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Supreme Court of India
Osians Connoisseurs Of Art Pvt. … vs Securities And Exchange Board Of … on 12 February, 2020Author: Rohinton Fali Nariman
Bench: Rohinton Fali Nariman, S. Ravindra Bhat, V. Ramasubramanian
‘REPORTABLE’
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 54 OF 2016
OSIANS CONNOISSEURS OF ART PVT. LTD. Appellant(s)
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR. Respondent(s)
WITH
CIVIL APPEAL NO. 19936 OF 2017
CIVIL APPEAL NO. 77 OF 2018
J U D G M E N T
R. F. NARIMAN, J.
CIVIL APPEAL NO. 54 OF 2016
Learned senior counsel appearing for the appellant
seeks permission of the Court to withdraw the civil appeal.
The civil appeal is allowed to be withdrawn.
CIVIL APPEAL NO. 19936 OF 2017
The brief facts leading to the filing of the present
civil appeal are as follows:
Signature Not Verified Two trusts named Yatra Art Fund Trust (Fund I) and
Digitally signed by
SUSHMA KUMARI
BAJAJ
Date: 2020.02.19
17:48:46 IST
Reason:
Yatra Art Fund II (Fund II) were created under the Indian
Trusts Act, 1882, through execution of Indentures of Trust
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CIVIL APPEAL NO. 54 OF 2016 etc.
dated 15.06.2005 and 01.12.2006.
A perusal of the trust deed shows that both these
trust Funds were created for an initial period of 4-4½
years, the first Fund ending, after extension of one year,
on 15.09.2011. Insofar as the second Trust Fund is
concerned, this Trust Fund was also extended and ended on
31.01.2012. It may also be mentioned that these Trusts
Funds were established so that investors could invest in
works of art. In the Confidential Information Memorandum,
it was made clear to the investors that these were
investments which were fraught with grave risks and that the
investors invest in these Trusts Funds with open eyes
knowing of the aforesaid risks.
So far as the first Fund was concerned, a total corpus
amounting to Rs.10.95 crores was collected from the
investors. We are informed that 50 such investors invested
in this Fund. So far as the second Fund is concerned, the
total corpus was Rs.21.92 crores, with 132 persons having so
invested.
On 18.06.2007, the Securities and Exchange Board of
India (hereinafter referred to as ‘SEBI’) first apprised the
appellants, who are the trustees of these two Trusts Funds
stating that, as these Funds were Collective Investment
Schemes, they should apply for certificates of registration
insofar as these Funds were concerned. This was responded
to by Fund I on 16.07.2007, denying that the activities
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CIVIL APPEAL NO. 54 OF 2016 etc.
would amount to the activities of a Collective Investment
Scheme. As a result thereof, on 12.10.2007, SEBI issued a
Show Cause Notice to show cause as to why the Yatra Art Fund
should not register itself with SEBI in the prescribed
corporate form, as otherwise the collective investment
scheme carried out by the Trust would be illegal. The show
cause notice also mentioned that all amounts collected
should be refunded within a period of 30 days from the said
show cause notice. On 05.11.2007, the appellants responded
to the aforesaid show cause notice stating that there was no
violation of Section 12 (1B) of the Securities and Exchange
Board of India Act, 1992 (hereinafter referred to as ‘SEBI
Act’) read with Regulation 3 of SEBI (Collective Investment
Scheme) Regulations, 1999 (hereinafter referred to as ‘CIS
Regulations’); and as the appellants were not registered in
the form of a company, the Regulations themselves would not
apply. Secondly, detailed arguments were made as to why the
schemes involved could not be said to be collective
investment schemes. One year later, on 03.11.2008, a joint
representation to SEBI was made stating that the aforesaid
schemes floated by the appellants were not collective
investment schemes, reiterating that they were not made in
the corporate form.
