BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 30.07.2019
Date of Decision : 13.08.2019
Misc. Application No. 149 of 2016
And
Misc. Application No. 83 of 2017
And
Misc. Application No. 129 of 2017
And
Appeal No. 203 of 2016
Alchemist Infra Realty Ltd.
723, DLF Tower “A”,
Jasola District Centre,
New Delhi – 110 044.

…… Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.

…… Respondent
Mr. Rajiv Nayyar, Senior Advocate with Mr.

Saurabh Seth,
Mr. Surendra Dube, Mr. Shatadru Chakraborty, Mrs. Gauri Memon,
Advocates i/b M/s. Nankani & Associates for the Appellant.
Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody,
Mr. Sushant Yadav, Mr. Tabish Mooman, Advocates i/b K Ashar &
Co. for Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C. K. G. Nair, Member
Justice M. T. Joshi, Judicial Member
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Per : Justice Tarun Agarwala, Presiding Officer
1.

The facts leading to the filing of the appeal is that the appellant
is a public limited company and was carrying on the business of
development of high quality infrastructure and real estate in and
around India. Securities and Exchange Board of India (hereinafter
referred to as, ‘SEBI’) issued a show cause notice dated November
21, 2012, contending that the appellant was found to be running a
collective investment scheme as defined under Section 11(AA) of the
Securities and Exchange Board of India Act, 1992 (hereinafter
referred to as, ‘SEBI Act’) without obtaining the certificate of
registration and, accordingly, required the appellant to show cause as
to why direction should not be issued under Section 11 and 11B of
the SEBI Act read with Regulation 65 of the Securities and Exchange
Board of India (Collective Investment Schemes) Regulations, 1999
(hereinafter referred to as, ‘CIS Regulations’). The Whole Time
Member (hereinafter referred to as, ‘WTM’) after considering the
reply and the evidence that was brought on record and after giving
them an opportunity of hearing passed an order dated June 21, 2013
holding that the operations of the appellant were in the nature of
collective investment scheme as defined under Section 11A of the
SEBI Act and directed the appellant to refund the money collected
from its investors within three months from the date of the order.

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2.

The appellant being aggrieved by the said order filed an appeal.

The Tribunal by an order dated July 23, 2013 upheld the findings of
SEBI with regards to the nature of operations of the appellant being a
collective investment scheme. The Tribunal further allowed the
appellant 18 months’ time to refund the money collected from the
investors. The Tribunal also granted liberty to the appellant to seek
further extension of time, if so required.

3.

The appellant being aggrieved by the order of this Tribunal
filed a Civil Appeal before the Hon’ble Supreme Court of India.
This appeal was dismissed as withdrawn by an order dated
September 5, 2014 giving the liberty to the appellant to work out the
remedy elsewhere.

Thus, the order of SEBI holding that the
operations of the appellant as a collective investment scheme without
obtaining a certificate of registration was illegal and consequential
direction to stop the scheme and refund the amount to the investors
became final.

4.

Based on the order of the Tribunal dated July 23, 2013, the
appellant filed an application dated January 22, 2015 seeking
extension of time in order to complete the process of refund. The
appellant in this application also sought permission to circulate an
information memorandum in terms of Regulation 73 of the CIS
Regulations. This application was rejected by SEBI by an order
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dated May 27, 2015 declining the request for extension of time and
also refusing permission to circulate an information memorandum.
The impugned order further directed that attachment and recovery
proceedings should be initiated against the company for noncompliance of its order dated June 21, 2013.

5.

The appellant challenged the order dated May 27, 2015 passed
by SEBI before this Tribunal in Appeal No. 298 of 2015. This
Tribunal by an order dated June 15, 2015 set aside the order of SEBI
dated May 27, 2015 and directed SEBI to verify the claim made by
the appellant regarding refund. The Tribunal directed the appellant
to furnish the particulars demanded by SEBI vide its various letters
for the purpose of verifying the claim.

If such particulars were
furnished by the appellant, SEBI was required to verify the same and
pass appropriate orders on the application of the appellant. It was
stated that if the appellant failed to furnish the requisite particulars
within the stipulated time the order of SEBI dated May 27, 2015
would revive.

6.

It is alleged that pursuant to the order of the Tribunal dated
June 15, 2015 the requisite information was submitted within the
stipulated period.

Thereafter, the appellant again made a fresh
representation dated August 7, 2015 seeking permission to circulate
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an information memorandum under Regulation 73 of the CIS
Regulations.

