Misc. Application No. 67 of 2013 And Appeal No. 124 of 2013 With Appeal No. 123 of 2013. Case: 1. Alchemist Infra Realty Limited, 2. Mr. N. Madhav Kumar, 3. Mr. Brij Mohan Mahajan Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case Number:Misc. Application No. 67 of 2013 And Appeal No. 124 of 2013 With Appeal No. 123 of 2013
Party Name:1. Alchemist Infra Realty Limited, 2. Mr. N. Madhav Kumar, 3. Mr. Brij Mohan Mahajan Vs Securities and Exchange Board of India
Counsel:For Appellants: Mr. S.K. Kapur, Senior Advocate with Mr. Vinay Chauhan, Mr. Prateek Jalan, Mr. Rishad Medora and Mr. Prashant Ingle, Advocates and For Respondents: Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody and Mr. Akhilesh Singh, Advocates
Judges:Jog Singh, Member and A. S. Lamba, Member
Issue:Security Exchange Board of India, 1992 - Sections 11, 11B, 11(AA), 11AA(2)(ii), 12(1B); SEBI (Collective Investment Schemes) Regulations, 1999 - Regulations 3, 65, 71, 73, 74; Securities Contracts (Regulation) Act, 1956; Companies Act, 1956 - Sections 58A, 620A; Co-operative Societies Act, 1912; Reserve Bank of India Act, 1934 - Section 45-I; ...
Judgement Date:July 23, 2013
Court:Securities and Exchange Board of India
 
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Judgment:

Jog Singh, Member

  1. Both the instant appeals have been preferred by three Appellants, namely, Alchemist Infra Realty Limited (Appellant No. 1), Mr. N. Madhav Kumar, Director (Appellant No. 2) and Mr. Brij Mohan Mahajan, Director (Appellant No. 3). In Appeal No. 123 of 2013, the Appellants have only challenged the action of the Respondent in returning outright their request for a consent order without any consideration whatsoever as required by the two circulars dated April 20, 2007 read with Circular dated May 25, 2012. In Appeal No. 124 of 2013, however, Appellants have mainly challenged the impugned order dated June 21, 2013 by which the Respondent has held that Appellant No. 1 had launched Collective Investment Schemes ("CISs") without obtaining any registration from the Respondent as mandated by the provisions of Section 12(1B) of the SEBI Act, 1992 and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 ("CIS Regulations"). With the consent of learned senior counsel for both the parties, the two appeals are taken up for final hearing and are heard together. Accordingly, both the appeals are being disposed of by the present order.

    Appeal No. 124 of 2013:-

  2. Appellant No. 1 is stated to be a public limited company carrying on business of development of high quality infrastructure and real estate in and around India, while Appellant No. 2 and 3 are its Directors and all three Appellants have their registered office in New Delhi. Appellant No. 1 was incorporated on April 2, 2002 and it commenced business within a week of its incorporation but is not listed on any Stock Exchange.

  3. The case of Appellant No. 1 is that it is not dealing in any "securities" as defined under the SEBI Act, 1992 or Securities Contracts (Regulation) Act, 1956 ("SCRA"). Appellant No. 1, therefore, submits that it is not connected with the securities market in any manner and that its affairs are governed by the Ministry of Corporate Affairs, Government of India as per the provisions of the Indian Companies Act, 1956. The submission advanced on behalf of Appellant No. 1 is that its business operations are not covered by any of the provisions of the SEBI Act, SCRA or CIS Regulations in question. Therefore, no certificate of registration was required to be obtained by Appellant No. 1 in terms of the above said Acts or the CIS Regulations.

  4. Even before commencing its business transactions with potential purchasers of land, Appellant No. 1 had its own land or interest therein in Yamunanagar. Appellant No. 1, thus, submits that diverse people from all across the country are purchasing land from it and all necessary legal formalities including agreements and/or conveyance deeds are duly executed by and between Appellant No. 1 and the concerned purchasers. For this purpose, the applicable stamp duty is also paid in accordance with theprovisions of the Indian Stamp Act. The purchasers of land also enter into an agreement with Appellant No. 1, called the 'Supervision Agreement' to develop, work, control and supervise the said land for a particular period of time and a management fee is also charged by Appellant No. 1 for performing this task, on behalf of the purchasers. Thereafter, the deed of conveyance is passed on to the Appellant No. 1 and a Certificate of Property is issued to the purchaser by Appellant No. 1, in which the expected value of the said piece of land after the expiry of a fixed period of time is also mentioned.

  5. After expiry of the agreed fixed period of time, agreed between the two parties, the purchaser has the option of requesting Appellant No. 2 to identify a suitable party for disposing of the said land at a mutually agreed price. Not only this, a Special Power of Attorney is also executed by Appellant No. 1 in favour of the nominee by the two parties in question which is duly notarized. Therefore, it is contended on behalf of Appellant No. 1 that all the ingredients of a 'sale' as defined under the Transfer of Property Act, 1882 are present in the instant case. If the development period is over, the purchaser of land is free to sell it to whosoever he thinks proper. It is submitted to be a mere prudent business practice prevailing in similar trades in the market. However, even during the development period the purchaser is stated to be the absolute legal owner of the land if the land cannot be developed due to any unforeseen reason, the tenure of the 'Supervision Agreement' can be flexibly extended, but this factum alone does not in any way dilutes the title of the owner of the piece of land.

