9911796707
TMI Blog2004 (7) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... digarh, and its Head Office at 2nd Floor, Vaishali Building, Community Centre, Paschim Vihar, New Delhi. 2. So far the activities of PGFL are concerned, the same have been depicted in a communication addressed by the PGFL to the Securities and Exchange Board of India (hereinafter referred to as the SEBI ) dated 15-1-1990. PGFL is stated to be operating two kinds of schemes; firstly, a scheme involving sale/sale and development of agricultural land, and secondly, joint venture schemes. During the course of hearing of the instant writ petition on 28-5-2004, learned counsel for the petitioners informed the Court the PGFL had taken a decision to disband all schemes other than its operations relating to business connected with sale of agricultural land and/or sale and development of agricultural land. It is, therefore, that this Court, inter alia, passed the following order on 28-5-2004 : "Learned counsel for the petitioners, during the course of arguments unilaterally offered to pay back all the deposits to the investors enrolled under all schemes other than the existing business of sale and purchase and development of land. According to learned counsel, the aforesaid action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell, improve, manage, develop, exchange, lease, mortgage, dispose of, turn to account or otherwise to deal with the property of the Company. The other objects include, to issue prefer and defer or any other such sub-stocks or securities based on or representing any shares, stocks or other assets, specially apportioned for the purpose, etc. 4. The only activity which the PGFL is presently engaged in is stated to be the sale of agricultural land and/or the sale and development of agricultural land. It is the contention of the PGFL, that it identifies and procures agricultural land, and transfers the title thereof in units measuring 1350 sq. feet (150 sq. yards)or multiples thereof, in favour of customers, by executing or securing sale deeds in conformity with applicable laws. The agreements executed by the PGFL with its customers, include the obligation of the PGFL, to develop and maintain the land transferred to customers for periods ranging from 5 to 10 years. The consideration payable by customers, is in lieu of the sale of a plot of land of 1350 sq. feet (150 sq. yards), and in lieu of its development besides related services. A customer has the option to pay for the unit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of promoters/sponsors. The information was to be filed with SEBI latest by 15th January, 1998 and accordingly many companies have filed their information with us. From our records, we observe that no information has been filed by your company till date. The non-filing of information by companies which have floated schemes in this nature or collective investment schemes violates the provisions of the SEBI Act and action may be initiated against these companies under the relevant provisions of the Act. You are directed to immediately inform us the following : 1.Has your company collected funds from the public by issuing instrument like Agro Bonds, Plantations Bonds, etc ? 2.If so, why action should not be initiated against you for violating provisions of the SEBI Act ? We are enclosing a copy of the order passed under section 11B of the SEBI Act and a copy of the Public notice dated December 18, 1997. Your reply should reach within 15 days from the date of this letter failing which we shall be constrained to take action against you under the provisions of SEBI Act." The PGFL claims to have responded to the aforesaid letter issued by the Board through its communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations made in the show cause notice dated 24-12-1998. In response to the reply of the PGFL, dated 9-1-1999, the Board forwarded an extract of a notice which had appeared in the "Indian Express" dated 8-1-1999 to the PGFL, through its covering letter dated 14-1-1999 (Annexure P.10 with CWP No. 4620 of 2002). Relevant extract of the aforesaid notice is reproduced hereunder : "Notice to all plantation companies Agro Companies and Companies running collective investment schemes. This notice is being published pursuant to the directions of the Hon ble Division Bench of Delhi High Court comprised of Justice Anil Dev Singh and Justice Mukul Mudgal in CWP No. 9639 of 1998 and CM No. 10177 of 1998 in CWP No. 3352 of 1998. Vide order dated 7th and 13th October 1998 in CWP No. 3352 of 1998 the Hon ble Delhi High Court has directed that 1.All plantation companies, Agro Companies and companies running collective investment companies shall get themselves credit rated from credit rating companies approved by SEBI. 2.The company shall furnish list of their assets and liabilities. 3.That company shall furnish their list of directors alongwith details of their assets including date, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court on 7-10-1998, 13-10-1998 and 29-10-1998 to the PGFL. Despite the supply of the aforesaid orders passed by the Delhi High Court, the PGFL allegedly failed to furnish any reply to the show cause notice (dated 24-12-1998) issued by the Board to the PGFL, which prompted the Board to issue a communication dated 31-8-2000 (Annexure P.15 with CWP No. 4620 of 2002), requiring the petitioner to submit its reply to the show cause notice dated 24-12-1998 within 15 days of the receipt of the aforesaid letter. 8. On 11-9-2000 (Annexure P.16 with CWP No. 4620 of 2002), the PGFL responded to the show cause notice dated 24-12-1998, by asserting that its business was limited to sale and purchase of agricultural land, by entering into agreements with prospective buyers, on a consideration amount mentioned in the agreement. The prospective buyers, on compliance with the terms of the agreement, were entitled to get a piece of land transferred in their names, by executing registered sale deeds, in order to give them legal title. On the basis of the aforesaid factual position, it was asserted by the PGFL, that the underlying contract between the PGFL and a prospective buyer was, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eks. On the receipt of the aforesaid information, the Board agreed to re-determine the issue de novo by passing a speaking order. As a consequence of the acceptance of the aforesaid offer, CWP No. 4620 of 2002 was disposed of in the following terms : "( i )The Petitioners may file their reply to the show cause notices already served by the respondent on them within three weeks from today; ( ii )In case the petitioners are asked, they would furnish the requisite information to the second respondent; ( iii )In case, the petitioners make a prayer for the grant of an oral hearing, the competent authority shall grant an opportunity of hearing. It is clarified that if shall be open to the petitioners to raise such pleas as they may be advised, including those which have been raised in this petition; ( iv )The matter shall be finality decided within four weeks from the date of conclusion of oral hearing. In the meantime, the operation of the impugned order shall be kept in abeyance; and ( v )On the passing of the fresh order, the order at Annexure P-17 shall stand superseded." In furtherance of the directions issued by this court in CWP No. 4620 of 2002, the PGFL was g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly with the Bombay High Court, and certainly not with this Court. 14. Attention of this Court was invited to a sample of the sale agreement (placed on the record of the instant writ petition by the PGFL as Annexure P.6), wherein, in case of a dispute between the PGFL on the one hand and its customer/investor on the other, only the Civil Courts at Delhi could entertain and settle the same (after the determination of arbitration proceedings), to the exclusion of all other Courts. The Court s pointed attention, in this behalf, was invited to clause 21 of the sample sale agreement which is extracted hereunder : "21. Jurisdiction Further to the aforesaid Clause 20 for any consequent legal remedy, only Civil Courts at Delhi shall have jurisdiction to the exclusion of all other Courts." On the basis of the aforesaid factual position it is submitted that the instant controversy could have been raised, before the Delhi High Court, but certainly not before this Court. 