In the matter of:

M/s. Suman Motels Ltd                                           Appellant

Vs.

Securities and Exchange Board of India              Respondent
 
 

APPEARANCE

Mr.Burzin Somandy
Advocate

Ms.Jayashree Nambiar
Advocate
I/b. Vinod Mistry & Co.,                                           for Appellant

Mr. S V Krishna Mohan
Division Chief,
SEBI                                                                             for Respondent
 

Securities and Exchange Board of India, the Respondent herein, had issued a Press Release � PR-109/2000 on 16.5.2000 on the subject "CIS" entities who have to compulsorily wind up their schemes and make payment to the investors latest by May 28, 2000". The text of the said Press Release is as follows:

�On notification of the SEBI (Collective Investment Scheme) Regulations, 1999 on October 15, 1999, all existing Collective Investment Schemes, subject to the provisions of Chapter IX of these Regulations, were required to make an application to SEBI for grant of certificate of registration.

Under provisions of the Regulations, an existing Collective Investment Scheme, which has failed to make an application or is not desirous of obtaining registration, has to compulsorily wind up the scheme(s) and make payment to the investors.

Upto March 31, 2000 SEBI has received applications for grant of certificate of registration from 35 existing entities. Besides, 2 entities who had earlier not filed information with SEBI, have applied for registration. Therefore, the remaining existing entities, who had earlier filed information with SEBI, have to compulsorily wind up their schemes and make payment to the investors latest by May 28, 2000 failing which they shall face legal and administrative action. The names of 605 entities who have to compulsorily wind up their schemes and make payment to the investors latest by May 28, 2000 are available on SEBI web site viz. www.sebi.gov.in Names of such entities are also being published in news papers separately".

Among the names of 605 entities who had to compulsorily wind up their scheme as per the Press Release, the name of the Appellant also appeared. The present appeal from the Appellant Company is against the said Press Release. One of the relieves sought in the appeal is to set aside the impugned Press Release and its Annexure pertaining to the Appellant company.
 

The Appellant Company was incorporated in the year 1984 as a private limited company and subsequently converted into a public limited company in 1989. The Appellant Company is mainly involved in Resort and Tourism activities. It is also involved in plantation activities. It had floated an Earth Bond Scheme (EBS), which is a Collective Investment Scheme (Collective Investment Scheme), in October 1994. The EBS promises investors around 24% IRR. As per the information furnished by the Appellant the fund raised from the said Collective Investment Scheme as on 31.12.1999 was to the extent of Rs.2296.73 lakhs.
 

According to section 12(B) of the SEBI Act, 1992 (the Act), no person shall carry on any Collective Investment Scheme unless he obtains a certificate of registration from the Securities and Exchange Board of India, in accordance with the regulations made thereunder. The Respondent notified SEBI (Collective Investment Scheme) Regulations, 1999 (the Regulations) w.e.f. 15.10.1999. In terms of regulation 5(1), any person who immediately prior to the commencement of the Regulations was operating a scheme, subject to the provisions of Chapter IX of the Regulations, is required to make an application to the Board for the grant of a certificate within a period of two months from such date. However, the said Chapter IX provides an exit route to those Collective Investment Scheme incase they do not want to continue with their business under the regime. As per regulation 73(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 conditions stipulated in regulation 71, is required to wind up the scheme and make repayment to the investors in the manner and within the time frame specified in the said regulation 73. In terms of regulation 74 an existing Collective Investment Scheme which is not desirous of obtaining provisional registration from the Board is allowed to formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in regulation 73.
 

Shri.Burzin Somandy, learned Counsel for the Appellant Company submitted that it was decided by the management not to go ahead with the Collective Investment Scheme but to formulate a scheme for repayment under regulation 73. Accordingly, they wrote to the Respondent on 28.1.2000 seeking certain clarifications as also their views on the information memorandum submitted therewith. On 10.2.2000, the Appellant Company wrote again, referring to their earlier letter dated 28.1.2000 requesting the Respondent to expedite their response stating that it was waiting for their approval of the information memorandum for sending to the investors. According to the learned Counsel since there was no response, again on 18.2.2000 another letter was sent to the Respondent interalia stating therein the practical difficulties involved in adhering to the specified rigid time frame. This letter also remained unanswered. In the meantime the Respondent issued the impugned Press Release on 16.5.2000. Learned Counsel submitted that thereafter again on 25.5.2000, the Appellant company wrote another letter explaining the practical difficulties involved in complying with the requirements within a short time frame and requested the authorities to give them an opportunity to explain in detail the problem. But the respondent did not respond to this request also. According to the learned Counsel the Appellant Company had already circulated the information memorandum to the investors seeking their option. The Appellant had sought advice mainly on the following points:

(I) if they have to effect any repayments to investors in a substantial manner then winding up of the scheme and disposing off the movable and immovable assets of the schemes would be necessitated ;

(II) amount payable to each investor can be determined only on realisation of sale proceeds of the said assets, most of which are still under development;

(III) in the said circumstances the Appellant company may not be able to pay the investors within the time prescribed under Regulation 73;

(IV) the Appellant company had ensured returns and issued post dated cheques to investors on the basis of a going concern. If the Appellant company is required to stop the scheme mid -way the Appellant company will not be in a position to fulfill its commitments made to the investors;

(V) as the CIS is put to wind up, it is presumed that all the agreements, undertakings, returns assured and post dated cheques will become null and void and the Appellant would not take responsibility for these in the future and SEBI shall allow immunity to the company from any future action of the investors.

The learned Counsel submitted that the impugned Press Release in effect is an order, that the Respondent has threatened to take legal and administrative action against the companies mentioned therein, including the Appellant. According to him the Appellant's name should not have been included in the list as the Appellant had already reported the course of action pursued by them under the Regulation. He is apprehensive of punitive action following the Press Release, even without getting any chance to putforth the Appellant's point of view.
 

The Respondent has filed a very cryptic reply raising preliminary objection as regards admission and maintainability of the appeal on the ground that they had not passed any order with specific reference to the Appellant which can be appealed against in terms of section 15T of the Act. The Respondent has not replied to any points raised in the appeal including the fate of the Appellant's letters seeking guidance on complex issues arising out of the implementation of the regulations, having bearing on the investors interest. In this connection it is made clear that the reply envisaged under rule 14 of the Securities Appellate Tribunal (Procedure) Rules, 2000 is a reply to the appeal as a whole and not a part reply. The Respondent is at liberty to raise preliminary objections in the reply, but the reply should also deal with other points raised in the appeal, so that in case the preliminary objections fail, without any loss of time the appeal itself can be considered and disposed off in one go. The outcome of preliminary objections should not be taken for granted. Time factor is important in view of the legislative will expressed in section 15T (6) of the Act.
 

Mr. S. V. Krishnamohan, learned Representative appearing for the Respondent reiterated the preliminary objections stated in the written reply that there was not appealable order enabling the Appellant to file the present appeal.
 

The crucial question to be considered, to begin with, is the maintainability of the appeal itself. According to section 15T of the Act any person aggrieved by an order of the Board made on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under the Act or the rules or regulations made thereunder; or by an order made by an adjudicating officer under the Act, may prefer an appeal to the Tribunal.
 

On a perusal of the said section 15T it could be seen that an appeal lies only against an order of the Board (SEBI) or the adjudicating officer. What is an order? There is no definition of this expression in the Act. So it has to be understood in its generally accepted sense in the context in which it is used. As per the scheme of the Act it is clear that an order thereunder covers commands or directions that some thing shall be done, shall not be done, discontinued or suffered. In any case a simple expression of opinion, or a piece of advice or guidance, cannot be considered as an order for the purpose of section 15T.
 

In this context it is relevant to examine the impugned Press Release to ascertain as to whether it has any of the attributes of an order. Full text of the impugned Press Release has been reproduced in the beginning of this order. On a perusal of the same it is seen that the first two paragraphs explain certain requirement of the Regulations. In the first part of the last para, statistical information relating to the number of the application received for grant of registration from the entities has been stated. Thereafter, again the statutory provision applicable to the remaining existing entities has been stated reiterating the consequences, which would visit them. The release also states that the names of those 605 entities who have to compulsorily wind up their schemes and wind up their schemes and make payments to the investors, are available at SEBI web site and that the names of such entities will be published in newspaper also separately. Thus, the Press Release contains the factual information and the legal consequences of the non-compliance of the provisions of the Regulations. I do not find any trace of any command or direction enforceable against the Appellant Company emerging out of the impugned Press Release. There is every reason to believe that if at all any punitive action is contemplated in the event of the companies referred to therein failing to comply with the statutory requirements, it will be taken only after following the requisite procedure, and not the basis of the impugned Press Release. The Appellant's apprehension at present appears to be baseless.
 

For the reasons stated above, I agree with the Respondent's version that the impugned Press Release is not an order enabling the Appellant to prefer an appeal under section 15T of the Act. It is nothing but a piece of information published for the benefit of the companies referred to therein including the Appellant, explaining the requirements of the Regulations and the would be consequences in the event of default. Since the Appellant has sought certain clarifications to avoid complication in the process of acting under the Regulations the Respondent may consider providing the same early so as to enable the Appellant to properly comply with statutory requirements in the interest of the investor.
 

The appeal cannot sustain for the reasons stated above.
 

The appeal is, therefore, dismissed.