In the matter of:

Pagoda Forests Ltd                                                     Appellant

Vs.

Chairman,
Securities and Exchange Board of India                Respondent
 
 

APPEARANCE:

Mr. Bharat Merchant
Advocate

Mr. Utpal Joshi
Advocate
i/by Thakoradas & Madgavkar

Mr. S.K. Aware
Representative of the Appellant                           for Appellant

Mr. Praveen Tridevi
Legal Officer, SEBI

Mr.Vijayakrishnan G
Legal Officer, SEBI                                                for Respondent
 

(Appeal arising out of the order dated May 2, 2001, made by the Securities and Exchange Board of India)

The Appellant is a public limited company registered under the Companies Act, 1956. It was registered in the year 1996. It is engaged in plantation business and comes under the regulatory provisions applicable to collective investment schemes notified by the Respondent. The paid up capital of the Appellant, as disclosed in its Balance sheet as on March 31, 2000 is rupees twenty lakhs comprising two lakh equity shares of rupees ten each.
 

The Respondent is a statutory Board established under the Securities and Exchange Board of India Act, 1992 (the Act). The object of the said Act is to protect the interests of investors in securities and to promote the development of and to regulate the securities market. Section 11 of the Act enumerates the functions of the Respondent. The section mandates the Respondent to protect the interests of investors by such measures as it thinks fit. Registering and regulating collective investment schemes is one of the measures, which the Respondent is empowered to take. The Respondent in exercise of the powers so vested in it, has notified the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 (the Regulation) which came into force with effect from October 15, 1999. The said Regulation provides for registration of the existing collective investment schemes and also the new schemes. The Regulation also provides certain measures to regulate the activities of the said schemes.
 

The Appellant being an operating collective investment scheme on the date of notification of the Regulation, come under the regulatory regime of the said regulations. Therefore it was required to get registered with the Respondent with in the stipulated time as per the requirements set out under chapter IX of the Regulations. The Appellant approached the Respondent seeking registration, some time in December 1999. But the Respondent rejected the request, and communicated its decision vide its letter dated May 2, 2001. The rejection order reads as under:

Shri Bharat Merchant, Counsel for the Appellant submitted that the ownership and management of the Appellant have changed since filing of the application for registration in December 1999. He narrated the changes that have taken place in the management of the scheme and in the shareholding pattern of the Appellant and stated the efforts put in by the present management to protect the interests of the investors in the schemes. He stated that the impugned order has been made without taking into consideration the relevant material placed before the Respondent. He submitted that though the Respondent is required to issue a speaking order, it has opted to issue a cryptic order without disclosing adequate reasons for arriving at the decision to reject the application. He stated that for the purpose of considering the application for registration the Respondent is required to go by the requirements specified in regulation 70, that as per the said regulation the Respondent is required to satisfy that (a) the schemes of the applicant are in the nature of collective investment scheme(s); (b) the affairs of the applicant are not being conducted in a manner detrimental to the interest of existing investors, (c) the applicant has at least 50% independent directors in its Board of Directors at the time of making the application and (d) any person, directly or indirectly connected with it has not been granted registration by the Respondent under the Act. Learned counsel stated that by way of explanation, it has been stated in the regulation that "independent directors" means directors who are not associates of the persons operating the existing collective investment scheme. Shri Merchant submitted that as per the impugned order the reason for rejecting the application is that the Appellant did not fulfil the requirements of clause (b) and (c) of regulation 70(1). Learned counsel submitted that the promoter directors and those directors who were in the Board of the Appellant, during the period in which the Appellant had failed to make prompt repayment to the investors are no longer managing the Appellant�s affairs. He stated that some of the affected investors, have formed and registered an association namely "Pagoda Kshetriya Kamgar Sangh" (the Sangh) with the sole object of securing and protecting the interests of the investors, and the nominees of the said Sangh have replaced the earlier management of the Appellant. He submitted that since the Sangh is an association formed to protect the interests of investors it does not stand to reason to hold that their nominees at present managing the Appellant would be acting against the interests of investors.
 

