Appeal No. 225 of 2012. Case: 1. NGHI Developers India Limited, 2. Mr. Pipal Singh, 3. Mr. Bakshish Singh, 4. Avtar Singh Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case NumberAppeal No. 225 of 2012
CounselFor Appellants: Mr. R. S. Loona, Advocate with Mr. O. P. Singal, Mr. Abhishek Borgikar, Ms. Abhaya Gurumurthy, Advocates and For Respondents: Mr. Shiraz Rustomjee, Senior Advocate with Mr. Yogesh Chande, Advocate
JudgesJog Singh, Member and A. S. Lamba, Member
IssueCompanies Act, 1956; Securities and Exchange Board of India Act, 1992 - Sections 11AA, 12 (1B); SEBI (Collective Investment Schemes) Regulations, 1999; Co-operative Societies Act, 1912; Reserve Bank of India Act, 1934 - Section 45-I
Judgement DateJuly 23, 2013
CourtSecurities and Exchange Board of India


Jog Singh, Member

  1. The instant appeal is preferred by NGHI Developers India Limited ("Appellant No. 1"), Mr. Pipal Singh ("Appellant No. 2") and "Bakshish Singh" ("Appellant No. 3") against the order dated November 6, 2012 ("Impugned Order") passed by the Securities and Exchange Board of India ("Respondent") holding that the Appellants have been carrying on Collective Investment Scheme (CISs) and directing them to refund all the money collected from investors along with the returns due as provided for in the letter of offer within one month from the date of passing the Impugned Order, failing which appropriate action shall be initiated against them.

  2. Brief facts leading to the dispute are that Appellant No. 1 is a public limited company incorporated under the Companies Act, 1956 and claims to be engaged in the business of sale and purchase of real estate and its development. It has an authorized share capital of Rs. 2 crore as on March 31, 2011 along with a paid up capital of Rs. 50 lac. On receiving complaints regarding the Appellants' activities of collecting money from the public, the Respondent conducted an investigation into Appellant No. 1's affairs calling for certain documents and details from the Appellants. On the basis of the information provided by the Appellants, the Respondent inferred that the former were engaged in fund mobilizing activity from public, by floating/ sponsoring/ launching CIS as defined in Section 11AA of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"). Subsequently, the Respondent passed an ad-interim ex-parte order dated July 9, 2012 forbidding the Appellants from further launching any CIS and directing them to stop collection of money in any form from the public. The order stated that it was to be treated as a Show Cause Notice and called upon the Appellants to explain as to why the schemes floated by them should not be held to be CISs under Section 11AA of the SEBI Act and the SEBI (Collective Investment Schemes) Regulations, 1999 ("CIS Regulations"), and why appropriate action should not be taken against them.

  3. The Appellants approached the Rajasthan High Court praying for the ad-interim ex-parte order to be quashed and a writ of certiorari or any other appropriate writ be issued against SEBI. The Hon'ble High Court disposed off the petition on August 7, 2012 directing the Respondent to pass a final order in the matter within 10 days of Appellant No. 1 submitting a reply to the SCN. The Respondent sought extension of the aforesaid time period from the Rajasthan High Court to be able to pass a well reasoned order in the matter. An opportunity of personal hearing was also granted to the Appellant by the Respondent on October 23, 2012 when Appellant No. 2 along with other representatives appeared before the Respondent and made their submissions. During the hearing copies of the complaints, relying on which the Respondent had initiated an inquiry into the Appellants' working, were handed over to the Appellants. The Respondent asked for copies of registered sale deeds executed between Appellant No. 1 and the investors to be produced within 2 days of the date of the personal hearing. Appellant No. 1 thereafter filed its written submissions dated October 29, 2012. Finally, after considering all submissions made by the Appellants and documents brought on record, the Impugned Order came to be passed on November 6, 2012.

