Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): G Mahalingam, Whole Time Member while exercising the powers conferred under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 27 of the SEBI (Intermediaries) Regulations, 2008 cancelled the certificate of registration granted Sai Soft Securities Private Limited.

In the instant case, the show cause notice alleged:

  1. Non-cooperation
  2. Non declaration of bank account
  3. Non-segregation of transactions between own and client bank account
  4. Client bank account used for purposes other than specified
  5. Non segregation of client and own securities

The Tribunal took note of the situation where the Noticee was struck off from the register of companies in terms of Section 248 of the Companies Act, 2013, which empowers the Registrar of Companies to remove the name of a company from the register of companies.

And pointed out to the fact that post the merger of USE with BSE in 2014, the Noticee had not neither applied to BSE for admission nor applied for surrender of its USE registration certificate. In view of the same, the status of the membership with USE was inactive. Therefore, cancelled the certificate of registration that was granted.[Sai Soft Securities Limited, In re, WTM/GM/NRO/NRO/12906/2021-22, decided on 11-08-2021]

Agatha Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Insolvency and Bankruptcy Board of India (IBBI): Dr Mukulita Vijayawargiya (Whole Time Member, IBBI) disposed of a show-cause notice issued to a Professional Member of ICSI Member Institute of Insolvency Professionals (IPA) and IP registered with the Insolvency and Bankruptcy Board of India (IBBI).

IBBI had issued the show cause notice for accepting the assignment as the Interim Resolution Professional in the Corporate Insolvency Resolution Process of Coastal Energy Private Limited without holding a valid Authorisation for Assignment.

Response to the Show Cause Notice was referred to the Disciplinary Committee for disposal of the SCN in accordance with the Code and Regulations made thereunder. The IP availed an opportunity of personal hearing before the DC on 10-09-2020.

Show Cause Notice

Show Cause Notice issued by IBBI alleged contravention of Sections 208(2)(a) and 208(2)(e) of the Insolvency and Bankruptcy Code, 2016, regulations 7(2)(a), 7(2)(h) and 7A of the IBBI Regulations, 2016 read with clauses 1, 2, 11, 12 and 14 of the Code of Conduct contained in the First Schedule of the IP Regulations for accepting the assignment of the Insolvency Resolution Professional in CIRP of Coastal Energy Private Limited after 31-12-2019 for which the public announcement was made on 08-01-2020 without holding a valid AFA from the IPA.

Analysis and Findings

Disciplinary Committee noted that the provisions of the Code and regulations are spelt in plain and unambiguous language.

Regulation 7A of IP Regulations requires for any IP to have AFA before undertaking any assignment after 31-12-2019.

One of the essential conditions for undertaking any assignment by an IP is that he should have a valid Authorisation for Assignment which is issued by the IPA with which he is enrolled.

“Without AFA, an IP is not eligible to undertake assignments or conduct various processes thereof.”

Section 208 of the Code casts an obligation to abide by the code of conduct and comply with all requirements and terms and conditions specified in the bye-laws of the insolvency professional agency of which he is a member.

Certificate of Registration

DC added to its observations that the certificate of registration granted to an IP is subject to the condition that he should follow at all times the provisions of the Code and Regulations and the bye-laws of Insolvency Professional Agency of which the IP is a member and also follow the Code of Conduct specified in the First Schedule to the IP Regulations.

Section 208(2) of the Code provides that every IP shall take reasonable care and diligence while performing his duties and to perform his functions in such manner and subject to such conditions as may be specified.

Code of Conduct specified in the First Schedule of the IP regulations enumerates a list of code of conduct for insolvency professionals including maintaining of integrity and professional competence for rendering professional service, representation of correct facts and correcting misapprehension, not to conceal material information and not to act with mala fide or with negligence.

In the instant matter, it was observed that an insolvency professional shall not accept or undertake an assignment after 31-12-2019 unless he holds a valid AFA.

An order against S. Rajagopal was passed by the DC on 07-09-2020 for accepting the assignment as IRP after 31-12-2019 without holding a valid AFA in the matter of Coastal Energy (P) Ltd. and warned him to be extremely careful, diligent, strictly act as per law and similar action should not be repeated.

