BEFORE THE
SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 21.06.2019
Date of Decision
: 01.08.2019
Appeal No. 304 of 2018
[[
1. Shree Sai Space Creations Limited
Malu Trade Centre, CDC – 25, Spine
Road, Chikhali, Chinchwad,
Pune – 411 019.
2. Suresh L. Shrivastav
Sai Villa Bungalow, CDC-50,
Veer Sawarkar Road, Purna Nagara,
Behind H.P. Petrol Pump, Chinchwad,
Pune – 411 019.
3. Laxmi L. Shrivastav
Sai Villa Bungalow, CDC-50,
Veer Sawarkar Road, Purna Nagara,
Behind H.P. Petrol Pump, Chinchwad,
Pune – 411 019.
4. Ritesh L. Shrivastav
Sai Villa Bungalow, CDC-50,
Veer Sawarkar Road, Purna Nagara,
Behind H.P. Petrol Pump, Chinchwad,
Pune – 411 019.
5. Vivek L. Shrivastav
Sai Villa Bungalow, CDC-50,
Veer Sawarkar Road, Purna Nagara,
Behind H.P. Petrol Pump, Chinchwad,
Pune – 411 019.

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

…Respondent
2
Mr. Saurabh Bachhawat, Advocate with Mr. Jitendra Sharda,
Advocate i/b Mindspright Legal for Appellants.
Mr. Mustafa Doctor, Senior Advocate with Mr. Abhiraj Arora and
Mr. Vivek Shah, Advocates i/b ELP for the Respondent.

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

This appeal has been filed challenging the order of the
Adjudicating Officer (‘AO’ for short) of Securities and Exchange
Board of India (‘SEBI’ for short) dated April 5, 2018. By that
order appellants have been directed to jointly and severally pay a
penalty of Rs. 25 Lakh for running a Collective Investment
Scheme (‘CIS’ for short) without SEBI registration and thereby
violating Section 12(1B) of the SEBI Act, 1992 and Regulation 3
of the SEBI (Collective Investment Scheme) Regulations, 1999
(‘CIS Regulations, 1999’ for short).

2.

The background of the case is as follows. Appellants are the
Company in question as well as its Directors at the relevant time.
Sai Space Creations Limited, the Company, was incorporated on
August 7, 2010. They collected money from a large number of
3
investors for a solar power project at Village – Rubavali, Taluka –
Mahad, District – Raigad in an area measuring 20 acres of land,
during 2012-13 in the form of investment in a joint venture project
/ scheme. The scheme brochure provided different payment plans
for periods ranging from 4 to 6 years and for 4 to 7 years. A
perusal of the list of investors / contributors / JV participants show
that most of them belong to States of Utter Pradesh, Haryana,
Rajasthan, Madhya Pradesh and Gujarat and only a few belong to
the State of Maharashtra where the project site is located. This
would raise the question as to how such small investors would
become active participants in running a scheme / business of the
appellant Company as claimed by the appellants.

3.

On October 8, 2013 SEBI wrote a letter seeking details and
documents since the appellants were involved in mobilizing funds
without obtaining SEBI registration under CIS Regulations, 1999.
Since the appellants denied running a CIS, on October 28, 2013
SEBI sought further documents regardless of the scheme being
CIS or not. On January 23, 2014 WTM of SEBI passed an exparte ad-interim order under Section 11 and 11B of the SEBI Act
read with Regulation 65 of CIS Regulations, 1999. On November
24, 2014 the WTM passed the final order concluding that the
appellants were engaged in activities covered under CIS without
4
obtaining registration. This order was challenged before this
Appellate Tribunal. During the pendency of the appeal on
February 24, 2016 the Recovery Officer issued an order of
attachment which was also challenged by filing a Misc.
Application. Both the Misc. Application and the appeal were
disposed of by this Tribunal on April 20, 2016 directing appellants
to file a proposal for the refund of the entire amount before the
Recovery Officer without going into the question of whether the
appellants has been in fact covered under the CIS Regulations,
1999 as sought by the appellants. Thereafter the appellants have
been in the process of protracted correspondence and negotiations
with SEBI. Finally, on August 18, 2016 appellants submitted
original documents of land to SEBI and SEBI started the auction
process on July 20, 2017. On December 4, 2017 the AO issued a
show cause notice seeking why an enquiry should not be held and
penalty be not imposed under Section 15D(a) of the SEBI Act and
Regulation 3 of CIS Regulations, 1999. Following personal
hearing and written submissions etc. the impugned order has been
passed on April 5, 2018.

