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WTM/PS/146/IMD-CIS/FEB/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER

ORDER

UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 65 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (COLLECTIVE INVESTMENT SCHEME) REGULATIONS, 1999 In the matter of SAI PRASAD CORPORATION LIMITED In respect of:

1. Sai Prasad Corporation Limited [PAN: AAQCS7428B], 2. Mr. Balasaheb K. Bhapkar [PAN: AFIPB3674A], 3. Mr. Shashank B. Bhapkar [PAN: AQHPB8639H] and 4. Ms. Vandana B. Bhapkar [PAN: AFIPB3675B].

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Date of Hearing: March 17, 2015, July 27, 2015 and August 19, 2015 Appearances: For Noticees: Mr. Madhav M. Joshi, Advocate. Mr. Amit Desai, Chartered Accountant. For SEBI: Dr. Anitha Anoop, Deputy General Manager.

Mr. N. Murugan, Assistant General Manager. Ms. Meetu Agarwal, Assistant General Manager.

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1.1 Sai Prasad Corporation Ltd. (hereinafter referred to as "SPCL" or “company”) was

incorporated under the Companies Act, 1956 (CIN: U70102PN2011PLC141639) on

December 14, 2011 and is having its registered office in Empire Estate, Building CB

– 1, Office No. 202 & 203, Mumbai Pune Road, Chinchwad, Pune, Maharashtra –

411019.

1.2 Securities and Exchange Board of India (hereinafter referred to as "SEBI") had

received certain complaints on September 23, 2013, alleging that Sai Prasad group of

Companies including Sai Prasad Properties Ltd. (SPPL) and Sai Prasad Foods Ltd.

(SPFL) and SPCL were collecting money from public in the nature of "collective

investment scheme". The complainants also forwarded details of schemes, brochures,

application form etc. with respect to the schemes/plans offered by SPCL.

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1.3 On enquiry, SEBI, prima facie found that SPCL is engaged in fund mobilizing activities

from the public, which is in the nature of a Collective Investment Scheme without

obtaining a certificate of registration from SEBI. Therefore, SEBI, vide an interim ex-

parte Order dated July 22, 2014 (hereinafter referred to as ‘interim order’) issued certain

directions against Sai Prasad Corporation Ltd. and its directors, namely, Mr. Balasaheb

K. Bhapkar, Mr. Shashank B Bhapkar and Mrs. Vandana B. Bhapkar (hereinafter

collectively referred to as ‘noticees’).

2.1 Prima facie findings/Allegations: The noticees were mobilising funds under the

camouflage of “JV Participation Subscription Structures” (JVPSS) from the public by

way of three different schemes either with lump-sum or installment payment. They

are:-

Installment Participation Structure/ schemes (quarterly, half yearly and yearly

payments varying from 48-98 months - 4 schemes; termed as AC to DC)

One time Participation Structure/ schemes (3 schemes for 5, 7 and 9 years; termed

as EC to GC),

Yearly Income Participation Structure/ scheme (for 6 years JC).

2.2 An illustrative plan from each category is shown in the following tables below:

JV Participation Subscription Structure ‘AC’ for 48 months/ 4 Yrs

Total Participation (Rs.)

JV Participation value up to 4 yrs

Expected Sum of Participation on JV Completion

(Rs.)

Financial Assistance in case

of accidental Death (Rs.)

Q HLY YLY

48,000 3,000 5,985 11,960 63,360 75,000

96,000 6,000 11,970 23,920 1,26,720 1,50,000

1,44,000 9,000 17,955 35,880 1,90,080 2,25,000

1,92,000 12,000 23,940 47,840 2,53,440 2,50,000

2,40,000 15,000 29,925 59,800 3,16,800 2,50,000

One Time Participation Structure ‘EC’ for 5 Yrs:

Participation (Rs.)

Expected Sum of Participation on JV Completion (Rs.)

Financial Assistance in case of accidental Death (Rs.)

10,000 19,500 15,000

50,000 97,500 75,000

1,00,000 1,95,000 1,50,000

2,00,000 3,90,000 2,50,000

5,00,000 9,75,000 2,50,000

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Participation Subscription Yearly Income Structure ‘JC’ for 6 Yrs:

Total Participation

(Rs.)

Net Payable on Every

Year

Expected Sum of Participation on JV Completion (Rs.)

Financial Assistance in case of accidental Death

(Rs.)

3,000 60 5,000 7,500

6,000 120 10,000 15,000

9,000 180 15,000 22,500

12,000 240 20,000 30,000

15,000 300 25,000 37,500

1,02,000 18,870 1,02,000 1,53,000

2.3 The investors who are interested to invest in the said “JV Participation Subscription

Structure” are required to file a “Co-venturer Application Form” before executing the

“JV Agreement for Project Participation” with SPCL. The Company, issues "JV

Participation Certificate" to the "Co-venturers"/investors. The money termed as

participation value is to be utilised for the “projects” of the Company. At the end of

the completion of the projects/term period of participation, whichever is earlier,

expected sum of participation value or estimated returns would be payable to the co-

venturers in the said project.

2.4 The Company also offered units of land as collateral security for realization of amount

in the said “project(s)” and issued letter of allocation of land with a ratio of Rs. 12000

of participation equal to 500 sq.ft of undivided land.

2.5 It was also alleged that SPCL stated that its property shall be used exclusively for the

business of SPCL and the "co-venturers". As per SPCL, the "co-venturer"/investors shall

not have any right, title and interest in connection with property or project. Once

repayment of participation value is made to the "co-venturer"/investor, the agreement

shall cease to exist automatically.

2.6 It was agreed by SPCL with its investors that in case the Company is unable to repay

participation value, then the Company would help the joint venturer to dispose off the

allocated land at the written request of the co-venturer through the process of law.

2.7 The scheme of SPCL included that the Company would look after the financial side

of the projects as well as the administration of the business. The “co-venturers”/

investors shall not have any right on the shares or share capital of the Company or to

interfere with the projects other than the participated project or the management and

the policies of the Company.

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2.8 SPCL, for the purpose of soliciting funds from the public, opened a number of

"Associate Service Centers" spread across 19 States of the country including the states

of Maharashtra, Gujarat, Orissa, Tamil Nadu, Rajasthan, Karnataka, Jharkand,

Chattisgarh, Madhya Pradesh etc. SPCL is also providing financial assistance in case

of accidental death to “participants”.

2.9 In view of the above attributes of the scheme, it was alleged that the contributions

were collected from the investors under the Schemes launched by the Company and

the same is pooled and utilized in JPVSS under the pretext for the development of its

land. The investments were made by the investors with a view to receive returns from

the schemes. The property, contribution or investment forming part of the

Schemes/Plans were managed by SPCL on behalf of investors and the investors did

not have any day-to-day control over the management of the schemes. As stipulated

under section 11AA of the Securities and Exchange Board of India Act, 1992 for

collective investment schemes, SPCL is required to get a certificate of registration from

SEBI under Section 12(1B) of the SEBI Act and Regulation 3 of the SEBI (Collective

Investment Schemes) Regulations, 1999 (hereinafter referred to as ‘the CIS

Regulations’). However, no registration was sought by the noticees from SEBI.