Concluding the present matter, it was observed that since ICSI Institue of Insolvency Professionals has already taken disciplinary action against S. Rajagopal, for accepting an assignment as IRP after 31-12-2019 without holding a valid AFA, show cause notice disposes of the SCN without any direction against S. Rajagopal. [S. Rajagopal, In Re., Insolvency Professional (IP) under Regulation 11 of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016; No. IBBI/DC/43/2020, decided on 13-11-2020]

Read More:

Regulation 7A reads as follows:

“7A. An insolvency professional shall not accept or undertake an assignment after 31st December, 2019 unless he holds a valid authorisation for assignment on the date of such acceptance or commencement of such assignment, as the case may be:

Provided that provisions of this regulation shall not apply to an assignment which an insolvency professional is undertaking as on-
(a) 31st December, 2019; or
(b) the date of expiry of his authorisation for assignment.”

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): Ananta Barua, Whole Time Member, issued directions holding the Directors of Zeestar liable for accepting money under the Collective Investment Scheme when they weren’t possessing the registrations for the same.

It was brought to the attention of SEBI that Zeestar Limousines Ltd. was collecting money from the public under a Collective Investment Scheme. On examination of the matter, SEBI prima facie found that the scheme of Zeestar was in the nature of collective investment scheme (“CIS”), as defined under Section 11-AA of the Securities and Exchange Board of India Act, 1992. Accordingly, SEBI initiated proceedings under Sections 11 and 11-B of the SEBI Act against the Company.

On December 11, 2015 an order was passed by SEBI which said that the launching/ floating/ sponsoring/ causing to sponsor of any ‘collective investment scheme’ by any ‘person’ without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of Section 12(1-B) of the SEBI Act and Regulation 3 of the CIS Regulations and Zeestar had launched a CIS without obtaining certificate of registration from SEBI, which contravened the provisions of the said section and regulation. SEBI pronounced such order as all the four conditions specified under Section 11-AA(2) of the SEBI Act were satisfied in the instant case, the schemes/plans promoted, launched, carried on and operated by the Company were in the nature of CIS in terms of Section 11-AA(1) and they  were carried on without any formal registration.

After passing certain directions against the Company, SEBI had advised that proceedings may be initiated against the Directors of Zeestar as well.

Accordingly, SEBI issued show-cause notice to the Directors of the Company, as to why appropriate directions under Sections 11(1) and 11-B of SEBI Act, 1992 may not be issued against them for contravention of Section 12(B) of SEBI Act, 1992 and Regulation 3 of SEBI (Collective Investment Scheme) Regulations, 1999 by Zeestar.

The opportunity of personal hearing was granted to all the directors and the service of the hearing notice was directly done through paper publication.  None of the directors turned up for the scheduled hearing nor did any of them file a reply to the show-cause notice. The findings of the order passed against Zeestar were not challenged within the time specified under Section 15-T of the SEBI Act, 1992 for filing appeal in the appellate forum. Further, time to file such appeal also lapsed.

The Tribunal held that all the Directors (except one who joined in the year 2010) were the Directors of Zeestar since 2008. The Board of Directors is primarily responsible for the management of the affairs of a company and raising and utilisation of the funds. The Directors held these positions while Zeestar was running the unregistered CIS and were still holding the position of ‘Director’ to date and as such, they were found guilty as alleged.

Hence, the Directors are liable, jointly and severally with the Company, to make a refund of the money collected by Zeestar to investors.  [Zeestar Limousines Ltd., In Re; 2019 SCC OnLine SEBI 147; decided on 25-09-2019]

Case BriefsHigh Courts

Delhi High Court: The Division Bench of Dhirubhai Naranbhai Patel, CJ and C. Hari Shankar, J. has issued a notice to Department of Financial Service in the Ministry of Finance on writ petition filed by Juhie (India) Private Limited.

