In the matter of:

Phenomenal Plantations Ltd                                        Appellant

Vs.

Securities and Exchange Board of India                     Respondent

APPEARANCE

Mr. K.K.Jegdish
Advocate

Mrs. S.J.Nagasri
Advocate                                                                     for Appellant

Mr. S.V.Krishnamohan
Division Chief, SEBI

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

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

The Appellant is a public limited company incorporated on December 14, 1993. The certificate of commencement of business was issued to the Appellant on January 5, 1994 by the Registrar of Companies. Its paid capital is Rs.13.3 lakhs comprising 1, 32, 990 equity shares of Rs.10/- each. Out of the said 1, 32, 990 shares Phenomenal Housing Finance (I) Ltd is holding 1, 29, 960 shares. The remaining 3, 030 shares are held by 7 others. The Appellant is engaged in plantation business and is operating collective investment schemes. The Appellant has mobilised funds from the public on 3 stages with different amounts of subscription and benefits for the same scheme of "PPL Teak Bond". It had floated three "schemes" � 1^st scheme was floated in 1994-95, 2^nd one in 1995-96 and the third one in 1996-97. While the 1^st scheme maturity period is for 15 years, the maturity period for the 2^nd scheme is 16 years. The 3^rd scheme has Plan A and Plan B. While Plan A extends upto 16 years Plan B extends upto 22 years. The schemes have a total number of about 38, 000 investors. As per the information available on record the total funds mobilised from public against issuing PPL Teak Bond (as per the audited accounts as on 31.3.1997) was to the tune of Rs.5, 10, 79, 640 (after deducting the amount pertaining to the discontinued Teak Bonds). Since neither party to the appeal has produced the audited balance sheet of the Appellant, the Appellant�s current financial position- assets and liabilities - is not known.
 

Section 11AA of the Securities and Exchange Board of India Act, 1992 (the Act) defines collective investment scheme. The Appellant comes under the purview of the said definition. In terms of the Act, and the Securities and Exchange Board of India (Collective Investment Schemes), Regulations, 1999 (the Regulation) the Respondent is mandated to regulate the working of collective investment schemes. The Regulation came into force on October 15, 1999. As per regulation 5(1) any person who immediately prior to the commencement of the Regulation was operating a collective investment scheme, shall subject to provisions of Chapter IX of the Regulation, make an application to the Respondent for the grant of certificate of Registration within a period of two months from the date of notification (i.e. October 15, 1999). Thus all existing collective investment scheme entities are subject to the provisions of Chapter IX and required to apply for registration by December 14, 1999. As per regulation 74 an existing scheme not desirous of obtaining registration is required to repay the investors in the manner specified in regulation 73. As per regulation 73(1) an existing collective investment scheme which has failed to make an application for registration or has not been granted provisional registration, or having obtained provisional registration fails to comply with the provisions of regulation 71, is required to wind up the scheme and repay the investors. As per regulation 73(2) an existing collective investment scheme is required to send an information memorandum to all the investors who have subscribed to the schemes, within two months from the stipulated date. The information memorandum should contain the details of the state of affairs of the scheme, the amount payable to each investor and the manner in which such amount is determined. The Respondent had issued public notices and also specific notice to the Appellant pointing out the requirement of the regulation. But the Appellant did not apply for registration. It also did not take steps to wind up the schemes in terms of the regulation. In the said context the Respondent felt that the Appellant had failed to comply with the requisite statutory requirements and issued directions under 11B of the Act, read with regulation 65, 73 and 74 of the Regulation, debarring it and its promoters, directors and managers and persons in charge of its schemes from operating in the capital market for a period of 5 years. The said direction was issued on July 2, 2001. The applicability of the said direction / order to the Appellant is under challenge in the present appeal.
 

Shri S.K.Jegdish, learned Counsel appearing for the Appellant submitted that the impugned order dated July 2, 2001, forwarded by the Respondent vide its letter dated July 10, 2001 reached the Appellant only on July 20, 2001 and the Appellant filed the appeal within the stipulated time The Respondent has not disputed the factual position of sending the order on July 10, 2001 or receipt of the same by the Appellant on July 20, 2001. Therefore, there appears to be no delay involved in filing the appeal, requiring condonation as sought by the Appellant vide application No.13/2001 dated August 31, 2001.
 

