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2015 (8) TMI 1499 - Board - SEBIPrima facie view contained in the ex-parte ad interim order sustained after hearing the appellants - exercise of the powers conferred upon under sections 11(1), 11(4) and 11B of the SEBI Act - HELD THAT - The documents and details available on record, the prima facie view taken in the interim order is correct. Further, the directions of not collecting any funds from the investors under the existing schemes/existing company within the group and not to launch any new schemes or plans, is in the interest of lay investors who may fall in the trap of the alleged schemes of the Company. In so far as existing investors as concerned, SEBI has directed that the Company shall not dispose of or alienate any of the properties/assets obtained directly or indirectly through money raised by Citrus and not to divert the funds raised from public. It was necessary for SEBI that such unauthorized collection of money be stopped immediately in order to prevent further damage to the general public by unregistered CIS activities. As the activities of the Company and its directors are prima facie found to be illegal and in violation of the SEBI directions, revoking the directions issued vide the interim order, at this stage will not be in the interest of the investors. Further, as also discussed above, in terms of the SEBI order dated August 21, 2015 in the matter of Royal Twinkle Star Club Limited, the directors of the Citrus namely Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis cannot be permitted to carry out any fund mobilization activity. In view of the same, in my considered opinion revoking/modifying the directions issued vide the interim order in any form is not appropriate. As also noted earlier the documents/details submitted by the Company have to be examined in detail, in the light of submissions made and the discussion in the interim order. In view of the same, I am convinced that the directions in the interim order in respect of the entities need to be continued, till further directions. These directions have been imposed in the interest of investors and to ensure that the noticees do not continue with the money mobilization activities through its plans/schemes. SEBI is directed to conduct an investigation into the operations of the Company, in order to form a final view as to whether the activity of the Company is in the nature of CIS as prima facie observed in the interim order. SEBI is advised to expeditiously conclude the investigation and proceed in accordance with law. In exercise of the powers conferred upon me under sections 11(1), 11(4) and 11B of the SEBI Act, 1992 read with Regulation 65 of SEBI (Collective Investment Schemes) Regulations, 1996, hereby confirm the directions issued vide the SEBI interim order dated June 03, 2015 against Citrus Check Inns Limited, Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis.
Issues Involved:
1. Compliance with SEBI's interim order. 2. Nature of Citrus Check Inns Limited's business activities. 3. Alleged violation of SEBI regulations. 4. Non-furnishing of complaints to Citrus. 5. Adequacy of information provided by Citrus to SEBI. 6. Jurisdiction of SEBI over Citrus's business activities. 7. Impact of SEBI's order on Citrus's business operations. 8. Comparison with other similar businesses. Detailed Analysis: 1. Compliance with SEBI's Interim Order The Hon'ble Securities Appellate Tribunal (SAT) directed SEBI to hear the appellants and decide whether the prima facie view in the ex parte ad interim order dated June 3, 2015, could be sustained. SEBI rescheduled the hearing to August 13, 2015, after the noticees requested a postponement. SEBI's interim order directed Citrus and its directors to cease fund collection, not to launch new schemes, and to submit detailed information about their assets and operations. 2. Nature of Citrus Check Inns Limited's Business Activities SEBI found that Citrus was engaged in mobilizing funds under various holiday plans, which were prima facie in the nature of a Collective Investment Scheme (CIS) as defined in Section 11AA of the SEBI Act. Citrus argued that its business involved selling holiday plans and timeshare holidays, which did not constitute a CIS. However, SEBI's analysis indicated that the activities were similar to those of Royal Twinkle Star Club Limited, which had previously been found to be operating a CIS. 3. Alleged Violation of SEBI Regulations SEBI alleged that Citrus was operating a CIS without obtaining the necessary registration, violating Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. SEBI also cited violations of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Citrus contended that SEBI had not demonstrated how its business was harming investors and argued that there was no emergent situation warranting the interim order. 4. Non-furnishing of Complaints to Citrus Citrus claimed that SEBI's failure to provide copies of complaints denied it an opportunity to present its defense. SEBI countered that the complaints were only a trigger for its investigation and that the interim order was based on an independent analysis of documents submitted by Citrus. SEBI later provided copies of the complaints, and Citrus was given the opportunity to reply. 5. Adequacy of Information Provided by Citrus to SEBI Citrus argued that it had provided all the information sought by SEBI. However, SEBI noted that crucial information, such as the number of investors who had availed the schemes, was only provided after the interim order. SEBI highlighted that Citrus had not furnished complete details despite repeated requests, which appeared to be a deliberate tactic to conceal the true nature of its activities. 6. Jurisdiction of SEBI over Citrus's Business Activities Citrus contended that SEBI's jurisdiction was limited to securities and movable assets, and its business did not fall within this scope. SEBI refuted this, stating that under Section 11AA(2) of the SEBI Act, a scheme is a CIS if it meets certain conditions, regardless of whether an instrument or security is issued. SEBI emphasized that the definition of 'unit' in the CIS Regulations includes any instrument denoting the value of the subscription. 7. Impact of SEBI's Order on Citrus's Business Operations Citrus argued that the interim order had brought its business to a standstill, affecting its ability to honor commitments to members and hotel owners. SEBI maintained that protecting investors from unregistered CIS operations outweighed any potential loss of reputation and goodwill for Citrus. 8. Comparison with Other Similar Businesses Citrus claimed discriminatory treatment, noting that other companies running similar timeshare schemes had not faced similar actions from SEBI. SEBI responded that the activities of Citrus were found to be in the nature of an unregistered CIS, and the interim order was necessary to prevent further damage to investors. Conclusion: The prima facie view taken in SEBI's interim order dated June 3, 2015, was sustained. SEBI confirmed the directions issued against Citrus Check Inns Limited and its directors, prohibiting them from collecting funds, launching new schemes, and disposing of assets. SEBI directed an investigation into Citrus's operations to determine if they constituted a CIS. The directions will remain in effect until further orders from SEBI.
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