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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 ..... 2. The basis on which this petition has been instituted is that the rights of several million residents of India are adversely affected due to malfunctioning, fraud, misrepresentation and other wrongful and/or illegal activities of various Time Share Companies. 3. It has been submitted that though initially in 1999, Petitioner was registered as Sterling Resorts Timeshare Owners Welfare Association, for the protection of the interests of its members, in the year 2009, the name was changed to M/s. Securities & Timeshare Owners Welfare Association and the profile of the Petitioner society was broadened to encompass persons who had invested in time share products of other companies also. 4. Ms. Nappinai, Learned Counsel for petitioner-society would submit that petitioner is a public spirited association, set up for the protection of rights of investors in Time Share Companies and has worked for upholding the rights of Time Share Investors in general and protection of the rights of its members in particular. 5. Learned Counsel submits that Section 11-AA of the SEBI Act, which sets out the definition of a "CIS", clearly encompasses Time share investments, as such schemes or arrangeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance upon the following decisions: (i) M/s. Rose Valley Real Estate & Constructions Ltd. & Anr. Vs. Union of India & Ors. (2013 SCC Online Cal 13571) (Rose Valley Kolkata) (ii) Rose Valley Hotels and Entertainments Ltd. And Ors. Vs. State of Assam and Ors. [(2016) 1 Gauhati Law Reports 483] (Rose Valley Gauhati) (iii) Chandrasen Ganpatrao Bhise Vs. Securities and Exchange Board of India (Order dated 2nd March 2022 passed in Miscellaneous Application No.417 of 2020, Miscellaneous Application No.486 of 2020, Miscellaneous Application No.556 of 2021 and Appeal No.424 of 2020 by the Securities Appellate Tribunal, Mumbai) 11. She therefore submits that this Court issue mandamus or an order or writ in the nature of mandamus under Article 226 of the Constitution directing the Respondents, its officers, servants and agents to enforce the provisions of Section 11-AA of the SEBI Act and the CIS regulations against the Time Share Companies and in particular Time Share companies with over 100 crores turnover to be included explicitly for submitting to the compliance network mandated by SEBI. 12. Learned Counsel would also submit that if this Court is not inclined to direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI has considered the schemes/activities of these companies as CIS under the garb of timeshare and taken action against them. 17. Mr. Rustomjee, refers to Section 2(1)(ba) of the SEBI Act under the definition clause to submit that CIS would mean any scheme or arrangement which satisfies the conditions specified under Section 11-AA of the SEBI Act and reiterates that all Time Share Companies cannot be considered as CIS unless they satisfy the conditions mentioned in section 11-AA and whether they satisfy the said conditions or not will have to be interpreted and analyzed according to the facts and circumstances of each scheme. Learned Counsel would submit that a reading of Section 11-AA shows that it deals only with any scheme or arrangement which would fall within the definition of a CIS and satisfies all the conditions mentioned therein. He submits that the scheme provided by different Timeshare Companies may differ from each other. That only upon a complete examination, the Respondent no. 1 can comment on whether the scheme or arrangement which has been entered into between the investors and Timeshare Companies is a CIS or not. 18. Learned Senior Counsel would submit that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI has been monitoring the activities of stock exchanges, mutual funds, merchant bankers, etc., achieve these goals. The capital market has witnessed tremendous growth in recent times, characterized particularly by the increasing participation of the public Investors' confidence in the capital market can be sustained largely by ensuring investors' protection. With this end in view, Government decide to vest SEBI immediately with statutory powers required to deal effectively with all matters relating to capital market. As Parliament was not in session, and there was an urgent need to instill a sense of confidence in public in the growth and stability of the market, the President promulgated the Securities and Exchange Board of India Ordinance, 1992 (Ord. 5 of 1992) on 30th January 1992." 23. The functions of the Board are contained in Section 11 of the SEBI Act as under: "11. Functions of Board.