ORDER
1. 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 Schemes) 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. Therefor,
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.wwee.sebi.gov.in. Names of
such entities are also being published in new papers separately.”
2.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 reliefs sought in the appeal is to set aside the impugned
Press Release and its Annexure pertaining to the appellant company.
3. The appellant company was incorporated in the year 1984 as a private
limited company and subsequently converted into a public limited com-
pany 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
(CIS), in October, 1994. The EBS promises investors around 24 per cent
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. 2276.73 lakhs.
4. According to Section 12(B) of the Securities and Exchange Board of
India Act, 1992 (the Act), no person shall carry on any Collective Invest-
ment Scheme unless he obtains a certificate of registration from the
Securities and Exchange Board of india, in accordance with the regula-
tions made thereunder. The respondent notified Securities and Exchange
Board of India (Collective Investment Schemes) Regulations, 1999 (the
Regulations) with effect from 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 CIS in case they do not
want to continue with their business under the regime. AS per regulation
73(1) an existing CIS which (a) has failed to make an application for
registration to the Board; or (b) has not been granted provisional registra-
tion 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 he time frame specified in the said regulation 73. In terms of
regulation 74 an existing CIS which is not desirous of obtaining provisional
registration from the Board is allowed to formulate a scheme of repay-
ment and make such repayment to the existing investors in the manner
specified in regulation 73.
5. Shri Burzin Somandy, the learned Counsel for the appellant company
submitted that it was decided by the management not to go ahead with the
CIS but to formulate a scheme for repayment under regulation 73.
Accordingly they wrote to the respondent on 28-11-2000 seeking certain
clarifications as also their view on the information memorandum sub-
mitted 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 of 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 inter alia 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. The 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. Accord-
ing to the learned Counsel the appellant company had already circulated
the information memorandum to the investors seeking their option. The
appellant had sought advise 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 necessi-
tated;
(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 fulfil its commitments made to
the investors;
(v)as the CIS is put to wind up, it is presumed that all the agreements,
undertaking, 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.
6. According to the learned Counsel, the points on which the appellant
sought clarification from the respondent are of considerable importance
and have bearing on the interests of the investors. Since CIS Regulations
being new and the issues involved being very complex the appellant did
not want to take any chance and that is why they approached the
Regulator seeking advice.
7. 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.
8. 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 the reply
envisaged under Rule 14 of the Securities Appellate Tribunal (Procedure)
Rules, 2000 is a reply to the appeal as 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 be expressed in Section 15T(6) of the Act.
9. Mr. S.V. Krishnamohan, learned Representative appearing for the
respondent reiterated the preliminary objections stated in the written
reply that there was no appealable order enabling the appellant to file the
present appeal.
10. The crucial question to be considered, to begin with, is the maintain-
ability of the appeal itself. According to Section 15T of the Act any person
aggrieved by an order of the Board made on the after the commence-
ment 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.
11. 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 expres-
sion of opinion, or a piece of advise or guidance, cannot be considered as
an order for the purpose of Section 15T.
12. 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 application re-
ceived for grant of registration from the entities has been stated. There
after 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 make payments to t he
investors, are available at SEBI web site and that the names of such entities will be published in news paper also separately. Thus, the Press
Release contains the factual information and the legal consequences of
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 merely on the basis of the impugned Press Release.
The appellant’s apprehension at present appears to be baseless.
13. 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 regu-
lations 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 interests of the investors.
14. The appeal cannot sustain for the reasons stated above.
15. The appeal is, therefore, dismissed.
