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2020 (3) TMI 568 - Board - SEBIUnregistered Collective Investment Scheme (hereinafter referred to as CIS ) - violation of Section 12 (1B) of the SEBI Act, 1992 and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 - fund mobilizing activity of VBDP through the scheme of allotment of land post September 2013 - fraudulent practice in terms of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations, 2003 ) - Interim order also called upon the Noticees to show cause as to why suitable directions/prohibitions under Sections 11, 11(4), 11B and 11AA of the SEBI Act read with Regulation 65 of the CIS Regulations, 1999 and Regulation 11 of the PFUTP Regulations, 2003, should not be issued/imposed? - HELD THAT - As perused the material available on record as inclined to agree with the observations in the Interim order and find that the 'Scheme' of allotment of lands/developing colony/plots, as offered by VBDP satisfies the four requirements of a CIS as defined in Section 11AA of the SEBI Act. Consequently, Section 12 (1B) of the SEBI Act, 1992 as well as Regulation 3 of the CIS Regulations prohibits carrying on CIS activities without obtaining Certificate of Registration from SEBI. VBDP had not obtained a certificate of registration from SEBI for offering the 'Scheme' which has been found to be CIS in the previous paras. Therefore, VBDP has violated Sections 12(1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations. Noticee 2 and 3 are directors of VBDP with effect from August 03, 2010 and continues to be directors till date and thus Noticee nos. 2 and 3 are responsible for the violations of provisions of law by VBDP. Regulation 4 (2) (t) was inserted in the PFUTP Regulations 2003 with effect from September 13, 2013 and as per the said provision the raising of funds by VBDP under its 'Scheme' without seeking registration from SEBI or filing any offer document as required under the CIS Regulations amounts to illegal mobilisation of funds and therefore the Noticees have also violated Regulation 4 (2) (t) of the PFUTP Regulations, 2003. Directions a. VBDP and its Directors, viz. Yogendra Bisay and Jitendra Bisay shall wind up its existing CIS and refund the contributions or payments collected from investors under the schemes with returns due to the investors within a period of three months from the date of this order. b. Upon completion of the refund as directed above, within a further period of fifteen days, the Noticees shall submit a winding up and repayment report to SEBI in the format provided under regulation 73 of the CIS Regulations. The report shall be supported by the proof of the trail of funds claimed to be refunded, bank account statements of the company indicating refund to the investors and receipt from the investors acknowledging such refunds along with a certification of such repayment from two independent Chartered Accountants. c. The Noticees shall not divert any funds raised from public at large which are kept in bank account(s) and/or in the custody of VBDP or its Directors and they shall not alienate or dispose of or sell or create any encumbrance on any of the assets of VBDP except for the purpose of making refunds to its investors as directed above. d. The Noticees shall provide inventory of all the assets purchased in the name of the Noticees including all assets movable and/or immovable wherein Noticees have interest directly or indirectly in whatsoever manner, to SEBI within a period of fifteen days from the date of this order. e. The Noticees are restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities market, directly or indirectly, till the directions for refund/repayment to the investors are complied with, as mentioned above, to the satisfaction of SEBI and repayment completion certificate is submitted to SEBI and thereafter for a further period of four years from the date of completion of the refund, as directed above. Restrain to access securities market and prohibition from buying, selling or otherwise dealing in securities shall extend to their existing holding of securities including the units of mutual funds. f. Noticee nos. 2 and 3 shall be restrained from holding position as directors or key managerial personnel of any listed company for a period of four years from the date of this Order.
Issues Involved:
1. Whether VBDP was operating an unregistered Collective Investment Scheme (CIS). 2. Whether VBDP's activities amounted to fraudulent practices under the PFUTP Regulations. 3. Compliance with SEBI's interim order and directions for winding up the CIS and refunding investors. Issue-Wise Detailed Analysis: 1. Whether VBDP was operating an unregistered Collective Investment Scheme (CIS): The proceedings originated from an interim order dated November 09, 2018, by SEBI against VBDP and its directors. SEBI's investigation revealed that VBDP was mobilizing funds through land/plot allotment schemes, which were prima facie in the nature of a CIS. SEBI identified that VBDP's activities satisfied the four conditions of a CIS under Section 11AA of the SEBI Act, 1992. These conditions include pooling contributions for a scheme, investors contributing with a view to receive profits, management of the scheme on behalf of investors, and investors not having day-to-day control over the scheme. VBDP had not obtained the necessary registration from SEBI to operate a CIS, thereby violating Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. 2. Whether VBDP's activities amounted to fraudulent practices under the PFUTP Regulations: SEBI also found that VBDP's fund mobilization through the land allotment scheme post-September 2013 amounted to a fraudulent practice under Regulation 4(2)(t) of the PFUTP Regulations, 2003. The interim order noted that VBDP's scheme involved promising investors returns or property without actually transferring ownership until full payment was made. This, coupled with the company's right to amend terms unilaterally, indicated a lack of transparency and control for investors, thus constituting a fraudulent practice. 3. Compliance with SEBI's interim order and directions for winding up the CIS and refunding investors: Despite being served notices, VBDP and its directors did not respond or appear for hearings. SEBI proceeded based on available records, confirming that VBDP's activities were indeed a CIS and fraudulent. The final order directed VBDP and its directors to wind up the CIS and refund investors within three months. The refund process was to be documented and audited, with a report submitted to SEBI. Additionally, VBDP and its directors were restrained from accessing the securities market until the refund was completed and for four years thereafter. The directors were also barred from holding positions in any listed company for four years. Conclusion: SEBI concluded that VBDP was operating an unregistered CIS and engaged in fraudulent practices. The company and its directors were ordered to wind up the CIS, refund investors, and were barred from the securities market and holding directorial positions in listed companies for specified periods. The judgment emphasized compliance with SEBI regulations and investor protection.
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