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TMI Blog2003 (11) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... ayed that Regulations [Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999] (hereinafter referred to as 'the Regulations, 1999') be declared ultra vires the Constitution of India being inconsistent with and in derogation of the Companies Act, 1956 and these Regulations should not be given effect. 2. In D.B. Writ Petition No. 6747/1999, the validity of similar provisions are challenged and further prayed that directions or mandamus be issued to respondents that scheme of PACL India Ltd. is not subject to the Regulations, 1999. 3. Since both the petitions involve common questions, both the petitions have been heard and are being disposed of by this common order. 4. In both the petitions, the petitioners have prayed that direction be given to respondents that the scheme of PACL India Ltd. is not covered under the definition of 'Collective Investment Scheme' as defined under section 11AA of the Act, 1992. Alternatively, it has been prayed that if the view is taken that the scheme of petitioner PACL India Ltd. is covered under the definition of 'Collective Investment Scheme', in that case the provisions of section 11AA as well as sub-section (1B) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petition in hand, the petitioner company has challenged the validity of some provisions of the Act, 1992 and also the legality of the Regulations, 1999 and these provisions are inserted in the Act after July 1999 i.e., after order of Their Lordships dated 23-7-1999. 12. Learned counsel further submits that second transfer application was also moved by the SEBI in respect of subsequent petitions, before Their Lordships which includes the present petition and Their Lordships have rejected transfer application as well as stay application. Therefore, it cannot be said that this writ petition is not maintainable because of order dated 23-7-1999. 13. First we will take up the preliminary objections raised by Mr. Kuhad, whether writ is maintainable? 14. To consider whether writ is maintainable, Mr. Kuhad has two-fold arguments that when Their Lordships have stayed the proceedings regarding 'Collective Investment Schemes' pending before various High Courts, therefore, this writ is not maintainable and secondly when the same matter is pending before Delhi High Court, parallel proceedings in this Court is not permissible. 15. The facts are not in dispute that the order dated 23-7-1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, notice should be discharged. The Delhi High Court has discharged the notice in case of this petitioner company. Even otherwise the subject-matter is not one and the same. Before Delhi High Court the matter pertaining to the companies which comes within the definition of 'Collective Investment Scheme'. In the present writ petition the petitioner has not only challenged the validity of some provisions of the Act, 1992 and legality of some provisions of Regulations, 1999 which are introduced after July 1999 and also the notices which are issued to the petitioner company after 23-7-1999, under the Regulations, 1999. Therefore, it cannot be said that there are parallel proceedings of the same issues. In the writ of Mr. Bhattacharya, validity of provisions of Act, 1992 or the Regulations, 1999 are not in challenge. 19. There is no dispute also on the facts that notices are issued by SEBI and received by the petitioner company in its Head Office at Jaipur and Jaipur falls within the territorial jurisdiction of this Court, therefore, this Court has territorial jurisdiction in this case. 20. SEBI had not only prayed for transfer of this petition in the Apex Court but also had prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er company and its customer is an independent deal for purchase of land between company and customer. Under the agreement, petitioner can make cash down payment or can pay the consideration in instalments. 26. Under the 'cash down payment plan', land is allotted to the customers within a period, generally not exceeding 270 days from the date of receipt of consideration while under the 'instalment payment plans' the land is to be allotted within a period, generally not exceeding 90 days from the date of receipt of 50% of the consideration. 27. Under the scheme company has to transfer the land by executing the sale deeds in favour of the customers in conformity with the relevant provisions of the Transfer of Property Act, 1882 and Indian Stamp Act, 1899. The petitioner company does not promise any assured return. The said agreement is for the sale of the agricultural land in favour of the customers and development of the same during the tenure of the agreement. 28. Learned senior counsels for the petitioner further submits that the transactions are genuine. The customer is under no obligation to sell the said land to the petitioner-company. On the contrary, the services of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had discharged the notice issued to the petitioner-company. 35. Learned counsels for the petitioner-company further submit that the notice issued by Delhi High Court to the petitioner-company, treating it as covered under the 'Collective Investment Scheme', is discharged, that means scheme of this company now should not be treated as 'Collective Investment Scheme'. 36. Learned counsels for the petitioner further submit that when petitioner company is engaged in the business of purchase and sale of the agriculture land and its development, this subject-matter comes under Entry 18 of list II of Seventh Schedule of the Constitution of India. 37. The enactment on that subject is within the domain of the State Government, therefore, firstly the Companies which deals in the purchase and sale of agricultural land does not come under the control of the legislation enacted by the Centre. If Centre has enacted any such law, which covers the subject-matter of IInd List to that extent the provisions of the Act are ultra vires to the Constitution. 38. Thus provisions of Act, 1992 are not applicable in the case of petitioner company. Hence, no directions can be issued by the SEBI under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d piece of land and development services subsequently the said piece of land is transferred in the name of the customer by way of registered sale deed. The said piece of land is fully identified and the customer becomes an absolute legal owner of the said land on the registration of the sale deed in his favour. The money received by the company is towards the sale consideration of the land and the customer gets the ownership right over the said piece of land only and has got no right over any of the assets of the company. The moment the sale deed is registered in favour of the customer, the land, which was earlier deemed asset of the company, ceases to be the asset of the company and becomes the asset of the customer. 43. It is submitted in the present case that the petitioner sells a specified asset of the company for valuable consideration and there is no pooling as contemplated in condition (1) of sub-section (2). If this condition itself is not fulfilled, then also the petitioner company cannot be deemed as 'Collective Investment Scheme'. 