2013 (8) TMI 1066 - HC - Companies Law

Summary

Issues involved:
The judgment involves the legality of an order passed by the Securities and Exchange Board of India (SEBI) under Section 11(1), 11B, and 11(4) of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999. The petitioners challenge the order which was based on a letter from the Director General of Police and an order from the Sub-Divisional Magistrate. The main issue is whether the business of the petitioners falls within the definition of a Collective Investment Scheme as per the Act.

Details of the Judgment:

The High Court considered the interim reliefs sought by the petitioners and noted that SEBI's order was based on prima facie satisfaction regarding the nature of the petitioners' business. The Court observed that SEBI had not conclusively determined if the business fell within the definition of a Collective Investment Scheme. The petitioners argued that SEBI's order restrained them without giving an opportunity to show cause, but the Court did not express a definite opinion on the legality of such restraint orders under Regulation 65.

The Court tentatively agreed with the petitioners that all requirements under Section 11AA(1) must be satisfied to classify a scheme as a Collective Investment Scheme. It found that the petitioners had shown prima facie that their time share scheme did not fall under this definition, questioning SEBI's jurisdiction over their business affairs. The Court noted the lack of clear material showing SEBI's jurisdiction and the absence of SEBI's final conclusion on the nature of the petitioners' business.

As an interim measure, the Court suspended certain directions in SEBI's order, allowing the petitioners to operate their bank accounts and maintain records of money collections separately. It prohibited further coercive actions against the petitioners until the returnable date. The respondents were granted liberty to seek cancellation or modification of the interim directions provided by the Court.

This judgment highlights the importance of satisfying all statutory requirements for classifying a scheme as a Collective Investment Scheme and raises questions about SEBI's jurisdiction over businesses without conclusive determination. The Court's interim directions aim to balance the interests of the petitioners and SEBI pending further proceedings.