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









CIVIL APPEAL NO. 19936 OF 2017





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The civil appeal is allowed to be withdrawn.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
Date: 2020.02.19
17:48:46 IST
Yatra Art Fund II (Fund II) were created under the Indian

Trusts Act, 1882, through execution of Indentures of Trust

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


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

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

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
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

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

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


What is of importance is to notice that the expression

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
(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
(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
(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;

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,

(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,

(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

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.

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

CIVIL APPEAL NO. 54 OF 2016 etc.

this behalf.

The appeal stands disposed of.


In terms of our judgment in Civil Appeal No. 19936 of

2017, this appeal stands disposed of.

………………………………………………………………………., J.

………………………………………………………………………., J.

………………………………………………………………………., J.

New Delhi;
February 12, 2020.



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