Searching Case Laws & Precedent on Legal Query.....!
Analysing the retrieved Case Laws
Scanned Judgements…!
Searching Case Laws & Precedent on Legal Query.....!
Analysing the retrieved Case Laws
Scanned Judgements…!
Specifically, SEBI's regulation 65 of CIS Regulation and Sections 11 and 11B of the SEBI Act, 1992, empower SEBI to take action against companies and individuals involved in collective investment schemes without registration. The courts have observed that companies not registered with SEBI or RBI cannot legally collect money from investors ["GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND - Jharkhand"], ["Alchemist Infra Realty Limited VS State of Jharkhand - Jharkhand"].
Role of RBI and SEBI in Regulating Money Collection:
The absence of registration or authorization from RBI or SEBI makes any collection of money illegal and subject to penal action. For example, companies claiming to be NBFCs but not registered with RBI were barred from collecting funds and were considered to have engaged in illegal schemes ["Shrikant Mohta VS Republic Of India - Orissa"].
Legal Consequences of Promoting Unauthorised Investment Schemes:
Individuals involved in promoting schemes without registration are liable under SEBI and RBI laws, and courts have held that they cannot legally promote or promote schemes that are not authorized ["GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND - Jharkhand"].
Specific Legal Provisions:
References:- ["GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND - Jharkhand"]- ["Shrikant Mohta VS Republic Of India - Orissa"]- ["GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND - Jharkhand"]- ["I. Unnikrishnan VS Union Of India, Represented By The Secretary, Ministry Of Corporate Affairs, 'A' Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - Kerala"]- ["Alchemist Infra Realty Limited VS State of Jharkhand - Jharkhand"]- ["GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND - Jharkhand"]- ["Integrated Amusement Ltd. VS Securities & Exchange Board of India - Securities Appellate Tribunal"]- ["I. UNNIKRISHNAN vs UNION OF INDIA - Kerala"]- ["I. UNNIKRISHNAN Vs UNION OF INDIA - Kerala"]- ["MR. G. ANOOP Vs UNION OF INDIA - Kerala"]- ["MR. G. ANOOP vs UNION OF INDIA - Kerala"]- ["GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND - Jharkhand"]- ["Alchemist Infra Realty Limited VS State of Jharkhand - Jharkhand"]- ["Paramount Bio-Tech Industries Ltd,Bareilly VS Union of India - Allahabad"]- ["Dr. Pradeep Mehta vs Union of India - Securities and Exchange Board of India"]- ["Marwadi Shares & Finance Ltd. VS Securities and Exchange Board of India - Securities Appellate Tribunal"]
In today's fast-paced investment landscape, opportunities to grow wealth through company promotions abound. But what happens when an individual or entity promotes investments in a company that lacks the necessary approvals from regulators like SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India)? This raises a critical legal question: whether an accused can promote investment of money in a company which is not authorized to collect money as per SEBI and RBI regulations?
The short answer is no—such promotion is generally illegal and can lead to significant penalties. This blog post dives deep into the regulatory framework, key judgments, and real-world cases to explain why, helping investors, promoters, and businesses navigate these rules safely.
SEBI and RBI play pivotal roles in safeguarding public money in India. They impose strict licensing requirements for entities collecting funds from the public.
SEBI regulates collective investment schemes (CIS), mutual funds, and venture capital funds under the SEBI Act, 1992. Only registered entities can sponsor or operate such schemes. As per Section 12(1B) of the SEBI Act, No person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment scheme including mutual funds, unless he obtains a certificate of registration from the Board Securities and Exchange Board of India VS Gaurav Varshney - 2016 5 Supreme 417.
Promoting investments in unregistered companies violates these provisions, exposing promoters to civil and criminal liability Securities and Exchange Board of India VS Gaurav Varshney - 2016 5 Supreme 417. SEBI has issued orders barring unauthorized entities from collecting funds, as seen in cases where companies were directed not to collect any money from investors GREEN RAY INTERNATIONAL LIMITED REPRESENTED BY ITS GENERAL MANAGER SK NURUL HOSSAIN Vs THE STATE OF JHARKHAND.
The RBI governs deposits through the RBI Act, 1934, particularly Section 45-S, which prohibits unincorporated bodies or individuals from accepting public deposits without authorization. The Supreme Court has upheld this, stating, The impugned Section 45-S does not in any way prohibit or restrict any unincorporated body or individual from carrying on the business that it likes. It is open to unincorporated bodies to carry on their financial business either from their own funds or the funds borrowed from their relatives or from financial institutions Bhavesh D. Parish VS Union Of India - 2000 4 Supreme 726. However, public mobilization is strictly off-limits for unregulated entities.
In practice, RBI and courts have cracked down on violations. For instance, directions were issued to companies and directors not to collect any more money from the investors SHRIKANT MOHTA vs REPUBLIC OF INDIA(CBI).
Promoting or facilitating investments in non-compliant companies isn't just a regulatory oversight—it's a direct contravention of law. Here's why:
Even defenses like lack of knowledge are typically adjudicated at trial, not framing of charges. The defense of the accused regarding their knowledge of the company's activity cannot be adjudicated at the time of framing of charge and should be considered during trial Kanwal Prakash Singh VS State Of West Bengal - 2022 Supreme(Cal) 645.
Violators face severe consequences:
Real cases illustrate this:- Companies raising funds without ROC, MCA, or SEBI approval faced complaints under SEBI Act Sections 24 and 27 Kanwal Prakash Singh VS State Of West Bengal - 2022 Supreme(Cal) 645.- Directors of firms collecting deposits without RBI/SEBI licenses were prosecuted, with bail granted only under stringent conditions due to lack of overt acts Tabrez Ulla Shariff VS State by Jayanagara Police Station Rep by State Public Prosecutor, Bengaluru - 2019 Supreme(Kar) 403.- In HBN Dairies, SEBI ordered cessation of collections, deeming schemes as illegal fund mobilization Amandeep Singh Saran, S/o. Harmandar Singh Saran VS State of Chhattisgarh - 2021 Supreme(Chh) 24.
