{ "metadata": { "analysis_of_arguments": "The appellants maintain that their timeshare business was previously acknowledged or understood not to be regulated as a CIS, asserting that the abrupt ex parte order was unjustified due to a lack of demonstrated urgency or investor harm. They highlight consistent attempts to clarify the regulatory status of their schemes and claim that shutting down operations without warning harms both customers and their reputation. SEBI responds that new complaints and evidence suggest the schemes may be collective investments requiring protection of public funds. SEBI insists its interim powers are necessary to avert potential harm while the dispute is adjudicated on the merits.", "bench": [ "The Hon\u0027ble Mr. Justice Jog Singh", "The Hon\u0027ble Mr. Justice J.P. Devadhar", "The Hon\u0027ble Mr. Justice A.S. Lamba" ], "case_number": [ "Appeal No. 254 of 2014", "Misc. Application No. 104 of 2014", "Appeal No. 255 of 2014", "Misc. Application No. 105 of 2014" ], "cases_referred": [ "Commissioner of Customs vs. National Shipping Agency 2008(226) E.L.T. (Bom)", "Babaji Shivram Clearing \u0026 Carriers Pvt. Ltd. vs. Union of India 2011 (269) E.L.T. 222 (Bom)", "Commissioner of Customs (General) vs. Burigih International 2008 (226) E.L.T. (Bom)", "Commissioner of Customs (General) vs. S.D. Dalal \u0026 Co. 2008 (221) E.L.T. 488 (Bom)", "Cosmic Radio vs. Union of India \u0026 Another 1983 (12) E.L.T. 84 (Bom)", "Mohindhr Singh Gill \u0026 Another vs. Chief Election Commissioner of New Delhi and Others (1978) 1 Supreme Court Cases 405", "Zenith Infotech Limited vs. Securities and Exchange Board of India (Order dated 23.7.2013 SAT, Mumbai)", "Securities and Exchange Board of India vs. Zenith Infotech Ltd. \u0026 Ors. (Order dated 19.8.2014 SC)", "SBQ Steels Ltd vs. Commissioner of Cus. C. Ex and S.T. Guntur 2014 (300) E.L.T. 185 (A.P.)", "Oryx Fishers Private Ltd. vs. UOI 2011 (266) E.L.T. 422 (S.C.)", "Siemens Ltd. vs. State of Maharashtra 2007(207) E.L.T. 168 (S.C.)", "Commissioner of Customs, Mumbai vs. Toyo Engineering India Limited 2006 (201) E.L.T. 513 (S.C.)", "SACI Allied Products Ltd. vs. Commissioner of C. Ex Meerut 2005 (183) E.L.T. 225 (S.C.)", "Institute of Chartered Accountant of India vs. L.K. Ratna \u0026 Others (1986) 4 Supreme Court Cases 537", "Krishna Shipping Agency vs. Commissioner of Cus (Airport \u0026 Admn) 2014 (306) E.L.T. 352", "Order of SEBI in the case of M/s. Rose Valley dated July 10, 2013", "Interim order dated August 1, 2013 and November 6, 2013 in M/s. Rose Valley (Gauhati High Court W.P.(C) No. 4298 of 2013)", "SEBI vs. Rose Valley in SLP (C) No. 3725 of 2014 (SC order dated April 15, 2014)", "Babaji Shivram (WP (LOD) No. 694 of 2011 decided by Bombay High Court on April 21, 2011)", "Zenith Infotech (Appeal No. 59 of 2013 decided on July 23, 2013)", "Karnataka Public Service Commission vs B.M. Vijaya Shankar (1992) SCC 206", "Ajit Kumar Nag vs General Manager (PJ) Indian Oil Corporation Ltd. Haldia (2005) 7 SCC 764", "Maharshi Dayanand University vs Surjeet Kaur (2010) 11 SCC 159", "M.I. Builders P. Ltd. vs Radhey Shyam Sahu (1999) 6 SCC 464", "M/s. P.G.F. Ltd. \u0026 Ors. vs Union of India and Anr. AIR 2013 Supreme Court 3702" ], "chunkwise_data": { "chunk_1": { "analysis_of_arguments": "The appellants argue that they have run a legitimate time sharing arrangement for years, sought SEBI\u2019s position on its permissibility, and contend that halting their operations suddenly is unjustifiable. SEBI maintains that investor complaints and initial inquiries indicated the scheme might be a collective investment scheme, warranting immediate intervention to protect the interests of the public.", "cases_referred": [ "PGF Ltd. (12th March, 2013)" ], "facts": "Pancard Clubs Limited and its six directors challenged an ex parte interim order issued by the Securities and Exchange Board of India (SEBI) on July 31, 2014. That order, passed under SEBI\u2019s authority, prohibited the company from launching new schemes or raising further funds on the alleged ground that its time sharing business in hotels and resorts qualified as a collective investment scheme. The appellants claimed they had operated this business for over fifteen years, consistently seeking clarity from SEBI since 2001. Following complaints appearing around 2013, SEBI issued the interim order without a final determination, prompting the appeals before the Securities Appellate Tribunal to contest the restrictions imposed.", "final_status": "disposed", "formatted_summary": "This section concerns appeals filed by Pancard Clubs Limited and its directors against an ex parte interim order passed by SEBI, alleging their long-standing time sharing business might be a collective investment scheme. The Tribunal disposes of the appeals after hearing both sides, highlighting the need for a detailed determination on whether the company\u2019s activities actually fall within collective investment regulations and instructing compliance with the interim restrictions pending further inquiry.", "held": "The Tribunal consolidated both appeals and disposed of them by a common order. It acknowledged the need for a substantive determination of whether the appellants\u2019 activities constitute a collective investment scheme and directed that the matter be pursued subject to further inquiry and compliance with interim measures to safeguard investors\u2019 interests.", "latin_principles": { "bona fide": "Paragraph 3: \u0027...under a bona fide belief that the business of time sharing was not covered by CIS.\u0027" }, "legal_issues": "Whether Pancard Clubs Limited\u2019s time sharing business model falls within the definition of a collective investment scheme, and whether SEBI was justified in issuing an ex parte interim order without providing the appellant an opportunity to be heard.", "statutes": { "CIS Regulations, 1999": "3. The Appellant primarily submits that the time / room sharing business in hotels, resorts etc. carried on by the Appellant does not fall within the ambit of CIS as defined by Section 11AA(1) and 11AA(2) of the SEBI Act read with Regulation 65 of the CIS Regulations, 1999. Therefore, unless the issue of CIS was decided on merit by a detailed enquiry as per procedure established by law, the Respondent should not have passed such an order without hearing Appellant. Moreover, on their own showing, the Respondent has taken a conscious decision to revisit its earlier view on the issue of time sharing business after the judgment of Hon\u2019ble Supreme Court in PGF Ltd. (12th March, 2013) and the letter dated 2nd July, 2013 of one Member of Parliament Mr. Patil. It clearly means that the Appellant was carrying on business since 2001 or so under a bona fide belief that the business of time sharing was not covered by CIS. Under these circumstances, if the Appellant had continued the business for another six months or so, no prejudice would have been caused to the case of the Respondent in holding a full and proper enquiry. Therefore, the Impugned Order needs to be interfered with by this Tribunal in appeal.", "Companies Act, 1956": "4. Brief facts leading to the present dispute are that the Appellant is an unlisted public limited company registered under the Companies Act, 1956. Its shares are, thus, not listed on any of the Stock Exchanges. The Appellant is in the time sharing business i.e. selling of rooms for a fixed duration of nights / days depending upon the scheme opted by its customers who are termed as Members. Accordingly, the Appellant owns, develops and operates hotels and resorts all over India and even abroad, along with offering time (room) sharing options to those who wish to avail of holidays and hospitality services. The Appellant has been engaged in this business for the last one and a half decades.", "Securities and Exchange Board of India Act, 1992": "1. These two appeals have been filed against an ex parte interim order dated July 31, 2014 passed by Securities and Exchange Board of India (hereinafter referred to as Respondent) under Sections 11(1), 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) read with Regulation 65 of the CIS Regulations. The Appeal No. 254 of 2014 has been filed by Pancard Clubs Ltd. (hereinafter referred to as Appellant) and Appeal No. 255 of 2014 has been filed by its six Directors. Since both these appeals involve a common question of law and fact, with the consent of the parties, we have heard these appeals together and are disposing them off by this common order by taking Appeal No. 254 of 2014 as the lead case." } }, "chunk_2": { "analysis_of_arguments": "The Appellant contends that its business does not constitute a CIS, citing previous confirmations from SEBI and the absence of investor complaints. It also argues the ex parte order lacks urgency and breaches the principles of natural justice. The Respondent, on the other hand, relies on complaints alleging unregistered CIS operations and maintains that immediate regulatory measures were necessary for investor protection.", "cases_referred": [ "Commissioner of Customs vs. National Shipping Agency 2008(226) E.L.T. (Bom)", "Babaji Shivram Clearing \u0026 Carriers Pvt. Ltd. vs. Union of India 2011 (269) E.L.T. 222 (Bom)", "Commissioner of Customs (General) vs. Burigih International 2008 (226) E.L.T. (Bom)", "Commissioner of Customs (General) vs. S.D. Dalal \u0026 Co. 2008 (221) E.L.T. 488 (Bom)", "Cosmic Radio vs. Union of India \u0026 Another 1983 (12) E.L.T. 84 (Bom)", "Mohindhr Singh Gill \u0026 Another vs. Chief Election Commissioner of New Delhi and Others (1978) 1 Supreme Court Cases 405", "Zenith Infotech Limited vs. Securities and Exchange Board of India (Order dated 23.7.2013 SAT, Mumbai)", "Securities and Exchange Board of India vs. Zenith Infotech Ltd. \u0026 Ors. (Order dated 19.8.2014 SC)", "SBQ Steels Ltd vs. Commissioner of Cus. C. Ex and S.T. Guntur 2014 (300) E.L.T. 185 (A.P.)", "Oryx Fishers Private Ltd. vs. UOI 2011 (266) E.L.T. 422 (S.C.)", "Siemens Ltd. vs. State of Maharashtra 2007(207) E.L.T. 168 (S.C.)", "Commissioner of Customs, Mumbai vs. Toyo Engineering India Limited 2006 (201) E.L.T. 513 (S.C.)", "SACI Allied Products Ltd. vs. Commissioner of C. Ex Meerut 2005 (183) E.L.T. 225 (S.C.)", "Institute of Chartered Accountant of India vs. L.K. Ratna \u0026 Others (1986) 4 Supreme Court Cases 537", "Krishna Shipping Agency vs. Commissioner of Cus (Airport \u0026 Admn) 2014 (306) E.L.T. 352", "Order of SEBI in the case of M/s. Rose Valley dated July 10, 2013", "Interim order dated August 1, 2013 and November 6, 2013 in M/s. Rose Valley (Gauhati High Court W.P.(C) No. 4298 of 2013)", "SEBI vs. Rose Valley in SLP (C) No. 3725 of 2014 (SC order dated April 15, 2014)" ], "facts": "The Appellant\u2019s promotional material once stated that it was \u2018approved by SEBI,\u2019 leading the Respondent to seek clarification. Over the following years, multiple exchanges took place without a definitive conclusion on whether the Appellant\u2019s business constituted a Collective Investment Scheme. In 2013, a Member of Parliament lodged a complaint alleging the Appellant was operating a CIS without registration. After issuance of a Show Cause Notice, the Appellant challenged it in the Bombay High Court. While that challenge was pending, the Whole Time Member of SEBI passed an ex parte interim order against the Appellant, prompting this appeal.", "final_status": "The matter remains pending before the Tribunal.", "formatted_summary": "This section portrays the Appellant\u2019s ongoing dispute with SEBI regarding alleged unregistered Collective Investment Scheme operations. Correspondence and assurances between both sides date from as early as 2001, culminating in a complaint by a Member of Parliament and subsequent show cause notices. The Whole Time Member of SEBI ultimately issued an ex parte interim order during the pendency of the proceedings, which the Appellant challenges as lacking both urgency and adherence to natural justice. No final determination has yet been reached, and the appeal remains pending.", "held": "No final pronouncement has been made on the Appellant\u2019s challenge, and the dispute is still under consideration. The future applicability of the decision will hinge on clarifying the scope of CIS regulations and due adherence to natural justice in ex parte orders.", "latin_principles": { "bonafide": "11. It is submitted by the Appellant that nothing in the order points towards any kind of injustice done to any of the Appellant\u2019s Members in the last 17 years. Therefore, the Respondent cannot justifiably claim to pass a hurried ex parte order to protect the interests of investors. Further, the Appellant states that the information sought by SEBI has been provided to it time and again. Considering the fact that the Appellant itself has been in touch with the Respondent regarding its activities since 