15. In conjunction with the sample sale agreement, learned counsel for respondent No. 2, also invited the Court s attention to the sample sale deed (placed on the record of the instant writ petition as Annexure P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled as S.D. Bhattacharya s case ( supra ), has been pending before the Delhi High Court, wherein the Delhi High Court allowed an application for impleading of certain parties in the writ petition and gave directions regarding credit rating, furnishing of lists of assets and liabilities, furni-shing of lists of their present directors along with details of the assets, and also restrained them from selling, disposing of, or alienating, their immovable properties or parting with the possession of the same. The companies were also directed not to float any new scheme, or to raise any further funds, without permission of the Court. So far as the existing schemes are concerned, the companies were directed by the Delhi High Court to strictly comply with the Board s direction dated 24-2-1998. By a further order dated 13-10-1998, (passed in S.D. Bhattacharya s case ( supra )), the Delhi High Court accepted the plea of the Board to implead 592 companies, allegedly running plantation companies, agro companies etc., as well as companies running equitable investment schemes. While accepting the prayer made, the Delhi High Court, clarified that the order dated 7-10-1998 would also apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thirdly, approximately 191.50 acres of land sold by the PGFL is located in the State of Punjab, and about 169.09 acres of land sold by the PGFL to its customers/investors is located in the State of Haryana, a part of the cause of action definitely arises within the territorial jurisdiction of this Court. Fourthly, the PGFL had earlier filed CWP No. 4620 of 2002 in this Court, wherein it had impugned the order passed by the Board dated 20-2-2002. Neither respondent No. 2, nor any other respondent, had pressed the issue of the territorial jurisdiction of this Court, during the course of proceedings in the aforesaid writ petition. Fifthly, the order passed by the Board dated 6-12-2002, which has been impugned in the instant writ petition is the outcome of the directions issued by this Court on 29-4-2002 while disposing of CWP No. 4620 of 2002. Sixthly, the impugned order in the instant writ petition dated 6-12-2002, is an order in substitution/supersession, of the order dated 20-2-2002 (impugned in CWP No. 4620 of 2002), and since the territorial jurisdiction of this Court had not been disputed during the deliberations in CWP No. 4620 of 2002, the same cannot be disputed durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld, that mere service of notice under section 52(2) of the Rajasthan Urban Improvement Act, 1959, on the owner at Calcutta, in respect of land situated in the State of Rajasthan, intimating the owners/respondents of the State Government s proposal to acquire land for public purpose, did not constitute an integral part of the cause of action, sufficient to vest the Calcutta High Court with jurisdiction to entertain a petition under Article 226 of the Constitution, challenge the validity of the notification depicting the Government s intention to acquire land. In arriving at the aforesaid conclusion, it was noticed by the Apex Court that the notification issued by the State Government under section 52(1) of the aforesaid Act, became effective the moment it was published in the Official Gazette, as the notified land became vested in the State Government free from all incumbrances immediately on the issuance of the said notification. The notice served on the respondent, according to the conclusion recorded by the Apex Court, did not constitute an integral part of the cause of action, as it had no bearing on the validity of the notification issued by the State Government. Consequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appeal before the Supreme Court was confined to the preliminary objection raised by the ONGC before the High Court, namely, that the Calcutta High Court had no jurisdiction to entertain the writ petition as no cause of action had arisen within the territorial jurisdiction of the Calcutta High Court. The Supreme Court in the aforesaid judgment observed as under: "8. From the facts pleaded in the writ petition, it is clear that NICCO invoked the jurisdiction of the Calcutta High Court on the plea that a part of the cause of action had arisen within its territorial jurisdiction. According to NICCO, it became aware of the contract proposed to be given by ONGC on reading the advertisement which appeared in the Times of India at Calcutta. In response thereto, it submitted its bid or tender from its Calcutta office and revised the rates subsequently. When it learnt that it was considered ineligible it sent representations, including fax messages, to EIL, ONGC, etc., at New Delhi, demanding justice. As stated earlier, the Steering Committee finally rejected the offer of NICCO and awarded the contract to CIMMCO at New Delhi on 27-1-1993. Therefore, broadly speaking, NICCO claims tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereupon the controversy raised by the respondent was adjudicated upon on merits. In the appeal preferred by the Union of India, the Supreme Court while referring to Article 226(2) of the Constitution of India, observed as under : "It is clear from the above constitutional provision that High Court can exercise the jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises. This provision in the Constitution has come up for consideration in a number of cases before this Court. In this regard, it would suffice for us to refer to the observations of this Court in the case of Oil and Natural Gas Commission v. Utpal Kumar Basu (SCC at p. 713) wherein it was held : Under Article 226 a High Court can exercise the power to issue directions, orders or writs for the enforcement of any of the fundamental rights conferred by Part III of the Constitution or for any other purpose if the cause of action, wholly or in part, had arisen within the territories in relation to which it exercises jurisdiction, notwithstanding that the seat of the Government or authority or the residence of the person against whom the direction, order or writ is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted, provided for certain basic safeguards for the citizens and residents of India. The aforesaid safeguards were expressed in Part III of the Constitution of India. They were described as fundamental rights. The framers of the Constitution considered the necessity to provide a quick and inexpensive remedy for the enforcement of the fundamental rights, enshrined in Part III of the Constitution of India. Finding that the prerogative writs which the Courts in England had developed, for dealing with issues of urgent and immediate nature, would be suitable for the purpose; Article 226 of the Constitution of India was conceived of to vest in High Courts the authority to issue writs, directions, or orders with the objective of enforcement of the fundamental rights and similar other rights. Despite the fact that wide powers (as indicated above) were conferred on High Courts under Article 226 of the Constitution of India, there were certain jurisdictional limitations, which substantially reduced the efficacy of the said remedy. 24. The Supreme Court for the first time interpreted the jurisdictional aspect of Article 226 of the Constitution of India in Election Commission, India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence of orders passed by the erstwhile High Court of Punjab at Simla, which had declined to entertain a writ petition, on account of lack of jurisdiction. The writ petition before the High Court had been filed by the appellants before the Supreme Court, under the Taxation of Income (Investigation Commission) Act, 1947, praying for the issuance of a writ of prohibition so as to restrain the Income-tax Investigation Commission, located at Delhi, from proceeding with the investigation of cases referred to it under the provisions of the aforesaid Act. The plea raised was, that the assessees against whom the investigation was initiated by the Commission, belonged to Uttar Pradesh. In the aforesaid view of the matter, the assessment proceedings of the petitioners relating to income-tax (including a reference therefrom), would lie to the High Court in the State of Uttar Pradesh. The Investigation Commission was located at Delhi, and on that account, proceedings against the Commission s orders would lie only to the High Court at Delhi. The Punjab High Court accepted the preliminary objection raised by the respondents and declined to entertain the petition on the ground that it had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich Article 226 has been enacted. On the other hand, we would be producing conflict of jurisdiction between various High Courts as already shown by the illustration given above. Therefore, the effect of an order by whomsoever it is passed can have no relevance in determining the jurisdiction of the High Court which can take action under Article 226. . . . 