In this context he referred to the change in management of the Appellant and furnished the following details:

A) Directors at the time of formation of the Appellant
Name                                                 Date of Appointment                                 Date ofcessation

(1) Shri Bijoy Kumar Gupta                 08.03.1996                                                     28.12.2000
(Managing Director)
(2) Smt. Puspha Gupta                         08.03.1996                                                     28.12.2000
(3) Shri Hemant Kumar Mahale        08.03.1996                                                     28.12.2000
(4) Mr. Musa B. Maqdoom                   08.03.1996                                                            ----
 

B) Changes effected in the year 2000.
Name                                                 Date of Appointment                                 Date ofcessation

(1) Shri Jaypal B. Singh                             27.12.2000                                                 12.04.2001
(2) Shri Amjad Latif Sabuwala               27.12.2000                                                 12.04.2001
(3) Shri Digamber Vishnu Dali               27.12.2000                                                 02.05.2001

C) Changes effected in the year 2001.
Name                                                 Date of appointment                                    Date of cessation

(1) Shri N.G. Vaidya                             11.04.2001                                                             ---
(2) Shri S.K. Aware                               11.04.2001                                                             ---
(3) Shri D.P. Solanki                             11.04.2001                                                             ---
(4) Shri P.L. Patil                                   02.05.2001                                                             ---
(5) Shri A.N. Dawane                          22.05.2001                                                             ---
(6) Shri Y.B. Rane                                 02.05.2001                                                              ---
 

Shri Merchant stated that all the present directors are members of the Sangh. He submitted that during the tenure of the present Board of directors, large amounts have been paid to the investors that since the new management took over, a sum of Rs. 3, 50, 90, 000 has been paid, and the remaining liability to be met is only Rs. 35 crores for which the Appellant has adequate assets. In this connection he referred to the Appellants� audited balance sheet as on 31.3.2000 and to the following documents viz plan wise and scheme wise amount mobilised, maturity paid report of different dates, statements showing the details of payments stated to have been made, list of assets of the Appellant, details of properties of previous Board of Directors etc., filed in the appeal proceedings. He also read out extensively from the Tri-partite Agreement, and other connected agreement, Power of Attorney, Indeminity Bond etc., filed by it. He referred to the maturity paid report and stated that during February to March 2001, the new management has made substantial repayment to the investors and stated that this would show the bonafide of the present management in protecting the interests of the investors.
 

With reference to the alleged deficiency in terms of clause (c) of regulation 70, the learned counsel submitted that the present directors of the Appellant are nominees of the Sangh, which is an association of the aggrieved investors in the Appellant�s Schemes and the earlier Board has now no say in the management of the Appellant, that none of the present directors is in any way connected with the erstwhile management. According to the learned counsel this crucial aspect has been ignored by the Respondent.
 

Learned counsel submitted that though the application was filed in December 1999, subsequently, the Appellant had brought to the notice of the Respondent, the fact of the involvement of the said Sangh in the management of the schemes and the members of the said Sangh joining the Board of the Appellant. Learned counsel submitted that the report of the special auditors relied on by the Respondent relates to the year 1998, and does not cover the post 1998, positive changes in the affairs of the Appellant. In this context he referred to the financial position of the Appellant reflected in its audited report for the year ended on March 31, 2000 and stated that the auditors have not made any adverse observation about the Appellant�s affairs or finances. He submitted that the investors have in effect seized the Appellant�s assets and management to better their position and they be allowed to protect their interests. Learned counsel stated that the Respondent on its own did not take any measures to protect the interest of the investors, but at the same time it is bent upon putting obstacles in the way of investors fighting to protect their interests, that as the investors have decided now to pursue the best course of action suited to protect their interest the Respondent cannot substitute the judgement of the investors. He submitted that now the investors are before the Tribunal seeking a direction to the Respondent to grant registration to enable the Appellant to pursue its business and thereby protect their interests. The learned counsel stated that if the Appellant is not granted registration, the investor�s plan to revive the Appellant�s business will fail and in that event the casualty would be the investor�s interest.
 

Shri Merchant submitted that since it is evident from the facts on record that the entire scheme as propounded by the Appellant consisting of newly inducted directors and shareholders is investor oriented, the same need be supported as an investor protection measure in its due implementation. He stated that it is also to be noted that the Appellant has retained all the immovable assets and those assets are still in the custody of the Appellant. Learned counsel submitted that none of these factors has been taken into consideration by the Respondent. In this context he referred to the Tribunal�s decision in Jayaraj S. Seth V SEBI (2001 CLC 1457) where in the Tribunal had observed in the context of non consideration of material facts by SEBI that:

Learned counsel reiterated his plea that the Respondent�s decision not to grant registration to the Appellant is not based on any realistic grounds that on the contrary such a refusal is against the interests of large number of investors who have put in money in the Appellant�s various schemes. The learned counsel submitted that the matter be remanded to the Respondent directing it to consider the Appellant�s request in the light of the totality of the facts and the need to protect the interest of the investors in the scheme.
 