2001 and that the Respondent never indicated that the Appellant\u2019s activities were in the nature of CIS. The Appellant was under a bonafide belief that the Respondent did not have any problems with the Appellant\u2019s business, and, inter alia, on the basis of this belief the Appellant grew its business over the last one and a half decades. Moreover, the Appellant has been in the hotel time sharing industry since last many years without ever receiving any complaints." }, "legal_issues": "The central questions concern whether the Appellant\u2019s activities fall within the purview of a Collective Investment Scheme and whether the ex parte interim order was validly issued without adequate hearing and justification.", "statutes": { "CIS Regulations (Paragraph 10)": "10. The alleged non-provision of names and details of the Appellant\u2019s customers does not justify passing of the order. Even though the Appellant had sought for clarification regarding whether or not its activities fall within the ambit of CIS Regulations as far back as in 2001, it was only in 2013 that SEBI in fact clarified that the Appellant\u2019s business did not fall within the provisions of CIS Regulations. It was an arduous task to compile details of few lac Members. However, as soon as the same was done, the details were furnished to the Respondent during the course of hearing of the present appeal before this Tribunal.", "CIS Regulations (Paragraph 7)": "7. On July 2, 2013, Mr. Sanjay Dina Patil, a Member of Parliament filed a complaint with the Respondent alleging that the Appellant was carrying out a CIS without certification in violation of CIS Regulations. The Respondent then issued letter dated July 8, 2013 to the Appellant asking it to publish a disclaimer on their website to the effect that the Appellant was not registered with the Respondent under the CIS Regulations. Vide letter dated August 7, 2013 the Appellant responded to the Respondent\u2019s letter dated July 8, 2013 attaching a draft public notice that could be published on the website. The Appellant also issued a public notice that it was not SEBI approved as claimed by some persons with vested interests and this matter was put to a rest by both the parties.", "CIS Regulations (Paragraph 8)": "8. Finally, on October 21, 2013, the Respondent sent a letter to said Member of Parliament, and surprisingly not to the Appellant, stating that on examining the Appellant\u2019s matter in 2010-11, the Respondent had concluded that the company\u2019s activities did not attract CIS Regulations. Said MP was also informed that in light of recent complaints received by it, the Respondent was re-examining the matter to determine whether or not the Appellant\u2019s activities fall within the ambit of CIS Regulations. On June 26, 2014, having ostensibly completed its re-examination, the Respondent issued a Show Cause Notice (SCN) dated June 26, 2014 accusing the Appellant of carrying on activities in the nature of a CIS without obtaining a certificate from the Respondent as required by the CIS Regulations. The Appellant has filed a Writ Petition (Lod.) No. 2090 of 2014 in the Hon\u2019ble Bombay High Court challenging the SCN issued by the Adjudicating Officer of SEBI and the Hon\u2019ble Bombay High Court directed the Appellant to file reply to the Show Cause Notice so that SEBI could take final decision on merits after hearing the Appellant. However, during the pendency of the Show Cause Notice issued by the Adjudicating Officer of SEBI, the Whole Time Member of SEBI has passed the impugned ex parte interim order.", "Customs House Agents Licensing Regulations, 2004 (Paragraph 15)": "15. Judgments at serial nos. (a) to (d) have been cited by the Ld. Senior Counsel for the Appellant Mr. Pradeep Sancheti to bring home the point that discretion / powers conferred by Sections 11(1), 11B and 11(4) ought to be used only in appropriate cases where due to a prevailing emergency, time cannot be wasted even by offering the right of being heard to the affected party against whom such an ex parte interim order can be made. Mr. Sancheti submits that although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. Mr. Sancheti also submits delay of even one to two months in suspending a CHA under Regulation 22 of the said CHAL Regulations, 2004 has been condemned by the High Court and considered fatal and such arbitrary decisions have been consistently quashed by the Hon\u2019ble High Court. Mr. Sancheti, pertinently, has drawn our attention towards paragraph 9 of Babaji Shivram (supra) at serial no. (b) decided by the Division Bench of Hon\u2019ble Bombay High Court in WP (LOD) No. 694 of 2011 on 21st April, 2011 which reads as under:- \u201c\u2026\u2026\u2026\u2026 9. Apart from the above, suspension of a CHA license under Regulation 20(2) of the 2004 Regulations can be ordered where immediate action is necessary. In the present case, the Customs Authority in the middle of January, 2011 were aware of the fact that the documents submitted by the \u2026\u201d", "SEBI Act, 1992 (Section 11AA, Paragraph 13)": "13. The Appellant submits that no emergent situation has been elucidated in the Impugned Order which would justify the passing of such an adverse order, without ever giving the Appellant an opportunity of being heard. This itself is a blatant breach of the principles of natural justice. Further, the SCN is still pending which requires due application of mind by the Respondent and determination of issues for which the Appellant has been sought to be punished unilaterally. The Appellant submits that no grievance of any of its customers has come to light which would warrant the passing of the Impugned Order allegedly to secure interests of investors. The only change in circumstance is the complaint received from an MP. SEBI cannot be allowed to harass the Appellant purely to satisfy the whims and fancies of an MP. It is important to note that the Respondent admits in its counter affidavit that prior to 2013, SEBI was of the view that time share schemes did not come within the purview of Section 11AA of the SEBI Act.", "SEBI Act, 1992 (Section 15T, Paragraph 9)": "9. The Appellant in the present appeal, preferred under section 15T of the SEBI Act, 1992, submits that the Impugned ex parte interim order dated 31st July, 2014 fails to set out any reason for the urgency with which it was passed. The Impugned Order is in complete breach of the principles of natural justice and should be treated as void. The Impugned Order should not have been passed ex parte particularly in view of the fact that the Appellant had not only been in constant communication with SEBI since 2001, but also initiated it and was co-operating with the Respondent all along.", "SEBI Act, 1992 (Sections 11(1), 11B, 11(4), Paragraph 15)": "15. Judgments at serial nos. (a) to (d) have been cited by the Ld. Senior Counsel for the Appellant Mr. Pradeep Sancheti to bring home the point that discretion / powers conferred by Sections 11(1), 11B and 11(4) ought to be used only in appropriate cases where due to a prevailing emergency, time cannot be wasted even by offering the right of being heard to the affected party against whom such an ex parte interim order can be made. Mr. Sancheti submits that although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. Mr. Sancheti also submits delay of even one to two months in suspending a CHA under Regulation 22 of the said CHAL Regulations, 2004 has been condemned by the High Court and considered fatal and such arbitrary decisions have been consistently quashed by the Hon\u2019ble High Court. Mr. Sancheti, pertinently, has drawn our attention towards paragraph 9 of Babaji Shivram (supra) at serial no. (b) decided by the Division Bench of Hon\u2019ble Bombay High Court in WP (LOD) No. 694 of 2011 on 21st April, 2011 which reads as under:- \u201c\u2026\u2026\u2026\u2026 9. Apart from the above, suspension of a CHA license under Regulation 20(2) of the 2004 Regulations can be ordered where immediate action is necessary. In the present case, the Customs Authority in the middle of January, 2011 were aware of the fact that the documents submitted by the \u2026\u201d" } }, "chunk_3": { "analysis_of_arguments": "The Appellant contends that SEBI previously acknowledged its activities did not constitute a CIS and that the agency\u2019s abrupt ex parte action was unwarranted. The Appellant also argues there was no emergent threat justifying bypass of a hearing. SEBI, however, disputes any prior definitive exemption, asserting its authority to intervene and maintain investor protection where it believes a scheme may be regulated under its mandate.", "cases_referred": [ "Krishna Shipping Agency vs Commissioner of Cus (Airport \u0026 Admn) 2014 (306) E.L.T. 352", "SEBI in the case of M/s. Rose Valley dated July 10, 2013", "Interim orders of Gauhati High Court dated August 1, 2013 and November 6, 2013 in WP (C) No. 4298 of 2013 (M/s. Rose Valley)", "SEBI vs Rose Valley SLP (C) No. 3725 of 2014 (Hon\u2019ble Supreme Court order dated April 15, 2014)", "Babaji Shivram (WP (LOD) No. 694 of 2011 decided by Bombay High Court on April 21, 2011)", "Zenith Infotech (Appeal No. 59 of 2013 decided on July 23, 2013)", "Cosmic Radio (Bombay High Court)", "Mohindhr Singh Gill" ], "facts": "The Appellant, engaged in a timeshare business, challenges an ex parte interim order issued by SEBI. The dispute arises from SEBI\u2019s decision to treat the Appellant\u2019s scheme as a Collective Investment Scheme, despite the Appellant claiming an earlier stance by SEBI that it was not covered under such regulations. Prior to this stage, SEBI issued the impugned order without according an opportunity of hearing, prompting the Appellant to seek relief. References are made to other actions involving similar timeshare or licensing matters and parallel judicial proceedings, including stays granted by the High Court in comparable circumstances. The case is now under appeal before the Tribunal.", "final_status": "No final disposition is stated in the excerpt.", "formatted_summary": "In this section, the Tribunal examines whether the Appellant\u2019s timeshare operations constitute a Collective Investment Scheme requiring SEBI\u2019s oversight. SEBI\u2019s ex parte interim order is challenged on grounds that no urgent necessity existed and that SEBI had previously indicated the scheme was not a CIS. The Appellant cites various judicial decisions emphasizing proper use of ex parte powers and the necessity of prompt action if real urgency exists. The Gauhati High Court\u2019s stay in a related Rose Valley matter is also highlighted. SEBI counters that no definitive clearance was granted earlier. The final outcome is yet to be determined.", "held": "No conclusive determination is recorded in this portion of the document. The Tribunal is considering whether SEBI\u2019s ex parte order was valid and if the timeshare scheme legitimately falls under CIS parameters.", "latin_principles": { "ex parte": "Used repeatedly in paragraphs 15 and onwards to describe the nature of the interim order passed without a prior hearing.", "inter alia": "Appears in paragraph 15 in reference to the obligations imposed under the ex parte interim order.", "prima facie": "Mentioned in paragraph 18 when discussing the petitioners\u2019 evidence regarding their business not falling under CIS." }, "legal_issues": "Whether the Appellant\u2019s timeshare scheme qualifies as a Collective Investment Scheme subject to SEBI oversight, and if SEBI\u2019s ex parte interim order was validly issued without affording the Appellant an opportunity to be heard, particularly in the absence of immediate urgency.", "statutes": { "Customs House Agents Licensing Regulations, 2004": "\u201cAlthough these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. ... The High Court considered a delay of even one to two months in suspending a CHA under Regulation 22 as fatal and consistently quashed such decisions.\u201d", "Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999": "\u201cThe Respondent had already taken a decision on file to the effect that the time sharing scheme business of the Appellant did not fall within the purview of the definition of CIS as mentioned in Section 11AA of the SEBI Act read with the one given in the CIS Regulations of 1999. The submission is made to emphasize that an order taken on file by an authority is sufficient and its communication is merely an administrative act and that the legal sanctity of the order is not lost. Therefore, in the absence of any changed circumstances, the Respondent is precluded from changing its stand...