14. The seat of a Government is sometimes mentioned in the Constitution of various countries but many a time the seat is not so mentioned. But whether the seat of a Government is mentioned in the Constitution or not there is undoubtedly a seat from which the Government as such functions as a fact. What Article 226 requires is residence or location as a fact and if therefore there is a seat from which the Government functions as a fact even though that seat is not mentioned in the Constitution the High Court within whose territories that seat is located will be the High Court having jurisdiction under Article 226 so far as the orders of the Government as such are concerned. . . ." (p. 539) It is, therefore, obvious that in deciding the controversy in Lt. Col. Khajoor Singh s case ( supra ), the Supreme Court reiterated the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y simply jutting into the territorial limits of another State or by making a sojourn or even a permanent residence therein. The place of residence of the person moving a High Court is not the criterion to determine the contours of the cause of action in that particular writ petition. The High Court before which the writ petition is filed must ascertain whether any part of the cause of action has arisen within the territorial limits of its jurisdiction. It depends upon the facts in each case." 29. It is clear from the conclusions drawn by the Apex Court that an answer to the question, as to whether, the cause of action or a part of the cause of action has arisen within the territorial jurisdiction of a Court, shall have to be determined on the facts of each case. 30. Applying the aforesaid dictum, to the facts and circumstances of the instant case, there can be no doubt, that a part of the cause of action, must be deemed to have arisen to the PGFL, within the territorial jurisdiction of this Court, since it is not disputed that hundreds of acres of agricultural land which are the subject-matter of the alleged sale/purchase activity of the PGFL are located within the territor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered appro- priate, to examine the march of events, which culminated in the Parliament s effort to define "collective investment schemes". 32. The Securities Contracts (Regulation) Act, 1956 was enacted, with the object of preventing undesirable transactions in securities, by regulating the businesses dealing therewith. Section 2( h ) of the aforesaid Act defined the term "securities" as under : "( h ) Securities include ( i )shares, scrips, stocks, bonds, debentures, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) to (ic)** **** ( ii )Government securities; and (iia) ****** ( iii )rights or interests in securities;" 33. The Securities and Exchange Board of India (hereinafter referred to as "the Board"), was established in 1988 through a Government of India resolution to promote orderly and healthy growth of the security markets, and for investors protection. The function of the Board included, monitoring of the activities of stock exchanges, mutual funds and merchant bankers etc., to achieve these goals. 34. The capital market experienced a tremendous growth in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Securities Appellate Tribunal, to hear appeals from the orders or decisions of the adjudicating officer; ( e )issue regulations without the approval of the Central Government; ( f )allow directors of companies to be appointed as members of the Board so that the Board benefits from the expertise of people familiar with the capital market; ( g )facilitate the issuance and trading of options in securities; ( h )allow the existing stock exchanges to establish additional trading floors outside their area of operation; ( i )make violation of the listing agreement as an offence." 36. Commencing from the early eighties, several concerns (for convenience, referred to as entities ) were operating financial schemes in the market which assured customers of very high returns. Unwary customers were allured/tempted to invest in such financial schemes, through misleading advertisements and aggressive publicity. In 1997, when these entities started defrauding in making payments to their customers/investors, there was a huge uproar. As a result of the discontentment expressed in the public, the Union of India decided to regulate these financial schemes through the Board. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the interim recommendations of the Dave Committee (dated 28-1-1998), and directed the existing "collective investment schemes", which were already operating, and which were continuing to raise and mobilise funds from the public, to do so, subject to the condition, that the instruments of such "collective investment schemes" had been got rated through one of the four rating agencies identified for the purpose, namely: "( a )Credit Rating Information Services of India Ltd. (CRISIL) ( b )Information and Credit Rating Agency Ltd. (ICRA) ( c )Credit Analysis and Research Ltd. (CARE) ( d )Duff and Phelps Credit Rating India Pvt. Ltd." The Board issued a further direction requiring every entity which had obtained the afore-stated rating, to incorporate the determination of the rating agency in all of the documents/pamphlets/circulars/advertisements etc., which were distributed to the public for soliciting business for the entity so that the investors/customers had complete information about its activities, assets and liabilities etc. 39. On 31-12-1998, the Dave Committee submitted its report on "collective investment schemes". Based on the data made available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the minds of investors, notwithstanding the fact that most of the times the land allotted to the customer/investor was not distinctly identifiable. 40. On the basis of the aforesaid features which were found in the existing scheme the Dave Committee recommended, that entities which issued agro bonds, plantation bonds etc. should be treated as "collective investment schemes", so as to bring them under the purview of the SEBI Act. The Dave Committee, therefore, suggested a fresh definition for the term "collective investment schemes" by identifying three important characteristics thereof, namely, pooling of investments, management by entities, and absence of day to day control of the investors. While recommending the aforesaid definition, the Dave Committee acknowledged that some arrangement of the nature of time shares, club memberships, etc. would also fall within the definition of the term "collective investment schemes". It was, however suggested, that the Board should be given appropriate powers to grant exemption, to any class of arrangement, which was not desired to be regulated as a "collective investment scheme" including time shares, club memberships etc., while r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the CIMA to provide for regulations governing party transactions. ( b )The CIMA would be bound by strict adherence to the scheme s investment policy, offer document and the trust deed. ( c )Participants would be given regular feedback and told of all the information pertinent to their investments. ( d )Participants should not suffer losses because the CIMA or its employees had not acted with reasonable care and diligence. ( e )The CIMA should regularly report to the trustees on the activities of the schemes and the compliance with the regulations. ( f )The CIMA should be bound to comply with the code of conduct prescribed in the regulations. ( g )It should be ensured that the CIMA and its officers and employees, do not benefit from unfair use of information." 43. The Dave Committee also recommended the procedure for launching a "collective investment scheme", which should include necessary disclosures in the offered documents, a registered Collective Investment Management should be eligible to launch a scheme only if it fulfils the following requirements: "( a )The scheme should be approved by the trustee and a copy of the offer document must be filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced hereunder : "11AA. Collective investment scheme. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) shall be collective investment scheme. (2) Any scheme or arrangement made or offered by any company under which, ( i )the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; ( ii )the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; ( iii )the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; ( iv )the investors do not have day to day control over the management and operation of the scheme or arrangement. (3) Notwithstanding anything contained in sub-section (2), any scheme or arrangement ( i )made or offered by a cooperative society registered under the Cooperative Societies Act, 1912 or a society being a society regis- tered or deemed to be registered under any law r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y defined to include schemes in the nature of plantation bonds, agro bonds, etc. All in all, a tremendous effort aimed at investor protection, so that unwary customers/investors were not defrauded of their lives earnings at the hands of unscrupulous companies/financial institutions/entities. IV. Is the business activity of PGFL a "collective investment schemes"? 46. The primary contention of the learned counsel for the petitioner, so as to challenge the validity of the impugned order dated 16-12-2002 (Annexure P.3), is that the PGFL is not engaged in a "collective investment scheme". If the petitioners succeed in establishing their aforesaid submission, the action taken by the Board, against the PGFL through the impugned order will have to be set aside. 47. The first and foremost submission of the learned counsel for the petitioner is that a scheme/arrangement to be described as a "collective investment scheme", must satisfy all the ingredients/characteristics enumerated in section 11AA(2) of the SEBI Act. The aforesaid contention of the learned counsel has not been disputed by the counsel representing the respondents. In order, therefore, to adjudicate upon the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration factors such as, soil of the purchased land, climate of the area etc. In its developmental activities, the PGFL undertakes to conduct a survey, and demarcation of the land, besides clearing and cultivation the same by planting saplings, trees, plants or by raising crops, as well as by creating the required, irrigation infrastructure. The PGFL also undertakes to use appropriate fertilizers and pesticides, as and when required, in the process of development of its customers/investors land. Thirdly, the customers/investors are deemed to be the absolute owners of the unit/units of agricultural land purchased by them, as well as in exclusive possession thereof. In this context, it is pointed out, that in the first instance, the PGFL, on receipt of consideration from the customer/investor, is bound to issue an allotment letter, within a reasonable period (ordinarily not exceeding 270 days, under the "cash down payment plan"; and within a period not ordinarily exceeding 90 days, on of receipt of 50% of the consideration, under the "instalment plan"). The second step, is the execution of a sale deed. In this behalf it is pointed out, that the PGFL is under an obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/or the PGFL, the terms and conditions regulating the contract, authorise the customer/investor to opt out of the transaction. The opting out is, however, available to the customer, only before issuance of an allotment letter in his favour. Here again, before refund (of the deposit made by the customer/investor), the PGFL is entitled to effect specified deductions. Eighthly, the customer/investor, has the option to retain or sell the unit/units of land purchased by him, after the expiry of the agreement. In case the customer/investor chooses to sell the unit/units of land purchased by him, he can also seek the assistance of the PGFL by making a written request (to the PGFL). Ninthly, in case of any dispute between the PGFL (on the one part), and the customer/investor (on the other), the sample agreement/sample sale deed, provide for adjudication of the same through arbitration. The PGFL is authorised to appoint an arbitrator for the settlement of a dispute, however, only a retired judicial officer can be appointed as an arbitrator. The determination at the hands of the arbitrator, is to be final and binding on the parties. In furtherance of the arbitration clause, the terms an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any of its activities had any essence of "collectively" or "pooling". 51. The second submission of the learned counsel for the petitioners in the same stream is, that the activities of the PGFL are not aimed either towards a profit motive or an income motive, for its customers/investors. In the absence of such a motive, the activity transacted by the customers/investors with the PGFL, can neither be deemed to be in the nature of securities, nor in the nature of a "collective investment scheme". According to learned counsel, insofar as the term "property", used in section 11AA(2)( ii ) of the SEBI Act is concerned, the same can be applicable to properties, other than the agricultural land. Detailed submission, in dealing with the effect that the term "property" used in section 11AA(2)( ii ) of the SEBI Act, insofar as its alleged inapplicability to agricultural land is concerned, has been dealt with by us under the head "Constitutional validity of section 11AA of the SEBI Act", at a later stage in this judgment. It is emphasised by learned counsel, that from the business activities of the PGFL (summarised above), it emerges that the PGFL assures its customers/investors of nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to day control over the management of the customers/investors property. 54. Are the aforesaid submissions advanced by the learned counsel for the petitioners acceptable ? Does the PGFL not satisfy the requirements of a "collective investment scheme", in terms of the provisions of the SEBI Act? The answer to the aforesaid queries, according to the learned counsel for the respondents, is diametrically opposite, to the one, projected on behalf of the petitioners. In order to establish the aforesaid assertion, learned counsel for the respondents emphatically points out the following facts: Firstly, the activities carried out by the PGFL have all the mandatory features specified in the definition of a "collective investment scheme" under section 11AA(2) of the SEBI Act. In this behalf, it is pointed out that all the four mandatory features, have been brought out in the order of the Board dated 6-12-2002. Secondly, from the salient features of the business activity of the PGFL, pointed out in the order dated 6-12-2002, it is clear, that the PGFL while conducting its business activities issues unit certificates for purchase of "units" of agricultural land. Sales of agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment), the earlier schemes of the PGFL were substituted, and now allotment letters/registered sale deeds are executed in favour of customers/investors, merely as paper transactions, although the original purpose and object of the earlier schemes have remained unchanged. Fifthly, it is submitted that there is an apparent contradiction in the assertion made on behalf of the PGFL, inasmuch as, the land allegedly belonging to the customers/investors is still owned and possessed by the PGFL, as the same has been shown in the assets statement of the PGFL. Interestingly, it is pointed out, that the PGFL claims to have reduced its liability by the sale of land, which does not belong to it. As a matter of ground reality, it is pointed out, the PGFL is using the same land for development of projects, such as resorts/golf courses and for colonisation etc. In this behalf, reference has been made to a reply dated 31-8-2002, submitted by the PGFL to the Board, wherein the following factual position stands acknowledged: "During the year 1989, the company started joint venture business for different periodicities ranging from 5 to 7 years in which the funds contributed by the joint ventur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PGFL. seventhly, an analysis of the cash flow of the alleged sale and purchase scheme (which is stated to be the sole business activity of the PGFL), reveals that a sizeable portion of the amount mobilised by the PGFL, was being paid as commission/marketing expenses for raising funds. The impugned order itself reveals that the PGFL acknowledged through its communication dated 25-7-2002 that marketing and management expenses constitute approxi- mately 39% of the funds mobilised, 85% of the funds mobilised have been disbursed as