 25.1.1995, continued till the concerned persons/entities successfully obtained the required certificate of registration, under the Collecti .....

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case of Gaurav Varshney, therefore, does not help the Appellant in any manner. 34. As per the Hon ble Supreme Court s order, an existing CIS means a CIS which is in operation as on January 25, 1995. In the case of the Appellants in the instant matter the company was incorporated only in 1997 and the schemes under question were started around 2001-2002. As such the appellant is clearly not an existing CIS and cannot derive any benefits from the same. Therefore, in the facts and circumstances of t .....

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ed that they were adversely affected by the issue involved in the matter have never been party before SEBI and they have never produced the necessary documents before SEBI, they were not impleaded as a formal party but have been given a right of hearing by us. Learned counsel Shri Rabindra Hazari argued on behalf of the investors stating that he had ample material to prove that the appellants had diverted huge funds to other entities owned and controlled by the appellants themselves and that the .....

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Notification: Amendments in the notification No.5/2017- Integrated Tax (Rate) dated the 28th June, 2017.

Highlight: Levying interest u/s 234C - interest is to be charged on the returned income and not on assessed income.

Highlight: Accrual of income - sale of right to develop and sell incentive FSI under LOI - till the conditions of LOI are fulfilled transfer is not complete and income does not accrue to the assessee

Highlight: TPA - determination of ALP - TP adjustment by applying Bright Line Test (BLT) is not sustainable on protective basis having no statutory mandate.

Highlight: Safeguard Duty - Advance License Scheme - as there is no exemption from safeguard duty leviable under Section 8C, which is imposed on the goods imported from China, the importer has to pay safeguard duty

Highlight: Manufacture - process of cutting of waste plastic container - Such plastic containers before and after cutting are nothing but waste / scrap - Not a manufacturing activity as no new product emerges.

News: NITI Aayog and Govt. of Assam organizes workshop on health sector reforms in Guwahati; launches SATH- Sustainable Action for Transforming Human Capital

Notification: Seeks to amend notification no. 5/2017- central tax(rate) dated 28.06.2017 to give effect to gst council decisions regarding restriction of refund on corduroy fabrics

Notification: Seeks to amend notification no. 2/2017- central tax(rate) dated 28.06.2017 to give effect to gst council decisions regarding gst exemptions

Notification: Seeks to amend notification no. 2/2017- integrated tax(rate) dated 28.06.2017 to give effect to GST council decisions regarding GST exemptions.

Notification: Seeks to amend notification no. 1/2017- central tax(rate) dated 28.06.2017 to give effect to gst council decisions regarding gst rates

Notification: Seeks to amend notification no. 1/2017- integrated tax(rate) dated 28.06.2017 to give effect to gst council decisions regarding gst rates.

News: Notification Issued For GST Actionable Claim On Branded Food Products

Highlight: Classification printed computer stationary/manifold Business Forms - to be classified under Chapter Heading 4820.00 or under Chapter Heading 4901.90 - items like A4 sheets, advertisement and job card to be classified under Chapter 49

Article: RCM – Applicability to persons not liable to get registered us 23(1)

Article: Credit of unsold stock [Section 140(3)] - Actual Credit as well as Notional Credit - Part-I - GST Transitional provisions

News: GST Refund - Blockage of Working Capital of Exporters - earlier also there was a normal blockage of funds for a period of 5-6 months at least

News: Clarification about Transition Credit - ₹ 1.27 lakh crore of credit of Central Excise and Service Tax was lying as closing balance as on 30th June, 2017 - claim of credit of ₹ 65,000 crore is not unexpected

Article: 20 Things You must know about E Way Bills in GST Law

Article: MISTAKES IN DRAFTING

Highlight: The Customs and Central Excise Duties Drawback Rules, 2017 and All Industry Rates (AIRs) of Drawback related changes -reg. - Circular

Highlight: The definition of "subsidiary company" or "subsidiary" u/s 2(87) of the Companies Act, 2013 shall come into force w.e.f. 20-9-2017

Highlight: Central Government notified the All Industry Rates of Duty Drawback Schedule w.e.f. 1.10.2017 - Notification

Notification: All Industry Rates of Duty Drawback Schedule w.e.f. 1.10.2017

Circular: Investment by Foreign Portfolio Investors in Corporate Debt Securities – Review

Notification: Exemptions on supply of services under UTGST Act

Notification: Rates for supply of services under UTGST Act

Notification: Exemptions on supply of services under IGST Act

Notification: Rates for supply of services under IGST Act

Notification: List of Exempted supply of services under the CGST Act



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