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TMI Blog2022 (12) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... held to be intra vires in the decision of Rose Valley Kolkata [ 2013 (9) TMI 623 - CALCUTTA HIGH COURT] as quoted above, it would not be necessary for us to dwell any further on this aspect. In view of the above discussion, in our considered view, the reliance by the Learned Counsel for the Petitioners on the decision of Rose Valley Kolkata (supra) does not advance the case of the Petitioners. Petitioner s reliance on the Securities Appellate Tribunal decision in the case of Chandrasen Ganpatrao Bhise Vs. Securities and Exchange Board of India [ 2022 (3) TMI 1449 - SECURITIES APPELLATE TRIBUNAL MUMBAI] in support of the contention to bring all time share schemes within the ambit of CIS also appears to be misplaced in as much as in the specific facts of that case a reference has been made to the finding of the Tribunal that the time sharing business of the company was a CIS. Moreover that was a case filed by one of the directors of a company namely Pancard Clubs Limited on whom a penalty had been levied under Section 15HA for fraudulent and unfair trade practice for violation by the company of not registering the CIS under Section 12(1B). In the said case the Tribunal quashe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a subject nor even require the executive to exercise its rule making power in any manner. Applying the aforesaid principles, the present petition, in our considered view, does not fall within any of the aforesaid categories and cannot be styled or filed as a Public Interest Litigation as it is neither for enforcement of fundamental rights of marginalized and deprived sections of the society nor for preservation of ecology and environment nor for purity in public administration and probity in governance but seeking directions to the Respondents to either enforce the provisions pertaining to CIS Regulations against Timeshare companies, which we have found to be without any merit or in the alternate, issue directions to formulate legislation / guidelines / regulations, which we have already held to be de hors the scope of our constitutional mandate under Article 226. Petition deserves to be dismissed and is hereby dismissed with costs of Rs. 25,000/- to be paid by the Petitioner to the SEBI, within a period of two weeks. - PUBLIC INTEREST LITIGATION NO. 12 OF 2017 - - - Dated:- 30-11-2022 - DIPANKAR DATTA, CJ. ABHAY AHUJA, J. Ms. N. S. Nappinai with Mr. Navin P. Sac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution or investment pooled through such scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (v) investors do not have day-to-day control over the management and operation of the scheme or arrangement. 6. She submits that the definition in Section 11-AA does not specify if any or all of the conditions set out therein have to be met to be a CIS as no conjunctions have been used. She would submit that even if it was assumed that all the above clauses have to be met, Time Share Companies would squarely fall within the ambit of the said definition. 7. Learned Counsel submits that in any event most of the Time Share Companies have a corpus accumulated through pooling of investors fund of over Rs. 100 Crores and since Time Share Companies have not been exempted under section 11A(3), they would fall within the ambit of Section 11-AA (1). 8. Learned Counsel refers to the interim report of the Dave Committee which was appointed in the year 1997 by the Ministry of Corporate Affairs under the Chairmanship of Dr. S. A Dave, former chairman of UTI, called the Committee on Collective Investment Schemes to submit that the said commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a time bound manner. 13. It is submitted that the petition is being filed in the interest of and for the protection of rights of several million Time share owners, who have been deprived of requisite protection through suitable regulation by the Respondents despite rampant misuse and abuse by various companies involved in the business of selling Timeshares. She submits that instances are abound of the fact that whilst some Timeshare companies may face penalties from SEBI, the regulator, the investors do not recover their monies. She submits that therefore it is imperative that explicit directions for pre-emptive protection of innocent and the gullible investors be implemented. 14. On the other hand, Mr. Rustomjee, Learned Senior Counsel for the Respondent no.1 SEBI, while denying that the present petition is being filed in the interest of and for the protection of the rights of several million Timeshare owners, would submit that Timeshare is an investment in a holiday scheme which gives an entitlement to a holiday and that the schemes of all Time Share Companies cannot ipso facto be said to fall within the definition of CIS under the SEBI Act and the CIS regulations. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d company are covered under the SEBI Act and the regulations. Learned Counsel submits that therefore whether the Timeshare Companies have been able to fulfill the demand of the investors or not is a remedy that lies elsewhere and this petition is as such misconceived. 19. We have heard Learned Counsel for the parties and with their able assistance, we have perused the papers and proceedings before us including the reply and the rejoinder filed on their behalf. 20. Before proceeding to deal with the submissions made by the Learned Counsel, it would be apposite to set out some of the provisions contained in the SEBI Act and the CIS Regulations. 