expenses or as yields, and only 15% of the funds mobilised were actually deployed towards land and its development. It is submitted, that it is not clear whether the aforesaid expenses are debited to the sale price charged for the agricultural land, or the amount charged for the maintenance and development of the land. Eighthly, the consideration for a unit of land is uniformly taken as Rs. 1750, whereas there can be no uniformity in respect of land value, because the land sold is situated in different places all over India, and further because, there can be no uniformity due to factors like different time of purchase/sale, varying rates, varying needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n village Vellugudari (in the State of Andhra Pradesh), was sold by one Malkit Singh, a resident of district Ropar (in the State of Punjab), through his attorney Rajesh Agarwal, a resident of district Gurgaon (in the state of Haryana), to a purchaser i.e. the vendee Pankaj Karnatak, who is a resident of New Delhi (in the Union Territory of Delhi). The identity of the two witnesses on the aforesaid sale deed, namely, Cewdef Kuldeep and B. Gangeram is unascertainable, since neither their parentage, nor their addresses, nor any other identification particulars of the said witnesses, have been disclosed in the sale deed. The sale deed depicts that it had been prepared/drawn by D. Naveen Krishna, a Document Writer, and a resident of district Nirmal (in the State of Andhra Pradesh). Furthermore, it would be pertinent to mention, that in the sale deed under reference, neither the Khewat number, nor the Khasra number, and nor the Khatoni or Killa number, nor any other means adopted by the Revenue Authorities, have been disclosed, to identify the land sold by the PGFL to the purchaser/vendee Pankaj Karnatak. In the real sense, therefore, the land in question purchased by Pankaj Karnatak, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been authorised to seek cancellation of the agreement on account of a breach of the terms and conditions by the PGFL, as a matter of practicality, it is impossible for a customer/investor to invoke the aforesaid clause. Therefore, the option given to a customer/investor [in the sample sale agreement (Annexure P.6) and the sample sale deed (Annexure P.7)], to require the PGFL to fulfil its commitment in case of any deficiency therein, constitute at best, an attractive inducement to a customer/investor, but serves no practical purpose. Another aspect which demonstrates, that the agreement to sell/sale deed executed by the PGFL with its customers/investors is only a fictional contemplation, (which is far away from reality), is apparent from the manner in which the agricultural land sold by the PGFL to its purchaser Pankaj Karnatak ( vide Annexure P.7) has been identified/demarcated. It would be pertinent to mention that the sale deed (Annexure P.7) in its schedule demarcates the agricultural land sold to Pankaj Karnatak as under : "Bounded by : East : 5' Wide Road, West : 5' Wide Road, North : Plot No. 140, So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the sample sale deed (Annexure P.7). A customer/investor is only entitled to use the aforesaid facilities and services, along with others in the neighbourhood. It is difficult to comprehend the nature of the ownership/possessory rights, of a customer/investor, who has no control over the basic facilities essential for effective use of agricultural land. Without control over irrigation and drainage systems, which constitutes the blood stream of agriculture, and without control over motors, pump sets, sheds and structures, a customer/investor is, in reality and for all practical purposes, never in absolute ownership/possession/control, of the agricultural land purchased by him. The closer one examines the terms and conditions of sale and purchase documents, between the PGFL and its customers/investors, the more one realises that the transactions in question are merely a paper transaction. Suffice it to state, that the PGFL itself acknowledged through its communication dated 31-5-2002 that out of a total of 15,99,505 investors, 13,63,244 investors had discontinued. The aforesaid figures lead one to infer that 85% of the customers/investors having realised the true characteristics of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PGFL and its customers/investors, involves a deposit of a sum of Rs. 5000. In return for proprietary rights in agricultural land measuring 1350 sq. feet (150 sq. yards), the PGFL charges a consolidated amount of Rs. 1750 from its customers/investors. On account of maintenance and development of the agricultural land sold to customers/investors, the PGFL charges a further amount of Rs. 2350. In this behalf, it would be relevant to notice that the sale consideration constitutes only about one third of the contribution made by the customer/investor, whereas two-thirds of the contribution made by the customer/investor is charged by the PGFL towards the maintenance and development. The PGFL does not maintain a separate account for each customer/investor depicting the manner of utilization of a sum of Rs. 3250 charged by it for the maintenance of the development of the land sold to him. It is obvious that the cost of development of each unit of agricultural land sold by the PGFL to each customer/investor cannot be uniform, because development of level land would need lower financial inputs, than development of lands located on a hillock, or in a river-bed, or where the land is undulating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d constitute marketing/business expenses. In our view, deduction of the aforesaid amount, from development and maintenance charges, would constitute a breach of contract, because the amount charged for development and maintenance, could not have been used by the PGFL to solicit its business; whereas, deduction of the amount from the sale consideration charged from customers/investors would lead to the inevitable conclusion, that almost the whole consideration amount was being spent by the PGFL towards commission and marketing expenses, and therefore, the assumption that it was transferring agricultural land virtually without receiving any consideration. Obviously, a "Catch 22" situation. Learned counsel, having been instructed, informed us, that expenses towards commission and other marketing expenses were being debited to the total amount (Rs. 5000) received from the customers/investors. This response of the learned counsel further cements the conclusions recorded above. It, therefore, emerges that Rs. 5000 is not divisible into two separate components as alleged, and that, the entire amount is pooled together for the purposes of the totality of the scheme/arrangement carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the petitioners, was is that the term "property" used in section 11AA(2)( ii ) must necessarily exclude agricultural property. This argument has been considered in detail, in a separate part of this judgment, under the head - Constitutional validity of section 11AA of the SEBI Act , wherein it has been concluded that the term "property" used in section 11AA(2)( ii ) of the SEBI Act, would also include agricultural land. In view of the above, we find no merit in the second contention of the learned counsel for the petitioners. 60. The next contention of the learned counsel for the petitioners is based on the mandatory requirement of a "collective investment scheme", expressed in section 11AA(2)( iii ) of the SEBI Act. In this behalf, the contention of the learned counsel for the petitioners is that the PGFL does not "manage", the agricultural land sold by it, to its customers/investors. It is emphatically pointed out that the PGFL merely "maintains" and "develops", at the option of its customers/investors, the agricultural piece of land sold to them. It is also the contention of the learned counsel for the petitioners, that the activities carried out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Act. The arguments raised for the instant issue, at the hands of the learned counsel for the petitioners, are identical to those noticed in the foregoing paragraph. For the same reasons as have been recorded in the foregoing paragraph, it is not possible to accept the fourth contention of the learned counsel for the petitioners. 