2015 (8) TMI 993 - AT - Companies Law

Registration for operating CIS scheme Winding up of scheme and refund on non-compliance Whether SEBI was justified in holding that schemes floated by Applicant constitute Collective Investment Schemes under SEBI Act, 1992 and that Applicant and its promoters and directors, were liable to wind up said schemes Held that - By inserting Section 12(1B) to SEBI Act legislature has made it mandatory for any person to obtain certificate of registration for operating CIS Thus, operating CIS without obtaining certificate of registration from SEBI was illegal after CIS Regulations came into force and that person shall be directed to either wind up CIS or comply with CIS Regulations Admittedly, some of schemes floated by applicant were existing, when regulation was enacted SEBI vide two communication informed applicant that said schemes were CIS and to get registration in terms of regulations 5 or wind up schemes On non-compliance, direction to wind up existing CIS and refund money collected from investors cannot be faulted Thus, Appellants directed to comply with directions contained in impugned order of SEBI Application dismissed Decided against Applicant.

Issues Involved:

1. Whether the schemes floated by PACL Ltd. constitute Collective Investment Schemes (CIS) under the SEBI Act.
2. Whether SEBI is justified in directing PACL and its promoters/directors to wind up the schemes and refund the monies collected from investors.
3. Whether SEBI followed the correct procedure as per the directions of the Supreme Court.
4. Whether PACL should have been given an opportunity to register the schemes under the CIS Regulations.

Detailed Analysis:

1. Whether the schemes floated by PACL Ltd. constitute Collective Investment Schemes (CIS) under the SEBI Act:

The Tribunal examined whether PACL's schemes met the criteria under Section 11AA(2) of the SEBI Act, which defines CIS. The Tribunal found that PACL pooled the money collected from customers for purchasing and developing land, and the investments were made with a view to receive profits, income, produce, or property. The Tribunal noted that PACL managed the property, contribution, or investment forming part of the scheme on behalf of the investors, and the investors did not have day-to-day control over the management and operation of the scheme. The Tribunal concurred with SEBI's view that PACL's schemes satisfied all the conditions under Section 11AA(2) and thus constituted CIS.

2. Whether SEBI is justified in directing PACL and its promoters/directors to wind up the schemes and refund the monies collected from investors:

The Tribunal upheld SEBI's decision to direct PACL to wind up its schemes and refund the monies collected from investors. The Tribunal noted that PACL had collected Rs. 49,100 crore from 5.85 crore customers, but the value of the land held by PACL was only Rs. 11,706.96 crore. The Tribunal found that PACL's land transactions were sham and detrimental to the interests of investors. The Tribunal held that SEBI was justified in rejecting PACL's without prejudice proposal and in directing PACL to wind up its schemes and refund the money collected from investors with promised returns.

3. Whether SEBI followed the correct procedure as per the directions of the Supreme Court:

The Tribunal examined the Supreme Court's order, which required SEBI to first determine whether PACL's schemes constituted CIS and then take further action depending on that decision. The Tribunal found that SEBI had followed the Supreme Court's directions by issuing show cause notices, conducting investigations, and providing personal hearings to PACL before passing the impugned order. The Tribunal rejected the appellants' argument that SEBI should have waited for the Supreme Court's final decision before passing consequential orders. The Tribunal held that SEBI was duty-bound to protect investors' interests and take immediate action under Section 11/11B of the SEBI Act.

4. Whether PACL should have been given an opportunity to register the schemes under the CIS Regulations:

The Tribunal rejected the appellants' argument that PACL should have been given an opportunity to register its schemes under the CIS Regulations. The Tribunal noted that PACL had been operating its schemes without obtaining a certificate of registration from SEBI, which was mandatory under Section 12(1B) of the SEBI Act and the CIS Regulations. The Tribunal held that permitting PACL to seek registration would have been a travesty of justice, given that PACL's schemes were found to be sham and detrimental to investors' interests. The Tribunal upheld SEBI's decision to direct PACL to wind up its schemes and refund the monies collected from investors.

Conclusion:

The Tribunal dismissed the appeals and upheld SEBI's order directing PACL and its promoters/directors to wind up the schemes and refund the monies collected from investors with promised returns. The Tribunal found that PACL's schemes constituted CIS, SEBI followed the correct procedure as per the Supreme Court's directions, and PACL was not entitled to seek registration under the CIS Regulations.

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