2003 (11) TMI 360 - HC - Companies Law

Summary

Issues Involved:

1. Whether the scheme of the company is covered within the definition of 'Collective Investment Scheme' as defined in section 11AA of the Act, 1992.
2. Whether the Regulations, 1999 are applicable in the case of this Company.
3. Whether the provisions of section 11AA and sub-section (1B) of section 12 are ultra vires to the Constitution.
4. Whether the Regulations referred in the prayer clause, in Company's petition, are ultra vires and inconsistent with the provisions of the Companies Act and other Acts.

Issue-wise Detailed Analysis:

1. Definition of 'Collective Investment Scheme':

The court examined whether the company's scheme falls under the definition of 'Collective Investment Scheme' as per section 11AA of the SEBI Act, 1992. The petitioner company argued that it is engaged in the purchase and sale of agricultural land and its development, and each transaction with a customer is independent. The company does not promise any assured return and the customers are not obligated to sell the land back to the company. The court noted that for a scheme to be classified as a 'Collective Investment Scheme', all four conditions under sub-section (2) of section 11AA must be satisfied. The conditions are: pooling of contributions, payments made with a view to receive profits, property managed on behalf of investors, and lack of day-to-day control by investors. The court found that none of these conditions were collectively satisfied in the case of the petitioner company.

2. Applicability of Regulations, 1999:

The court considered whether the Regulations, 1999 apply to the petitioner company. It was argued that the company's activities are related to land, which falls under Entry 18 of List II of the Seventh Schedule of the Constitution, and thus, only the State Government can legislate on this matter. The court agreed with this argument, stating that the Central Government cannot regulate land matters and the SEBI regulations do not apply to the petitioner company's activities of purchasing and selling agricultural land.

3. Constitutionality of Provisions:

The petitioner challenged the constitutionality of section 11AA and sub-section (1B) of section 12 of the SEBI Act, 1992, arguing that these provisions are ultra vires the Constitution as they encroach upon the State's domain over land matters. The court, however, did not find it necessary to delve into the constitutionality of these provisions as it had already concluded that the petitioner company's scheme does not fall under the definition of 'Collective Investment Scheme'.

4. Consistency with Companies Act and Other Acts:

The petitioner also argued that the SEBI Regulations, 1999 are inconsistent with the Companies Act, 1956 and other relevant acts. The court noted that since the company's scheme does not fall under the definition of 'Collective Investment Scheme', the SEBI regulations do not apply, making this argument moot.

Conclusion:

The court concluded that the scheme of the petitioner company does not fall within the definition of 'Collective Investment Scheme' under section 11AA of the SEBI Act, 1992. Consequently, the SEBI Regulations, 1999 do not apply to the petitioner company. The notices dated 30-11-1999 and 10-12-1999 issued by SEBI were quashed, and both writ petitions were allowed.