62. From a cumulative analysis of the foregoing paragraphs it stands fully establish that the business activity of the PGFL incorporate all the mandatory ingredients/characteristics of a "collective investment scheme", in terms of section 11AA(2) of the SEBI Act. It is natural for us, therefore, to conclude that the activities of the PGFL constitute a "collective investment scheme" within the meaning of the SEBI Act. While recording our aforesaid conclusions, it also needs to be highlighted, that the activities of the PGFL also satisfy all the ingredients and tests which the Dave Committee had suggested in its report dated 31-12-1998, (for details see under head - Regulation of "collective investment schemes" in India ) for identifying a "collective investment scheme". In view of the aforesaid deliberations, the questions posed hereinabove, are hereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted hereunder:- "18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization." It is the emphatic contention of the learned counsel for the petitioners, that section 11AA of the SEBI Act, and the SEBI (Collective Investment Schemes) Regulations, 1999, impinge on the sphere of legislative activity exclusively vested in the Legislature of a State. Reference in this behalf is make to Entry 18 of the State List. It is pointed out that section 11AA of the SEBI Act, impinges and interferes with the activity of "transfer and alienation of agricultural land", and "land improvement", by subjecting the activities of the PGFL to control by the Board. This according to learned counsel is not, permissible at the hands of the Parliament, under Article 246 of the Constitution of India. 66. In order to substantiate the aforesaid contention, learned counsel has invited the Court s attention, to the historical background depicting the march of events and the evolution of the SEBI Act in its present form, commencin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution, to exclude from the purview of he Parliaments legislative competence, matters relating to agricultural land and issues connected therewith including land improvement. Entries 82, 86, 87 and 88 of the Union List, which were referred to during the course of arguments, are being extracted hereunder : "82. Taxes on income other than agricultural income. 86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies. 87. Estate duty in respect of property other than agricultural land. 88. Duties in respect of succession to property other than agricultural land." Additionally, Entries 6 and 7 of List III of the Seventh Schedule i.e., Concurrent List were referred to. The aforesaid Entries are also being extracted hereunder : "6. Transfer of property other than agricultural land; registration of deeds and documents. 7. Contracts including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land." Learned counsel wishes to emphasize, on the basis of the subjects enumerated in the aforesaid entries, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, the so-called question of severability, on which a number of dominion decisions, as well as decisions of the Judicial Committee, were cited in the course of the argument does not arise. The Court does not seek to divide the Act into two parts, viz., the part which the Legislature was competent, and the part which it was incompetent, to enact. It holds that, on the true construction of the Act and especially of the word "property" as used in it, no part of the Act was beyond the Legislature s powers." Besides asserting, that the activities of the PGFL, fall under Entry 18 of the State List, on the basis of the observations of the Apex Court reproduced above, learned counsel also contends, that the pith and substance of the activity of the PGFL is directly relatable to agricultural land and matters connected thereto, and as such it was clearly beyond the scope of the powers vested with the Parliament, to enact a law, regulating the activities of the PGFL. 69. Learned counsel for the petitioners also, invited the Court s attention to Entry 48 of the Union List (already extracted above), so as to assert, that it was well within the legislative domain of the Parliament to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, i.e., in List II that represents the prohibited field for the Union. .... Any incidental trenching, as already pointed out, does not amount to encroaching upon the field reserved for Parliament, though as pointed out by T.L. Venkatarama Iyer, J. in A.S. Krishna v. State of Madras AIR 1957 SC 297 the extent of trenching beyond the competence of the legislating body may be an element in determining whether the legislation is colourable. No such question arises here." (p. 732) On the basis of the observations made by the Apex Court (extracted above), it is submitted, that even a liberal interpretation of Entry 48 of the Union List, could not include the activities of the PGFL, within its scope. According to the learned counsel for the petitioners, even a harmonious interpretation of the various entries in the different lists under the Seventh Schedule of the Constitution of India, would not have, such an effect. In fact, according to learned counsel, various entries under the Union List and the Concurrent List (all referred to and extracted above) when read in conjunction with Entry 18 of the State List, lead to the clear conclusion, that the framers of the Constitution did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and they overlap each other in such a contingency the doctrine of harmonious construction must be invoked. ... If industry in Entry 24 is interpreted to include gas and gasworks, Entry 25 may become redundant, and in the context of the succeeding entries, namely, Entry 26, dealing with trade and commerce, and Entry 27, dealing with production, supply and distribution of goods, it will be deprived of all its contents and reduced to useless lumber ... On the other hand, the alternative contention enables Entries 24 and 25 to operate fully in their respective fields; while Entry 24 covers a very wide field, that is, the field of the entire industry in the State, Entry 25, dealing with gas and gasworks, can be confined to a specific industry, that is, the gas industry. ... It is, therefore, clear that the scheme of harmonious construction suggested on behalf of the State gives full and effective scope of operation for both the entries in their respective fields, while that suggested by learned counsel for the appellant deprives Entry 25 of all its content and even makes it redundant. The former interpretation must, therefore, be accepted in preference to the latter. In this view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elying on the judgments referred to above, while canvassing his primary submission on the issue of vires, learned counsel summarised his conclusions by asserting that the activities of the PGFL pertain to a subject falling under an entry in the State List (Entry 18), and therefore, are not subject to regulation at the hands of a law enacted by Parliament. Conversely, it is reiterated that the SEBI Act, was enacted to regulate securities and future markets, and since the activities of the PGFL (sale and purchase of agricultural land and/or development of agricultural land) by no stretch of imagination, can be stated to fall under the said subject, the regulation of the PGFL through the Board under the SEBI Act was clearly out of question. 72. Despite the aforesaid submission of the learned counsel for the petitioners, wherein he desires this Court to declare section 11AA of the SEBI Act as ultra vires the legislative competence of Parliament, learned counsel for the petitioners advanced an alternative contention, whereby, the petitioners purpose would be served, and the necessity of striking down section 11AA of the SEBI Act, avoided. According to the learned counsel, section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chairmanship of Shri Bhabha. On the basis of the recommendations made by the Bhabha Committee, the Companies Act, 1956, was enacted, incorporating therein provisions vesting power with the Central Government, to conduct inspection and investigation. The Government of India appointed another Committee under the chairmanship of Justice A.V. Vishwanatha Sastri, to examine the working of the Companies Act, 1956. The recommendations made by the aforesaid Sastri Committee resulted in the amendments carried out in the principal Act, through the Companies (Amendment) Act, 1960. These amendment were specifically aimed at, safeguarding private investment in the corporate sectors. The Government of India also acquired extensive powers for regulation of the financial management of private sector Companies under the instant amendment. On receipt of numerous complaints of fraud, embezzlement of funds, and gross