\u201d", "Securities and Exchange Board of India Act, 1992": "\u201cIn furtherance of his argument on the scope and ambit of the nature of power conferred by the Parliament on SEBI under Sections 11(1), 11B and 11(4) of the SEBI Act, Mr. Sancheti has brought to our notice a judgement of this Tribunal in Zenith Infotech (supra) decided on July 23, 2013 in Appeal No. 59 of 2013. This Tribunal was dealing with a situation where an ex parte interim order was passed by SEBI calling upon the Appellant therein to deposit a bank guarantee. The Tribunal held that such a mandatory direction could have been passed only after affording an opportunity of being heard. It was considered to be non-sustainable in the eyes of law as it was passed in violation of the principles of natural justice. The Tribunal also held that SEBI was duly empowered to pass an ex parte interim order in urgent cases, but this power was to be exercised sparingly in most deserving cases of extreme urgency.\u201d" } }, "chunk_4": { "analysis_of_arguments": "The petitioners argue that their time share model is not an investment scheme and that SEBI lacks jurisdiction to regulate it under the category of a Collective Investment Scheme. They also maintain that their business was previously considered outside SEBI\u2019s purview and that they have been unfairly targeted. The respondent counters that changes in judicial interpretation, complaints from investors, and new information led to a fresh examination of the petitioners\u2019 activities, concluding they may indeed fall under a Collective Investment Scheme. The respondent also accuses the petitioners of submitting a fabricated document in support of their claim.", "cases_referred": [ "Karnataka Public Service Commission vs B.M. Vijaya Shankar (1992) SCC 206", "Ajit Kumar Nag vs General Manager (PJ) Indian Oil Corporation Ltd. Haldia (2005) 7 SCC 764", "Maharshi Dayanand University vs Surjeet Kaur (2010) 11 SCC 159", "M.I. Builders P. Ltd. vs Radhey Shyam Sahu (1999) 6 SCC 464", "M/s. P.G.F. Ltd. \u0026 Ors. vs Union of India and Anr. AIR 2013 Supreme Court 3702" ], "facts": "The dispute arises out of the petitioners\u2019 operation of certain time share schemes. The Securities and Exchange Board of India (SEBI) issued an impugned order, expressing concerns that these schemes might qualify as a Collective Investment Scheme under Section 11AA of the SEBI Act. The petitioners contend their activities do not fall under that definition. Interim relief was granted, suspending parts of SEBI\u2019s directions so that the petitioners could continue daily operations without diverting funds. They were also ordered to maintain separate records for any new collections. An appeal is now pending before the Tribunal, accompanied by allegations of a possibly fabricated letter used by the petitioners and claims of perjury from the respondent.", "final_status": "Pending with interim relief in force", "formatted_summary": "The matter involves a company\u2019s time share schemes and SEBI\u2019s objection that these may amount to a Collective Investment Scheme. An interim order partially suspends SEBI\u2019s impugned directions, allowing the company to continue daily operations under restrictions. The appeal also addresses allegations that a letter from SEBI was fabricated, giving rise to perjury claims. SEBI asserts it has power to re-examine the scheme under evolving judicial interpretations and that no prior communication absolves the company from regulatory oversight. Final resolution on whether the scheme qualifies as a Collective Investment Scheme remains pending.", "held": "No final determination has been made. The Tribunal granted interim relief by suspending parts of the impugned SEBI order, allowing the petitioners to continue operations under certain conditions, subject to further review and final decision.", "latin_principles": { "prima facie": "Paragraph 13: \u201cWe are also of the view that the petitioners have prima facie shown that their scheme\u2026\u201d" }, "legal_issues": "Whether the petitioners\u2019 time share schemes constitute a Collective Investment Scheme under the SEBI Act; whether SEBI has the authority to issue ex parte interim orders restraining such activities; whether the alleged discrepancies in the letter presented by petitioners amount to perjury; and whether prior communications or delay by SEBI create an estoppel against further investigation.", "statutes": { "SEBI Act, 1992 (Section 11AA(1))": "\u201c13\ningredients, which have been menti oned in Section 11AA(1), are required \nto be satisfied before treating a sche me as Collective Investment Scheme, \nhas considerable force. We are also of the view that the petitioners have \nprima facie shown that their scheme of time share, which is the subject \nmatter of controversy in the present wr it petition, does not fall within the \nmeaning of the expression of Collective Investment Scheme and that the \nSEBI does not have, unless can be s hown otherwise, the jurisdiction to \ntake any action in the affairs of the business of the petitioners. \nSituated thus, we are of the view, though tentative, that in the facts and \nattending circumstances of the pr esent case and taking into account, \nmore particularly, the fact that the State of Assam has not been able to \npresent before this Court, at this st age, any clear material to show that \nthe SEBI has jurisdiction to interfer e with the affairs of the petitioners\u2019 \nbusiness and the SEBI, having not concl uded till date that the business of \nthe petitioners falls within the me aning of the expression Collective \nInvestment Scheme as defined in Section 11AA(1), the nature of \ndirections, which the SEBI has passed by the impugned order, need to be \nsuitably interfered with so that the SEBI\u2019s directions do not completely \nrestrain the petitioners from carryi ng out their day to day business.\u201d", "SEBI Act, 1992 (Sections 11(1), 11B, 11(4))": "\u201c24. Mr. Shyam Mehta, Ld. Senior C ounsel for the Re spondent also \nproduced an order dated July 10, 2013 passed by the Ld. WTM of SEBI under \nSections 11(1), 11B and 11(4) of the SEBI Act, 1992 in a similar case of time \nsharing scheme in the case of Rose Va lley to emphasize that the Appellant is \nnot being discriminated against and sim ilarly placed other such companies are \nalso being investigated.\u201d" } }, "chunk_5": { "analysis_of_arguments": "The Respondent contended that the letter produced by the Appellant was fabricated and urged dismissal on grounds of perjury. It also argued that emergent circumstances justified immediate intervention. The Appellant maintained the letter was only retyped for clarity, with no intent to mislead, and insisted that no urgency existed to justify an ex-parte measure. The Appellant also emphasized having sought timely directions from the Respondent years earlier regarding the nature of its business.", "cases_referred": [ "PGF Ltd. (Hon\u2019ble Supreme Court on 12th March, 2013)", "Zenith Infotech Ltd. vs. SEBI \u0026 Ors." ], "facts": "The Appellant sought clarification from the Respondent about its time-sharing membership schemes, but received no response for a prolonged period. A letter dated October 21, 2013, sent by the Respondent to a Member of Parliament became central when the version annexed by the Appellant differed slightly from the original, prompting allegations of fabrication. The Tribunal examined both copies, found no intention of deceit, and accepted the Appellant\u2019s apology. Subsequently, an interim order was passed against the Appellant, leading to the present appeal. Procedurally, the Appellant had earlier approached the Respondent for guidance and later challenged the adverse order before this Tribunal.", "final_status": "The matter remains pending for further proceedings.", "formatted_summary": "In this segment of the proceedings, the Tribunal examined the authenticity of a letter purportedly sent by the Respondent to a Member of Parliament, which the Appellant referenced in its filing. While the Respondent contended this letter was fabricated, the Tribunal found no deliberate attempt at deception and accepted the Appellant\u2019s apology. The core dispute involves whether the Appellant\u2019s time-sharing business constitutes a regulated investment scheme, prompting an ex-parte interim order that the Tribunal questioned due to insufficient evidence of immediate harm. Relevant precedential cases were cited, focusing on due process and principles of fairness. The matter continues for a final determination.", "held": "The Tribunal found no intentional wrongdoing by the Appellant in producing the retyped letter and accepted the offered apology. It also observed insufficient urgency to justify an ex-parte order, cautioning the Respondent to adhere to principles of fairness before imposing restrictive measures. The broader question of whether the Appellant\u2019s scheme constitutes a collective investment arrangement was left open for further inquiry.", "latin_principles": { "ex parte": "Paragraph 30: \u0027...whether there were any emergent circumstances justifying an ex parte interim order...\u0027", "prima facie": "Paragraph 29: \u0027...SEBI itself has only come to a prima facie conclusion in the Impugned Order regarding the matter...\u0027 " }, "legal_issues": "Whether the alleged fabrication of a critical letter warranted dismissal of the appeal, whether an ex-parte interim order was justified in the absence of demonstrated urgency, and whether the Appellant\u2019s time-sharing schemes fell within the scope of collective investment regulations.", "statutes": { "The CIS Regulations, 1999": "31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors.", "The SEBI Act, 1992": "31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors." } }, "chunk_6": { "analysis_of_arguments": "The Appellant argues that its business model has not changed since 2001 and that no imminent threat was shown to justify an ex-parte order without hearing. It contends that imposing such restraint harms customers and tarnishes its reputation. The Respondent maintains it can pass interim orders to protect investors in cases of potential collective investment activities and believes it had legitimate grounds to enforce immediate restrictions pending further inquiry.", "cases_referred": [ "Zenith Infotech Ltd. vs. SEBI \u0026 Ors.", "Karnataka Public Service Commission and Others (KPSC) vs. B.M. Vijaya Shankar and Others", "Ajit Kumar Nag vs. General Manager (PJ) Indian Oil Corporation Ltd., Haldia and Others (2005) 7 SCC 764", "Union Of India vs. Tulsi Ram Patel (1985) 3 SCC 398", "Maharshi Dayanand University", "M.I. Builders P. Ltd." ], "facts": "The dispute arises from the Respondent\u2019s ex-parte interim order directing the Appellant, engaged in providing time share holiday schemes, to halt its operations on the ground that they might amount to a collective investment scheme. The Appellant contends that there was no urgency justifying the denial of a pre-decisional hearing. Previously, in a letter from October 21, 2013, the Respondent had opined the Appellant\u2019s activities did not constitute a collective investment scheme. The Appellant appealed against the impugned order before this forum, asserting it suffered irreparable loss and damage to reputation due to the ex-parte action without being heard.", "final_status": "The impugned order is set aside.", "formatted_summary": "The Appellant, running time share holiday schemes, challenged the Respondent\u2019s ex-parte restriction order. The tribunal found no immediate exigency requiring a denial of hearing and noted the Respondent\u2019s earlier view that the scheme was not a collective investment activity. Concluding that the order was unsustainable, the tribunal underscored that interim restrictions should respect natural justice principles and require demonstrable urgency.", "held": "The Tribunal held that, in the absence of demonstrated urgency, the Respondent should have afforded the Appellant a proper opportunity to be heard. The order restraining the Appellant was found unsustainable in law, reinforcing that ex-parte interim measures must be exercised sparingly and only under exceptional circumstances, thereby underscoring the paramount importance of natural justice for future cases.", "latin_principles": { "audi alteram partem": "Paragraph 41: \u0027This is the fundamental rule of audi alteram partem and its exclusion is an exception.\u0027", "ex-parte": "Paragraph 36: \u0027... SEBI is empowered to pass ex-parte interim orders, this power is to be exercised sparingly ...\u0027", "inter alia": "Paragraph 36: \u0027Inter alia it was observed that it is a settled position that if the essentials of natural justice ...\u0027", "prima facie": "Paragraph 37: \u0027SEBI has even today only managed to form a prima facie opinion regarding the applicability of CIS Regulations ...