WTM/PS/21/CIS/ERO/DEC/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER IN RESPECT OF MPS GREENERY DEVELOPERS LIMITED Under Sections 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulations 65 and 73 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') received an application dated March 10, 2000 from one MPS Greenery Developers Limited (hereinafter referred to as 'MPS') for the grant of the certificate of registration under the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as 'CIS Regulations'). Upon noticing that MPS was not complying with the circulars issued for regulating Collective Investment Schemes, SEBI issued an order dated September 03, 2002 (hereinafter referred to as the 'first order') directing MPS to comply with the requirements of Regulation 73 of the CIS Regulations, wind up its existing schemes and make repayments to the investors. The application for registration was also rejected vide this order of SEBI. 2. MPS had filed a Writ Petition no. 1971/2002 before the Hon'ble High Court at Calcutta, challenging the first order of SEBI. The Hon'ble High Court vide an interim order dated September 24, 2002, directed both the petitioner and the respondents to maintain status quo in respect of the affairs and functioning of MPS. SEBI noticed that MPS continued to raise funds from the schemes in violation of the status quo order of the Hon'ble High Court at Calcutta. Therefore, SEBI filed a Contempt Petition on January 31, 2007, against the failure of MPS to comply with the order of the Hon'ble High Court at Calcutta. While this Contempt Petition was pending, the Writ Petition no. 1971/2002 of MPS was disposed off by the Hon'ble High Court at Calcutta vide an order dated June 25, 2009, holding, interalia as under: "... Since the propriety of the order has not been gone into, the writ petitioners are permitted to furnish their best documents to SEBI within a period of four weeks from date for SEBI to reconsider the matter and revisit the issue as to whether the registration as sought by the petitioner company can be granted. The petitioners would be required to satisfy SEBI that the deposits obtained by the petitioners till date are secured and protected and that such funds have been deployed reasonably and keeping the interests of the depositors in mind.... Page 1 of 10
The interim order of September 24, 2002 stands vacated. The embargo imposed on the company by SEBI's order of September 03, 2001 will remain in force till SEBI reconsiders the matter..." 3. Pursuant to this, MPS had filed an appeal against the aforesaid order dated June 25, 2009, before the Division Bench of the Hon'ble High Court at Calcutta. However, the said appeal was dismissed as not pressed on August 26, 2009, since the appellants did not wish to proceed with the appeal. 4. Thereafter, MPS filed another application before SEBI for registration. The said application of MPS was considered by SEBI and a 'Provisional Registration' was granted to MPS under the provisions of Regulation 70(1) read with the Regulation 71(1) of the CIS Regulations. SEBI intimated MPS about the grant of Provisional Registration vide its letter dated August 21, 2009. In the said letter, SEBI instructed MPS not to launch any new scheme or raise money from the investors even under the existing scheme, till a certificate of registration is granted by the Board under Regulations 10 and 69 of the CIS Regulations. The said letter also mentioned that the Provisional Registration granted to MPS, is subject to the compliance of various conditions stipulated in Regulation 71 of the CIS Regulations. Such conditions for the Provisional Registration for MPS were as under: "a)... shall get your existing scheme(s) rated by a credit rating agency within two years from the date of grant of Provisional Registration; b)... shall get your existing scheme(s) audited by an auditor within a period of two years from the date of grant of Provisional Registration; c)... shall get your existing scheme(s) appraised by an appraising agency within a period of two years from the date of grant of Provisional Registration; d)... shall create a trust and appoint trustees in the manner specified in Chapter IV of the captioned Regulations within a period of two years from the date of grant of Provisional Registration; e)... shall comply with accounting and valuation norms, in respect of your existing scheme(s), as specified in Part-II of the Ninth Schedule to the captioned Regulations within a period of two years from the date of Provisional Registration; f)... shall meet the minimum net worth of Rupees one crore within one year from the date of grant of Provisional Registration which shall be increased by Rupees one crore each within two years, three years, four years and five years from the date of grant of Provisional Registration; g)... shall not dispose off the scheme property except for meeting obligations arising under the offer document of the scheme. h)... shall comply with the conditions specified in Regulation 11 of the CIS Regulations; you shall forthwith inform the Board of any material change in the information or particulars previously furnished which have a bearing on the Provisional Registration granted. i)... shall comply with the Code of Conduct as also other instructions and other operational guidelines/ directions/ instructions etc. as may be issued by SEBI from time to time in the interest of investors. Page 2 of 10
