Aparesh Kumar Singh, J.Heard counsel for the petitioners, learned Senior Counsel Mr. Anil Kumar Sinha for the SEBI, learned AAG Mr. Ajit Kumar for the State, Mr. Mokhtar Khan, learned ASGI representing the Union of India, Ministry of Corporate Affairs and Mr. Pandey Neeraj Rai, learned counsel appearing for the RBI. Both the writ petitions have been preferred with a prayer to unseal the petitioners office and permit him to carry on his business without any hindrance or obstruction; further return the documents seized by the respondent district authorities of the State of Jharkhand and also to allow the petitioner no. 1 to operate its bank account. Petitioners have also made prayer for restraining the respondents from taking further coercive steps.

2. Earlier, when the matter was taken up on 20th March 2013, learned AAG appearing on behalf of the State, submitted on instruction, that the present petitioners are one of the 27 companies who were asked to furnish details about certain queries relating to their operation and on their failure to respond, their office premises were inspected and sealed in the district of Deoghar; report to that effect was also sent to various authorities including RBI as well as SEBI. In such circumstances, this court directed impleadment of the Regional Director, Reserve Bank of India and DGM, Securities and Exchange Board of India, Kolkata as party respondents and the counsel for the petitioners were allowed to make necessary correction in the body of the writ petitions during the course of the day. Notices were directed to be issued under registered cover upon the newly added respondents and additionally, through FAX by the Registry of the Court. This Court adjourned the matter for 10th of April 2013 for considering the question of unsealing of the premises of the petitioners when other similar matters were also listed. On 10th of April 2013, learned counsel appearing on behalf of the petitioners, informed that the petitioners have challenged the order dated 20th March 2013 before the Honble Supreme Court in SLP (C) Nos. 13660/13 and 13661/13 and the certified copy of the order dated 05th April 2013 passed by the Honble Supreme Court was produced before the court, which reads as under:

The High Court is expected to take up the matter on 10.4.2013 which is already fixed and pass appropriate orders.

List the matters on 15.4.2013.

3. On perusal of the order, it appeared that the order dated 20th march passed by this court had not been interfered with by the Honble Supreme Court. It however transpired upon perusal of the writ petition that though the said additions were made in the array of the respondents as directed by the order dated 20th March 2013, but they had been struck off. In these circumstances, following order was passed on 10th April 2013.

By the last order dated 20th March 2013, this Court directed addition of certain parties in the instant writ applications, for which counsel for the petitioners was allowed to make necessary correction in the body of the writ petitions during the course of the day. It appears from perusal of the writ petition that though, the said additions were made in the array of the respondents, but have been struck off. It further appears that the petitioners had challenged the instant order before the Honble Supreme Court in SLP (C) Nos. 13660/13 and 13661/13 and the following order has been passed which is quoted here under:

The High Court is expected to take up the matter on 10.4.2013 which is already fixed and pass appropriate orders.

List the matters on 15.4.2013.

Apparently, the Honble Supreme Court has not interfered with the order dated 20.03.2013. This Court in exercise of its discretionary jurisdiction in the facts and circumstances of the case, thought it proper to direct the petitioners to implead the said party.

However, in the interest of justice, counsel for the petitioners is directed to add the said parties in the main body of the writ petitions within two days, failing which the writ petitions shall stand rejected without further reference to the Bench. Learned counsel for the petitioner shall also file requisites for service of notice upon the newly added respondents within the aforesaid period of two days, as directed earlier by order dated 20th March 2013. Let notices be also sent through FAX by Registry of the Court upon the newly added respondents.

List these cases on 30th April 2013 when similar other matters have been ordered to be listed.

4. Thereafter, the matter has been taken up on 30th April 2013. In the meantime, RBI and SEBI have appeared through their respective counsel. SEBI has also filed its counter affidavit. When the matter was taken up, learned counsel appearing for the petitioners produced a copy of the judgment/order dated 15th April 2013 passed by the Honble Supreme Court in the aforesaid SLP (C) Nos. 13660/13 & 13661/13, which reads as under:

From the impugned common order it transpires that the High Court ordered that on April 10, 2013 the question of unsealing may be considered.

