SAT | Company floating CIS without registering with SEBI held liable under S. 15-HA of SEBI Act

Securities Appellate Tribunal (SAT): A Two-Member Bench of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) was hearing two appeals pertaining to the orders passed by Adjudicating Officer (AO) of Securities and Exchange Board of India (SEBI) imposing penalty over appellants.

The appeals were filed by Subrata Bhattacharya and Gurmeet Singh, Directors of Pearl Agrotech Corporation Limited which was involved in mobilizing funds from the General Public by sponsoring schemes. SEBI found out that the schemes by the company are the Collective Investment Scheme (CIS) and was in violation with Section 15-HA of SEBI Act, 1992. Therefore, SEBI directed the company to wind up the CIS and return the money to the investors. The AO imposed a penalty of Rs 7,269,49,70,295 to be paid by appellants which was later quashed by the present tribunal back in 2016. Later after hearing the appellants, the AO revised the penalty to Rs 24,23,16,56,765. The Appeal was filed against this order of the AO.

The Counsel for the appellants, Kunal Katariya, Pulkit Sharma assisted by Pranav Shah submitted that the show cause notice was quashed by Rajasthan High Court and it held that the scheme was not CIS. The orders of High Court even though were set aside by the Supreme Court no interim order was passed, so the directors have not collected money illegally. The Counsel further submitted that there was no proof that the appellants have made profits from the scheme and the scheme floated was a valid scheme that did not require registration. Therefore, the penalty was imposed without considering the relevant factors.

The Counsel for the respondent, Shyam Mehta and Shehaab Roshan submitted that the appellants have unlawfully drawn the fund causing loss to investors.

The Tribunal relied on Regulation 4(2)(t) of Prohibition of Fraudulent and Unfair Trade Practices and observed that the collection made by the appellants was illegal and the total amount of collection amounts to illegal profits made by the appellants and the company and the amount was raised under CIS as not registered from SEBI. Further, it was observed that the orders of AO are in consideration with the law by placing reliance on Section 15-HA of SEBI Act, 1992.

In the view of above, the Tribunal dismissed the appeals.[Subrata Bhattacharya v. SEBI, Appeal No. 47 of 2018, decided on 14-01-2020] 

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