Shri Praveen Trivedi, learned representative of the Respondent submitted that the Respondent had taken into consideration all the material facts available before it, while rejecting the application on May 2, 2001.
 

Shri Trivedi submitted that the Respondent is duty bound to protect the interests of investors, that the activities of certain entities engaged in collective investment schemes had caused considerable harm to the interests of the investors in the said schemes, that with a view to regulate the activities of the schemes the Respondent, in exercise of the power vested in it by the Act notified the Regulations in 1999, that the said Regulation provides measures to regulate the existing collective investment schemes and the new entrants. He submitted that the Appellant had already floated several schemes and those schemes were in operation and as such it was bound to comply with the requirements as contained in Chapter IX of the Regulation, which inter alia requires the existing collective investment schemes either to get registered or wound up, and that the Appellant opted to seek registration and filed an application on December 15, 1999. He submitted that the Appellant�s version that the Respondent has gone only by the information furnished in the application and did not consider the subsequent developments while deciding the request is not correct, that the Respondent has taken into consideration all the material the Appellant had placed before the Respondent, that the Appellant�s representatives were also heard on different dates that the last such hearing was the one on April 18, 2001, as could be seen from the impugned order, a fact which has not been disputed even by the Appellant.
 

Shri Trivedi submitted that the Appellant did not comply with the requirements of regulation 70 (1) (c) either at the time of making application or at any time thereafter. He submitted that all the directors were interested directors in December 1999, that the present directors also, according to the Appellant, are the nominees of the Sangh, which is again an association of interested persons. So the requirements of regulation of 70 (1) (c) has not been fulfiled. He further stated that the Appellant, to suit the situation goes on changing the Board, and as such no creditability should be given even to the present management. According to Shri Trivedi the driving force behind the present management even now is the erstwhile management and the present arrangement is only a front to hood wink the innocent investors and designed to defeat the interests of the genuine investors. He submitted that the Sangh is not a representative body of all the investors as could be seen from the Appellant�s own version that it comprises only some of the investors. Shri Trivedi said that the Respondent is still getting complaints about the affairs of the Appellant.
 

Shri Trivedi stated that one Shri Inderpal B. Singh, who is described as the advocate of the Appellant, vide his letter dated November 7, 2000 addressed to the Respondent had alleged that the Appellant had duped depositors to the tune of Rs. 107 crores and a criminal complaint is pending before the Dy. Commissioner of Police, Mumbai. Learned representative stated that the said representation was made by the Advocate on behalf of his clients, one of whom was Shri S.K. Aware, who is presently a director of the Appellant and that the said person has verified the present appeal on behalf of the Appellant. Shri Trivedi submitted that this in itself raises serious doubts about the conduct of the Appellant. Shri Trivedi referred to the Appellant�s letter dated April 10, 2000 filed with the Respondent and stated that as per the information furnished there in, the Appellant mobilised a total sum of Rs.6541.56 lakhs and the total number of investors is 1, 30, 780. He stated that the public stake in the Appellant�s schemes is very high.
 

