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In Re : Pancard Clubs Limited and its Directors viz., Sudhir Shankar Moravekar, Shobha Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan

2014 (7) TMI 1246 - SECURITIES AND EXCHANGE BOARD OF INDIA

Fraudulent fund mobilization - activities of 'collective investment scheme' in terms of Section 11 AA of the SEBI Act - Held that:- It is noted that PCL was advised to respond to the preliminary enquiry conducted by SEBI, through SEBI letters dated September 17, 2013 and emails dated March 13, 2014 and April 03, 2014. However, on all these occasions, PCL delayed submission of the requisite information and also failed to furnish the scheme wise list of investors and their contact numbers and addr .....

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on record, it is observed that Mr. Sudhir Shankar Moravekar (PANAADPM2933M), Mrs. Shobha Ratnakar Barde (PAN-ASLPB1204C), Mrs. Usha Arun Tari (PAN-ABYPT8841M), Shri. Manish Kalidas Gandhi (PAN-AITPG8933H), Shri. Chandrasen Ganpatrao Bhise (PAN-AADPB6103E) and Shri Ramachandran Ramakrishnan (PAN-AAIPR9196G) are the Promoters/Directors/persons in charge of the business of PCL. Further, in order to safeguard the assets/property acquired by PCL and its promoters/directors using the funds collected f .....

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rdance with law. - We in exercise 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 PCL and its Directors, namely, Mr. Sudhir Shankar Moravekar (PANAADPM2933M), Mrs. Shobha Ratnakar Barde (PAN-ASLPB1204C), Mrs. Usha Arun Tari (PAN-ABYPT8841M), Shri. Manish Kalidas Gandhi (PAN-AITPG8933H), Shri. Chandrasen Ganpatrao Bhise (PAN-AADPB6103E) and Shri Ramachandran Ramakrishnan (PAN-AAIPR9196G): - • not .....

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dy of PCL or group companies or promoters or LLPs or Proprietary concerns or any person directly or indirectly controlled through shareholding or management by PCL ; - • to furnish all the information/details sought by SEBI within 15 days from the date of receipt of this order, including, - i. Details of amount mobilized and refunded till date, - ii. Scheme wise list of investors, investment amount and addresses with contact numbers, if any. - iii. Details of agents along with ad .....

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terms of Section 11 AA of the SEBI Act, 1992 (hereinafter referred to as "SEBI Act") SEBI, vide letter dated September 17, 2013, sought the following information from PCL:- i. Memorandum and Articles of Association (" MoA" and "AoA") of the company as filed with the Registrar of Companies, ii. Contact details, Email id, Fax numbers of the company and the designated person for corresponding with SEBI, iii. Details of the past and present directors of the company. Det .....

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ired to be entered into by investor/applicant under PCL's schemes. viii. Details of the scheme wise and year wise amount mobilized by PCL till date along with the number of investors under the schemes, ix. Details of the scheme wise and year wise amount paid/redeemed by PCL till date along with the number of investors under the schemes, x. Details of scheme wise timeshare availed by the investors/applicants. In case the investors/applicants opted for surrender value instead of timeshare, to .....

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y other similar scheme(s), if any, floated by group/associates of PCL, xvi. Details of regulatory approval/registration obtained by PCL from any Regulatory Authority along with copy of such certificate of registration or regulatory approval. 3. In reply to the aforesaid letter, PCL vide letters dated October 01, 2013, October 31, 2013 and December 03, 2013, April 02, 2014 and April 14, 2014, inter alia, furnished the following documents: i. Copies of MoA and AoA, ii. Copies of the application fo .....

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e business of PCL is in the nature of fixed deposits/ponzi scheme/collective investment scheme. b. PCL is in the business of marketing time share products- room's nights of its hotels, affiliates and other hotels outside its group to its prospective applicants at a fixed tariff during the contracted tenure of the holiday options. c. At the end of the tenure of the holiday options, the applicants have the option of surrendering their unutilized room nights entitlements and obtain estimated ma .....

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issue for determination is whether the mobilization of funds by PCL under its schemes fall under the ambit collective investment scheme provided in Section 11AA of the SEBI Act, 1992 (hereinafter referred to as "SEBI Act"). 6. On an examination of the material available on record, it is prima facie observed that: a) PCL (CINU91900MH1997PLC105363) was incorporated on January 24, 1997. It has its registered office at 111-113, Kallandas Udyog Bhavan, near Century Bazar, Prabhadevi, Mumba .....

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all kinds of entertainments". c) As per the brochure furnished by PCL, vide letter dated October 03, 2013 it is noted that PCL is offering, inter alia, following schemes to general public: 1. Pancard Clubs-Relax Holiday for 3.3 years (39 months) 2. Pancard Clubs-Delight Holiday for 6.3 years (75 months) 3. New Royal Holiday 9 years 4. New Regular Holiday for 10 years 5. Pancard Clubs-New premium Holiday for 10 years 6. Sunrise Holiday for 5 years 7. Pancard Clubs-Dezire Holiday for 37 month .....