We are now informed that on April 10, 2013 the matters have been adjourned for April 30, 2013.

We request the High Court to pass an order one way or the other on the prayer made by the petitioners for unsealing the premises.

With the above observations, special leave petitions are disposed of.

5. In these circumstances, the writ petitions have been heard on 30th April 2013 at length and the arguments of the parties stood concluded at about 2.30 PM. Thereafter, order has been reserved since this Court was sitting in different roster in the second half and orders could not be passed immediately on conclusion of the arguments.

6. The main ground for assailing the impugned action of the respondent State authorities on the part of the petitioners is that the respondent State had no authority of law to carry out the sealing of the business premises of the petitioners. Learned counsel for the petitioners has submitted that the petitioners company is carrying on business of real estate and dealing in sale/purchase and development of properties. Since the year 2011, the petitioners have been exchanging correspondences with SEBI in respect of query made by SEBI regarding the business of the petitioner. The Circle Office, Ramgarh also had initiated inquiries on undisclosed complaints against the petitioners that it was carrying on non-banking finance business without the permission from the RBI. The petitioners had furnished all relevant informations relating to its real estate business and denied that it was carrying on non-banking finance business or was required to obtain the permission from the RBI. Thereafter, on 9th of August 2012, the Circle Officer, Ramgarh had exonerated the petitioner from all allegations. It is submitted that in December 2012, the Reserve Bank of India had issued an advertisement cautioning the member of the public not to deal with the Non-Banking Finance Company (NBFC) having no registration with the RBI. However, Deputy Commissioner, Koderma after issuance of the said notice by RBI, initiated a suo motu inquiry in relation to NBFC operating in the area without any statutory authority to do so. On 6th February 2013, the petitioners office was raided by the officials of the district administration led by the District Welfare Office and without any prior notice, searches were conducted, documents were seized and the office was also sealed with prohibitory orders restraining it from operation of its Bank account. Thereafter, the petitioners have approached this Court by way of the instant writ applications challenging the impugned action. Learned counsel appearing for the petitioners submits that in the first counter affidavit filed on behalf of the respondent officials of the state of Jharkhand on 12th March 2013, general allegations have been made in different paragraphs without any specific case of violation of any rules/regulations or enactment by the petitioners. Respondents have failed to justify their action on the touch stone of any statutory power or authority to carry out such illegal action of sealing of the premises.

7. Learned counsel further submits that another counter affidavit has been filed on 9th April 2013 by the same deponent through which respondents have sought to justify the impugned action by relying upon the provisions of section 94 of the Criminal Procedure code. Reference was made to the series of the documents annexed to the said counter affidavit in order to point out that those documents which have been annexed, relating to the complaints made on behalf of the private persons, are not authentic. He submits by referring to such letters that they have been manufactured after sealing of the premises so as to make it appear as if they have been made in the month of January 2013 instead of March 2013. Learned counsel for the petitioners submits that if the totality of such complaints are taken into account, maximum of Rs. 16.00 lakhs of such person can be alleged to be lying with the Bank which the petitioners are willing to deposit in the Court, however under protest. Learned counsel therefore submits that the action of sealing has been done by the district officials of the respondent State of Jharkhand without any authority of law and they have failed to substantiate any source of such power for taking such action. Learned counsel for the petitioners has relied upon a Judgment of the Honble Supreme Court in the case of Satwant Singh Sawhney Vs. D. Ramarathnam, Assistant Passport Officer, Government of India, New Delhi and Others, to submit that any executive action which acts to the prejudice to any person must be supported by some legislative authority which is lacking in the instant case. He has further relied upon a judgment of the Honble Supreme Court in the case of Bishambhar Dayal Chandra Mohan and Others Vs. State of Uttar Pradesh and Others, , para-27 thereof where same principle of law has been reiterated. Counsel for the petitioner has also referred to Full Bench Judgment of Delhi High court in the case of Bajaj Departmental Stores, D. Bhowmick and Others, Ms. Devender Kaur and Others and D.S. Marketing Private Limited Vs. M.C.D. and Others, Delhi 520 Full Bench. By reference to para-18 of the said judgment, it has been submitted that such an action infringes human right and also fundamental right conferred upon the person and therefore, it can be exercised only when it is specifically conferred by statute. Any deviation or departure therefore would render the action ultra vires.