Learned representative further submitted that M/s. Baweja & Kaul, the statutory auditors of the Appellant for the financial year 1996-97 and 1997-98, in a letter addressed to the Respondent had stated that during the course of audit of the Appellants records for the financial year 1997-98, they found lot of discrepancies and misutilisation of public fund and when the same was communicated to the officials of the Appellant, they did not co-operate, Learned representative stated that since the statutory auditors did not toe the line of the management, a new auditor viz M/s. Bharat J. Rughani & Co, was appointed in the place of the said Baweja & Kaul for completing the audit work of the same period i.e. the year 1997-98 in contravention of the provisions of section 224(7) of the Companies Act 1956. He cautioned against accepting the authenticity of the "clean report" given by the newly appointed auditors. In this context Shri Trivedi referred to the report dated September 23, 1998, by M/s. Khandelwal Jain & Co., special auditor appointed by the Respondent and stated that the said auditors had made several adverse observations on the affairs of the company, that in the report, interalia the auditors had stated that the money mobilised by the Appellant was exposed to great risk as the financial position of the Appellant was not sound enough to pay the returns promised to the investors and it may find it difficult to repay the principal amount on maturity. Learned representative stated that the Appellant is also aware of the findings of the special auditor, as a copy of the same was given to the Appellant as well. Learned representative stated that the Appellant in its letter dated June 20, 2000 addressed to the Respondent had admitted that "presently the company is not in a position to repay to the investors as per the terms as on the one hand return on investment utilised for the longer gestation projects are not forthcoming and on the other hand the new regulations prohibits company from taking fresh collection until the company is registered" under the Regulations. Shri Trivedi further stated that the Appellant�s financial position is very unsound as its net worth as on 31.3.1999, as per the Appellant�s own version was a negative (-) figure of Rs. 528.92 lakhs; that the Appellant had admitted that the chances of achieving the net worth of the Appellant into positive side will take minimum of ten years. In this context Shri Trivedi submitted that as per regulation 71 (1) (f) an applicant has to meet the minimum net worth of rupees one crore within one year from the date of grant of provisional registration which requires to be increased by rupees one crore in each of the following 4 years so that by 5^th year its net worth would be rupees five crores, that given the negative net worth of the Appellant and in view of the fact that the Appellant�s on admission that it would need a minimum of ten years to achieve a positive net worth, the conditions of regulation 71(1)(f) are not likely to be met with.
 

According to the learned representative, the Appellant does not satisfy none of the requirements for the grant of the registration under the Regulation that there is reason to believe that the affairs of the Appellant are being conducted in a manner detrimental to the interests of existing investors and that taking into consideration the investor interest paramount, the application has rightly been rejected by the Respondent. He submitted it is not that the registration will follow automatically on filing an application, that the Respondent has to satisfy itself before granting registration that the affairs of the Appellant are not being conducted in a manner detrimental to the interests of investors, and that having satisfied that the affairs of the Appellant are not managed in the interests of the investors, the Respondent rejected the Appellant�s application for registration.
 

Shri Trivedi submitted that since the Appellant has failed to get registration, it should wind up the schemes in the manner provided in regulation 73 and distribute the money to the participants in the schemes without any further delay.
 

I have considered the submission made on behalf of the parties and the material placed before me.
 

It is an admitted fact that the Appellant is an existing collective investment scheme and therefore amenable to the Regulations notified by the Respondent. The Appellant was incorporated in the year 1996 and commenced business also in the same year. At that point of time there were no specific statutory regulations in force for regulating collective investment schemes. Though the Act provided for registration etc., of collective investment schemes, till October 15, 1999 this requirement could not be enforced as the requisite regulation was not in position till then. Statutory requirement in this regard is clear from the provisions of section 12(1B) of the Act, as extracted below:

The Regulation provides for regulating the new entrant collective investment schemes and also the existing collective investment schemes. As per regulation 5 "any person who immediately prior to the commencement of the Regulations was operating a scheme, shall subject to the provision of chapter IX of the Regulations make an application to the Board for the grant of certificate within a period of 2 months from such date". Chapter IX prescribes the requirements to be followed by collective investment schemes, which were operating on the date of notification of the Regulation (i.e. 15.10.1999). Since the Chapter IX has a bearing on the issues involved in the appeal, the provisions enumerated therein are extracted below:

"68. Existing schemes to obtain provisional registration-

(1) Any person who has been operating a collective investment scheme at the time of commencement of these regulations shall be deemed to be an existing collective investment scheme and shall also comply with the provisions of this Chapter.

Explanation- The expression �operating a collective investment scheme� shall include carrying out the obligations undertaken in the various documents entered into with the investors who have subscribed to the scheme.
(2) An existing collective investment scheme shall make an application to the Board in the manner specified in regulation 5.

(3) The application made under sub-regulation (2) shall be dealt with in any of the following manner:-
 

(a) by grant of provisional registration by the Board under sub-regulation (1) of regulation 71;

(b) by grant of a certificate of registration by the Board under regulation 10;

(c) by rejection of the application for registration by the Board under regulation 12.

