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TMI Blog2016 (2) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition under section 11AA(2)(i) of the SEBI Act is satisfied. Considering that the scheme offers the benefit called the “surrender value” (higher in value than the contribution of investor) and also as more than 97% of the customers have received the surrender value, and further that the Company has admittedly offered “insurance benefits” to its customers, it can be definitely said that the customer have made the contributions or payments to the schemes of the Company with a view to receive benefits/profits/income, from such scheme or arrangement. Second condition does not mention about any rates of return that would be required to classify a scheme as a CIS. It only mentions “profits, income, produce or property, whether movable or immovable from such scheme or arrangement”. Therefore, if a return is received in the form of monetary value, produce or property from a scheme, the scheme in question is said to have satisfied this condition. In view of the above, conclude that the schemes, as alleged in the SCN, satisfy the second condition under section 11AA(2)(ii) of the SEBI Act. As can be seen, the facts of the case already decided by the Hon’ble SAT and the refundable sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan, shall not alienate or dispose off or sell any of the assets of the Company, except for the purpose of making refunds to its investors as directed above. (d) After completing the aforesaid repayments in terms of sub-paragraph (b) above, the Company, Pancard Clubs Limited shall file a certificate of such completion with SEBI, within a period of 15 days, from two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution. For the purpose of this Order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India (‘ICAI’). (e) Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form. (f) Pancard Clubs L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against Pancard Clubs Limited and its directors Sudhir Shankar Morvekar, Shoba Ratnakar Barde, Usha Arun Tari, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan including other persons who are in default, for the violations as found in this Order. - WTM/PS/170/EFD/FEB/2016 - - - Dated:- 29-2-2016 - Prashant Saran (Whole Time Member) For the Company : Pradeep Sancheti, Senior Advocate, Darshit Jain, Advocate, Jas Sanghvi, Advocate, Aansh Desai, Advocate, Shilpi Jain, Advocate, Manish Shah, Pravin Chavan, Tejas Kasar. Additionally, Kedar Talvelkar, Vishwanatan Rove, Sandeep Parekh, Advocate For the Sebi : Dr. Anitha Anoop, General Manager, Ankit Bhansali, Assistant General manager and T. Vinay Rajneesh, Assistant General Manager ORDER 1. Securities and Exchange Board of India ( SEBI ) vide an ex-parte interim order dated July 31, 2014, prima facie observed that the schemes launched and carried on by Pancard Clubs Limited ( the Company or PCL ) were Collective Investment Scheme ( CIS ) in terms of section 11AA of the Securities and Exchange Board of India Act, 1992 ( the SEBI Act ) and alleged that the Company had oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of investors under the schemes, since inception. Details of scheme wise timeshare availed by the investors/applicants, since inception till date. In case the investors/applicants opted for surrender value instead of timeshare, the details of surrender value redeemed, since incorporation of PCL till date. c. List of all investors along with their address and contact numbers and their investments, since incorporation of PCL till date. d. On noticing from the letter dated April 04, 2014 that there are other schemes (in addition to those mentioned in the interim order), SEBI sought details regarding all the plans such as brochures, application forms etc. pertaining to other schemes run by you since incorporation of PCL till date. e. All the financial statement of PCL since incorporation of PCL till date. f. Details of all the bank accounts of PCL including the closed ones since incorporation of PCL till date g. Details of full inventory of the assets obtained from the money raised by PCL from public. h. Details of assets of PCL along with date (year) of its operation. Information on the source of funds for acquiring/construction of the asset. i. Details of Asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged to have contravened regulation 3 of the CIS Regulations for failing to apply for registration with SEBI. The noticees were advised to show cause as to why the schemes of the Company should not be declared as CIS and if such schemes are found to be CIS then why appropriate action including directions under sections 11, 11(4) and 11B of the SEBI Act read with regulation 65 of the CIS Regulations should not be issued against them for the violations. The noticees were advised to send their replies within a period of 10 days from the date of receipt of the SCN. The noticees were also granted an opportunity of personal hearing on September 07, 2015. 7. The noticees had sought more time to file reply to the SCN. As SEBI was directed to pass the Order within a period of 3 months, SEBI filed a miscellaneous application before the Hon ble SAT seeking time. The Company also filed another miscellaneous application seeking time upto December 31, 2015 to file the reply and 3 months thereafter for passing the order. The Hon ble SAT, vide Order dated October 16, 2015, after accepting the statements made by SEBI and the noticees, directed the noticees to file their replies to the SCN o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCL is also a member of All India Resort Development Association, an independent, self-regulatory and non-profit body dedicated to the timeshare and vacation ownership industry. PCL has complied with the guidelines, norms and minimum standards prescribed by the AIRDA, and offered fair value on holiday packages to the customers. Consequently PCL and its customers have access to more than 6,500 hotels and resorts of RCI worldwide. PCL and its group have properties across India at places such as Goa, Thane, Shirdi, Malwan, Panvel, Mahabaleshwar, Pune, Pench, Kanha, Sunderban, Tadoba, Todgarh, Udaipur, Gir, Mandarmoni, Kaziranga, Chail, Gurgaon, Corbett, Bhimtal, Bageshwar, New Teheri, Hyderabad, Kolam, Mysore, Kodaikannal, Ootty, Alleppy. Pan Card and it s group companies also have properties at USA, North Carolena, Ohio, New York, Las Vegas, Orlando, Singapore, Dubai, Phuket, Pattaya and Bangkok. Thus the properties are situated at varied locations like tourist places, religious places as also business destinations to provide maximum choice to customers. PCL has proper infrastructure at its registered office to cater to room night bookings for its customers fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her of the holiday time share options. Thus, the Company sought to omit the disadvantages of other holiday time share options and offered maximum advantage to the customer. Therefore, the Company introduced a different concept, which was easy to understand, operate and one that offers flexibility to the customers. (e) The Company wanted to ensure that it complied with all the rules, regulations provisions of law. By way of abundant caution, the company wrote letters to various authorities informing them about the holiday options and seeking their opinion about the same. PCL wrote a letter dated 22nd December 1999 to the Reserve Bank of India inquiring whether its holiday options and activities are compliant with the regulations of Reserve Bank of India. Reserve Bank of India wrote letter dated 10th July, 2000 clarifying that time share company was not covered under the Regulatory Jurisdiction of Reserve Bank of India and that the Security Deposit was an advance received by such companies against the facility/Services provided/proposed to be provided cannot be treated as public deposit under the Reserve Bank of India Act. (f) PCL wrote letter dated 27th February, 2001 to SEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ardship in the event of an insured event. Whenever a contract provides a component of insurance, such investment would be excluded from the purview of collective investment scheme as provided in Explanation to Section 12 (1B) of the SEBI Act. c. PCL s activities do not fall under any of the conditions/criterion laid down in Section 11AA (2) of the SEBI Act. For any activity to be classified as a Collective Investment Scheme, it is mandatory to satisfy all the conditions set out in Section 11 AA (2) of the SEBI Act. d. The business model of PCL is based on providing a service to the customer, whereby on advance purchase of Room Nights, at the Offer Price of the PCL, the customer can avail of the Room Nights purchased by him in the future at any of the properties of the PCL or its affiliates at a rate already paid by the customer which would be lower than the prevalent market rate