2.10 The mobilization of funds from the public, was also prima facie found to be a fraudulent

practice in terms of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and

Unfair Trade Practice Relating to Securities Market) Regulations, 2003 (hereinafter

referred to as ‘PFUTP Regulations’). SPCL and its directors were alleged to be

responsible for the illegalities.

2.11 Reference was also made in the interim order to the SEBI’s orders dated July 17, 2013,

in the matter of SPPL and SPFL wherein, SEBI, inter alia, had directed, Mr. Balasaheb

K. Bhapkar, Mr. Shashank B. Bhapkar and Mrs. Vandana B. Bhapkar who are also

directors of SPCL "not to collect any more money from investors under the existing

schemes; not to launch any new schemes or plan", until further orders, in view of the

prima facie, findings therein that they are running 'collective investment schemes',

without obtaining a certificate of registration from SEBI. It was further recorded in

the interim order that Mr. Balasaheb K. Bhapkar, Mr. Shashank B. Bhapkar and Mrs.

Vandana B. Bhapkar are continuing to collect funds from the public, through SPCL,

wantonly flouting the directions issued by SEBI on July 17, 2013.

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2.12 In view of the prima facie findings on the violations, vide the said interim order dated

July 22, 2014, the noticees were directed:-

a) not to collect any money from investors from its existing "JV Participation

Structure"/scheme;

b) not to launch any new schemes or plans or float any new companies to raise fresh

moneys;

c) to immediately submit the full inventory of the assets owned by SPCL out of the

amounts collected from the "co-venturers"/investors under its existing "JV

Participation Structure"/schemes;

d) not to dispose of any of the properties or alienate the assets of the existing "JV

Participation Structure"/scheme;

e) not to divert any funds raised from public at large, kept in bank account(s) and/or in

the custody of the company;

f) to furnish all the information sought by SEBI with regard to scheme wise list of

investors and their contact numbers and addresses along with the details of amount

mobilized and refunded.

3.1 The noticees, in the said interim order, were advised to file their replies within a period

of 15 days from the date of receipt of the interim order and also to indicate whether

they wish to avail an opportunity of personal hearing in the matter.

4.1 Service of the interim order: The copy of the interim order was sent to the noticees vide

letters dated July 23, 2014 through registered post. The said letters have not come back

undelivered.

5.1 Opportunity of personal hearing and Inspection of documents: SEBI vide letters dated January

22, 2015, intimated that the noticees will be given an opportunity of being heard on

February 23, 2015 at the time and the venue mentioned therein. SPCL vide letter dated

February 16, 2015 sought for the adjournment of hearing. While granting the request

for adjournment, SEBI vide letter dated February 24, 2015 intimated that the noticees

would be given another opportunity of hearing on March 17, 2015. However, SPCL

vide letter dated March 16, 2015 sought for the adjournment of personal hearing on

the ground that it has appointed a new counsel, Mr. Madhav Joshi and the counsel

requires time for perusing the documents pertaining to the matter.

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5.2 SEBI also received on March 16, 2015 two letters one dated March 13, 2015 and other

dated March 15, 2015 both from Mr. Madhav Joshi stated to be on behalf of SPCL

and its directors, seeking inspection of files. Though vakalatnama on behalf of SPCL

was forwarded by the counsel, no vakalatnama was enclosed on behalf of the directors.

Though adjournment of hearing slotted on March 17, 2015 was sought, Mr. Madhav

Joshi assisted by Mr. Amit Desai appeared before me on March 17, 2015, on behalf of

SPCL and its three directors. Mr. Madhav Joshi undertook to file vakalatnama on

behalf of the three directors. The three directors subsequently vide separate letters

dated June 22, 2015 informed SEBI that Mr. Madhav Joshi is their authorized

representative.

5.3 In the said personal hearing on March 17, 2015, request was made for inspection of

the documents relied on in the current proceedings. The said request was granted and

the representatives were intimated that another opportunity of hearing would be

granted on April 08, 2015. Pursuant to the said request, on March 25, 2015, the first

opportunity of inspection was scheduled, which was adjourned to March 27, 2015 at

the request of SPCL. On March 27, 2015, the inspection was availed. Mr. Madhav

Joshi, authorized representative of SPCL and Mr. Deepak D. Tawar and Mr.

Dnyaneshwar Jachak stated to be representatives of SPCL carried out the inspection.

The photocopies of following documents were inspected by them.

a. Correspondence between SPCL/its directors and SEBI

b. 2 complaints received by SEBI on September 23, 2013(with enclosures);

c. letter dated March 03, 2014 from Income Tax department and

d. Excerpts (relevant to SPCL) from Inspection Report by SEBI in the matter of group

companies, Sai Prasad Foods Ltd, and Sai Prasad Properties Ltd.

5.4 It is noted that vide letter dated March 26, 2015, SEBI had once again intimated Adv.

Madhav Joshi with copies marked to the noticees that the opportunity of hearing had

been scheduled on April 8, 2015.

5.5 Thereafter, SPCL vide its letter dated April 06, 2015, filed objection before SEBI

saying that they would like to inspect the original documents as SEBI had provided

only the photo copies of documents on the previous date. It was also mentioned that

the copy of the two complaints and Inspection Report of SEBI was incomplete. SPCL

annexed the details of the documents inspected and copies thereof provided by SEBI.

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5.6 On the same date, i.e., on April 6, 2015, Mr. Madhav M Joshi, through e-mail, once

again sought for adjournment of the hearing scheduled on April 8, 2015 by three

weeks, on the ground that the records relating to the case held by the previous counsel

for SPCL, Shri Kamal Agarwal was received by him very recently. SPCL also sought

for adjournment of the personal hearing, through e-mail dated April 6, 2015 signed by

Shri Deepak Tawar annexing a letter from SPCL dated April 4, 2015, on the same

ground mentioned by its counsel and on the further ground that it seeks the cross

examination of all the complainant/s. SPCL vide the said letter dated April 4, 2015

also sought for the details of the complainants in order to enable it for cross

examination of the complainants. The hard copies of the letter of SPCL dated April 4,

2015 and April 6, 2015 (signed by Mr. D.V. Jathak) were later received by SEBI on

April 13, 2015 and April 9, 2015 respectively.

5.7 As on April 08, 2015, the inspection of original documents were not taken, the said

hearing was rescheduled and the noticees were intimated about the same vide e-mail

dated April 08, 2015.

5.8 As far as the request for cross examination is concerned, SEBI vide letter dated June

11, 2015 rejected the request for cross examination on the ground that the interim

order was passed relying upon the documents provided by SPCL itself.

5.9 As far as the request for inspection of original documents are concerned, SEBI

intimated vide e-mail dated June 12, 2015 (enclosing the letter dated June 12, 2015

addressed to Mr. Madhav Joshi), the authorized representative of SPCL that it would

be granted another opportunity for inspection of the original documents on June 18,

2015. Thereafter, SEBI vide subsequent e-mail dated June 16, 2015 reconfirmed the

authorized representative, with a copy to the Company, that the date of inspection is

June 18, 2015. However, vide return e-mail dated June 16, 2015, the authorized

representative, i.e., Adv. Madhav M Joshi requested for three weeks’ adjournment for

inspection on the ground that his case is fixed for hearing at Pune Court on June 17,

2015. SPCL also vide letter dated June 16, 2015 sought for adjournment of inspection

by two or three weeks, on the ground that the date is not suitable for it, as some of the

responsible officers of the company are out of station. Thereafter, Adv. Madhav Joshi

vide e-mail dated July 01, 2015 stated that he is out of station for personal reasons and

the date of inspection can be fixed on or after July 13, 2015. Pursuant to that, SEBI

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vide letter dated July 02, 2015 intimated SPCL and its directors that it had scheduled

another opportunity of inspection of documents on July 08, 2015. Vide the said letter

the noticees were intimated that they shall be given final opportunity of hearing

scheduled on July 27, 2015. It was further intimated that written submission, if any,

should be submitted on the date of hearing.