No scheme to be launched until grant of registration -

69. No existing collective investment scheme shall launch any new scheme or raise money from the investors even under the existing scheme, unless a certificate of registration is granted to it by the Board under regulation10.

70. Consideration of application for grant of provisional registration. -

(1) The applicant for the purpose of being considered eligible for the grant of provisional registration shall satisfy the Board that-

(a) the scheme of the applicant are in the nature of collective investment schemes;

(b) the affairs of the applicant are not being conducted in a manner detrimental to the interest of existing investors;

(c) the applicant has at least 50% independent directors at the time of making the application.

Explanation - "Independent directors" shall mean directors who are not associates of the persons operating the existing collective investment scheme;

(d) any person, directly or indirectly connected with it has not been granted registration by the Board under the Act.

(2) The Board for the purposes of grant of provisional registration may, inter alia, inspect the schemes, books of accounts, records and documents of the applicant.

(3) The Board shall recover from the applicant such expenses including fees paid to the auditor, appraising agency as may be incurred by it for the purposes of inspecting the schemes, books of accounts, records and documents of the applicant.

(4) The Board on being satisfied that the requirements specified in sub-regulation (1) are not fulfilled may reject the applications and the applicant thereupon shall wind up its existing scheme(s) in the manner specified in regulation 73.

(1) The Board after being satisfied that the conditions specified in regulation 70 are fulfilled may grant provisional registration to the applicant subject to the following conditions, namely:-

(a) the applicant shall get the existing schemes rated by a credit rating agency within one year from the date of grant of provisional registration.

(b) the applicant shall get the existing schemes audited by an auditor within a period of one year from the date of grant of provisional registration;

(c) the applicant shall get existing schemes appraised by an appraising agency within a period of one year from the date of grant of provisional registration;

(d) the applicant shall create a trust and appoint trustee in the manner specified in Chapter IV of these regulations within a period of one year from the date of grant of provisional registration;

(e) the applicant shall comply with accounting and valuation norms in respect of schemes floated before the commencement of these regulations as specified in Part II of the Ninth Schedule within a period of one year from the date of provisional registration;

(f) the applicant shall meet the minimum net worth of Rupees one crore within one year from the date of grant of provisional registration which shall be increased by Rupees one crore each within two years, three years, four years, and five years from the date of grant of provisional registration;

(g) the applicant shall not dispose of the scheme property except for meeting obligations arising under the offer document of the scheme;

(h) the applicant shall comply with the conditions specified in regulation 11;

(i) such other conditions which the Board may impose.

(2) The applicant shall give a written undertaking to the Board to comply with the conditions specified in sub-regulation (1).

(3) The applicant who has been considered eligible for the grant of provisional registration by the Board, shall pay provisional registration fee as per the Second Schedule.

(4) An applicant who after grant of provisional registration fails to comply with the conditions as specified in sub-regulation (1) and regulation 9 shall not be considered eligible for the grant of certificate of registration under regulation 10 and shall wind up the scheme in the manner specified in regulation 73.

(1) An existing Collective investment Scheme which satisfies the Board that the requirements specified in regulation 9 and the conditions specified under regulation 71 have been fulfilled, shall be granted a certificate of registration under regulation 10 upon payment of registration fees as specified in paragraph 2 of the Second Schedule and on such terms and conditions as may be specified by the Board.

(2) An existing collective investment scheme which has been granted certificate of registration under sub-regulation (1) may be allowed to float new schemes on such terms and conditions as may be specified by the Board.
 

(1) An existing collective investment scheme which, -
 
(a) has failed to make an application for registration to the Board; or

(b) has not been granted provisional registration by the Board; or

(c) having obtained provisional registration fails to comply with the provisions of regulation 71;
 

shall wind up the existing scheme.

(2) The existing collective investment scheme to be wound up under sub-regulation (1) shall send an information memorandum to the investors who have subscribed to the schemes, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determined.

(3) The information memorandum referred to in sub-regulation (2) shall be dated and signed by all the directors of the scheme.

(4) The Board may specify such other disclosures to be made in the information memorandum, as it deems fit.

(5) The information memorandum shall be sent to the investors within one week from the date of the information memorandum.

(6) The information memorandum shall explicitly state that investors desirous of continuing with the scheme shall have to give a positive consent within one month from the date of the information memorandum to continue with the scheme.

