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TMI Blog2022 (3) TMI 1449X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange Board of India (Collective Investment Scheme) Regulations, 1999 (hereinafter referred to as the 'CIS Regulations') and Regulation 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (hereinafter referred to as the 'PFTUP Regulations'). 2. The facts leading to the filing of the present appeal are as follows. In 1997, Pancard Clubs Ltd. was incorporated as an unlisted public limited Company. The Company floated various time sharing schemes i.e. selling of rooms for a fixed duration of nights/days depending upon the scheme opted by its customers. The shareholding pattern of the Company was as under: Sr. No. Name of Shareholder No.of shares % of shareholding 1. Mr. Sudhir Moravekar 500,100 99.78% 2. Smt. Viidya S. Moravekar 600 0.12% 3. Mrs. Manda M. Phatarpekar 100 0.02% 4 . Mrs. Usha S. Tari 100 0.02% 5. Mrs. Sharmila S. Hadkar 100 0.02% 6. Mrs. Shobha R. Barde 100 0.02% 7. Mrs. Tejashree Arun Tari 100 0.02% 501,200 100% 3. From the above it is clear that Mr. Sudhir Moravekar held 99.78% of the shares and was pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulations. 9. However, SEBI again re-examined the matter and on 26th June, 2014 a show cause notice and thereafter on 10th June, 2016 a supplementary show cause notice was issued alleging violation of the provisions of Section 12(1B) of the SEBI Act read with Regulation 3 of CIS Regulations and Regulation 4(2)(t) of the PFUTP Regulations. During these adjudication proceedings, an ex-parte order dated 31st July, 2014 was passed directing PCL to stop all their businesses. This order was challenged in an appeal before this Tribunal by the Company and its Directors. By an order of 17th September, 2014 the ex-parte ad-interim order dated 31st July, 2014 was set aside and SEBI was directed to decide the matter on merits. Subsequently, SEBI carried on an examination and based on its examination report issued the supplementary show cause notice dated 10th June, 2016. The Adjudicating Officer after considering the replies of the noticees including the appellants came to the conclusion that the Company had violated Section 12(1B) of the SEBI Act and the appellants and other Directors had violated Regulations 4(2)(t) of PFTUP Regulations and, accordingly, imposed a monetary penalty of Rs.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n default nor filed any evidentiary proof to show that they did not attend the board meeting when the scheme was launched and, therefore, all the Directors are officers in default and are responsible for the illegal mobilisation of the funds and have violated Regulations 4(2)(t) of the PFUTP Regulations. 14. We have heard Ms. Shradha Achliya, Advocate for the appellant and Mr. Shyam Mehta, Senior Advocate assisted by Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates for the Respondent. 15. In so far as the finding of the Adjudicating Officer that the time sharing business of the Company is a Collective Investment Scheme we find that the same issue was held against the Company by the Whole Time Member which order was challenged in appeal by the Company and its Directors including the appellant before this Tribunal and which order was affirmed. That order has become final inter se between the parties and, therefore, no further arguments were raised on this issue by the appellant. 16. The only contention raised by the appellant is, that the finding that the appellant has violated Regulation 4(2)(t) of the PFUTP Regulations is patently erroneous. In order to address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price. And "fraudulent" shall be construed accordingly; Nothing contained in this clause shall apply to any general comments made in good faith in regard to- (a) the economic policy of the government (b) the economic situation of the country (c) trends in the securities market; (d) any other matter of a like nature whether such comments are made in public or in private;" 18. A perusal of the definition of fraud means that where a person induces another person or connives with him or misrepresents or conceals material fact or deceives would be a fraud. 19. In the instant case, we have gone through the entire impugned order and we do not find any finding to indicate that the appellant committed a fraud in the mobilisation of the funds. In the absence of any finding of fraud the charge of violating Regulation 4(2)(t) of the PFUTP Regulations cannot be proved. We are satisfied that in the absence of any finding of fraud against the appellant there is no violation of Regulation 4(2)(t) commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is extracted hereunder:- Section 5 "Meaning of "officer who is in default" 5. For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression "officer who is in default" means all the following officers of the company, namely: (a) the managing director or managing directors; (b) the whole-time director or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision: Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors: Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the Respondent admits in its counter affidavit that prior to 2013, SEBI was of the view that time share schemes did not come within the purview of Section 11AA of the SEBI Act . ........... 20. The Respondent submits that prior to 2013 it was of the view that time share schemes were not covered by Section 11AA of the SEBI Act and hence did not constitute a CIS. The Respondent came to this conclusion via a macro examination of the activities of the, as opposed to an in-depth micro examination of every scheme of the Appellant individually. However, a development took place in the law related to Section 11AA when the Hon'ble Supreme Court, in the matter of PGF Limited observed that Section 11AA of the SEBI Act would not be restricted to any particular type of commercial activity, and any scheme floated by a particular company would be capable of being construed as a CIS as long as that scheme satisfied the conditions prescribed by Section 11AA. Moreover, Mr. Mehta submits that estoppel lies against governmental action. ............... 30. One of the issues before us today is whether there were any emergent circumstances justifying an ex parte interim order agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this count. But the crucial point to be considered is whether SEBI is entitled to change its stand by taking a somersault and suddenly pass an adverse order with serious civil consequences without affording an opportunity of being heard to the affected person. 55. To sum up, in the present case, Appellant has been knocking on the doors of SEBI since 2001 by seeking its decision on the question as to whether the time sharing business carried on by the Appellant is covered under CIS or not. Although no formal order was issued in the year 2001, it is now admitted by counsel for SEBI that since the very beginning SEBI was of the opinion that time sharing business is not covered under CIS. In fact, in the year 2010, SEBI once again scrutinized the documents relating to the business carried on by the Appellant and it is evident from the letter addressed by SEBI to a Member of Parliament (MP) on October 21, 2013 that even after scrutiny of documents furnished by Appellant in the year 2010 SEBI was of the opinion that the time sharing business carried on by the Appellant was not covered under CIS. However, on the basis of letter addressed by the said MP, SEBI decided to reconsider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is higher."
26. Penalty under Section 15HA can be imposed if a person indulges in fraudulent or unfair trade practices. We have already held that the appellant has not indulged in fraudulent and unfair trade practice and, therefore, no penalty under Section 15HA could be imposed.
27. In the light of the aforesaid, the impugned order in so far as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed. Attachment orders, if any, on the appellant's demat account, bank account etc. shall be lifted forthwith. All the misc. applications are also accordingly disposed of. In the circumstances of the case parties shall bear their own costs.
28. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email. X X X X Extracts X X X X X X X X Extracts X X X X
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