21. But a little before that, it is worthwhile to look at the preamble to the SEBI Act, which refers to the SEBI Act as, an Act to provide for the establishment of a Board to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto. 22. A cursory look at the Statement of Objects and Reasons in the Bill introducing the SEBI Act also suggests that the SEBI which was established in the year 1988 through a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner. (ba) registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf. (c) registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds; (d) promoting and regulating self-regulatory organisations; (e) prohibiting fraudulent and unfair trade practices relating to securities markets; (f) promoting investors' education and training of intermediaries of securities markets; (g) prohibiting insider trading in securities; (h) regulating substantial acquisition of shares and takeover of companies; (i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges , mutual funds, other persons associated with the securities market, intermediaries and self-regulatory organisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) while trying a suit, in respect of the following matters, namely:- (i) the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person referred to in Section 12, at any place; (iv) inspection of any book, or register, or other document or record of the company referred to in subsection (2-A); (v) issuing commissions for the examination of witnesses or documents; (4) Without prejudice to the provisions contained in sub-section (1), (2), (2-A) and (3) and Section 11-B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely: - (a) suspend the trading of any security in a recognised stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23JA of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or Section 19-IA of the Depositories Act, 1996 (22 of 1996), as the case may be, shall be credited to the Investor Protection and Education Fund established by the Board and such amount shall be utilised by the Board in accordance with the regulations made under this Act. 24. The term Securities is defined in section 2(i) of the SEBI Act as under: Securities has the meaning assigned to it in section 2 of the Securities Contracts (Regulation) Act, 1956. 25. Section 2(h) of the Securities Contracts (Regulation) Act, 1956 defines securities . By Act 31 of 1999, the said definition was amended to include units issued to investors in collective investment scheme as under:- Section 2(h) Securities include- (i) shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or a pooled investment vehicle or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arrangement (2A) Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act. (3) Notwithstanding anything contained in subsection (2) or sub-section (2A), any scheme or arrangement- (i) made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to cooperative societies for the time being in force in any State; (ii) under which deposits are accepted by nonbanking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin its ambit the derivatives and the units or any other instrument issued by any collective investment scheme to the investors in such schemes. 3. It is also proposed to substitute section 29A of the aforesaid Act relating to delegation of powers. At present powers can be delegated to the Securities and Exchange Board of India. It is now proposed to also delegate powers to the Reserve Bank of India. 4. The Securities Contracts (Regulation) Amendment Bill, 1998 was introduced in Lok Sabha on the 4th July, 1998 proposing amendments in the Securities Contracts (Regulation) Act, 1956 to give effect to the amendments mentioned above. The Bill was referred to the Standing Committee on Finance on the 10th July, 1998 for examination and report thereon by the Hon'ble Speaker, Lok Sabha. The Committee submitted its report on the 17th March, 1999. The committee was of the opinion that the introduction of derivatives, if implemented with proper safeguards and risk containment measures, will certainly give a fillip to the sagging market, result in enhanced investment activity and instil greater confidence among the investors/participants. The Committee after having examined the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eve the above objectives. (emphasis supplied) 29. A look at the afore quoted provisions would suggest that for SEBI to govern a particular activity or an entity, such activity has to be in relation to a security; SEBI is a regulator as mentioned in the preamble to the SEBI Act to protect the interests of the investors in securities and for the regulation of the securities/capital market; any scheme or arrangement under the sun not involving a security would not be the concern of the SEBI. 30. Security or rather securities as quoted above is defined in Section 2(h) of the Securities Contracts (Regulation) Act. It is an inclusive definition and includes, inter alia, units or any other instrument issued by any collective investment scheme to investors in such schemes in sub clause (ib) to section 2(h). Section 11AA of the SEBI Act as quoted above, which describes a CIS refers to a scheme or an arrangement where contributions, or payment made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel that schemes provided by different Timeshare Companies may differ from each other and SEBI does not monitor and rather cannot monitor the schemes or activities of companies which do not fall within the purview under the SEBI Act and regulation. It would only be when the SEBI receives a complaint, examines the activities complained of in relation to the SEBI Act and CIS regulations, is when it can ascertain whether a scheme or an arrangement between the investor and the so called Timeshare company is a CIS or not. In our view all the schemes which are not exempted under Section 11-AA (3) cannot be said to be CIS ipso facto. The schemes of or arrangement by an entity including companies running Timeshare activity may be considered CIS depending upon the facts and circumstances of each scheme. We therefore do not see any merit in the first prayer to direct SEBI to enforce the provisions of section 11AA against Timeshare companies generally. 