In the matter of:

Jayraj S Sheth                                                       Appellant

Vs.

Securities & Exchange Board of India              Respondent
 
 

APPEARANCE:

Mr. Jayraj S Sheth
Appellant                                                             for Appellant

Mr. S.V.Krishna Mohan
Dy. Legal Adviser, SEBI

Mr. Praveen Trivedi
Asstt. Legal Adviser, SEBI                                 for Respondent
 

(Appeal arising out of the order dated 7.12.2000 made by the Chairman, Securities & Exchange Board of India)

The Appellant is aggrieved by the directions issued by the Respondent under section 11B of the Securities and Exchange Board of India Act, 1992 (the Act) read with regulations 65 and 73 of the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999. Material portion of the impugned order reads as under:
 

"You had filed information/details with SEBI regarding your Collective Investment Schemes pursuant to SEBI Press Release dated November 26, 1997 and/or public notice dated December 18,1997 and/or our letter. Subsequent to the notification of SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as the said regulations) dated October 15, 1999, any person who immediately prior to the commencement of these regulations was operating a Collective Investment Scheme(s) shall make an application to SEBI for grant of registration within a period of two months from the date of notification, under the provisions of the said Regulations.

SEBI having regard to the interest of the investors and requests received from various entities, extended the last date for submitting application by existing entities upto March 31, 2000 and the same was intimated by SEBI vide a press release and a public notice. However, you did not apply for grant of registration with SEBI as provided under the said Regulations.

As per regulation 73 (1) of the said regulations an existing Collective Investment Scheme, which has failed to make an application for registration with SEBI, shall wind up the existing scheme(s) and repay the investors. Further as per regulation 74, an existing Collective Investment Scheme, which is not desirous of obtaining provisional registration from SEBI shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in Regulation 73.

SEBI vide letter dated December 15, 1999/December 29, 1999 and also by way of a public notice dated December 10, 1999, had given individual intimation in terms of regulation 73 (2) which casts an obligation on you to send an Information Memorandum to all the investors detailing the state of affairs of the scheme(s), the amount repayable to each investor and the manner in which such amount is determined. Accordingly, you were required to send the Information Memorandum to the investor latest by February 28, 2000. You have neither applied for registration under SEBI (Collective Investment Scheme) Regulation, 1999 not have taken any step for winding up of the schemes in the manner provided under the said Regulation for repayment to the investors. It is, therefore, noted that you have prima facie violated the provisions of section 12 (1B) of SEBI Act, 1992 and regulation 5 (1) read with regulation 68 (1), 68 (2), 73 and 74 of SEBI (Collective Investment Schemes) Regulations, 1999.

SEBI also issued a public notice dated March 31, 2000, in the newspaper inviting your attention to the aforesaid position.

Further, a notice dated May 12, 2000, was issued to you asking you to show cause as to why the action as stated therein be not initiated against you. However, you have neither replied to this show cause notice nor have you responded to the news paper publication.

Now, therefore, in exercise of the powers conferred upon me under section 11B of SEBI Act, 1992 I hereby direct you to refund the money collected under the scheme (s) with returns, which is due to the investors as per the terms of the offer within a period of one month from the date of this Order failing which the following actions would follow: -

• Initiation of prosecution under section 24 of SEBI Act, 1992, which prescribes imprisonment for a term, which may extend to one year or with fine, or with both against you / promoters / directors / managers / persons in charge of the business of your scheme.

• You/promoters/directors/managers/persons in charge of the business of your scheme would be debarred from operating in the capital market for a period of 5 years.

• Writing to the State Governments/local police to register civil/criminal cases against you for apparent offences of fraud, cheating, criminal breach of trust and misappropriation of public funds.

• Writing to the Department of Company Affairs to initiate the process of winding up of your company".

It is seen from the pleadings that there is a Civil Writ Petition No.3352/98 pending before the Delhi High Court in which the Appellant and the Respondents have been made parties. However, the Representatives of the Appellant and the Respondent have categorically stated that the impugned order and the resultant appeal are not covered under the said CWP and the matter is not subjudice. Based on the said submission, the present appeal was taken up for consideration.
 

Shri Jayraj S Sheth explained the nature of the activities being carried out under the scheme and also the history of the scheme. He also explained in detail as to in what way his case was different from certain Collective Investment Scheme entities along with whom he has been arrayed as a defaulter. He refuted the version that he had not responded to the press release and the notices issued by the Respondent. He has clearly established with documentary evidence that he had been corresponding with the Respondent and had explained in detail the legal and factual position specific to his business to the Respondent and the impugned order has been passed without taking into consideration those submissions. Shri Jayraj S Sheth submitted in detail the factual and legal position in support of his case, to show that the order has no basis. He has filed well documented written submissions in support of his case.
 

Shri Krishna Mohan, representing the Respondent admitted that the order has not discussed the specific facts relating to the Appellant. He submitted that the Respondent would not have any objection in reconsidering the Appellant�s case in the light of the material facts brought to its notice.
 

On a perusal of the material facts furnished before me by the Appellant, it is evident that the impugned order was made on the mere assumption that the Appellant had not responded to the Respondent�s instructions, show cause notice etc., It has been amply established by producing documentary evidence that the Appellant was corresponding with Respondent all through and all the requisite information had been furnished and infact the Respondent was wanting in responding to the Appellant�s queries/requests. The Respondent has not denied the Appellant�s version of filing information, statement, and reply to the show cause notice etc., etc. It is therefore obvious that the impugned order was made without considering the material facts furnished by the Appellant.
 

In the circumstances stated above it is felt that the Appellant�s case need be re-examined and decided, taking into consideration all the relevant facts and also after providing him a reasonable opportunity of being heard. The Respondent will thereafter pass a detailed speaking order.
 

Accordingly the matter is remanded for de novo consideration by the Respondent.
 

Thus, the appeal is allowed, by way of remand.