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IN THE HIGH COURT OF ALLAHABAD
M. Katju, R. S. TRIPATHI
PARAMOUNT BIO-TECH INDUSTRIES LTD,bareilly - Appellant
Versus
UNION OF INDIA - Respondents
C. M. W. P. 51911 Of 1999
Decided On : 11/25/2003
The Securities and Exchange Board of India (SEBI) (Collective Investment Schemes) Regulations, 1999 (1999 Regulations) were challenged by the petitioner, a public limited company, on the grounds that they were ultra vires the SEBI Act, 1992 (SEBI Act), violated the parent Act and other statutes, and were impossible to follow and comply with. The petitioner also claimed that the impugned regulations were in violation of Articles 14, 19(1)(g), and 246(3) of the Constitution of India.
Fact of the Case:
The petitioner, a public limited company, challenged the Securities and Exchange Board of India (SEBI) (Collective Investment Schemes) Regulations, 1999 (1999 Regulations) on the grounds that they were ultra vires the SEBI Act, 1992 (SEBI Act), violated the parent Act and other statutes, and were impossible to follow and comply with. The petitioner also claimed that the impugned regulations were in violation of Articles 14, 19(1)(g), and 246(3) of the Constitution of India.
Finding of the Court:
The Court found that the 1999 Regulations were not ultra vires the SEBI Act and did not violate the parent Act or other statutes. The Court also found that the regulations were not impossible to follow and comply with and were not in violation of Articles 14, 19(1)(g), and 246(3) of the Constitution of India.
Issues: 1. Whether the 1999 Regulations were ultra vires the SEBI Act and violated the parent Act and other statutes? 2. Whether the regulations were impossible to follow and comply with? 3. Whether the impugned regulations were in violation of Articles 14, 19(1)(g), and 246(3) of the Constitution of India?
Ratio Decidendi: 1. The Court held that the 1999 Regulations were not ultra vires the SEBI Act and did not violate the parent Act or other statutes because: * The expression "collective investment scheme" was used in Section 11(2)(c) of the SEBI Act, and its meaning was explained in Chapter 2 of the Dave Committee Report, which referred to the Howeys Test as laid down by the U.S. Supreme Court. * The Court opined that in the absence of a statutory definition before 1999, the definition given by the Dave Committee report should be accepted as it is the opinion of experts. * The Court agreed with the submission of the SEBI that it is entitled to enquire and find out the genuineness of transactions and verify whether they really pertain to a collective investment scheme or are pure transactions of sale/purchase of land. 2. The Court held that the regulations were not impossible to follow and comply with because: * The Court found that the petitioner had not returned the entire money to the investors and continued to return the same even after the enforcement of the 1999 Regulations. * The Court stated that the petitioner's factual averment that it had closed down the business in 1998 had to be examined by SEBI and could not be accepted on its face value. 3. The Court held that the impugned regulations were not in violation of Articles 14, 19(1)(g), and 246(3) of the Constitution of India because: * The Court found that the impugned Regulations and the directions of SEBI were not retrospective at all, nor were they being retrospectively applied. * The Court opined that Parliament and SEBI have the legislative competence to frame the Act and Regulations as the subject matter falls under Entry 43, 46, and 48 of list I of the VIIth Schedule to the Constitution. * The Court stated that the impugned Regulations were reasonable restrictions and were in fact very much needed to protect the public against many finance companies which recently have duped the investors and then disappeared.
Final Decision: The Court dismissed the petition.
( 1 ) THIS writ petition has been filed with a prayer for a writ of certiorari for quashing the Securities And Exchange Board of India (Collective Investment Schemes) Regulations,1999 notified on 15. 10. 99 (hereinafter referred to as the 1999 Regulations), vide Annexure-9 to the writ petition. The petitioners have also prayed for a mandamus directing the respondents not to treat the petitioner no. 1 as a Collective Investment Management Company. Heard learned counsel for the parties, Sri S. S. Ray and Shri S. M. A. Kazmi for the petitioners and Sri S. P. Gupta for the respondent no. 4.
( 2 ) THE petitioner no. 1 is a public Ltd. Company incorporated under the Indian Companies Act ,1956 carrying on inter-alia the business of collective hi-tech and hi-brid agro-plantation sale and development of orchards on behalf of the owners,cottages and Agricultural land. The petitioner no. 1 has also initiated its food processing unit at NOIDA (U. P.) in the name of Paramount Foods for which it has got sanction for allotment of an industrial plot from NOIDA. . The petitioner no. 1 is also in the field of information technology and software consultancy. Thus petitioner no. 1 has been in three types of business since its incorporation in the year 1996 viz. (a) Collective hi-brid ,hi-tech agro- farming plantation projects. (b) Sale and purchase of agriculture land and related services and ( c ) I. T. and Software consultancy.
( 3 ) THE petitioner no. 2 is a share holder and Director of petitioner no. 1. It is alleged in paragraph 2 of the petition that this petition is being filed in order to safeguard the interest of the shareholders and investors / joint venture associates, who have invested their hard earned money with petitioner no. 1, the interest of the individuals working for petitioner no. 1, and in order to prevent agro-plantation and other projects implemented by petitioner no. 1 from being destroyed / collapsed. It is alleged in paragraph 4 of the petition that for the past more than three years the petitioner no. 1 and hundreds of other Companies were implementing crucial projects and schemes of collective hi-brid, agro -plantation, horticulture and orchard development schemes by pooling the resources of its Promoters, Shareholders and Directors and also by enrolling Co-investors/joint Venture Associates amongst interested individuals by advertising and marketing network. In paragraph 5 of the petition it is alleged that certain businesses / schemes of the Companies like the petitioner no. 1 had been termed as Collective Investment Schemes on the lines of similar schemes carried on by companies in various other countries.
( 4 ) IT is alleged in paragraph 7 of the petition that petitioner no. 1 since its incorporation in the year 1996 has been engaged in lawful business activities and had genuinely implemented hi- tech collective agro-plantation projects at its project sites in Bareilly and Garh Mukteshwar,ghaziabad in U. P. The petitioner no. 1 had sufficient area of land under its possession to implement the projects so as to meet the liabilities of its investors/joint venture associates. There are approximately Seventeen Thousand poplar trees being planted in the land at Bareilly. The maturity value of these trees after 4 to 5 years is estimated to be about Rs. 3 crores 40 lakhs @ Rs. 2,000/- per tree. The petitioner had its major marketing network in U. P. A large number of investors / joint venture associates are from U. P. Besides , petitioner no. 1 has also launched a scheme of selling the land to be developed into orchards but could not continue due to the negative atmosphere. However, the petitioner no. 1 intends to continue the scheme of selling land to be developed as orchards on behalf of the owners, but due to certain provisions in the impugned regulations this activity is being hampered as the sale and purchase of such land is being brought within the purview of Securities and Exchange Board of India (her
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