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S.E.B.I. Versus Rose Valley Hotels And Entertainments Ltd.

2013 (7) TMI 1090 - SECURITIES AND EXCHANGE BOARD OF INDIA

Dated:- 10-7-2013 - S. RAMAN J. ORDER 1. The Securities and Exchange Board of India (hereinafter referred to as SEBI ) had received a letter dated June 20, 2012, from the Additional Director General of Police, Office of the Director, Bureau of Investigat ion (E. O.), Assam, Guwahati (hereinafter referred to as ADGP, Assam Police ), regarding the raising of funds by M/s Rose Valley Hotels and Entertainments Limited (hereinafter referred to as RVHEL ) and M/s Rose Valley Real Estates Constructions .....

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, 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 or der to ascertain whether or not RVHEL was carrying on activities of a collective invest .....

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ards principal investment and towards interest. 3. RVHEL vide letter dated March 15, 2013, replied that it was in Time Share business, which does not come under the purview of SEBI. In this regard, RVHEL drew reference to a meeting organised on February 11, 2013, at the instance of the Secretary, Institutional Finance and Programme Implementation Department, Government of Jharkhand at Ranchi (hereinafter referred to as Joint Secretary, Govt. of Jharkhand ) to discuss the business activities of R .....

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was incorrect to state that SEBI had already concluded that the scheme of RVHEL did not come under its purview since the object of the meeting organised on February 11, 2013, was to brief the Joint Secretary, Govt. of Jharkhand, on the Writ Petition pending at Kolkata High Court between SEBI and RVRECL. ii. Immediately after the aforesaid meeting, SEBI had addressed a letter dated February 13, 2013 to the Joint Secretary, Govt. of Jharkhand, to advise RVHEL to furnish the documents mentioned at .....

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ted April 02, 2013, inter alia replied to the abovementioned SEBI letter as under - Your letter under reference (SEBI letter date d 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 .....

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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 Tripura (hereinafter referred to as SDM, West Tripura ) in accordance with the provisions of the Tripura Protection of Interests of Depositors (in Financial Establishments) (Amendment) Ac t, 2011 (hereinafter referred to as " Financial Establishments Act "), the following restrictions were .....

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efined under the Financial Establishments Act and until such restriction is revoked by a subsequent Order. 2. The Rose Valley, Agartala, shall make all due payment of entitlements of all its existing depositors against the plans/schemes such depositors hold under any nomenclature by the 31st July, 2013 and submit a compliance report accordingly to the Competent Authority as defined under the Financial Establishments Act. 3. Rose Valley Hotels and Entertainments Ltd., the Rose Valley Group as a c .....

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tainments Ltd., the Rose Valley Group as a collective entity, or any of the subsidiary companies of the Rose Valley Group. 7.1 The material available on record i.e. letter forwarded by the ADGP, Assam Police alongwith the annexures therein; the correspondences between SEBI and RVHEL; the Interim Order passed by the SDM, West Tripura alongwith the annexures therein, etc. have been perused. In this context, I note that RVHEL has not denied accepting funds from the public under its HMP. In view of .....

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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 identifia .....

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er the HMP i.e. standard, silver, gold, platinum and diamond, to intended investors. ii. When an investor subscribes to a particular plan offered under the HMP, he is required to make monthly payments on advance or installment basis towards provisional allotment of facilities i.e. room accommodation and services, at resorts or hotels owned and managed by RVHEL. iii. The HMP plan once subscribed to, cannot be cancelled nor can the money paid in lieu of the facilities offered be claimed, before th .....

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ple, when an investor opts for maturity payment in the event of cancellation of the HMP booking under a particular scheme (HA4-5 -STD), after making the payment of 60 monthly installments of ₹ 500 each, he would get a refund of ₹ 48,000, which is a return of 17.65% of annualized interest to the investor. v. The rates of annualized interest offered under the various membership plans of the HMP is reproduced below - Type of Membership Plan Annualised Interest Standard 11.96% - 17.65% S .....

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nvestors 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 respec t 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 respo .....

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trol on the plans offered by it under the HMP. In view of the above, I find that the HMP has all the ingredients of a 'collective investment scheme' as defined in section 11AA of the SEBI Act, as reproduced at para 7.2 supra, for ready reference. 7.5 RVHEL has submitted that SEBI does not have any jurisdiction to enquire into its affairs since SEBI has admitted before the Joint Secretary, Govt. of Jharkhand that 'Time Share' business does not come under its purview. In this regar .....

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2013, to advise RVHEL to furnish relevant documents in order for SEBI to ascertain whether it comes under the purview of 'collective investment schemes' as specified in the SEBI Act. 7.6 I note that although RVHEL has submitted that it is in 'Time Share' business and therefore outside SEBI's purview, the main characteristics of a 'collective investment scheme' are found in the HMP offered by it. In this context, it may be pertinent to refer to the observations of the .....

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rangement, 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. In view of these observations, I find that the SEBI Act is applicable to collective investment schemes that engage in inviting investments or contributions from investors for investing in any asset which will i .....

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r 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 .....

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nd regulation 3 of the CIS Regulations. In this regard, I note that RVHEL has not obtained any certificate of registration under the CIS Regulations for its fund mobilizing activity from the public, under the HMP offered by it. 7.8 Upon a consideration of the aforementioned paragraphs, I am of the view that RVHEL is prima facie engaged in fund mobilising activity from the public, by floating or sponsoring or launching 'collective investment schemes' as defined in section 11AA of the SEBI .....

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submit the documents sought vide the aforesaid letters. In these circumstances, I find that reasonable opportunity has been afforded to RVHEL to respond to SEBI and its refusal do so, when considered in the context of the abovementioned prima facie finding, leads me to believe that such refusal to submit the information sought was only to conceal the true nature and operation of the fund mobilising activity under the HMP. 9. Protecting the interests of investors is th e first and foremost manda .....

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