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TMI Blog2016 (3) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... Tandon Advocate For The Respondent : Mr. J. P. Sen, Senior Advocate a/w Mr. Tomu Francis, Advocate 1. These two Appeals have been preferred by Appellants against a common impugned order dated 21st August, 2015 passed by the Respondent against them. Appellant in Appeal No.436 of 2015, namely, Royal Twinkle Star Club Private Ltd. (hereinafter RTSCL) is an unlisted company whereas four Appellants in Appeal Nos. 421 and 437 of 2015, namely, Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkataraman Natrajan and Mr. Narayan Shivram Kotnis are Directors of RTSCL. By the said order, Appellants have been mainly restrained from collecting any money from investors or from launching or carrying on any Collective Investment Schemes ( CISs ) including the schemes which have been identified as CISs in the impugned order itself. The four Directors have also been barred from accessing the securities market by imposing a prohibition of four years in this regard. The precise directions issued by the said impugned order dated 21st August, 2015 are reproduced below:- a. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka [PAN: AECP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trajan and Mr. Narayan Shivram Kotnis to comply with the above directions, the following actions shall follow: - Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis shall remain restrained from accessing the securities market and would further be prohibited from buying, selling or otherwise dealing in securities, even after the period of four (4) years of restraint imposed in paragraph 18(b) above, till all the Collective Investment Schemes of Royal Twinkle Star Club Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them. - SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against Royal Twinkle Star Club Limited, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and - SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Respondent, submitted that it was an unlisted company with no intention of ever getting listed on any Stock Exchange and hence was beyond the purview of SEBI as such. It was part of the larger Mirah Group of Companies and was incorporated as a hospitality solution provider. In the meanwhile, Ministry of Corporate Affairs vide letter dated 9/1/2013 seem to have forwarded to SEBI certain inspection report with respect to RTSCL, conducted by it in terms of Section 209-A of the Companies Act, 1956. The Ministry of Corporate Affairs noted that no fraud etc. was committed by the Appellant in respect of customers/investors. After some protracted correspondence between the Appellant and the Respondent, an order dated 7/3/2014 was straightaway passed against the Appellant by the Respondent invoking powers under Section 11(1) 11B and 11(4) of the SEBI Act, 1992 read with Regulation 65 of the CIS Regulations, 1999 directing the Appellant and its Directors:- a. not to collect any more money from investors including under the existing schemes; b. not to launch any new schemes; c. not to dispose of any of the properties or alienate any of the assets of the schemes; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of a product by the Appellantcompany to its customers under a contract and as such it is a misnomer to call customers as investors by the Ld. WTM. It is, thus argued by Shri Sancheti that the customers purchased holiday plans to be utilized in various hotels, restaurants run under the aegis of the larger Mirah Group. There is therefore, no purchase of holiday plan or time-sharing holidays for the purpose of making profits. The amount is liable to be returned to the customers, only in the eventuality of the holidays being not availed by the customers due to reason attributable to the customers and hence, beyond the control of the Appellant. Therefore, refund of any money to such customers, is a matter of good gesture on the part of the Appellant and cannot be treated as a factor to bring the business activity of the Order under the preview of the CIS. In nutshell, it is that, the four ingredients of Section 11 AA of the SEBI Act are not at all satisfied in the present case and that the concept of CIS has been unnecessarily been stretched to bring the business activities of the Appellant under the clutches of CIS by deliberately ignoring the contractual nature of the obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our Directors who are Appellants before us, in Appeal No. 437 of 2015, namely Shri Omprakash Basantlal Goenka, Shri Prakash Ganpat Utekar, Shri Venkataraman Natrajan, and Shri Narayan Shivaram Kotnis, have started another Company, namely, Citrus Check Inns Ltd. on 1st April 2012, it becomes relevant to deal with this issue. Since the Directors are common in both the Companies i.e. erstwhile RTSCL and CCIL which are also being disposed off today itself with a direction to the Respondent to consider registration of Citrus Check Inns Ltd. as a CIS Company, as per the law, it becomes significant to deal with the aspect of debarment of the common Directors for a period of four years. 