8. Learned counsel for the petitioners further submits that section 94 of the Cr. PC is very specific in relation to the circumstances in which it can be exercised. In such exercise of power, the authority concern must have sufficient reason to believe of existence of the circumstances which is lacking in the present case. In any case, he submits that neither the conditions are satisfied in the present case which relate to exercise of such power, nor such provisions conceive of any such power to seal the premises. He relied upon a judgment of the Honble Supreme Court in the case of A.S. Krishnan and Another Vs. State of Kerala, in support of his aforesaid contentions.

9. Learned counsel for the petitioners further submits that the affidavit filed on behalf of SEBI also fails to justify any reason to defend the action of sealing of the business premises of the petitioners. He submits that the petitioners on his own, in the writ petitions, have annexed the show-cause notice issued by the SEBI and no interim or final order has been passed by the SEBI against the petitioners till date. It is submitted on his behalf that the reference made in para-9 of the SLP (Civil) No. 19520/12 in the counter affidavit of SEBI, has nothing to do with the petitioner. Counsel for the petitioner therefore submits that in the aforesaid facts and circumstances, the writ petitioners deserve unsealing of its business premises and further should be allowed to continue with its business and operate its Bank account. He further submits that the petitioners do not shy away from any inquiry which are being conducted or may be conducted against it by any of the statutory authority which it is ready to face.

10. Learned Senior counsel Mr. A.K. Sinha, appearing for the SEBI, has vehemently opposed the prayer of the writ petitioners primarily on the grounds that the petitioners are facing inquiry in relation to the serious violations of the provisions of the SEBI Act, 1992 for which it has been issued notices earlier vide annexure-10 dated 8th August 2011. By referring to the said letter, it is submitted that the petitioners had been asked to furnish copies of several documents indicated therein in order to enable the SEBI to examine whether the schemes operated by it are in the nature of collective investment scheme or not as it had received letters from investors alleging that the petitioners company had been running scheme in the nature of collective investment scheme. Learned Senior counsel for the SEBI, by referring to the various documents annexed to the writ petitions including Article of Association, submitted that the petitioners have been indulging in collective investment scheme without the permission of the SEBI and the petitioners company are engaged in real estate business without any authority granted by the regulatory body.

Learned senior counsel submits that on 21st November 2012, a show-cause notice was issued u/s under sections 11 and 11B of the Act of 1992 and Regulation 65 of the SEBI (Collective Investment Scheme), Regulation, 1999 categorically informing the petitioners that it has come to the notice of SEBI through investors complaints that the petitioners company have been operating scheme/plans and mobilizing funds from the investors.

11. Learned Senior Counsel once again by making reference to the contents of the said notice dated 21st November 2012, submits that the information/documents were furnished by the petitioners after several reminders and extension of time sought on their behalf. He further points out that after the analysis of the documents furnished by the petitioners, it has been clearly found that it is operating scheme in the nature of collective investment scheme which is prohibited u/s 12 of the SEBI Act unless he obtains certificate of registration from the Board in accordance with the regulation. Further, in terms of the regulation 3 of the CIS regulation, according to him, no person other than the collective investment management company which has obtained a certificate under its regulation, shall carry on or sponsor or launch a collective investment scheme. Learned Senior Counsel submits that para-16 of the said notice clearly indicates that the promoter/director or person in control of the noticee/petitioner company, were prohibited from sponsoring, causing to submit any such collective investment scheme without seeking registration from the SEBI in accordance with the CIS regulation. It is submitted that there is no such registration as mandated by section 12(1)(B) of the SEBI Act and regulation 3 of the CIS regulation. Therefore, the promoter/director/management personnel of the company who were responsible for the conduct of its business, have violated section 12(1B) of the SEBI Act and Regulation 3 of CIS Regulation which makes them liable for action in terms of the SEBI Act and CIS Regulation.