\u0027" }, "legal_issues": "Whether the Respondent\u2019s ex-parte order, passed without a pre-decisional hearing, was justified by urgency, and whether the Appellant\u2019s time share holiday business truly falls under the ambit of a collective investment scheme.", "statutes": { "Constitution of India": "41. Ajit Kumar Nag vs. General Manager (PJ) Indian Oil Corporation Ltd., Haldia and Others (2005) 7 SCC 764 the Hon\u0027ble Supreme Court was concerned with the dismissal of one of the most recalcitrant employees of the Indian Oil Corporation without holding regular enquiry against him and thus without affording any opportunity of hearing being given before passing the impugned dismissal order against him. The Single Bench as well as Division Bench of the High Court upheld the dismissal order, so also the Hon\u0027ble Supreme Court, in view of the exceptional situation contemplated by clause (VI) of standing order 20 of Certified Standing Order of the Corporation, i.e., on satisfaction of the General Manager that immediate action was required, he could dismiss or remove an employee without giving him an opportunity of being heard. A similar provision is to be found in the second proviso of Article 3(11) (2) of the Constitution of India which has been interpreted by Hon\u0027ble Supreme Court in several cases, particularly from Union Of India vs. Tulsi Ram Patel (1985) 3 SCC 398 onwards that such a power of dismissal/removal of a delinquent employee has to be invoked in grave and extraordinary situations alone. Otherwise the normal rule is to hold an enquiry against the employee concerned and take appropriate action only after giving him reasonable opportunity of being heard in the said enquiry. This is the fundamental rule of audi alteram partem and its exclusion is an exception." } }, "chunk_7": { "analysis_of_arguments": "The Appellant contends that its time-share activities do not amount to a CIS and that the abrupt action violated principles of natural justice. The Respondent maintains that it is empowered to take preventative steps where public interest or statutory compliance issues arise, arguing that the scheme fits the characteristics of a CIS under its regulatory purview.", "cases_referred": [ "Maharshi Dayanand University", "M.I. Builders P. Ltd.", "Rose Valley", "PGF Ltd." ], "facts": "The Appellant operates a time-share membership business that was initially not acted against by the Respondent (SEBI) for over a decade. Subsequently, SEBI altered its stance and issued an ex parte interim order mandating suspension of operations and requiring refunds, on the basis that the scheme might be a Collective Investment Scheme (CIS). A Show Cause Notice dated June 26, 2014 was then served upon the Appellant, alleging possible violations of the SEBI Act. In comparison, another similar case involving a time-share scheme\u2014Rose Valley\u2014was stayed by the High Court. The present matter is now before the Adjudicating Officer for a determination on whether the Appellant\u2019s business falls within the scope of CIS.", "final_status": "The ex parte interim order was set aside and the matter remains pending for final adjudication.", "formatted_summary": "This section addresses whether a time-share membership business run by the Appellant qualifies as a Collective Investment Scheme under SEBI\u2019s purview. SEBI changed its initial stance and issued an ex parte interim order halting the Appellant\u2019s operations. The Tribunal noted that SEBI had not conclusively established any violations, nor shown urgency warranting a restrictive order without a hearing. Similar actions against other schemes (like Rose Valley) faced court stays. Ultimately, the Tribunal set aside the interim order, determining that the question of CIS applicability should be adjudicated after proper proceedings and an opportunity for the Appellant to be heard.", "held": "The Tribunal concluded that SEBI\u2019s abrupt order could not stand in the absence of an opportunity to be heard and without a conclusive determination on whether the business is a CIS. The decision underscores the requirement of following fair procedure before restraining an entity\u2019s operations, thereby highlighting the principle that regulatory agencies must allow due process before imposing severe measures.", "latin_principles": {}, "legal_issues": "Whether the time-share membership model constitutes a Collective Investment Scheme; whether SEBI\u2019s ex parte interim order was validly issued without providing a hearing; and whether the principle of estoppel precludes SEBI from revisiting its earlier approach.", "statutes": { "CIS Regulations, 1999 (Paragraph 50)": "50. The SCN dated June 26, 2014, in a nut shell, mentions / alleges that an \nexamination of the affairs of the Appellant was undertaken by the Respondent \nfor \"possible violation\" of the provisions of the SEBI Act, 1992 read with \nconnected Rules and Regulations. On the basis of such an examination, the \nRespondent has leveled an allegation that the Appellant is carrying out a CIS \nin the name of time share business without obtaining a certificate of \nregistration as required by the provisions of CIS Regulations, 1999.", "SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (Paragraph 49)": "49. In the case in hand also, therefore, considering the situation that no \nmaterial has been brought on record to show that SEBI has any justification to \ninterfere with the Appellant\u2019s time share business, especially in light of the fact \nthat SEBI has not yet conclusively determined whether or not the provisions of \nCIS are attracted to the Appellant\u2019s business, we are of the view that the \nimpugned order cannot be sustained particularly when SEBI has itself issued \nSCN dated June 26, 2014 to the Appellant under Rule 4 of SEBI (Procedure \nfor Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, \n1995 read with Section 15I of the SEBI Act, 1992.", "SEBI Act, 1992 - Section 15I (Paragraph 49)": "49. In the case in hand also, therefore, considering the situation that no \nmaterial has been brought on record to show that SEBI has any justification to \ninterfere with the Appellant\u2019s time share business, especially in light of the fact \nthat SEBI has not yet conclusively determined whether or not the provisions of \nCIS are attracted to the Appellant\u2019s business, we are of the view that the \nimpugned order cannot be sustained particularly when SEBI has itself issued \nSCN dated June 26, 2014 to the Appellant under Rule 4 of SEBI (Procedure \nfor Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, \n1995 read with Section 15I of the SEBI Act, 1992.", "SEBI Act, 1992 - Sections 11(1), 11(4), 11B (Paragraph 47)": "47. As held hereinabove, the answer to this has to be in the negative. SEBI \nmay not be bound by estoppel in a given case to change its stand due to \nchanged circumstances or change in policy or law. But Respondent cannot do \nthe same without following principles of natural justice unless necessity or \nemergency of a grave nature is shown by SEBI to justly take ex parte interim \naction in the form of extreme directions under sections 11 (1), 11(4), 11B of \nSEBI Act to halt the business of Appellant in question. No such urgency or \ndire need has been brought on record by SEBI which could justify the passing \nof the Impugned Order in question. It is seen from the records of SEBI and the \npleadings that there are some queries by some prospective investors who \nintend to be Members of the Appellant\u2019s club by investing some money. Even \nif there are some complaints against the Appellants, as stated by SEBI, they \nshould have been forwarded by SEBI to the Appellant, and only on failure of \nthe Appellant to redress such grievances should the Respondent have taken \nappropriate action against the Appellant as per law. The Respondent cannot \ncall upon the Appellant to close its business and refund the amount received to \nits Members without first deciding the issue whether the Appellant\u2019s business \nof time sharing is covered by the definition of CIS.", "SEBI Act, 1992 - Sections 11AA(1), 11AA(2) (Paragraph 51)": "51. It is, therefore, evident that an enquiry as per procedure established by \nlaw through an Adjudicating Officer (AO), who is a quasi-judicial authority, \ninto the vital issue as to whether Appellant\u2019s business activities amount a CIS \nwithin the meaning of Sections 11AA(1) and 11AA(2) of the SEBI Act, has \njust commenced and this main issue is yet to be decided by the Ld. AO. \nDocuments in support of their case have not been filed and exchanged by the \nparties before the Ld. AO. Issues have not been framed by the Ld. AO and \nwitnesses, if any, have not been examined and cross-examined by the parties \nbefore the Ld. AO. At this stage, it is, therefore, too premature to halt the \nbusiness activities of the Appellant on the basis of a tentative view formed by \nthe Respondent. This apart, the potential nature of findings in the Impugned \nOrder is likely to affect a fair trial of the main issue pending before the Ld. \nAO." } }, "chunk_8": { "analysis_of_arguments": "The Appellant argues that SEBI\u2019s historical stance supported the view that its timeshare business did not amount to a CIS. They contend the ex parte measure was premature and that they have cooperated by supplying information. The Respondent maintains that new information merited immediate intervention, highlighting delays in the Appellant\u2019s document submissions and the need to protect investors pending final adjudication.", "cases_referred": [ "PGF Ltd (Supreme Court)" ], "facts": "The dispute arises from the Appellant\u2019s timeshare business, which the Respondent (SEBI) alleges constitutes a Collective Investment Scheme without proper registration. Previously, SEBI informally opined that timeshare business was not a CIS. However, fresh concerns came to light following a letter from a Member of Parliament, prompting an ex parte interim order. The Appellant challenged this order, contending that the Gauhati High Court had taken a prima facie view that timeshare businesses are outside the scope of CIS. The matter now comes after various procedural steps, including issuance of a show cause notice and partial submissions of documents.", "final_status": "Appeals disposed.", "formatted_summary": "In these appeals, the Appellant\u2019s timeshare business was alleged by SEBI to be an unregistered CIS. Initially, SEBI considered such activities outside CIS regulations. However, new information led to an ex parte interim order halting the Appellant\u2019s ongoing schemes. The Tribunal found this step premature given the earlier indications and the Gauhati High Court\u2019s contrary prima facie view, and thus set aside the interim order. SEBI was directed to conduct a fresh hearing and determine whether the Appellant\u2019s timeshare arrangement constitutes a CIS, while the Appellant was restrained from launching new schemes or disposing of assets until the final decision.", "held": "The Tribunal set aside the ex parte interim order and directed a fresh decision on merits by SEBI\u2019s Whole Time Member. The Appellant was ordered not to launch new schemes or dispose of assets in the interim. This emphasizes the requirement for due process before enforcing restrictions that significantly impact business operations.", "latin_principles": { "ex parte": "Mentioned in paragraph 52 where the order passed by SEBI is referred to as an \u0027ex parte interim order.