As the Appellant had interalia prayed that an interim order be issued staying (a) the operation of the impugned order pending disposal of the appeal and (b) publication of Appellant�s name in the �black list� in the news papers, the matter was posted for hearing on September 26, 2001. When the matter was taken up on September 26, 2001 Ms Anita Anoop, who represented the Respondent, submitted that the Respondent would be filing its reply by October 5, 2001 and as such the appeal can be disposed of expeditiously obviating the need for any interim order.
 

Therefore the learned Counsel did not press for any interim stay. Taking into consideration the convenience of the Counsel, the appeal was posted for disposal on October 22, 2001. On October 22, 2001 the learned Counsel for the Appellant stated that he would file an affidavit in support of his submission that more than 25% of the investors have given positive consent to continue with the scheme and that the affidavit would be filed within 8 days. The oral undertaking given by him and the Respondent�s representative was recorded by the Tribunal as under: -

The learned Counsel submitted that the impugned order is an ex-parte order made by the Respondent, without giving the Appellant an opportunity of being heard. In this connection, he referred to the provisions of section 12(3) and also the provisions of section 15I and 15U of the Act and submitted that the law requires the concerned party to be heard before passing any order, that the Respondent has failed to comply with the said requirement. He also referred to regulation 62 and stated that even in the show cause notice dated May 12, 2000, the Respondent did not offer an opportunity of being heard to the Appellant. In this context he cited Charanlal Sahu v. Union of India (AIR 1990 SC 1480: 1990 (1) SCC 613. He also submitted that the Respondent cannot under regulation 62(2) take away the its rights under article 300A of the Constitution ignoring the due process of law.
 

Shri Jegdish submitted that in terms of regulation 68(1) any person who has been operating as collective investment scheme on the date of notification of the Regulation shall be deemed to be an existing collective investment scheme and that since the Appellant is carrying on collective investment schemes since 1994, is a deemed collective investment scheme and therefore no further registration is required. According to him regulation 68(2) requiring the existing collective investment scheme to make an application for registration is thus in conflict with the provisions of 68(1) which cannot be resolved. In this context he referred to the deeming provisions in the Maharashtra State Co-operative Societies Act 1960, enabling the societies registered under Maharashtra State Co-operative Societies Act, 1925 to operate without any fresh registration. According to him regulation 68(2) is meant only to raise money by way of fees to benefit the Respondent and with this in view the Respondent is asking the Appellant to seek registration. He further submitted that in terms of regulation 73(6) and 73(7) a collective investment scheme is allowed to continue its business provided 25% of its total number of investors support the same, that the Appellant has the support from 90% of the total number of investors. According to the learned Counsel as per the "preamble" to the Regulation, the prohibition is on the collective investment schemes launching any new schemes or raising money from the investors under the existing schemes, without obtaining a certificate of registration, that the Appellant has not launched any new scheme after the Regulation came into effect and it also did not raise funds thereafter. In this context he referred to the Chartered accountant�s certificate dated June 12, 1998 confirming the position, forming part of the appeal. He submitted that the Appellant is in existence since 1993 and carrying on its business smoothly, whereas the Regulation came into effect only from October 15, 1999, that the Regulation cannot operate retrospectively. In support he cited Gulabchand Vs Rukmini Devi AIR 1971 MP 40(FB). He submitted that as per the press release issued by the Respondent on 26.11.1999 the Respondent allowed the existing schemes to operate undisturbed.
 

Shri Jegdish submitted that the requirement of appointing an adjudicating officer under section 15(1) and the procedure laid down under section 15U has not been complied with in the Appellant�s case, and the impugned order passed without following the said procedure is bad and requires to be set aside.
 

He further stated that the impugned order has wrongly viewed that the Appellant had failed to comply with the Respondent�s earlier direction "to refund the money collected under the schemes with returns which was due to the investors as per the terms of the offer". Learned Counsel submitted that there is no amount due to any investors as per the terms of offer, that payment is due only after 15 years from the date of participation in the scheme and that even the 1^st scheme was commenced in 1994. He stated that the impugned direction has been issued based on the said wrong assumption and therefore untenable. He further stated that the direction has been issued under section 11B and regulation 65. According to him no direction can be issued under section 11B without holding an inquiry and since the Respondent has not conducted any inquiry, the order under section 11B cannot survive. He further stated that even under regulation 65, no such direction can be issued as regulation 65 is not applicable to the existing collective investment schemes as they are governed by the provisions exclusively provided under Chapter IX and there is no provision in the said chapter empowering the Respondent to issue such a direction.
 