It appears that, at this point of time, SEBI itself
was unsure as to whether such funds would amount to
collective investment schemes. However, in 2013, the matter
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CIVIL APPEAL NO. 54 OF 2016 etc.
was resuscitated and after giving the appellants a hearing,
inasmuch as as many as nine investors complained with regard
to Trust Fund No.2, including an Investors’ Association, an
order was delivered by the whole-time member of SEBI on
06.11.2015 as follows:
“29. In view of the foregoing, I, in exercise of the
powers conferred upon me under Section 19 of the
Securities and Exchange Board of India Act, 1992
read with Sections 11 and 11B thereof and Regulation
65 of the SEBI (Collective Investment Scheme)
Regulation, 1999, hereby issue the following
directions:
a. Yatra Art fund shall abstain from collecting any
money from the investors or launch or carry out any
Collective Investment Schemes including the scheme
which have been identified as a Collective
Investment Scheme in this Order.
b. Yatra Art Fund is directed to refund the entire
monies collected by it under its scheme to all the
investors along with the returns at the rate of 10%
per annum, within a period of three months from 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.
c. Yatra Art Fund is restrained from accessing the
securities market and are prohibited from buying,
selling or otherwise dealing in securities market
for a period of four (4) years.
d. Yatra Art Fund is also directed to immediately
submit the complete and detailed inventory of the
assets owned by Yatra Art Fund.
e. In the event of failure by Yatra Art Fund to
comply with the above directions, the following
actions shall follow:
– Yatra Art Fund shall remain restrained from
accessing the securities market and would furhter be
prohibited from buying, selling or otherwise dealing
in securities, even after the period of four (4)
years of restraint imposed in Paragraph 29(c) above,
till all the monies mobilized through such schemes
are refunded to its investors with interest, which
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CIVIL APPEAL NO. 54 OF 2016 etc.
are due to them.
– SEBI would make a reference to the State
Government/Local Police to register a civil/criminal
case against Yatra Art Fund, 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
– SEBI shall also initiate attachment and recovery
proceedings under the SEBI Act and rules and
regulations framed thereunder.”
An appeal was carried to the Securities Appellate
Tribunal, which was then disposed of on 21.08.2017,
following the Appellate Tribunal’s judgment dated 13.10.2015
in Osian’s – Connoisseurs of Art Private Limited v.
Securities and Exchange Board of India & Anr. It may be
pointed out that the Appellate Tribunal set aside the
paragraphs of the SEBI’s order which required the State
Government to make a reference to register civil/criminal
cases against the Fund and initiate attachment and recovery
proceedings under the SEBI Act and Rules and Regulations.
However, insofar as paragraph 29 (b) set out hereinabove of
SEBI’s order was concerned, the Appellate Tribunal remanded
the matter to SEBI, adopting the reasoning contained in the
earlier Tribunal judgment of 13.10.2015 as follows:
“……………………………………………………………………………
………………………………………………………………………………
For the reasons stated in our order in Appeal No. 62
of 2013 decided on October 13, 2015 the present
appeals are disposed of in terms set out therein”
Having heard Shri K.V. Vishwanathan, learned senior
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CIVIL APPEAL NO. 54 OF 2016 etc.
counsel appearing for the appellants and Shri C. U. Singh,
learned senior counsel appearing for the respondent-SEBI,
for some time, it would not be possible to state that the
Schemes in the present case would not be Collective
Investment Schemes. It is difficult, therefore, to
interfere with the concurrent findings made in this behalf
by both SEBI and the Appellate Tribunal.
Further, the arguments made by Shri Vishwanathan,
learned senior counsel, based upon the language of Section
11AA of the SEBI Act does not commend itself to us. It may
be mentioned that Section 11 (2)(c) of the SEBI Act states
as follows:
“11 (2) Without prejudice to the generality of the
foregoing provisions, the measures referred to
therein may provide for-
……………………………………………………………………………………………….
……………………………………………………………………………………………….
(c) registering and regulating the working of
venture capital funds and collective investment
schemes, including mutual funds;”
In 1995, Section 12(1B) was introduced, by which it
became clear that no person can sponsor or cause to be
sponsored or carry on or cause to be carried on any
collective investment scheme unless he obtains a certificate
of registration from the Board in accordance with the
regulations.
What is of importance is to notice that the expression
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CIVIL APPEAL NO. 54 OF 2016 etc.
“person” is used by Section 12(1B). However, in 1999, by
amendment, Section 11AA was introduced in which it was
stated as follows:
“11AA. Collective investment scheme.- (1) Any scheme
or arrangement which satisfies the conditions
referred to in sub-section (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 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
company under which,-
(i) the contributions, or payment made by the
investors, by whatever name called, are pooled
and utilized 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
registered under the Co-operative Societies Act,
1912 (2 of 1912) or a society being a society
registered or deemed to be registered under any
law relating to co-operative societies for the
time being in force in any State;
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CIVIL APPEAL NO. 54 OF 2016 etc.