j)... shall maintain the books of accounts and documents as specified in Regulation 40 and such other documents as may be required by the Board under the said Regulation from time to time and shall preserve the same for the minimum period as specified in the Regulations. k)... shall abide by the SEBI (Collective Investment Schemes) Regulations, 1999 as amended from time to time in respect of the activities carried on." 5. However, MPS had failed to comply with certain important conditions laid down for the Provisional Registration issued vide SEBI's letter dated August 21, 2009 i.e., transfer the properties and assets in favour of the trust so created and not to raise money from the investors, till the certificate of registration is granted by the Board. Thereafter, the Provisional Registration granted to MPS expired on August 20, 2011. In the meantime, MPS vide its letter dated February 17, 2011, wrote to SEBI that it had raised 439 crores between August 21, 2009 and January 31, 2011. This was in clear disregard to the conditions of the Provisional Registration. 6. Subsequently, MPS had issued an 'advertorial' on March 30, 2012 in a business daily stating therein that the Hon ble High Court of Calcutta has permitted it to continue with its business. The said 'advertorial' also announced that MPS was allowed to raise money from the public and made disclosure about its intention to raise 80% of its targeted total amount of 30,000 crores through its Collective Investment Schemes. This advertisement by MPS further flouts the conditions of the Provisional Registration dated August 21, 2009, granted by SEBI and the order of Hon'ble High Court dated June 25, 2009 as well. 7. Taking cognizance of the flagrant disregard on the part of MPS, SEBI directed MPS vide an ex-parte order dated May 11, 2012 (hereinafter referred to as the 'second order') to deposit the amount of 1,169.39 crores, raised by MPS through its collective investment schemes. The second order also directed MPS not to collect money from the investors or to launch any schemes, not to dispose off the properties of the schemes which were acquired in violation of the provisions of the CIS Regulations and also prohibited MPS from accessing and operating in the capital market. Vide the said order, MPS was advised to file its reply, if any, within fifteen (15) days from the date of the second order and also avail opportunities of personal hearing, if they so desire. The second order also stated that the same shall be treated as a show cause notice to MPS and that it may show cause as to why an order for winding up of the schemes of MPS should not be issued under Regulation 73 of the CIS Regulations. Regulation 73 of the CIS Regulations reads as under: Page 3 of 10
"Manner of repayment and winding up 73. (1) An existing collective investment scheme which: (a) has failed to make an application for registration to the Board; or (b) has not been granted provisional registration by the Board; or (c) having obtained provisional registration fails to comply with the provisions of regulation 71; shall wind up the existing scheme. (2) The existing Collective Investment Scheme to be wound up under sub-regulation (1) shall send an information memorandum to the investors who have subscribed to the schemes, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determined. (3) The information memorandum referred to in sub-regulation (2) shall be dated and signed by all the directors of the scheme. (4) The Board may specify such other disclosures to be made in the information memorandum, as it deems fit. (5) The information memorandum shall be sent to the investors within one week from the date of the information memorandum. (6) The information memorandum shall explicitly state that investors desirous of continuing with the scheme shall have to give a positive consent within one month from the date of the information memorandum to continue with the scheme. (7) The investors who give positive consent under sub-regulation (6), shall continue with the scheme at their risk and responsibility : Provided that if the positive consent to continue with the scheme, is received from only twenty-five per cent or less of the total number of existing investors, the scheme shall be wound up. (8) The payment to the investors, shall be made within three months of the date of the information memorandum. (9) On completion of the winding up, the existing collective investment scheme shall file with the Board such reports, as may be specified by the Board." 8. Thereafter, SEBI had issued public notices on May 15, 2012, in local dailies regarding the second order. MPS vide its letter dated May 18, 2012, requested for extension of time for replying to the second order cum show cause notice. In the meantime, one Sri Satya Ranjan Baidya filed a suit bearing no. 790/2012 before the City Civil Court at Calcutta and obtained a temporary injunction on May 25, 2012, restraining MPS, SEBI and their men, agents and employees from giving effect or further effect to the second order. Subsequently, the City Civil Court, while deciding the applications filed by SEBI in the said suit bearing no. 790/2012, vide its order dated October 12, 2012 modified the earlier temporary injunction order passed on May 25, 2012 to the extent that the said order is not binding upon SEBI. Further, the court also clarified that the order of injunction as against MPS will remain in force. Page 4 of 10