Shri Jegdish submitted that the Regulations cannot take away the right to do business granted by the Registrar of Companies, that the Registrar of Companies granted commencement of business certificate to the Appellant as far back in the year 1994. According to him the Memorandum of Association of the Appellant empowers the Appellant to carry on plantation business and in particular to "grow, cultivate, produce and raise, sell, purchase, resell, and harvest teak wood" and thus the Appellant�s plantation business is a legitimate business and the Respondent cannot put any restrictions on the said business at this stage. He further stated that the said Memorandum of Association also empowers the Appellant to enter into contracts and agreements and as such the schemes floated by the Appellant, which are contractual, are valid. Shri Jegdish submitted that there is not even a single case where the overdue amount is yet to be paid. He further submitted that the Appellant has acted bonafide, purchased landed property for growing and cultivating teak wood plantations. In this context he referred to the special audit report for the period December 14, 1993 to March 31, 1997, submitted to the Respondent by Batliboi & Purohit, Chartered Accountants, special auditors appointed by the Respondent and stated that the auditors have not made any adverse observations about the affairs of the Appellant so as to warrant any action from the Respondent. The Respondent has ignored all these factors and issued the impugned order to all the 500 and odd companies mentioned in the order, including the Appellant.
 

Shri Jegdish submitted that the Appellant is a small company, and as such not in a position to meet the networth requirements provided in the Regulation, and that its financial position does not help it to pay huge amount by way of fee for registration, a requirement which the Appellant is not required to comply with, as per the deeming provision in regulation 68 (1).
 

Shri Jegdish, referring to the case law cited by the Respondent�s representative (Bari Doab Bank Ltd v. Union of India (2001) 30 SCL 493) submitted that the ratio of the said case has no application to the present case as the facts are entirely different. Shri Jegdish, referring to this Tribunal�s decision in Venus Greeneries Ltd v. Securities and Exchange Board of India (2001) 34 SCL 801) stated that this Tribunal should not take cognizance of the said citation and only those citations of cases decided by the Honourable High Courts and the Honourable Supreme Court alone are to be relied on.
 

On completion of his argument in the appeal, Shri Jegdish took up the contempt application (No.18/2001) filed by him on November 12, 2001. In the said application he has arrayed "Authorised Signatory, Securities & Exchange Board of India, Investor Grievances Redressal and Guidance Division" as the 1^st contemner and "Securities and Exchange Board of India" as the 2^nd contemner. On January 21, 2002 "in order to secure the presence of the actual contemner" the Appellant through an application, prayed for issue of witness summons to the Chairman of the Respondent to appear before the Tribunal in person, under order V, Rule 3 CPC 1908, for the purpose of identifying the signature of the "Authorised Signatory" to the impugned letter and also to name the person concerned.
 