7.

Pursuant to the requisite information submitted, SEBI
appointed an independent auditor dated August 6, 2015 in order to
verify the payments made by the appellant to the investors. Since the
appellant was not cooperating with the auditor, SEBI issued a show
cause notice dated November 20, 2015 to show cause as to why the
order of SEBI dated May 27, 2015 should not be revived. The
appellant submitted its reply contending that they are making the
payments to the investors and that they have already moved an
application seeking further time. The hearing was concluded on April
2, 2016. It transpires that an interim audit report dated May 28, 2016
was submitted to SEBI indicating the methodology for scrutinising
the payments made to the investors by the company. The report
indicated that the auditor had to discontinue the audit as requisite
data was not being supplied by the appellant and even as on the date
of the submission of the interim audit report, out of a sample
selection of 49282 certificates the appellant had only provided the
details of 8471.

8.

Based on the said report and other extenuating circumstances,
the WTM rejected the application of the appellant seeking further
extension of time to implement the SEBI’s order of June 21, 2013 for
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refund of money to the investors.

The request to circulate an
information memorandum under Regulation 73 of the CIS
Regulations was also rejected. The appellant being aggrieved by the
said order dated June 14, 2016 has filed the present appeal.

9.

We have heard Shri Rajiv Nayyar, the learned senior counsel
for the appellant and Shri Shyam Mehta, the learned senior counsel
for the respondent at some length.

10.

It was contended that the WTM committed a manifest error in
rejecting the application seeking to circulate the information
memorandum as prescribed under Regulation 73 of the CIS
Regulations. It was contended that the order of SEBI dated June 21,
2013 was an order passed under Regulations 65 and 73 of the CIS
Regulations which was affirmed by the Tribunal by its order dated
July 23, 2013 in which a specific finding has been given by the
Tribunal holding that the Regulation 73 is applicable to the
appellant’s investment scheme. It was further contended that SEBI
in its counter affidavit filed before the Hon’ble Supreme Court
admitted that the Regulation 73 is required to be followed.

11.

In our view, the contention raised by the learned senior counsel
for the appellant is patently misconceived and cannot be accepted.

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Before proceeding, it would be appropriate to extract the operative
portion of the order passed by the WTM dated June 21, 2013 :
“50. Therefore, I, in exercise of the powers conferred
upon me under section 19 of the Securities and Exchange
Board of India Act, 1992 and sections 11 and 11B
thereof and regulations 65 and 73 of the SEBI
(Collective Investment Schemes) Regulations 1999,
hereby issue the following directions to safeguard the
interest of the investors:
(a) Alchemist Infra Realty Limited shall not collect any
money from investors or launch or carry out any
scheme which has been identified as a collective
investment scheme in this Order.
(b)
Alchemist Infra Realty Limited and its directors
including Mr. Brij Mohan Mahajan, Mr. Sunil
KantiKar and Mr. Narayan Madhav Kumar shall
wind up the existing collective investment schemes
and refund the money collected by the said
company under the schemes with returns which are
due to its investors as per the terms of offer within
a period of three months from the date of this
Order and submit a winding up and repayment
report to SEBI in accordance with the SEBI
(Collective Investment Schemes) Regulations, 1999,
failing which the following actions shall follow :
(i)
SEBI would initiate prosecution proceedings
under section 24 and adjudication
proceedings under Chapter VI of the
Securities and Exchange Board of India Act,
1992 against Alchemist Infra Realty and its
directors;
(ii)
SEBI would make a reference to the State
Government/Local Police to register a
civil/criminal case against Alchemist Infra
Realty Limited and its directors and its
managers/persons in-charge of the business
and its schemes for offences of fraud,
cheating, criminal breach of trust and
misappropriation of public funds; and
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(iii) SEBI would make a reference to the Ministry
of Corporate Affairs, to initiate the process of
winding up of the company, Alchemist Infra
Realty Limited.
(c)
12.

Alchemist Infra Realty Limited and its directors
Mr. Brij Mohan Mahajan, Mr. Narayan Madhav
Kumar, Mr. Balvir Singh, Mr. Chandra Shekhar
Chauhan and Mr. Sunil KantiKar are restrained
from accessing the securities market and are
prohibited from buying, selling or otherwise
dealing in securities market till all the collective
investment schemes are would up by the Company
and all the monies mobilized through such
schemes are refunded to its investors with returns
which are due to them.”
A perusal of the order of SEBI indicates that the order has been
purported to be issued under Sections 11 and 11B of the SEBI Act
read with Regulations 65 and 73 of the CIS Regulations. We are,
however, of the opinion that Regulation 73 has wrongly been quoted
in the order in as much as we find that the directions have been
issued only under Sections 11 and 11B of the SEBI Act read with the
Regulation 65 of the CIS Regulations.

