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TMI Blog2013 (5) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Jharkhand and also to allow the petitioner no. 1 to operate its bank account. Petitioners have also made prayer for restraining the respondents from taking further coercive steps. 3. Earlier, when the matter was taken up on 20th March 2013, learned AAG appearing on behalf of the State, submitted on instruction, that the present petitioners are one of the 27 companies who were asked to furnish details about certain queries relating to their operation and on their failure to respond, their office premises were inspected and sealed in the district of Deoghar; report to that effect was also sent to various authorities including RBI as well as SEBI. In such circumstances, this court directed impleadment of the Regional Director, Reserve Bank of India and DGM, Securities and Exchange Board of India, Kolkata as party respondents and the counsel for the petitioners were allowed to make necessary correction in the body of the writ petitions during the course of the day. Notices were directed to be issued under registered cover upon the newly added respondents and additionally, through FAX by the Registry of the Court. This Court adjourned the matter for 10th of April 2013 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Learned counsel for the petitioner shall also file requisites for service of notice upon the newly added respondents within the aforesaid period of two days, as directed earlier by order dated 20th March 2013. Let notices be also sent through FAX by Registry of the Court upon the newly added respondents. List these cases on 30th April 2013 when similar other matters have been ordered to be listed. 5. Thereafter, the matter has been taken up on 30th April 2013. In the meantime, RBI and SEBI have appeared through their respective counsel. SEBI has also filed its counter affidavit. When the matter was taken up, learned counsel appearing for the petitioners produced a copy of the judgment / order dated 15th April 2013 passed by the Hon'ble Supreme Court in the aforesaid Special Leave Petition (C) Nos. 13660/13 13661/13, which reads as under: From the impugned common order it transpires that the High Court ordered that on April 10, 2013 the question of unsealing may be considered.We are now informed that on April 10, 2013 the matters have been adjourned for April 30, 2013.We request the High Court to pass an order one way or the other on the prayer made by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenging the impugned action. Learned counsel appearing for the petitioners submits that in the first counter affidavit filed on behalf of the respondent officials of the state of Jharkhand on 12th March 2013, general allegations have been made in different paragraphs without any specific case of violation of any rules / regulations or enactment by the petitioners. Respondents have failed to justify their action on the touch stone of any statutory power or authority to carry out such illegal action of sealing of the premises. 8. Learned counsel further submits that another counter affidavit has been filed on 9th April 2013 by the same deponent through which respondents have sought to justify the impugned action by relying upon the provisions of section 94 of the Criminal Procedure code. Reference was made to the series of the documents annexed to the said counter affidavit in order to point out that those documents which have been annexed, relating to the complaints made on behalf of the private persons, are not authentic. He submits by referring to such letters that they have been manufactured after sealing of the premises so as to make it appear as if they have been made in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 SCC 576 in support of his aforesaid contentions. 10. Learned counsel for the petitioners further submits that the affidavit filed on behalf of SEBI also fails to justify any reason to defend the action of sealing of the business premises of the petitioners. He submits that the petitioners on his own, in the writ petitions, have annexed the show-cause notice issued by the SEBI and no interim or final order has been passed by the SEBI against the petitioners till date. It is submitted on his behalf that the reference made in para-9 of the Special Leave Petition (Civil) No. 19520/12 in the counter affidavit of SEBI, has nothing to do with the petitioner. Counsel for the petitioner therefore submits that in the aforesaid facts and circumstances, the writ petitioners deserve unsealing of its business premises and further should be allowed to continue with its business and operate its Bank account. He further submits that the petitioners do not shy away from any inquiry which are being conducted or may be conducted against it by any of the statutory authority which it is ready to face. 11. Learned Senior counsel Mr. A.K. Sinha, appearing for the SEBI, has vehemently opposed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el submits that para-16 of the said notice clearly indicates that the promoter / director or person in control of the noticee / petitioner company, were prohibited from sponsoring, causing to submit any such collective investment scheme without seeking registration from the SEBI in accordance with the CIS regulation. It is submitted that there is no such registration as mandated by section 12(1)(B) of the SEBI Act and regulation 3 of the CIS regulation. Therefore, the promoter / director /management personnel of the company who were responsible for the conduct of its business, have violated section 12(1B) of the SEBI Act and Regulation 3 of CIS Regulation which makes them liable for action in terms of the SEBI Act and CIS Regulation. 13. In view of the aforesaid facts and circumstances, the petitioners company was called upon to show cause as to why appropriate action as per provisions under sections 11 and 11(B) of the SEBI Act read with Regulation 65 of CIS Regulation should not be taken against them for the aforesaid violation. The petitioner was given 21 days time to respond to the said notice, where-after it would be presumed that he did not have any explanation to offer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed to be unsealed, then it would continue to indulge in such violation which are absolutely prohibited under the provisions of SEBI Act without seeking registration of SEBI. In such circumstances therefore, in exercise of writ jurisdiction, this Court should refrain from exercising its discretionary jurisdiction to grant relief to the petitioners as its conduct is not overboard. Learned Senior Counsel submits that the case of the present petitioners is quite distinguishable from the case of other persons in whose case, order of unsealing of premises have been passed by laying down specific conditions. According to him, in the said cases, only preliminary notice have been issued to such petitioners to furnish information / documents to enquire whether action of the companies are in compliance with the various statutory provisions of SEBI or its regulation and in the meantime, as per the direction of the Court, they have also been restrained from carrying out any business or enter any instrument with any prospective investor or customer. However, it is submitted that in the present case, SEBI has come to a specific finding that the scheme run by the petitioners are