irregularities in respect of a particular company, the Government of India appointed a Commission of inquiry presided over by Justice S.R. Tendulkar. The said Commission, at a later stage, was headed by Justice Vivian Bose. The report submitted by the Commission, unearthed the intrigue, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not unaware of a known malady that the private sector companies were becoming sick after incurring huge debts, rendering small investors destitutes, heaping miseries on the weaker sections of the society and, therefore, if by a measure a company which is permitted to attract deposits from the public generally described as gullible simultaneously, an obligation is imposed to keep an infinitesimally small portion of assets as liquid finance available for meeting the obligations, namely repayment of deposits maturing in a given year, it cannot be said that this constitutes deprivation of company s fund. If a trust can be compelled to deposit trust funds in a manner prescribed by the statute, if a nationalised or scheduled bank is compelled to maintain requisite liquidity in respect of which a charge of deprivation of property cannot be validity made, it is difficult to entertain the submission that as a regulatory measure if a company for the benefit it enjoys of an enabling power to invite deposits from public is asked to keep in deposit ten per cent of the deposits maturing in a year the same would be deprivatory and therefore arbitrary. . . . But as noticed in the Statement of O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it be said that the conditions prescribed by the Deposits Rules are so irrelevant or have no reasonable nexus to the objects sought to be achieved as to arbitrary? The answer is emphatically in the negative. Even at the cost of repetition, it can be stated with confidence that the rules which prescribed conditions subject to which deposits can be invited and accepted to operate to extend a measure of protection against the notorious abuses of economics power by the corporate sector, to the detriment of depositors/investors, a segment of the society which can be appropriately described as weaker in relation to the mighty corpora-tion . . . In a welfare State, it is constitutional obligation of the State to protect socially and economically weaker segment of the society against the exploitation by corporations. We therefore, see no merit in the submission that the conditions prescribed bear no relevance to the object or the purpose for which the power was conferred under section 58A on the Central Government." (p. 188) 75. In the same context as noticed above, learned counsel placed reliance on the judgment of the Supreme Court in Reserve Bank of India v. Peerless General Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation which appear to us to be even less advantageous to the subscribers than the Peerless Scheme. We suggest that there should be a complete ban on forfeiture clauses in all savings schemes, including Life Insurance Policies, since these clauses hit hardest the classes of people who need security and protection most. We have explained this earlier and we do wonder whether the weaker sections of the people are not being made to pay the more affluent sections! Robbing Peter to pay Paul ? 37. We would also like to query what action the Reserve Bank of India and the Union of India are taking or proposing to take against the mushroom growth of finance and investment companies offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning s newspaper to be greeted by advertisements inviting deposits and offering interest at astronomic rates. On January 1, 1987, one of the national newspapers published from Hyderabad, where one of us happened to be spending the vacation, carried as many as ten adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia 1990 Suppl. SCC 440. In the aforesaid case, the petitioner claiming himself to be a public spirited person and existing shareholder of Reliance Industries Ltd., which in turn was the promoter of Reliance Petrochemicals Ltd., challenged the consent granted by the Controller of Capital Issues to Reliance Petrochemicals Ltd., for the issuance or shares valuing Rupees 500 crores, and of debenture valuing Rs. 516 crores. It was stated, that the Reliance Petrochemicals had issued a prospectus intending to open the issue from 22-8-1988 of about 3 crores debentures of the face value of Rs. 200 each, which was the largest convertible debenture issue in India. It was contended that neither the Union of India, nor the Controller of Capital Issues, should have granted any such consent to the Reliance Petrochemicals Ltd. Although the claim in the aforesaid writ petition raised by the petitioner, eventually came to be dismissed, the Apex Court recorded the following observations in connection with investor protection: "The present petitions have perhaps brought to the force for the first time a public interest aspect of the issue of shares and debentures. In the past decades, investors in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n object of the Parliament while enacting the SEBI Act besides promotion, development, and regulation of the securities market, was the protection of the interests of investors in such securities i.e., "investor protection", Article 248 of the Constitution is being extracted hereunder : "248. Residuary powers of legislation . (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. (2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists." 79. In conjunction with the aforesaid provision, learned counsel, also referred to Entry 97 of the Union List, which is extracted hereunder: "97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists." The clear stance adopted by the learned counsel for respondent No. 1 is, that the subject on which the legislation in issue has been enacted does not expressly fall in any of the entries, in any of the three lists, in the Seventh Schedule of the Constitution. 80. In order to buttress his submission, learned counsel for respondent No. 1, first pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut is a levy upon a particular use, which is transmission of title by gift. The two are not the same thing and the incidence of the tax is not the same. Since Entry 49 of the State List contemplates a tax directly levied by reason of the general ownership of lands and buildings, it cannot include the gift tax as levied by Parliament. There being no other entry which covers a gift tax, the residuary powers of Parliament could be exercised to enact a law. . ." (p. 453) The submission on behalf of the respondent on the basis of the Entries 18 and 49 of the State List were noticed in the following manner : "The argument is that by Entry 18, land of all description is made subject to legislation in the States and by Entry 49 taxes of whatever description on lands in that large sense and buildings generally fall also in the jurisdiction of the State. Reference is made to Entries 45, 46, 47 and 48 of the State List in which certain taxes are to be imposed on land and agricultural land or income from agriculture exclusively by the states in contrast with Entries 82, 86, 87 and 88 where the taxes are imposed on properties other than agricultural land or income from agriculture. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, 1969, by which an amendment was made to the provisions of the Wealth Tax Act, 1957, to include the capital value of agricultural land, for computing "net wealth", inter alia, on the ground, that under the Scheme of the Constitution, only the State Legislatures had power to legislate on the subject of agricultural land. The pointed contention on behalf of the respondent was, that the Parliament had legislated on an issue which was the subject-matter of Entry 49 of the State List. As against the aforesaid, the claim of the appellants before the Apex Court was, that the subject-matter of the legislation in question, did not emerge out of any Entry in List II. It was inter alia , the contention of the appellant (as in the instant case), that the legislation in question was within the competence of the Parliament under article 248 of the Constitution of India read with Entry 97 of the Union List. The main question to be adjudicated upon by the Apex Court, in the aforesaid case was, whether the amendment of the definition of the term "assets", by withdrawing the exemption in respect of agricultural land, was within the competence of the Parliament. Learned counsel, invited the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97, List I. Our attention