4.

Shri Saurabh Bachhawat, learned counsel for the appellant
submits that the appellant Company is in the business of solar
energy generating panels and for expanding its business entered
5
into separate agreements with investors and the entire business
was managed together by the Company and the investors. He cited
a Memorandum of Understanding executed on May 29, 2013
between the Company as the first party and one Mr. / Mrs.
Santosh Kumbar of District Belgaum as the second party or JV
participant. He further contended that since such joint agreements
are in place the appellants and the other parties were collectively
managing the business, minutes of which are also on record.
Hence, the appellants are not running any CIS and hence SEBI has
no jurisdiction to pass the impugned order. It was further argued
by the learned counsel for the appellants that in the same matter
this Appellate Tribunal disposed of Appeal No. 180 of 2015 on
April 20, 2016. The appellants are in the process of making the
payment / refund and two properties have been already disposed
of by SEBI and Rs. 82 lakh has been recovered by SEBI.
Auctioning the rest of the properties for recovering the remaining
amount is under process and also the said properties are under
SEBI. The April 20, 2016 order of this Tribunal was passed
without treating the appellant Company as a CIS. In any case
when the process of refund as approved by this Tribunal was
under way no separate penalty should have been imposed on the
appellants through another adjudication process. In any case the
6
penalty of Rs. 25 lakh imposed on the appellants is too harsh,
particularly when refund of the money under SEBI’s own
monitoring and auctioning of property etc. is under way.

5.

Shri Mustafa Doctor, learned senior counsel for SEBI
submitted that the proceedings by the Whole Time Member
(‘WTM’ for short) and the instant proceedings by the AO are
parallel process. The WTM by its order passed certain directions
including restraining the appellants from dealing in the securities
market and refunding the monies collected from the investors etc.
which is the matter dealt by this Tribunal in Appeal No. 180 of
2015. Irrespective of whether the position relating to the refund
etc; which in any case is still incomplete as the properties given by
the appellants are located in different parts of the country,
adjudicating process for collecting money as a CIS without
obtaining a SEBI registration for the same is as per the provisions
of the SEBI Act. The penalty imposed on the appellants Rs. 25
lakh is also reasonable as under Section 15D(a) the penalty
imposable at the relevant time was Rs. 1 lakh for each day subject
to a maximum of Rs. 1 crore. In the context of this matter, after
providing for a mitigating factor under Section 15J the AO has
7
imposed a penalty of Rs. 25 lakh jointly and severally which is
just and reasonable.

6.

We do not agree with the contentions of the appellant. The
preliminary objection to the impugned order that the appellants
are complying with the order of the WTM on the direction of the
Tribunal and it is without accepting that the appellants were
running CIS and hence parallel adjudication process could not
have been initiated has no merit since it was on appellants’ own
willingness that the Tribunal passed such an order without going
into the question of whether appellants were running CIS or not. It
does not prevent SEBI from initiating parallel proceedings as
provided under law. It is also a fact that appellants have not yet
completed the process of repayment to the investors despite lapse
of three years from the date of our order dated April 20, 2016.

7.