5.10 On July 8, 2015, the representative of SPCL, namely, Adv. Madhav M Joshi, Mr.

Sushant Raut and Mr. Dnyaneshwar Jachak inspected the original documents and

inspected the following documents.

i. Inspection report by SEBI in the matter of group companies- Sai Prasad Foods Ltd.

and Sai Prasad Properties Ltd. (for inspection carried out on January 13, 2014).

ii. A Complaint dated 22.06.13, received by SEBI on 29.10.13.

iii. Letter dated December 04, 2013 from Adv. Vishnu Sharma to SEBI.

5.11 However, Adv. Madhav M Joshi, Mr. Sushant Raut also requested for another

inspection preferably to be held on July 10, 2015. Subsequently, SPCL vide e-mail

dated July 09, 2015 requested for the copies of the following letters.

i. Letter from Income Tax Department dated July 24, 2013,

ii. Letter from Income Tax Department dated February 27, 2014,

iii. Letter from Income Tax Department dated February 28, 2014,

iv. Letter from Income Tax Department dated March 20, 2014,

v. A copy of the report dated June 28, 2013 of DDIT (INV), Unit- II (2), annexed to

the letter dated July 24, 2013.

5.12 Pursuant to the request made on July 8, 2015, SEBI granted another opportunity of

inspection to the authorized representative of SPCL, Mr. Madhav Joshi who made

inspection of the original documents on July 10, 2015 on behalf of SPCL. The portions

relating to the SPCL in the documents at serial no. 1 to 4 in original was inspected by

Mr. Madhav Joshi. It is noted that the document at serial No.5 was not provided by

the ITD to SEBI along with letter dated July 24, 2013 and therefore, the same was not

available in the file. SEBI also gave the authorized representative of SPCL the copies

of the record of proceedings of inspection held on July 8, 2015 and July 10, 2015.

SPCL vide letter dated July 17, 2015 sent a letter to SEBI enclosing its earlier letter

dated July 09, 2015 to SEBI and recording the fact of inspection on July 08, 2015 and

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July 10, 2015 by its authorized representatives. The said letter dated July 17, 2015

further stated that its counsel requested for the copies of the documents mentioned in

the said letter dated July 09, 2015 but the same were not given by SEBI. SPCL stated

that without those documents, it would not be possible for SPCL to file a detailed

reply to SEBI. Not giving of copies of these documents would result in violation of

the principles of natural justice. It further stated that after the receipt of the copies of

those documents, additional time would be required by SPCL to prepare a detailed

reply to the allegations made by SEBI. In view of that, SPCL requested for the

adjournment of personal hearing fixed on July 27, 2015 and sought for the same to be

fixed after SEBI gives the documents requested by SPCL. In response to SPCL letter

dated July 17, 2015, SEBI vide e-mail dated July 24, 2015 (sent at 12:15 PM) enclosed

a letter from SEBI dated July 24, 2015 addressed to the Company, intimating that the

copy of the documents sought by SPCL in its letter dated July 9, 2015 are not even

referred to in the interim order dated July 22, 2014 and therefore, there would be no

breach of principles of natural justice by not giving those documents. The SEBI letter

had further confirmed that the opportunity of hearing scheduled on July 27, 2015,

shall be the final opportunity and advised SPCL to avail the opportunity of hearing.

5.13 However, SPCL instead of confirming its presence for the personal hearing, vide

return e-mail dated July 24, 2015 (received by SEBI at 5 PM) again raised the issue of

cross examination of the complainants referring to its earlier letter dated April 4, 2015

sent to SEBI on the subject matter. It may be noted that SEBI had, vide letter dated

June 11, 2015 already rejected the request of cross examination of the complainants.

SEBI immediately through e-mail sent at 5.42 PM, enclosed its reply letter dated July

24, 2015, intimating SPCL that the decision of SEBI in respect of cross examination

of complainants had been already communicated to it.

5.14 Subsequently, on July 27, 2015, Mr. Madhav M Joshi appeared before me on behalf of

all the noticees. He filed two applications. In the first application, in addition to the

request for adjournment, request was made for copies of :-

a. Letters from Income Tax department dated March 20, 2014, February 27, 2014,

February 28, 2014, and July 24, 2013.

b. Report dated June 28, 2013 of DDIT annexed to the letter dated July 24, 2013.

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5.15 In the second application, request was made for cross examination of complainants

who have made complaints dated June 22, 2013, September 14, 2013 and complaint

received by SEBI on 23 September, 2013 (Inward Number 107657). The details of any

other complaint which SEBI seeks to rely upon in the present proceedings was also

sought vide the said second application. The authorized representative further sought

to keep in abeyance the present proceedings till complainants are made available for

cross examination. It was indicated in the personal hearing that no reliance is placed

on the complaints in the present proceedings and therefore, there is no need for cross

examination. In the said personal hearing, on request of the Counsel, next date of

hearing was scheduled on August 19, 2015. SEBI vide letters dated August 4, 2015

forwarded the copies of the record of proceedings of personal hearing held on July 27,

2015 to all the noticees.

5.16 As reply to the said SEBI letter dated August 4, 2015, SPCL vide letter dated August

17, 2015, stated that after the last hearing held on July 27, 2015, SPCL had preferred

an Appeal No. 362 of 2015, before Hon’ble Securities Appellate Tribunal (SAT)

challenging SEBI’s communication dated June 11, 2015 whereby the application made

by SPCL for registration under SEBI (CIS) Regulations, 1999 had been rejected.

Enclosing the copy of the order dated August 3, 2015 passed by Hon’ble SAT, it was

stated by SPCL that Hon’ble SAT has allowed SPCL to make application to SEBI for

registration, within six weeks from the date of order. SPCL stated that it was in the

process of making an application for registration. It requested for the adjournment of

the hearing scheduled on August 19, 2015, which was not granted. For the personal

hearing on August 19, 2015, no one had appeared for the noticees.

5.17 From the above discussion, it is clear that the noticees have been adopting delaying

tactics. Considering the same, I am of the opinion that sufficient opportunities of

personal hearings have been granted to the noticees, which they have failed to avail.

In view of the same, I proceed on the basis of the material available on record.

6.1 The Reply of the noticees: The noticees have not submitted any reply on the merits

disputing the allegations recorded in the Interim order. However, SPCL had filed

replies prior to the interim order vide reply dated October 30, 2013 and an undated

letter received by SEBI on December 5, 2013, April 16, 2014, June 25, 2014. The case

of SPCL as submitted in its various replies in a nutshell is as follows:

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6.2 SPCL does not conduct any collective investment activity. Therefore, section 11AA of SEBI Act,

does not apply.