(ii) under which deposits are accepted by non-
banking financial companies as defined in clause
(f) of section 45-I of the Reserve Bank of India
Act, 1934;
(iii) being a contract of insurance to which the
Insurance Act, 1938, applies;
(iv) providing for any Scheme, Pension Scheme or
the Insurance Scheme framed under the Employees
Provident Fund and Miscellaneous Provisions Act,
1952;
(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 under section 620A of the Companies Act,
1956;
(vii) falling within the meaning of Chit business
as defined in clause (e) of section 2 of the Chit
Fund Act, 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.”
Based on the aforesaid, Shri Vishwanathan argued that
it would not be possible for him to fall foul of the law
considering that Section 11AA uses the word “company” and
not “person”, and as his client carried on this business in
the form of a Trust, the provisions of SEBI Act would not be
attracted at all.
This argument would fly in the face of both Section
12(1B) and the CIS Regulations, in particular, Regulation
2(h), which defined a “Collective Investment Management
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CIVIL APPEAL NO. 54 OF 2016 etc.
Company” as follows:
“(h) “Collective Investment Management Company”
means a company incorporated under the Companies
Act, 1956 and registered with the Board under these
regulations, whose object is to organise, operate
and manage a collective investment scheme;”
Regulation 3 of the CIS Regulations states:
“3. No person other than a Collective Investment
Management Company which has obtained a certificate
under these regulations shall carry on or sponsor or
launch a collective investment scheme.”
The statutory scheme, therefore, is that, if a
collective investment scheme, as defined, is to be floated
by a person, it could only be done in the form of a
collective investment management company and in no other
form. This is the reason why Section 11AA uses the
expression “company” in sub-Section (2) and not the word
“person” (as the CIS Regulations of 1999 had come into force
on 15.10.1999; Section 11AA being enacted and coming into
force on 22.02.2000).
Once the statutory scheme becomes clear, it is clear
that the collective investment scheme that was being carried
on by the appellants in the form of a private Trust would be
in the teeth of the Statute read with the CIS Regulations
and would thus be illegal.
This being the case, it is difficult to upset any part
of SEBI’s order that remains after the penultimate part of
the order was set aside by the Appellate Tribunal.
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CIVIL APPEAL NO. 54 OF 2016 etc.
However, we find that this litigation has been going
on for an extremely long period of time and instead of
remanding the matter to SEBI to decide the refund issue
afresh, we order as follows:
The principal amount repayable to each investor of
both the Schemes shall be paid back within a period of six
months from today in the following manner:
We are informed that so far as the first Fund is
concerned, 81.32 per cent of the total principal sum of
Rs.10.95 crores has been repaid.
Insofar as Fund No. 2 is concerned, we have been
informed that 50 per cent of the principal amount of
Rs.21.92 crores has been repaid.
The balance owing to the 50 investors of Fund No. 1
and to the 132 investors of Fund No. 2 be therefore, repaid
within six months from the date of this judgment.
So far as the interest at the rate of 10 per cent is
concerned, this amount will be paid on the principal
outstanding amount from the date on which it becomes due to
each such member, till the date on which each Fund came to
an end, i.e., insofar as Fund No. 1 is concerned till
15.09.2011 and so far as Fund No. 2 is concerned till
31.01.2012. The aforesaid interest shall be paid within
nine months from the date of this judgment.
Once the amounts are actually paid within the time
period specified, compliance report be filed with SEBI in
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CIVIL APPEAL NO. 54 OF 2016 etc.
this behalf.
The appeal stands disposed of.
CIVIL APPEAL NO. 77 OF 2018
In terms of our judgment in Civil Appeal No. 19936 of
2017, this appeal stands disposed of.
………………………………………………………………………., J.
[ ROHINTON FALI NARIMAN ]
………………………………………………………………………., J.
[ S. RAVINDRA BHAT ]
………………………………………………………………………., J.
[ V. RAMASUBRAMANIAN ]
New Delhi;
February 12, 2020.
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