2021 (11) TMI 516 - SCH - SEBI

Collective investment scheme without registration and in violation of the SEBI (Collective Investment Schemes) Regulations 1999 - recovery proceedings - Attachment orders - HELD THAT - Attachment notice which has been issued by SEBI on 1 March 2021 was in order to implement the directions which have been issued by this Court under Article 142 of the Constitution. SEBI in that sense, as an expert statutory body, is exercising powers in pursuance of the mandate of this Court in order to protect the interests of the investors. This Court has created a mechanism by virtue of which, third parties who have objections, including to orders of restraint or attachment are facilitated in having their objections heard through the auspices of an officer appointed by this Court. Shri R S Virk, former District Judge, has been entrusted with the task. Report submitted by Shri R S Virk after hearing the parties is placed before this court to provide a remedy of redress. In the present case, it is not possible to accept the submission that SEBI has attempted to short circuit the process of filing a statutory appeal by taking recourse to an IA in this Court. SEBI has been entrusted with a specific mandate under the directions of this Court. It was duty bound to and has brought the order of this Court to the notice of SAT. The stay on the order of the attachment would effectively obstruct the implementation of the directions of this Court. The entertaining of the appeals by SAT and its interim order are contrary to the directions issued by this Court dated 2 May 2016 in terms of prayer (a) of IA 5 of 2016. As a matter of fact, it was inappropriate for SAT to entertain the appeals. Deference to the order of this Court required that the parties should be permitted to move this Court for appropriate directions. In the above view, we are not, at this stage, expressing any opinion on the merits of the defense which has been raised by DDPL and Unicorn to the order of attachment since that would preclude a hearing before, and a report by Shri R S Virk. ORDER -The order passed by SAT shall stand vacated - DDPL and Unicorn shall be at liberty to submit their objections to the order of attachment dated 1 March 2021 issued by SEBI before Shri R S Virk, former District Judge, who has been appointed pursuant to the orders of this Court. Pending further orders of this Court, the order of attachment which has been levied by SEBI on 1 March 2021 shall continue to remain in operation to the extent of an amount of ₹ 49.67 crores. Alternatively, we grant liberty to DDPL and Unicorn to deposit an amount of ₹ 49.67 crores in an Escrow account to the satisfaction of SEBI. Upon the Escrow account being created in respect of the above amount of ₹ 49.67 crores to the satisfaction of SEBI, SEBI would be at liberty to duly modify the order of attachment dated 1 March 2021, which shall then operate only with respect to the amount which is held in Escrow. SEBI would be at liberty to issue necessary directions to invest the moneys held in Escrow in an interest bearing fixed deposit.

Summary

Issues Involved:
1. SEBI's request to vacate the SAT's order dated 26.03.2021.
2. SEBI's attachment notice and its implications.
3. The historical context of SEBI's actions against PACL.
4. The objections raised by DDPL and Unicorn against SEBI's IA.
5. The procedure and authority of SEBI under the directions of the Supreme Court.
6. The role of Shri R S Virk in evaluating objections and claims.
7. The extension of Shri R S Virk's tenure.
8. Various interlocutory applications related to property claims and SEBI's actions.

Detailed Analysis:

1. SEBI's Request to Vacate the SAT's Order:
SEBI sought to vacate the common order dated 26.03.2021 passed by the SAT in Appeal Nos 161 and 162 of 2021, and to stay all further proceedings in these appeals. The SAT had entertained appeals and stayed SEBI's attachment order dated 1 March 2021, allowing Unicorn and DDPL to operate their accounts for business expenses. SEBI argued that this stay obstructed the implementation of the Supreme Court's directions under Article 142 of the Constitution.

2. SEBI's Attachment Notice and Its Implications:
The attachment notice was issued by SEBI on 1 March 2021 to recover funds related to PACL's collective investment scheme, which had defrauded investors. The Justice Lodha Committee found that PACL had transferred ?110.95 crores to five companies, which then transferred the funds to twenty-five entities associated with PACL. These funds were invested in Systematix, which then invested in DDPL and Unicorn. SEBI initiated recovery proceedings to protect investors' interests.

3. Historical Context of SEBI's Actions Against PACL:
The Supreme Court, by an order dated 2 February 2016, constituted a Committee chaired by Justice R M Lodha to dispose of PACL's land parcels and use the proceeds to pay investors. SEBI's actions were in line with this mandate. The Committee included SEBI officials and was empowered to protect investors from PACL's fraudulent activities.

4. Objections Raised by DDPL and Unicorn Against SEBI's IA:
DDPL and Unicorn objected to SEBI's IA on several grounds, including:
- SEBI should have filed an appeal under Section 15Z of the SEBI Act instead of an IA.
- SEBI did not follow Section 28A of the SEBI Act and Section 222 of the Income Tax Act.
- DDPL and Unicorn were not part of PACL, and SEBI had not issued any prior notices to them.
- Systematix's purchase of shares from PACL in 2012 was a legitimate transaction, and there was no association with PACL afterward.

5. Procedure and Authority of SEBI Under the Directions of the Supreme Court:
The Supreme Court emphasized that SEBI's actions were in implementation of its directions under Article 142 of the Constitution. SEBI was acting as an expert statutory body to protect investors' interests. The Court had created a mechanism for third parties to raise objections, which would be heard by Shri R S Virk, a former District Judge.

6. Role of Shri R S Virk in Evaluating Objections and Claims:
Shri R S Virk was appointed to hear objections and claims related to SEBI's actions. He would submit his report to the Supreme Court, which would then consider the objections after hearing the concerned parties. This mechanism ensured that third parties had a remedy for redress.

7. Extension of Shri R S Virk's Tenure:
The tenure of Shri R S Virk was extended until 31 March 2022 to continue evaluating objections and claims related to SEBI's actions against PACL.

8. Various Interlocutory Applications Related to Property Claims and SEBI's Actions:
Several interlocutory applications were filed by parties seeking the release of properties from SEBI's attachment list. Shri R S Virk had evaluated these claims and found them valid. SEBI and the Justice R M Lodha Committee had no objections to these applications being allowed. The Supreme Court directed the Official Liquidator to hand over possession of certain properties to SEBI's authorized representative and allowed the interlocutory applications in terms of Shri R S Virk's evaluations.

Conclusion:
The Supreme Court allowed SEBI's IA, vacated the SAT's order, and stayed further proceedings before SAT. DDPL and Unicorn were permitted to submit their objections to Shri R S Virk. SEBI's attachment order would remain in operation, with an option for DDPL and Unicorn to deposit ?49.67 crores in an Escrow account. Various interlocutory applications were allowed based on Shri R S Virk's evaluations.