9. I note that MPS has not filed any written submissions with respect to the second order. However, before proceeding further in the matter, SEBI had afforded an opportunity of personal hearing to MPS on December 05, 2012, in compliance with the principles of natural justice. The notice for hearing issued by SEBI in this respect was received by 'Chief Trade Coordinator' at MPS. On the date fixed for the personal hearing, MPS has neither presented itself nor filed any written submission. I note that MPS has forwarded a letter dated November 30, 2012 to SEBI, wherein it was said that they (MPS) have been restrained by the order of City Civil Court at Calcutta from giving effect to the second order. MPS also requested for appropriate orders in the light of the order of City Civil Court at Calcutta. I note that MPS has not requested for another date for personal hearing and also that it has requested SEBI to pass appropriate orders. Therefore, I am of the view that no further opportunities for personal hearing are required to be granted, especially when MPS itself has not asked for it and the matter could be proceeded with, on the basis of the material available on record. 10. In the present case, it is an admitted fact that MPS is operating Collective Investment Schemes. SEBI has noticed that MPS is raising money from the public in complete disregard to the order of Hon'ble High Court and the directions issued by SEBI from time to time. Such continuous breach by MPS of the orders of SEBI is nothing but cocking a snook at the Regulator. 11. A brief background of the CIS Regulations which encapsulates the need for comprehensive supervision by SEBI in respect of CISs is given below:- During the late 1990s, the Government of India noticed that certain entities were operating in the securities market, who issued instruments against investments such as agro bonds, plantation bonds, etc. by offering very high rates of return, which were inconsistent with the normal rate of returns in such schemes. Such entities mobilized huge amounts from the public and then misutilized (misappropriated) these funds, for the purposes not disclosed at the time of soliciting these investments, thereby not only causing loss to the investors who lost their life savings to such unscrupulous entities, but also eroding the confidence of the general public. Considering the high element of risk associated with such schemes, the Central Government felt that it was necessary to set up appropriate Regulatory framework to regulate such entities. Hence, in order to protect the interest of the investors and to ensure that only legitimate investment activities are carried on, vide press release dated November 18, 1997, the Central Government communicated its decision that schemes through which Page 5 of 10
instruments such as agro bonds, plantation bonds, etc., are issued by different entities would be treated as Schemes under the provisions of the SEBI Act and directed SEBI to formulate Regulations for the purpose of regulating these Collective Investment Schemes. It was against this background that Section 11AA of the SEBI Act, 1992 and the CIS Regulations came to be framed. Thereafter, several press releases and newspaper advertisements/ notices were issued by SEBI from time to time in the leading newspapers of India bringing to the notice of the investors and the persons concerned, the various instructions issued by SEBI/ Central Government from time to time in respect of the functioning of the collective investment schemes. 12. Coming back to MPS, I note that MPS has failed to fulfil the conditions laid down in the Provisional Registration and continued to raise money from general public. I also observe from the available records that MPS has not applied for the extension of such Provisional Registration. Therefore, MPS is not registered with SEBI anymore and hence not authorised to operate Collective Investment Schemes. 13. Thus, MPS has mobilized huge funds from the public, despite its ineligibility to operate as CIS. The details of the aggregate funds raised by MPS available at the website of 'ICRA Limited', a Credit Rating Agency, who examined the audited results of MPS are given below: - as on March 31, 2010-457.27 crores - as on March 31, 2011-837.33 crores - as on January 25, 2012-1,169.39 crores - as on March 31, 2012-1,321.75 crores - as on July 31, 2012-1,450.95 crores - as on September 30, 2012-1,520 crores From the above, it can be seen that MPS had raised funds from the public and is continuing to do so. MPS has thus collected approximately 1,520 crores, in the absence of any valid registration and moreover, ignoring the specific prohibition issued by SEBI vide its second order not to raise any money in any new or existing schemes. I also note that the credit rating agency, ICRA Limited, has downgraded the rating assigned to the existing Collective Investment Schemes of MPS from CS4 (pronounced C S four) to CS5 (pronounced C S five), which means Schemes rated CS5 are considered to have very high risks and are 'Extremely Speculative'. Huge public funds have been collected by MPS Page 6 of 10