44. It is further submitted by the petitioner that condition No. (2) is also not fulfilled in the present case as the customer agrees to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Hon'ble High Court of Delhi as the transactions of the petitioner company are treated as sale and purchase of agricultural land, its development and allied services. In case the Hon'ble Delhi High Court had found that the transaction of the petitioner company was 'Collective Investment Scheme' under no circumstances the Hon'ble High Court of Delhi would have permitted the said sale deeds to be registered and permitted the discharge of notice issued to the petitioner company. It is pertinent to point out that the order dated 7-10-1998, 13-10-1998 and 29-10-1998 were applicable to all the plantation companies, agro companies and companies running as 'Collective Investment Scheme'. The mere fact that the notice issued to the petitioner company was discharged goes on to prove that after examining the transactions of the petitioner company with its customers, the Hon'ble High Court was convinced that no impediment could be imposed on the petitioner company in dealing with their transaction with the customer. That is why this question was understood by respondent No. 2 which is evident from orders dated 26-5-1999 and 26-11-2000 passed by Hon'ble High Court of Delhi and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of companies spent huge amount on advertisement from fund collected from the public, misdirected that fund and cheated the public at large. 52. In February 1998 in terms of the recommendations of the Dave Committee, the SEBI has issued directions to all companies involved in Collective Investment Scheme that they can mobilise money only after obtaining a rating from the Credit Rating Agency and also undertake a special audit of those Collective Investment Schemes which had mobilised an amount more than Rs. 5 crores from the public. 53. In the meanwhile, Association of Agro-Plantation Corporation of India (AAPCI) issued a public notice claiming that SEBI has no jurisdiction to issue directions to Agro-Plantation Companies regarding their existing schemes. 54. In 1998 several litigations were initiated all over the India in various High Courts with regard to these Companies that these Companies have diverted the funds collected from the public/investors and their interest is not safe in the hands of these companies. Various Public Interest Litigations are also filed in various High Courts in this regard. One Mr. S.D. Bhattacharya and others also filed public interest litigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er but High Court has not said anything on the issue whether petitioner-company comes within the definition of 'Collective Investment Scheme' and also observed that SEBI can decide this issue. 61. Thereafter, one more application has been moved by petitioners before Delhi High Court that whether SEBI only can decide the status of PACL India Ltd. that it is a Collective Investment Scheme? On that application, Delhi High Court has clarified vide its order dated 14-8-2003 that SEBI or any High Court can go into the question of status of PACL India Ltd. 62. First we will take up the issue whether scheme of petitioner company comes within the definition of 'Collective Investment Scheme' as defined under section 11AA of the Act, 1992. Section 11AA reads as under:- "Collective investment scheme.--(1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) shall be a 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 utilised for the purposes of the scheme of arrangement; (ii)the contributions or paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is true that there was lot of complaints against the plantation companies that they collected the money from public in the same of high returns and ran away and cheated the poor public at large. This was noticed by the Central Government and the Central Government has taken the decision to regulate the activities of that type of companies, which cheated the public at large in the name of plantation and finally come with the Regulations and such companies are subject to the Regulations, 1999 to protect the interest of customers and SEBI has given the names of 592 companies engaged in plantation to Delhi High Court and petitioner company is one of them. A notice has been issued to petitioner company, reply to that notice was filed claiming that activity of company is not come within class of agro-plantation companies. After considering reply, notice issued to petitioner has been discharged. 68. The petitioner company has moved one more application before Delhi High Court that the petitioner company has entered into an agreement with some customers and as per agreement the sale deeds are to be executed in their favour. Learned counsel for the SEBI has not objected in case the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Scheme'. In sub-section (2), 4 conditions are laid down. The words used in sub-section (1) are that the scheme or arrangement should satisfy the conditions referred, means all the 4 conditions should be satisfied then only scheme of company can be said that scheme of the company is covered within the definition of 'Collective Investment Scheme'. Therefore, we have to see whether all the four conditions are fulfilled on the given facts in the present case. 73. Condition No. (i) requires that the contributions, or payments made by the investors, should be pooled and utilized for the purposes of the scheme or arrangements. In the present case, the petitioner has entered into an agreement to sell specified piece of land and subsequently the said piece of land is transferred in the name of the customer by way of registered sale-deed. The piece of land for sale is fully identified and the customer becomes an absolute owner of the said piece of land on registration of the sale-deed in his favour. Against the payment made, customer has only right to get the piece of land for which he has entered into agreement. The customer has no right on the other assets of the company. Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into. 79. To conclude, the facts found by Justice Swamidurai and material brought on record, we hold that all the 4 conditions are not fulfilled in the case of this petitioner. 80. Considering the activity of the petitioner company, reply of the SEBI and report of Justice Swamidurai and the fact that notice has been discharged by Delhi High Court vide order dated 3-3-2003, the scheme of the company cannot be treated as 'Collective Investment Scheme'. 81. The Entry 18 of List II of Seventh Schedule which relates to the land matters, on that subject-matter only State can legislate and not the Centre. The relevant portion of Entry 18 of List II of Seventh Schedule reads as under:- "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." 82. There cannot be a Central Legislation on land matters. Even in reply of para 23, respondent No. 2 SEBI has accepted that petitioner is free to purchase agricultural land or to sell it. There is no impediment on such transactions of the Regulations. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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