\u0027", "prima facie": "Mentioned in paragraph 55 indicating that the initial view of the Gauhati High Court was that timeshare business is not covered under a CIS." }, "legal_issues": "Whether the Appellant\u2019s timeshare arrangements fall under the definition of a Collective Investment Scheme, and whether the ex parte interim order restraining continuation of such activities was justified at this stage.", "statutes": { "CIS Regulations, 1999": "29 connected Rules and Regulations. On the basis of such an examination, the Respondent has leveled an allegation that the Appellant is carrying out a CIS in the name of time share business without obtaining a certificate of registration as required by the provisions of CIS Regulations, 1999.", "SEBI Act - Sections 11(1), 11B and 11(4)": "52. Furthermore, Ld. Senior Counsel Mr. Mehta contends that the sudden spurt in activities of the Respondent is the result of the judgment of Hon\u2019ble Supreme Court in PGF Ltd. It is difficult for us to reconcile with this submission because the PGF order was passed by the Hon\u2019ble Supreme Court on March 12, 2013 whereas the Impugned ex parte interim order has been issued after about 16 months of the PGF judgment i.e. on July 31, 2014. The Respondent should have, therefore, exercised restraint in exercising discretion conferred upon him under Sections 11(1), 11B and 11(4) of the SEBI Act in the peculiar facts and circumstances of the present case, particularly in view of the fact that the SCN had already been issued for holding regular enquiry in the whole mater.", "SEBI Act - Sections 11AA(1) and 11AA(2)": "51. It is, therefore, evident that an enquiry as per procedure established by law through an Adjudicating Officer (AO ), who is a quasi-judicial authority, into the vital issue as to whether Appellant\u2019s business activities amount a CIS within the meaning of Sections 11AA(1 ) and 11AA(2) of the SEBI Act, has just commenced and this main issue is yet to be decided by the Ld. AO. Documents in support of their case have not been filed and exchanged by the parties before the Ld. AO. Issues have not been framed by the Ld. AO and witnesses, if any, have not been examined and cross-examined by the parties before the Ld. AO. At this stage, it is, therefore, too premature to halt the business activities of the Appellant on the basis of a tentative view formed by the Respondent. This apart, the potential nature of findings in the Impugned Order is likely to affect a fair trial of the main issue pending before the Ld. AO." } }, "chunk_9": { "analysis_of_arguments": "The Appellants sought leniency in furnishing the required details, while SEBI insisted on complete documentation before passing an order on the merits. Both sides addressed the timelines and compliance measures necessary to safeguard investor interests.", "cases_referred": [], "facts": "The Appellants operate certain schemes subject to SEBI\u2019s oversight and were required to submit documentation, which they delayed for over a year. An earlier order by the High Court of Gauhati directed the Appellant to maintain a separate account of any funds received through existing schemes. These appeals arose from SEBI\u2019s demand for complete information and documents before proceeding, ultimately leading to directions from the Tribunal regarding the submission of materials and the restriction on launching new schemes or disposing of assets.", "final_status": "disposed", "formatted_summary": "Both appeals were disposed of with directions for the Appellants to cooperate with SEBI and provide all requisite documents. SEBI was directed to pass its order expeditiously, and the Appellants were instructed not to launch new schemes or dispose of their assets until further decision.", "held": "The Tribunal directed SEBI to pass an order on the merits within a stipulated timeframe after receiving all required documentation from the Appellants. The Appellants were also prohibited from launching new schemes or disposing of their assets until compliance was ensured, reflecting the Tribunal\u2019s emphasis on safeguarding investor interests and proper regulatory oversight.", "latin_principles": {}, "legal_issues": "The principal issues concern whether the Appellants could continue their investment schemes without furnishing the required information to SEBI and whether additional restrictions or conditions should be imposed pending submission of the relevant documents.", "statutes": {} } }, "counsels": [ "Mr. Pradeep Sancheti, Senior Counsel for the Appellant", "Mr. Shyam Mehta, Senior Counsel for the Respondent" ], "delivered_date": "17.09.2014", "facts": "Pancard Clubs Limited and its directors operated a time-sharing membership business since around 2001. In 2013, following a complaint by a Member of Parliament alleging unregistered Collective Investment Scheme (CIS) activity, the Securities and Exchange Board of India (SEBI) investigated and, on July 31, 2014, issued an ex parte interim order barring the company from launching new schemes or raising further funds. The company contended that SEBI had earlier indicated timeshare businesses were not covered by CIS regulations and claimed no urgent threat existed to warrant an ex parte measure. Multiple show cause notices, appeals, and procedural steps followed, including references to comparable timeshare disputes and partial clarifications from SEBI. The dispute was taken before the Securities Appellate Tribunal, with the company challenging the classification of its schemes and objecting to restrictions imposed without a full hearing.", "final_status": "disposed", "first_party": [ "1. Pancard Clubs Limited, Prabhadevi, Mumbai 400025", "2. Ms. Shobha Ratnakar Barde, Borivali (West), Mumbai 400103", "3. Mr. Manish Kalidas Gandhi, Virar (West), Thane 401303", "4. Mr. Ramachandran Ramakrisshnan, Malad (West), Mumbai 400064", "5. Mr. Sudhir Shankar Moravekar, Prabhadevi, Mumbai 25", "6. Ms. Usha Arun Tari, Mahim, Mumbai 400016", "7. Mr. Chandrasen Ganpatrao Bhise, Sion (West), Mumbai 400022" ], "grouped_statutes": { "Companies Act, 1956": [ "4. Brief facts leading to the present dispute are that the Appellant is an unlisted public limited company registered under the Companies Act, 1956. Its shares are, thus, not listed on any of the Stock Exchanges. The Appellant is in the time sharing business i.e. selling of rooms for a fixed duration of nights / days depending upon the scheme opted by its customers who are termed as Members. Accordingly, the Appellant owns, develops and operates hotels and resorts all over India and even abroad, along with offering time (room) sharing options to those who wish to avail of holidays and hospitality services. The Appellant has been engaged in this business for the last one and a half decades." ], "Constitution of India": [ "41. Ajit Kumar Nag vs. General Manager (PJ) Indian Oil Corporation Ltd., Haldia and Others (2005) 7 SCC 764 the Hon\u0027ble Supreme Court was concerned with the dismissal of one of the most recalcitrant employees of the Indian Oil Corporation without holding regular enquiry against him and thus without affording any opportunity of hearing being given before passing the impugned dismissal order against him. The Single Bench as well as Division Bench of the High Court upheld the dismissal order, so also the Hon\u0027ble Supreme Court, in view of the exceptional situation contemplated by clause (VI) of standing order 20 of Certified Standing Order of the Corporation, i.e., on satisfaction of the General Manager that immediate action was required, he could dismiss or remove an employee without giving him an opportunity of being heard. A similar provision is to be found in the second proviso of Article 3(11) (2) of the Constitution of India which has been interpreted by Hon\u0027ble Supreme Court in several cases, particularly from Union Of India vs. Tulsi Ram Patel (1985) 3 SCC 398 onwards that such a power of dismissal/removal of a delinquent employee has to be invoked in grave and extraordinary situations alone. Otherwise the normal rule is to hold an enquiry against the employee concerned and take appropriate action only after giving him reasonable opportunity of being heard in the said enquiry. This is the fundamental rule of audi alteram partem and its exclusion is an exception." ], "Customs House Agents Licensing Regulations, 2004": [ "15. Judgments at serial nos. (a) to (d) have been cited by the Ld. Senior Counsel for the Appellant Mr. Pradeep Sancheti to bring home the point that discretion / powers conferred by Sections 11(1), 11B and 11(4) ought to be used only in appropriate cases where due to a prevailing emergency, time cannot be wasted even by offering the right of being heard to the affected party against whom such an ex parte interim order can be made. Mr. Sancheti submits that although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. Mr. Sancheti also submits delay of even one to two months in suspending a CHA under Regulation 22 of the said CHAL Regulations, 2004 has been condemned by the High Court and considered fatal and such arbitrary decisions have been consistently quashed by the Hon\u2019ble High Court. Mr. Sancheti, pertinently, has drawn our attention towards paragraph 9 of Babaji Shivram (supra) at serial no. (b) decided by the Division Bench of Hon\u2019ble Bombay High Court in WP (LOD) No. 694 of 2011 on 21st April, 2011 which reads as under:- \u201c\u2026\u2026\u2026\u2026 9. Apart from the above, suspension of a CHA license under Regulation 20(2) of the 2004 Regulations can be ordered where immediate action is necessary. In the present case, the Customs Authority in the middle of January, 2011 were aware of the fact that the documents submitted by the \u2026\u201d", "Although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. ... The High Court considered a delay of even one to two months in suspending a CHA under Regulation 22 as fatal and consistently quashed such decisions." ], "SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995": [ "49. In the case in hand also, therefore, considering the situation that no material has been brought on record to show that SEBI has any justification to interfere with the Appellant\u2019s time share business, especially in light of the fact that SEBI has not yet conclusively determined whether or not the provisions of CIS are attracted to the Appellant\u2019s business, we are of the view that the impugned order cannot be sustained particularly when SEBI has itself issued SCN dated June 26, 2014 to the Appellant under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read with Section 15I of the SEBI Act, 1992." ], "Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999": [ "3. The Appellant primarily submits that the time / room sharing business in hotels, resorts etc. carried on by the Appellant does not fall within the ambit of CIS as defined by Section 11AA(1) and 11AA(2) of the SEBI Act read with Regulation 65 of the CIS Regulations, 1999. Therefore, unless the issue of CIS was decided on merit by a detailed enquiry as per procedure established by law, the Respondent should not have passed such an order without hearing Appellant. Moreover, on their own showing, the Respondent has taken a conscious decision to revisit its earlier view on the issue of time sharing business after the judgment of Hon\u2019ble Supreme Court in PGF Ltd. (12th March, 2013) and the letter dated 2nd July, 2013 of one Member of Parliament Mr. Patil. It clearly means that the Appellant was carrying on business since 2001 or so under a bona fide belief that the business of time sharing was not covered by CIS. Under these circumstances, if the Appellant had continued the business for another six months or so, no prejudice would have been caused to the case of the Respondent in holding a full and proper enquiry. Therefore, the Impugned Order needs to be interfered with by this Tribunal in appeal.", "7. On July 2, 2013, Mr. Sanjay Dina Patil, a Member of Parliament filed a complaint with the Respondent alleging that the Appellant was carrying out a CIS without certification in violation of CIS Regulations. The Respondent then issued letter dated July 8, 2013 to the Appellant asking it to publish a disclaimer on their website to the effect that the Appellant was not registered with the Respondent under the CIS Regulations. Vide letter dated August 7, 2013 the Appellant responded to the Respondent\u2019s letter dated July 8, 2013 attaching a draft public notice that could be published on the website. The Appellant also issued a public notice that it was not SEBI approved as claimed by some persons with vested interests and this matter was put to a rest by both the parties.", "8. Finally, on October 21, 2013, the Respondent sent a letter to said Member of Parliament, and surprisingly not to the Appellant, stating that on examining the Appellant\u2019s matter in 2010-11, the Respondent had concluded that the company\u2019s activities did not attract CIS Regulations. Said MP was also informed that in light of recent complaints received by it, the Respondent was re-examining the matter to determine whether or not the Appellant\u2019s activities fall within the ambit of CIS Regulations. On June 26, 2014, having ostensibly completed its re-examination, the Respondent issued a Show Cause Notice (SCN) dated June 26, 2014 accusing the Appellant of carrying on activities in the nature of a CIS without obtaining a certificate from the Respondent as required by the CIS Regulations. The Appellant has filed a Writ Petition (Lod.) No. 2090 of 2014 in the Hon\u2019ble Bombay High Court challenging the SCN issued by the Adjudicating Officer of SEBI and the Hon\u2019ble Bombay High Court directed the Appellant to file reply to the Show Cause Notice so that SEBI could take final decision on merits after hearing the Appellant. However, during the pendency of the Show Cause Notice issued by the Adjudicating Officer of SEBI, the Whole Time Member of SEBI has passed the impugned ex parte interim order.", "10. The alleged non-provision of names and details of the Appellant\u2019s customers does not justify passing of the order. Even though the Appellant had sought for clarification regarding whether or not its activities fall within the ambit of CIS Regulations as far back as in 2001, it was only in 2013 that SEBI in fact clarified that the Appellant\u2019s business did not fall within the provisions of CIS Regulations. It was an arduous task to compile details of few lac Members. However, as soon as the same was done, the details were furnished to the Respondent during the course of hearing of the present appeal before this Tribunal.", "The Respondent had already taken a decision on file to the effect that the time sharing scheme business of the Appellant did not fall within the purview of the definition of CIS as mentioned in Section 11AA of the SEBI Act read with the one given in the CIS Regulations of 1999. The submission is made to emphasize that an order taken on file by an authority is sufficient and its communication is merely an administrative act and that the legal sanctity of the order is not lost. Therefore, in the absence of any changed circumstances, the Respondent is precluded from changing its stand...", "31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors.", "50. The SCN dated June 26, 2014, in a nut shell, mentions / alleges that an examination of the affairs of the Appellant was undertaken by the Respondent for \"possible violation\" of the provisions of the SEBI Act, 1992 read with connected Rules and Regulations. On the basis of such an examination, the Respondent has leveled an allegation that the Appellant is carrying out a CIS in the name of time share business without obtaining a certificate of registration as required by the provisions of CIS Regulations, 1999.", "29 connected Rules and Regulations. On the basis of such an examination, the Respondent has leveled an allegation that the Appellant is carrying out a CIS in the name of time share business without obtaining a certificate of registration as required by the provisions of CIS Regulations, 1999." ], "Securities and Exchange Board of India Act, 1992": [ "1. These two appeals have been filed against an ex parte interim order dated July 31, 2014 passed by Securities and Exchange Board of India (hereinafter referred to as Respondent) under Sections 11(1), 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) read with Regulation 65 of the CIS Regulations. The Appeal No. 254 of 2014 has been filed by Pancard Clubs Ltd. (hereinafter referred to as Appellant) and Appeal No. 255 of 2014 has been filed by its six Directors. Since both these appeals involve a common question of law and fact, with the consent of the parties, we have heard these appeals together and are disposing them off by this common order by taking Appeal No. 254 of 2014 as the lead case.", "9. The Appellant in the present appeal, preferred under section 15T of the SEBI Act, 1992, submits that the Impugned ex parte interim order dated 31st July, 2014 fails to set out any reason for the urgency with which it was passed. The Impugned Order is in complete breach of the principles of natural justice and should be treated as void. The Impugned Order should not have been passed ex parte particularly in view of the fact that the Appellant had not only been in constant communication with SEBI since 2001, but also initiated it and was co-operating with the Respondent all along.", "15. Judgments at serial nos. (a) to (d) have been cited by the Ld. Senior Counsel for the Appellant Mr. Pradeep Sancheti to bring home the point that discretion / powers conferred by Sections 11(1), 11B and 11(4) ought to be used only in appropriate cases where due to a prevailing emergency, time cannot be wasted even by offering the right of being heard to the affected party against whom such an ex parte interim order can be made. Mr. Sancheti submits that although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. Mr. Sancheti also submits delay of even one to two months in suspending a CHA under Regulation 22 of the said CHAL Regulations, 2004 has been condemned by the High Court and considered fatal and such arbitrary decisions have been consistently quashed by the Hon\u2019ble High Court. Mr. Sancheti, pertinently, has drawn our attention towards paragraph 9 of Babaji Shivram (supra) at serial no. (b) decided by the Division Bench of Hon\u2019ble Bombay High Court in WP (LOD) No. 694 of 2011 on 21st April, 2011 which reads as under:- \u201c\u2026\u2026\u2026\u2026 9. Apart from the above, suspension of a CHA license under Regulation 20(2) of the 2004 Regulations can be ordered where immediate action is necessary. In the present case, the Customs Authority in the middle of January, 2011 were aware of the fact that the documents submitted by the \u2026\u201d", "13. The Appellant submits that no emergent situation has been elucidated in the Impugned Order which would justify the passing of such an adverse order, without ever giving the Appellant an opportunity of being heard. This itself is a blatant breach of the principles of natural justice. Further, the SCN is still pending which requires due application of mind by the Respondent and determination of issues for which the Appellant has been sought to be punished unilaterally. The Appellant submits that no grievance of any of its customers has come to light which would warrant the passing of the Impugned Order allegedly to secure interests of investors. The only change in circumstance is the complaint received from an MP. SEBI cannot be allowed to harass the Appellant purely to satisfy the whims and fancies of an MP. It is important to note that the Respondent admits in its counter affidavit that prior to 2013, SEBI was of the view that time share schemes did not come within the purview of Section 11AA of the SEBI Act.", "In furtherance of his argument on the scope and ambit of the nature of power conferred by the Parliament on SEBI under Sections 11(1), 11B and 11(4) of the SEBI Act, Mr. Sancheti has brought to our notice a judgement of this Tribunal in Zenith Infotech (supra) decided on July 23, 2013 in Appeal No. 59 of 2013. This Tribunal was dealing with a situation where an ex parte interim order was passed by SEBI calling upon the Appellant therein to deposit a bank guarantee. The Tribunal held that such a mandatory direction could have been passed only after affording an opportunity of being heard. It was considered to be non-sustainable in the eyes of law as it was passed in violation of the principles of natural justice. The Tribunal also held that SEBI was duly empowered to pass an ex parte interim order in urgent cases, but this power was to be exercised sparingly in most deserving cases of extreme urgency.", "13 ingredients, which have been mentioned in Section 11AA(1), are required to be satisfied before treating a scheme as Collective Investment Scheme, has considerable force. We are also of the view that the petitioners have prima facie shown that their scheme of time share, which is the subject matter of controversy in the present writ petition, does not fall within the meaning of the expression of Collective Investment Scheme and that the SEBI does not have, unless can be shown otherwise, the jurisdiction to take any action in the affairs of the business of the petitioners. Situated thus, we are of the view, though tentative, that in the facts and attending circumstances of the present case and taking into account, more particularly, the fact that the State of Assam has not been able to present before this Court, at this stage, any clear material to show that the SEBI has jurisdiction to interfere with the affairs of the petitioners\u2019 business and the SEBI, having not concluded till date that the business of the petitioners falls within the meaning of the expression Collective Investment Scheme as defined in Section 11AA(1), the nature of directions, which the SEBI has passed by the impugned order, need to be suitably interfered with so that the SEBI\u2019s directions do not completely restrain the petitioners from carrying out their day to day business.", "24. Mr. Shyam Mehta, Ld. Senior Counsel for the Respondent also produced an order dated July 10, 2013 passed by the Ld. WTM of SEBI under Sections 11(1), 11B and 11(4) of the SEBI Act, 1992 in a similar case of time sharing scheme in the case of Rose Valley to emphasize that the Appellant is not being discriminated against and similarly placed other such companies are also being investigated.", "31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors.", "47. As held hereinabove, the answer to this has to be in the negative. SEBI may not be bound by estoppel in a given case to change its stand due to changed circumstances or change in policy or law. But Respondent cannot do the same without following principles of natural justice unless necessity or emergency of a grave nature is shown by SEBI to justly take ex parte interim action in the form of extreme directions under sections 11 (1), 11(4), 11B of SEBI Act to halt the business of Appellant in question. No such urgency or dire need has been brought on record by SEBI which could justify the passing of the Impugned Order in question. It is seen from the records of SEBI and the pleadings that there are some queries by some prospective investors who intend to be Members of the Appellant\u2019s club by investing some money. Even if there are some complaints against the Appellants, as stated by SEBI, they should have been forwarded by SEBI to the Appellant, and only on failure of the Appellant to redress such grievances should the Respondent have taken appropriate action against the Appellant as per law. The Respondent cannot call upon the Appellant to close its business and refund the amount received to its Members without first deciding the issue whether the Appellant\u2019s business of time sharing is covered by the definition of CIS.", "49. In the case in hand also, therefore, considering the situation that no material has been brought on record to show that SEBI has any justification to interfere with the Appellant\u2019s time share business, especially in light of the fact that SEBI has not yet conclusively determined whether or not the provisions of CIS are attracted to the Appellant\u2019s business, we are of the view that the impugned order cannot be sustained particularly when SEBI has itself issued SCN dated June 26, 2014 to the Appellant under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read with Section 15I of the SEBI Act, 1992.", "51. It is, therefore, evident that an enquiry as per procedure established by law through an Adjudicating Officer (AO), who is a quasi-judicial authority, into the vital issue as to whether Appellant\u2019s business activities amount a CIS within the meaning of Sections 11AA(1) and 11AA(2) of the SEBI Act, has just commenced and this main issue is yet to be decided by the Ld. AO. Documents in support of their case have not been filed and exchanged by the parties before the Ld. AO. Issues have not been framed by the Ld. AO and witnesses, if any, have not been examined and cross-examined by the parties before the Ld. AO. At this stage, it is, therefore, too premature to halt the business activities of the Appellant on the basis of a tentative view formed by the Respondent. This apart, the potential nature of findings in the Impugned Order is likely to affect a fair trial of the main issue pending before the Ld. AO.", "51. It is, therefore, evident that an enquiry as per procedure established by law through an Adjudicating Officer (AO ), who is a quasi-judicial authority, into the vital issue as to whether Appellant\u2019s business activities amount a CIS within the meaning of Sections 11AA(1 ) and 11AA(2) of the SEBI Act, has just commenced and this main issue is yet to be decided by the Ld. AO. Documents in support of their case have not been filed and exchanged by the parties before the Ld. AO. Issues have not been framed by the Ld. AO and witnesses, if any, have not been examined and cross-examined by the parties before the Ld. AO. At this stage, it is, therefore, too premature to halt the business activities of the Appellant on the basis of a tentative view formed by the Respondent. This apart, the potential nature of findings in the Impugned Order is likely to affect a fair trial of the main issue pending before the Ld. AO.", "52. Furthermore, Ld. Senior Counsel Mr. Mehta contends that the sudden spurt in activities of the Respondent is the result of the judgment of Hon\u2019ble Supreme Court in PGF Ltd. It is difficult for us to reconcile with this submission because the PGF order was passed by the Hon\u2019ble Supreme Court on March 12, 2013 whereas the Impugned ex parte interim order has been issued after about 16 months of the PGF judgment i.e. on July 31, 2014. The Respondent should have, therefore, exercised restraint in exercising discretion conferred upon him under Sections 11(1), 11B and 11(4) of the SEBI Act in the peculiar facts and circumstances of the present case, particularly in view of the fact that the SCN had already been issued for holding regular enquiry in the whole matter." ] }, "held": "The Securities Appellate Tribunal set aside or modified SEBI\u2019s ex parte restrictions in multiple appeals, emphasizing the absence of a demonstrated emergency to justify halting operations without a prior hearing. The Tribunal underscored that natural justice must be observed before imposing severe interim measures. Whether the timeshare business actually constitutes a Collective Investment Scheme was left for further inquiry and final determination after a proper hearing. The Tribunal\u2019s guidance highlights the importance of affording fair process and cautions that regulatory powers must be exercised only under exceptional urgency, offering a precedent for future disputes of this nature.", "latin_principles": { "audi alteram partem": [ "Dictionary #6 Paragraph 41: \u201cThis is the fundamental rule of audi alteram partem and its exclusion is an exception.\u201d" ], "bona fide": [ "Dictionary #1 Paragraph 3: \u201c...under a bona fide belief that the business of time sharing was not covered by CIS.\u201d", "Dictionary #2 Paragraph 11: \u201c...The Appellant was under a bonafide belief that the Respondent did not have any problems with the Appellant\u2019s business...\u201d" ], "ex parte": [ "Dictionary #3: \u201cUsed repeatedly in paragraphs 15 and onwards to describe the nature of the interim order passed without a prior hearing.\u201d", "Dictionary #5 Paragraph 30: \u201c...whether there were any emergent circumstances justifying an ex parte interim order...\u201d", "Dictionary #6 Paragraph 36: \u201c...SEBI is empowered to pass ex-parte interim orders, this power is to be exercised sparingly...\u201d", "Dictionary #8 Paragraph 52: \u201c... the order passed by SEBI is referred to as an ex parte interim order...\u201d" ], "inter alia": [ "Dictionary #3: \u201cAppears in paragraph 15 in reference to the obligations imposed under the ex parte interim order.\u201d", "Dictionary #5 Paragraph 36: \u201cInter alia it was observed that it is a settled position that if the essentials of natural justice ...\u201d", "Dictionary #6 Paragraph 36: \u201cInter alia it was observed that immediate action was necessary...\u201d" ], "prima facie": [ "Dictionary #3 Paragraph 18: \u201cMentioned in paragraph 18 when discussing the petitioners\u2019 evidence regarding their business not falling under CIS.\u201d", "Dictionary #4 Paragraph 13: \u201cWe are also of the view that the petitioners have prima facie shown that their scheme...\u201d", "Dictionary #5 Paragraph 29: \u201c...SEBI itself has only come to a prima facie conclusion in the Impugned Order...\u201d", "Dictionary #6 Paragraph 37: \u201cSEBI has even today formed a prima facie opinion about the applicability of the regulations...\u201d", "Dictionary #8 Paragraph 55: \u201c...the Gauhati High Court\u2019s contrary prima facie view that timeshare business is not covered under a CIS...\u201d" ] }, "legal_issues": [ "Whether the company\u2019s long-standing timeshare arrangements qualify as a Collective Investment Scheme under SEBI\u2019s regulatory framework", "whether ex parte interim orders were validly issued without providing an opportunity to be heard", "whether earlier communications or estoppel principles bar SEBI from reclassifying timeshare businesses as CIS." ], "location": "Mumbai", "prayer": "", "reserved_date": "04.09.2014", "second_party": [ "1. Securities and Exchange Board of India, Bandra (East), Mumbai 400051" ], "statutes": { "CIS Regulations, 1999": [ "Dictionary #1 Paragraph 3: \u201c3. The Appellant primarily submits that the time / room sharing business in hotels, resorts etc. carried on by the Appellant does not fall within the ambit of CIS as defined by Section 11AA(1) and 11AA(2) of the SEBI Act read with Regulation 65 of the CIS Regulations, 1999. Therefore, unless the issue of CIS was decided on merit by a detailed enquiry as per procedure established by law, the Respondent should not have passed such an order without hearing Appellant. Moreover, on their own showing, the Respondent has taken a conscious decision to revisit its earlier view on the issue of time sharing business after the judgment of Hon\u2019ble Supreme Court in PGF Ltd. (12th March, 2013) and the letter dated 2nd July, 2013 of one Member of Parliament Mr. Patil. It clearly means that the Appellant was carrying on business since 2001 or so under a bona fide belief that the business of time sharing was not covered by CIS.\u201d", "Dictionary #2 CIS Regulations (Paragraph 7): \u201c7. On July 2, 2013, Mr. Sanjay Dina Patil, a Member of Parliament filed a complaint with the Respondent alleging that the Appellant was carrying out a CIS without certification in violation of CIS Regulations. The Respondent then issued letter dated July 8, 2013 to the Appellant asking it to publish a disclaimer on their website to the effect that the Appellant was not registered with the Respondent under the CIS Regulations. Vide letter dated August 7, 2013 the Appellant responded to the Respondent\u2019s letter dated July 8, 2013 attaching a draft public notice that could be published on the website. The Appellant also issued a public notice that it was not SEBI approved as claimed by some persons with vested interests and this matter was put to a rest by both the parties.\u201d", "Dictionary #2 CIS Regulations (Paragraph 8): \u201c8. Finally, on October 21, 2013, the Respondent sent a letter to said Member of Parliament, and surprisingly not to the Appellant, stating that on examining the Appellant\u2019s matter in 2010-11, the Respondent had concluded that the company\u2019s activities did not attract CIS Regulations. Said MP was also informed that in light of recent complaints received by it, the Respondent was re-examining the matter to determine whether or not the Appellant\u2019s activities fall within the ambit of CIS Regulations. On June 26, 2014, having ostensibly completed its re-examination, the Respondent issued a Show Cause Notice (SCN) dated June 26, 2014 accusing the Appellant of carrying on activities in the nature of a CIS without obtaining a certificate from the Respondent as required by the CIS Regulations.\u201d", "Dictionary #2 CIS Regulations (Paragraph 10): \u201c10. The alleged non-provision of names and details of the Appellant\u2019s customers does not justify passing of the order. Even though the Appellant had sought for clarification regarding whether or not its activities fall within the ambit of CIS Regulations as far back as in 2001, it was only in 2013 that SEBI in fact clarified that the Appellant\u2019s business did not fall within the provisions of CIS Regulations. It was an arduous task to compile details of few lac Members. However, as soon as the same was done, the details were furnished to the Respondent during the course of hearing of the present appeal before this Tribunal.\u201d", "Dictionary #3 Paragraph: \u201cThe Respondent had already taken a decision on file to the effect that the time sharing scheme business of the Appellant did not fall within the purview of the definition of CIS as mentioned in Section 11AA of the SEBI Act read with the one given in the CIS Regulations of 1999. The submission is made to emphasize that an order taken on file by an authority is sufficient and its communication is merely an administrative act and that the legal sanctity of the order is not lost. Therefore, in the absence of any changed circumstances, the Respondent is precluded from changing its stand...\u201d", "Dictionary #5 Paragraph: \u201c31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors.\u201d", "Dictionary #7 CIS Regulations, 1999 (Paragraph 50): \u201c50. The SCN dated June 26, 2014, in a nut shell, mentions / alleges that an examination of the affairs of the Appellant was undertaken by the Respondent for \u2018possible violation\u2019 of the provisions of the SEBI Act, 1992 read with connected Rules and Regulations. On the basis of such an examination, the Respondent has leveled an allegation that the Appellant is carrying out a CIS in the name of time share business without obtaining a certificate of registration as required by the provisions of CIS Regulations, 1999.\u201d", "Dictionary #8 CIS Regulations, 1999: \u201c29 connected Rules and Regulations. On the basis of such an examination, the Respondent has leveled an allegation that the Appellant is carrying out a CIS in the name of time share business without obtaining a certificate of registration as required by the provisions of CIS Regulations, 1999.\u201d" ], "Companies Act, 1956": [ "Dictionary #1 Paragraph 4: \u201c4. Brief facts leading to the present dispute are that the Appellant is an unlisted public limited company registered under the Companies Act, 1956. Its shares are, thus, not listed on any of the Stock Exchanges. The Appellant is in the time sharing business i.e. selling of rooms for a fixed duration of nights / days depending upon the scheme opted by its customers who are termed as Members. Accordingly, the Appellant owns, develops and operates hotels and resorts all over India and even abroad, along with offering time (room) sharing options to those who wish to avail of holidays and hospitality services. The Appellant has been engaged in this business for the last one and a half decades.\u201d" ], "Constitution of India": [ "Dictionary #9 Paragraph 41: \u201c41. Ajit Kumar Nag vs. General Manager (PJ) Indian Oil Corporation Ltd., Haldia and Others (2005) 7 SCC 764 the Hon\u2019ble Supreme Court was concerned with the dismissal of one of the most recalcitrant employees of the Indian Oil Corporation without holding regular enquiry against him and thus without affording any opportunity of hearing being given before passing the impugned dismissal order. The Single Bench as well as Division Bench of the High Court upheld the dismissal order, so also the Hon\u2019ble Supreme Court, in view of the exceptional situation contemplated by clause (VI) of standing order 20 of Certified Standing Order of the Corporation, i.e., on satisfaction of the General Manager that immediate action was required, he could dismiss or remove an employee without giving him an opportunity of being heard. A similar provision is to be found in the second proviso of Article 3(11)(2) of the Constitution of India which has been interpreted by Hon\u2019ble Supreme Court in several cases, particularly from Union Of India vs. Tulsi Ram Patel (1985) 3 SCC 398 onwards that such a power of dismissal/removal of a delinquent employee has to be invoked in grave and extraordinary situations alone. Otherwise the normal rule is to hold an enquiry and take action only after giving him reasonable opportunity of being heard. This is the fundamental rule of audi alteram partem and its exclusion is an exception.\u201d" ], "Customs House Agents Licensing Regulations, 2004": [ "Dictionary #2 Paragraph 15: \u201c15. Judgments at serial nos. (a) to (d) have been cited by the Ld. Senior Counsel for the Appellant Mr. Pradeep Sancheti to bring home the point that discretion / powers conferred by Sections 11(1), 11B and 11(4) ought to be used only in appropriate cases where due to a prevailing emergency, time cannot be wasted even by offering the right of being heard... Mr. Sancheti submits that although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. Mr. Sancheti also submits delay of even one to two months in suspending a CHA under Regulation 22 of the said CHAL Regulations, 2004 has been condemned by the High Court and considered fatal.\u201d", "Dictionary #3 Paragraph: \u201cAlthough these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. ... The High Court considered a delay of even one to two months in suspending a CHA under Regulation 22 as fatal and consistently quashed such decisions.\u201d" ], "SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995": [ "Dictionary #7 Paragraph 49: \u201c49. In the case in hand also, therefore, considering the situation that no material has been brought on record to show that SEBI has any justification to interfere with the Appellant\u2019s time share business, especially in light of the fact that SEBI has not yet conclusively determined whether or not the provisions of CIS are attracted to the Appellant\u2019s business, we are of the view that the impugned order cannot be sustained particularly when SEBI has itself issued SCN dated June 26, 2014 to the Appellant under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read with Section 15I of the SEBI Act, 1992.\u201d" ], "SEBI Act, 1992 (Sections 11AA(1), 11AA(2))": [ "Dictionary #7 Paragraph 51: \u201c51. It is, therefore, evident that an enquiry as per procedure established by law through an Adjudicating Officer (AO ), who is a quasi-judicial authority, into the vital issue as to whether Appellant\u2019s business activities amount a CIS within the meaning of Sections 11AA(1) and 11AA(2) of the SEBI Act, has just commenced and this main issue is yet to be decided by the Ld. AO. Documents in support of their case have not been filed and exchanged by the parties before the Ld. AO. Issues have not been framed by the Ld. AO and witnesses, if any, have not been examined and cross-examined by the parties before the Ld. AO. At this stage, it is, therefore, too premature to halt the business activities of the Appellant on the basis of a tentative view formed by the Respondent. This apart, the potential nature of findings in the Impugned Order is likely to affect a fair trial of the main issue pending before the Ld. AO.\u201d" ], "SEBI Act, 1992 - Section 15I": [ "Dictionary #7 Paragraph 49: \u201c49. In the case in hand also, therefore, considering the situation that no material has been brought on record to show that SEBI has any justification to interfere with the Appellant\u2019s time share business, especially in light of the fact that SEBI has not yet conclusively determined whether or not the provisions of CIS are attracted to the Appellant\u2019s business, we are of the view that the impugned order cannot be sustained particularly when SEBI has itself issued SCN dated June 26, 2014 to the Appellant under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read with Section 15I of the SEBI Act, 1992.\u201d" ], "Securities and Exchange Board of India Act, 1992": [ "Dictionary #1 Paragraph: \u201c1. These two appeals have been filed against an ex parte interim order dated July 31, 2014 passed by Securities and Exchange Board of India (hereinafter referred to as Respondent) under Sections 11(1), 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) read with Regulation 65 of the CIS Regulations. The Appeal No. 254 of 2014 has been filed by Pancard Clubs Ltd. (hereinafter referred to as Appellant) and Appeal No. 255 of 2014 has been filed by its six Directors. Since both these appeals involve a common question of law and fact, with the consent of the parties, we have heard these appeals together and are disposing them off by this common order by taking Appeal No. 254 of 2014 as the lead case.\u201d", "Dictionary #2 SEBI Act, 1992 (Section 15T, Paragraph 9): \u201c9. The Appellant in the present appeal, preferred under section 15T of the SEBI Act, 1992, submits that the Impugned ex parte interim order dated 31st July, 2014 fails to set out any reason for the urgency with which it was passed. The Impugned Order is in complete breach of the principles of natural justice and should be treated as void. The Impugned Order should not have been passed ex parte particularly in view of the fact that the Appellant had not only been in constant communication with SEBI since 2001, but also initiated it and was co-operating with the Respondent all along.\u201d", "Dictionary #2 SEBI Act, 1992 (Sections 11(1), 11B, 11(4), Paragraph 15): \u201c15. Judgments at serial nos. (a) to (d) have been cited by the Ld. Senior Counsel for the Appellant Mr. Pradeep Sancheti to bring home the point that discretion / powers conferred by Sections 11(1), 11B and 11(4) ought to be used only in appropriate cases where due to a prevailing emergency, time cannot be wasted even by offering the right of being heard to the affected party against whom such an ex parte interim order can be made. Mr. Sancheti submits that although these judgments are passed by the Hon\u2019ble High Court of Bombay in the context of suspension of license of Custom House Agents as per the powers and discretion conferred by the Regulations 20 and 22 of Customs House Agents Licensing Regulations, 2004, the ratio laid down in these judgments is clear that it is only when prompt action is required that such powers of suspension are to be invoked at once. Mr. Sancheti also submits delay of even one to two months in suspending a CHA under Regulation 22 of the said CHAL Regulations, 2004 has been condemned by the High Court and considered fatal and such arbitrary decisions have been consistently quashed by the Hon\u2019ble High Court.\u201d", "Dictionary #2 SEBI Act, 1992 (Section 11AA, Paragraph 13): \u201c13. The Appellant submits that no emergent situation has been elucidated in the Impugned Order which would justify the passing of such an adverse order, without ever giving the Appellant an opportunity of being heard. This itself is a blatant breach of the principles of natural justice. Further, the SCN is still pending which requires due application of mind by the Respondent and determination of issues for which the Appellant has been sought to be punished unilaterally. The Appellant submits that no grievance of any of its customers has come to light which would warrant the passing of the Impugned Order allegedly to secure interests of investors. The only change in circumstance is the complaint received from an MP. SEBI cannot be allowed to harass the Appellant purely to satisfy the whims and fancies of an MP.\u201d", "Dictionary #3 Paragraph: \u201cIn furtherance of his argument on the scope and ambit of the nature of power conferred by the Parliament on SEBI under Sections 11(1), 11B and 11(4) of the SEBI Act, Mr. Sancheti has brought to our notice a judgement of this Tribunal in Zenith Infotech (supra) decided on July 23, 2013 in Appeal No. 59 of 2013. This Tribunal was dealing with a situation where an ex parte interim order was passed by SEBI calling upon the Appellant therein to deposit a bank guarantee. The Tribunal held that such a mandatory direction could have been passed only after affording an opportunity of being heard. It was considered to be non-sustainable in the eyes of law as it was passed in violation of the principles of natural justice. The Tribunal also held that SEBI was duly empowered to pass an ex parte interim order in urgent cases, but this power was to be exercised sparingly in most deserving cases of extreme urgency.\u201d", "Dictionary #4 SEBI Act, 1992 (Section 11AA(1)) Paragraph 13: \u201c13 ingredients, which have been mentioned in Section 11AA(1), are required to be satisfied before treating a scheme as Collective Investment Scheme. We are also of the view that the petitioners have prima facie shown that their scheme of time share, which is the subject matter of controversy in the present writ petition, does not fall within the meaning of the expression of Collective Investment Scheme. The SEBI does not have, unless can be shown otherwise, the jurisdiction to take any action in the affairs of the business of the petitioners. Situated thus, we are of the view, though tentative, that in the facts and attending circumstances, the nature of directions, which the SEBI has passed by the impugned order, need to be suitably interfered with so that the SEBI\u2019s directions do not completely restrain the petitioners from carrying out their day to day business.\u201d", "Dictionary #4 SEBI Act, 1992 (Sections 11(1), 11B, 11(4)) Paragraph 24: \u201c24. Mr. Shyam Mehta, Ld. Senior Counsel for the Respondent also produced an order dated July 10, 2013 passed by the Ld. WTM of SEBI under Sections 11(1), 11B and 11(4) of the SEBI Act, 1992 in a similar case of time sharing scheme in the case of Rose Valley to emphasize that the Appellant is not being discriminated against and similarly placed other such companies are also being investigated.\u201d", "Dictionary #5 Paragraph: \u201c31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors.\u201d", "Dictionary #7 SEBI Act, 1992 - Sections 11(1), 11(4), 11B (Paragraph 47): \u201c47. As held hereinabove, the answer to this has to be in the negative. SEBI may not be bound by estoppel in a given case to change its stand due to changed circumstances or change in policy or law. But Respondent cannot do the same without following principles of natural justice unless necessity or emergency of a grave nature is shown by SEBI to justly take ex parte interim action in the form of extreme directions under sections 11 (1), 11(4), 11B of SEBI Act to halt the business of Appellant in question. No such urgency or dire need has been brought on record by SEBI which could justify passing the Impugned Order in question.\u201d", "Dictionary #8 SEBI Act - Sections 11(1), 11B and 11(4) Paragraph 52: \u201c52. Furthermore, Ld. Senior Counsel Mr. Mehta contends that the sudden spurt in activities of the Respondent is the result of the judgment of Hon\u2019ble Supreme Court in PGF Ltd. It is difficult for us to reconcile with this submission because the PGF order was passed by the Hon\u2019ble Supreme Court on March 12, 2013 whereas the Impugned ex parte interim order has been issued after about 16 months of the PGF judgment i.e. on July 31, 2014. The Respondent should have, therefore, exercised restraint in exercising discretion conferred upon him under Sections 11(1), 11B and 11(4) of the SEBI Act in the peculiar facts and circumstances of the present case.\u201d" ] }, "statutes_headnotes": { "Companies Act, 1956": "\u2014 Timeshare membership schemes \u2014 Whether they constitute a Collective Investment Scheme requiring SEBI registration \u2014 \u003cstrong\u003eEx parte interim orders\u003c/strong\u003e\u2014 Tribunal held that severe restrictions demand urgent threat justification \u2014 \u003cstrong\u003eNatural justice\u003c/strong\u003e\u2014 Final classification as a CIS left open for further inquiry.", "Constitution of India": "\u2014 Dismissal of employee without enquiry \u003cstrong\u003e(Second proviso to Art. 3(11)(2))\u003c/strong\u003e\u2014 Exception to the general rule of a prior hearing \u2014 \u003cstrong\u003eClause (VI) of Standing Order 20\u003c/strong\u003e\u2014 Permits immediate dismissal in grave and extraordinary circumstances \u2014 Supreme Court in Ajit Kumar Nag (2005) 7 SCC 764 and Tulsi Ram Patel (1985) 3 SCC 398 recognized that audi alteram partem, though fundamental, can be excluded in exceptional cases.", "Customs House Agents Licensing Regulations, 2004": "\u2014 Suspension of License \u003cstrong\u003e(Regs. 20, 22)\u003c/strong\u003e\u2014 Invoked only in emergent situations requiring immediate action \u2014 Delay of one or two months in effecting suspension deemed fatal \u2014 Arbitrary or belated suspensions repeatedly quashed \u2014 Emphasized that suspension power must be exercised promptly when warranted.", "SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995": "\u2014 Ex parte interim orders \u003cstrong\u003e(Rule 4 read with S. 15I of SEBI Act, 1992)\u003c/strong\u003e\u2014 Requirement of demonstrable urgency \u2014 Severe restrictions set aside for lack of immediate threat \u2014 \u003cstrong\u003eNatural justice\u003c/strong\u003e compels a hearing before imposing drastic interim measures \u2014 Classification of timeshare scheme as CIS left for final determination after proper inquiry \u2014 Regulatory powers to be exercised only in exceptional circumstances.", "Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999": "\u2014 Time-share membership scheme \u003cstrong\u003e(Ss. 11AA(1), 11AA(2), R. 65)\u003c/strong\u003e\u2014 Whether it qualifies as a Collective Investment Scheme \u2014 \u003cstrong\u003eEx parte interim orders\u003c/strong\u003e\u2014 No showing of an immediate threat to investors \u2014 Prior indications that the scheme did not attract CIS Regulations \u2014 Urgency for ex parte action not demonstrated \u2014 \u003cstrong\u003eNatural justice\u003c/strong\u003e requires an opportunity of hearing \u2014 Interim orders set aside or modified pending full inquiry.", "Securities and Exchange Board of India Act, 1992": "\u2014 Ex parte interim orders \u003cstrong\u003e(Ss. 11(1), 11B, 11(4))\u003c/strong\u003e\u2014 Non-satisfaction of emergent necessity \u2014 Classification of timeshare membership schemes as a Collective Investment Scheme yet to be conclusively determined \u2014 Powers to be exercised sparingly in truly urgent cases \u2014 No urgency shown to justify shutting down operations without hearing \u2014 Severe interim measures without affording opportunity to be heard contravene natural justice \u2014 Whether timeshare model is covered by CIS left for final decision after proper inquiry \u2014 Impugned order set aside for lack of demonstrated emergency." } }, "summary": { "formatted_summary": "The appeals concern whether Pancard Clubs Limited\u2019s timeshare membership schemes require registration under Collective Investment Scheme regulations and whether SEBI\u2019s ex parte interim orders were justified without a prior hearing. SEBI asserted that investor interests warranted immediate intervention, while the company argued no emergent threat existed and referenced earlier indications that its activities were outside CIS rules. Multiple notices, complaints, and procedural steps followed, including alleged fabrication of a letter, comparisons to the Rose Valley matter, and the Gauhati High Court\u2019s partial stays in similar cases. The Tribunal ultimately set aside or modified the interim orders for lack of demonstrated urgency and directed a full examination on whether the timeshare model constitutes a CIS." } }