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TMI Blog2014 (2) TMI 1437X X X X Extracts X X X X X X X X Extracts X X X X ..... registration was even applied for by the Company before it came out with its scheme. As far as the proviso is concerned, it is evident from its bare perusal that it applies to only those schemes which were already in operation on 25.1.1995 when Security Laws (Amendment) Act, 1995, came into force. Therefore, by coming out with its CIS, the Company contravened the provisions of Section 12(1B) of the Act which is punishable under Section 24 of the Act. Company has rightly been convicted for contravening sub-section (1B) of Section 12 of SEBI Act by collecting money from the investors under its CIS schemes without registration with SEBI and it also committed contravention of the provisions of Section 24 of the Act by not complying with the Regulations framed by SEBI and the directions issued by the Chairman. Therefore, no fault can be found with the conviction of the Company. Vicarious liability of the appellants - Persons as directors and persons in-charge and responsible to the company for conduct of its business, they are vicariously liable for the contravention of the provisions of SEBI Act and the Regulations framed thereunder. Therefore, no fault can be found with their convict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh from the investors till 30.11.1997. It was stated in the Brochure that the Company shall give Teak trees to the unit holders after 20 years and the share per unit, which at the time of offer was 2,500/-, was likely to be Rs. 3.00 lakh per unit at the time Teak trees are given to the investors. Thus, it was represented to the investors that investment of Rs. 2,500/- was likely to grow to Rs. 3.00 lakh in 20 years. 2. Section 12(1B) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'the Act'), which came to be inserted w.e.f. 25.1.1995, provides that no person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment scheme (for short 'CIS') including mutual funds, unless he obtains a certificate of registration from the Securities and Exchange Board of India (for short 'SEBI) in accordance with the regulations. The proviso to the aforesaid sub-section, permits any person, sponsoring or causing to be sponsored, carrying or causing to be carried on any such fund or scheme operating in the security market immediately before 25.1.1995, for which no certificate of registration w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise of the powers conferred under Section 11(B) of the SEBI Act, directed the Company to refund the money collected under its CIS to the persons who had invested therein within a period of one (1) month from the date of the said direction. 6. Vide its letter received by SEBI on 9.1.2001 (Ex.CW1/16), the Company through its Director Shri Deepak Jain informed SEBI that the number of their investors was 1029 and since April, 1998, itself they had started refunding money to their investors. It was further stated in the letter that 95 per cent of the investors were jhuggi dwellers with whom no correspondence was possible and that the Company had made full refund to 503 out of 1029 investors and had given Indira Vikas Patras (IVPs) to the remaining 526 investors. It was further stated that full refund was in progress from the side of the Company and only Rs. 5,18,100/- was left with it out of the amount of Rs. 14,07,500/- collected by it from the investors. The Company sought time till December, 2001, to refund money to the remaining 526 investors. 7. Vide letter dated 25.1.2001 (Ex.CW1/17), SEBI reminded the Company that it had not sent winding up and repayment report in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration before this Court as to whether the scheme under which a sum of Rs. 14.06 lakh was collected by the Company from various investors amounts to CIS or not. The expression 'Collective Investment Scheme' has been defined in Section 2(ba) to mean any scheme or arrangement which satisfies the conditions specified in Section 11AA. Sub-section (2) of Section 11AA provides that any scheme or arrangement made or offered by any company under which-- (i) the contributions, or payment made by the investors, by whatever name called, are pooled and utilized for the purposes of the such 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 arrangement shall be a collective investment scheme. Though the aforesaid Section came to be inserted with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schemes which were already in operation on 25.1.1995 when Security Laws (Amendment) Act, 1995, came into force. Though really not necessary, a reference in this regard may be made to a judgement of the Allahabad High Court in Paramount Biotech Industries Limited Vs. Union of India 2003 LawSuit (All.) 1206 where noticing that petitioner No.1 was incorporated in 1996, and, therefore, was not carrying on business on 25.1.1995, it was held that the proviso to sub-section (1B) of Section 12 of the Act was not applicable to it and was not entitled to the benefit of the said proviso. Therefore, by coming out with its CIS, the Company contravened the provisions of Section 12(1B) of the Act which is punishable under Section 24 of the Act. 12. Regulation 74 of the SEBI CIS Regulations, which came into force on 15.10.1999, provides that an existing CIS which is not desirous of obtaining provisional registration from the Board shall formulate a scheme of repayment to the existing investors in the manner specified in Regulation 73. Moreover, Regulation 69 provides that if prior to the date of coming into force the Regulations, any person was running an existing collective investment scheme he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme, the amount repayable to each investor and the manner in which the said amount was determined. No copy of the information memorandum, if any, sent to the investors has been proved by the appellant. As