Shri Jegdish submitted that during the pendency of the appeal the first contemner has circulated a highly damaging and defamatory and libellous letter No.Ref: SEBI / CIS / LGL / 210901 / 1933 dated 18.10.2001, that by this letter the cause of action arose for the Appellant to take up sub-judicial contempt proceedings against the Contemners which legal redress is available to the Appellant under the Contempt of Courts Act, 1971. Shri Jegdish read out the letter and stated that the said letter has been sent by the Contemners to one man by name "K.K.Singh" with the address at CTS No.359, Opp. Suhash Terrace, Pannalal Gosh Marg, Linking Road, Near Ganapati Talab, Banderwada, Malad West, Mumbai 400 064, that the address stated therein belongs to the Appellant, whereas the addressee is a different person who has nothing to do with the Appellant. According to the learned Counsel error has been committed by the staff of Respondent by mixing up the name of K.K.Singh with the name of Shri N.K.Singh, that the latter is the founder director of the Appellant, that the said letter which has reached the hands of the Appellant and now is in custody of the Appellant and by this proves the "publication" has been completed thereby attracting the provisions of Contempt of Courts Act, 1971. According to the learned Counsel the said letter contains highly defamatory and libellous matter which has been indulged in during the pendency of the proceedings before the Tribunal, which has the effect of interference with administration of justice and also there is danger of undermining the dignity of the Tribunal, besides shaking up the public confidence in the judicial system itself. He submitted that against the order barring the Appellant, the appeal has been preferred and nothing should have been done by Respondent pending appeal as that would amount to sub-judice and contempt of court, that as this error has been committed by Respondent, it is liable for Contempt of Court and be dealt with accordingly. Shri Jegdish stated that the impugned letter has been penned by one person from the Legal Department of the Respondent who all are supposed to be in the know of legal appeal proceedings in progress, that the Legal Department does not and cannot take place of a layman. He stated that the contemner has further committed flagrant violation of dignity of judiciary by using the words "written to the State Government to register civil / criminal cases against the entity" little realising that decision of court may go either way. According to him contempt has been manifest when it is said "�� and to the Department of Company affairs to initiate winding up of the entity", with little regard or respect for the Appellant who is a juristic person and little did the Respondent care for the Appellant�s Directors who are respected persons in the society. Learned Counsel stated that the decision to initiate prosecution proceedings against the "entity" during the pendency of the appeal is nothing but interference in the appeal proceedings. He stated that from the observation in the letter that "you would appreciate that redressal of your grievance would depend upon the outcome of legal proceedings and other actions mentioned above" the authorised signatory and the contemners No.1 and 2 were aware of legal proceedings and therefore, they could not have ventured into indulging in contempt of Court.
 

Shri Jegdish cited several Court decisions on the subject of Contempt of Court and prayed that the Tribunal hold the contemners guilty and sentence them in accordance with law.
 

Shri S.V. Krishna Mohan, learned Representative of the Appellant explained the background in which the Respondent decided to regulate the activities of the collective investment schemes. He submitted that the collective investment schemes remained unregulated and as a result many unscrupulous entities had mushroomed bringing grief to the innocent investors. In this context he referred to press releases issued in this regard on November 18, 1997, November 26, 1997 and on December 18, 1997. He submitted that though the Act provided for regulating the activities of collective investment schemes, nothing much could be done till such time the Regulation was notified on October 15, 1999.
 

Shri Krishna Mohan refuted the Appellant�s contention that the impugned order was passed without following the principles of natural justice. He narrated the events leading to the passing of the impugned order to show that the Appellant was given number of opportunities to comply with the statutory requirements and the impugned order was issued in the wake of the defiant attitude of the Appellant, and on fully satisfying that any delay on the part of the Appellant to comply with the regulatory provisions, would harm the investors� interest. In this context he also stated that the investors had filed Writ Petitions in several High Courts blaming the authorities of inactivity in regulating the said schemes.
 

Learned representative submitted that as per regulation 73(1) an existing collective investment scheme, which fails to make an application for registration is required to wind up the scheme and repay the investors, that as per regulation 74 an existing collective investment scheme which is not desirous of obtaining provisional registration is permitted to formulate a scheme of repayment and make repayment to the existing investors in the manner specified in regulation 73, that in terms of regulation 73(2) the scheme to be wound up is required to send an information memorandum (IM) to all the investors in the scheme. Shri Krishna Mohan submitted that the Respondent vide its letter dated December 15 / 20, 1999 and also by way of a public notice dated December 10, 1999 had advised all the collective investment schemes including the Appellant of the need to comply with the requirements of regulation 73/74 in case they were not desirous of getting registered, that as per the press notification dated December 10, 1997 the Appellant was required to send the IM to the investors by February 28, 2000. The learned Representative submitted that as the Appellant neither applied for registration nor wound up the scheme and repaid the money to the investors, in terms of regulation 74 read with regulation 73, the Respondent vide notice dated May 12, 2000 asked the Appellant to show cause as to why action as mentioned in the said show cause notice should not be initiated against the Appellant and, that apart the Respondent vide press notification dated May 16, 2001 published in all leading newspapers all over India, informed the public in general and the erring entities including the Appellant about the non compliance of the statutory requirements and the action that may follow for such non-compliance. He further stated that the Respondent vide its letter dated July 31, 2000 even reminded the Appellant in the matter. Shri Krishna Mohan further submitted that as the Appellant and various entities did not comply with the requirements of the Regulation, the Respondent vide order dated December 7, 2000 directed them to refund the money collected under the schemes with returns, to the investors as per the terms of the offer within a period of one month from the date of the said order and it was also mentioned in the said order that in case they fail to comply with the aforesaid directions, the nature of consequences that would follow. He said that since the Appellant did not comply with the said directions the impugned order was passed. Shri Krishna Mohan submitted that from the sequence of events narrated, it cannot be said that the Appellant was not given proper opportunity to present its case. With reference to the Appellant�s reliance on sections 12(3), 15I, 15U and regulation 62(2) Shri Krishna Mohan submitted that those sections and regulation are specific to certain action and have no bearing on the contravention of regulation 73 and regulation 74. He submitted that procedure followed by the Respondent including issuance of notice and press notification was found to meet the requirement of the principles of natural justice, by the Tribunal in several cases and in particular he referred to the decision in Venus Greeneries Ltd v. SEBI (Supra). (2001) 34 SCL 801: (2002 46 CLA 1.
 

