Karmbhoomi Real Estate Limited And Others vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

Even though two separate orders have been passed, one by the Whole Time Member (WTM) and the other by the Adjudicating Officer (AO)

against the appellant, the controversy and the issues are the same. As such, both the appeals are being decided together.

For facility, the facts stated in Appeal no.195 of 2019 are being taken into consideration. The appellant is a real estate Company and was engaged

in the sale and purchase of agricultural land, construction of flats, etc. Based on a complaint, an investigation was made and thereafter Securities and

Exchange Board of India (hereinafter referred to as ‘SEBI’) issued an ex-parte order dated 30th December, 2014 restraining the appellants

from collecting any fresh money from the public and from issuing or launching any new scheme and further restrained them from diverting any funds

raised from the public, etc. Pursuant to the reply submitted by the appellants, the WTM passed an order dated 3rd December, 2015 under Section 11

and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) holding that the Company and its

directors, namely the appellants, were engaged in operating a Collective Investment Scheme (CIS) by mobilizing funds from the public in contravention

of Section 12(1B) of the SEBI Act and consequently directed the Company and its directors to windup the CIS and refund the money collected within

a period of three months.

The appellants being aggrieved by the aforesaid order filed Appeal no.143 of 2016 before this Tribunal wherein the appellant submitted that without

prejudice to their rights that the schemes floated by the appellant did not constitute a CIS the appellants are ready and willing to refund the amount

collected by the investors in a time bound manner. On this statement being made, the Tribunal without going into the merits of the case disposed of the

case by an order dated 21st November, 2017 directing the appellant to make a representation setting out in detail the names, quantum of amount

refunded to the investors and the mode and the manner in which the balance amount would be refunded to the investors.

Based on the aforesaid order, the appellant filed a representation and submitted a list showing the names of the investors and the quantum of

amount refunded to them by cash. Since this list was not supported by any material document nor evidence was filed to show the trail of funds through

which the amount was sought to be refunded nor receipts from the investor, or the bank account statement of the Company was filed, the WTM

recorded its proceedings on 4th January, 2019 and granted further time to the appellant to file the supporting documents. Since no documents were

filed the impugned order was passed by the WTM on 22nd February, 2019 rejecting the representation. Against this order Appeal no.195 of 2019 has

been filed.

For the alleged violation of the securities laws for operating the CIS without registration a show cause notice dated 10th October, 2017 was issued

by the AO to show cause why penalty should not be made for violating various securities laws. After giving opportunity of hearing and after further

providing time to the appellant by an order dated 15th January, 2018 the AO passed an order dated 18th September, 2018 awarding a penalty of Rs.50

lakhs. Against this order Appeal no.11 of 2019 has been filed.

We have heard Mr. M.S. Bhardwaj, Advocate assisted by Mr. Asmit Agarwal, Advocate for the Appellant and Mr. Kevic Setalvad, Senior

Advocate assisted by Mr. Chirag Bhavsar, Ms. Eram Quraishi and Mr. Harshad Vyas, Advocates for the Respondent.

The learned counsel for the appellant submitted that as per the order of SAT dated 21st November, 2017 the list of investors and the amount

refunded was duly supplied to the authorities but the WTM unnecessarily directed the appellant to furnish details which were not required nor directed

by SAT. The learned counsel further submitted that the documents namely the agreement entered with the buyers/investors, the details of the amount

paid, the receipts given by the investors have now been procured and, on that basis, the learned counsel requested that he may be permitted to file the

said documents before this Tribunal. The learned counsel further prayed that on the basis of these documents the matter may be remitted to the

authorities for reconsideration.

The learned counsel further submitted that the scheme operated by the appellant was not a CIS scheme and contended that the business activities

of the appellant does not fall within the ambit of CIS as prescribed under the SEBI Act. The learned counsel made long drawn arguments contending

that on a perusal of the scheme and the agreements entered with the investors it was not a case of the CIS but was a case of pure business

transaction of sale and purchase of agricultural land/flats developed by the appellants.

Having heard the learned counsel for the parties at some length, we are of the opinion that it is no longer open to the appellant to challenge the

findings given by the WTM in its order dated 3rd December, 2015 holding that the business activity of the appellants falls within the ambit of a CIS.

The order of 3rd December, 2015 was no doubt challenged by the appellant before this Tribunal but contention was made by the appellant that without

going into the question as to whether the business activities of the appellant comes within the ambit of CIS or not, the appellants were willing to refund

the entire amount to the investors. Based on this concession made by the appellant the appeal was disposed of without going into the contention as to

whether the scheme of the appellant was a CIS under the SEBI laws or not. We are of the view that since no liberty was taken from the Tribunal

reserving its rights to question the veracity of the finding of the WTM on the business activity of the appellant as a CIS, it is no longer open to the

appellant at this stage to question the findings of the WTM in its order dated 3rd December, 2015. Even otherwise, we find that in the present appeal

only the impugned order dated 22nd February, 2019 passed by the WTM has been questioned. No prayer has been made by the appellant for quashing

of the order dated 3rd December, 2015. Thus, it is no longer open to the appellant to question the findings of the WTM which held that the business

activity of the appellant came under the ambit of a CIS. The contention raised by the appellant on this aspect is rejected.

Admittedly, the appellant did not provide the details of the payments made to investors either before the WTM or before the AO. In the absence

of any documentary proof supporting the list provided by the appellant, the WTM as well as the AO rightly came to the conclusion that the appellant

failed to provide any evidence to support their contention that the amounts have been refunded to the investors.

During the course of hearing, a prayer was made by the appellant to file the documents namely the agreement/receipts of amount paid to the

investors. Such documents cannot be taken on record on the oral statement of the counsel at the stage of final hearing without there being a proper

application for taking additional evidence on record. Further, on the basis of these documents it is not feasible or proper to remand the matter to the

authorities. In our opinion, it is a device made by the appellant to prolong the issue for vested reasons.

In the light of the aforesaid, we are of the opinion that the orders passed by the WTM as well as the AO does not suffer from any manifest error

of law. Both the appeals fails and are dismissed.