6.3 The company was incorporated on December 14, 2011. The company has the main object of developing

residential and commercial projects either individually or through joint ventures with any company/

firm/ individual/ consultant. The capital for these projects are taken from Project participation in the

form of joint venture. The said person providing joint venture participation in “joint venture project”

is not “investor” but only a “joint venture associate”. SPCL has not issued any brochure and the

same is published by the co-venturers.

6.4 The contribution made by the associate is treated as capital of the joint venture. The joint venture is

a special combination of the company and the associates wherein the profit is sought for a specific

venture even without active partnership between the parties.

6.5 The funds so collected have been deployed in the committed/subscribed projects. The estimated project

returns are approximately 12%. The estimated returns are expected and they are not promised. The

refund of the participation amount is paid to the co-venture through participation subscription structure

of the company. If there is any loss in the “joint venture project” the same has to be borne by the “joint

venture associate” on pro-rata basis. SPCL has always fulfilled its commitments with its joint venture

associates.

6.6 When the project size is expanded, the associate has the discretion for refund of his project participation.

If someone wants to exit the joint venture at any point of time, they can exercise the option.

6.7 There is no insurance business conducted by SPCL in the legal sense of the term. However, in case of

the death or accidents happening to the associate, the participation/contribution is refunded to the

associate/nominee.

6.8 There is no diversion of fund from the committed projects. There is no complaint against SPCL

launched by any associate.

6.9 The company is also in the business of manufacture and distribution of commodities and runs the

business of food processing, horticulture, fruit, far and agricultural development and real estate. The

Company has various projects in Maharastra (224.1 acre) and Karnataka (18.03 Acre). Various

ongoing projects and farm development activities requiring timely investment have been hampered.

7.1 I have considered the allegations, replies and materials on record. On perusal of the

same, the following questions arise for consideration. Each question is dealt with

separately under different headings.

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1. Whether noticees are entitled to the copies of documents as sought by it and whether it is entitled to

cross examine the Complainants?

2. Whether the noticees have launched and are running the arrangement/scheme as alleged?

3. Whether the major attributes of the arrangement fall within the definition of collective investment

schemes as defined in section 11AA of SEBI Act?

4. If so, whether the noticees have violated Section 12(1B) of the SEBI Act and Regulation 3 of the

CIS Regulations’ and Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade

Practice Relating to Securities Market) Regulations, 2003.

8.1 Whether noticees are entitled to the copies of documents as sought by it and

whether it is entitled to cross examine the Complainants?

8.2 SPCL vide e-mail dated July 9, 2015 and in the application filed before me at the time

of personal hearing on July 27, 2015, requested for the copies of the following letters

a. Letters from Income Tax department dated March 20, 2014, February 27, 2014,

February 28, 2014, and July 24, 2013.

b. Report dated June 28, 2013 of DDIT annexed to the letter dated July 24, 2013.

8.3 As stated earlier SPCL also had made a request for cross examination of complainants

who have made complaints dated June 22, 2013, September 14, 2013 and complaint

received on 23 September, 2013.

8.4 The principles of natural justice are the cardinal principle to be followed in quasi-

judicial proceedings. In a case where an adverse action is proposed to be taken against

the noticees, on the basis of the facts alleged against them, then the documents which

evidence the facts alleged, should be given to those persons, so that they get an

opportunity to rebut the evidence against them. Therefore, whether any copy of

document is to be given to those persons, depend on the fact of whether such

documents are relied upon in order to substantiate any adverse findings against them.

In this backdrop, I find that none of the documents whose copies were sought by the

noticee through the letter dated July 9, 2015 and the application filed at the time of

personal hearing, were even mentioned in the interim order. It is clear that the interim

order does not rely upon the documents sought by the noticee mentioned at para 8.2.

8.5 These documents are also not relied upon in the present proceedings. I further note

that that the copy of the record of proceedings of personal hearing held on July 27,

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2015 recording the fact that these documents are not relied upon, were given by SEBI

vide its letters dated August 4, 2015 to all the noticees.

8.6 In the same way, SPCL and its directors are entitled for the cross examination of the

Complainants only when their complaints are relied upon in the proceedings. The

allegations that constitutes the violation of the Section 11AA of SEBI Act are

supported on the basis of the documents submitted by SPCL itself. Para 5 of the

interim order clearly identifies the material on record submitted by SPCL vide its letter

dated April 16, 2014. Complaints dated June 22, 2013, September 14, 2013 and

complaint received by SEBI on 23 September, 2013 have not been relied upon in the

interim order and they are also not relied upon in the present proceedings. In view of

that, SPCL is not entitled for cross examination of complainants as sought by it.

8.7 It is noted that SPCL vide the said letter dated April 4, 2015 had earlier sought for the

details of the complainants in order to enable it for cross examination of the

complainants. SEBI vide letter dated June 11, 2015 rejecting the said request,

reconfirmed the authorized representative of SPCL that though the complaints against

SPCL received by SEBI may have led SEBI to initially examine the matter, the interim

order was passed relying upon the documents provided by SPCL itself.

8.8 Inspite of SEBI’s letter dated June 11, 2015 rejecting the request of SPCL for cross

examination, vide e-mail dated July 24, 2015, SPCL again raised the issue of cross

examination of the complainants referring to its earlier letter dated April 4, 2015 sent

to SEBI. SEBI had immediately through return e-mail on the same day enclosing its

reply letter dated July 24, 2015, again reiterated that documents other than complaints

have been relied upon in this matter which are already available with the Company.

8.9 I further note that inspite of SEBI having clearly mentioned in the Record of

proceedings of Inspection on July 10, 2015, that Income Tax Department has not

annexed the Report dated June 28, 2013 along with the letter dated July 24, 2013, Adv.

Madhav Joshi again raised the issue of non-granting of copy of the said report in his

application at the time of personal hearing.

8.10 Therefore, it is clear that SPCL has been agitating the same issue again and again,

intending to stall the proceedings from reaching its logical end. The re-agitation of the

same issue over and over again by SPCL only shows that it is trying to delay the

adjudication of issues on merits.

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9. Whether the noticees have launched and are running the arrangement/scheme as

alleged?

9.1 SPCL vide letter dated April 16, 2014 submitted that the brochure is being published

by the co-venturers and not by the Company and it has no control over the brochure.

Therefore, the authenticity and genuiness cannot be attributed to the Company. A

copy of the brochure stated to be published by a co-venturer is enclosed as Annexure

A to the said reply. I note that SEBI vide letter dated October 11, 2013 sought from

the Company various documents including the brochures/ offer documents. SPCL

did not provide any information required vide letter dated October 11, 2013. It did

not deny at that point of time, that it has not published any such brochures. SEBI once

again, vide letter dated March 20, 2014, inter alia, sought for the certified copy of

brochure. It may be noted that the then Authorised Representative of SPCL, Mr.

Vishnu Sharma vide his letter dated March 27, 2014 had written to SEBI only sought

for time. Even at that point of time, SPCL did not deny that it has not published any

such brochures.

