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2022 (12) TMI 237 - HC - SEBIPublic Interest Litigation - Regulations seeked to Time Share Companies as Collective Investment Scheme (CIS) under SEBI Act and the Collective Investment Schemes Regulations, 1999 ( CIS Regulations ) - scheme or arrangement to be qualified as a CIS as defined under the SEBI Act - substantial public interest for entertaining this petition - this petition has been instituted is that the rights of several million residents of India are adversely affected due to malfunctioning, fraud, misrepresentation and other wrongful and/or illegal activities of various Time Share Companies - as submitted since Time Share Companies were not included in the exempted categories and considering their mention in the interim report, they would be covered under the definition of CIS as a scheme or arrangement in section 11AA(1) of the SEBI Act HELD THAT - Once the Parliament has included the provisions with respect to CIS after considering the Dave Committee report and which provisions have been held to be intra vires in the decision of Rose Valley Kolkata 2013 (9) TMI 623 - CALCUTTA HIGH COURT as quoted above, it would not be necessary for us to dwell any further on this aspect. In view of the above discussion, in our considered view, the reliance by the Learned Counsel for the Petitioners on the decision of Rose Valley Kolkata (supra) does not advance the case of the Petitioners. Petitioner s reliance on the Securities Appellate Tribunal decision in the case of Chandrasen Ganpatrao Bhise Vs. Securities and Exchange Board of India 2022 (3) TMI 1449 - SECURITIES APPELLATE TRIBUNAL MUMBAI in support of the contention to bring all time share schemes within the ambit of CIS also appears to be misplaced in as much as in the specific facts of that case a reference has been made to the finding of the Tribunal that the time sharing business of the company was a CIS. Moreover that was a case filed by one of the directors of a company namely Pancard Clubs Limited on whom a penalty had been levied under Section 15HA for fraudulent and unfair trade practice for violation by the company of not registering the CIS under Section 12(1B). In the said case the Tribunal quashed the imposition of penalty on the director holding that the penalty for non-registration was under Section 15D(a) and not under Section 15HA as the director had not indulged in fraudulent and unfair trade practice. In our view, the finding that the time sharing scheme that is selling of rooms for a fixed duration of nights / days depending upon the scheme opted by its customers was held to be a collective investment scheme by the Tribunal itself demonstrates that on a case to case basis after due examination of the facts, the Tribunal may come to a conclusion that a particular scheme is a Collective Investment Scheme. However, that does not mean that every time sharing scheme of selling rooms for a fixed duration of nights and days would be a collective investment scheme, as submitted by the Learned Counsel for SEBI. True that the innocent and gullible investors need to be protected against the abuse in the name of Time shares. However as mentioned above, SEBI the Regulator being fully empowered to do so, it would therefore not be necessary for us to give any such directions to the Regulator. The purposes for which a public interest litigation can be instituted has been very succinctly elucidated by the Supreme Court in the case of State of Uttaranchal Vs. Balwant Sing Chaufal Ors 2010 (1) TMI 1095 - SUPREME COURT where it has been clearly observed that PIL can be filed only for the following three purposes and not otherwise (i) for enforcement of fundamental rights of marginalized and deprived sections of the society; (ii) for preservation of ecology and environment; (iii) for purity in public administration and probity in governance Having said so, even if such companies, keeping in mind the complex nature of the schemes and the arrangements by which people contribute monies into pools under promises of rights to holidays and the segment of the population that they may touch, require a separate regulation as canvassed by the Learned Counsel for the Petitioners, that clearly in our view is not the job of the Courts. The Supreme Court in the case of Mallikarjuna Rao and Ors v. State of Andhra Pradesh Ors 1990 (4) TMI 307 - SUPREME COURT , has categorically held that the High Courts or the Administrative Tribunals cannot issue a mandate to the Government to legislate nor recommend / advise / direct legislation on a subject nor even require the executive to exercise its rule making power in any manner. Applying the aforesaid principles, the present petition, in our considered view, does not fall within any of the aforesaid categories and cannot be styled or filed as a Public Interest Litigation as it is neither for enforcement of fundamental rights of marginalized and deprived sections of the society nor for preservation of ecology and environment nor for purity in public administration and probity in governance but seeking directions to the Respondents to either enforce the provisions pertaining to CIS Regulations against Timeshare companies, which we have found to be without any merit or in the alternate, issue directions to formulate legislation / guidelines / regulations, which we have already held to be de hors the scope of our constitutional mandate under Article 226. Petition deserves to be dismissed and is hereby dismissed with costs of Rs. 25,000/- to be paid by the Petitioner to the SEBI, within a period of two weeks.
Issues Involved:
1. Whether Time Share Companies should be regulated as Collective Investment Schemes (CIS) under the SEBI Act and CIS Regulations. 2. Whether the Court should direct the formulation of suitable legislation to regulate Time Share Companies. Issue-wise Detailed Analysis: 1. Regulation of Time Share Companies as CIS: The petitioner-society filed a petition seeking the regulation of Time Share Companies as CIS under the SEBI Act and CIS Regulations. The petitioner argued that Time Share investments meet the criteria set out in Section 11-AA of the SEBI Act, which defines a CIS. The criteria include pooling of contributions from investors, utilization of these contributions to acquire properties, and management of the pooled property on behalf of investors without their day-to-day control. The petitioner emphasized that many Time Share Companies have a corpus exceeding Rs. 100 Crores and have not been exempted under Section 11A(3) of the SEBI Act, thus falling within the ambit of Section 11-AA(1). The petitioner also referred to the interim report of the Dave Committee, which suggested that Time Share arrangements could be considered CIS. The respondent, SEBI, countered that not all Time Share schemes fall within the definition of CIS and that each scheme must be evaluated on its specific facts. SEBI has taken action against certain Time Share Companies when their schemes met the CIS criteria. The Court agreed with SEBI's stance, stating that whether a Time Share activity qualifies as a CIS depends on the facts and circumstances of each case. The Court held that it is not justified to direct SEBI to enforce Section 11-AA against all Time Share Companies, as SEBI already examines complaints and takes action where necessary. 2. Formulation of Legislation for Time Share Companies: The petitioner alternatively sought a mandamus directing the Union of India to formulate legislation to regulate Time Share Companies. The Court rejected this request, citing the Supreme Court's ruling in Mallikarjuna Rao v. State of Andhra Pradesh, which held that courts cannot mandate the government to legislate or exercise its rule-making power in any particular manner. The Court also noted that the petition did not fall within the categories of public interest litigation (PIL) as defined by the Supreme Court in State of Uttaranchal v. Balwant Singh Chaufal, which are: - Enforcement of fundamental rights of marginalized and deprived sections of society. - Preservation of ecology and environment. - Purity in public administration and probity in governance. The Court concluded that the petition did not meet these criteria and was not a valid PIL. Conclusion: The petition was dismissed with costs of Rs. 25,000 to be paid by the petitioner to SEBI. The Court emphasized that SEBI is already empowered to regulate CIS and has taken action against Time Share Companies where applicable. The Court also reiterated that it cannot direct the government to legislate on the matter.
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