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TMI Blog2019 (11) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... lenging the order of the Adjudicating Officer ('AO' for short) of Securities and Exchange Board of India ('SEBI' for short) dated April 5, 2018. By that order appellants have been directed to jointly and severally pay a penalty of Rs. 25 Lakh for running a Collective Investment Scheme ('CIS' for short) without SEBI registration and thereby violating Section 12(1B) of the SEBI Act, 1992 and Regulation 3 of the SEBI (Collective Investment Scheme) Regulations, 1999 ('CIS Regulations, 1999' for short). 2. The background of the case is as follows. Appellants are the Company in question as well as its Directors at the relevant time. Sai Space Creations Limited, the Company, was incorporated on August 7, 2010. They collected money from a large n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal on February 24, 2016 the Recovery Officer issued an order of attachment which was also challenged by filing a Misc. Application. Both the Misc. Application and the appeal were disposed of by this Tribunal on April 20, 2016 directing appellants to file a proposal for the refund of the entire amount before the Recovery Officer without going into the question of whether the appellants has been in fact covered under the CIS Regulations, 1999 as sought by the appellants. Thereafter the appellants have been in the process of protracted correspondence and negotiations with SEBI. Finally, on August 18, 2016 appellants submitted original documents of land to SEBI and SEBI started the auction process on July 20, 2017. On December 4, 2017 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process and also the said properties are under SEBI. The April 20, 2016 order of this Tribunal was passed without treating the appellant Company as a CIS. In any case when the process of refund as approved by this Tribunal was under way no separate penalty should have been imposed on the appellants through another adjudication process. In any case the penalty of Rs. 25 lakh imposed on the appellants is too harsh, particularly when refund of the money under SEBI's own monitoring and auctioning of property etc. is under way. 5. Shri Mustafa Doctor, learned senior counsel for SEBI submitted that the proceedings by the Whole Time Member ('WTM' for short) and the instant proceedings by the AO are parallel process. The WTM by its order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allel proceedings as provided under law. It is also a fact that appellants have not yet completed the process of repayment to the investors despite lapse of three years from the date of our order dated April 20, 2016. 7. The submission that the joint venture agreement is a proof of joint management of the business has no merit since there is nothing on record to show that the investors had any say in the management of the business. This is further amplified by the fact that investments have been done by people located in various parts of the country. Further, a list of 370 such parties from various parts of the country are also on record who invested in small units of lands located in a remote area of Maharashtra. It is not clear how such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11AA of the SEBI Act "11AA(2) (2) Any scheme or arrangement made or offered by any [person] under which,- (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day-to-day control over the management and operation of the scheme or ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Given the aforesaid facts and position of law, it is clear that the appellants are in fact running a CIS. It is also an admitted fact that the appellants did not obtain a certificate of registration for running such a scheme under SEBI Act and CIS Regulations, 1999. Accordingly, the penalty imposed on the appellants cannot be faulted. The penalty imposable under Section 15(D)(a) of SEBI Act at the relevant time was Rs. 1 lakh for each day during which an entity carries on any collective investment scheme or Rs. 1 crore whichever is less. In the instant case, the appellant Company was set up in 2010 and the money collected in the form of investment in joint venture project / scheme during 2012-13 and for periods ranging from 4 to 7 years. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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