9.2 For the first time in its letter dated April 16, 2014, SPCL denied that it published any

brochures. On examination of the said Anneuxre A, I find that the main objective of

company mentioned in the brochure is exactly the same as mentioned in in its letter

dated April 16, 2014. By no stretch of imagination, it is possible to accept that the so

called “co-venturer” would publish on his own a brochure before he makes any

contribution to the Company. It is highly unreasonable to expect, a “co-venturer”

would publish a brochure to the public describing the different schemes of the

Company, his own eligibility to become a joint venture participant, detailing the terms

and conditions with which he makes contribution and detailing the consequences of

discontinuity of his contribution, nomination and other details and more particularly,

detailing his expected sum of “participation on JV Completion”. The language and

tenor of the said brochure clearly indicates that the said document has been designed

in such a way that it is a publication by the Company to the general public and not by

the so called “co-venturer” to prospective “co-venturers”.

9.3 SPCL also enclosed a co-venturer application form (Annexure B to reply dated April

16, 2014) which is to be filled and signed by the co-venturers. SPCL vide the said reply

dated April 16, 2014 also enclosed a copy of joint venture participation certificate

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(annexure C), copy of agreement for project participation (annexure D). On perusal

of copies of these documents submitted by SPCL and other material on record, I

find that:-

a) The company had received money from the public through various schemes. From

the brochure submitted by the company, it is clear that Company has brought out

various plans as mentioned in its brochure and as alleged in the SCN cum interim

order. It may be noted that illustrative schemes, such as, “JV Participation Subscription

Structure ‘AC’ for 48 months/ 4 Yrs”, “One Time Participation Structure ‘EC’ for 5Yrs” and

Participation Subscription Yearly Income Structure ‘JC’ for 6 Yrs” are also mentioned in the

Annexure A-brochure produced by the Company vide its reply dated April 16, 2014.

b) SPCL has mobilized an amount of Rs.137.12 crores from the investors during the

year 2012-2013 as shown in the balance sheet as on March 31, 2013. Perusal of Note

No.7-2 appended to the said balance sheet, further shows that the said amount of Rs.

137.12 crores is reflected as “Project Participation Contribution” under the head

“other long term liabilities" in the Balance Sheet as on March 31.2013. SPCL also

admitted the collection of the said amount by producing the “summery of joint venture

participation-scheme wise, year wise” as annexure F to the reply dated April 16, 2014.

On perusal of the said annexure F, it is clear SPCL has admittedly collected Rs. 478.35

crores during the financial year 2013-14. As such SPCL admittedly collected an

amount of Rs. 615. 47 crores under the nomenclature of Joint Venture Participation.

c) On perusal of the copy of the Co-venture application form (Annexure B) and the

“Agreement for project participation” (annexure C) produced by the SPCL vide its

reply dated April 16, 2014, it is clear that the investors who are interested to invest in

the said “JV Participation Subscription Structure” are required to file a “Co-Venturer

Application Form” before executing the “JV Agreement for Project Participation”

with SPCL.

d) On perusal of various clauses of “Agreement for Project Participation” submitted by

SPCL vide its reply dated April 16, 2014 annexed as Annexure D(hereinafter referred

to as Annexure D), I further find that :

i. “at the end of the completion of the said projects/term period of participation,

whichever is earlier, expected sum of participation value or nearby there off would

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be payable to the co-venturers in the said project of the company as prescribed in

the terms and conditions, rules and regulations of the structure.” (clause 7)

ii. SPCL also offered units of land as collateral security for realization of amount in

the said project(s) and issued letter of allocation of land with a ratio of Rs. 12,000

of participation equal to 500 sq.ft of undivided land subject to the discretion of the

Company to alter this ratio depending on promotion cost/ value of land at the time

of agreement. The Company vide the said clause also has discretion to alter the area

of allocation depending on the availability of land at the time of agreement. (Clause

9)

iii. co-venturer" shall not have any right, title and interest in connection with property

of the Company (Clause 3)

iv. once repayment of participation value is made to the "co-venturer"/investor, the

agreement shall stand cancelled automatically. (Clause 15)

v. In case the company is unable to repay participation value, then the company would

help the co-venturer to dispose off the allocated land at the written request of the

co-venturer through the process of law.(Clause 10)

vi. The company would look after the financial side of the projects as well as look after

the administration of the business. The “co-ventures”/investors shall not have

any right on the shares or share capital of the company or to interfere with the

projects other than the participated project or the management and the policies of

the company.(clause 3)

9.4 In view of the above material on record I find that noticees have launched and are

running the arrangement/scheme as alleged.

10. Whether the major attributes of the arrangement fall within the definition of collective

investment schemes as defined in section 11AA of SEBI Act?

10.1 Though, SPCL disputed that the arrangement run by it is not falling within the

definition of collective investment scheme, it vide letter dated June 25, 2014 stated

that it accepts SEBI as regulator after passing of the interim order.

10.2 Without prejudice to that submission, I proceed to consider now whether the four

conditions mentioned in section 11AA(2) of SEBI Act are satisfied in the instant

arrangement. Section 11AA of SEBI Act reads as follows:

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"(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or [sub-section (2A)] shall be a collective investment scheme. [Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under the exemptions from CIS sub-section (3), involving a corpus amount of one hundred Crore rupees or more shall be deemed to be a collective investment scheme.] (2) Any scheme or arrangement made or offered by any [person] under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement; (ii) 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; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day to day control over the management and operation of the scheme or arrangement. [(2A)] Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act.] (3) Notwithstanding anything contained in sub-section (2) [or sub-section (2A)], any scheme or Arrangement: i. made or offered by a co-operative society ii. under which deposits are accepted by non-banking financial companies iii. being a contract of insurance iv. providing for any scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund v. under which deposits are accepted under section 58A of the Companies Act, 1956 vi. under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society vii. falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982(40 of 1982); viii. under which contributions made are in the nature of subscription to a mutual fund; [ix. such other scheme or arrangement which the Central Government may, in consultation with the Board, notify,] shall not be a collective investment scheme."

10.3 Perusal of the above section shows that any arrangement or scheme to be considered

as collective investment scheme has to satisfy the four conditions mentioned in section

11AA(2) of SEBI Act and the same should not fall within any of the exceptions

mentioned in section 11AA(3) of SEBI Act.

10.4 Regarding the first requirement of pooling of the contributions and utilization of the

same for the scheme, SPCL termed the contribution as “project participation” and the

same is treated as capital of the joint venture. As per SPCL the capital providers in

the said “joint venture are “co-venturer” or “joint venture associate” and not investor.

Page 18 of 28

The essence of the argument of the Company is that the arrangement falls within the

ambit of “joint venture” and not “collective investment schemes.

10.5 Therefore, the question as to the attributes of such joint venture is firstly considered.

In this regard, reference may be made to the observation of the Hon'ble Supreme

Court of India in New Horizons Ltd. Vs Union of India (1995(1) SSC 478) as quoted in

M/S. Gammon India Ltd vs Commnr. Of Customs, Mumbai (decision dated 6 July, 2011)

regarding the nature of a joint venture. The Hon'ble S.C. observed "The expression

'Joint venture'…connotes a legal entity in the nature of a partnership engaged in the

joint undertaking of a particular transaction for mutual profit or an association of

persons or companies jointly undertaking some commercial enterprise wherein all

contribute assets and share risks. It requires a community of interest in the

performance of the subject matter, a right to direct and govern the policy in

connections therewith, and duty, which may be altered by agreement, to share both in

profit and losses"

10.6 In the instant scheme, though contended by SPCL that joint venture is a special

combination of the company and the associates wherein the profit is sought for a

specific venture even without active partnership between the parties” in its reply dated

April 16, 2014, on perusal of the copy of the Annexure D, I find that there are no

clauses providing for profit sharing or participation in losses on the basis of

"community of interest" as stated by Hon'ble Supreme Court. Further the so called

“project” is not at all identified or described in any of the “joint venture”. SPCL uses

the same “Agreement for Project Participation” for all its so called different “projects”.