of the room at that time. The right of usage of Room Nights is conferred upon the customer in exchange for monetary consideration, i.e. as a promise of performance of a service pursuant to the terms and conditions of the agreement. None of the plans approved by PCL involve any sharing of profit with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooses to gift/sell their room nights. Thus merely because moneys received from various people by the quietest for purchase of room night does not in my opinion, amount to a pooling of funds as each customers consideration is utilised for the payment of their respectively availed room nights. f. In the aforesaid circumstances, PCL started selling various holiday options from the year 2002 and continued to sell holiday options till date under the bona fide belief that the same are in compliance with all the relevant rules and regulations and were not under any regulatory regime of SEBI. g. The Company also submitted SEBI had forwarded a letter dated 21 st October 2013 to the then Member of Parliament Mr. Sanjay Dina Patil (in response to Complaint dated 2 nd July 2013) stating that SEBI had examined the matter of PCL during 2010-11 wherein it was found that the activities of the company do not attract SEBI (Collective investment Schemes) Regulations, 1999. . Nature of PCL s business has not undergone any change since the time period from 2002 till 2014. Therefore, it is unreasonable to consider the same activities illegal which were treated as being lawful till 2013. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the scheme offered by the PCL C. Submissions regarding the schemes : The Company made the following submissions regarding manner adopted by it in respect of its schemes/plans: The business plan adopted by PCL for the above purpose, is as follows: a. Customers are explained the particulars of the various holiday options offered by PCL in detail. b. PCL provides customers with application forms that contain the specific terms and conditions of the particular holiday options. c. The customers are required to submit a duly filled up Application form to PCL giving various particulars. The customers also need to follow Know-Your-Customer norms at the time of purchasing Room Nights and/or other facilities and services provided by PCL. The customers are required to furnish identification documents like their PAN Card, Aadhar Card, Bank Account Statement, etc. for this purpose. A Sample Copy of the Application Forms for various holiday options containing the specific Terms and Conditions was annexed. d. After scrutinising the Application forms, the Company accepts the Applications and explains the particulars of the holiday options to the custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days from the start date as mentioned in the certificate subject to availability of date of birth and/or age proof and submission of the medi+claim proposal/declaration form as applicable. Some of the Details are given here under: (i) Accidental Death Insurance Benefit: shall be extended to the applicant for the term of Pancard Clubs-Sunrise Holiday, subject to the application being in force. Accidental Death Insurance Benefit shall be offered for a maximum of Sum Insured of ₹ 1 LAC. Applicable conditions are as under. (a) Admissible Age: Minimum 5 years and Maximum 60 years. Minor Applicant (Aged 5 to 18 years) shall be offered accidental death insurance benefit as per the terms subject to maximum accidental death benefit of ₹ 50,000/- only. Applicant in the age group of 61years to 70 years shall be extended the accidental insurance benefit on making payment of ₹ 100/- towards Age Relaxation Fees. (ii) LIFE INSURANCE BENEFIT: Applicant opting for Pancard Clubs-Sunrise Holiday shall be offered Life insurance benefit of Term Assurance i.e. for death only, from the Insurance Company for ₹ 25,000/-, subject to the application being in force. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom one hotel/club/resort to the other. 11. The customer may select the holiday option depending upon the requirement and preferred frequency of payment. The advance payment for hospitality services entitles PCL s customers to stay at the various properties and/or avail various other facilities depending on the tenure and nature of the holiday option chosen. PCL offers various modes and manner in which the holiday options can be utilised by the customers. Clause 8 of the Sunrise holiday option provides the manner in which the customers can utilise the services and facilities offered by PCL - 8) PRIVILEGES OF THE APPLICANT: (I) On acceptance of the application of the applicant under the Pancard Clubs-Sunrise Holiday by the company, applicant is entitled to the following privileges and these can be exercised in the following manner: (a) Applicantshall be entitled to utilise Room Nights subject to the terms and conditions of Pancard Clubs-Sunrise Holiday. (b) Applicant can commence the utilisation of their room nights entitlement after 60 days from the date of acceptance of his application by the company. (e) Upon expiration of each mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 10 of the Sunrise holiday option reads as follows - 10 Upon expiration of the tenure under the Pancard Clubs-Sunrise Holiday, applicant may surrender their unutilised room nights in the following manner: (a) The applicant may surrender their unused entitlement of room nights to the company and opt for surrender value. The actual Surrender Value shall be determined by the company at the time of surrender of room nights and shall be paid on the expiry of the tenure under Pancard Clubs- Sunrise Holiday. (b) The Applicant may opt to exchange/barter or utilise the products and services of the company and its group companies in lieu of surrender value of unutilised room nights of equivalent value. The products and services inter alia include domestic international tour packages, room nights of hotels banquets, conferences, meetings seminar of the company and its group companies hotel/resort/clubs properties, subject its availability, Software Development etc. The terms and conditions for the exchange/barter/utilisation shall be framed by the company from time to time. Company's decision in this regard shall be final binding. Government taxes, levies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons through its marketing personnel, listed the various options and properties on its website and also issued advertisements in newspapers from time to time. The above marketing/advertisement were done, inter alia , to spread awareness about the various properties at which the holiday options can be utilised. D. Further submissions : 1. The Company also submitted that keeping in view the changed scenario and the proclivity of the regulators towards the holiday options and by way of abundant caution, it has discontinued selling all the holiday options with surrender value with effect from 1 st April 2014. Since, 1 st April 2014, all the holiday option with surrender value option (sold between 1 st April 2014 to 31 st July 2015) have been switched to non-refundable category. Further, from August 2015, the Company had altogether stopped selling holiday option with surrender value option. The Company has contended that the holiday options sold since 1 st April 2014 do not fall within the scope and purpose of the definition of Collective Investment Scheme as such plans without surrender value are similar to the holiday options sold be companies like Mahindra Holidays, Ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant case and the activities of PCL cannot be deemed to be a Collective Investment Scheme . 7. The Company also submitted the following: 39. The Hon ble Supreme Court (in PGF Limited case) has held that the purport of the enactment is that no one should collect and deal with money of other individual under the guise of providing fantastic return or profit or any other benefit does not indulge in such transaction with the motive of defrauding innocent investor. Pertinently, the surrender value provided/specified by PCL is much lower than the market rate of return receivable from modes of investments. Hence, a customer would not buy the holiday option sold by PCL merely for the purpose of investment to gain profits, income or produce. 40. Hence, there is no concept of any fixed or guaranteed return, much less, fantastic return of profit. The very fact that the holiday option entitled the customer to receive back the value for unutilised room nights as mentioned above would go to show that there is no intention to defraud the customer. Besides, there is not a single complaint to show that PCL has defaulted in honouring this contractual obligation to any customer. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd Clubs-Standard Membership for 9 years 2009-10 Pancard Clubs-Supreme Holiday Membership for 9 years 2010-11 Pancard Clubs-Golden Holiday Membership for 5 years 2008-09 Pancard Clubs-Platinum Holiday Membership for 6 years 2012-13 Pancard Clubs-Regal Holiday Membership for 9 years 2011-12 Pancard Clubs-New Comfort Holiday membership for 3 years 2012-13 Pancard Clubs-New Luxury Holiday for 3 years 2010-11 9. The noticees were afforded an opportunity of personal hearing on February 02, 2016, when the Company was represented by Mr. Pradeep Sancheti, Senior Advocate, who made submissions. The following is the record of proceedings of the personal hearing: 1. The company was represented by their legal counsel. Authority letters filed . 2. The learned senior advocate submitted that the company had filed a letter dated February 01, 2016 (i.e. yesterday) with SEBI requesting for inspection of documents and copies of such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of documents and case laws in support of his submissions. As requested by him, liberty is granted to file written submissions along with documents, if any, on or before February 16, 2016. 3. Mr. Sandeep Parekh appeared for the directors ( noticees 2 to 7 in the SCN) of the Company and adopted the submissions of the Company. He requested that the noticees may be allowed to file their written submissions within two days of the Company filing its written submissions. This request was allowed and accordingly these noticees shall file their written submissions latest by February 18, 2016. 4. Personal hearing is concluded and the matter is reserved for order . 11. Although the Company had, on February 16, 2016, sought for further time on to file its written submissions, SEBI rejected the request in view of the timeline (Order to be passed by February 29 th ) set by Hon ble SAT in the matter. The Company submitted its written submissions vide email dated February 16, 2016, reiterating the submissions made in the personal hearings. Such submissions pertained to - (a) Request for disclosure of documents, replies, complaints etc relied upon by SEBI to arrive at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that time share company was not covered under its jurisdiction and deposit taken as advance cannot be treated as public deposit. SEBI also concluded that the activities of the Company did not attract CIS Regulations. This stand was taken in 2013 and therefore SEBI cannot now change its stand with retrospective effect. (d) The Company started selling various holiday options from 2002 and continued to sell holiday options till date, wherein the marketing persons explained to the customers the particulars of the various holiday options. The customers had opted for the plans pursuant to knowing about the same. (e) Unlike other holiday options available in the market where the customers lose their money if they do not exercise their right of using the room nights, the Company s plans were flexible as they provided an option to the customer to seek surrender value. (f) The provisions of the SEBI Act and the regulations are curative in nature and not penal. Therefore, passing penal orders would mean no benefit to customers and public at large as the result would in any case fail to uphold the spirit of the SEBI Act and the purpose for which it was enacted. (g) Customers are sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties worldwide-and not utilized for the purpose of the scheme or arrangement as is the clear prescription under Section 11AA(2)(i) of the SEBI Act. (b) Pancard carries out a straightforward transaction in two legs, where first the consideration is received and subsequently, the room nights are credited in favour of the customer, which may be drawn down depending on the requirement of the customer. Just like for any other service, Pancard maintains independent accounts of payment of money and usage of promised room nights, by its customers. If SEBI s allegations are to be accepted, it would lead to an absurd position where every business entering into a large number of agreements for services or goods-to be provided or delivered at a future date-would be considered as fulfilling the first condition of Section 11AA of the SEBI Act. (c) In an era where each large business house receives advances, there may be no company, whether public or private, listed or unlisted, in manufacturing, agriculture or service activities that may escape the unfettered and catch-all provision of Section 11AA(2)(i), far beyond what SEBI is legislatively allowed to regulate. The mandate of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack s Law Dictionary (6 th edition, 11 th reprint, 1997) defines the term manage as follows: To control and direct, to administer, to take charge of. To conduct; to carry on the affairs of a business or establishment. Generally applied to affairs that are somewhat complicated and that involve skill and judgment . In light of the definition and the activities carried out by Pancard, it is pertinent to note that the Company does not have any entitlement to control or administer the monies paid by the customers, within the meaning that is envisaged under the SEBI Act. The monies paid by the customers are only towards the performance of the promises made by Pancard, like in any other commercial agreement. After the agreement is executed, the customer has control over the time, mode and manner of using the room nights during the tenure of the agreement. If the customer wishes to utilize the room nights or gift it to his friends and/or family, he is free to do so. (h) The title to the assets that form a part of the timeshare business remain with Pancard (or where applicable, with such other company with whom Pancard has entered into a tie-up arrangement) at all times. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property, and each sharer is allotted a period of time (typically one week, and almost always the same time every year) in which they may use the property. Units may be on a part-ownership or lease/ right to use basis, in which the sharer holds no claim to ownership of the property. While SEBI has not yet taken a decision on whether timeshare qualifies as a CIS, securities laws precepts establish that the two are mutually exclusive businesses. (m) Upon entering into an agreement with the Company, the customer has a right to avail of accommodation and utilise leisure facilities at any of the properties of Pancard and its affiliates in accordance with the terms and conditions of such agreement. Accordingly,the customer is offered the option of utilizing room nights against their stay at any non-Pancard hospitality property. The customer s rights of availing such services are almost entirely unfettered and on prior intimation to Pancard, the relevant number of room nights can be offset in accordance with the charges applicable by such other resorts/hotels. (n) Further, from an accounting perspective, the Company s business is to sell time share and provide holiday relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, no harsh steps should be taken against the Directors. (r) In the event SEBI concludes that the activities of Pancard fall within the ambit of a CIS, the directions purported to be taken by SEBI under Regulation 65 of the CIS Regulations ought not to be dealt in isolation but must be taken into consideration along with Regulation 73 of the CIS Regulations. (s) Pancard has been engaged in carrying on its business under the genuine belief that its activities do not fall within the ambit of a CIS. Further, as stated above, until recently, SEBI too was of the opinion that the Company s business did not fall within the scope of a CIS. Therefore, the Directors have been undertaking the Company s business activities under an honest assumption that such activities were not a CIS and accordingly no registration was necessary under the CIS Regulations. The information submitted by the Company, would indicate that the Company has not been engaged in any sham real estate business that is detrimental to the interests of investors, but has been providing genuine holiday options to its customers. (t) Further, had SEBI maintained since the beginning that timeshares, such as those i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to seek registration under the CIS Regulations. (w) In light of the submissions, the directors requested that no directions as stipulated in section 11, 11B, 11(4) of the SEBI Act and Regulation 65 of the CIS Regulations should be issued against them. 14. I have considered the SCN, the material enclosed with it, the reply filed by company, the submissions made in the personal hearing and the same reiterated in the written submissions of the company and its directors (notices 2 to 7 in SCN). The SCN has mentioned the various schemes (20 schemes as per details provided by company from 01.10.2013 to 19.06.2015) offered by the company to the general public during the period 2002 to 2014 and observed that - 1. A person could become a member of Pancard Club- Holiday Membership. 