  4. The Appellants submit that they are engaged in the business of real estate. Any person who wishes to buy land can avail of either one of the two payment options, viz., Cash Down Payment Plan and Installment Payment Plan. In case the customer opts for Cash Down Payment, land is allotted to him within 279 days of the date of the agreement and in case of the Installment Payment Plan, land is allotted within 90 days of the receipt of 50% of the plot's cost including developmental charges. Once the money is received an allotment letter is issued in terms of the provisions of the agreement between the parties. The Appellant submits that no pooling of monies is envisaged and no bond or certificate representing the investors' interest in the nature of 'Securities' is issued by the Appellants. It is submitted that the standard agreement to be executed between the Appellants and their customers does not refer to any 'scheme'. It is also submitted the Appellants develop the land by undertaking plantation activities, providing irrigation etc. as required under the agreement.

  5. Further, the Appellants state that the documents submitted to the Respondent such as the agreement and the allotment letter clearly show that the intention of the parties was to enter into a contract of sale and purchase of land, and the fact that no sale deed has been executed does not mean allotment letters are not binding or valid. It is submitted that the agreement provides for execution of a sale deed "only on the expiry of minimum stipulated period" which the company claims to have not yet expired. The Appellant submits thatthe Respondent has erroneously concluded that land is acquired by the Appellants after pooling their customers' contributions solely on the basis of a recital clause in the standard agreement which reads as under:-

    "The Company has made arrangements for purchasing/procuring the land with clear and marketable title."

  6. The Appellant denies receiving contributions from the public and then issuing bonds/certificates as evidence of their investment. It first buys land and then sells it to its customers issuing a letter of registration to confirm the booking of a particular piece of land. This letter cannot be construed as any certificate signifying investment.

  7. It is also submitted by Appellants that there is no allocation of profits among purchasers of land flowing from the alleged scheme. Nor does Appellant No. 1 guarantee any returns to its customers. Regarding the Respondent's allegation that Appellant No. 1 has the right to "discontinue, change, amend, and modify the plan", the Appellants submit that such right was reserved only with the intention of ensuring that its buyers do not default on payments. The Appellants further submit that the reliance on the judgment passed by the Hon'ble Supreme Court in PGF Ltd. vs Union of India is totally misplaced since the activities carried on by Appellant No. 1 are absolutely different from those of PGF Limited. It is submitted that the Respondent has ignored the intention behind execution of the agreements between Appellant No. 1 and various customers of merely selling and purchasing land.

  8. We now deal with the submissions of the Respondent in brief. The Respondent submits that the standard agreement discusses the schemes of the Appellants regarding development of land through plantation and irrigation which signifies that the land shall clearly remain in use of the Appellants. The Appellants also take responsibility for sales of produce from the land the proceeds of which shall be given to the customers. Therefore, the scheme does not contemplate any role to be played by the customers themselves. Further, the Respondent submits that no registered sale deeds have been provided by the Appellants. In keeping with the two methods of payment, Cash Down Payment Plan and the Installment Payment Plan, in the last two and half years, allotments should have been made but Appellant no. 1 did not do so because it is not engaged in any sort of real estate business in actuality.

  9. The Respondent further submits that before the sale proceeds accrue to the customers, the Appellants deduct a certain amount as wastage of produce during harvesting/handling before delivery or sale as the case may be. This evidences the sharing of income. The Respondent submits that the plots of land developed by the Appellants are not sold at different prices, rather it appears from the scheme carried on by the Appellants that the land is sold as "a homogeneous commodity at a fixed price, which is feasible only if the land transactions are veil for running a CIS and not a genuine sale of agricultural land". The Respondent goes on to deal with the judgment dated March 12, 2013 of the Hon'ble Supreme Court in the matter of PGF Limited vs. Union of India in which, according to Respondent, the Hon'ble Supreme Court in facts and circumstances similar to the case in hand held that the business of PGF Ltd. was in the nature of CISs. On the basis...

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