SEBI Act Section 11AA gives conditions for Collective Investment Scheme

SEBI Act Section 11AA gives conditions for Collective Investment Scheme

Vinayak Homes and Real Estate Limited mobilized huge funds from the public under its scheme pertaining to purchase, development and maintenance of plots of land

The Adjudicating Officer(AO) of SEBI has imposed a penalty of Rs. 60Lakh jointly and severally on Vinayak Homes and Real Estate Limited (VHREL/Noticee 1/the company) and its directors namely Mr. Yogendra Bisay, Mr. Jitendra Bisay, Mr. Phool Chand Bisayand Mr. Yuvraj Malakar (Noticees 2 to 5) for violation of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

Herein, the allegations made in the show cause notice (SCN) contained that the company mobilized huge funds from the public under its scheme pertaining to purchase, development and maintenance of plots of land. It was alleged that VHREL was engaged in the fund mobilizing activity of the company through the 'Scheme' pertaining to purchase, development and maintenance of plot(s) of land and therefore, violated Regulation 4(2)(t) of the SEBI PFUTP Regulations.

The AO opined that VHREL was involved in fund raising activity through various schemes pertaining to purchase, development and maintenance of plots of land. The company had issued certificates titled 'Registration Letter' to the applicants which inter alia stated that the company, subject to regular payment of subscriptions, shall pay to the certificate holder the amount due under the 'Registration Letter'.

It was observed that the certificate/registration letter did not contain any detail whatsoever pertaining to allotment/sale of the plot of land to the investor. Rather, it referred to the payment of 'Expected Sum Payable' which appeared to be the return on investment payable to the investor at the end of the term.

It was observed from the balance sheet of the company filed with the Registrar of Company that the company had a current liability of Rs.1,30,35,000/-(as on March 31, 2012); Rs.3,37,69,937/-(as on March 31, 2013); Rs.4,27,29,937/-(as on March 31, 2014); Rs.2,17,36,248/-(as on March 31, 2015), on account of 'Advance Against Land Booking'. Further, the copies of Certificates issued by the company pertaining to FYs 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16 indicated fund mobilization by the company during all these FYs.

The AO noted that the Company had mobilized funds from the public under its schemes pertaining to purchase, development and maintenance of plots of land.

The contributions/payments made by the investors were pooled and utilized for the purposes of the 'Scheme' and not for the purchase of an identified plot of land. In the instant case, the scheme was to accept contributions/ payments from investors to deliver an expected sum payable to the investors at the end of the term. This instant 'scheme' satisfies the first condition stipulated in Section 11AA(2) of the SEBI Act.

It was also affirmed that the contribution/ investment was made by the investors in the scheme with a view to receive a return or earn profit. Therefore, the schemes offered by VHREL satisfied the second condition stipulated in section 11AA (2) of the SEBI Act.

The Agreement did not have any feature which stated that the funds collected under the plans can be managed by the investor themselves or they have any say or control as to how and where the money has to be invested by the company. So, the scheme offered by VHREL satisfied the third and fourth conditions stipulated in Section 11AA(2)of the SEBI Act.

The aforesaid findings on schemes offered by VHREL, prima facie, satisfied all the four conditions specified in Section 11AA(2) of the SEBI Act. Therefore, it was held that VHREL was engaged in fund mobilizing activity from the public, which is in the nature of a 'collective investment scheme' as defined in Section 11AA of the SEBI Act.

It was also stated that VHREL was engaged in fund raising activity from the public through various schemes pertaining to purchase, development and maintenance of plots of land. Further, VHREL was running such collective investment scheme without obtaining regulatory approvals.

Moreover, it was also opined that the Noticees were engaged in illegal fund mobilisation and thereby violated Regulation 4(2)(t) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.