12. In view of the aforesaid facts and circumstances, the petitioners company was called upon to show cause as to why appropriate action as per provisions under sections 11 and 11(B) of the SEBI Act read with Regulation 65 of CIS Regulation should not be taken against them for the aforesaid violation. The petitioner was given 21 days time to respond to the said notice, where-after it would be presumed that he did not have any explanation to offer and SEBI shall conclude the proceeding ex-parte on the basis of the materials available on record. This show-cause notice was without prejudice to the right of the SEBI to initiate any action against any person for the aforesaid violation of the SEBI Act and Rules and Regulations made thereunder. Learned Senior Counsel submits that after the said notice dated 21st November 2012, the petitioner prayed for 60 days time vide letter dated 18th December 2012 but nothing substantive has come thereafter in spite of expiry of 60 days time and as such, it can be presumed that the petitioner had nothing more to say. It is therefore submitted that the petitioner has been indulging in luring uneducated poor investors for making investment in its company on wholly false and imaginary promise of absurd high returns in a collective investment scheme without any registration or permission from SEBI.

Learned Senior Counsel submits that the conduct of the petitioner company therefore is sufficient to show that it is not entitled to any relief under the discretionary jurisdiction of this court under Article 226 of the Constitution of India. Learned Senior Counsel has relied upon a judgment of the Honble Supreme Court in the case of P.G.F. Limited and Others Vs. Union of India (UOI) and Another, . By relying upon the opinion of the Honble Supreme Court expressed in the aforesaid judgment, learned Senior Counsel submits that the action of the present petitioner are also of the same nature as they have also been indulging in seeking investment by attractive persuasion to dupe such small time investors of their hard earned money in real estate business through a collective investment scheme. He submits that the Honble Supreme Court in the said judgment, have held that the action of the said company was wholly in the teeth of the specific provisions of 11AA of the SEBI Act and had not approached the court with clean hands. In the present case also, according to Mr. Sinha, these petitioners have committed serious violation of the SEBI Act and the SEBI is in the process of concluding the inquiry against the petitioners as they have failed to cooperate with it even after taking sufficient time. As per instruction, the final order is likely to be passed within the next 4 to 6 weeks. Therefore, he submits that if the business premises of the petitioners are allowed to be unsealed, then it would continue to indulge in such violation which are absolutely prohibited under the provisions of SEBI Act without seeking registration of SEBI. In such circumstances therefore, in exercise of writ jurisdiction, this Court should refrain from exercising its discretionary jurisdiction to grant relief to the petitioners as its conduct is not overboard. Learned Senior Counsel submits that the case of the present petitioners is quite distinguishable from the case of other persons in whose case, order of unsealing of premises have been passed by laying down specific conditions. According to him, in the said cases, only preliminary notice have been issued to such petitioners to furnish information/documents to enquire whether action of the companies are in compliance with the various statutory provisions of SEBI or its regulation and in the meantime, as per the direction of the Court, they have also been restrained from carrying out any business or enter any instrument with any prospective investor or customer. However, it is submitted that in the present case, SEBI has come to a specific finding that the scheme run by the petitioners are in the nature of collective investment scheme as conceived u/s 11AA of the SEBI Act, 1992 and are being run without prior permission of the Board in specific violation of the statutory provisions of SEBI Act, 1992. Therefore, the present petitioners do not deserve to be granted similar relief as in the case of other petitioners.

13. Learned Senior counsel for the SEBI has relied upon a judgment dated 2nd April 2013 passed in the case of Sunplant Agro Limited vs. The State of Jharkhand & other in WPC No. 1234/2013 and analogous cases and submits that this Court had refused to exercise its discretionary jurisdiction in favour of those petitioners against whom SEBI have issued direction to wind up their business and to ensure refund of the investors money within a period of three months.