2. The customer could chose a particular scheme as per his requirement by buying room nights at a discounted price than the regular room tariff. 3. The customer could use the room nights or transfer/gift to a third party or surrender the same. 4. In the event of the customer surrendering the room nights, he is entitled to the surrender value as per the scheme opted by him payable at the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company further submitted that each and every member of the company who has opted for its holiday plan, since inception in the year 2002, are offered free insurance benefits, from an IRDA approved insurance company, commensurate with the terms and conditions of the holiday plan opted by the member. The company further submitted that the insurance benefit could either be accidental insurance benefit or medi-claim benefit or life insurance benefit or a combination of any two or all based on the holiday plan as opted. The company has also explained the procedure for providing general insurance benefit by way of medi-claim or accidental death and life insurance benefits to its members/investors/customers. The company has contended that the only requirement under the explanation to section 12(1B) of the SEBI Act is that any instrument or unit which provides a component of insurance issued by an insurer shall not be deemed to be a collective investment scheme. According to the company, the SCN was not warranted as it offers insurance issued by an insurer and therefore outside the purview of section 12(1B). As per the noticees, if there was any element of doubt as to who would pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also set up a joint mechanism to address the difference of opinion among certain regulators which may arise in future. Thereafter, the Amendment and Validation Act of 2010 was passed which replaced the Ordinance. As per the Explanation to section 12(1B) of the SEBI Act, CIS or Mutual Fund shall not include any ULIP or scrips or any such instrument or unit by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer. What is therefore excluded is the ULIP (or any such instrument) which provides a component of investment and insurance, issued by an insurer. As per this provision, the product (combining investment insurance) which is exempt from the aforesaid explanation, has to be issued by an insurer. Therefore, the Explanation envisages a combined product which has to be issued by an insurer and it cannot be the case that the combined product is issued by an entity wherein the component of insurance is provided by some insurer. There is therefore, no ambiguity regarding who would offer the product as sought to be presented by the company. In the present case, the company offers a scheme (Holiday Plan/room nights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made by the notices is that they offer only holiday plans and do not deal in securities and therefore not within the purview of SEBI. In this regard, my findings are given below: SEBI has been established to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto. In terms of section 11(1) of the SEBI Act, SEBI is empowered to take such measures as it thinks fit in order to uphold SEBI s mandate under the SEBI Act. Under section 11(2), the measures shall include registering and regulating the working inter alia of CIS. Section 11AA of the SEBI Act provides necessary guidance to determine whether any scheme or arrangement is a CIS or not. It is also to be noted that units or any other instrument issued by any CIS to the investors in such schemes would be a security under section 2(h) of the SCRA and section 2(1)(i) of the SEBI Act. SEBI has also framed the CIS Regulations for stipulating conditions for registration of CIS and other related matters. The moment the scheme satisfies the provisions of section 11AA of the SEBI Act, the Company laun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pel is without any merit. Further, the question whether a particular scheme satisfied the provisions of section 11AA (to call it a CIS) is a pure question of law. It is a settled principle of law that there can be no estoppel against a statute. The Hon ble Supreme Court of India in Air India v. Nergesh Meerza and others [AIR 1981 SC 1829] held It is well settled that there can be no estoppel against a statute much less against Constitutional provisions . The Hon ble Supreme Court in State of Bihar and others v. Project Uchcha Vidya Sikshak Sangh and others [(2006) 2 SCC 545] observed We do not find any merit in the contention raised by the learned counsel appearing on behalf of the respondents that the principle of equitable estoppel would apply against the State of Bihar. It is now well known, the rule of estoppel has not application where contention as regards a constitutional provision or a statute is raised . The Hon ble High Court of Orissa in Jatindra Prasad Das vs State of Orissa and others (decided on 15.11.2011-W.P. (civil) No. 21449/2011) has held that there can be no estoppel against statutes and the statutory provisions and therefore, the said statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. Coming back to the question whether the Company was operating a collective investment scheme, I note that the SCN has mentioned a total of 30 schemes, the date when each scheme came into operation, the average price for the room nights, the offer price of the package, the surrender value, the total amount collected under each scheme, the amount paid to the customer on surrendering the room nights. The following portions from the SCN are therefore relevant to note: 5. As per the audited financial Statement for the financial year 2013-14, Noticee no. 1, is engaged in the business of owning, developing and operating hotels, clubs and resorts across India as well as offering different time share options. From the details provided by noticee no. 1 during October 01, 2013 to June 19, 2015, it is observed that it is offering following schemes to general public during the period 2002 to 2014. Pancard Clubs- Comfort Membership for 3 years Pancard Clubs- Luxury Membership for 6 years Pancard Clubs- Premium Holiday Membership for 10 years Pancard Clubs- Regular Holiday Membership for 10 years Pancard Clubs- Royal Membership for 9 years Pancard Clubs- S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- (600*5) 5 ₹ 4,250/- (850*5) i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 25% of the total room nights purchased by him in a single financial year. ii. The details of the year wise room nights sold and redeemed during the period 2002-03 to 2013 -14 is provided as under: (Comfort Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilized No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2002-03 117,151,200 195,252 15,554 1 1 2003-04 173, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticee no. 1 has mobilised around ₹ 224.72 crores from 2,20,185 customers/investors by selling 37,45,358 room nights under Comfort Membership Plan. Except a few investors (213 investors) preferring partial utilisation of the room nights purchased by them, most of the investors preferred surrendering the room nights to noticee no. 1. From the details it is concluded that 0.013% room nights sold by noticee no. 1 were utilised and 99.97% of the room nights purchased by the investors were surrendered and estimated surrender value was opted. B. Pancard Clubs- Royal Membership for 9 years (with effect from 1st July 2002): Current Average Tariff Actual Price for Eighteen Room Nights Package Offer Price of the package at a Discount Entitlement of Room Nights Current Surrender Value for Eighteen Room Nights @ ₹ 850/- per Room Night. ₹ 18,000/- (1,000*18) ₹ 5,040/- (280*18) 18 ₹ 15,300/- (850*18) i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43 2342 655,760 23 2010-11 151 40 974 272,720 9 2011-12 104 8 62,363 52,384,671 3,825 2012-13 40 304,113 258,496,200 7,808 2013-14 378 26 321,085 272,922,190 6,954 Total 84,18,29,885 30,06,536 54,275 1,405 383 7,32,110 59,68,08,931 19,661 iv. From the above table, it can be seen that noticee no. 1 has mobilised around ₹ 84.18 crores from 54,257 custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03 38,219,160 136,497 28,085 7 5 2003-04 46,724,120 166,872 38,335 27 21 2004-05 42,609,320 152,176 17,966 68 36 2005-06 57,008,754 203,603 46,418 39 20 486 136,045 120 2006-07 114,124,366 407,587 92,985 91 57 81 68,565 43 2007-08 28,425,080 101,518 24,065 78 41 40 11,200 15 2008-09 870,520 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Average Tariff Actual Price for four Room Nights Package Offer Price of the package at a Discount Entitlement of Room Nights Current Surrender Value for Eighteen Room Nights @ ₹ 850/- per Room Night. ₹ 4,000/- (1,000*4) ₹ 1,120/- (280*4) 4 ₹ 3,400/- (850*4) i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of the membership. Further, an applicantshall be entitled to utilise a maximum of 25% of the total room nights purchased by him in a single financial year. ii. Members can avail their room nights entitlements throughout the year and at any of the existing, affiliated or proposed clubs/resorts of the noticee no. 1. Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,00,11,765 10,35,757 33,562 613 99 97,408 8,01,80,213 5,750 iii. From the above table, it can be seen that noticee no. 1 has mobilised around ₹ 29 crores from 33,562 customers/investors by selling 10,35,757 room nights under Supreme Holiday Membership Plan. From the details, it is seen that out of the 10,35,757 room nights sold, as on March 31, 2014 only 613 room nights were utilised by 99 investors and 97,408 room nights were surrendered and 9,37,736 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (98021room nights), 0.62% room nights were utilised and 99.37% of room nights were surrendered and estimated surrender value was opted. It can be seen that the tenure of the scheme is for period of 9 years. Accordingly, out of the total room nights sold (141296) till 2004-05, which have completed the scheme tenure of 9 years, only 613 room nights were utilised and 97408 room nights were surrendered. E. Pancard Clubs- G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 720 1 1,228 1,043,955 75 2008-09 2,077 1,765,426 75 2009-10 3,027 2,572,756 75 2010-11 1,790 1,521,700 69 2011-12 786 668,350 8 2012-13 2013-14 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 2003-04 353,233,990 831,139 27,641 30 13 2004-05 350,791,935 825,393 28,057 132 39 2005-06 609,874,969 1,435,000 41,479 62 23 3,371 2,865,355 934 2006-07 1,739,395,861 4,092,696 102,077 160 64 3,453 2,935,365 419 2007-08 315,780,435 743,013 19,328 322 66 2,526 2,147,060 353 2008-09 94 34 345 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2,40,000/- (1,000*240) ₹ 1,02,000/- (425*240) 240 2 ₹ 850/- Per Room Night i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 30 days from the date of the membership. Member shall be entitled to utilise maximum of two room nights per month, against total of 240 room nights. Out of the quarterly entitlements, a member can surrender 50% of his entitlement immediately and balance at the end of membership period. ii. The details of the year-wise room nights sold and redeemed during the period 2002-03 to 2013 -14 is provided as under: (Regular Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2002-03 15,963,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,387 380 25 5,09,768 40,09,18,256 41,520 iii. From the above table, it can be seen that noticee no. 1 has mobilised around ₹ 50.89 crores from 10,387 customers/investors by selling 11,97,533 room nights under Regular Holiday Membership Plan. From the details, it is seen that out of the 11,97,533 room nights sold, as on March 31, 2014 only 380 room nights were utilised by 25 investors and 5.09,768 room nights were surrendered and 6,87,385 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (5,10,148 room nights), 0.74% room nights were utilised and 99.92% of room nights were surrendered and estimated surrender value was opted. H. Pancard Clubs- Platinum Holiday Membership for 6 years (effective from 1st April 2004): Current Average Tariff for Twelve nights Offer Price of the Room Nights at a Discount Minimum Room Nights to be bought Minimum offer price to be paid Current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 1 118,570 65,213,485 6,137 2010-11 68,672,117 124,858 8 2 115,524 98,195,075 8,568 2011-12 10,450 19 0 34 10 223,420 189,906,939 8,237 2012-13 11 382,187 374,360,685 21,422 2013-14 41 5 727,205 618,123,925 34,683 Total 1,03,08,19,142 18,74,215 1,31,398 105 36 18,74,112 1,51,47,63,144 1,31,398 iii. From the above table, it can be seen that noticee no. 1 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surrendering the room nights No of applicants surrendered the room nights 2008-09 76,398,000 179,760 505 2009-10 171,161,900 402,734 1,106 6,588 5,599,850 1,437 2010-11 252,612,450 594,382 1,581 39,293 30,696,250 2,333 2011-12 226,250,300 532,354 1,335 777 14 75,305 62,208,050 4,247 2012-13 241,706,000 568,720 1,454 630 12 106,854 88,072,200 5,697 2013-14 213,659,400 502,728 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight utilized No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2002-03 12,410,000 29,200 1,335 177 150,450 170 2003-04 20,673,120 48,643 489 3 1 6,430 3,594,070 1,824 2004-05 25,500,000 60,000 5,526 11 4 16,579 8,856,345 7,350 2005-06 26,358,075 62,019 399 7,383 5,935,665 1,297 2006-07 34,503,045 81,184 497 4 2 3,502 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (effective from 1 st April 2005): Current Average Tariff for three Room Nights Offer Price of three Room Nights at a Discount Minimum Room Nights to be bought Current Surrender Value of three nights as on Today @ ₹ 850/- per Room Night. ₹ 3,000/- (1,000*3) ₹ 1,300/- 3 ₹ 2,550/- i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of the membership. Members can avail their room nights entitlements throughout the year and at any of the existing, affiliated or proposed clubs/resorts of the noticee no. 1. ii. The details of the year-wise room nights sold and redeemed during the period 2005-06 to 2013 -14 is provided as under: (Regal Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of roo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 investors and 1,28,535 room nights were surrendered and 57,222 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (1,28,572 room nights), 0.028% room nights were utilised and 99.97% of room nights were surrendered and estimated surrender value was opted. L. Pancard Clubs- New Comfort Holiday Membership for 3 years (with effect from May 22, 2007). Current Average Tariff for three Room Nights Offer Price of three Room Nights at a Discount Minimum Room Nights to be bought Estimated Surrender Value of three unused room nights @ ₹ 1,260/- per Room Night. ₹ 6,000/- (2,000*3) ₹ 2,700/- (900*3) 3 ₹ 3,780/- i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 33% of the total room nights purchased by him in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship Plan. From the details, it is seen that out of the 18,07,731 room nights sold, as on March 31, 2014 only 74 room nights were utilised by 35 investors and 18,05,281 room nights were surrendered. From the details it is concluded that 0.004% room nights sold by noticee no. 1 were utilised and 99.99% of the room nights purchased by the investors were surrendered and estimated surrender value was opted. M. Pancard Clubs- New Luxury Holiday for 3 years (with effect from May 22, 2007) Current Average Tariff for three Room Nights Offer Price of three Room Nights at a Discount Minimum Room Nights to be bought Estimated Surrender Value of three unused room nights @ ₹ 1,800/- per Room Night. ₹ 6,000/- (2,000*3) ₹ 2,700/- (900*3) 3 ₹ 5,400/- i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applicantshall be entitled to utilise a maximum of 33% of the total room night ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils, it is seen that out of the 25,12,454 room nights sold, as on March 31, 2014 only 438 room nights were utilised by 178 investors and 14,33,764 room nights were surrendered and 10,78,252 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (14,34,202 room nights), 0.030% room nights were utilised and 99.96% of room nights were surrendered and estimated surrender value was opted. N. Pancard Clubs- New Royal Holiday for 9 years (with effective from May 22, 2007) Current Average Tariff for One Room Nights Offer Price of One Room Nights at a Discount Minimum Room Nights to be bought Estimated Surrender Value of One unused room nights @ ₹ 2,700/- per Room Night. ₹ 6,000/- (2,000*1) ₹ 2,700/- (900*3) 3 ₹ 2,700/- i. As per the terms and conditions for the scheme, the applicant can commence utilising his room night entitlements after 60 days from the date of acceptance of application. Further, an applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that noticee no. 1 has mobilised around ₹ 540.52 crores from 8,66,189 customers/investors by selling 60,05,825 room nights under New Royal Holiday Membership Plan. From the details it is seen that out of the 60,05,825 room nights sold, as on March 31, 2014, only 15,325 room nights were utilised by 6,250 investors and 10,263 room nights were surrendered and 59,80,237 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (25,588 room nights), 59.89% room nights were utilised and 40.10% of room nights were surrendered and estimated surrender value was opted. It can be seen that the tenure of the scheme is for period of 9 years and the scheme is effective from May 22, 2007. Accordingly, it can be concluded that the plan is not ripen enough for surrendering the unutilised room nights. It can be seen that out of the total room nights sold only 0.25% of room nights were actually utilised. O. Pancard Clubs-New Premium Holiday for 10 years (with effect from May 22, 2007) Current Average Tariff for Eighty room Nights Offer Price of Eighty room