The submission that the joint venture agreement is a proof of
joint management of the business has no merit since there is
nothing on record to show that the investors had any say in the
management of the business. This is further amplified by the fact
that investments have been done by people located in various parts
of the country. Further, a list of 370 such parties from various
parts of the country are also on record who invested in small units
8
of lands located in a remote area of Maharashtra. It is not clear
how such small investors could go to such faraway places to
manage such properties / business. The appellants’ reliance on an
unsigned document stated to be minutes of the meeting held at the
office of Shree Sai Spaces Creation Ltd. at Pune regarding
formation of a committee for the management of solar power plant
is of no help, as this record has no veracity. In any case the
function of this committee as described below clearly states that
preference will be given to the Company’s decision:“The function of the management committee is to
manage and control the solar power project and take
decision on behalf of the joint venture participants
provided that if decisions are taken by the company for
the interest of all the joint venture participants, then
preference will be given to the company decision after
due consideration of opinions of the management
committee.”
8.

This description itself shows that the final decision will be
taken by the Company itself. Given the above facts there is no
doubt that appellants were in fact running CIS in terms of the
definition of a CIS under Section 11AA(2), 12(1B) of SEBI Act,
1992 and Regulation 3 of CIS Regulations, 1999, in terms of
pooling of funds, the schemes were with a view to receive profits,
income or property; it was managed by the Company and its
9
management on behalf of the investors and investors do not have
any role in the management of the scheme.
9.

For facility, the relevant provisions are reproduced as
follows:Section 11AA of the SEBI Act “11AA(2)
(2) Any scheme or arrangement made or offered by
any [person] under which,—
(i)
the contributions, or payments made by the
investors, by whatever name called, are pooled
and utilized for the purposes of the scheme or
arrangement;
(ii) the contributions or payments are made to such
scheme or arrangement by the investors with a
view to receive profits, income, produce or
property, whether movable or immovable, from
such scheme or arrangement;
(iii) the property, contribution or investment forming
part of scheme or arrangement, whether
identifiable or not, is managed on behalf of the
investors;
(iv) the investors do not have day-to-day control over
the management and operation of the scheme or
arrangement.
“Section 12(1B) of SEBI Act
1B) No person shall sponsor or cause to be sponsored
or carry on or caused to be carried on any venture
capital funds or collective investment schemes
including mutual funds, unless he obtains a certificate
of registration from the Board in accordance with the
regulations:
10
Provided that any person sponsoring or causing to be
sponsored, carrying or causing to be carried on any
venture capital funds or collective investment
schemes operating in the securities market
immediately
before
the commencement of the
Securities Laws (Amendment) Act, 1995, for which no
certificate of registration was required prior to such
commencement, may continue to operate till such time
regulations are made under clause (d) of sub-section
(2) of section 30.
Explanation- For the removal of doubts, it is hereby
declared that, for purposes of this section, a collective
investment scheme or mutual fund shall not include
any unit linked insurance policy or scrips or any
such instrument or unit, by whatever name called,
which provides a component of investment besides the
component of insurance issued by an insurer.
Regulation 3 of CIS Regulations, 1999
No Person Other than Collective Investment
Management Company to launch collective
investment scheme
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.”
10. Given the aforesaid facts and position of law, it is clear that
the appellants are in fact running a CIS. It is also an admitted fact
that the appellants did not obtain a certificate of registration for
running such a scheme under SEBI Act and CIS Regulations,
1999. Accordingly, the penalty imposed on the appellants cannot
be faulted. The penalty imposable under Section 15(D)(a) of SEBI
Act at the relevant time was Rs. 1 lakh for each day during which
11
an entity carries on any collective investment scheme or Rs. 1
crore whichever is less. In the instant case, the appellant Company
was set up in 2010 and the money collected in the form of
investment in joint venture project / scheme during 2012-13 and
for periods ranging from 4 to 7 years. Therefore, the Company
and the scheme came into existence many years after notification
of the CIS Regulations, 1999 and the schemes were flouted
despite the fact that Regulations notified in the year 1999 makes it
mandatory for obtaining registration from SEBI for hoisting any
such a scheme. Accordingly, we do not find any anomaly in the
direction to pay a penalty of Rs. 25 lakh jointly and severally by
the appellants which takes into account the mitigating factors
under Section 15J of SEBI Act.

11. In the result, the appeal is dismissed with no orders on costs.
Appellants are directed to pay the penalty within 30 days from the
date of this order.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
01.08.2019
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