There is no mention of any percentage of profits to those “joint-venturers”. Though

the Company vide is Reply dated April 16, 2014 stated that if there is any loss in the “joint

venture project” the same has to be borne by the “joint venture associate” on pro-rata basis, the

Company did not provide any proof to substantiate this. Instead the very fact that Clause 10 of

Annexure D, provides for disposing of the land in case the company is unable to repay

participation value, further shows that there is no sharing in the loss made by the

Company. There is absolutely no need for this clause, if the “joint venturer” is required

to participate in loss.

10.7 It is more of an arrangement that provides for expected monetary return in the under

the name of "Expected Sum of Participation on JV Completion", specified in the

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various "JVPSS"/schemes, Under the instant "JVPSS"/Scheme offered by SPCL,

there is also no element of shared control. As mentioned in clause 3 of the Annexure

D, SPCL exercises complete managerial and administrative control over the "JVPSS"/

scheme offered therein. Therefore, I find that claim of SPCL that it is running “Joint

Venture Participation" is unsubstantiated.

10.8 In view of this, the argument of the company that there is no pooling of contributions,

since the legal nature of money received is only “project participation” from “joint-

venturers” and hence the same does not fall within the meaning of “contributions”

of the investors, within the meaning of section 11AA(2) of SEBI Act., cannot be

accepted. Section 11AA (2)(1) stating that “the contributions, or payments made by

the investors, by whatever name called,” makes it very clear that the terminology of

the contributions of the investors does not matter. As a matter of law, what matters is

whether such contributions envisages pooling and utilization for the purpose of the

scheme or arrangement within the parameters of Section 11AA(2). The fact that the

“expected sum of participation value on joint venture” is not dependent on the

performance of any joint venture but is dependent on the amount of money invested

and the period for which it stay invested, shows that contribution collected by SPCL

is pooled together by the company for giving the investors the monetary return termed

by the Company as “expected sum of participation value on joint venture”. The reply

in this regard by the Company stating that the funds so collected have been deployed in the

committed/ subscribed projects has not been substantiated by SPCL and therefore has no

credence. Further the same has been utilized for the purpose of scheme, irrespective

of any such “subscribed projects”. The fact that the Company, as stated in clause 3 of

the “other terms and conditions” mentioned in the brochure submitted vide its reply

dated April 16, 2014, indicated that the return will be dependent on the success of the

project is contradicted by its further assertion in the “terms and conditions” mentioned

in the Annexure B (co-venture application form) submitted by the Company along

with its letter dated April 16, 2014 which (at serial number 08) states that the “Co-

Venturer(s) shall be repaid on expected sum of participation of Term only”. The ‘JV Participation

Certificate’ also finds mention of the ‘expected sum of participation of JV

Completion’.

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10.9 Further the fact that investors do not have discretion to cancel the arrangement, at any

point of time, and take back their money indicates that the money contributed by the

investors stay pooled. Though in its reply dated April 16, 2014 stated that when the

project size is expanded, the associate has the discretion for refund of his project participation. If

someone wants to exit the joint venture at any point of time, they can exercise the option, there is no

such clause in the Annexure D to that effect. Instead, clause 13 of the “Annexure D” which

mentions cancellation does not indicate the said cancellation can be exercised by

investor. Further I note the fact that the consequences of “ cancellation” in terms of

returnability of the amount so far paid, is not mentioned anywhere in the Agreement

or other documents submitted by the Company. However, brochure submitted by the

Company mentions the eventuality of discontinuing the contributions by investor. As

per the eventuality, the discontinued payment will be returned with additional amounts

(except in case the discontinuation is within a year of its “joint venture period”) only

after the expiry of the term of agreement. This clearly shows that although the

company pleaded that the investor has discretion to cancel, the same is not borne out

by records. Therefore, it cannot be said that the investor has any right of cancellation

exercisable at any point of time.

10.10 As regards, the second requirement, that contributions/payments were made by the

investors with a view to receive profits, income, produce or movable or immovable

property from such scheme, I have already noted earlier, as per clause 7 of Annexure

D, that the company agreed with the investor that it would pay an “expected sum of

participation on JV completion”/ on maturity.

10.11 For example as mentioned in para 10.8 in respect of various “JVPSS”/schemes

offered by SPCL, if an investor invested Rs 48,000/- in “JV Participation Subscription

Structure – AC”, monetary return of Rs. 63,360/- in the name of “Expected Sum of

Participation on JV Completion” is offered on the lapse of 48 months. This is in

addition to the financial assistance of Rs. 75,000 in case of accidental death. In the

same way, an investor who has made an investment of Rs. 10,000/- in the scheme

titled as "One Time Participation Structure ‘EC’ for 5 Yrs”, the Company agreed a

monetary return of Rs. 19,500 in the name of “Expected Sum of Participation on JV

Completion”. This amount is paid in additional to the financial assistance of Rs. 15,000

in case of accidental death. In this way, depending upon the quantum of amount

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invested and the period of investment, varying amounts are offered as returns in

different plans as stated in the abovementioned tables mentioned in para 2.2.

10.12 Thus, I find that in the instant scheme, contributions/payments were made by the

investors with a view to receive “income” from such scheme.

10.13 As regards the third requirement that the property, contribution or investment

forming part of the scheme, whether identifiable or not, is managed on behalf of the

investors, and the fourth requirement that the investors do not have the day to day

control over the management and operation of the scheme, the noticees vide reply

dated April 16, 2014, did not take any specific stance.

10.14 On examination of clause 3 of the Annexure D, I find that the company has stated

that it would look after the financial side of the projects as well as the administration

of the business. The said clause also provides that the co-venturer shall look into the

aspects of development of specific project. It also provided in the said clause that the

“co-venturer” can interfere with the project in which he is participating. In respect of

other projects where he is not participating any “co-venturer” does not have any right

in the management and policies of the company. Seemingly this clause is couched in

such a language, so that an argument can be advanced that the investor also has

contractual obligation of developing the “specific project” in which he participates.

10.15 However, as found earlier, except for identifying a project as ‘AC’ ‘BC’, ‘CC’,’ DC’,

‘EC’,’FC’, ‘GC’, and ‘JC’, there is no description of any project. There is nothing to

suggest how these different “projects” can be identified by the investor, so that he can

look into the aspect of development or interfere with said projects. The sheer

impossibility of identifying the said “projects”, makes those developmental rights

exist only on paper without any possibility of usage by investor. Further as found

earlier in para 9.3 (d) (ii) the letter of allocation of land is in respect of undivided

land. It would be highly inconceivable how an investor would be able to exercise his

developmental rights over his “unascertained share” in the undivided land. It also

raises the suspicion such clauses have been inserted by SPCL to advance the case that

the schemes do not fall within CIS. In view of that, I find that the investor do not have

any right or day-to-day, control over the management and operation of the scheme or

arrangement.

