2005 (6) TMI 571 - AT - SEBI

Summary

Issues Involved:
1. Compliance with SEBI's conditions for provisional registration.
2. SEBI's directive to wind up the schemes and repay the investors.
3. Appellant's compliance with the conditions imposed by SEBI.
4. SEBI's assessment and decision-making process.
5. Impact on investors and employees.

Issue-wise Detailed Analysis:

1. Compliance with SEBI's Conditions for Provisional Registration:
The appellant, M/s. Guru Teak Investment (Mysore) Private Limited, was granted provisional registration by SEBI under Regulation 70(1) read with Regulation 71(1) of the SEBI (Collective Investment Scheme) Regulations, 1999. SEBI imposed 11 conditions for obtaining final registration, including getting the schemes rated by a credit rating agency, not launching new schemes, getting the schemes audited, creating a trust, and meeting a minimum net worth requirement.

2. SEBI's Directive to Wind Up the Schemes and Repay the Investors:
SEBI's impugned order directed the appellant to wind up the existing schemes and repay the investors within 5.5 months, citing non-compliance with the conditions laid down under Regulation 71. The appellant argued that they had complied with most conditions and sought more time to fulfill the remaining requirements.

3. Appellant's Compliance with the Conditions Imposed by SEBI:
The appellant submitted evidence of compliance with several conditions, including credit rating by ICRA Limited, auditing by SSB & Associates, and forming a trust named GTI Unit Holders Trust. However, SEBI found the compliance unsatisfactory and noted violations such as mobilizing Rs. 52.53 crores during the period 01/04/2000 to 31/03/2004, which SEBI claimed was in violation of Regulation 69.

4. SEBI's Assessment and Decision-Making Process:
The Tribunal found that SEBI's order lacked proper application of mind and did not consider the welfare of investors or the objective of the Regulations. SEBI's findings were based on statements without reference to any materials or investigations. The Tribunal noted that SEBI should have given the appellant more time to comply with certain conditions, such as submitting audit reports and appointing SEBI-registered trustees.

5. Impact on Investors and Employees:
The appellant argued that winding up the schemes would adversely affect thousands of employees and investors. The company employed over 1,200 persons and had significant investments in maintaining teak plantations. The appellant assured that they would refund any investors who sought repayment and requested SEBI to allow them to continue their operations to benefit the investors and maintain employment.

Conclusion:
The Tribunal set aside SEBI's order and remanded the matter for fresh disposal in accordance with law. SEBI was directed to reconsider the appellant's compliance efforts and the impact on investors and employees. The Tribunal emphasized the need for SEBI to act sympathetically and in the public interest, allowing the appellant to continue operations under certain conditions while ensuring investor protection. The interim order requiring the appellant to deposit Rs. 50 lakhs with SEBI was to remain in effect, with SEBI retaining the amount until final orders were passed.