Nights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 633 50 11 10,151 8,254,350 1,663 2012-13 38,624,000 90,880 640 116 9 13,071 11,042,350 2,288 2013-14 25,874,000 60,880 432 180 13 16,837 14,277,450 2,716 Total 17,17,45,925 4,04,108 3,142 369 38 44,154 3,70,54,900 7,668 iv. From the above table, it can be seen that noticee no. 1 has mobilised around ₹ 17.17 crores from 3,142 customers/investors by selling 4,04,108 room nights under New Premium Holiday Plan. From the details it is seen that out of the 4,04,108 room nights sold, as on March 31, 2014 only 369 room nights were utilised by 38 investors and 44,154 room nights were surrendered and 3,59,585 room nights are about to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,512,469 119,711 21 8 342 307,515 35 2010-11 2,501,593,980 2,779,549 112,881 62 21 4,218 3,796,600 73 2011-12 2,983,030,433 3,314,478 121,795 1,803 219 6,347 5,712,300 84 2012-13 3,271,972,500 3,635,525 134,590 8,326 537 30,975 27,877,900 2,110 2013-14 3,868,821,180 4,298,690 134,576 13,448 1,310 7,903 7,112,520 111 Total 16,42,54,42,276 1,82,50,491 7,20,702 23,662 2,096 49,785 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08-09 to 2013 -14 is provided as under: (Relax Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilized No of applicants utilize d the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2008-09 1,557,441,000 1,730,490 133,893 1 1 2009-10 2,836,265,455 3,151,406 197,081 19 12 346 311,630 16 2010-11 4,124,278,020 4,582,531 230,267 121 53 1,724 1,552,000 65 2011-12 4,890,014,198 5,433,349 271,292 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly/quarterly entitlements, an applicant can surrender 50% of his entitlement immediately and the balance room nights at the expiry of the tenure. ii. Upon expiration of tenure of the aforementioned scheme, the applicant may surrender his unutilised room nights and noticee no. 1 in its discretion may give an option to its applicant to convert his unutilised room nights, to the extent of surrender value, into shares, debentures (this is in addition to the three more options as explained at Para 5(ii) provide to the customers). iii. The details of the year- wise room nights sold and redeemed during the period 2008-09 to 2013 -14 is provided as under: (Sunrise Plan) Year Total amount collected No of room nights sold No of applicants No of room night utilize d No of applicants utilized the rooms nights No of room nights surrendered Amount paid for surrendering the room nights No of applicants surrendered the room nights 2008-09 4,428,000 4,920 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- (2,000*4) ₹ 3,600/- (900*4) 4 ₹ 3,600/- Rs.4,800/- i. The applicantshall have to complete his payment towards the committed number of room nights in a maximum period of 36 months from the date of first payment. Persons completing all the 36 payments for the committed number of room nights shall be considered as a valid applicant and shall be formalised for and eligible for the benefits of the scheme. In the event of non-payment of instalment consistently, the applicantshall be levied a late fee of ₹ 15 per month for each such delayed payment. ii. Applicant can commence utilising his room night entitlements after 60 days from completion of all the 36 payments towards committed room nights. As per terms and conditions for the scheme, an applicantshall be entitled to utilise a maximum of 33% of the total room nights purchased by him in a single financial year. For availing the room nights, at the affiliated destination, applicantshall have to pay exchange fees of ₹ 150 per room nights. iii. Upon expiration of tenure of the aforementioned scheme, the applicant may surrender h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88 room nights sold, as on March 31, 2014, only 1,803 room nights were utilised by 188 investors and 12,613 room nights were surrendered and 74,90,772 room nights are about to be either utilised or surrendered. However, out of the total room nights either utilised or surrendered till March 31, 2014 (14,416 room nights), 12.50% room nights were utilised and 87.49% of room nights were surrendered and estimated surrender value was opted. It can be seen that the tenure of the scheme is for period of 66 months and the scheme is effective from May 01, 2009. Accordingly, it can be concluded that the plan is not ripen enough for surrendering the unutilised room nights. It can be seen that out of the total room nights sold only 0.16% of room nights were actually utilised. T. Pancard Clubs-Dezire Holiday for 37 months (with effect from March 01, 2013): Current Average Tariff for Nine room nights Offer Price of nine room nights at a discount Minimum room nights Payment Facility Monthly basis Quarterly basis ₹ 18,000 (2,000*9) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 37 months and the scheme is effective from March 01, 2013. Accordingly, it can be concluded that the plan is not ripen enough for surrendering the unutilized room nights. 16. The SCN had also mentioned the return which were offered under various schemes of the Company. These returns (compounded yearly) were calculated on the return on investment. Sr. No Name of the Scheme Tenure Offer Price of the package at the discount Surrender Value at the end of Tenure Returns 1 Comfort Membership 3 3,000 4,250 12.31% 2 Royal Membership 9 5,040 15,300 13.13% 3 Standard Membership 9 1,120 3,400 13.13% 4 Supreme Holiday Membership 9 1,120 3,400 13.13% 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest rate of 5.37 % to 25.99% ( if compounded annually ) depending upon the scheme. The Company has stated that the return in New Luxury Holiday scheme should be 12.25% ( tenure as per SCN was 3 years, whereas it was 6 years as per Company ) against 25.99% mentioned in the SCN and also that the same for Regal Holiday Membership scheme ( tenure as per SCN is 9 years, as per Company is 7 years ) is 10.10% as against 7.77% mentioned in SCN. Therefore, according to the Company, the rate of interest were in the range of 5.37% to 14.87%. However, what is important to note is that the investor receives the surrender value which carries interest on the amount (offer price) paid to the Company and that the surrender value is higher that the contribution paid by the investor. 17. The SCN has prima facie observed that the schemes of the Company satisfied all the conditions mentioned under section 11AA(2) of the SEBI Act and are therefore in the nature of collective investment schemes. It therefore becomes necessary to refer to the provisions of section 11AA of the SEBI Act in order to determine whether the schemes/plans launched and carried out by it is a Collective Investment Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956); (vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982 (40 of 1982); (viii) under which contributions made are in the nature of subscription to a mutual fund; (ix) such other scheme or arrangement which the Central Government may, in consultation with the Board, notify,] shall not be a collective investment scheme . 18. The first condition , under section 11AA(2) of the SEBI Act, is that the contributions or payments made by the investors by whatever name called are pooled and utilized for the purposes of the scheme or arrangement. With respect to this condition, the SCN had observed as follows: 14. It is observed that the noticee no. 1 is operating investment plans through its Holidays Plans, which it offers to the public. Holiday Plan Certificates of confirmation are issued to individual investors who purchase the Holiday Plans. Noticee no. 1 has submitted that during the financial years 2002-03 to 2013-14 raised a sum of ₹ 7034.67 crores from a to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount received by PCL from customers is shown as advance against sale of room nights in the books of accounts maintained by PCL and the said position is represented to the tax authorities. The Income Tax Department is contending that the advances received by PCL from customers are revenue receipts and are liable to be included in taxable income for the year of receipt itself. The issue is pending before the Hon ble Apex Court. The Income Tax department is taking a position that Merely because the advance amount collected is liable to be refunded in certain contingencies and circumstances, does not mean that it is not a receipt. It is a revenue receipt . Whichever interpretation is accepted, the above clearly shows that the consideration received by PCL is either advance against sale of room nights or revenue receipts but it does not amount to pooling of funds with the meaning of Section 11AA(2)(i). (d) PCL enters into simple agreements with customers for provision of service in return for a consideration by the customers. PCL carries out a straightforward transaction in two legs, wherein first the consideration is received and subsequently, the Room Nights are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the