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6.3 years (75 months) : (w.e.f. May 02, 2008): Current Average Tariff for three room nights Offer Price of three room nights at a discount Minimum room nights to be bought Estimated surrender value of three room nights @ ₹ 1800/- per room nights ₹ 6,000/- (2,000*3) ₹ 2,700/- (900*3) 3 ₹ 5,400/- iii. New Royal Holiday 9 years: (w.e.f.May 22, 2007): Current Average Tariff for three room nights Offer Price of three room nights at a discount Minimum room nights .....

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him in a single financial year". iv. New Regular Holidays for 10 years: (w.e.f. April 01, 2004): Current Average Tariff Actual price for two Hundred & Forty Room Nights Package Offer Price of the package at discount Total entitlement room nights Total entitlement Room Nights per month Current surrender Value as on Today ₹ 2,40,000/- (1,000*240) ₹ 1,02,000/- (425*240) 240 2 ₹ 850 (per room night v. Pancard Clubs - New Premium Holiday for 10 years (w.e.f. May 22, 2007): .....

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t of room nights per months Current Estimated surrender value per unutilized room nights. ₹ 2,40,000/- (2,000*120) ₹ 1,08,000/- (900*120) 120 2 ₹ 1800 • As per the policy of PCL, applicants of abovementioned schemes at (iv) and (v) can "...commence utilising his room night entitlements after 30 days from acceptance of his application by the company. Applicants of abovementioned schemes at (vi) can commence utilising his room night entitlements after 60 days from accep .....

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(w.e.f.March 01, 2013): Current Average Tariff for Nine room nights Offer Price of nine room nights at a discount Minimum room nights Payment Facility Monthly basis Quarterly basis ₹ 18,000 (2,000*9) ₹ 8,100 9 ₹ 300 ₹ 900 • The tenure of Pancard Clubs-dezire holiday option scheme is 37 months. The applicant has to confirm to acquire a minimum of 9 room nights and thereafter multiple of 9 room nights at the offer price Rs. 900 for one room nights. The applicant can c .....

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instalment consistently, the applicant shall be levied a late fee of Rs. 25 per month for monthly option and Rs. . 75/-per quarter for quarterly option for each such delayed payment. • The applicant can commence utilising his room night entitlements 60 days after completion of all the 27 payments towards committed room nights. viii. Divine Holiday for 66 months (w.e.f.May 01, 2009) : Current Average Tariff for four room nights Offer Price of four room nights Minimum room nights to be acquir .....

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iod of 36 months from the date of first payment. Persons completing all the 36 payments for the committed number of room nights shall be considered as a valid applicant and shall be formalised for and eligible for the benefits of the scheme. In the event of non-payment of instalment consistently, the applicant shall be levied a late fee of Rs. 15 per month for each such delayed payment. • The applicant can commence utilising his room night entitlements after 60 days from completion of all t .....

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surrender value. The actual surrender value shall be determined by the company at the time of surrender of room nights and shall be paid after the expiry of tenure under the scheme. ii. The applicant may opt to exchange or barter or utilise the products and services of the company or group companies. iii. The applicant may opt to convert his unutilised room nights to the extent of surrender value entitlement into life membership of various clubs of the company/group. iv. The company in its disc .....

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summary of the same is tabulated as under: (Rs in Crores) 1 2 3 4 5 6 7 8 9 Sl. No. Financial Year Income from membership and annual subscription fee Provision for surrender value payable Advance against sale of room nights Other heads under long term current liabilities * Long term current liability Holiday members surrender value Marketing expenses 1 2009-10 0.31 688.75 2087.68 132.06 2908.49 297.19 194.07 2 2010-11 0.46 953.93 2778.76 150.07 3882.76 368.54 145.98 3 2011-12 0.67 1376.14 3607. .....

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Statutory Auditor of PCL has noted that provision has been made in respect of all unutilised outstanding room nights. Provision has been made for the difference between the estimated surrender value and the offer price and has been equally distributed from the period in which the membership was sold and the period in which the membership matures. 11. As regards Column No.5, the Statutory Auditor has stated that the amount received as advance against room nights does not get the character of inc .....

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-13 (Rs. in Crores) Sl. No Scheme Amount mobilized Total no of applicants room nights sold Room nights utilized % of room nights actually utilised 1 Delight Holiday 327.19 314576 3635525 8326 0.23 2 Dezire Holiday .03 341 416 0 0.00 3 Divine holiday 171.34 488539 1903779 567 0.03 4 New Premium 3.86 639 90880 116 0.13 5 New Regular holiday 24.17 1449 568720 630 0.11 6 New Royal Holiday 85.61 112494 951243 5708 0.60 7 Relax Holiday 577.93 302727 6421506 30545 0.48 8 Sunrise Holidays .73 48 8160 18 .....