Penalties under SEBI are civil-deterrent in nature, not requiring mens rea proof like criminal law, pushing strict compliance Securities & Exchange Board of India VS Cabot International Capital Corporation - 2004 Supreme(Bom) 321.
No.6777 of 2013 whereby and whereunder it has been stated that SEBI has passed an order on 03.02.2014 under Section 11 and 11B of the SEBI Act, 1992 directing the petitioner company not to collect any money from investors or whether the same have been created in pursuance to the provision of Reserve Bank of India Act, 1934 or not? ... /firm within their State as per Prize, Chits and Money#HL....
authorization from the Reserve Bank of India (hereafter for short 'RBI') or the Securities and Exchange Board of India (hereafter for short 'SEBI') for carrying out such activities and therefore, the company cheated the public. ... The accused persons also cheated the depositors as well as the agents by making false assurance that the accused companies were legally empowered to collect money from the public. ... Rose Valley Hotels and Entertainments ....
empowered to collect money from the public. ... not to collect any money from the investors or to its Directors not to collect any more money from the the money involved was actually the money invested by poor p style="position:absolute;white-space:pre
accused companies were legally empowered to collect money from to collect any money from the investors or to launch any accused persons did not return the money of lakh of depositors and under section 11B of the SEBI Act and regulation 65 of collection business of Rose Valley, they grossly abused their p style="position:absolute;white-space
Respondent’s letter dated 11-5-2000 to the appellant seeking various details and comments was also cited to show that the appellant was given opportunity to explain its stand in person. ... The respondent’s governing Board consists of 19 persons including nominees of the RBI, the SEBI and public representatives of eminence. ... Modi, the learned counsel for the respondent, submitted that the respondent exchange is a recognised stock exchange, amenable to the statutory regime provided under the Securities Cont....
failed to provide the details as to whether the consent of the Debenture holders has been obtained, for extending the tenure of the Debentures; (3) Details of issuance of Bonds-Noncurrent (Unsecured Subordinate Debt) were not e-filed by the Company with ROC as required under the ... The Company has reached the number of 200 subscribers, where subscription per investor is less than Rs.1 Crore. ... Therefore, the issue concerning the petitioners in these writ petitions....
Batlibol Associates, Chartered Accountants, being the statutory Auditors of the CIL, addressed a certificate to the SEBI and the Reserve Bank of India (for short "RBI") and it was confirmed that the Preferential Issue could be made by the CIL at a price, less than Rs. 171/- per share. ... The respondents-company, on February 5, 1997, filed Form 23 with the Registrar of Companies, Maharashtra, with other details. ... There could not have been insistence by the appell....
A Show Cause Notice was issued against the appellant company, M/s. Cox & Kings (India) Ltd., a Full Fledged Money Changer alleging that the instructions laid down by the RBI subject to which licence was issued for dealing in foreign exchange were not followed by the company as FFMC. ... In order to judge whether a failure of justice has been occasioned, it will be relevant to examine whether the accused was aware of the basic ingredients of the offen....
as to whether the consent of the Debenture holders has been obtained, for extending the tenure of the Debentures; (3) Details of issuance of Bonds-Noncurrent (Unsecured Subordinate Debt) were not e-filed by the Company with ROC as required under the Companies ... The Company has reached the number of 200 subscribers, where subscription per investor is less than ₹1 Crore. ... No such application was made by the Company. (7) The Co....
(2) The Company failed to provide the details as to whether the consent of the Debenture holders has been obtained, for extending the tenure of the Debentures; p class="sub_para" left_margin="137.4" pos_bottom="735.554" pos_top="721.554
The sum as such is entrusted and was by law required to be used for the purposes of first accused company and by utilising for the business purposes of the other accused companies. Though the same may be right in the many situations as demonstrated in the case laws referred by the petitioner in person above, however, in this case, (i) by holding out as if the accused company is having NBFC license of Reserve Bank of India and (ii) by promising higher returns, money is collected the higher return was not paid and therefore the same amounts to cheating. Further, a reading of ....
The accused company had raised a huge amount of money from general public in contravention of legal provisions and without obtaining approval or clearance from ROC, MCA and SEBI as required under the Companies Act, 1956 and the SEBI Act, 1992.
It cannot be said that conspiracy was hatched by the present petitioners in committing the offence. It would be proper to say that petitioners are neither the Directors nor the Managers of the company and they are investors who had invested their money in the said company. With an intention to collect money as deposit on allotment of franchisee, and thereafter, closing the business as well as the company, intention of the accused no.1 can be found malafide.
After examination of the reply to the notice, the applicants' company was directed to wind-up their business of making collections of money from public. Notice was issued to the company to explain about violation of the provisions of SEBI Act, in which company submitted that the scheme and plans of the company are not in the nature of collecting money, but the money is provided by the customers of HBN Dairies to facilitate its business. SEBI examined the business of HBN Dairy & Allied Co. Ltd. and passed order on 12.07.2013, in which, it is mentioned in the first paragraphs....
8. It is the case of the prosecution that the accused No.1-Firm and remaining accused persons being the partners have started investing the money without their being any license or permit either from the Reserve Bank of India or SEBI or Commercial Tax Authorities. As per the provisions of the said Act, investing deposit from the general public without there being any licence or permit is an offence. Whether the petitioner-accused No.4 has brought the depositors knowingly full well about the scheme which has been introduced by the accused No.1-
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