under its collective investment schemes, which carry a high risk. As discussed above, MPS is continuing to collect huge public funds in total disregard for the directions of SEBI. Such acts of MPS in shrugging off the regulators and making a mockery of the judicial system, definitely call for the immediate intervention by SEBI. 14. I note that MPS had earlier issued letters to its agents, inter alia asking them to refrain from collecting any money on its behalf. Upon this, a few persons claiming to be the marketing agents/ development executives of MPS filed suits at different civil courts in West Bengal, against MPS for granting injunction against the said letters of MPS so that the agents could continue to mobilize money from the investors. However, these civil suits appear to be collusive in nature, as in one of these cases, the suit was filed by none other than two directors of MPS. These were clearly aimed at circumventing the restrictions imposed by SEBI and seem to be tactics to collect money further from the innocent public. Taking note of the fact that MPS and its marketing agents/ development executives were filing collusive suits in different courts by abusing the process of law, SEBI has preferred a Criminal Contempt Petition before the Hon'ble High Court of Calcutta. At this stage, I also note that while vacating the interim order of injunction and rejecting the plaint in one of the cases filed by two of the directors of MPS, bearing Title Suit No. TS 02/2009, the learned Civil Judge, Garbeta, West Midnapore has viewed as under: "In view of the provision of Section 188 of the Indian Contract Act, this court is of the considered opinion that the plaintiffs being an agent of the defendant company, has no authority to raise any fund from the market when there is embargo on its principal/ defendant no. 1 (MPS) imposed by SEBI vide order dated 03/09/2001 and dated 21/08/2009, and particularly when the embargo has been authenticated by Hon'ble High Court Calcutta vide its order dated 25/06/2009 in WP 1971 of 2001." In the same matter, the Learned Judge has also observed that the Civil Court has no jurisdiction to entertain and try the present suit as it is barred by the provisions of Section 15Y and Section 20A of the SEBI Act, 1992. 15. The continuous collection of funds by MPS during the conditional Provisional Registration granted to MPS, was clearly in breach of the terms that are statutorily mandated under the provisions of CIS Regulations. The Provisional Registration specifically prohibited MPS from launching any new scheme or raising money from the investors even under the existing schemes, unless a certificate of registration is granted by SEBI. I note that an existing Collective Investment Scheme, after obtaining Provisional Registration, is bound to comply with the conditions of such registration. On its failure to do so, it does not have Page 7 of 10
any option other than to wind up its existing schemes in terms of Regulation 73(1)(c) of CIS Regulations. In the instant case, MPS has not only failed to comply with the conditions of Provisional Registration but also violated the specific mandate of SEBI as required under the CIS Regulations i.e., not to raise any further funds. 16. SEBI has mandated, in terms of the Section 12(1B) of the SEBI Act, 1992 that no person, shall sponsor or cause to be sponsored or carry on or caused to be carried on any Collective Investment Scheme unless it obtains a certificate of registration from SEBI in accordance with the CIS Regulations. Thus, MPS has failed to comply with the direction issued vide the second order of SEBI and the provisions of Section 12(1B) of the SEBI Act, 1992. 17. MPS is clearly continuing with the business of collective investment schemes and raising funds from the public in blatant violation of the SEBI Act, 1992 and the CIS Regulations, thus damaging the faith of the general public in the securities market, which if not checked, will have disastrous consequences. SEBI cannot remain a silent spectator in such a case, whereas unscrupulous market participants cause immense jeopardy caused by them to the integrity of the securities market. This is the right time, where SEBI has to step in and protect the interest of innumerable investors as required by law. 18. As noted in the preceding paragraphs, MPS has not co-operated in the instant proceedings before SEBI. SEBI has not received any reply from the noticee to the second