Page 22 of 28

10.16 As far as the management of the contribution of the investor is concerned, the said

money is to be utilized for the purpose of return termed as “expected sum of

participation value”. The investor also does not have discretion to take away his money

at any time until the period of expiry of the term. The said money is managed by SPCL

in order to provide monetary return. Therefore, it is clear such contribution is

managed on behalf of the investor. The property of SPCL also stands as "collateral

security” which will be sold by SPCL if it is unable to repay the participation value

further shows that property of SPCL is also managed on behalf of the investor.

10.17 Hence I find that the instant arrangement/scheme satisfies the third and fourth

conditions for CIS schemes.

10.18 In view of the satisfaction of the all the four conditions, I find that the instant

arrangement/schemes falls within the definition of collective investment schemes. As

all the four conditions specified under section 11AA(2) of the SEBI Act are satisfied

in this case, the schemes/ plans promoted, launched, carried on and operated by the

noticees are in the nature of CIS in terms of section 11AA(1). In this regard, it would

be relevant to place reliance on the observations of the Hon'ble Supreme Court, made

in the matter of PGF Limited &Ors. Vs. Union of India &Anrs. (Civil Appeal No. 6572

of 2004):

"Therefore, the paramount object of the Parliament in enacting the SEBI Act itself and in particular the addition of Section 11AA was with a view to protect the gullible investors most of whom are poor and uneducated or retired personnel or those who belong to middle income group and who seek to invest their hard earned retirement benefits or savings in such schemes with a view to earn some sustained benefits or with the fond hope that such investment will get appreciated in course of time. Certain other Section of the people who are worstly affected are those who belong to the middle income group who again make such investments in order to earn some extra financial benefits and thereby improve their standard of living and on very many occasions to cater to the need of the educational career of their children. 38. Since it was noticed in the early 90s that there was mushroom growth of attractive schemes or arrangements, which persuaded the above vulnerable group getting attracted towards such schemes and arrangements, which weakness was encashed by the promoters of such schemes and arrangements who lure them to part with their savings by falling as a prey to the sweet coated words of such frauds, the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act. ...

... ... 40. It will have to be stated with particular reference to the activity of the PGF Limited, namely, sale and development of agricultural land as a collective investment scheme, the implication of Section 11AA was not intended to affect the development of agricultural land

Page 23 of 28

or any other operation connected therewith or put any spokes in such sale-cum-development of such agricultural land. It has to be borne in mind that by seeking to cover any scheme or arrangement by way of collective investment scheme either in the field of agricultural or any other commercial activity, the purport is only to ensure that the scheme providing for investment in the form of rupee, anna or paise gets registered with the authority concerned and the provision would further seek to regulate such schemes in order to ensure that any such investment based on any promise under the scheme or arrangement is truly operated upon in a lawful manner and that by operating such scheme or arrangement the person who makes the investment is able to really reap the benefit and that he is not defrauded ... ... It is, therefore, apparent that all other schemes/arrangements operated by all others, namely, other than those who are governed by sub-section 3 of Section 11AA are to be controlled in order to ensure proper working of the scheme primarily in the interest of the investors. ... ... 42. Therefore, in reality what sub-section (2) of Section 11AA intends to achieve is only to safeguard the interest of the investors whenever any scheme or arrangement is announced by such promoters by making a thorough study of such schemes and arrangements before registering such schemes with the SEBI and also later on monitor such schemes and arrangements in order to ensure proper statutory control over such promoters and whatever investment made by any individual is provided necessary protection for their investments in the event of such schemes or arrangements either being successfully operated upon or by any misfortune happen to be abandoned, where again there would be sufficient safeguards made for an assured refund of investments made, if not in full, at least a part of it. ... ... In the light of our above conclusions on this ground it will have to be held that Section 11AA is a valid provision, not suffering from any infirmity, as it does not intrude into the specific activities of sale of agricultural land and its development. ... ... It is needless to state that as per the agreement between the customer and the PGF Limited, it is the responsibility of the PGF Limited to carry out the developmental activity in the land and thereby the PGF Limited undertook to manage the scheme/arrangement on behalf of the customers. Having regard to the location of the lands sold in units to the customers, which are located in different states while the customers are stated to be from different parts of the country it is well-neigh possible for the customers to have day to day control over the management and operation of the scheme/arrangement. In these circumstances, the conclusion of the Division Bench in holding that the nature of activity of the PGF Limited under the guise of sale and development of agricultural land did fall under the definition of collective investment scheme under Section 2(ba) read along with Section 11AA of the SEBI Act was perfectly justified and hence, we do not find any flaw in the said conclusion. ... .... 53. We, therefore, hold that Section 11AA of the SEBI Act is constitutionally valid. We also hold that the activity of the PGF Limited, namely, the sale and development of agricultural land squarely falls within the definition of collective investment scheme under Section 2(ba) read along with Section 11AA (ii) of the SEBI Act and consequently the order of the second respondent dated 06.12.2002 is perfectly justified and there is no scope to interfere with the same. In the light of our above conclusions, the PGF Limited has to comply with the directions contained in last paragraph of the order of the second respondent dated 06.12.2002 ... ..."

11. If so, whether the noticees have violated Section 12(1B) of the SEBI Act and

Regulation 3 of the CIS Regulations’ and Regulation 4(2)(t) of the SEBI

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(Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities

Market) Regulations, 2003 :

11.1 Section 12(1B) of the SEBI Act mandates that no person, shall sponsor or cause to be

sponsored or carry on or caused to be carried on any CIS, unless it obtains a certificate

of registration from SEBI in accordance with the CIS Regulations. The prohibition is

on every person. Regulation 3 of the CIS Regulations provides that no person other

than a Collective Investment Management Company which has obtained a certificate

under the said regulations shall carry on or sponsor or launch a 'CIS'. A person can

launch or sponsor or cause to sponsor a CIS only if it is registered with SEBI as a

Collective Investment Management Company. Therefore, the launching/ floating/

sponsoring/ causing to sponsor 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.

11.2 I find that the noticees have launched and are carrying on collective investment

schemes, without obtaining certificate of registration from SEBI. Therefore, the

noticees have contravened the provisions of Section 12(1B) of the SEBI Act and

Regulation 3 of the CIS Regulations.

11.3 In respect of the allegation of violation of reg. 4(2) (t) of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations,

2003 (FUTP Regulations, 2003), it may be noted the FUTP Regulations was amended

with effect from Sept 06, 2013 and clause (t) to reg. 4(2) was inserted which reads as

follows:-

4. Prohibition of manipulative, fraudulent and unfair trade practices (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely (a)… "(t) illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person."

11.4 Subsequent to the introduction of reg. 4(2) (t) of FUTP Regulations, 2003, the illegal

mobilisation of funds by means of collective investment schemes are deemed to be

fraudulent. The company carrying on unregistered collective investment schemes and

all those persons who are directors as on the date of introduction of reg. 4(2) (t) of

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FUTP Regulations, 2003 will be liable for action, for violation of reg. 4(2) (t) of FUTP

Regulations, 2003. In the present case, on perusal of summary of joint venture

participation-scheme wise, year wise” enclosed as annexure F to the reply dated April

16, 2014, I find that SPCL has admittedly collected Rs. 478.35 crores during the

financial year 2013-14. Therefore, the directors as on Sept 06, 2013 and the company

have violated reg. 4(2) (t) of FUTP Regulations. Mr. Balasaheb K Bhapkar, Mr.

