‘REPORTABLE’

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 54 OF 2016

OSIANS CONNOISSEURS OF ART PVT. LTD.           Appellant(s)

                               VERSUS

SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.  Respondent(s)

WITH

CIVIL APPEAL NO. 19936 OF 2017

CIVIL APPEAL NO. 77 OF 2018  

J U D G M E N T

R. F. NARIMAN, J.

CIVIL APPEAL NO. 54 OF 2016

Learned  senior  counsel  appearing  for  the  appellant

seeks permission of the Court to withdraw the civil appeal.

The civil appeal is allowed to be withdrawn.

CIVIL APPEAL NO. 19936 OF 2017

The brief facts leading to the filing of the present

civil appeal are as follows:  

Two trusts named  Yatra Art Fund Trust (Fund I) and

Yatra Art Fund II (Fund II) were created under the Indian

Trusts Act, 1882, through execution of Indentures of Trust

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CIVIL APPEAL NO. 54 OF 2016 etc.

dated 15.06.2005 and 01.12.2006.

A  perusal  of  the  trust  deed  shows  that  both  these

trust  Funds  were  created  for  an  initial  period  of  4-4½

years, the first Fund ending, after extension of one year,

on  15.09.2011.   Insofar  as  the  second  Trust  Fund  is

concerned, this Trust Fund was also extended and ended on

31.01.2012.  It may  also be  mentioned that  these Trusts

Funds were established so that investors could invest in

works of art.  In the Confidential Information Memorandum,

it  was  made  clear  to  the  investors  that  these  were

investments which were fraught with grave risks and that the

investors  invest  in  these  Trusts  Funds  with  open  eyes

knowing of the aforesaid risks.   

So far as the first Fund was concerned, a total corpus

amounting  to  Rs.10.95  crores  was  collected  from  the

investors.  We are informed that 50 such investors invested

in this Fund.  So far as the second Fund is concerned, the

total corpus was Rs.21.92 crores, with 132 persons having so

invested.  

On 18.06.2007, the Securities and Exchange Board of

India (hereinafter referred to as ‘SEBI’) first apprised the

appellants, who are the trustees of these two Trusts Funds

stating  that,  as  these  Funds  were  Collective  Investment

Schemes, they should apply for certificates of registration

insofar as these Funds were concerned.  This was responded

to by  Fund I  on 16.07.2007,  denying that  the activities

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CIVIL APPEAL NO. 54 OF 2016 etc.

would amount to the activities of a Collective Investment

Scheme.  As a result thereof, on 12.10.2007, SEBI issued a

Show Cause Notice to show cause as to why the Yatra Art Fund

should  not  register  itself  with  SEBI  in  the  prescribed

corporate  form,  as  otherwise  the  collective  investment

scheme carried out by the Trust would be illegal.  The show

cause  notice  also  mentioned  that  all  amounts  collected

should be refunded within a period of 30 days from the said

show cause notice.  On 05.11.2007, the appellants responded

to the aforesaid show cause notice stating that there was no

violation of Section 12 (1B) of the Securities and Exchange

Board of India Act, 1992 (hereinafter referred to as ‘SEBI

Act’) read with Regulation 3 of SEBI (Collective Investment

Scheme) Regulations, 1999 (hereinafter referred to as ‘CIS

Regulations’); and as the appellants were not registered in

the form of a company, the Regulations themselves would not

apply.  Secondly, detailed arguments were made as to why the

schemes  involved  could  not  be  said  to  be  collective

investment schemes.  One year later, on 03.11.2008, a joint

representation to SEBI was made stating that the aforesaid

schemes  floated  by  the  appellants  were  not  collective

investment schemes, reiterating that they were not made in

the corporate form.