order. It appears that MPS seems to be short of any further submissions in the instant proceedings. Further, on December 04, 2012, SEBI received a fax message (i.e. on the eve of the hearing scheduled for December 05, 2012) wherein one Mr. Kanai Lal Biswas, Advocate from Krishnagar, Nadia has addressed a letter to MPS and SEBI. This letter refers to a suit bearing no. TS No. 618/2012 filed by one Mr. Biswajyoti Mukhopadhyay wherein the court is stated to have issued an order in respect of MPS and Mr. Santanu Choudury for maintaining status quo and also notice to SEBI among others, in the suit seeking an injunction against MPS and SEBI. However, SEBI has not received any such notice from the Court. This appears to be another attempt in the series of tactics for delaying the proceedings before SEBI as already mentioned in para 14 above. The several litigations filed by the marketing agents/ development executives appear to be a game plan for benefiting MPS and thus seems to be vexatious in nature for which SEBI has already filed a Criminal Contempt Petition in the High Court of Calcutta accusing MPS of inter alia abusing the judicial process. Page 8 of 10
19. MPS is in the continuous process of collection of funds in breach of the order of Hon'ble High Court, terms of the Provisional Registration and the second order of SEBI. Therefore, I am of the considered view that each day of delay will cause irreparable loss and damage to the unwary investors and the securities market, if MPS continues to further indulge in its activities of collecting funds from the public. Hence, it is necessary that such schemes of MPS are immediately directed to be wound up and the monies of the investors, which have been invested in the schemes, are refunded with promised interest due to them by it. In view of the above, I am of the considered opinion that ends of justice would be amply met, by proceeding ex-parte especially when the party remains absent and does not even seek any adjournment. The representation of MPS dated November 30, 2012 has been examined and I find that there is no impediment for SEBI to proceed further in the matter. The civil dispute between the principal and the agent regarding the continuation or otherwise of its agency is a matter between the principal and the agent and SEBI is not restrained from proceeding further with matter, irrespective of the bilateral dispute. In this context, I reiterate the observation of Learned Civil Judge, Garbeta, that the agent has no authority to raise money from the public when there is an embargo on the principal i.e. MPS. 20. I also note that SEBI vide its second order dated May 11, 2012 had directed MPS to deposit the money collected from the investors under its collective investment schemes in an escrow account within a period of fifteen days from the date of the said order. I note that MPS has not complied with the same and did not deposit a single rupee out of the 1,169.39 crore, which it was directed to deposit. 21. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11(4), 11B and 19 of the Securities and Exchange Board of India Act, 1992 read with the Regulations 65 and 73 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999, hereby direct MPS Greenery Developers Limited to wind up its scheme(s) identified as Collective Investment Schemes and refund the money collected by it under the scheme(s) with returns which are due to the investors as per the terms of the offer within a period of one month from the date of this order, failing which: a. SEBI would initiate prosecution proceedings under Section 24 of the Securities and Exchange Board of India Act, 1992, against MPS Greenery Developers Limited/ its promoters/ its directors/ managers/ persons in charge of the business of its scheme(s). Page 9 of 10
b. The promoters/ directors/ managers/ persons in charge of the business of the scheme(s) of MPS Greenery Developers Limited including Mr. Pramatha Nath Manna, Mr. Santanu Chowdhury, Mr. Arup Kumar Roy Gupta, Mr. Subrata Basu, Prabir Kumar Chanda, Mr. Madhusudhan Adhikari and Mr. Sukumar Ghosal would be restrained from accessing the capital market and prohibited from buying, selling or otherwise dealing in the securities market till all the monies are refunded. c. A reference would be made to the State Government/ local police to register a civil/ criminal case against MPS Greenery Developers Limited and its promoters/ directors for apparent offences of fraud, cheating, criminal breach of trust and misappropriation of public funds, and d. A reference would be made to the Ministry of Corporate Affairs, to initiate the process of winding up of MPS Greenery Developers Limited. 22. The second order (order dated May 11, 2012) restraining MPS Greenery Developers Limited from accessing or dealing in the securities market shall continue, till the schemes are wound up and all the monies are refunded by it to the investors, to the satisfaction of SEBI. 23. This order shall come into force with immediate effect. PLACE : MUMBAI DATE : DECEMBER 06, 2012 PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Page 10 of 10