(7) The investors who give positive consent under sub-regulation (6), shall continue with the scheme at their risk and responsibility:
 

Provided that if the positive consent to continue with the scheme, is received from only twenty-five per cent or less of the total number of existing investors, the scheme shall be wound up.


(8) The payment to the investors shall be made within three months of the date of the information memorandum.

(9) On completion of the winding up, the existing collective investment scheme shall file with the Board such reports, as may be specified by the Board.

An existing collective investment scheme which is not desirous of obtaining provisional registration from the Board shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in regulation 73."

On a perusal of the above cited regulations, it is clear that a collective investment scheme which was in operation on the appointed day i.e. 15.10.1999 has three options i.e. (a) get registered with the Respondent or (b) wind up the schemes or (c) formulate a scheme of repayment and make such repayment to the investors in the manner specified in regulation 73.
 

The Appellant opted to get the scheme registered and for the purpose filed an application with the Respondent some time in December 1999. It is seen that the said application was disposed of by the Respondent on May 2, 2001, by rejecting the request, as it felt that the affairs of the Appellant are not run in a manner conducive to the interests of the investors and its Board was short of the requisite number of independent directors. The reason for rejecting the application has been stated in the order. The Appellant�s argument that the Respondent has not taken into consideration the post 1999developments is difficult to accept. The order not only refers to the Appellant�s application received by it on December 15, 1999, but also to the subsequent correspondence and the personal hearing held on different dates, the last in the series was the one on April 18, 2001. It has been stated in the order that "having regard to said correspondence and personal hearing and after considering the details available on record," the Respondent felt that out of the four grounds on which the Respondent is required to be satisfied, the Appellant did not fulfil two �i.e. the requirement of clause (b) and (c) of regulation 70(1). In terms of clause (b) the applicant for the purpose of being considered for the grant of provisional registration is requested to satisfy the Board that the affairs of the applicant are not being conducted in a manner detrimental to the interest of existing investors. In terms of clause (c) the applicant has to satisfy the Board that the applicant has at least 50% independent directors. The Respondent is the statutory Board mandated to protect the interest of investors. Obviously, the Appellant has failed to convince the Respondent that registration of the Appellant would be in the interest of the investors. The Appellant has filed a copy of the Tri-partite agreement, assets and liabilities transfer agreement, power of attorney, indemnity bond etc., which I have carefully gone through. Tripartite agreement is entered into between the erstwhile management, "the interveners" and the Sangh. There is another agreement providing for transfer of assets and liabilities. In this context I am of the view that the Respondent, cannot be blamed for having not taken seriously the said agreements and the consequential changes in the management, in the absence of any other supporting material to prove the bonafides of the parties concerned to the proposed action covered in those agreements. The fact that the "interveners" disappeared from the scene in the same speed in which they had appeared on the scene is not a matter to be over looked. It seems from the agreement that the exit of the erstwhile management is documented obviously to protect them from the mounting liabilities and other consequences. The Tri-partite agreement is entered into by the erstwhile directors (First Party). The Second Party to the agreement is one Jaypal Balbir Singh and Amjed Latif Sabuwala whom the Sangh had requested to intervene. The Third Party is the Sangh. Since the core portion of the agreement itself is more revealing, it is extracted below:

The Tri-partiate agreement is entered into by the old directors (First Party). The Second party to the agreement is one Jaypal Balbir Singh and Amjed Latif Sabuwals whom the Sangh had requested to intervene and the Third party is Sangh itself. Few extracts from the Tri-partiate agreement dated December 26, 2000:

"Being aggrieved by the delays caused in payment by the said Company of the proceeds of the said investments, some of the said Investors have formed and registered an Association in the name and style of "PAGODA KSHETRIYA KAMGAR SANGH" (hereinafter referred to as "THE SAID SANGH"), with the sole objective of securing and protecting the interests of the Investors;
 

I) The Office bearers of the said Sangh have approached parties of the SECOND PART requesting them to intervene between the Sangh and THE PARTIES OF THE FIRST PART, whereby the members of the Sangh, who are the Investors could receive their proceeds of their respective Investment, and in order to facilitate the PARTIES OF THE SECOND PART, the Office bearers on behalf of the said Sangh have agreed to a moratorium of one years, for payment of principle amounts on the respective Investment and receive in such instalments as may be separately and mutually agreed upon.