in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Bank account. It appears that a public notice was issued by the Reserve Bank of India on 2nd December 2012 that it has received several complaints in relation to the companies which have been accepting deposits from public in a illegal and irregular manner without being registered with the Reserve Bank of India. It further appears that on receiving several complaints of increasing operations of number of companies including Non Banking Finance Company in the State of Jharkhand, the district officials constituted a team of officials and raided the premises of number of companies. In such circumstances, the district officials in a number of districts like Deoghar, Dhanbad and other places, conducted search of the business premises of several companies and sealed the business premises of such companies including that of the petitioners. The petitioner company being aggrieved by such acts of sealing, preferred the present writ applications for unsealing of the premises and other consequential reliefs. As already indicated in the earlier part of this order, when it was brought to the notice of the court that inspection report in respect of the sealing of the such company like the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The petitioner company is engaged in the business of development of Real Estate and its main object is to render service to the person who are interested in purchasing the land from the company and having the same developed / worked / controlled / supervised by it for diverse period of time. On further information sought from the company on account of incomplete information furnished, time was again sought for in February 2012 by the petitioner company and on March 01, 2012. Again vide letter dated April 18, 2012, company was advised to provide copies of the registered sale deeds, filled up application forms, etc. and also to explain the discrepancies observed in the information furnished earlier. Thereafter, certain more copies of certificates of properties issued to the purchasers of land, were submitted. Thereafter, information / documents furnished by the petitioner company were analyzed by the respondent SEBI. These documents were categorized into several categories such as (i) Registered indentures / Conveyance deeds (ii) Application forms (iii) Special Power of Attorneys (iv) Indenture (v) Agreement. Based upon the analysis of the aforesaid documents in light of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchased by a customer / investor is managed on his behalf by Noticee No. 1 and that investors / customers do not have day control over the agricultural land purchased by him. 12. It has been noted that in the scheme / arrangement of development of proportionate undivided share of land offered by Noticee No. 1, investors are required to make contribution in the form of payment as per the payment plans opted. Such plot/ land purchased by investors, are maintained and developed by the Noticee No. 1 and are used for the purposes of the scheme / arrangement. The contribution made in the form of payment for plot / land by the investors is managed by the Noticee No. 1 on behalf of the investors as custodian. Also investors do not have any day to day control over the scheme / arrangement as the investor hands over the sale deed to Notice No. 1 and also gives special power of attorney to Noticee No. 1 to develop and maintain the plot. Also the produce (s) are also the properties of the Noticee No. 1 managed and disposed by the Noticee No. 1 without any interference from investors. 13. As per the Balance Sheet of AIRL for the year ended March 31, 2011, an amount of ₹ 203 Crore i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such registration with the Board as mandated by Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. Therefore, Noticee Nos. 1 i.e. company and Noticee Nos. 2 to 6 i.e. past and present Promoters / directors / key management personnel, of Noticee No. 1 and thus responsible for the conduct of the business of the Noticee No. 1, have violated Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations which makes them liable for actions in terms of SEBI Act and CIS Regulations (underline added not part of original text) 17. In view of all the aforesaid facts and circumstances, Noticee No. 1 to 6 herein are hereby called upon to show cause as to why appropriate action including directions under Sections 11 and 11B of the SEBI Act read with Regulation 65 of the CIS Regulation, should not be issued against all of them for the aforesaid violations . 20. A perusal of the aforesaid finding arrived at by the SEBI, unequivocally point out that the petitioner company has been carrying out a collective investment scheme without prior registration of the Board in accordance with CIS Regulations. In such circumstances, it has been called upon to show-ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive investment scheme which has been specifically prohibited under the SEBI Act and CIS Regulations. There are no averments in the writ petition that after issuance of the showcause notice dated 21st November 2012 the petitioners are not indulging in carrying out such business activities in the nature of collective investment scheme which are prohibited under the relevant provisions of the SEBI Act without seeking prior registration from the Board. During the course of argument, learned counsel appearing on behalf of the petitioner submitted that the petitioner is ready to return the investor's money, however it is unable to do so because its business premises are lying sealed. 23. Learned Senior counsel appearing on behalf of SEBI, on the other hand, has made a categorical statement that the inquiry against the petitioner is in the process of conclusion and final order in that regard are going to be passed within the next four to six weeks. 24. In the case of other companies, respective respondents like SEBI, RBI and Ministry of Corporate Affairs have also appeared on notice. However, in the said cases, in respect of some of the companies, it has has been stated on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein, held that the activity of the PGF Ltd namely sale and development of agricultural land squarely fall within the definition of collective investment scheme under section 2(ba) along with section 11AA (2) of the SEBI Act. In the said case, the Hon'ble Supreme Court also observed that on many occasions, frivolous challenges are also made to constitutionality of the provisions so as to prolong the litigation which enables such unscrupulous elements to thrive on other people's money to gain advantage of the pendency of such litigation to the disadvantage of innocent victim and gain unlawful enrichment of illgotten money by defrauding others. The Hon'ble Supreme Court upheld the Constitutional validity of section 11AA of SEBI Act inserted by Securities Law (Amendment) Act, 1999 and also proceeded to impose a cost of ₹ 50.00 lakhs. Various directions were also passed in relation to the inspection / inquiry / investigation / refund of investor's money. 26. In the background of the aforesaid facts and circumstances and the fact that the petitioner has been found to be indulging in inviting investment in collective investment scheme in violation of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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