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2015 (6) TMI 1138 - HC - Companies LawHoliday management scheme v/s collective investment scheme - exclusion from the jurisdiction of SEBI - conditions regarding the scheme or arrangement in the context of the provisions of the Securities and Exchange Board of India Act, 1992 - Held that - 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 cannot be conclusively held that the scheme is only for enjoying the stay in the hotels. It could have been held so if there was no alternative term of refund of deposit with a lucrative rate of interest of 17.6 per cent per annum. This aspect of the matter requires a detailed enquiry about the names and identities of all the subscribers, their social status, their annual income, etc to find out how many persons have genuinely subscribed 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 argued that in view of the insurance component and in view of Explanation to sub-Section (1B) of Section 12 of the Securities and Exchange Board of India Act, 1992 the scheme does not constitute collective investment scheme appears to be untenable argument; the petitioner has not produce all the necessary and credible material to show that the insurance coverage is genuine and it covers all the investors. The holiday investment scheme ranges between 3 to 5 years, whereas the insurance coverage is only for 1 to 2 years. The entire subscription period is not covered by the accident insurance. The petitioner has not produced all the policies issued by the insurers in respect of all the investors. Since the insurance certificates produced are vague and there is no details of names and identities of the members whose risk is covered under the said policies the plea of insurance accident coverage appears to be a facade contrived by the petitioner to keep the scheme outside the definition of the collective investment scheme so as to exempt itself from the jurisdiction of SEBI and this aspect of dubious insurance coverage requires an inquiry. The authority of the Whole-time Member who passed the interim order is challenged seriously on the ground that without having proper delegation of powers the Whole-time Member alone could not have passed the interim order when the SEBI has issued the notice. In reply to the said contention the counsel for the SEBI has produced a notification issued by the SEBI wherein the powers of the Board are delegated to the Whole-time Member under Sections 11(1), 11(3), 11(4) and 11B of the SEBI Act, therefore the third argument in this regard does not hold water. 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. 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 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.
Issues Involved:
1. Whether the Holiday Membership Plan (HMP) constitutes a collective investment scheme under Section 11AA of the SEBI Act. 2. Whether the inclusion of accident insurance in the HMP excludes it from being a collective investment scheme under the SEBI Act. 3. The legality of the SEBI's interim order and the authority of a single member to issue such an order. 4. The validity of the amended provisions of Section 11AA of the SEBI Act and the delegation of powers to SEBI. Issue-Wise Analysis: 1. Collective Investment Scheme: The petitioner argued that the HMP does not meet the criteria of a collective investment scheme under Section 11AA(2) of the SEBI Act. They contended that the scheme does not involve investors receiving profits, income, produce, or property, but rather a license to stay in hotels. However, SEBI found that the HMP involves pooling contributions from investors and offering returns in the form of annualized interest, which aligns with the definition of a collective investment scheme. The court noted that the scheme's terms, including the option for investors to get a refund with interest, suggest it is a collective investment scheme. The court emphasized the need for a detailed inquiry into the nature of the scheme and the intentions of the investors. 2. Insurance Component: The petitioner claimed that the inclusion of accident insurance in the HMP excludes it from being a collective investment scheme under the Explanation to Section 12(1)(1B) of the SEBI Act. However, SEBI and the court found this argument unconvincing. The insurance coverage was limited to 1-2 years, while the scheme duration was 3-5 years. The court noted that the insurance policies produced were vague and did not cover all investors. This aspect required further inquiry to determine the genuineness of the insurance coverage. 3. Legality of SEBI's Interim Order: The petitioner challenged the SEBI's interim order, arguing that SEBI could not pass an ad-interim ex-parte order without an inquiry and satisfaction under Section 11B of the SEBI Act. The court found that SEBI had the authority to issue such directions under Sections 11(1), 11(4), and 11B of the SEBI Act, read with Regulation 65 of the CIS Regulations. SEBI's actions were deemed necessary to protect investors' interests and ensure legitimate investment activities. The court also confirmed that SEBI had delegated powers to the Whole-time Member to issue such orders. 4. Validity of Amended Provisions and Delegation of Powers: The petitioner argued that the proviso to Section 11AA(1) of the SEBI Act, which deems any scheme involving a corpus of Rs. 100 crore or more as a collective investment scheme, was invalid as it overrode the main provision. The court rejected this argument, citing Supreme Court precedents that a proviso can serve various purposes, including qualifying or excepting certain provisions from the main enactment. The court also upheld the delegation of powers to SEBI under Section 11AA(2A), finding it a necessary legislative policy to address unforeseen situations and not excessive delegation. Conclusion: The court dismissed the writ petition, affirming SEBI's jurisdiction over the HMP as a collective investment scheme, validating the interim order, and upholding the amended provisions and delegation of powers under the SEBI Act.
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