II) The Parties of the FIRST PART being convinced that it is beyond their means and capacity to repay the said Depositors at this point of time, have agreed to the proposal given by the PARTIES OF THE SECOND PART to the scheme of take over and administration of Pagoda Forests Limited and its Associate Company if any, in consideration of the PARTIES of the SECOND PART undertaking and agreeing to repay the said Investors their principal amounts in the manner as may be agreed upon.

III) The parties of the FIRST PART agree to transfer the entire shareholding in the said Company as held by them or their nominees and also shall cause the other shareholders if any, of the said Company to similarly transfer their entire shareholding in the said Company to THE PARTIES OF THE SECOND PART or their nominee or nominees; at the same time, it is also agreed upon that the present directors would resign and the Nominees of the transferees would be appointed on the Board of Directors thereby resulting into change of management.

IV) The names of the Depositors who are members and non members of the said Sangh as fully set forth in a separate List with covering letter, to which this Agreement is an integral part, in which also is mentioned the Principal amount Invested by each of the Investors with the said Company.

V) The Parties of the First Part hereby confirm that the particulars given in the clause (K) hereinabove are true and correct and further that they are liable to the said Depositors in so far the names of the Investors, the principal amount invested by each of them.

VI) By an Agreement entered into on 26/12/2000 by the Parties of the First Part and the Parties of the Second Part, to which this Tri-Partite Agreement is an integral part, the Parties of the Second Part have agreed to takeover the said Company and the interest of all the Investors and/or Shareholders of the said Company as per terms and conditions more particularly set forth in the said AGREEMENT;

VII) The Parties of the Second Part having agreed to take over the business of the said Company, conduct the said business in such a manner that sufficient funds are generated within a period of (6) six months from the date of execution of the said Agreement, in order to pay off the Principal amounts of each and every Investors, who are the members and non-members of the said Sangh, in suitable instalments, and thereafter, after the expiry of the moratorium period, pay to the said Investors.

VIII) It is agreed and understand that upon execution of this agreement, the First part would in no, way be responsible for the repayment of the principal/Interest amount due to the Investors and would be relieved of all the existing liabilities and dues of the said Company. The said Sangh/Investors would not seek repayment of the principal/Interest amount, whatsoever, from the First part. The said Sangh also agrees and undertakes for and on behalf of all the Investors, whether members or non-members of the said Sangh that no claims for repayments would be made with the Parties of the FIRST PART.


NOW THIS TRI-PARTITE AGREEMENT WITHNESSETH THAT: -

 
(1) The said Sangh, who represent the interest of the said Investors, as fully set forth in a separate List with covering letter, to which this Agreement is an integral part, agrees to receive from the parties of the Second Part, and the Parties of the Second Part to pay to the said Sangh, the Principal amount of each deposit within a period of 6 (six) months, depending upon the successful implementation of project in equal instalments, each instalment representing ��% of the said Principal amount. The said Sangh hereby agrees and undertakes to make the distribution of the principal amounts amongst its members depositors in the proportion of each deposit amount.

(2) In the event of the Parties of the Second Part committing any default or delay in making payment of any of the instalment payment as hereinbefore provide, it shall be entirely at the discretion of the said Sangh to grant any extension of time to the Parties of the Second Part for making the payments which have been delayed or defaulted.

(3) The Parties of the Second Part agree to make payment to the said Sangh for the account of each of its Investors-members, and non-members, after the expiry of the moratorium period, in such instalments and spread over such period, a may be mutually agreed upon between the parties of the Second Part and the said Sangh by recording such mutual agreement by an Amendment to this Tri-Partie agreement.

(4) The Sangh hereby agrees, and under takes that during the tenure of this Tri-Partite Agreement, it or any of its members, non-members and -investors, shall not create any hurdles or come in the way of the Parties of the Second Part conducting the said business of the said Company and further agree that free access will be made available to the Parties of the Second Part and their agents, servants, employees and other persons claiming right through them, to all the sites and offices belonging to the said Company.

(5) The Parties hereto agree to execute such documents as may be required to enable the Parties of the Second Part in smoothly conducting the business of the said Company, which has the end-result of securing and paying off the liabilities of the Investors-members and non-members of the said Sangh in the manner provided here in above. (emphasis supplied).