As per the petition, Juhie (India) Private Limited (Petitioner Company) was working with a blemishless record for over two decades. It was aggrieved by order of Appellate Authority (Ministry of Finance) under Section 45-IA (7) of the Reserve Bank of India Act, 1934 wherein Appellate Authority vide the impugned order was pleased to remand the matter back to the Reserve Bank of India for reviewing the cancellation order regarding the cancellation of Certificate of Registration of the petitioner company, but interestingly the appellate authority did not set aside or stay the impugned cancellation order while remanding it back to the Reserve Bank of India (Respondent 1), which is completely against the settled proposition of law while remanding a matter back the Appellate Authority should set aside or stay the impugned order under-challenged and remit the matter back for de novo consideration on merits iron the issues framed by it, else purpose of remand gets frustrated/negated.

Further, it has been submitted that the petitioner company in the present case stands at the same footing as that of the petitioner in the Kerala High Court case, Rise Capital Operative Finance Private Ltd. v. RBI, WP(C) No. 2763 of 2019. Therefore, the same relief may be extended in the present matter.

The reasoning for the above is that, petitioner company despite fulfilling all the statutory conditions as per law, is not able to operate for the past one year and appellate authority without any due application of mind remanded back for the de novo consideration without setting aside the impugned order.

It has been stated in the petition that, the impugned order suffers from irrationality, illegality, perversity and Wednesbury principle of reasonability as it failed to take note of the stated position of law.

Cancellation order cancelling the COR of petitioner is arbitrary and against the principles of natural justice and fair play but also contrary to proviso to Sections 45-IA (3) and 45-IA (6) of RBI Act.

On facts it is required to point out that the petitioner company had requisite NOF of more than Rs 100 lakhs as on 31-03-2016 but it fell short of Rs 200 lakhs, rather the NOF was Rs 123.39 lakhs and the reason for not attaining the said NOF limit was because the petitioner company could not convert its loans from directors/shareholders into equity capital fro increasing the NOF. Statutory auditors certificate sated 31-03-2018 shows the NOF to be Rs 211.36 lakhs.

Hence on the date of show cause notice dated 02-05-2018, petitioner company had already fulfilled the requisite criteria of NOF.

Thus, on consideration of the facts and law and consequent infringement of fundamental rights under Articles 14 and 19 (1) (g) of the Constitution of  India coupled with perverse order of appellate authority dated 08-08-2019 is a reason for the present writ petition which warrants consideration on merit and law.


High Court has directed the matter to be taken up on 23-10-2019. [Juhie (India) (P) Ltd. v. RBI, WP (C) 9702 of 2019, decided on 06-09-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): The Board comprising S.K. Mohanty whole time member, concluded that launching/ floating/ sponsoring / causing to sponsor any ‘collective investment scheme’ (CIS) by any person requires obtaining of a requisite certificate of registration from SEBI.

Maitreya Plotters and Structures Private Limited (MSPSL), a company engaged in the real estate business purchased large quantities of land in different States, divided it into smaller plots as per requirements of customers and then sold it. In the year 2013, it was found that MSPSL had illegally mobilized funds from the public through CIS without obtaining a certificate of registration from SEBI. 

The issue for determination was: whether mobilization of funds by MPSPL under its various schemes/plans for ‘purchase or booking of plots of land’ fell under the ambit of CIS in terms of Section 11AA of the SEBI Act, 1992. 

The Regulator noted that payments received from investors were pooled and utilized by MPSPL for its schemes. The property, that was part of its scheme, was managed by MSPSL on behalf of investors. An agreement entered into between investor and MPSPL vested it with the right to carry out development work on the plot, and investor was handed over the plot only after the said development was complete even if he had paid the entire consideration. Thus, investors were not aware of the plot allotted to them and did not have any control over utilization of funds for its development.

In view of the above, it was held that scheme offered by MPSPL was a CIS and required to be registered as mandated under Section 12(1B) of the Act.  MPSPL and its Directors were held jointly and severally liable to wind up its existing CIS and refund the contributions collected from investors with returns due to them and submit a report thereon to SEBI. [Maitreya Plotters and Structures (P) Ltd., In re,  WTM/SKM/EFD DRA1/06/2018-19, Order dated 31-01-2019]

Case BriefsHigh Courts

Patna High Court: The Bench of Ahsanuddin Amanullah, J. dismissed an application filed under Section 482 of the Code of Criminal Procedure, 1973 praying for quashing of trial court’s order whereby prayer made by the petitioner regarding the release of a vehicle was dismissed.