was drawn to a number of entries in List I where certain items have been excluded from List I. For example, in Entry 82, taxes on agricultural income have been excluded from the ambit of taxes of income , in Entry 84 there is exclusion of duties of excise on a alcoholic liquors for human consumption and on opium, Indian hemp and other narcotic drugs and narcotics; in Entry 86, agricultural land has been excluded from the field of taxes on the capital value of the assets; in Entry 87, agricultural land has again been excluded from the Union Estate duty in respect of property; and in Entry 88, agricultural land has been further excluded from the incidence of duties in respect of succession to property. It was urged that the object of these exclusions was to completely deny Parliament competence to legislate on these excluded matters." (p. 789) 82. Learned counsel for respondent No. 1 having invited our attention to the decision of the Apex Court in Delhi Cloth General Mills Co. Ltd s. case ( supra ), Peerless General Finance and Investment Co. Ltd s. case ( supra ) and Narindra Kumar Maheshwari s case ( supra ), emphatically pointed out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conclusion on the issue in hand must be determined on the basis of the interpretation of the constitutional provisions based on the acknowledged demurrer. According to learned counsel, the acknowledged demurrer in the instant case is, buying and selling agricultural land and/or sale and development of agricultural land. On the basis of the aforesaid demurrer, it is vehemently contended, that the contention of the respondents to the effect that no entry under the three lists in the Seventh Schedule of the Constitution of India, deals with the subject-matter in controversy, is misconceived. Reiterating the sole activity of the PGFL, i.e., sale and purchase of agricultural land and/or sale and development of agricultural land, it is pointed out, that the subject-matter in the present controversy relates to agricultural land and activities connected therewith including land improvement. It is submitted that there is a specific entry in respect of a alienation of agricultural land and land improvement, in the State List i.e., Entry 18 under State List. The solitary contention of the learned counsel for the petitioners, while repudiating the submissions advanced on behalf of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid case, vires of the Terrorist Affected Areas (Special Courts) Act, 1984, the Terrorist and Disruptive Activities (Prevention) Act, 1985, and the Terrorist and Disruptive Activities (Prevention) Act, 1987, (Commonly known as the TADA Acts), were challenged. Challenge was also made to the constitutional validity of section 9 of the Code of Criminal Procedure (U.P. Amendment) Act, 1976, by which the Legislative Assembly of Uttar Pradesh had deleted section 438 of the Code of Criminal Procedure as applicable to the State of Uttar Pradesh. The primary contention of the petitioners, before the Apex Court, in the instant case was, that Parliament had no legislative authority to enact the TADA Acts. In this behalf, the submission advanced on behalf of the petitioners was, that the subject-matter of the TADA Acts fell, within the legislative field assigned to the State Legislatures, under Entry 1 of the State List, namely, "public order". While controverting the aforesaid contention of the petitioners, reference was made to the factual background, which had resulted in the enactment of the TADA Acts. The legislation is stated to have been enacted after prolonged debate in both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurrent List. .....What is, therefore, required to be examined is whether the subject-matter of the Central Act falls in any of the entries in the State List." 87. Referring to the acknowledged demurrer relating to the scope of activity of the PGFL i.e., the sale and purchases of agricultural land and/or the sale and development of agricultural land, learned counsel for the petitioners vehemently contends, that the instant subject-matter is fully covered by Entry 18 of the State List and, therefore, Parliament had no authority, whatsoever, to legislate thereon. Accordingly, learned counsel concluded by submitting, that, by including entities like the PGFL within the purview of "collective investment schemes" under section 11AA(2) of the SEBI Act, the Parliament must be deemed to have transgressed unauthorisedly, into an area of legislation exclusively vested with the State Legislatures, by the Constitution of India. 88. We have carefully examined the rival submissions. Having noticed the contentions advanced on behalf of the PGFL, it is apparent that the foundation thereof is based on the alleged "sole activity" being carried on by the PGFL, i.e., sale and purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y accepting the recommendations made in the Dave Committee s report. The Dave Committee had suggested the amendment in question, for the protection of poor, gullible, ignorant, unwary, small investors, by regulating the functioning of entities. The solitary reason for the addition of section 11AA of the SEBI Act, which emerges, therefore, is - "investor protection". It is not necessary for us to record details herein again in respect of the aforesaid conclusion, because this aspect has elaborately been dealt with, under the head - Regulation of "collective investment schemes" in India , in this judgment. While deliberating on the vires of section 11AA of the SEBI Act, we will, therefore, proceed by accepting that the pith and substance of the legislation in question is - "investor protection". 90. The contention of the learned counsel for the petitioners, to the effect, that the activity of the PGFL i.e. sale and purchase of agricultural land and/or development of agricultural land cannot be regulated by a legislation enacted by Parliament, as it covers a subject enumerated under the State List, is in our view based on a misconceived foundation. The pith and substance rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he pith and substance of the subject-matter of the legislation in hand does not fall under Entry 18 of the State List. 91. For the same reasons, as have been noticed hereinabove (in respect to Entry 18 of the State List), Entries 82, 86, 87 and 88 of the Union List and Entries 6 and 7 of the Concurrent List, which were relied upon by the learned counsel for the petitioners, would be irrelevant for the determination of the issue in hand. 92. The contention of the learned counsel for the respondent to the effect, that the subject of the legislation in question falls within the residuary clause i.e., Entry 97 of the Union List, in our view merits acceptance. We have concluded, hereinabove, that the pith and substance of the Legislature in question does not fall under the subject covered by Entry 18 of the State List. It is not the case of the learned counsel for the petitioners that the subject of "investor protection" falls in any other Entry under the State List. Therefore, in view of the legal position laid down by the Supreme Court in the decision rendered in Harbhajan Singh Dhillon s case ( supra ), Kartar Singh s case ( supra ) and Naga Peoples Movement of Human R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PGEL, (as have been projected by it), it is clear that the PGFL satisfies all characteristics/ingredients of a "collective investment scheme", expressed in section 11AA (2) of the SEBI Act. The PGFL is, therefore, a "collective investment scheme" for the purposes of the SEBI Act. Fifthly, the Parliament is vested with the authority and jurisdiction to legislate on the subject of legislation covered by the SEBI Act, including section 11AA of the SEBI Act. And that, section 11AA of the SEBI Act does not impinge upon Entry 18 of the State List in the Seventh Schedule of the Constitution. And finally, there is no legal infirmity in the impugned order of the Board dated 6-12-2002. 95. In view of the above, the instant petition is liable to be dismissed. The same is accordingly dismissed. 96. It would be pertinent to mention that the learned counsel for the petitioners during the course of hearing of the instant case, on 28-5-2004, unilaterally offered, to pay back all deposits, to the investors enrolled under all schemes except the scheme pertaining to the sale and purchase of agricultural land and/or sale and development of agricultural land, (which alone remained the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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