BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER

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1 WTM/PS/75/CIS-NRO/LKO/OCT/2015 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999 and Regulation 4(2) (t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 In the matter of Raghav Capital and Infrastructure Limited In respect of: 1. Raghav Capital and Infrastructure Limited [PAN: AAECR1541A], 2. Mr. Raj Kumar Raghav [PAN: AJIPR8427K], 3. Ms. Nirmala Raghav [PAN: AHWPN9045M and 4. Ms. Ritu Verma [PAN: AGPPV1332D] Date of Hearing: May 08, 2015 Appearance: For Noticees: Mr. Rajkumar Raghav, Director, Mr. Sushil Kumar and Ms. Khushboo Agarwal, both employees of Raghav Capital and Infrastructure Limited For SEBI: Mr. Mohd. Atif Alvi, Deputy General Manager Mr. Pradeep Kumar, Assistant General Manager Mr. Arun Kumar Shukla, Assistant Manager. 1. Securities and Exchange Board of India (hereinafter referred to as SEBI ) had, vide an interim ex-parte Order dated November 24, 2014 ( the interim order ), prima facie found that one Raghav Capital and Infrastructure Limited (hereinafter referred to as the Company or Raghav ) is engaged in fund mobilizing activities from the public, which is in the nature of a Collective Investment Scheme (hereinafter referred to as 'CIS') as defined in Section 11AA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act ), without obtaining a certificate of registration from SEBI as required under Section 12(1B) of the SEBI Act and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as the CIS Regulations ). The mobilization of funds from the public, was also prima facie found to be a fraudulent practice in terms of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Page 1 of 11

2 Unfair Trade Practice Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations ). 2. The interim order was issued in order to protect the interest of investors, safeguard the assets/ property acquired by the Company by using the funds collected from the investing public and also to prevent the Company from further carrying on with its existing fund mobilizing activities through the alleged CISs. The said interim order directed Raghav and its directors namely Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma (hereinafter collectively referred to as the noticees ): i. not to collect any fresh money from investors from its existing "schemes": ii. not to launch any new schemes or plans or float any new companies to raise fresh moneys; iii. to immediately submit the full and detailed inventory of the assets including land owned by RCIL through money raised by RCIL; iv. not to dispose of any of the properties or alienate properties/assets obtained directly or indirectly through money raised by RCIL; v. not to divert any funds raised from public at large, kept in bank account(s) and/or in the custody of RCIL; vi. to furnish the scheme-wise list of "applicants"/investors, their contact numbers and addresses along with the details of amount mobilized till date. The aforesaid directions came into force with immediate effect and the noticees were advised to file their reply within a period of twenty one (21) days from the date of receipt of the interim order and also to indicate whether they wish to avail an opportunity of personal hearing in the matter. 3. The interim order was forwarded to the Company and its directors vide letters dated November 27, The letter issued to the Company was duly delivered at one of the available addresses. As regards the letters issued to the directors of the Company Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma, the same were returned undelivered. SEBI vide letter dated December 15, 2014, forwarded the copies of the inteirm order to the Company for onward delivery of these to Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma. Thereafter, on December 19, 2014, the noticee namely Mr. Raj Kumar Raghav visited the SEBI Local Office at Lucknow and acknowledged that the interim order was received by himself and the Company and undertook orally to submit the acknowledgement for the other noticees i.e. Ms. Nirmala Raghav and Ms. Ritu Verma. Page 2 of 11

3 4. Before proceeding further, SEBI granted an opportunity of personal hearing to the Company and its directors on May 08, An intimation regarding the same was sent to all the noticees vide letters dated April 07, A reminder in this regard dated April 20, 2015 was also sent to the noticees. On the date fixed for the personal hearing, the noticee namely Mr. Raj Kumar Raghav appeared on his behalf as well as for other noticees also along with the two employees of the Company namely Mr. Sushil Kumar and Ms. Khushboo Agarwal and made oral submissions. 5. Thereafter, the Company vide its letter dated May 14, 2015, submitted the details as asked vide the interim order and other details i.e. the details of the investors, immovable properties of the Company, directors of the Company and copies of the application form of the investors. Raghav also submitted the balance sheets and profit and loss accounts for the financial year and on June 08, The Company provided the details of schedule of unsecured loan on June 10, I have considered the interim order issued in the matter and the material available on record. The main allegation as against Raghav is that the plans/ schemes operated by it were in the nature of CIS and that the Company was offering these schemes without obtaining registration from SEBI in contravention of the provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations read with Section 11AA of the SEBI Act. The directors of Raghav were also alleged to be responsible for the illegal conduct of the business of the Company. The issue that now arises for my consideration is: Whether Raghav was operating a CIS without obtaining registration from SEBI? 7. Whether Raghav was operating a CIS without obtaining registration from SEBI? a. I note that the Company was incorporated on October 30, 2008 as Raghav Capital Index Securities Private Limited. On October 18, 2010, the name was changed to Raghav Capital and Infrastructure Limited and new certificate of incorporation was issued to it on November 11, b. As per the sample brochure provided by Raghav vide its letter dated February 28, 2014, it had various schemes/ plans i.e. Monthly Installment Scheme, Daily Page 3 of 11