In the instant case, OP-3 had filed a complaint alleging that opposite party 2 (OP-2) had taken a Scorpio vehicle belonging to him on the pretext of marriage in family assuring that he would return it. The vehicle was not returned and OP-3 was told by OP-2 that it had been stolen. OP-3 was assured that the vehicle would be located or OP-2 would pay him money for the same. On enquiring, OP-3 found that the vehicle had been allegedly sold to the petitioner and was with him. The vehicle was seized by the police pursuant to the lodging of FIR by OP-3.

The Court noted that the purported agreement of sale of vehicle relied upon by the petitioner was not even duly registered. Further, the certificate of registration for the vehicle was still in the name of opposite party 3.

It was held that the only document to prove ownership of a vehicle is a certificate issued by the transport department, i.e., the certificate of registration. Till such time the name of any other person is not duly entered in the official records and reflected in the certificate of registration with regard to the vehicle, vehicle could not be released in favour of a person who comes before with an unregistered agreement for sale of vehicle. [Md. Abdullah v. State of Bihar, 2019 SCC OnLine Pat 51, Order dated 17-01 2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): The whole time member of SEBI,  G.Mahalingam in accordance to the interim order given earlier issued directions under Section 19 of the Securities and Exchange Board of India Act, 1992 and Sections 11(1), 11(B) and 11(4) thereof and regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999  to NICL India Ltd. for engaging in Collective Investment Schemes without ‘certificate of  registration’ from SEBI.

NICL  India Ltd. was involved in illegal mobilization of funds from the public through ‘Collective Investment Schemes’, without obtaining the certificate of registration resulting in the contravention of Section 12(1B) of the SEBI Act, 1992 with Section 11 AA and Regulation 3 of CIS Regulations. It has also been stated that NICL was alleged of contravention of Regulation 4(2)(t) of ‘Prohibition of Fraudulent & Unfair Trade Practice Relating to Securities Market Regulations, 2003.

The interim order that had been said to be passed carried certain directions towards the NICL directors and further in reference to that,  they were asked to file reply, if any.  NICL through the further correspondence of letters kept asking for the extension of time to refund the investor’s money.

SEBI received complaints subsequently in which one was from RBI as well, in regard to the ‘mobilization of public fund’, after NICL had claimed to adhered all the stated directives in the interim order.

Therefore, it was noted by the board that, after providing opportunity of personal hearing and absenteeism in that, SEBI had to conclude by stating that ‘Noticees’ that were engaged in the Collective investment scheme had failed to address prima facie conclusions in the interim order, for which the directors of NICL would be liable which further lead SEBI for the issuance of certain directions that involved the winding up of the NICL’s Collective Investment Scheme and certain other directives for refund of the invested funds. [NICL India Ltd., In Re,2018 SCC OnLine SEBI 128, order decided on 21-06-2018]

Legislation UpdatesRules & Regulations

In exercise of the powers conferred by Section 247 read with Sections 458, 459 and 469 of the Companies Act, 2013 (18 of 2013), the Central Government, vide Gazette Notification dated 18th October, 2017, published the Companies (Registered Valuers and Valuation) Rules, 2017 (hereafter ‘Rules’).

Rule 11 of the Rules provides for transitional arrangement that any person, who may be rendering valuation services under the Companies Act, 2013 on the date of commencement of the Rules, may continue to render valuation services without a certificate of registration under the Rules up to 31st March, 2018. Further, the Rules clarify that conduct of valuation by any person under any law other than the Companies Act, 2013 or the Rules shall not be affected by virtue of coming into effect of the Rules unless the relevant other laws or other regulatory bodies require valuation by such person in accordance with the Rules.

However, vide Gazette Notification dated 9th February, 2018, the timeline of 31st March, 2018 has been extended to 30th September, 2018. In other words, a person who may be rendering valuation services under the Companies Act, 2013 on the date of commencement of the Rules, may continue to render valuation services without a certificate of registration under the Rules up to 30th September, 2018.

In the meantime, the Insolvency and Bankruptcy Board of India has made available valuation examinations for all three asset classes. A person eligible for registration as a registered valuer may submit the application for registration in accordance with the Rules.

Ministry of Corporate Affairs