14. Learned counsel appearing on behalf of the State supports the argument advanced on behalf of the SEBI. By relying upon findings recorded in the show-cause notice dated 21st November 2012, counsel for the State also submits that the State authorities have taken preemptive action on repeated complaints received from poor investors alleging that the petitioner company has been indulging in fraudulent deals by making false assurances of wholly imaginary returns upon small time investment made by such poor person in respect of lands/real estate. In such circumstances, the State authorities have acted to protect the interest of the poor investors by sealing the business premises of the petitioners who has been carrying on such activity in violation of the SEBI Act, 1992 admittedly. SEBI has also came to a definite finding that the petitioner is running a collective investment scheme without having registration with the SEBI. Therefore, the petitioner is not entitled to any discretionary relief from this Court.

15. Learned counsel for the petitioner, in reply, submits that the notice dated 21st November 2012 relied upon by the petitioner is only a show-cause notice and no interim order or final order has been passed against the petitioner till date restraining it from carrying out any activity.

16. I have heard learned counsel for the parties at length and gone through the relevant materials on record.

17. The petitioners have approached this Court against the impugned action of the respondents in sealing its business premises and prohibiting it from operating its Bank account. It appears that a public notice was issued by the Reserve Bank of India on 2nd December 2012 that it has received several complaints in relation to the companies which have been accepting deposits from public in a illegal and irregular manner without being registered with the Reserve Bank of India. It further appears that on receiving several complaints of increasing operations of number of companies including Non Banking Finance Company in the State of Jharkhand, the district officials constituted a team of officials and raided the premises of number of companies. In such circumstances, the district officials in a number of districts like Deoghar, Dhanbad and other places, conducted search of the business premises of several companies and sealed the business premises of such companies including that of the petitioners. The petitioner company being aggrieved by such acts of sealing, preferred the present writ applications for unsealing of the premises and other consequential reliefs. As already indicated in the earlier part of this order, when it was brought to the notice of the court that inspection report in respect of the sealing of the such company like the petitioner have also been communicated to the RBI and SEBI for taking consequential action, this Court considered it just and proper to direct impleadment of the RBI and SEBI as party respondents in the instant writ applications as also in other such writ applications as they were the regulating bodies which were under the statutory mandate to regulate the affairs of such companies and/or grant registration/permission for carrying such business activities. They are also responsible to enquire into the affairs of such companies to ascertain whether they are violating the provisions of such statute like SEBI Act, Companies Act, the RBI Act and such other allied Act and the Rules/Regulations/Guidelines framed thereunder.

18. In the instant case, as already indicated herein above, on being noticed, SEBI, RBI and Ministry of Corporate Affairs have appeared. It has been vehemently argued and pointed out on behalf of SEBI that the petitioner has been found to have been running a collective investment scheme without seeking registration from SEBI in accordance with the CIS Regulations. The petitioner company was also prohibited from carrying on such collective investment scheme without seeking registration from SEBI in accordance with the SEBI Act and CIS Regulations. A perusal of the show-cause notice dated 21st November 2012 issued u/s 11 and 11(B) of the SEBI Act, 1992 and Regulation 65 of the SEBI (Collective Investment Scheme) Regulation, 1999 (Referred to as CIS Regulation) against the petitioner company, reveals that the petitioner had been repeatedly issued notices from August 2011 for furnishing copies of documents regarding its operations in order to examine whether the schemes operated by the company are in the nature of Collective Investment Scheme or not, as the SEBI had received complaints from number of investors that the petitioner have been running schemes which are in the nature of Collective Investment Scheme. The petitioner company sought time for submitting copies of certain documents and took the stand that the notice issued upon it by SEBI was without jurisdiction as the noticee has not been running any scheme in the nature of Collective Investment Scheme and is aware of the SEBI Act, 1992 and CIS Regulations of 1999 and its business operations are not covered under the provisions of either of the said Act or Regulations. The petitioner company is engaged in the business of development of Real Estate and its main object is to render service to the person who are interested in purchasing the land from the company and having the same developed/worked/controlled/supervised by it for diverse period of time. On further information sought from the company on account of incomplete information furnished, time was again sought for in February 2012 by the petitioner company and on March 01, 2012. Again vide letter dated April 18, 2012, company was advised to provide copies of the registered sale deeds, filled up application forms, etc. and also to explain the discrepancies observed in the information furnished earlier. Thereafter, certain more copies of certificates of properties issued to the purchasers of land, were submitted. Thereafter, information/documents furnished by the petitioner company were analyzed by the respondent SEBI. These documents were categorized into several categories such as (i) Registered indentures/Conveyance deeds (ii) Application forms (iii) Special Power of Attorneys (iv) Indenture (v) Agreement. Based upon the analysis of the aforesaid documents in light of the provisions of section 11AA of the SEBI Act, the SEBI has come to the following findings:

10. In the case of Noticee No. 1, it is noted that Noticee No. 1 is accepting money from investors in the form of payment for land and its development. In the application form, it is mentioned that the applicant is applying for undivided interest in the land situated in the state of Madhya Pradesh. The area of land, location of land or the price of land is not mentioned in the application form. Indenture states that the purchaser shall not be entitled to claim division and/or partition of the proportionate undivided interest and shall continue to hold and enjoy the same with its co-owners without any objection. It is clear from above that Noticee No. 1 is collecting money from investors and is purchasing large plots of land and is developing the same. Noticee No. 1 is not even allotting a specific part of the plot to the investor. Only an undivided interest is being assigned to each investor. Viewed in any manner, it is clear that in the business transactions, Noticee No. 1 accepts "contributions" from customers/investors, for collective utilization and further, that the Noticee No. 1 pools investments made by customers/investors, with the aim/object of carrying out the overall scheme/arrangement. Each customer/investor (insofar as the business activities carried out by Noticee No. 1) is a recipient of agricultural land i.e. "property". It is, therefore apparent that each customer/investor of the Noticee No. 1 is admittedly is recipient of one of the benefits i.e. "property".

11. Noticee No. 1 has stated that it merely "supervises" and "develops" at the option of its customers/investors the agricultural piece of land sold to them. In this arrangement a customer/investor has practically no accessibility to the agricultural land purchased by him. It is practically impossible for him to carry on agricultural or development activities on the land purchased by him. The basic requirement of agricultural activities which includes irrigation and drainage facilities along with ancillary inputs are to remain perpetually under the control of Noticee No. 1, it is also practically impossible for any customer/investor to have a day to day control over the agricultural land purchased by him. The aforesaid facts leads to the conclusion that the agricultural land purchased by a customer/investor is managed on his behalf by Noticee No. 1 and that investors/customers do not have day control over the agricultural land purchased by him.

12. It has been noted that in the scheme/arrangement of development of proportionate undivided share of land offered by Noticee No. 1, investors are required to make contribution in the form of payment as per the payment plans opted. Such plot/land purchased by investors, are maintained and developed by the Noticee No. 1 and are used for the purposes of the scheme/arrangement. The contribution made in the form of payment for plot/land by the investors is managed by the Noticee No. 1 on behalf of the investors as custodian. Also investors do not have any day to day control over the scheme/arrangement as the investor hands over the sale deed to Notice No. 1 and also gives special power of attorney to Noticee No. 1 to develop and maintain the plot. Also the produce (s) are also the properties of the Noticee No. 1 managed and disposed by the Noticee No. 1 without any interference from investors.

13. As per the Balance Sheet of AIRL for the year ended March 31, 2011, an amount of Rs. 203 Crore is being shown as Advance against land and Rs. 884 Crore as advance against development charges. The corresponding figures for year ended March 31, 2010 were Rs. 83 Crore & Rs. 365 Crore, respectively. The advances against land and development charges appears to be the deposits taken from customers. Thus AIRL has mobilized funds to the tune of Rs. 630 Crs in the year 2010-11 and have total mobilization of Rs. 1,087 crores.

14. From the aforesaid facts and circumstances it emerges that Schemes of Noticee No. 1 have the element of pooling of resources from investors, profit expectation by investors, management of schemes by Noticee No. 1 on behalf of investors and no day to day control of investors. Presence of all these elements suggests that the scheme/arrangement being operated by the Noticee No. 1 is a collective investment scheme as defined u/s 11AA of the SEBI Act.