With reference to the Appellant�s version that since the Appellant is deemed to be an existing collective investment scheme, no further registration is required, Shri Krishna Mohan submitted that the regulation recognises the existing collective investment schemes and requires them to get registered or wound up. He submitted that there is no conflict between sub regulations (1) and (2) of regulation 68 as alleged by the Appellant, as regulation 68(1) defines the existing collective investment scheme and regulation 68(2) stipulates a condition requiring the existing collective investment schemes to fulfill.
 

Shri Krishna Mohan submitted that in terms of regulation 73(6) and 73(7) only those investors who give their positive consent to continue with the scheme at their own risk and responsibility may continue and the investors who do not give their positive consent have to be repaid, that it is necessary that the regulations are to be viewed keeping in mind the object of the legislation, which is protection of the interest of investors. He said that the same could be achieved only, in this case, by repaying those investors who do not wish to continue without being regulated by the Respondent that the IM is meant to forewarn the investors of the risks associated with the scheme. Shri Krishna Mohan submitted that the Appellant has not produced any evidence to show that it has the support of 90% of the investors as claimed by it. He further stated that the amount which the Appellant claims to have repaid, has not been actually paid as only post dated cheques were issued and therefore cannot be treated as repayment, unless it is shown that those cheques were honoured by the Banks. He referred to the Appellant�s letter dated January 29, 2001 and stated that the auditor certificate forwarded with the said letter mentioned "repayments are being made to all the investors who had not given their positive consent to continue with the scheme" which cannot be construed to mean that the investors have been paid. He further stated that the Respondent had received 29 investor complaints out of which 17 complaints remained unresolved on September 21, 2001 and as such the Appellant�s claim that its schemes are complaint free is not correct.
 

With reference to the Appellant�s contention that the Respondent has no power to issue such a direction under regulation 65, as Chapter IX is independent of the rest of the Regulation, Shri Krishna Mohan submitted as per regulation 65(e) "the Board may in the interest of the securities market and the investors and without prejudice to its right to initiate action under this Chapter (Chapter VIII) including initiation of prosecution under section 24 of the Act, give such directions as it deems fit in order to ensure effective observance of these regulations, including directions � (e) prohibitting the person concerned from operating in the capital market or from accessing the capital market for a specified period". He submitted that ChapterIX contains specific provisions pertaining to the existing collective investment schemes and regulation 65 is a general provision applicable to all the schemes covered under the said Regulation. He stated that no provision in the Regulation suggest that the Respondent�s powers to issue directions under regulation 65 are not available in case the entity is an existing collective investment scheme. With reference to the powers under section 11B, he stated that various Courts have upheld the Respondent�s power to issue directions under section 11B, to protect the interests of investors and the impugned direction is solely intended to protect the interests of the investors. Shri Krishna Mohan submitted that the impugned order is not an adjudication order under Chapter VI A of the Act and as such the procedural requirements under section 15I, etc. are not applicable.
 

Learned representative submitted that the provisions of the Act and the Regulation are meant to protect the interests of investors and in order to carry out such mandate, regulating any trade or business in the interests of investors cannot be said to be violative of the provisions of Article 19(1)(g) as alleged by the Appellant. Shri Krishna Mohan submitted that the Respondent has followed the required procedures and the impugned order has been made under section 11B of the Act read with regulation 65, 73 and 74 of the Regulation after giving number of opportunities to the Appellant to comply with the statutory requirements, that the name of the Appellant along with other erring entities have been published in the news papers in public interest in order to warn the investors that they may refrain from investing their hard earned money with the defaulters.
 