-(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government; (j) performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government; (k) levying fees or other charges for carrying out the purposes of this section; (l) conducting research for the above purposes; (la) calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions; (m) performing such other functions as may be prescribed. (2-A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in Section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. (3) Notwithstanding anything contained in any other law for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is under investigation: Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or subsection (2-A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. (4-A) Without prejudice to the provisions contained in sub-sections (1), (2), (2A), (3) and (4), Section 11-B and Section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under Sections 15-A, 15-B, 15-C, 15-D, 15-E, 15-EA, 15-EB, 15-F, 15-G, 15-H, 15-HA and 15-HB after holding an inquiry in the prescribed manner. (5) The amount disgorged, pursuant to a direction issued, under Section 11-B of this Act or Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt, as the case may be; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interests in securities; (emphasis supplied) 26. Section 2(ba) was also inserted in the SEBI Act by Act 31 of 1999 which defines collective investment scheme as under:- "collective investment scheme" means any scheme or arrangement which satisfies the conditions specified in section 11AA". 27. Section 11AA was inserted in the SEBI Act by the said Act 31 of 1999 which refers to Collective Investment Scheme, is quoted as under:- "Collective Investment Scheme- (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. (2) Any scheme or arrangement made or offered by any person under which,- (i) the contributions, or payment made by the investors, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial improvements in the functioning of capital markets in India. Market and credit risks have been reduced by requirement of adequate capitalisation, margining and establishment of clearing corporations in stock exchanges, etc. Systemic improvements have been made by introduction of screen based trading and depositories to allow book entry transfer of securities, etc. However, there are inadequate advanced risk management tools. With a view to provide such tools and to strengthen and deepen markets, there is an urgent need to include derivatives as securities in the Securities Contracts (Regulation) Act, 1956 whereby trading in derivatives may be possible within the framework of that Act. 2. Recently many companies especially plantation companies have been raising capital from investors through schemes which are in the form of collective investment schemes. However, there is not an adequate regulatory framework to allow an orderly development of this market. In order that the interests of investors are protected, it has been decided that the Securities and Exchange Board of India would frame regulations with regard to collective investment schemes. It is, therefore, proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are presently working would be better equipped to undertake trading in derivatives in a sophisticated environment. They further observed that most of these exchanges have already been modernised having state-of-the-art technology, the facility of depository and clearance house and moreover, since they are in a better position to handle the risk profiles of the retail investors, institutional investors and corporate bodies, it would be prudent to allow trading in derivatives by such exchanges only. The Committee had, therefore, proposed that the following Explanation may be added in the Bill, namely: 'The derivatives shall be traded and settled on the stock exchange and clearing house of the stock exchange respectively in accordance with the rules and bye-laws of the stock exchanges.', and (iii) The Committee was of the opinion that there was a need to define collective investment schemes in the Act. They had recommended that a definition of collective investment scheme suitably worded in consonance with the definition recommended by the Dave Committee should be included in the Act. The Central Government have accepted the above recommendations and incorporated the same in the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion that would depend upon the facts and circumstances of each case and whether they satisfy the said conditions or not will have to be interpreted and analyzed according to the facts and circumstances of each scheme by the Regulator, that is SEBI. Every holiday management scheme or time share scheme will not necessarily be a collective investment scheme until and unless it meets the criteria set out in Section 11AA of the SEBI Act. Therefore even though nowhere in the definitions as contained in the SEBI Act or in the CIS Regulations, the Timeshare Companies have been specifically mentioned, however considering the wide nature of the definition as contained in section 11-AA and considering that the SEBI has already taken appropriate actions against schemes / arrangements of Timeshare companies as referred to above by Learned Senior Counsel, and also considering that where ever the activities fit into the provisions of section 11AA after examination of the facts, SEBI would take action, we do not think there is any case made out to direct enforcement of the provisions of Section 11AA of the SEBI Act against all Timeshare companies. 