Shashank B Bhapkar and Mrs. Vandana B Bhapkar being directors as on Sept 06, 2013

and company have violated this provision.

11.5 In respect of the reference in the interim order, that SEBI has already passed orders

dated July 17, 2013, against Mr. Balasaheb K. Bhapkar, Mr. Shashank B. Bhapkar and

Mrs. Vandana B. Bhapkar, in the matter of SPPL and SPFL directing them "not to

collect any more money from investors under the existing schemes; not to launch any

new schemes or plan", until further orders, in view of the prima facie findings therein

that they are running 'collective investment schemes', without obtaining a certificate

of registration from SEBI and further reference that these directors are continuing

to collect funds from the public, through SPCL, wantonly flouting the directions

issued by SEBI on July 17, 2013, I find that as stated in previous para, SPCL and its

three directors have collected Rs. 478.35 crores during the financial year 2013-14 in

violation of SEBI orders dated July 17, 2013. In this regard, I further find that SPCL

has made a false assertion vide its letter dated June 25, 2014 to SEBI that no new

scheme has been started subsequent to July 17, 2013 till date of the letter.

11.6 I further note that, SPCL vide letter dated June 25, 2014 gave an undertaking to SEBI

to return the money at the earliest, and give the details of money already returned to

SEBI on every fifteenth day of every month giving. However, no such report has been

filed with SEBI.

11.7 I find from the material on record that Mr. Balasaheb K. Bhapkar, Mr. Shashank B.

Bhapkar and Mrs. Vandana B. Bhapkar are the directors of SPCL. I note that the

above directors were on the Board of the Company during the time the Company had

been collecting monies. Therefore, they are responsible for the violations along with

the Company.

11.8 I further note that SPCL had vide letter dated March 30, 2014 sought an opportunity

to register its joint-ventureship agreements under Chapter IX of SEBI (CIS)

Regulations as collective investment schemes. It also sought to regularize its joint-

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ventureship agreements in the interest of its joint venture partners. The same was

rejected by SEBI vide its letter dated June 11, 2015. As stated earlier Appeal No. 362

of 2015 was filed by SPCL challenging SEBI’s letter dated June 11, 2015. Hon’ble

SAT has allowed SPCL to make application to SEBI for registration, within six weeks

from the date of order. I find that pursuant to the observation made by Hon’ble SAT

in Appeal No. 362/2015, no application for registration was received by SEBI till date.

11.9 In view of the violation committed by such directors and the company, they are liable,

to wind up the scheme and repay the amount collected along with the company with

promised returns, to be restrained from collecting any money from the investors or

launch or carry out any Collective Investment Schemes, or restrained from accessing

the securities market or to be prohibited from buying, selling or otherwise dealing in

securities market and therefore necessary consequential directions are required to be

passed by SEBI to that effect.

12.1 In view of the observations made in this order, I, in exercise of the powers conferred

upon me under Section 19 of the Securities and Exchange Board of India Act, 1992

and Sections 11(1), 11B and 11(4) thereof and Regulation 65 of the SEBI (Collective

Investment Schemes) Regulations, 1999, hereby issue the following directions:

a) Sai Prasad Corporation Ltd (PAN- AAQCS7428B) and its directors, Shri Balasaheb

K. Bhapkar (PAN-AFIPB3674A), Shri Shashank B Bhapkar (PAN-AQHPB8639H)

Mrs. Vandana B. Bhapkar (PAN -AFIPB3675B), are restrained from collecting any

money from the investors or launch or carry out any Collective Investment Schemes

including the schemes which have been identified as a Collective Investment Schemes

in this Order.

b) Sai Prasad Corporation Ltd and its directors, Shri Balasaheb K. Bhapkar, Shri

Shashank B Bhapkar, Mrs. Vandana B. Bhapkar, are restrained from accessing the

securities market, and are prohibited from buying, selling or otherwise dealing in

securities market, for a period of four years.

c) Sai Prasad Corporation Ltd and its directors, Shri Balasaheb K. Bhapkar, Shri

Shashank B Bhapkar, Mrs. Vandana B. Bhapkar shall wind up the existing Collective

Investment Schemes and refund through ‘Bank Demand Draft’ or ‘Pay Order’, the

money collected by the said company under the schemes with returns which are due

to the investors as per the terms of the offer, within a period of three months from

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the date of this Order and thereafter within a period of fifteen days, submit a winding

up and repayment report to SEBI in accordance with the SEBI (Collective Investment

Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank

account statements indicating refund to the investors and receipt from the investors

acknowledging such refunds.

d) Sai Prasad Corporation Ltd and its directors, Shri Balasaheb K. Bhapkar, Shri

Shashank B Bhapkar, Mrs. Vandana B. Bhapkar, shall not alienate or dispose off or

sell any of the assets of Sai Prasad Corporation Ltd except for the purpose of making

refunds to its investors as directed above.

e) Sai Prasad Corporation Ltd and its directors, Shri Balasaheb K. Bhapkar, Shri

Shashank B Bhapkar, Mrs. Vandana B. Bhapkar, are also directed to provide a full

inventory of all their assets and properties and details of all their bank accounts, demat

accounts and holdings of shares/securities, if held in physical form.

12.2 In the event of failure by Sai Prasad Corporation Ltd and its directors, Shri Balasaheb

K. Bhapkar, Shri Shashank B Bhapkar, Mrs. Vandana B. Bhapkar, to comply with the

above directions

a) Sai Prasad Corporation Ltd and its directors, Shri Balasaheb K. Bhapkar, Shri

Shashank B Bhapkar, Mrs. Vandana B. Bhapkar shall remain restrained from

accessing the securities market and would further be prohibited from buying, selling

or otherwise dealing in securities, even after the period of four years of restraint

imposed in paragraph 12.1 (b) above, till all the Collective Investment Schemes are

wound up and all the monies mobilized through such schemes are refunded to its

investors with returns which are due to them.

b) SEBI would make a reference to the State Government/ Local Police to register a

civil/ criminal case against Sai Prasad Corporation Ltd and its directors, its promoters,

directors and its managers/ persons in-charge of the business and its schemes, for

offences of fraud, cheating, criminal breach of trust and misappropriation of public

funds; and

c) SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the

process of winding up of the company, Sai Prasad Corporation Ltd.

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d) SEBI shall initiate attachment and recovery proceedings under the SEBI Act and rules

and regulations framed there-under.

13. This Order shall be without prejudice to the right of SEBI to initiate prosecution

proceedings under Section 24 and adjudication proceedings under Chapter VIA of the

Securities and Exchange Board of India Act, 1992 against Sai Prasad Corporation Ltd

and its directors, Shri Balasaheb K. Bhapkar, Shri Shashank B. Bhapkar, Mrs. Vandana

B. Bhapkar, including other persons who are in default, for the violations as found in

this Order.

14. This order shall come into force with immediate effect.

15. Copy of this Order shall be forwarded to the stock exchanges and depositories for

necessary action.

Date : February 01, 2016 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA