2013 (7) TMI 1085 - AT - Companies Law

Summary

Issues Involved:
1. Whether the business activities of the Appellants fall under the definition of Collective Investment Schemes (CIS) as per SEBI regulations.
2. Whether the Appellants were required to register their schemes with SEBI.
3. The validity of the SEBI order directing the Appellants to wind up their schemes and refund the money collected from investors.

Summary:

Issue 1: Definition of Collective Investment Schemes (CIS)
The Appellants argued that their business activities do not fall under the definition of CIS as per SEBI regulations. They claimed that their business involves the sale and purchase of land, which does not fall within the purview of CIS Regulations. The Appellants also submitted that they do not offer exorbitantly high returns but an acceptable figure of 12% per annum. They contended that the funds raised are utilized for ongoing corporate expenses and other business activities. However, SEBI argued that the schemes carried on by the Appellants are in the nature of CISs as the contributions from investors are pooled and utilized for the purposes of the scheme, and the investors have no control over the management of the scheme.

Issue 2: Requirement of Registration with SEBI
The Appellants did not register their schemes with SEBI as required u/s 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. SEBI issued a Show Cause Notice (SCN) to the Appellants for conducting CISs without registration. The Appellants denied the allegations but admitted that they had stopped taking new investments from the public. SEBI contended that the Appellants' schemes meet the criteria laid down in Section 11AA of the SEBI Act, which defines a CIS. The Tribunal referred to the Supreme Court's judgment in PGF Ltd. vs. Union of India, which held that schemes promising high returns and pooling investors' money for development fall under the definition of CIS.

Issue 3: Validity of SEBI Order
SEBI's Impugned Order directed the Appellants to wind up their schemes and refund all monies collected from investors within three months. The Tribunal upheld the SEBI order, finding no legal infirmity. However, considering the large number of investors involved and the complexity of the repayment process, the Tribunal extended the time frame for repayment to six months, with a requirement for the Appellants to submit a progress report to SEBI.

Conclusion:
The Tribunal dismissed the appeal, upholding SEBI's order with a modification to extend the repayment period to six months. The Appellants were directed to submit a progress report to SEBI after six months. The appeal was dismissed with no costs.