33. As rightly submitted by Mr. Rustomjee, Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the SEBI Act, Regulations 2(1)(b)(i), 3, 5, 9, 13, 14, 65, 73 and 74 of the CIS Regulations inter alia on the ground that section 11AA had been couched in such language that it conferred unguided power and / or discretion / discriminatory application to select an entity as carrying on the activity (such as arrangements in the nature of time shares, club memberships) of what is termed as a CIS as the same were not included in the exempted categories, upheld the CIS Regulations holding them to be neither unreasonable nor unworkable. Paragraphs 109 to 114 of the said decision are apt and are quoted as under: "109) A conjoint reading of the relevant Acts, viz. the SEBI Act and the SCR Act together with the objects and reasons of the 1999 Amending Act would leave no manner of doubt that protection of the investors in securities and the manner of ensuring such protection in fullest measure is the heart and soul of the SEBI Act. However, Mr. Pal argued that Section 11AA is so wide that businesses of diverse nature may be caught in the net and in the absence of adequate guidelines, there is likelihood of abuse of discretionary power. I shall assume that the legislation is open-ended, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for saving the gullible investors from falling prey to unregulated and uncontrolled schemes leading to their ruination (paragraphs 37, 38, 40 and 42). The reason for devising exclusionary operation of activities of certain classes, as in sub-section (3) of Section 11 AA, has also been clearly discussed as evident from paragraph 39 thereof and I see no reason to dilate thereon. 111) Insofar as the charge of excessive delegation of essential legislative functions is concerned, the same is equally without merit. As regards laying down of principles or guiding norms, law seems to be well-settled that it is not essential that the very section in the statute which confers the power should also lay down the rules of guidance, or the policy for the administrator to follow. If the same can be gathered from the preamble, or the long title of the statute and other provisions therein, the discretion would not be regarded as uncontrolled or unguided and the statute in question will not be invalid. At times, even vague policy statements to guide administrative discretion have been held by the courts as complying with Article 14. I have no hesitation to hold that the CIS Regulations viewed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot assist the case of the Petitioners as that was a case where there was a specific finding that on the basis of the form of membership it was not possible to agree with the contention that the scheme was only a holiday management scheme not coming within the purview of CIS more so because there was a term in the contract that as an alternative to enjoying the stay in the hotels, there was an option of refund of deposit at a lucrative rate of interest . No such facts have been pleaded in the present petition and only a general submission has been made to suggest that all time share companies are CIS. Therefore, the facts in that case are clearly distinguishable and the findings not applicable to the case at hand. 41. Petitioner's reliance on the Securities Appellate Tribunal decision in the case of Chandrasen Ganpatrao Bhise Vs. Securities and Exchange Board of India (supra), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its limitations under Article 226 of the Constitution of India and as such the learned Judge deliberately used the word "advisable" while making the observations. It is neither legal nor proper for the High Courts or the Administrative Tribunals to issue directions or advisory sermons to the executive in respect of the sphere which is exclusively within the domain of the executive under the Constitution. Imagine the executive advising the judiciary in respect of its power of judicial review under the Constitution. We are bound to react scowlingly to any such advice. 13. The Special Rules have been framed under Article 309 of the Constitution of India. The power under Article 309 of the Constitution of India to frame Rules is the legislative power. The power under the Constitution has to be exercised by the President or the Governor of a State as the case may be. The High Courts or the Administrative Tribunals cannot issue a mandate to the State Government to legislate under Article 309 of the Constitution of India. The Courts cannot usurp the function assigned to the Executive under the Constitution and cannot given indirectly require the Executive to exercise its rule making p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. 96. In the 1990s, the Supreme Court expanded the ambit and scope of public interest litigation further. The High Courts also under Article 226 followed the Supreme Court and passed a number of judgments, orders or directions to unearth corruption and maintain probity and morality in the governance of the State. The probity in governance is a sine qua non for an efficient system of administration and for the development of the country and an important requirement for ensuring probity in governance is the absence of corruption. This may broadly be called as a third phase of the public interest litigation. The Supreme Court and the High Courts have passed significant orders." (emphasis supplied) 47. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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