15. Since the scheme/arrangement run by the Noticee No. 1 appears to be a collective investment scheme, your attention is drawn to the provisions of section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations, which provide as under:

Section 12 of SEBI Act:

(1B) No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment schemes including mutual funds, unless he obtains a certificate or registration from the Board in accordance with the regulations:

Provided that..........

Regulation 3 of CIS Regulations:

No person other than Collective Investment Management Company to launch scheme

3. No person other than a Collective Investment management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme.

16. As is evident from the above quoted Section 12(1B) of the SEBI Act, promoters/directors/persons in control of the Noticee No. 1 were prohibited from sponsoring/causing to sponsor any such collective scheme without seeking registration from Securities and Exchange Board of India (SEBI/Board) in accordance with CIS Regulations. Further, Noticee No. 1 was also prohibited from carrying on such collective scheme, without seeking prior registration from Board, in accordance with CIS Regulations. In the case of Noticee No. 1, it has been noted that there is no such registration with the Board as mandated by Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. Therefore, Noticee Nos. 1 i.e. company and Noticee Nos. 2 to 6 i.e. past and present Promoters/directors/key management personnel, of Noticee No. 1 and thus responsible for the conduct of the business of the Noticee No. 1, have violated Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations which makes them liable for actions in terms of SEBI Act and CIS Regulations (underline added not part of original text)

17. In view of all the aforesaid facts and circumstances, Noticee No. 1 to 6 herein are hereby called upon to show cause as to why appropriate action including directions under Sections 11 and 11B of the SEBI Act read with Regulation 65 of the CIS Regulation, should not be issued against all of them for the aforesaid violations.

19. A perusal of the aforesaid finding arrived at by the SEBI, unequivocally point out that the petitioner company has been carrying out a collective investment scheme without prior registration of the Board in accordance with CIS Regulations. In such circumstances, it has been called upon to show-cause as to why appropriate action including the directions under sections 11 and 11B of the SEBI Act read with Regulations 65 of the CIS Regulations should not be issued against all of them for the aforesaid violations. The petitioner was granted 21 days time to reply to the show-cause notice, thereafter, if it had no explanation to offer, SEBI would be free to conclude the proceeding ex-parte. The petitioner company apparently, as has been stated by SEBI, have failed to respond within the time of 60 days of such show-cause notice. In the meantime, the petitioner company has continued with its business activities.

20. The instances of violations of provisions of RBI Circular/guidelines/SEBI Act by number of companies including the petitioner company came to the notice of the district officials of the respondent State. In such circumstances, the premises of the petitioner company was also raided and they were also sealed. Such companies like the petitioner were asked to furnish specific replies to the questionnaire relating to the nature of its business, account, deposits, investment being received by them; Whether they have obtained statutory permission from the RBI and SEBI to conduct such business activities; They were further asked to submit a number of documents such as rate of interest which is being promised to the investors, Article of Association, deposits made by investors/deposit certificates, registration forms with Registrar of Companies, RBI and SEBI, statement of accounts, etc. It was found that a number of companies had failed to furnish such documents including the petitioner. In such circumstances, the respondent district officials of the State came to a conclusion that such companies like the petitioner company have been carrying out its business activities without proper compliance of statutory law like SEBI Act or RBI Act/guidelines. Copies of such inspection report were sent to the RBI as well as SEBI which is also annexed to the counter affidavit of the respondent State. The petitioner company failed to submit adequate answer to such questionnaire and did not furnish the documents which were sought for.

21. The finding which have already been arrived at during the course of inquiry conducted by the SEBI, clearly demonstrate that the business activities being carried out by the petitioner company, are in the nature of collective investment scheme which has been specifically prohibited under the SEBI Act and CIS Regulations. There are no averments in the writ petition that after issuance of the show-cause notice dated 21st November 2012 the petitioners are not indulging in carrying out such business activities in the nature of collective investment scheme which are prohibited under the relevant provisions of the SEBI Act without seeking prior registration from the Board. During the course of argument, learned counsel appearing on behalf of the petitioner submitted that the petitioner is ready to return the investors money, however it is unable to do so because its business premises are lying sealed.