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33 4840 0.09 8 Sunrise Holidays 5.54 318 61556 2 0.00 Total 1052.10 675851 12014863 8541 0.07 Financial year 2010-11 (Rs. in Crores) Sl. No Scheme Amount mobilized (In Crores) Total no of applicants room nights sold Room nights utilized % of room nights actually utilised 1 Delight Holiday 250.15 112471 2779444 62 0.00 2 Dezire Holiday - 0.00 3 Divine holiday 68.99 124804 766556 - 0.00 4 New Premium 4.14 768 97412 23 0.02 5 New Regular holiday 25.26 1577 594353 - 0.00 6 New Royal Holiday 84.24 12 .....

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om night for a year owned by PCL is only 5,18,300. However, it has sold around 1.35 Crores room nights. In other words, PCL possesses less than 4% rooms. 14. As per the financial statements for the financial year 2009-10, 2010-11, 2011-2012 and 2012-13 and the detail of the submission of PCL, with respect to amount mobilised, and number of room nights actually utilised for the financial year 2010-11, 2011-2012 and 2012-13 under various schemes, it is noted that less than 1% of customers are actu .....

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satisfies the conditions referred to in sub-section (2) shall be a collective investment scheme. (2) Any scheme or arrangement made or offered by any person 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 .....

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stors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement. PCL has launched investment schemes in the nature of Holidays Plans, which are offered to the public. Holiday Plan Certificates of confirmation are issued to individual investors who purchase the Holiday Plans. As per the submissions made by PCL vide letters dated April 02, 2014 and April 11, 2014, it is noted that during the financial years 2010-11 (Rs. 853.35crores), 2011-12 (Rs. 1052. .....

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awarded by PCL to investors who purchase the Holiday Plans and the room nights can be rented out or surrendered to PCL and in lieu of the same the investors receive an assured amount from each of the surrendered room night. Thus, apparently the contribution made by investors in response to the Holiday Plans offered by PCL are pooled and utilized for providing various holiday facilities and in case said facilities are not availed, then the same can be surrendered. In view of the said facts, " .....

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n return on investment, which is in the nature of profit. For instance, in the Divine Holiday scheme, if any person invests an amount of ₹ 3600/- (i.e. 4 room nights) then after 66 months, the investor gets a return of ₹ 4800 for surrendering the four room nights. Similarly, in its Sunrise Holiday Scheme, the investors are assured a return of ₹ 1800/- on an investment of ₹ 900/-, at the end of five years. Further, as compared to the total number of investors in its Holida .....

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second condition stipulated in section 11AA(2)(ii) of the SEBI Act. 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. The money collected from public in the form of investments made in the various Holiday Plans of PCL are purportedly used by PCL for the purpose of the Plans. It is me .....

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and other holiday facilities at different locations. Hence, it is seen that the Holidays Plans offered by PCL satisfies third and fourth conditions stipulated in Section 11AA (2) of the SEBI Act. 17. I note that although PCL has submitted that it is in the 'Time Share' business and therefore falls outside the purview of SEBI the main characteristics of a 'collective investment scheme' are clearly present in the aforementioned Holidays Plans offered by it. At this stage, it is re .....

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etc. The definition only seeks to ascertain and identify any scheme or arrangement, irrespective of the nature of business, which attracts investors to invest their funds at the instance of someone else who comes forward to promote such scheme or arrangement in any field and such scheme or arrangement provides for the various consequences to result there from... 18. The features of the Holiday Plans offered by PCL, as discussed in the preceding paragraphs, shows that the activity of fund mobili .....

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quot;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") also prohibits carrying on CIS activities without obtaining registration from SEBI. Therefore, the launching/floating/sponsoring/causing to sponsor .....

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ed to respond to the preliminary enquiry conducted by SEBI, through SEBI letters dated September 17, 2013 and emails dated March 13, 2014 and April 03, 2014. However, on all these occasions, PCL delayed submission of the requisite information and also failed to furnish the scheme wise list of investors and their contact numbers and addresses as sought by SEBI. In these circumstances, I find that reasonable opportunity has been afforded to PCL to respond to SEBI. When considered in the context of .....

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ies are carried on by PCL and no investors are defrauded. From the material available on record, it is observed that Mr. Sudhir Shankar Moravekar (PANAADPM2933M), Mrs. Shobha Ratnakar Barde (PAN-ASLPB1204C), Mrs. Usha Arun Tari (PAN-ABYPT8841M), Shri. Manish Kalidas Gandhi (PAN-AITPG8933H), Shri. Chandrasen Ganpatrao Bhise (PAN-AADPB6103E) and Shri Ramachandran Ramakrishnan (PAN-AAIPR9196G) are the Promoters/Directors/persons in charge of the business of PCL. Further, in order to safeguard the a .....

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ching 'collective investment scheme', without obtaining registration from SEBI in accordance with law. 22. In view of the foregoing, I, in exercise 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 PCL and its Directors, namely, Mr. Sudhir Shankar Moravekar (PANAADPM2933M), Mrs. Shobha Ratnakar Barde (PAN-ASLPB1204C), Mrs. Usha Arun Tari (PAN-ABYPT8841M), Shri. Manish Kalidas Gandhi (PAN-AITPG8933 .....

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