4 Installment Scheme and One Time Payment Scheme. These schemes have been elaborately discussed in the interim order. A sample of such schemes/ plans have been brought out below: S. No. TABLE - A Monthly Installment Scheme Area of Booking Time period and installment amount Total plot Adjusted Plan plot amount amount ( ) amount ( ) number 1 50 yard 3, months = 30,000 ( 500 per month * 60 months) ,000 M yard 3, months = 57,000 ( 950 per month * 60 months) 60,000 80,250 M yard 2, months = 1,07,100 ( 1275 per month * 84 months) 1,10,000 1,60,000 M yard 3, months = 1,26,900 ( 1175 per month * 108 months) 1,30,000 2,10,000 M200 TABLE - B Daily Installment Scheme S. Area of Booking Time period and installment amount Total plot Adjusted Plan No. plot amount amount ( ) amount ( ) number yard 3, months = 56,700 ( 30 per day *30 days*63 months) 60,000 80,000 D yard 2, months = 56,700 ( 40 per day *30 days*48 months) 60,000 72,000 D481 S. No. Area of plot Lumpsum plot amount TABLE - C One time Installment Scheme Adjusted amount 5yrs 11 months Adjusted amount 7yrs 10 months Adjusted amount 9yrs 9 months Adjusted amount 14yrs 8 months Plan number 1 25 yard 12,500 25,000 31,250 50,000 87,500 S yard 25,000 50,000 62,500 1,00,000 1,75,000 S yard 50,000 1,00,000 1,25,000 2,00,000 3,50,000 S yard 75,000 1,50,000 1,87,500 3,00,000 5,25,000 S yard 1,00,000 2,00,000 2,50,000 4,00,000 7,00,000 S 200 It is seen that the schemes/ plans of the Company were for different time periods, and the installments were in the range of 30 per day to 3,100 per month and the said plans had also provided the adjusted amount. c. I have perused the terms and conditions from the brochure, the reverse side of the application form and the receipt cum certificate for the scheme namely RCI SAI Greens of the Company. The clauses thereof are similar and are as under: 3. In the event the applicant does not take the plot, he will be returned with the shown adjusted value at the end of the term. 7. The plot will be allotted after 15 days of issuance of land allotment letter in one time installment scheme. 10. The maximum duration of developing agricultural land into residential scheme will be 3 5years. 12. The Company reserves the right to make any change in the residential/ commercial plot. 14. Before receiving the original registration letter all the receipts/ other documents, if any, have to be deposited with the Company. If any document is not there, then for the same an affidavit need to be submitted. Page 4 of 11

5 15. Before initiating any construction on the allotted land, No Objection Certificate ('NOC') will be required from the Company. 16. If for any reason, the Company fails to provide land/plot to applicant under the project scheme for which investor has applied, the Company will provide plot to applicant in any other project scheme of company as per mutually agreed terms. Applicant have to return previous papers to company and papers pertaining to new plot will be issued to applicants. d. I have seen the sample application form provided by the Company which is a preprinted document asking for the details of the applicant, PAN, address details, contact number, booking amount, installment amount, location, area of the plot, plan number, details of payment, etc. From the sample executed application forms as submitted by the Company, it is noted that the location of the land is not mentioned. e. Another document is agreement letter, the same is also a pre-printed document with blanks for the name and address of the investor. The clauses of the agreement are almost similar to the terms and conditions as noted on the reverse of the brochure and the application form. It is noted that this document also does not mention about the plot details. f. I have seen the list of investors as submitted by the Company vide its letter dated May 14, 2015 and note that the Company has 358 investors and the amount mobilised is 26,13,600. g. From the discussion above, it is observed that Raghav was inviting applications from the customers/ investors for obtaining plot under its various schemes. I also note the following: i. Raghav guaranteed assured returns on completion of the term as more specifically mentioned in the brochure as 'adjusted amount'. ii. The details of the land are not provided to the investors. iii. No sale deed has been executed by the Company in favor of the investors. From the observations as noted above, it can be inferred that the transactions of the Company were not in the nature of real estate transactions rather it can be said to be an investment scheme. h. Having considered the above, now I proceed to deal with the charges levelled against Raghav. According to the definition, CIS means any scheme or arrangement which satisfies the conditions specified in Section 11 AA of the SEBI Act, which provides as under: Page 5 of 11