22. Learned Senior counsel appearing on behalf of SEBI, on the other hand, has made a categorical statement that the inquiry against the petitioner is in the process of conclusion and final order in that regard are going to be passed within the next four to six weeks.

23. In the case of other companies, respective respondents like SEBI, RBI and Ministry of Corporate Affairs have also appeared on notice. However, in the said cases, in respect of some of the companies, it has been stated on behalf of SEBI that notice have been issued to such companies to submit documents and papers relating to the business activities of such companies so as to ascertain whether they are indulging in business activities which require compliance of SEBI Act and its Regulations. Therefore, the Regulatory bodies like SEBI, RBI, Registrar of Companies and the Department of Co-operative Society have been directed to conduct an enquiry in the affairs of the said companies within a specific time frame. The said companies have been restrained from carrying out any business activity or entering into any instrument during the said period and subject to orders passed by the statutory regulatory bodies. The official Liquidator has been directed to prepare an inventory of seized materials, documents, books and papers with the aid of the district administration in the presence of representative of the respective companies and keep it in safe custody. In such circumstances, direction has been issued to unseal the premises of such companies subject to the conditions and restraints laid down therein in order to protect the interest of the investors/customers, to ensure that the affairs of those companies are enquired into by the regulatory bodies within a time frame and thereafter, on grant of clearance/NOC by such statutory bodies or subject to such conditions/orders as may be passed, such companies may be allowed to carry on their business activities thereafter.

24. In the present case however, as it would appear from the findings recorded by the SEBI in the show-cause notice, extracts of which have been quoted herein-above, the petitioner company have been found to be violating the specific provisions of the SEBI Act and CIS Regulations by operating an arrangement/scheme in the nature of a collective investment scheme as defined u/s 11AA of the SEBI Act. Therefore, it has been asked to show-cause as to why appropriate action under sections 11 and 11B of the SEBI Act read with Regulation 65 of the CIS Regulation be not issued against the petitioner and other directors for the aforesaid violations. Instead of responding to the notice, the petitioner has been continuing its business activities which are found to have been prohibited by the SEBI.

The Honble Supreme Court in the case of P.G.F. Ltd. (Supra), while considering the case of the appellant company therein, held that the activity of the PGF Ltd. Namely sale and development of agricultural land squarely fall within the definition of collective investment scheme u/s 2(ba) along with section 11AA (2) of the SEBI Act. In the said case, the Honble Supreme Court also observed that on many occasions, frivolous challenges are also made to constitutionality of the provisions so as to prolong the litigation which enables such unscrupulous elements to thrive on other peoples money to gain advantage of the pendency of such litigation to the disadvantage of innocent victim and gain unlawful enrichment of ill-gotten money by defrauding others. The Honble Supreme Court upheld the Constitutional validity of section 11AA of SEBI Act inserted by Securities Law (Amendment) Act, 1999 and also proceeded to impose a cost of Rs. 50.00 lakhs. Various directions were also passed in relation to the inspection/inquiry/investigation/refund of investors money.

In the background of the aforesaid facts and circumstances and the fact that the petitioner has been found to be indulging in inviting investment in collective investment scheme in violation of the specific provisions of SEBI Act and CIS Regulations, this Court in exercise of its discretionary jurisdiction, does not consider it proper to direct unsealing of the premises of the petitioner, at this stage. However, the respondent SEBI is directed to conclude the inquiry and pass order in respect of the same which is said to be at the final stage, within a period of six weeks from the date of receipt of copy of this order, however without being influenced by any observations made hereinabove.

Needless to say, if the petitioner is aggrieved by such orders passed by SEBI or any other regulatory authority, it would be open for it to challenge the same in accordance with law before the appropriate forum.

The writ petition is disposed of with the aforesaid observations and directions.