noted earlier, in terms of Regulation 73, the payment to the investors was to be made within three (3) months from the date of the information memorandum. This is not even the case of the appellants that the Company had actually sent information memorandum in terms of the Regulations to all its investors within two (2) months of receipt of intimation from SEBI and the said memorandum envisaged payment to the investors within three (3) months from its date. 16. The letter Ex.CW1/19, sent by the Company to SEBI would show that even on the date this letter dated 10.11.2005, was sent a sum of Rs. 2,75,600/- was still due to the investors as on 31.3.2005. This was further admitted by the Company in its letter dated 21.11.2005 (Ex.CW1/21). Earlier vide its letter dated 30.4.2004 (Ex.CW1/18), the Company had admitted that it was yet to refund money to as many as 153 investors. The number of such investors was stated to be 526 in the letter dated 9.1.2001 (Ex.CW1/16). Thus, the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravened by the Company, were in-charge of and responsible to the Company for conduct of its business or not. Of Course, even if they were in-charge of and responsible to the Company for conduct of its business they would not to be guilty of commission of offence if they are able to prove that the offence by the Company was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such offence. If SEBI is able to prove that the offence by the Company was committed with the consent or connivance of any of the appellants or is attributable to any neglect on their part, they shall be guilty in terms of sub-section (2) of Section 27 even if they were not persons in- charge of and responsible to the Company for conduct of its business. 20. It was held by this Court in Vishnu Prakash Bajpai versus Securities and Exchange Board of India [2010 (2) Crimes 394 (Del.)] that the offence punishable under Section 24 of the Act is a continuous offence, till the time the company complies with the Regulations and the directions issued by SEBI by refund of money to the investors. Similar view was taken by another Bench of this Court in Samarpan Agro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to prevent the commission of the said offence by the company. In these circumstances, it can hardly be disputed that being the directors and persons in-charge and responsible to the company for conduct of its business, they are vicariously liable for the contravention of the provisions of SEBI Act and the Regulations framed thereunder. Therefore, no fault can be found with their conviction. 22. However, as far as the appellants - Yashwant Jain and Sachin Gupta are concerned, admittedly they have never been the directors of the company. There is no evidence to show that either of them was the person in-charge and responsible to the company for conduct of its business. This is not the case of SEBI that the offence by the Company was committed with the consent or connivance of Mr. Yashwant Jain and Mr. Sachin Gupta and is attributable to any neglect on their part. Moreover there is no evidence of their even being a Director, Manager, Secretary or officer of the Company. Therefore, sub-section (2) of Section 27 would not apply to them. They cannot be said to be the persons in-charge of and responsible to the Company for conduct of its business only because they had subscribed to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated in the Regulations, they should also have submitted the proof of such payments to SEBI in order to enable it to verify the alleged payments. That having not been done, SEBI had no opportunity to verify their claim. Even during the course of trial, neither the appellants examined any of the investors nor did they produced the receipts obtained from the investors. Thus, no genuine attempt was made by them to satisfy the learned trial Judge that they had refunded the substantial deposits to the investors. 26. The learned counsel for the appellants has filed affidavits of the appellant - Pankaj Jain enclosing thereto the details of the refund alleged to have been paid to the investors. As per the said statement, out of the principal sum of Rs. 14,07,500/- an amount of Rs. 12,56,900/- was paid to the investors who were traceable. It is further stated that a sum of Rs. 4,25,208/- was paid as interest to the investors @ 12% per annum whereas Indira Vikas Patra worth Rs. 4,33,200/- were given to some other investors. According to the appellants the principal amount due to the untraceable investors now is Rs. 1,50,600/-, whereas the interest @ 12% per annum payable to such investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake of complying with the letter of SEBI without really meaning to refund money to its investors. In these circumstances, no ground either for reducing the substantive sentence awarded to the appellants - Deepak Jain and Pankaj Jain or for reducing the fine imposed upon any of the appellant is made out. 28. The learned counsel for SEBI drew my attention to the report of the Chartered Accountant appointed by SEBI to examine the balance sheet of the appellant company. The CA, in the aforesaid report, inter alia, stated as under: c) As pointed out in earlier paragraphs the company has not maintained any register of unit holders detailing the addresses. d) The company has not maintained the records of application form received from the unit holders detailing the addresses. e) All the repayments to the unit holders were made in cash only for which documentary evidence was not available. f) We have observed that only the signatures thumb impression was available on the unit certificate, there was no mention of the amount repaid, and we are unable to verify the amount paid to each unit holder in the absence of any documentary evidence. xxx i) Glitter Gold Plantations Ltd ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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