6 "(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or subsection (2A) shall be a collective investment scheme: Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme. (2) Any scheme or arrangement made or offered by any person under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day to day control over the management and operation of the scheme or arrangement. (2A) Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act. (3) Notwithstanding anything contained in sub-section (2) [or sub-section (2A)], any scheme or Arrangement: i. made or offered by a co-operative society ii. under which deposits are accepted by non-banking financial companies iii. being a contract of insurance iv. providing for any scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund v. under which deposits are accepted under section 58A of the Companies Act, 1956 vi. under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society vii. falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982(40 of 1982); viii. under which contributions made are in the nature of subscription to a mutual fund; ix. such other scheme or arrangement which the Central Government may, in consultation with the Board, notify, shall not be a collective investment scheme." The term securities in section 2(h) of the Securities Contracts (Regulation) Act, 1956 was amended vide the Securities Laws (Amendment) Act, 1999, w.e.f. February 22, 2000, to include units or any other instrument issued by any collective investment scheme to the investors in such schemes. i. Let me now, proceed to test the characteristics of the impugned schemes/ plans floated and carried on by the Company against the four conditions under Section 11AA(2) of the SEBI Act. i. The first condition is that the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement. The Company had invited its customers to subscribe to one of the plans offered by it for the purchase of land. Raghav took the contribution/ investments of the Page 6 of 11

7 investors/ customers in accordance with its plans/ schemes as detailed above, for the purchase of plot. It is noted that even after the receipt of full payment, in one time installment scheme, unidentified land is only agreed to be allotted to the customer. The Company has not submitted any document to show that it had allotted specific plot or it provided the details of the plot to the investors. The list of investors as provided by the Company vide its letter dated May 14, 2015, contains the unit/ plot details which appears to be an internal number of Raghav and does not give any specific detail about the land/ plot. In view of the same, it can be said that no land was identified and demarcated to be sold by Raghav. Further, the 'terms and conditions' stated in the brochure, application form, receipt contains no mention as to when the sale deed will be executed in favour of the investors/ customers and actual possession of the plot will be handed over. In view of the same, it can be said that Raghav collects the moneys from the investors and the same remains with the Company. These are sufficient to show that the 'contributions, or payments made by the investors, are pooled and utilised by Raghav for the purposes of the scheme or arrangement', the scheme being to accept contributions/ payments in the name of sale of land/ plot. Thus, satisfying the first condition as stipulated in Section 11AA(2)(i) of the SEBI Act. ii. iii. The second condition is that the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement. As discussed above, the investors had made payments towards the schemes/ plans promoted by Raghav. The brochure of the Company had itself assured the investors of 'adjusted value' which meant nothing but profits as detailed in Table A, B and C above. The same makes it clear that the investors made contribution/ payment with a view to receive the profits/ income/ property/ return on their investments that may accrue to them as applicable, thus attracting the second condition as stipulated in Section 11AA(2)(ii) of the SEBI Act. The third condition is that the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors. The fourth condition is that the investors do not have day to day control over the management and operation of the scheme or arrangement. In this regard, I note that the investors of Page 7 of 11