13.

In this regard, it would be appropriate to extract the provisions
of Regulations 65 and 73 of the CIS Regulations, as it stood during
the relevant period 2012-2013 hereunder :-
“65. The Board may, in the interests of the securities
market and the investors and without prejudice to its
right to initiate action under this Chapter, including
initiation of criminal prosecution under section 24 of the
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Act, give such directions as it deems fit in order to ensure
effective observance of these regulations, including
directions:
(a) requiring the person concerned not to collect any
money from investors or to launch any scheme;
(b) prohibiting the person concerned from disposing of
any of the properties of the scheme acquired in
violation of these regulations;
(c) requiring the person concerned to dispose of the
assets of the scheme in a manner as may be specified
in the directions;
(d) requiring the person concerned to refund any money
or the assets to the concerned investors along with
the requisite interest or otherwise, collected under
the scheme;
(e) prohibiting the person concerned from operating in
the capital market or from accessing the capital
market for a specified period.”
“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 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
10
each investor and the manner in which such amount is
determined.
(3) The information memorandum referred to in subregulation (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 subregulation (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.”
14.

Regulation 65 is under Chapter VIII of CIS Regulations
wherein the procedure has been propounded for action in case of
default. The directions contained in the order of SEBI dated June 21,
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2013 as extracted above is in terms of the directions provided under
Regulation 65 of CIS Regulations.

15.

Regulation 73 has been provided under Chapter IX of the CIS
Regulations under the heading existing collective schemes and where
existing schemes failed to comply with the provisions under
Regulations 71 and 72 then the said existing collective schemes were
required to be wound up.

The information memorandum
contemplated under Regulation 73(6) is to provide an option to the
contributors as to whether they would like to continue with the
collective investment schemes or not.

16. In our opinion, Regulation 73 is not applicable in the instant
case in as much as it was not an existing scheme as on the date of
incorporation of the Regulations which came into effect on January
25, 1995. The appellant’s CIS scheme came into effect much after
2005. The Hon’ble Supreme Court in SEBI vs. Gaurav Varshney
and Ors. [(2016) 14 SCC 430] has categorically held that an existing
collective investment scheme within the meaning of Section 12(1B)
as also within the meaning of collective investment regulations,
comprise of only such collective investment scheme which has come
into existence prior to January 25, 1995. In the instant case, the
appellant’s scheme came into existence much after January 25, 1995
and, thus, Regulation 73 of the CIS Regulations is not applicable.

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17.

Further, once there is an order to refund the money collected
by the appellant under the scheme, the question of circulating the
information memorandum to the contributories under Regulation
73(6) and requiring the contributors / investors to give their consent
under Regulation 73(7) does not arise.

Such exercise would be
defeating the order of refund of the monies collected illegally under
the CIS Scheme.

18.

We are further of the view that merely quoting a wrong
provision of the Statute while exercising power under an Act would
not invalidate the order passed by the authority if it is shown that
such order could be passed under other provisions of the Statute.
This principle has been approved by the Hon’ble Supreme Court in
the catena of cases and recently in Kedar Shashikant Deshpande
and Ors. vs. Bhor Municipal Council and Ors. [(2011) 2 SCC
654]. In our view, Regulation 73 has wrongly been quoted in the
order of SEBI. No directions have been issued under Regulation 73
and the directions issued are under Sections 11 and 11B of the SEBI
Act read with Regulation 65 of the CIS Regulations.

19.

In this regard, we also find that the arguments on Regulation
73 and its applicability was raised by the appellant before the
Tribunal which was unnecessary and was not required since no
direction under Regulation 73 was issued.

However, since
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arguments were raised, the Tribunal dealt with it which is reflected in
the order of the Tribunal.