10. Although various points/grounds have been urged in the Appeal by the Appellant, but during the course of hearing Shri Pradip Sancheti, learned Senior Counsel for the Appellant, mainly, submitted that since there was no mention of debarment of Appellants from accessing the securities market in the SCN, no adverse order could be passed by the Respondent without putting the Appellants to notice in respect thereof. In this connection, Shri Sancheti has relied upon the judgment of the Hon ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only failed to provide minimum wages and extend the statutory benefits and abide by the labour laws, but also failed to provide satisfactory services and failed to submit the required information/ document, as and when called for and also being pre-requisite under the tender terms and conditions, and have rendered this hospital at the risk by deputing the less security personnels that too without prior intimation of the credentials of the deployed staff and police verification, as such liable to be levied the cost accordingly Therefore, you are directed to show cause within 7 days of the receipt of this notice, as to why the action as mentioned above may not be taken against the firm, beside other actions as deemed fit by the competent authority. 13. Finally, impugned order dated 11th September 2013 was passed by the hospital holding that Gorkha had violated the terms and conditions of the contract / labour laws and as such following penalties were imposed on Gorkha: 9 . (i) A penalty of ₹ 3000/- (Rupees Three Thousand only) under clause 27 (c) of the T C, on account of public complaints. (ii) A penalty of ₹ 41,826/- (Rupees For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on proposed to be taken against an entity in the show-cause notice particularly when harsh punishments like blacklisting etc. proposed to be inflicted upon the concerned persons, pertinently dealt with the very purpose underlying the requirement of issuance of show-cause notice itself. In Para 21, it has been very vividly explained by the Hon ble Supreme Court that: 21. The Central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of Show Cause Notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/ breaches complained of are not satisfactorily explained. When it comes to black listing, this requirement becomes all the more imperati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court has repelled the contention of the Learned ASG, to the effect that no prejudice was caused to the Appellant in that case by not mentioning the proposed action of blacklisting against Gorkha in the Show Cause Notice. In this connection, Hon ble Supreme Court analyzed the judgment of Haryana Financial Corporation Vs. Kailashchand Ahuja, reported in (2008) 9 SCC 31 and aptly held in Para 33 of Gorkha Judgment that: 33. When we apply the ratio of the aforesaid judgment to the facts of the present case, it becomes difficult to accept the argument of the learned ASG. In the first instance, we may point out that no such case was set up by the respondents that by omitting to state the proposed action of blacklisting, the appellant in the show cause notice has not caused any prejudice to the appellant. Moreover, had the action of black listing being specifically proposed in the show cause notice, the appellant could have mentioned as to why such extreme penalty is not justified. It could have come out with extenuating circumstances defending such an action even if the defaults were there and the Department was not satisfied with the explanation qua the defaults. It could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady undergone debarment from the date of impugned order till date, in the facts of present case, where, except for registration the schemes were carried on in accordance with law, this Tribunal be pleased to restrict the debarment till date, so that the directors of RTSCL who are also directors of CCIL can continue with the schemes operated by CCIL by seeking registration from SEBI under the CIS Regulations. 19. Thus, the time sharing schemes initiated by RTSCL on 6/5/2008 had already been closed on 31/3/2012 long before issuance of the show-cause notice dated 7th March, 2014. Appellant has not enrolled a single new member after 31/3/2012 in any of the erstwhile schemes run by RTSCL. However, we also note that the Appellants went on collecting equated monthly installments from the members enrolled prior to 31/3/2012 and on 9/6/2014 addressed a letter to that effect to SEBI. Admittedly, this letter remained unanswered by the Respondent. Further, during the course of hearing we directed the Appellant to submit to SEBI a complete list of its members as also the balance amount refundable to the members. The same was promptly done by the Appellant with various details of its members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EBI to look into the matter. Be that as it may. It must be told to the credit of the Appellants that on our pointing out that the collection of subscription amount after the ex-parte interim order was improper, the Appellants have immediately stopped collecting the subscription amount from the subscribers who has subscribed to the schemes prior to 31/3/2012. Therefore, we rest this matter here itself. Further, it is relevant to note that apart from the fact that the CIS schemes were floated and operated without seeking registration under the CIS Regulations, there is nothing on record to suggest that the schemes operated by the Appellants were detrimental to the interests of the investors. Moreover, it is a matter of record that after 31/3/2012, the Appellants have refunded substantial amounts to the investors and the Appellants have submitted that the balance amount of (approx) ₹ 786 crore (subject to redeeming the points under the holiday plans) would be refunded to the investors within a period of two years. 22. In these circumstances, while upholding the decision of SEBI that the Appellants have floated and operated CIS without registering with SEBI and hence in violat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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