8 Raghav were not provided with the specific/ identified plot details. In the plans of Raghav, the investor has the option of deciding only the scheme and the term thereof. The investor has no role in the acquisition or development/ management of the land. Raghav had retained the right to make changes in residential/ commercial land/ plot. The same makes it clear that the contribution, investment and property, if any, pertaining to the schemes/ plans were managed by the Company. Further, the provision for obtaining 'no objection certificate' from the Company for the purposes of construction indicates the total authority of the Company over the subject plot(s). In view of the same, it can be said that the investor/ customer does not get any day to day control over the management and operation on the plot of land. Such day to day control over the management and operations of the schemes were also looked after by the Company and its directors. j. As all the four conditions specified under Section 11AA(2) of the SEBI Act are satisfied in this case, the schemes/ plans promoted, launched, carried on and operated by the Company are in the nature of CIS in terms of Section 11AA(1). In this regard, I place my reliance on the observations of the Hon'ble Supreme Court, made in the matter of PGF Limited & Ors. Vs. Union of India & Anrs. (Civil Appeal No of 2004): as per the agreement between the customer and the PGF Limited, it is the responsibility of the PGF Limited to carry out the developmental activity in the land and thereby the PGF Limited undertook to manage the scheme/arrangement on behalf of the customers. Having regard to the location of the lands sold in units to the customers, which are located in different states while the customers are stated to be from different parts of the country it is well-neigh possible for the customers to have day to day control over the management and operation of the scheme/arrangement. In these circumstances, the conclusion of the Division Bench in holding that the nature of activity of the PGF Limited under the guise of sale and development of agricultural land did fall under the definition of collective investment scheme under Section 2(ba) read along with Section 11AA of the SEBI Act was perfectly justified and hence, we do not find any flaw in the said conclusion therefore, hold that Section 11AA of the SEBI Act is constitutionally valid. We also hold that the activity of the sale and development of agricultural land squarely falls within the definition of collective investment scheme under Section 2(ba) read along with Section 11AA (ii) of the SEBI Act Section 12(1B) of the SEBI Act mandates that no person, shall sponsor or cause to be sponsored or carry on or caused to be carried on any CIS unless it obtains a certificate of registration from SEBI in accordance with the CIS Regulations. The Company has clearly failed to do so. Regulation 3 of the CIS Regulations provides that no person Page 8 of 11

9 other than a Collective Investment Management Company which has obtained a certificate under the said regulations shall carry on or sponsor or launch a 'CIS'. A person can launch or sponsor or cause to sponsor a CIS only if it is registered with SEBI as a Collective Investment Management Company. Therefore, the launching/ floating/ sponsoring/ causing to sponsor any 'collective investment scheme' by any 'person' without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. I note that Raghav launched CIS without obtaining certificate of registration from SEBI, thus contravened the provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. Further, by mobilising public funds through CIS without obtaining registration from SEBI as required under Section 12(1B) of the SEBI Act read with Regulation 3 of the CIS Regulations, the Company has contravened the provisions Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, I note that the interim order was issued against the Company and its directors namely Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma. As per details available at 'MCA 21' portal of Ministry of Corporate Affairs (accessed on August 10, 2015), Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma are the present directors of the Company. These persons are continuing as directors of the Company and are responsible for carrying on the unregistered CIS activities. Therefore, I have no hesitation in holding that Raghav and its directors namely Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma were engaged in the illegal fund mobilising activity by floating/ sponsoring/ launching, unregistered/ unauthorised CIS, as defined in the Section 11AA of the SEBI Act. 10. In view of the observations made in this Order, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 and Sections 11(1), 11B and 11(4) thereof and Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, hereby issue the following directions: a. Raghav Capital and Infrastructure Limited [PAN: AAECR1541A] and its directors namley Mr. Raj Kumar Raghav [PAN: AJIPR8427K], Ms. Nirmala Raghav [PAN: AHWPN9045M] and Ms. Ritu Verma [PAN: AGPPV1332D] shall abstain from collecting any money from the investors or launch or carry out Page 9 of 11

10 any Collective Investment Schemes including the scheme which have been identified as a Collective Investment Scheme in this Order. b. Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma shall wind up the existing Collective Investment Schemes and refund the money collected by the said company under the schemes with returns which are due to its investors as per the terms of offer within a period of three months from the date of this Order and thereafter within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds. c. Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma shall not alienate or dispose off or sell any of the assets of Raghav Capital and Infrastructure Limited except for the purpose of making refunds to its investors as directed above. d. Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form. e. Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of four (4) years. f. In the event of failure by Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma to comply with the above directions, the following actions shall follow: - Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma shall remain restrained from accessing the securities market and would further be prohibited from buying, selling or otherwise dealing in securities, even after the period of four (4) years of restraint imposed in paragraph 10(e) above, till all the Collective Page 10 of 11

11 Investment Schemes of Raghav Capital and Infrastructure Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them. - SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against Raghav Capital and Infrastructure Limited, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and - SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the company, Raghav Capital and Infrastructure Limited. - SEBI shall initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder. 11. This Order shall be without prejudice to the right of SEBI to initiate prosecution proceedings under Section 24 and adjudication proceedings under Chapter VIA of the Securities and Exchange Board of India Act, 1992 against Raghav Capital and Infrastructure Limited and its directors namley Mr. Raj Kumar Raghav, Ms. Nirmala Raghav and Ms. Ritu Verma, including other persons who are in default, for the violations as found in this Order. 12. This order shall come into force with immediate effect. 13. Copy of this Order shall be forwarded to the stock exchanges and depositories for necessary action. Date : October 19 th, 2015 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Page 11 of 11