2014 (12) TMI 1288 - Board - Companies Law

Schemes without obtaining registration from SEBI - Collective Investment Schemes - Whether MVL is operating a CIS without obtaining registration from SEBI? - Held that - MVL has uniformly priced the units in IBC project , situated at different locations/floors. This gives an inference that the units are being sold at a fixed price, which is generally not the practice in a real estate transaction. As refer to a complaint received by SEBI on May 16, 2014, wherein it has been alleged that since the year 2012, MVL has regularly defaulted on payment of agreed assured return. In another investor complaint received by SEBI on August 31, 2014, the complainant alleged that MVL is not giving the assured returns, assured rental income to its customers and that MVL has advised for cancellation of the buyers agreement and assured returns agreement pertaining to IBC Project. A copy of these complaints have been forwarded by SEBI to MVL. The contents of these complaints further strengthens the observations made above that the IBC Project is not purely a real estate transaction. In view of the foregoing, the plans/schemes of MVL is in the nature of a CIS as all the four conditions specified under Section 11AA (2) of the SEBI Act are satisfied. As find that the Company is engaged in the fund mobilising activity from the public by floating/sponsoring/launching collective investment schemes as defined in Section 11AA of the SEBI Act. Therefore, have no hesitation in holding that MVL and its directors, viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are engaged in the fund mobilising activity by floating/sponsoring/launching, unregistered/unauthorised CIS, as defined in the Section 11AA of the SEBI Act. MVL Limited PAN AAFCM2372M and its directors viz., Mr. Prem Adip Rishi PAN AGQPR9177H; DIN 00020611 , Mr. Praveen Kumar PAN ADQPK8192E; DIN 01332414 , Mr. Rakesh Gupta PAN AAJPG3712C; DIN 00020638 , Mr. Vinod Malik PAN ABLPM6562D; DIN 01275161 , Mr. Vinod Kumar Khurana PAN AAIPK7996F; DIN 01863652 , Mr. Vijay Kumar Sood PAN ACBPS9229G; DIN 01325491 and Ms. Kalpana Gupta PAN AAGPG5434L; DIN 02300348 shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the schemes which have been identified as a Collective Investment Scheme in this Order. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, shall wind up the existing Collective Investment Schemes and refund the monies collected by the said company under the schemes with returns which are due to its investors as per the terms of offer within a period of three months from the date of this Order and thereafter, within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds.

Summary

Issues Involved:
1. Whether MVL Limited (MVL) is operating a Collective Investment Scheme (CIS) without obtaining registration from SEBI.
2. Whether the activities of MVL and its directors are in violation of the SEBI Act and CIS Regulations.
3. Directions to be issued to MVL and its directors for compliance and remedial actions.

Issue-Wise Detailed Analysis:

1. Whether MVL Limited (MVL) is operating a Collective Investment Scheme (CIS) without obtaining registration from SEBI:

SEBI came across an advertisement by MVL soliciting investments for its 'India Business Centre' (IBC Project) at Gurgaon, promising assured returns. SEBI sought details from MVL to ascertain if it was operating a CIS. MVL claimed it was in the real estate business and not receiving contributions from investors. However, SEBI found that MVL was mobilizing funds from the public through schemes that appeared to be CIS without SEBI registration, violating Section 12(1B) of the SEBI Act and CIS Regulations.

MVL's submissions indicated that it offered IT/cyber spaces under various plans, including an assured return plan. The agreements did not clearly identify specific units, and the payments were pooled for the project. MVL also offered a buy-back option, further indicating a CIS. SEBI concluded that MVL's operations satisfied all four conditions of a CIS under Section 11AA(2) of the SEBI Act, including pooling of funds, expectation of returns, management on behalf of investors, and lack of day-to-day control by investors.

2. Whether the activities of MVL and its directors are in violation of the SEBI Act and CIS Regulations:

SEBI found that MVL and its directors were engaged in fund mobilizing activities by floating unregistered CIS, violating Section 11AA of the SEBI Act. The directors were held responsible for the illegal conduct of MVL's business. SEBI noted that MVL's activities were not pure real estate transactions but involved pooling of funds and offering assured returns, characteristic of CIS. MVL's failure to provide complete documentation and inconsistencies in its agreements further supported SEBI's findings.

3. Directions to be issued to MVL and its directors for compliance and remedial actions:

SEBI issued several directions to MVL and its directors:
- Abstain from collecting money from investors or launching any new CIS.
- Wind up existing CIS and refund collected monies with due returns within three months.
- Submit a winding-up and repayment report to SEBI within fifteen days after the refund period.
- Not to alienate or dispose of any assets except for making refunds.
- Submit a detailed inventory of MVL's assets.

In case of non-compliance, SEBI would:
- Restrain MVL and its directors from accessing the securities market until all CIS are wound up and refunds are made.
- Refer the matter to State Government/Local Police for civil/criminal cases and to the Ministry of Corporate Affairs for winding up MVL.
- Initiate attachment and recovery proceedings under the SEBI Act.

Additionally, MVL and its directors were restrained from accessing the securities market for four years. SEBI would also consider further proceedings for contraventions found in the order.

Conclusion:

SEBI concluded that MVL was operating unregistered CIS, violating the SEBI Act and CIS Regulations. MVL and its directors were directed to wind up the schemes, refund the monies, and were restrained from accessing the securities market. SEBI's order aimed to protect investors and ensure compliance with regulatory requirements.