It appears that, at this  point of time, SEBI itself

was  unsure  as  to  whether  such  funds  would  amount  to

collective investment schemes.  However, in 2013, the matter

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CIVIL APPEAL NO. 54 OF 2016 etc.

was resuscitated and after giving the appellants a hearing,

inasmuch as as many as nine investors complained with regard

to Trust Fund No.2, including an Investors’ Association, an

order was  delivered by  the whole-time  member of  SEBI on

06.11.2015 as follows:  

“29. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11 and 11B thereof and Regulation 65  of  the  SEBI  (Collective  Investment  Scheme) Regulation,  1999,  hereby  issue  the  following directions: a. Yatra Art fund shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the scheme which  have  been  identified  as  a  Collective Investment Scheme in this Order. b. Yatra Art Fund is directed to refund the entire monies collected by it under its scheme to all the investors along with the returns at the rate of 10% per annum, 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. Yatra Art Fund is 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. d. Yatra Art Fund is also directed to immediately submit the complete and detailed inventory of the assets owned by Yatra Art Fund. e. In the event of failure by Yatra Art Fund to comply  with  the  above  directions,  the  following actions shall follow:  -  Yatra  Art  Fund  shall  remain  restrained  from accessing the securities market and would furhter be prohibited from buying, selling or otherwise dealing in securities, even after the period of four (4) years of restraint imposed in Paragraph 29(c) above, till all the monies mobilized through such schemes are refunded to its investors with interest, which

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CIVIL APPEAL NO. 54 OF 2016 etc.

are due to them. -  SEBI  would  make  a  reference  to  the  State Government/Local Police to register a civil/criminal case  against  Yatra  Art  Fund,  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 shall also initiate attachment and recovery proceedings  under  the  SEBI  Act  and  rules  and regulations framed thereunder.”

An  appeal  was  carried  to  the  Securities  Appellate

Tribunal,  which  was  then  disposed  of  on  21.08.2017,

following the Appellate Tribunal’s judgment dated 13.10.2015

in  Osian’s  –  Connoisseurs  of  Art  Private  Limited  v.

Securities and Exchange Board of India & Anr.  It may be

pointed  out  that  the  Appellate  Tribunal  set  aside  the

paragraphs  of  the  SEBI’s  order  which  required  the  State

Government to make a reference to register civil/criminal

cases against the Fund and initiate attachment and recovery

proceedings under the SEBI Act and Rules and Regulations.

However, insofar as paragraph 29 (b) set out hereinabove of

SEBI’s order was concerned, the Appellate Tribunal remanded

the matter to SEBI, adopting the reasoning contained in the

earlier Tribunal judgment of 13.10.2015 as follows:  

“…………………………………………………………………………… ………………………………………………………………………………

For the reasons stated in our order in Appeal No. 62 of  2013  decided  on  October  13,  2015  the  present appeals are disposed of in terms set out therein”

Having heard Shri K.V. Vishwanathan, learned senior

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CIVIL APPEAL NO. 54 OF 2016 etc.

counsel appearing for the appellants and Shri C. U. Singh,

learned senior counsel appearing for the respondent-SEBI,

for some time, it would not be possible to state that the

Schemes  in  the  present  case  would  not  be  Collective

Investment  Schemes.   It  is  difficult,  therefore,  to

interfere with the concurrent findings made in this behalf

by both SEBI and the Appellate Tribunal.

Further,  the  arguments  made  by  Shri  Vishwanathan,

learned senior counsel, based upon the language of Section

11AA of the SEBI Act does not commend itself to us.  It may

be mentioned that Section 11 (2)(c) of the SEBI Act states

as follows:  

“11 (2) Without prejudice to the generality of the foregoing  provisions,  the  measures  referred  to therein may provide for- ……………………………………………………………………………………………….

……………………………………………………………………………………………….

(c)  registering  and  regulating  the  working  of venture  capital  funds  and  collective  investment schemes, including mutual funds;”

In 1995, Section 12(1B) was introduced, by which it

became  clear  that  no  person  can  sponsor  or  cause  to  be

sponsored  or  carry  on  or  cause  to  be  carried  on  any

collective investment scheme unless he obtains a certificate

of  registration  from  the  Board  in  accordance  with  the

regulations.  

What is of importance is to notice that the expression

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CIVIL APPEAL NO. 54 OF 2016 etc.

