SEBI (CIS) Regulations, 1999 prohibits carrying on Collective Investment Scheme activities without obtaining registration from SEBI

SEBI (CIS) Regulations, 1999 prohibits carrying on Collective Investment Scheme activities without obtaining registration from SEBI

The Security and Exchange Board Of India (SEBI) has imposed a penalty of Rs. 40 Lakh jointly and severally on Raghav Capital and Infrastructure Limited (Noticee1 / Company / RCIL) and its directors namely Raj Kumar Raghav, Nirmala Raghav and RituVerma (Noticees 2, 3, 4) for violation of Section 12(1B) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 (CIS Regulations).

Herein, SEBI had initiated adjudication proceedings under Section 15D(a) of the SEBI Act, for the alleged violations of provisions of Section 12(1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations,1999 by the Noticees.

The matter proceeded ex-parte as the Noticees had neither filed any reply nor availed the opportunity of personal hearing despite service of notices upon them. The Adjudicating Officer (AO) observed that the schemes offered by RCIL had to be considered in light of Section 11AA of the SEBI Act, 1992 which provided various conditions to determine whether a scheme or arrangement is a Collective Investment Scheme.

These 4 conditions were- the contributions, or payments made by the investors, are pooled and utilized solely for the purposes of the scheme or arrangement; 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; the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors, and the investors do not have day-to-day control over the management and operation of the scheme or arrangement.

The funds initially collected from the applicants/investors, which were locked in for a particular period were pooled and utilized for the scheme. Therefore, it was observed by the AO that the contributions or investments received from the applicants/investors were pooled and utilized solely for the purpose of the schemes.

It has also been held that the investments were made by the applicants/investors with a view to receive profits or returns from the schemes. It was elucidated that the investments made by the applicants/investors (in the form of application money/ one time/ daily/monthly instalments) were managed and utilized by RCIL.

Investors of the various schemes of RCIL did not have any say in the allotments/management of the scheme. The Application form provided by RCIL also did not mention about the details of the property being offered to the investor under the scheme of RCI SAI Greens. Further, the Agreement duly signed by the investor did not indicate the details of the property of RCI Sai Greens. The said Agreement merely stated the general terms and conditions for allotting the unidentified land/plots to the applicant/investors.

Further, if RCIL failed to provide land/plot to the applicant/investors under the scheme for which investor had applied, RCIL agreed to provide land/plot to the applicant in any other project/ scheme of RCIL. In such case, the applicant had to return the documents to RCIL and papers pertaining to new land/plot would be issued to applicants.

RCIL had also retained the right to make any changes in residential/ commercial land/plot. Further, applicant/ investor had to obtain NOC from RCIL before making any structure on land/plot allotted to him.

All of this clearly indicated that RCIL had the complete control of the schemes and the applicants/investors did not have any say in the operation of the schemes/ arrangement. Therefore, the applicants/investors did not have any day-to-day control over the management and operation of the said schemes. These were the ways in which the instant schemes satisfied the conditions stipulated in Section 11AA (2)(i),(ii),(iii) and (iv) of the SEBI Act.

Moreover, launching any collective investment scheme by any person without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

In this regard, it was noted that RCIL had not obtained any certificate of registration under the CIS Regulations from SEBI for its fund mobilizing activity from the public under its schemes of land/plot and the Noticees were also responsible for carrying out unregistered CIS activity.