34. Also the submission of the Learned Counsel for the Petitioners that Timeshare companies with a turnover of Rs.100 crores or more should be explicitly included for submitting to the compliance network mandated by SEBI, appears to be mispl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to pose a question here as to whether there was any valid reason for such open-ended legislation? To my mind, it would be quite reasonable to presume that the legislature deliberately intended the legislation to be open-ended to ensure that people with limited financial means are not ruined in the process of trying to get rich quickly and at the same time, no company would have the freedom to fleece. This being the object of the 1999 Amending Act, I feel it is not only the duty of the judiciary to show deference to the legislative judgment but to zealously thwart any attempt by any company to wriggle out of the regulatory mechanism by ingenious legal arguments, which were not even thought of at least up to the first day the Division Bench considered the appeal filed by the petitioners against the order dismissing the second writ petition filed by them. In P.G.F. Limited (supra), the Supreme Court cautioned that the motives of laying a belated challenge to a statutory provision is a factor that the Court should bear in mind. I am of the view, having regard to the facts and circumstances discussed above and more particularly the attempt of the petitioners to urge the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the object that the SEBI Act after its amendment seeks to achieve, in view of the principles laid down in paragraph 17 of Jyoti Pershad (supra), have to be upheld. 112) Besides, it appears that the CIS Regulations were duly placed before the Lok Sabha on 10/12/1999 and the Rajya Sabha on 14/12/1999 in accordance with the statutory mandate in Section 31 of the SEBI Act. If indeed the SEBI, as delegate, had transgressed the permissible limits, the Parliament had the authority to intervene to set things right. No modification having been suggested by the Parliament, it is clear that the CIS Regulations were found to be in order. Abdication of authority by the Parliament, on facts and in the circumstances, also does not arise. The decision in Kerala SEB (supra) does not come to the rescue of the petitioners since the terms of the CIS Regulations are neither unreasonable nor unworkable. 113) In my final analysis, the impugned provisions do not suffer from any over-breadth. The net of coverage had to be spread wide and high to check each and every attempt to loot the hard earned money of the aam aadmi for one's personal wrongful gain and so long as abuse of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover that was a case filed by one of the directors of a company namely Pancard Clubs Limited on whom a penalty had been levied under Section 15HA for fraudulent and unfair trade practice for violation by the company of not registering the CIS under Section 12(1B). In the said case the Tribunal quashed the imposition of penalty on the director holding that the penalty for non-registration was under Section 15D(a) and not under Section 15HA as the director had not indulged in fraudulent and unfair trade practice. In our view, the finding that the time sharing scheme that is selling of rooms for a fixed duration of nights / days depending upon the scheme opted by its customers was held to be a collective investment scheme by the Tribunal itself demonstrates that on a case to case basis after due examination of the facts, the Tribunal may come to a conclusion that a particular scheme is a Collective Investment Scheme. However, that does not mean that every time sharing scheme of selling rooms for a fixed duration of nights and days would be a collective investment scheme, as submitted by the Learned Counsel for SEBI. 42. True that the innocent and gullible investors need to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Executive to exercise its rule making power in any manner. The Courts cannot assume to itself a supervisory role over the role making power of the Executive under Article 309 of the Constitution of India. (emphasis supplied) 44. Therefore, although the second prayer of the Petitioner is in the alternative, the same cannot be entertained and deserves to be rejected forthwith. 45. Moreover, the purposes for which a public interest litigation can be instituted has been very succinctly elucidated by the Supreme Court in the case of State of Uttaranchal Vs. Balwant Sing Chaufal Ors., (2010 (3) SCC 402) where it has been clearly observed that PIL can be filed only for the following three purposes and not otherwise: (i) for enforcement of fundamental rights of marginalized and deprived sections of the society; (ii) for preservation of ecology and environment; and (iii) for purity in public administration and probity in governance 46. Paragraphs 75, 76, 96 of the said decision are usefully quoted as under: 75. We would not like to overburden the judgment by multiplying these cases, but brief resume of these cases demonstrates that in order to pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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