With reference to the Contempt application filed by the Appellant the learned representative submitted that the Appellant has not in any way done anything that would amount to contempt of the Tribunal. He submitted that the undertaking as given by the Respondent before the Tribunal on 22.10.2001 so far as the above contempt application is concerned, was confined not to publish the impugned order in the media till the disposal of the appeal. The allegation that the Respondent has circulated a highly damaging and defamatory and libelous, letter is totally wrong since there is nothing in the letter "highly damaging and defamatory and libelous" and further that there was no circulation of the impugned letter by the Respondent. He further submitted that the Respondent had only undertaken not to publish the impugned order in the media, that it is not even the case of the Appellant that there was any publication in the media by the Respondent of the impugned order after furnishing the undertaking as aforesaid, that there is no contempt of the Tribunal as alleged. He further stated that in any view of the matter, the letter dated October 18, 2001, on the basis of which the Appellant is alleging contempt, was systematically generated by the Respondent�s complaint redressal mechanism in response to the grievance of an investor of the Appellant, that there is absolutely no contempt against the order of this Tribunal since the letter was issued on October 18, 2001 i.e. much before the undertaking given to the Tribunal on October 22, 2001. Learned representative further submitted that the letter dated October 18, 2001 addressed to an investor would not amount to �publication in the media� that vide the said letter the Respondent intended to communicate to the investor the steps taken by the Respondent against the Appellant for its non compliance of the Act and the Regulations, that the letter has nothing to do with the pending appeal. He submitted that the word "publicise" as given under the Oxford Dictionary means �advertise, make publicly known�. Further, the word "public" is defined as �of or concerning the people as a whole�, �open to or shared by all the people�, that thus it is clear that the communication sent by this Respondent to one of the investors in response to his grievance / complaint against the Appellant does not amount to "advertisement" or "publication". Shri Krishna Mohan stated that the Appellant is making baseless allegations for reasons best known to it. He further stated that in view of the facts and circumstances as set out by him the instant application is completely devoid of merit and the same has been filed with the ulterior motive to harass the Respondent on baseless grounds. He referred to the observation made by the Honourable Supreme Court in Mrityunjoy Das & Ors v. Sayed Hasibur Rahman and Ors. (2001) 3 SCC 739 requiring caution in deciding alleged contemptuous conduct and the direction that he who asserts must prove the allegation. He prayed to dismiss the baseless allegation and the application.
 

I have carefully considered the rival contentions putforth by the Counsel for the respective parties and my views thereon are as follows:
 

It is an admitted fact that the Appellant has been operating collective investment scheme at the time of commencement of the Regulation, i.e. on October 15, 1999. The Appellant is under a wrong impression that the Regulation has been applied with retrospective effect. The Appellant�s past actions are not regulated by the Regulation. The regulatory measures take care of the activities of the schemes with effect from October 15, 1999. It is incorrect to view that since the Regulation requires the schemes, which were in operation before October 15, 1999 to get registered, the Regulation is operating retrospectively.
 

In terms of regulation 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". A collective investment scheme has been defined in section 11AA of the Act. Since it is an admitted fact that the Appellant is operating collective investment scheme, it is felt not necessary to do any exercise to find out whether the Appellant is an entity really covered in the said section 11AA. Regulation takes care of the registration of the proposed collective investment schemes (new schemes) and the existing collective investment schemes (old schemes) as could be seen from the provisions of regulations 4 and 5. According to regulation 4 "any person proposing to carry any activity as a Collective Investment Management Company on or after the commencement of these regulations shall make an application to the Board for the grant of registration in form "A". In terms of regulation 5(1) any person who immediately prior to the commencement of these regulations was operating a scheme, shall subject to the provisions of Chapter IX of these regulations make an application to the Board for the grant of a certificate within a period of two months from such date. As per the sub regulation (2) an application under sub regulation (1) shall contain such particulars as are specified in Form A and shall be treated as an application made in pursuance of regulation 4 and dealt with accordingly". Thus the regulation requires to obtain a certificate of registration to carry on the activity as collective investment scheme However, for the old schemes, which for some reason or other is not in a position to get registered, an exit route has been provided in regulation 73. Chapter IX of the Regulation provides measures relating registration / exit of the old schemes. Provisions under the said Chapter are extracted below for ready reference:

"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 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 win 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.