In our opinion, the decision by the
Tribunal on Regulation 73 was unnecessary to the decision of the
case and, therefore, is not precedential. In our opinion, a judicial
comment made during the course of delivering a judicial opinion in
passing and which was not necessary to the issue is an ‘obiter dicta’
and has no precedential value. Thus, no benefit can be taken by the
appellant merely because the Tribunal considered the provisions of
Regulation 73 of the CIS Regulations. Similarly, the mere fact that
an officer of SEBI in his affidavit before the Hon’ble Supreme Court
of India has stated that the provisions of Regulation 73 are applicable
cannot be made binding upon the respondent nor can it overreach the
provisions of law. In any case, the law on Regulation 73 has now
been settled by the Hon’ble Supreme Court in the Gaurav Varshney
case (supra).

20.

In the light of the aforesaid, we are of the opinion that when
there was a clear cut direction of WTM directing refund of the
monies collected under the CIS, the question of continuing with the
scheme by distribution of information
Regulation 73 does not arise.

memorandum under
The application of the appellant
seeking to circulate the information memorandum under Regulation
73 to its investors was patently misconceived and was rightly
rejected.

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21.

With regard to the request for extension of time to refund the
monies, we are of the opinion that the WTM rightly rejected the
application.

Enough latitude has been given to the appellant to
refund the amount. More than five years have elapsed and the order
of SEBI dated June 21, 2013 is yet to be implemented in full.

22.

In this regard, we find that SEBI in its order dated June 21,
2013 had directed the appellant to refund the amount to its investors
within three months. This period of three months was extended by
18 months by the Tribunal by its order dated July 23, 2013. Before
the expiry of 18 months, the appellant moved an application dated
January 22, 2015 for extension which was rejected by SEBI by its
order dated May 27, 2015. The said order of May 27, 2015 was set
aside by this Tribunal with the direction that necessary details of
repayment would be provided by the appellant which shall be
verified by SEBI.

This Tribunal also directed that if necessary
details were not provided then the order dated May 27, 2015 would
revive.

23.

It was contended by the appellant that necessary details were
provided to the WTM who instead of verifying itself, appointed an
independent auditor on August 6, 2015 for verification.

It was
alleged that before it could be verified, the impugned order was
passed in violation of principles of natural justice.

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24. In our view, upon consideration of the material that has been
brought on record, we find that even though the independent auditor
was appointed on August 6, 2015, for almost three months, the
appellant did not schedule a meeting with the auditor. As a result,
the auditor had to intimate SEBI that they were unable to continue
with the audit on account of non-cooperation by the appellant. Based
on this non-cooperation, a show cause notice dated November 20,
2015 was issued to show cause as to why the order dated May 27,
2015 should not be revived.

In this show cause notice, it was
categorically indicated that the auditor had made request on
September 2, 2015, October 6, 2015, October 20, 2015 and
November 2, 2015 for holding a meeting which the appellant failed
to adhere. The record also indicates that the audit recommenced on
March 21, 2016 and inspite of auditor taking a sample of 49282 out
of 257477 investors, the company failed to provide the necessary
certificates and only provided 8471 certificates and that too without
providing the bank statements for cross verification.

25.

In the light of the aforesaid, we are of the view that the
appellant resorted to all kinds of dilatory tactics in not getting the
repayments verified, namely, whether the appellant had actually
refunded the amount to the investors. The WTM also took note of
the income tax report in which it was indicated that monies have not
16
been refunded to the investors and have been diverted to a sister
company of the appellant.

In the light of the conduct of the
appellant, we are of the opinion that admittedly the entire amount has
not been repaid to the investors and whatever has been alleged by the
appellant to have been repaid has not been verified. The appellant is
guilty of adopting dilatory tactics in getting the repayments verified.

26. Thus, we are of the opinion that the application for extension of
time to refund the amount was rightly rejected. It may be stated here
that more than Rs. 1900 crores were collected which till date has not
been refunded inspite of the order being passed by SEBI on June 21,
2013. Thus, no relief can be granted to the appellant.

27.

Before parting, we would like to observe that the hearing
before the WTM concluded on April 6, 2016. The interim audit
report is dated May 28, 2016 which the WTM considered. In our
opinion, if a document comes to existence after the conclusion of the
hearing, the said document cannot be taken into consideration unless
an opportunity is given to the appellant which in the instant case is
non-existent. However, reliance on the interim audit report will not
invalidate the impugned order as in our opinion, sufficient time was
allowed to the appellant to refund the amount which they miserably
failed to do so.

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28.

In view of the aforesaid, the appeal fails and is accordingly
dismissed.

As a result, all Misc. Applications have become
infructuous and are accordingly rejected.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C. K. G. Nair
Member
Sd/Justice M. T. Joshi
Judicial Member
13.08.2019
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