“person” is used by Section 12(1B).  However, in 1999, by

amendment,  Section  11AA  was  introduced  in  which  it  was

stated as follows:  

“11AA. Collective investment scheme.- (1) Any scheme or  arrangement  which  satisfies  the  conditions referred to in sub-section (2) or sub-section (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 company under which,-

(i)  the  contributions,  or  payment  made  by  the investors, by whatever name called, are pooled and utilized 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 registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;

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CIVIL APPEAL NO. 54 OF 2016 etc.

(ii) under which deposits are accepted by non- banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934; (iii) being a contract of insurance to which the Insurance Act, 1938, applies; (iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952;

(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 under section 620A of the Companies Act, 1956;

(vii) falling within the meaning of Chit business as defined in clause (e) of section 2 of the Chit Fund Act, 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.”

Based on the aforesaid, Shri Vishwanathan argued that

it would not be possible for him to fall foul of the law

considering that Section 11AA uses the word “company” and

not “person”, and as his client carried on this business in

the form of a Trust, the provisions of SEBI Act would not be

attracted at all.

This argument would fly in the face of both Section

12(1B) and the CIS Regulations, in particular, Regulation

2(h),  which  defined  a  “Collective  Investment  Management

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CIVIL APPEAL NO. 54 OF 2016 etc.

Company” as follows:  

“(h)  “Collective  Investment  Management  Company” means  a  company  incorporated  under  the  Companies Act, 1956 and registered with the Board under these regulations,  whose  object  is  to  organise,  operate and manage a collective investment scheme;”

Regulation 3 of the CIS Regulations states:  

“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.”

The  statutory  scheme,  therefore,  is  that,  if  a

collective investment scheme, as defined, is to be floated

by  a  person,  it  could  only  be  done  in  the  form  of  a

collective  investment  management  company  and  in  no  other

form.   This  is  the  reason  why  Section  11AA  uses  the

expression “company” in sub-Section (2) and not the word

“person” (as the CIS Regulations of 1999 had come into force

on 15.10.1999; Section 11AA being enacted and coming into

force on 22.02.2000).   

Once the statutory scheme becomes clear, it is clear

that the collective investment scheme that was being carried

on by the appellants in the form of a private Trust would be

in the teeth of the Statute read with the CIS Regulations

and would thus be illegal.

This being the case, it is difficult to upset any part

of SEBI’s order that remains after the penultimate part of

the order was set aside by the Appellate Tribunal.

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CIVIL APPEAL NO. 54 OF 2016 etc.

However, we find that this litigation has been going

on  for  an  extremely  long  period  of  time  and  instead  of

remanding the  matter to  SEBI to  decide the  refund issue

afresh, we order as follows:

The  principal  amount  repayable  to  each  investor  of

both the Schemes shall be paid back within a period of six

months from today in the following manner:    

We  are  informed  that  so  far  as  the  first  Fund  is

concerned, 81.32  per cent  of the  total principal  sum of

Rs.10.95 crores has been repaid.

Insofar  as  Fund  No.  2  is  concerned,  we  have  been

informed  that  50  per  cent  of  the  principal  amount  of

Rs.21.92 crores has been repaid.

The balance owing to the 50 investors of Fund No. 1

and to the 132 investors of Fund No. 2 be therefore, repaid

within six months from the date of this judgment.   

So far as the interest at the rate of 10 per cent is

concerned,  this  amount  will  be  paid  on  the  principal

outstanding amount from the date on which it becomes due to

each such member, till the date on which each Fund came to

an  end,  i.e.,  insofar  as  Fund  No.  1  is  concerned  till

15.09.2011 and  so  far  as  Fund  No.  2  is  concerned  till

31.01.2012.  The aforesaid interest shall be paid within

nine months from the date of this judgment.

Once the amounts are actually paid within the time

period specified, compliance report be filed with SEBI in

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CIVIL APPEAL NO. 54 OF 2016 etc.

this behalf.

The appeal stands disposed of.

CIVIL APPEAL NO. 77 OF 2018  

In terms of our judgment in Civil Appeal No. 19936 of

2017, this appeal stands disposed of.

………………………………………………………………………., J. [ ROHINTON FALI NARIMAN ]

………………………………………………………………………., J. [ S. RAVINDRA BHAT ]

………………………………………………………………………., J. [ V. RAMASUBRAMANIAN ]

New Delhi; February 12, 2020.

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