74. Existing scheme not desirous of obtaining registration to repay -

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."

Shri Jegdish�s argument that the "preamble" to the Regulation prohibits only starting new schemes and raising funds and there is no prohibition on carrying on the existing schemes without registration is also unfounded, as is clear from the requirements of section 12(1B) and regulations 3, 5 and 68 of the Regulation. In fact, what Shri Jegdish refers to as "preamble" is not a part of the Regulation, but only a press release issued by the authorities relating to the regulations on the collective investment schemes.
 

The Appellant�s submission that it is a small company and cannot fulfill the capital requirement (net worth) as provided in the Act and that it also cannot afford to pay huge application fee and registration fee, does not in any way help the Appellant to carry on business without obtaining registration. Precisely it is for such entities, which are not desirous of registering or not capable of getting registered the Regulation has provided an exit route in regulation 73 / 74. But the Appellant has failed to avail of the said �facility�.
 

The interpretation of regulations 73(6) and 73(7) given by the learned Counsel for the Appellant that the Appellant is entitled to carry on the business provided 25% of the total number of investors support the scheme, is not correct. Text of these regulations has already been extracted in this order. It can be seen therefrom that in terms of regulation 73(1) an existing collective investment scheme, which has failed to make an application for registration to the Board is required to wind up the scheme. So is the Appellant�s case. In terms of regulation 73(2) information memorandum detailing the state of the affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determined, is required to be sent to all the investors in the scheme, which is wound up. The information memorandum is also required to 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, that those who give positive consent under sub regulation (6) shall continue with the scheme at their own risk and responsibility, that if the positive consent to continue with the scheme is received from only twenty five percent or less of the total number of the existing investors, the scheme has to be wound up. The payment to the investors, who have not given positive consent is required to be made within three months of the date of information memorandum. Therefore it is not that with the "support" of 25% of the total number of the investors, the Appellant can carry on the scheme and no payment is required to be made in that context to the investors who have not given their positive consent. As per the information furnished by the Appellant as on 15.2.2002 it had 34438 Teak Bondholders. Out of which 10199 Bondholders are stated to have given their positive consent. These statements are not supported by any affidavit. The affidavit filed by Shri N.K.Singh, on December 24, 2001 also does not disclose any material information in support of the Appellant�s contention. The learned Counsel vide his letter dated February 21, 2002 addressed to the Registrar of the Tribunal has forwarded a specimen copy of the "Information Memorandum" stated to have been sent to all the investors. The full text of the said Information Memorandum is extracted below:

It is to be noted that even though the Appellant claims that it has purchased land and to prove its bonafides derives support from an audit report for the period 14.12.1993 to 31.3.1997, it has failed to produce its balance sheets before the Respondent or at least before the Tribunal to show its current financial position. This failure appears to be intentional. I am unable to understand as to why the Appellant, if its affairs are that rosy as it claims to be, did not produce its balance sheet as on 31.3.2001 or at least for the earlier period. Failure to produce the same makes the Tribunal presume that if produced it would be adverse to the Appellant�s claim or to presume that the Balance sheet has not been finalised and audited at all.
 

In any case, to me it appears, that the Appellant is not in a position to get the scheme registered in accordance with the requirements of the regulations and that it has failed to comply with the alternate requirement in terms of regulation 73.
 

The Appellant�s contention that the Respondent is not empowered to issue the impugned direction is unfounded. In terms of regulation 65(e) the Respondent, in the interests of the securities market and the investors, is empowered to give such directions as it deems fit in order to ensure effective observance of the regulations including a direction "prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specific period". The impugned order debarring the Appellant from operating in the capital market for a period of 5 years is well within the powers vested in the Respondent by section 65(e). Since the source of power to issue such a direction is clearly there in regulation 65(e) I do not think it is necessary to look for the powers in section 11B or elsewhere in the Act or in the regulation.
 