  6. It is also one of the submissions of Appellant No. 1 that land sold by it to various buyers is acquired by Appellant No.1 from its own resources. Appellant No. 1 supervises and develops the land sold to buyers when the latter express a desire to that effect. Such a practice is stated to be common in the real estate sector and it results in achieving benefits of economies of scale.

  7. Further, Appellant No. 1 submits that the amount of money received by it from various buyers of land is classified as consideration against 'stock in trade' and not as deposits received from the general public or loan or borrowing from creditors. Thus, the submission is that it is purely a case of transaction of sale and purchase of land and no more. By no stretch of the imagination can it be termed as a Collective Investment Scheme since none of the four ingredients specified in Section 11(AA) of the SEBI Act are met with. In this connection, the main submissions advanced by Mr. S.K. Kapur, learned senior counsel for the Appellants who appeared with Mr. Vinay Chauhan, Mr. Prateek Jalan, Mr. Rishad Medora and Mr. Prashant Ingle, learned counsel made various submissions which can be summarized as under:

    (a) Appellant No. 1 was the owner of land prior to it entering into transactions with its customers / clients and was not offering any scheme or arrangement and the purchasers of the land cannot be called investors, since they become registered owners of land, being sold to them and the purchasers may, at their discretion, sell the same in the future or may continue to retain it;

    (b) The payments made by the purchasers are not pooled or utilized for the purposes of the alleged scheme or alleged arrangement or the Appellant No. 1's business transactions and there is no arrangement between the purchasers and the Appellant No. 1 to share any profit;

    (c) The common objective of all business and/or commercial transactions is to make profit and in this case the purchaser obtains ownership of the land as consideration and Appellant No. 1 receives money as consideration by virtue of the business transactions entered into by and between the purchasers and the Appellant No. 1;

    (d) The Appellant No. 1 does not guarantee any profit to the purchaser. Moreover, the sale consideration being received by the Appellant No. 1 is not being managed by the Appellant No. 1 on behalf of the purchasers;

  8. Referring to the latest ruling of Hon'ble Supreme Court in the case of M/s. P.G.F. Limited & Ors. v. Union of India & Anr. [2013 AIR SCW 2420] decided on March 12, 2013, learned senior counsel Mr. S.K. Kapur has taken a lot of pains to distinguish it through a threadbare analysis of M/s. P.G.F. Limited vis-à-vis the case of Appellant No. 1. For the sake of convenience the points raised by Mr. S.K. Kapur, learned senior counsel can be summarized as below:-

    (a) In the case of PGF, sale of land was not immediately made, the same was dependent on certain other time bound contingencies, whereas, in the case of Appellant No. 1 sale of land is immediate; not dependent on any time bound contingency;

    (b) In the case of PGF, the company continued to retain absolute control over the land, whereas, Appellant No. 1 develops, works and supervises the land in terms of a Supervision Agreement entered into by and between Appellant No. 1 and its customers / clients, which is not compulsorily renewed and upon the expiry of the same, the customers / clients have complete control over the land;

    (c) In the case of PGF, sample agreement does not disclose how much would be the cost of the land and how much money would be spent on development, whereas, in case of Appellant No. 1 where is a separate agreement for working, development and supervision of land; amount paid for land and amount for working, development and supervision of land are distinct and clearly demarcated;

    (d) In the case of PGF, there was no development of land, whereas, in case of Appellant No. 1 there is substantial development of land; not disputed by SEBI or by any customer / client;

    (e) In the case of PGF, sale deed executed, no registration; agreement mentions, without any specific time stipulation, that sale deed will be executed in favour of the customer and will be duly registered, whereas, in case of Appellant No. 1 deed of conveyance executed / registered uponpayment;

    (f) In the case of PGF, possibility of joint sale deeds being executed, whereas, in case of Appellant No. 1 no joint sale deed is executed;

    (g) In the case of PGF, agreements are one-sided and arbitrary, whereas, in case of Appellant No. 1 agreements are not arbitrary, one-sided or unfair;

    (h) In the case of PGF, genuineness of documents appears to be doubtful, whereas, in case of Appellant No. 1 genuineness of documents has never been questioned;

    (i) In the case of PGF, genuineness of documents appears to be doubtful, whereas, in case of Appellant No. 1 genuineness of documents has never been questioned; In the case of PGF, there is uncertainty in the transactions to the disadvantage of the investors, whereas, in case of Appellant No. 1 no uncertainty at all in the transactions; terms and condition are clear and adhered to; no complaint ever received by Appellant No. 1; no complaint ever received by Respondent.

    (j) In the case of PFG, customers were assured of a high amount of appreciation in the value...

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