funds should be utilized. The amounts paid represents the income, and is utilized by PCL for the general business of PCL, and it is the duty of PCL to ensure that the customers are able to stay for the room-nights he has paid for. In other words, there is no prior demarcation that the amount paid by the customers would be utilized only for the purpose of the particular Option availed by the customer or for any specific Option. (i) Therefore, the time share holidays sold by PCL do not fulfil any of the criteria set out in section 11AA(2)(i) . The Company also submitted that the amounts paid by the members are not utilised solely for the purpose of any particular holiday plan availed by the member and that the amount received is utilized by the Company for developing properties worldwide to provide world class facilities to all its members. The business of PCL is not restricted to provide holiday plans under the holiday plan schemes referred to above. The business of the PCL, inter alia includes hospitality and hotel business whereby the hotel and club facilities are offered to members at large for a consideration. Thus, according to the Company, the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany pools the monies from the customers and utilizes for the scheme and other related businesses/activities including for paying the surrender value to the customers who surrender the room nights. Further, as per the schemes of the Company, the customer does not immediately get to utilize the rooms and has to wait for a particular period (as per the scheme) only after which the customer becomes entitled to use room nights. In this regard, I wish to refer to the following observations made by the Hon ble SAT in the case of NGHI Developers India Limited decided on July 23, 2013: 19. .. The Appellants submit that in the present case the land is first purchased by the Appellants with its own funds. With respect to this submission, we state that the concept of CIS as envisaged by the legislature does not take into account any such variable. The fact stands that the money collected from the customers of the Appellants ostensibly for the purpose of purchase of land is pooled together and then utilized for the purposes of the scheme, whether to buy more land or to develop the land already in possession of the Appellants. In this regard, it is noteworthy that the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered by noticee no.1 are with the view to receive profits or income . The Company had contended the following to say that its schemes do not satisfy the second condition: (a) The primary object of the Company for introducing the above-mentioned plan was to sell the holiday option which could be utilised for availing faculties/services offered at hotels/resorts/clubs etc. The customer was provided certain further features for his benefit. (b) The customers purchase the holiday option which can be utilised over a period of time, inter alia , for booking rooms in hotels/resorts. Only if the holiday option is left unutilised, the customers get surrender value at the end of the tenure of the plan. Thus, there is no principal amount and consequently no interest paid to the customers. (c) In case the customers utilise the holiday option, there is no question of refund of consideration and consequently there would be no payment of surrender value. (d) Therefore, none of the options proposed by the Company involve any profit-sharing with the customers. The rights of usage, hospitality and leisure activities, conferred on the customer in exchange for a consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from such scheme or arrangements. (j) It is submitted that the each and every member purchasing the holiday plan from PCL would undoubtedly seek certain benefits in return of the contributions or payments made to acquire the holiday plans. This is so in case of every single entity selling holiday plans. It is rather na ve or assumed that customers would pay consideration without any reciprocal benefit. However, there exists no profit-sharing model between the PCL and its members. (k) Irrespective of whether the properties developed by PCL are running well or otherwise PCL is obliged to provide the relevant benefits under the holiday plan availed by the member. Thus, drawing a correlation between the profits earned by PCL and the returns/facilities provided to members is baseless and without any justification. (l) The Company has therefore contended that its holiday plans do not satisfy the second condition under section 11AA(2)(ii) of the SEBI Act . I have considered such submissions. The Company has not disputed the surrender value being part of the schemes. The Company has also admitted that only 3-4% ( though it is 0.49% as per SCN; the Company has no explanation why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the contribution paid by the customer. It is a common understanding that all service providers deduct money (for administration, expenses, penalty etc.) if a person does not avail the services of the provider, like hotels, airlines, etc. The Company states that it has treated the investors money as advance (for room/holiday plan). Therefore, the surrender is something akin to cancellation or unwillingness of the customers in such case to utilize the services of such provider, the surrender value should be always lower than the initial amount paid. However, as per the schemes of the Company, the surrender value is higher than the contribution made by the customer. Considering that the scheme offers the benefit called the surrender value (higher in value than the contribution of investor) and also as more than 97% of the customers have received the surrender value, and further that the Company has admittedly offered insurance benefits to its customers, it can be definitely said that the customer have made the contributions or payments to the schemes of the Company with a view to receive benefits/profits/income, from such scheme or arrangement. The Company has also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) The holiday option is sold by PCL to the customers. The sale proceeds received are reflected as advance against sale of room nights . This being a purely a sale transaction, there is no question of managing scheme or arrangement on behalf of investor. (c) The title to the assets that form a part of the time share business remain with PCL (or where applicable, with its group company or with the company with whom PCL has a tie up) at all times. Moreover, the hotel properties in question form part of the hotel business and do patronize guests other than the various customers of PCL. Hence the hotel properties are managed for PCL s hospitality business and are not managed on behalf of the customers . (d) Therefore, the time share holidays sold by PCL do not fulfil any of the criteria set out in Section 11AA(2)(iii) . As regards, section 11AA(2)(iv) of the SEBI Act, the Company had stated the following: (a) The holiday option can be utilised at any time, mode or manner. Moreover, the customers have complete freedom in dealing with the holiday option. A customer can choose to utilise the holiday option to avail various facilities at various hotels, resorts and clubs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors do not have day-to-day control over the management and operation of the scheme or arrangement, thereby satisfying the third and fourth conditions under section 11AA(2)(iii) (iv) of the SEBI Act, 1992. 21. The SCN has alleged that the schemes of the Company are deemed to be CIS as the Company had pooled more than one hundred crore rupees and which are not registered with SEBI and also not covered under section 11AA(3) of the SEBI Act. In this regard, I refer to the following provisions of section 11AA of the SEBI Act: 11AA. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) shall be a collective investment scheme: Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme . The SCN has already mentioned that the Company had mobilized Rs.7035 crore during the period 200203 and 2013-14 under the schemes which have been found to be collective investment schemes. The following details taken from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 2012-13 0.85 1781.31 4352.34 6263.93 707.11 276.63 13 2013-14 1.02 1803.40 5284.76 7317.84 433.07 246.90 The Company is not registered with SEBI to offer CIS and the activities/schemes are not exempted under section 11AA(3) of the SEBI Act. Therefore, the schemes of the Company are also deemed to be collective investment schemes. 22. The Company has also tried to equate its schemes with others who offer holiday plans and has submitted that it has provided for the surrender value in the interest of its customers as otherwise they may lose their contribution if they do not use the room nights allotted to them as per the schemes. As the Company was offering a return on the contributions made by the customers who subscribe to the plans of the Company and as such schemes are CIS as held above, the same should be under a regulatory mechanism in order to safeguard the interest of such investors/customers. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas in the nonrefundable schemes, fixed amount is taken from the customers/investors towards holiday plan to be utilized by the said customer/investor within a specified period and failing which the Appellant will not refund the amount on the expiry of the period. It was pointed out to us that most of the other schemes run by Mahindra Resorts, Sterling Resorts, etc. are non-refundable and beyond the purview of the concept of CIS as envisaged under Section 11A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act, 1992 ) . As can be seen, the facts of the case already decided by the Hon ble SAT and the refundable schemes operated by the Company in the present case are similar. Therefore, it is clear that the schemes of the Company being in the nature of room nights/holiday options are CIS in terms of section 11AA of the SEBI Act. 25. I also refer to the following observations made by the Hon'ble High Court of Gauhati High Court in its order dated June 25, 2015 in the matter of Rose Valley Hotels Entertainments Ltd and Ors : 19) There is no credible material placed by the petitioner to convince the court that all the memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of collective investment scheme as stipulated under sub- Section (2) of Section 11AA, when the Parliament specifically carved out such of those schemes or arrangements governed by other statutes to be excluded from the operation of Section 11AA, one can easily visualize that the purport of the enactment was to ensure that no one who seeks to collect and deal with the monies of any other individual under the guise of providing a fantastic return or profit or any other benefit does not indulge in such transactions with any ulterior motive of defrauding such innocent investors and that having regard to the mode and manner of operation of such business activities announced, those who seek to promote such schemes are brought within the control of an effective State machinery in order to ensure proper working of such schemes . 27. In view of the discussions made, I hereby conclude that the schemes of the Company, as alleged in the SCN, are collective investment schemes in terms of section 11AA(1) and (2) of the SEBI Act. The Company has not obtained registration as required under section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said Regulations irrespective of the date of launch of a scheme which according to SEBI has all the trappings of a CIS, and this conclusion has been reached by the Respondent in accordance with law and in the facts and circumstances of the case. The Company has submitted that in order to safeguard the interest of its customers, before the order of winding up, it ought to be directed to send an information memorandum to its members who have opted to its holiday plan within two months from the date of receipt of intimation of winding up from SEBI, detailing the state of affairs of the holiday plan, the amount repayable to each member and the manner in which such amount is determined. The information memorandum shall explicitly state that members desirous of continuing with PCL s holiday plan shall have to give a positive consent within one month from the date of the information memorandum and the said members shall continue with the holiday plan at his/her own risk and responsibility. The Company further submitted that it is settled that if under the statute a particular act is to be preferred in a particular manner, the procedure described under the statute has to be fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was held to be CIS and since the said CIS was carried on without obtaining registration from SEBI, the CIS was ordered to be wound up under Section 11,11B of SEBI Act read with regulation 65 and 73 of CIS Regulations. While upholding the order of SEBI and rejecting the argument of Alchemist that regulation 73 cannot be applied to a CIS floated after the CIS Regulations came into force, this Tribunal in para 17 held that the provisions for winding up contained in regulation 73 is applicable to CIS existing at the time when the CIS Regulations were introduced as also to the CIS which may have been launched at any point of time thereafter. Whether a CIS floated and operated after the CIS Regulations came into force without obtaining registration from SEBI was entitled to seek registration under regulation 73 read with regulation 68 was neither an issue raised by Alchemist nor decided by this Tribunal. Only issue raised and decided by SEBI as also by this Tribunal in Alchemist was that a CIS floated after the CIS Regulations came into force without obtaining certificate of registration from SEBI is liable to be wound up under the regulation 65 read with regulation 73 of the CIS Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely, Sudhir Shankar Morvekar , Shoba Ratnakar Barde , Usha Arun Tari , Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan, of the Company alleging they are responsible for the conduct of the business of the Company at the relevant point of time and have allegedly violated section 12(1B) of SEBI Act read with regulations 3 and 65 of the CIS Regulations. The following table (from the MCA website) presents the date when they were appointed in the Company: DIN/DPIN/PAN Full Name Present residential address Designation Date of Appointment 00177938 SHOBHA RATNAKAR BARDE A6/19, LIC COLONY, BORIVALI (WEST), MUMBAI, 400103, Maharashtra, INDIA Director 31/01/1997 00178078 USHA ARUN TARI A/3, PRAKASH NAGAR, MOGUL LANE,, MAHIM, MUMBAI, 400016, Maharashtra, INDIA Director 01/01/1999 00399938 SUDHIR SHANKAR MORAVEKAR 9/10, UTKARSH CO-OP HSG SOC, PLOT NO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty, misfeasance or breach of trust or violation of the statutory provisions of the Act and the rules, there is no difference or distinction between the whole-time or part time director or nominated or co-opted director and the liability for such acts or commission or omission is equal. So also the treatment for such violations as stipulated in the Companies Act, 1956 . The noticee directors have submitted that no harsh steps should be taken against them as they undertook the Company s business activities under an honest assumption that registration was not necessary and that until recently SEBI too was of the view that the Company s business did not fall under CIS. As stated above, the schemes being unregistered CIS are bound to be wound up and monies repaid in terms of section 65 of the CIS Regulations. This remedial action cannot be said to be harsh direction. Further, in view of carrying on such unregistered CIS activities, necessary enforcement directions in respect of the Company and its directors would also be required to be taken. I therefore, find directors, Sudhir Shankar Morvekar , Shoba Ratnakar Barde , Usha Arun Tari , Manish Kalidas Gandhi, Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amachandran Ramakrishnan shall wind up the existing Collective Investment Schemes and refund through Bank Demand Draft or Pay Order , the money collected by the said company under the schemes with returns which are due to its investors as per the terms of offer within a period of three months from the date of this Order and thereafter within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds. In case the Company has made refunds, it shall produce the proof for such repayment as directed above and also submit a certificate from Chartered Accountant as directed in sub-paragraph (d) below. (c) Pancard Clubs Limited and its directors Sudhir Shankar Morvekar , Shoba Ratnakar Barde , Usha Arun Tari , Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise and Ramachandran Ramakrishnan, shall not alienate or dispose off or sell any of the assets of the Company , except for the purpose of making refunds t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -paragraph (f) above, till all the Collective Investment Schemes of the Company 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 the Company , 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; - SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the Company. - SEBI would make a reference to the Ministry of Corporate Affairs to restrain above-mentioned noticee directors from being directors in other companies. - SEBI shall initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder against the Company and others responsible. 35. This order shall come into force with immediate effect. 36. I note that SEBI has already initiated adjudication proceedings against the Company for launching and carrying on unregistered CIS activities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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