1) The TRANSFEREES, is desirous and has agreed to take over the entire business of the said Company, namely that of Pagoda forests Limited as a running business/going concern to gather with all its assets, claim, debts, and liabilities, as shown in the latest audited Balance Sheet as at 31^st March, 2000, which contain and upto date position / status thereof and also the particulars of the entire developed and un-developed agricultural lands and Branch Offices within and outside the State of Maharashtra, as fully set forth in a separate List with covering letter, which contains the details of moveable properties and inventories, and thereafter administer and conduct the business of the said Company, to which this agreement is an integral part.

2) In consideration of the TRANSFEREES accepting to take over all the liability including the liability towards the Investors as separately recorded in the said Repayment Agreement and agreeing to clear the said liability in the manner and by the time frame provided in the said Repayment Agreement, thus relieving the TRANSFERORS entirely from all the liabilities of the said Company as stated in the audited balance sheet as at 31^st march, 2000, and based on the updated list giving current status thereof. THE TRANSFERORS agree to transfer their entire share-holding in the said company, and also cause the other shareholders if any, to similarly transfer their entire share-holding in the said Company to the TRANSFEREES or their nominee or nominees, at or for consideration of a price for such shares to be mutually agreed upon as mentioned hereunder." (emphasis supplied)

As per the Appellant�s version, as put forth before the Tribunal in the proceedings, on January 8, 2002 the total number of investors in the various schemes of the Appellant was 85660. As per the Balance sheet of the Appellant as on 31.3.2000, the liability against the contribution received from the members / contributors was Rs.3843 lakhs. These figures are furnished by the Appellant. Thus, even on the Appellant�s own version, investor stake involved in the Appellant�s schemes is very large in terms of the amount involved and number of persons affected. Therefore the Respondent cannot take any enhance to risk the investors interest.
 

Shri Merchant, had made an attempt to establish that the present management of the Appellant is not the one which had defaulted in making payments and that the Appellant is now managed by a �Sangh� of the investors who represent 54865 investors. Except quoting the number of such members of the Sangh, the Appellant has not produced any evidence to prove that the Sangh is a true representative body of the members enjoying the confidence of all the investors and the Sangh is authorised to represent all the investors. On the contrary the Appellant had stated that the Sangh comprises only "some of the investors". According to its own statistics, the total number of investors is 85660, where as the Sangh has 54865 members. No doubt, these figures cannot be accepted without verification. But still it helps us to get a broad idea of the Sangh strength vis-à-vis the total number of investors.
 

Even though the Appellant has stated that its financial position has improved, I do not find any such appreciable improvement as could be seen from the financial position revealed in the copy of the audited balance sheet of the Appellant as on 31.3.2000. In this context it has also to be noted that the Appellant�s Balance sheet as on 31.3.2001, is now due to be filed with the Registrar of Companies. In any case the Appellant has not filed a copy of the same in the proceedings either because the Appellant does not want its present financial position to be disclosed as it would not be in favour of the Appellants� cause, or for the reason that no such balance sheet has been drawn yet. The fact that the Appellant has not filed its latest balance sheet as on 31.3.2001, is not a matter to be ignored, while adjudging its entitlement to get registration under the Regulation.
 

Shri Trivedi, learned representative of the Respondent had categorically stated before the Tribunal that, the Respondent is still getting complaints from the investors against the Appellant. I do not find any reason to disbelieve the said statement.
 

The Appellant�s argument that the Appellant is now owned and controlled by the �Sangh� formed to protect the interests of investors and the new management can take care of the interests of all the investors, is difficult to accept. Dreams and promises alone won�t work. The Appellant has not put forth any convincing action plan to salvage the situation. Changing Board members by itself will not bring any material change in the quality of management and relief to the investors. In the light of the totality of the facts before me, the so-called change in the ownership and management appears to be just a device to relieve the erstwhile management from their liabilities and obligations towards the investors, rather than to really protect the interests of the investors.
 

The Appellant has failed to produce any reliable evidence before me to show that the view taken by the Respondent in the Appellant�s application seeking registration is unfounded. It is clear from the Respondent�s order that, the refusal to grant registration is based on the material facts before it. Therefore, I am not inclined to interfere in the order at present. In my view the order is to be sustained.
 

For the reasons stated above, the impugned order is to be sustained and the appeal deserves to be dismissed.
 

Appeal is therefore dismissed.