The Appellant�s version that as per the impugned order the Appellant was directed to refund the money collected under the schemes with returns which is due to the investors as per the terms of offer and since the Appellant had no such overdue payment to make, the direction was not applicable to it and as a result the impugned direction is unwarranted is untenable. The Appellant has conveniently ignored certain portions in the impugned order, that "vide order dated December 7, 2000 directions under section 11B of the SEBI Act, 1992 read with Regulations 65 and 73 of the SEBI (Collective Investment Schemes) Regulations 1999 were issued to you, having failed to make an application for grant of registration, had failed to wind up your collective investment schemes and make repayments to your investors, in accordance with the SEBI (Collective Investment Schemes) Regulation 1999". The regulation specifically provides the time frame in which such repayments are to be made, which the Appellant has not adhered to and therefore the repayment is already overdue to the investors. It is seen from the order that there is a clear finding that the Appellant had "failed to comply with the directions of the said order (i.e. dated December 7, 2000) and it has violated the provisions of regulation 5 read with regulations 68(1), 68(2), 73 and 74" and the direction was issued in the said context.
 

The Appellant�s argument that the impugned directions were issued without giving an opportunity of being heard is contrary to the factual position flowing from the material available on record. The Respondent in its reply has narrated the sequence of different press notifications and also of the specific show cause notice issued to the Appellant and also the reminders issued in this regard by the Respondent. It is also seen from the copy of the Appellant�s letter dated January 29, 2001 to the Respondent that the Appellant�s representative had even discussed, on January 24, 2001 the matter relating to winding up of the Appellant�s scheme. It is amply clear that the Appellant was given sufficient opportunity to putforth its case and the Appellant had also availed of the same as is evident from the Appellant�s letter dated January 24, 2001 referred to above. The Appellant�s reference to section 12(3) 15I, 15U and regulation 62(2) are out of context as those sections and regulations are with reference to certain specific measures such as cancellation / suspension of the certificate, imposition of monetary penalty, etc., and not with reference to failure to register / wind up the old schemes.
 

The submission made by the Appellant�s Counsel that there are no complaints from any investors is not correct as the Appellant itself has in writing admitted the receipt of few complaints. The argument that out of a total of 38000 investors, complaints from 29 members is hardly of any relevance is unacceptable. Even if one investor is aggrieved, it cannot go unnoticed.
 

The Appellant�s grievance about publication of the order under regulation 64 is also unfounded as the regulation provides for publication of orders of suspension or cancellation of registration. The Appellant�s case is not that of suspension or cancellation. The Respondent had published the impugned order as an investor protection measure, with a view to alert the investors that the Respondent has issued the impugned direction to the entities stated in the order and that the investors may take note of the same with reference to their existing investments, if any, in any one of them or think twice before making any investment in them. If the Appellant is touchy about its name appearing in the press notification in the light of its proven failure to comply with the requirements under Chapter IX of the Regulation, the best course is to prevent the same by complying with the requisite statutory requirements.
 

For the reasons stated above, I do not find any merit in the appeal and accordingly the appeal deserves to be set aside.
 

Now, coming to the Appellant�s application seeking action against the Respondent for the alleged contempt, it is to be stated that this Tribunal has no power to punish any person, for contempt of the Tribunal. All that the Tribunal can do in case it is satisfied that the conduct of a person attracted action under the Contempt of Courts Act, is to forward the matter to the Honourable High Court for such action, the Honourable High Court may deem fit to take. In the instant case the Appellant�s grievance is that during the pendency of the appeal, one of the officers of the Respondent issued a letter, which according to the Appellant amounts to contempt of the Court. The text of the said letter is extracted below:

The learned Counsel for the Appellant had cited about a doze cases in support of his version. I have perused each one of them, but find none of them of any assistance to the Appellant. I do not consider it necessary to discuss each one of the said citations as I found them not relevant, in the light of the facts based on which the Appellant has alleged the act of contempt by the Respondent. I have very carefully considered the import of the impugned letter and the submissions made by the parties. In my view sending such a routine letter by the Respondent�s officer to an investor cannot be considered as an act of contempt to warrant any action under the Contempt of Courts Act, 1971, and I am not inclined to forward the matter to the Honourable High Court, as prayed by the Appellant. The application is therefore dismissed.
 

For the reasons discussed above the impugned order is upheld and the appeal is dismissed.