wtm/ps/42/imd/cis/aug/2015 before the … · before the securities and exchange board of india...

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WTM/PS/42/IMD/CIS/AUG/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 Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999 IN THE MATTER OF ROYAL TWINKLE STAR CLUB LIMITED In respect of Royal Twinkle Star Club Limited and its Directors, viz., Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis ______________________________________________________________________________

Date of Hearing: December 10, 2014, January 30, 2015, April 24, 2015 and May 11, 2015

Appearance: For Royal Twinkle Star Club Limited

: Mr. Kumar Desai, Advocate Mr. Neville Lashkari, Advocate Mr. Chaitanaya Mehta, Advocate Ms. Rashida Savliwala, Advocate, Mr. Krushanu Pandya, Advocate Mr. Mukesh S. Thakur, Authorised Representative Mr. Umesh Vartak, Authorised Representative

For Investors : Mr. Abhay Jadhav, Advocate Mr. Simil Purohit, Advocate

For SEBI : Ms. Anitha Anoop, Deputy General Manager Mr. Rajesh Kumar Dangeti, Deputy General Manager Mr. Pradeep Kumar, Assistant General Manger Mr. Siva Gobind Patra, Assistant General Manger Mr. Pankaj Bhageria, Assistant General Manager

_____________________________________________________________________________________

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had, vide an interim

ex-parte Order dated March 07, 2014 (hereinafter referred to as ‘the interim order’), prima facie

found that one Royal Twinkle Star Club Limited (hereinafter referred to as ‘the Company’ or

‘Royal’) 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

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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’).

2. The interim order was issued in order to protect the interest of investors, to ensure that only

legitimate investment activities are carried on by Royal and for preventing the Company from

further carrying on with its existing fund mobilising activity related to the alleged CIS. This

Order directed Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash

Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan

Shivram Kotnis (hereinafter collectively referred to as ‘noticees’):

"a. not to collect any more money from investors including under the existing schemes; b. not to launch any new schemes; c. not to dispose of any of the properties or alienate any of the assets of the schemes; d. not to divert any funds raised from public at large which are kept in bank account(s) and/or in the custody of the company. e. submit the list of investors with full particulars such as PAN numbers, addresses etc. within fifteen days from the date of receipt of this order. f. submit full inventory of 233965 rooms as mentioned in the letter of RTSCL dated August 5, 2013 within fifteen days from the date of receipt of this order."

3. The interim order, came into immediate effect and the noticees were advised to file their reply

within a period of 21 days from the date of receipt of the interim order and also to indicate

whether they wished to avail an opportunity of personal hearing in the matter. The interim order

further stated that the order shall be treated as a show cause notice by the Company and its

directors and they may show cause as to why appropriate directions under the SEBI Act and

CIS Regulations, including directions in terms of the Regulations 65 and 73 of the CIS

Regulations, should not be taken against them.

4. The Company through its advocate vide letter dated June 09, 2014, submitted the reply to the

interim order and requested for an opportunity of personal hearing. Accordingly, the Company

was afforded an opportunity of personal hearing on September 30, 2014. However, the noticees

vide letter dated September 24, 2014, sought an adjournment of the personal hearing. The

request of the noticees was considered and another opportunity of personal hearing was granted

on October 27, 2014. This time again the noticees vide email dated October 22, 2014 requested

for an adjournment on the ground that they wanted to submit a relevant judgement of Hon'ble

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Gauhati High Court during the course of personal hearing, however, they have not received the

copy of it and the counsel engaged has expressed his difficulty for the date assigned. The request

of the noticees was again acceded to and the matter was adjourned to November 18, 2014.

Again, the noticee namely Mr. Omprakash Goenka vide his letter dated November 07, 2014,

requested for an adjournment as he had to travel out of station. As reasonable opportunities of

personal hearing were already granted to the noticees, the request of adjournment was rejected.

The noticees vide email dated November 18, 2014, submitted the 'gist of contentions' and again

requested for an opportunity of personal hearing. Considering the request, the noticees were

granted one last and final opportunity of personal hearing on December 10, 2014, in the

interests of justice.

5. On the date fixed, the authorised representatives of the noticees namely Mr. Chaitanaya Mehta

and Ms. Rashida Savliwala from Dhruve Liladhar & Co. appeared along with Mr. Kumar Desai,

Advocate and Mr. Neville Lashkari, Advocate. The authorised representatives of the Company

namely Mr. Mukesh S. Thakur and Mr. Umesh Vartak were also present during the course of

hearing. The representatives made oral submissions and submitted 'the statement showing the

utilisation of room nights'. During the course of personal hearing, the noticees were asked to

submit the details of the collection of amounts under all the plans and the balance sheet of all

the group companies of Royal as on March 31, 2014. The noticees were also asked to inform

the percentage of room inventory blocked/ reserved for the schemes/ plans of the Company.

Thereafter, the matter was adjourned to January 30, 2015, for further hearing. A letter stating

the same was also issued to the Company on December 12, 2014.

On January 30, 2015, the representatives of the noticees made oral submissions and sought

additional time for submitting the details as asked on December 10, 2014. During the course of

personal hearing the noticees were asked to submit the complete case file/ set of documents

(starting with the application form, contract, details of payment/ installment receipts, plan

certificates, requests for room utilization, room allotment details, details of points redeemed,

etc.) in respect of 500 customers selected randomly, from the total list of the customers as

submitted by Royal. For submitting the said details, the noticees were granted one month’s time.

The Company vide its letter dated February 03, 2015, submitted the details as sought during the

personal hearing dated December 10, 2014. From the details so submitted by the Company, it

was noted that the Company has nine (9) plans in total and the amount received from the

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customers is ₹ 2656,01,17,417 out of it the services utilised/ redeemed are worth

₹ 1787,42,09,012 and amount not yet availed is 868,59,08,405. The number of members has

been shown as 2,66,102.

Thereafter, SEBI vide its letter dated February 26, 2015, forwarded the list of 500 customers

randomly selected to the noticees for providing the details as asked for during the course of

personal hearing and also provided another opportunity of personal hearing on April 24, 2015.

6. In the meantime, one Mr. Abhaykumar N. Jadhav, Advocate vide his letter dated January 27,

2015, while writing on behalf of few customers of the Company submitted the following and

requested for an opportunity of personal hearing:

a. The clients had purchased the holiday plans from the Company, by virtue of the same they are

entitled to various benefits/ privileges including but not restricted to substantial discounts on

the room rates offered by the Company.

b. Such transactions of 'purchase of holiday plans' have been construed as 'CIS' by SEBI. The

clients in this regard would like to submit certain documents/ information to SEBI which would

explain the objective of purchasing holiday plans, their control over disposal of/ dealing with

holiday plans, etc. in right perspective.

7. The noticees vide letter dated April 20, 2015, submitted the details in respect of randomly

selected 500 customers and replied that all the said 500 customers had opted to accumulate their

holiday points for utilising these at a future date and therefore, they have not submitted the

particulars such as the requests for room utilisation, room allotment details, point redemption

details, etc. in respect of such customers. Vide email dated April 21, 2015, the noticees also

requested for an adjournment for the date of hearing on April 24, 2015. The request for

adjournment was rejected as the same was fixed as per the request of the noticees and it was

informed that the hearing will be conducted as per schedule, without any change.

On April 24, 2015, Mr. Mukesh S. Thakur and Mr. Umesh Vartak appeared for the personal

hearing and made submissions. Before concluding the hearing, they again requested for an

adjournment for making the concluding submissions. The same was initially rejected for the

reason that it will cause delay in the matter. However, the representatives made persistent

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requests for another hearing. Considering the requests, the matter was adjourned to May 11,

2015.

The representatives of the Company also submitted that a group of investors had made a

representation to SEBI vide letter dated January 27, 2015 and requested for an opportunity of

personal hearing. In this regard, it was directed that the documents/ information which such

investors want to submit, may do so at the earliest and the persons/ investors who want an

opportunity of personal hearing, may make specific requests and appear on May 11, 2015.

8. Mr. Abhaykumar N. Jadhav vide his letter dated April 29, 2015, while requesting for an

opportunity of personal hearing on behalf of few customers of the Company, submitted as

under:

a. The interim order is arbitrary and erroneous. The Company has customers and not the investors.

The term 'pooling' pre-supposes prior knowledge on the part of an investor/ subscriber that he

shall be one of the constituents of a bigger group where other constituents like him shall chip

in with similar amount of contributions and a sum of such contributions shall be applied towards

a common purpose of earning profits/ gains which will be shared equally by such contributories.

The customers did not have any such prior knowledge/ arrangement as envisaged under the

concept of pooling and even a single customer could purchase holiday plans and avail the

benefits.

b. SEBI has not made any attempt by interacting with the customers in any manner, to ascertain

as to what was the objective of the customers behind purchasing the holiday plans of the

Company.

c. The customers had purchased the holiday plans/ time share holiday with the main objective of

availing the facilities/ benefits offered under them and it was not their primary objective to

receive profits.

d. There is no evidence that the company managed the funds of the customers on their behalf.

The customer is required to simply avail the benefits under the plans or sell/ surrender the

holiday plans for the company or a willing purchaser. The customers can transfer/ gift /sell the

holiday plans at any point of time during its validity. The customer enjoys complete

commercial/ financial/ administrative discretion of dealing with his holiday plans/ time share

holidays.

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e. SEBI has erroneously and without any authority added a new criteria (usage of goods/ services/

facilities by a customer) which is not prescribed in the SEBI Act. SEBI has not prescribed in

clear terms as to what percentage/ quantum of usage by the customers would qualify for not

being termed as a CIS.

f. The customers had objectives of making more gains/ savings by availing the holiday facilities

at a discounted price, ease of use/ easy acceptability of holiday plans at various hotels, easy

transferability of holiday plans/ time share holidays, public awareness and public acceptability

of holiday plans, non forfeiture of money in the event of non usage of holiday facility.

g. Upholding of the order under reference shall deprive the customers of the rights/ benefits

which they are entitled at the time of purchasing of the holiday plans and time share holidays

thereby defeating the objectives/ purpose for which the customers had purchased these and the

same shall amount to termination of contract executed between the Company and the

customers of the Company without the consent of the contracting parties and as such, a

violation of the fundamental rights of the customers.

9. On May 11, 2014, the counsel for the noticees appeared along with the authorised

representatives and made oral submission. On conclusion of the personal hearing the counsel

requested for one month’s time for giving the written submissions. Although the request was

rejected initially, however, on persistent requests the time as sought was granted. On May 11,

2015, the two advocates namely Mr. Abhaykumar Jadhav and Mr. Simil Purohit also appeared

on behalf of the 16 customers of the Company wherein they reiterated the submissions made

vide letter dated April 29, 2015.

The noticees gave the written submissions dated June 12, 2015, which were taken on record.

Mr. Abhaykumar N. Jadhav, Advocate vide letter dated June 11, 2015 submitted the

representation, which was also taken on record. With this letter, the advocate has submitted the

following lists of customers who had purchased the holiday plans/ time share holidays:

a. those who utilised part of their holiday entitlements (38 customers);

b. those who had committed for utilisation of part of their holiday entitlement and have agreed

that they shall not receive any payment of 'non availing compensation' for the part committed

by them (20 customers);

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c. those who submitted the declarations to the Company stating their intention of continuing

with the holiday plans/ time share holidays of the Company in the present form (25

customers).

It has been submitted by the advocate that the said customers wish to keep the options open

i.e. utilising whole/ balance of their holiday entitlements by using the holiday facilities offered

by the Company or receiving non availing compensation from the Company by not utilising

whole/ balance of their holiday entitlements. The direction to the Company to stop collecting

funds from the general public by marketing/ selling the schemes to them will adversely affect

the interests of those customers who had opted to purchase the holiday plans by making

payment in installments. The customers will lose benefits in the form of discounts on their stay

in the hotels. The direction to the Company to wind up the existing CIS and refund the monies

collected by the Company to the investors within specific period shall not benefit the customers

in any manner. It extinguishes the customers right to exercise the option of availing holiday

facilities as offered by the Company.

10. The submissions of the noticees in the brief, are as under:

a. The Company is a group company of the ‘Mirah Group of Companies’. The group is inter alia

engaged in Real Estate development, hospitality, travels, wind energy generation, computer

education, textiles, corporate gifts and international trading. One of the business activities of

the Mirah Group is to own and/ or manage hotels, resorts and restaurants. As per the Articles

of Association of the Company, its main objects are: “…giving it on time sharing or property sharing

basis by days, weeks, months, points and any undivided shares with or without holiday exchange basis both in

India and outside India (including outright sale thereof) whether in single room suits”.

b. The occupancy rates in the hotels throughout the year on average worked out to only 60%,

leading to under utilization of the Mirah Group’s assets and resources. The Company was

therefore set up to optimize and increase the room occupancy percentage by way of marketing

Time Share schemes, whilst competing with several other companies in the market which are

into the business of Time Share schemes. A blue print of the marketing plan was formulated

by the Company while setting out the holiday plan/ time share holidays emphasizing the full

advantages of the holiday plan/ timeshare holidays offered by Royal over the conventional

'Time Share schemes'.

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c. The Company had to offer new and innovative schemes as opposed to that of the established

companies. Therefore, Royal introduced a different concept, which was easy to understand,

operate and offered flexibility to the customers. As there was no ‘week concept’, no limitation

on account of amount, nothing like high/ low season, rates for purchase of the holidays were

independent of season, holidays were the sole discretion of the purchaser, any number of days

could be used at a time, additional days other than the days specified in the holiday plans could

be used by paying an additional amount, customer was free to purchase another plan, while

continuing with one plan, no additional charges to be paid (no hidden costs), choice of places

not restricted to either the hotels and resorts owned by the Mirah Group or to affiliated resorts

but could be extended by availing exchanges with other establishments that have tie up with

Royal, points accumulated could be used for other than holidays i.e. for business travel or

personal travel, accumulation was allowed with zero forfeiture clause, gift/ transfer/

assignment/ rent out options, dining options at various F&B outlets to redeem their points

also if the client did not wish to avail of his right to enjoy a holiday and/ or stay at any of the

available hotels or utilize the restaurant facilities available to him, the client would get back the

subscription paid by him in addition to certain further non availing compensation.

d. The packages were offered at deep discounted price owing to the fact that the purchaser was

making down payment for the full terms of the holiday plan period while usage was spread

over the full term of the holiday plan. The Company mainly operated three 'time share

schemes' for its clients, i.e. Economic Holiday Plan, Comfort Holiday Plan and Luxury

Holiday Plan, wherein, the client paid money to avail of the planning of his holidays, hotel

accommodation, sightseeing, travel guide, ticketing, food coupon, gift shopping and

organizing the same with several hotels/ resorts etc. across India.

e. As of March 2012, the Company had reached its optimum number of clients and it had not

sold any holiday plans/ time share holidays to its customers since April 2012. The Company

had not launched any new holiday plans/ times share holidays or scheme since April 2012 and

neither had it been accepting any new customers on and from April 2012. In respect of the

holiday plans purchased by the customers on installments before April 2012, Royal had been

accepting the installments without explicitly or otherwise asking for payment as refusal to

accept the voluntary payments by its customers, would have been against the interest of the

customers.

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f. SEBI is yet to decide whether a 'time share company' is a CIS or not. The Hon’ble Courts

have taken a prima facie view that a scheme of the 'time share' does not fall within the meaning

of a CIS and SEBI would not have any jurisdiction to take any action in the affairs of business

such company. Whether a time share company is a CIS or not, ought to be decided as a

preliminary issue prior to passing any decision on the individual facts of any matter. SEBI

ought not to pass any final order until the hearings are concluded in all the matters relating to

Time Share companies. The noticees be allowed to participate in, be permitted to attend and

make representation in all present ongoing matters relating to the 'time share' companies.

g. The amounts were received from the customers as sale proceeds and the same were neither

pooled nor utilized solely for the purpose of the holiday plan/ time share holiday. It was

submitted that the term 'pooled' is not defined in the SEBI Act/ the Companies Act, 1956/

the Securities Contract (Regulation) Act, 1956 and hence its meaning as understood in general

parlance needs to be considered. The word 'pooled' is used in verb form and the meaning of

'pooled' presupposes inherent/ prior knowledge on the part of the persons that they shall be

working as group towards achieving a commercial objective by contributing certain amount

to a common/ corpus fund. In pooling of funds, the only right of an investor was for uniform

financial gain.

h. The transactions between the Company and its customers amounted only to sale of holiday

plans/ time share holidays. The payment received under the holiday plan/ time share was not

managed on behalf of the customers as the same sale proceeds after deducting various expense

incurred for achieving the sale of holiday plans were only the profits of the Company. The

noticees were selling hotel rooms/ holiday plans which their clients had the right to avail of

and it is only in the event of non usage of the said holiday plan that the client can receive

financial benefits. The customer had no knowledge as to what transactions other customers

were entering into with Royal. There was no commonality of the object with the objects of

other customers. There was nothing unusual in selling a hotel room at the below rack rate i.e.

at a discounted rate. Royal, after deducting various expenses incurred for achieving the sales

of the holiday plans, earned certain amount of profit and also paid income tax on the said

profit. The payments received by Royal was used only when a customer decided to avail the

facilities offered to him and till that time money could be used for purposes other than

'providing holiday plan'/ 'time share holidays'. Sale proceeds generated by the sale of holiday

plans/ time share holidays were the profits of Royal after deducting these from expenses

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incurred for achieving the sales of the holiday plans. Royal had used the sale proceeds lying

idle until utilisation, for various business activities other than for holiday plan. The audited

financial statements of Royal duly assessed by the Income Tax Department showed that the

sale proceeds were used for advancing loans to associate companies, investment in shares and

such other similar assets.

i. The amounts paid by the customers entitled them to redeem points which can be used for

holidays and dining out options. In the event the customer chose not to avail these services

he could avail of the rent out option i.e. the plan holder is allowed to 'rent out' un-utilised

portion of the holidays. The same were rented out by the Company in open market and rent

realized was paid to the customer opting for the facility. In such cases the value of the facilities

rented out did not exceed the original value of the plan. The amounts paid by the customers

were used by Royal to receive profits, income, produce or property, whether movable or

immovable, from such scheme or arrangement for Royal itself and not the customers. The

customers under the scheme/ arrangement were only entitled to use the holiday plans. Several

clients of the Company had utilized their holiday schemes and enjoyed a holiday at the hotels/

resorts offered by the noticees. The noticees had obtained declarations from about 5,000

clients who stated that though they had not utilized their holiday till date, they intend to do so

before expiration of the scheme. The customers had an option of accumulating their holiday

points, which could be used at any time within the validity period of their plans.

j. The term 'managed on behalf of investors' pre supposed that the Company acted as an 'agent'.

Royal is neither an agent nor did it have any investors. It was simple and pure transaction of

'sale' of holiday entitlement certificates/ holiday plans/ time share holidays. When the scheme

was managed on behalf of the investors, the manager/ management was required to give to

the beneficiaries its report stating therein the status and financial position of the affairs

managed by him. However, the Company neither contracted to give such report to its

customers nor did it give any such report. The Company was simply selling hotel rooms/

holiday schemes to its clients. They did not have any day to day control after the sale

transaction was completed. The Company was not in a position to direct/ command the

clients as to when they could utilize their holidays. The utilization of the plan was completely

at the discretion and control of the individual client. A client could choose to utilize a plan or

assign or gift the same or even not utilize it at all.

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k. Royal did not operate any scheme/ arrangement and only sold holiday plans. The customers

of Royal had wide discretionary powers to use the benefits derived by them from holiday

entitlement certificates/ holiday plans/ time share holidays. From holiday commencement

date, the customers had power (i) to transfer their holiday plans in full, (ii) to gift the said

holiday plan to any person they desire, (iii) to use the holiday packages in any manner as the

customer desires within the holiday plan/ period. Though there was a condition in the

application form that the 'cancellation/ surrender of holiday plan was not permitted and such

cancellation/ surrender were at total discretion of the company', the succeeding condition

provided that the cancellation/ surrender of holiday plans were indeed permitted after

deduction of certain amount. The Company had never exercised its discretion 'to refuse/

prohibit cancellation/ surrender of holiday plan before the due date' and it had always

permitted such cancellation after deduction of the stipulated amount. By virtue of the doctrine

of estoppel, the powers had become redundant, thereby giving its customers absolute freedom

to manage/ utilize the holiday plans purchased by him. Therefore, the utilisation of the profits

was at the sole discretion of Royal.

l. There was no arrangement for sharing of profits as the profits earned by operating the holiday

plans/ time share holidays were the profits of Royal. The customers could avail of facilities/

services at the hotels and resorts for personal and business travels and dining out options.

There was no creation of any right, title or interest in favour of any persons in the assets and

property of Royal.

m. If the plan holder desired for full/ partial rent out/ sales option, the Company had to make

best possible efforts to generate rent out in open market. However, the rent out depended

upon the business conditions and bookings received by Royal. The rent out so generated from

unutilized portion of holiday purchase by the plan holder would be paid to him on or after the

validity of the plan selected.

n. The Company could not be running a CIS and a Time Share Scheme at the same time. The

statement of utilization of rooms, the occupancy of rooms by clients of the Company was

steadily increasing as clients accumulated holidays and then used them at a stretch for longer

holiday. All the investments made by the customers were supposed to give returns.

o. The Ministry of Corporate Affairs (hereinafter referred to as 'MCA') in its report dated August

31, 2012, had observed that it was premature to arrive at any opinion that Royal had intentions

to defraud customers/ holiday plans purchasers. MCA vide letter dated January 09, 2013

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addressed to SEBI had forwarded a report which specifically gave a finding that the holiday

plans being sold by the company fell under the sale of services and did not amount to deposits

mobilization/ acceptance of deposits and there was no instance of the company defrauding

its customers/ clients and no specific violations of SEBI Act were observed.

p. The interim order violated the provisions of Article 19(1)(g) read with Article 14 of the

Constitution of India as several companies were offering holiday plans/ time share schemes

and only Royal was sought to be charged with operating a CIS. The noticee had the

constitutional right to run its business of selling/ providing hotel rooms. The said business

was not illegal or unlawful in any way. In obvious legal malafide action and discrimination

against the noticee, SEBI seemed to be only taking action against the noticee and subjecting

them to legal proceeding, whereas it appeared that they had not initiated any proceedings and

apparently did not propose to commence any regulatory action against other similarly placed

companies which were also running Time Share Scheme.

q. Royal was using its assets only in the ordinary course of business and had not disposed off any

of its assets after the passing of the interim order. The bank balance of Royal as on the date of

interim order and as on April 30, 2014 was ₹ 1,96,79,738 and ₹ 4,23,42,571 respectively. It had

an inventory of 2,33,965 rooms available for use by the customers of the Company.

r. None of the customers i.e. the actual users of the holiday plans/ time share holidays had made

any complaints against Royal. All the customers of the Company were genuine persons who

had acted upon their respective contracts. The relationship was governed by terms of the

contract executed between them. The said contracts were perfectly legal, valid, binding and

subsisting on both the Company and its clients. If SEBI passed an Order directing the noticees

to wind up their schemes, SEBI would be directing the noticees to commit a breach of their

contracts executed with their clients without SEBI having first declared the contract to be

illegal. Several clients of the Company primarily wanted to utilize their plans and enjoyed stays

at hotels/ holidays. SEBI should not force these clients to accept money instead of a holiday.

About 5,000 clients of the Company had signed 'declarations' to the effect that they wanted

the scheme of the Company to continue. Several clients of the Company had signed

declarations to the effect that though they had not used the hotel/ restaurant facilities available

to them under the contract, yet they intended to do so prior to the expiry of their contracts.

s. If for any reason SEBI would come to the conclusion that the Company was in fact a CIS

then and in that event, the Company would be deemed to be an existing CIS as per Regulation

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74A of the CIS Regulations and the Company would have to comply with the provisions of

Regulation 5 of the CIS Regulations. SEBI would be bound to give notice to register

themselves as a CIS. Even in the event of winding up, SEBI would be bound to follow the

procedure as laid down under Regulation 73 of the CIS Regulations.

11. I have considered the interim order, the oral and written submissions of the noticees, the

documents furnished and the material available on record. I note that the Company has

submitted certain document of one 'Citrus Check Inns', a division of Royal Twinkle Star Club

Limited i.e. plan of Citrus Check Inns, Holiday Plan Entitlement and application form.

However, as the same is not part of the present show cause notice, the same is not being

considered in the present proceedings. The main allegation as against Royal is that the plans/

schemes operated by it are in the nature of CIS and the same is being carried out under the garb

of time share. It has also been alleged that Royal is 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.

12. Before proceeding with the merits of the case, let me address the preliminary objections of

Royal i.e.,

a. The first objection of the Company is that prior to passing of any direction in the matter, SEBI

must decide whether a 'time share' company is a CIS or not. It has been said by the noticees

that the Hon’ble Courts have taken a prima facie view that a scheme of 'time share' does not fall

within the meaning of a CIS and SEBI would not have any jurisdiction to take any action in the

affairs of business of such company. It has also been said that SEBI ought not pass any final

order until the hearings are concluded in all the matters relating to 'time share' companies and

the noticees be permitted to participate in and make representation in all present ongoing

matters relating to the 'time share' companies.

However, I find that the charge levelled against the noticees is that "... RTSCL is carrying on

collective investment scheme in the garb of 'Time Share' as it is seen that out of the total number of investors in

its Holiday Plans, around 98% did not avail the holiday facilities being provided by RTSCL." A reading of

the above, shows that the allegation as against Royal is not that it is running a time share. The

allegation in the interim order cum show cause notice is that the Company is carrying out the

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activities of a CIS under the garb of 'time share'. I note that in a time share business, a customer

pays the money to the company to avail hotel stay and other services related to such stay. Such

customer does not get the money back if the facility is not availed. I note that the plans of Royal

have a provision of redemption of the money along with the returns to the customer, if the

holiday facility is not availed. During the course of personal hearing, the counsel for the noticees

had referred to the feature of returning the money as an improvement over the other companies

running time share. In my opinion, this provision changes the very nature of the contract i.e.

from provision of hotel service to the provision of investment services.

b. Another objection is that the interim order violates Article 19(1)(g) read with Article 14 of the

Constitution of India as several companies are offering holiday plans/ time share schemes and

only Royal is sought to be charged with operating a CIS. The noticees have argued that the

Company has the constitutional right to run its business of selling/ providing hotel rooms. The

Company has also argued that in obvious legal malafide action and discrimination against the

noticee, action has been initiated and subjected against the noticee, whereas it appears that

proceedings have not been initiated against other similarly placed companies which are also

running 'Time Share' Scheme.

In this regard, I note that in terms of Article 19(1)(g) of the Constitution of India, the citizens

have the right to practice any profession, or to carry on any occupation, trade or business. I also

note that the said right is applicable to all the citizens and is not unfettered but subject to certain

restrictions as contained in Article 19 of the Constitution of India. I note that the interim order

was aimed at protecting the interests of investors and to ensure that only legitimate investment

activities are carried on by Royal and no investors are defrauded. The interim order has noted

that 'RTSCL is carrying on collective investment scheme in the garb of 'Time Share' as it is seen that out of the

total number of investors in its Holiday Plans, around 98% did not avail the holiday facilities being provided by

RTSCL'. The interim order has said that the Company had not obtained certificate of registration

under the CIS Regulations for its fund mobilizing activity from the public. In such

circumstances, it became necessary for SEBI to restrain the Company from collecting more

money from the investors including under the existing schemes. It was also inter alia thought fit

to direct the Company not to divert any funds raised from the public at large which are kept in

the bank account(s) and/ or in the custody of the Company. Therefore, in my view the

directions contained in the interim order do not violate its right of profession or business. As

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regards, the submission that no action has been initiated against the other similarly placed

companies which are also running 'time share' scheme, I note that the same is not correct in

view of what has been stated in para 12(a) above.

c. The noticees have also submitted that SEBI should not have acted on the complaint dated

January 02, 2012 as MCA in its Inspection Report dated August 31, 2012 had observed that "it

is premature to arrive any opinion that Royal has intentions to defraud customers holiday plan purchasers". In

this regard, it is important to note that MCA has only made an observation, whether Royal has

intention to defraud customers through its plans is premature. The same is therefore not a

finding that Royal had no intention to defraud. In view of the same, reliance by Royal on such

observation does not have any merit. It is also to be appreciated that the charge against the

Company is for running a CIS scheme without obtaining registration from SEBI as required

under Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. Further, the

present case is being examined on the basis of independent facts and documents. SEBI on

preliminary examination of the material available on record, had made a prima facie conclusion

that the Company 'is engaged in fund mobilising activity from the public, by floating or sponsoring or launching

CIS as defined in Section 11AA of the SEBI Act without obtaining a certificate of registration from SEBI'.

The interim order has also observed that 'reasonable opportunity has been afforded to RTSCL to respond

to SEBI. When considered in the context of the abovementioned prima facie finding, the inescapable conclusion

is that non-submission of the information to SEBI is nothing but an attempt to conceal the true nature and

operation of the fund mobilising activity of RTSCL'.

The reference from MCA vide letter dated January 09, 2013, refers to the holiday plans being

sold by the Company as falling under the sale of services and not amounting to deposits

mobilisation/ acceptance of deposits. These observations have not been issued in the context

of Section 12(1B) of the SEBI Act which 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. In view of the same, I find no

merits in the submission of Royal.

d. The Company has also argued that as per the Section 11(2)(c) of the SEBI Act, SEBI has to

register and regulate the working of CISs and SEBI has not managed to register a single CIS

scheme till date as the same is unmanageable. I find the argument irrelevant to the instant interim

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order cum show cause notice and find no merit in this submission of the Company, in so far as

the instant case is concerned.

13. Having considered the above, the issue that now arises for my consideration is: whether Royal

is operating a CIS without obtaining registration from SEBI?

a. I note that the Company was incorporated on March 06, 2008 as Royal Twinkle Star Club

Private Limited. On February 02, 2009, pursuant to the change of name to 'Royal Twinkle Star

Club Limited' a new certificate of incorporation was issued to it. I note that the noticees have

admitted of having 3,68,833 customers who have contributed to ₹ 668.33 crore (i.e. ₹ 196.79

crore by 1,03,709 customers in Comfort Holiday Plan; ₹ 149.59 crore by 2,37,587 customers in

Economic Holiday Plan and ₹ 321.95 crore by 27,537 customers in Luxury Holiday Plan).

The Company vide its letter dated February 03, 2015, submitted the details of its nine (9) plans,

in which the amount received from the customers was shown as ₹ 2656,01,17,417. The number

of customers has been shown as 2,66,102. Such details are clearly at variance from the details as

submitted earlier by Royal. I have seen the details as brought out in the letter dated February

03, 2015 and the same are being reproduced below for reference:

TABLE A

S.No. Name of Plan Amount Received

Services Utilised/

Redeeemed

Amt. Yet not availed

No. of members

1 Comfort 519,60,56,670 240,60,16,205 279,00,40,465 97,535

2 Economy 1274,25,91,330 998,89,30,890 275,36,60,440 1,36,087

3 Luxury 850,60,18,550 539,36,82,050 311,23,36,500 32,115

4 Frangrance Plan 3,36,90,077 2,78,47,077 58,43,000 150

5 Lime Plan 2,03,15,634 1,28,90,634 74,25,000 60

6 Nano Plan 12,78,275 12,78,275 - -

7 Nano International

1,69,49,578 1,69,49,578 - -

8 Orange Plan 1,65,50,837 94,02,837 71,48,000 33

9 Strawberry Plan 2,66,66,466 1,72,11,466 94,55,000 122

2656,01,17,417 17,87,42,09,012 868,59,08,405 2,66,102

From the above details, it is noted that the collections from the plans namely Comfort,

Economy and Luxury is 99.56% of the total collections and the number of investors of these

three plans is 99.86% of the total investors of nine plans. I note that the Company has not

submitted the brochures, etc. containing the terms and offers of its six plans (Fragrance, Lime,

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Nano, Nano International, Orange and Strawberry plans). It is seen that SEBI while issuing the

interim order had considered the 'Comfort Holiday Plan' of Royal, against which SEBI received

an investor complaint. However, the Company in its submissions dated June 15, 2012 and June

09, 2014 had provide the details of three holiday plans i.e. Comfort, Economic and Luxury. In

order to examine the case, I am taking into consideration all these three plans of the Company,

the details of which were submitted by it in its reply dated June 09, 2014.

b. Having considered the above, I now consider the brochure of the plans of the Company. One

of the relevant clause of the brochure is as under:

"Holiday Plans RTSC offers its customers/ guests a variety of Holiday Plans to choose. The Plans are based on the Internationally famous Points System. A Point is the currency used to book your Holiday needs & also its offers full flexibility to Holiday WHEN EVER (Any Season), WHERE EVER (Any Location) Any SIZE and QUALITY of accommodation that suits to its customers/ guests. ..."

The other details regarding the plans as noted from the brochure are as under:

TABLE B Plan Holiday Theme Term Membership

points Holidays

worth

Comfort Bronze Do pe Ek Free 4 years 50 points 76 points

Copper Bury Your Worry 5 years 250 points 425 points

Silver 1+1 Offer 6.5 years 50 points 100 points

Gold Best Deal to Seal 9 years 50 points 150 points

Economic Almond Enjoy Holidaying while Subscribing 4 years 120 points 165.85 points

Saffron Enjoy Holidaying while Subscribing 4 years 180 points 268.76 points

Luxury Platinum-Y Unique Entitlement at Zero Cost 5.5 years 500 points 413 points

Platinum-H Unique Entitlement at Zero Cost 5.5 years 1,000 points 776 points

* 1 point = ₹ 100/-

It is noted that in Comfort Holiday Plan and Luxury Holiday Plan, full payment had to be made

at one time. As regards, the Economic Holiday Plan, the payment was being accepted in

installments. In all the plans the un-utilised points could be redeemed on or after the expiry of

the plan. The details of the point (which is equivalent to ₹ 100) given to the customers at the

time of opting for the plan and at the end of the term of the plan, were provided in the brochure

itself. On the basis of the same, the customer makes a choice to opt for the plan. It is seen that

the term of the plans is varied i.e. from four years to nine years. As per the brochure foreclosure

of the holiday plans was not permitted to the customers.

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c. Another set of documents contain the 'application form' and the 'offer document', containing

the definitions, terms and conditions. 'Application Form' is a pre-printed document providing

for submissions of the details of the name, address of the customers, nominee and the plan. It

is seen that the 'application form' is similar in nature for all the three plans except for the name

of the plans. The 'application form' contains the clause that "... I hereby agree to abide by all terms

& conditions of the offer document. I declare that the information as given above is true & correct."

On the reverse side of the 'application form' there are certain terms and conditions. The same

are mostly similar in all the three plans, except a few. I have perused the terms and conditions

of 'Comfort Holiday Plan', the relevant clauses of the same are as under:

"Definitions: ... ... 3. "Certificate" means a document issued by the Company to an individual in confirmation of acceptance of his Holiday Plan. ... 6. Voluntary Care Scheme (VCS) will be offered as an affection of the company towards the plan holder to pay a sum of Rs.10,000/- minimum Or Plan Entitlement Amount rounded off to the nearest Rs.5,000/- or Maximum of Rs.1.00 Lac per person having multiple plan certificates in case of loss of life or permanent disability due to an unfortunate accidental hazards at any destinations only one time during plan validity period. VCS benefit will not be offered on Discontinued/ Not in Force certificates as on date of accident. Terms & Conditions: ...

3. The holiday plans are designed by the company and acceptance of an application is the sole discretion of the company. The company may reject any application without disclosing any reason for the same. 4. The holiday plans of RTSC are void if prohibited by law in India. 5. To be a Plan Holder, a person must be an Indian Citizen. Acceptance of the holiday plan is effective from the time the company communicates to the plan holder notifying the participation. ... 12. All hotels or resorts & allied services whether owned by the Company or through it's tie ups/ arrangements are strictly subject to availability. 13. For all holidays bookings, the plan holder has to contact RTSC customer service before 30 days in advance & obtain valid confirmation for the same. ... 16. All cancellations will attract a nominal cancellation fees as per the standard terms and conditions of the hotels & resorts booked by the customers. ... 18. The Plan holder can avail the Benefits only after completion of one year from the date of purchase of holidays. ... 21. The Holiday Plan Holder must book the hotel/ resort only through the Company for availing the benefit of the scheme. Any direct booking by the Plan Holder at the locations either owned by the

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company or at the tie up place is prohibited. Such practice attracts cancellation of Holiday Plan and the Loss accruing from such cancellation shall be recovered from the amount of Holiday plans before refund of unutilized benefit. ... 26. The Plan Holder can accumulate the benefit or can postpone the utilization of the annual benefit but he is not allowed to pre-pone the utilization of the facility under any scheme. 27. The Plan Holder is allowed to ‘rent out’/ sales accrued portion of the Holidays. If he desires full/ partial rent out/ sales option, the Company shall rent out/ sales such holiday points in open market and sales proceeds rent so received will be given to the plan holder as per the plan selected. 28. The Company shall make best possible efforts to generate rent out in open market. However, the rent out depends upon the business conditions and bookings received by the company. The rent out so generated from the unutilized portion of the holiday purchase by the plan holder will be paid to him on or after the validity of the plan selected. In the unlikely event of insufficient rent out realisation of unutilized portion of holidays, the company undertakes & guarantees to make good to the plan holder out of the profits/ assets realisation of the Twinkle Group companies having common Board of Directors. 29. The Company reserves the right to add on or delete or otherwise change any of the rules, conditions, privileges, benefits or rewards at its sole discretion. 30. The Company reserves the right to discontinue any of the Holiday Plans at its sole discretion. 31. The Company reserves the right to add on or delete the plan either through chain of own resorts or through tie ups. All the hotels/ resorts/ clubs whether owned or tie ups may not provide similar facilities. 32. The Company is at liberty to sell the unoccupied rooms, in absence of the booking from the Plan Holder in the open market. 33. The Holiday plan once purchased can not be withdrawn or the application for cancellation shall not be entertained. However only in exceptional cases, the company may consider the withdrawal/ cancellation of the application at its sole discretion and reserves the right to deduct the amount towards the administration expenses and the cancellation charges against the booking of room days from the Holidays purchased by the Plan Holder ... ... ... ... 39. The Plan holder is deemed to have joined holiday Plan with the full knowledge of the holiday plan scheme of the company."

A reading of the above clauses shows that the customers has the option to either accumulate

the benefits or postpone the utilisation of the annual benefits. The customer who is opting for

installment payment scheme, has to wait for one year for availing the benefits of the plan. The

customer can rent out/ sell the accrued holiday points with the assistance of the Company. As

per the clauses of 'offer document', withdrawal/ application for cancellation is not permitted.

Only in exceptional cases, the same is considered at the sole discretion of the Company.

However, the Company in its submissions has stated that it allows cancellation/ surrender of

the plans, as detailed hereunder:

TABLE C Prior to 1 year 1-2 year 2-3 year 3-4 years after 4 years after 5

years

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Comfort Holiday Plan

Amount deducted shall be equal to 22% for Bronze/ 30% for Copper/ 33% for silver/ 40% for Gold of the amount at which Holidays were purchased

Amount deducted shall be equal to 15% for Bronze/ 20% for Copper/ 26% for silver/ 33% for Gold of the amount at which Holidays were purchased

Amount deducted shall be equal to 8% for Bronze/ 10% Copper/ 18% for Silver /26% for Gold of the amount at which Holidays were purchased

Amount deducted shall be equal to 5% for Copper / 10% for Silver/ 18% of the amount at which Holidays were purchased

Amount deducted shall be equal to 8% for Gold of the amount at which Holidays were purchased

No deduction

Economic Holiday Plan

Amount deducted shall be equal to 25% for Almond/ 30% for saffron of the amount at which Holidays were purchased

Amount deducted shall be equal to 18% for Almond/ 20% of the amount at which Holidays were purchased

Amount deducted shall be equal to 12% for Almond/ 10% for saffron of the amount at which Holidays were purchased

Amount deducted shall be equal 5% for Saffron of the amount at which Holidays were purchased

No deduction

Luxury Holiday Plan

Amount deducted shall be equal to 30% of the amount at which Holidays were purchased





No deduction

From the above, I note that the Company has different slabs of deductions for different plans,

if the application is withdrawn by the customers in the initial years of enrolment with the plan.

d. The next document submitted along with the reply of the Company is the 'certificate'. It is seen

that the same is a pre-printed document with blank spaces for requiring the details of enrollment

number and date, the name, address of the customers, nominee details and details of the plan

i.e. plan selected, plan period, plan amount, plan validity date, plan entitlement, accumulated

entitlement, etc. On the reverse side, it contains the details of the transfer and facilities availed.

The same appears to be more in the nature of ‘deposit advice’.

e. From the discussion above, it is observed that the Company was inviting applications for selling

its various holiday plans which also gave the assured returns at the end of the term. I also note

the following:

i. The Company at the time of accepting application do not take the complete details and

takes the payment in cash also.

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ii. The customer can not avail the holidays for the initial period, which differs from plan to

plan.

iii. As per the Company, the holiday points entitles the customers to redeem points which can

be used for holidays and dining out options. It is seen that the customers of the

Company are spread in deep interiors of the States.

iv. The money collected from the customers remains with the Company. The Company takes

the responsibility of renting out the holidays in the open market.

v. Out of the sample of 500 customers none has availed the holidays’ facility or the dining

options provided by the Company or gifting/ transferring the holidays.

vi. The Company reserves the right to discontinue any of the holiday plans at its sole

discretion.

vii. The Company gives the assured return and the same is shown as points. The brochure of

the plan provides for the points available at the end of the term of plan.

viii. The Company in brochure has declared the points which will accrue at the end of the term

of the scheme. Such points carry monetary value.

ix. The Company has argued that there was no investment, as the hotel rooms were sold to

the customers at an earlier point in time at a discounted rate and the customer has the

option to utilize the occupancy of the said hotel room, in which case no money is to be

paid to him. However, if the client chooses not to occupy the same throughout the period

of the scheme, at the end of the scheme, he will be repaid by the full value of the room rate

at that point in time. This submission of the noticees is contrary to the plans demonstrated

in the brochure which provides beforehand the points/ amount payable at the end of the

term. There is no reference to the room rate at the end of the scheme in the brochure.

However, in either case the schemes do provide for some income/ profit/ returns and are

not limited to simply availing of the hotel/ restaurant services.

From the observations as noted above, it can be inferred that the transactions of the Company

are not in the true nature of 'time share'. The plans are in the nature of investment scheme and

the fact of non-availing of the holiday entitlements by the sample 500 customers of the noticees

further strengthens the said finding. I note that the schemes of the Company can be said to be

investment schemes.

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f. Having considered the above, I analyse the set of 500 samples submitted by the Company,

pursuant to the personal hearing held on January 30, 2015. I note that the sample of such 500

customers was selected from the list of customers provided by the Company. The noticees vide

its letter dated April 20, 2015, submitted the details in respect of randomly selected 500

customers and said that these 500 customers had opted to accumulate their holiday points for

utilization at a future date.

My observations on these samples are as under:

- Admittedly out of the sample of 500 customers, none had utilized the points for availing the

holidays.

- The Company has failed to provide the complete set of documents. In case of 38 customers,

the Company has not submitted any application form. The Company has also not submitted

the payment/ installment receipts for its customers. The Company has accepted cash from

its customers.

- In samples, where the list of installments is attached, they are nothing but mere 'print outs'

and providing the details of the due date, receipt date, amount. The crucial details like the

receipt number and other relevant details are missing from the same.

- The Company has failed to capture the PAN details in the application form, when there was

a specific space for it. In a few samples, the Company has attempted to provide the PAN as

taken from the website maintained by Income Tax Department.

- In case of a few installment plans, the Company has submitted documents showing the

receipt of installment amounts before the due date. The receipt date of amount is also shown

to be a future date. The same questions the veracity of the claim of the Company and hints

that these have been created just to mislead the proceedings.

- The customers of the Company are from varied background i.e. labourers, farmers, retired

persons, etc. and also located at remote locations. I have taken two application forms of the

customers namely Mr. Jaysingh B. Kamble and Mr. Bhimrao S. Dedhe for detailed

examination.

- The customer namely Mr. Jaysingh B. Kamble is a 'labourer' by profession and has taken the

4 year 'Economic Holiday Plan' and is making a monthly installment of ₹ 500, in cash. The

address of the customer is Kardaga, Chikodi, Belgaum. It is seen that the PAN and PIN

details have not been captured in the application form. It is seen that the customer has paid

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the installments till February 2014 only and after February 2014, the Company has not shown

any dues from the customer. The same raises serious question on the data maintained and

relied upon by the Company, as the details appears to be incomplete.

- Another customer namely Mr. Bhimrao S. Dedhe is a 'farmer' by profession and had taken

the 6.5 year 'Comfort Holiday Plan' by paying ₹ 10,000 in cash. The address of the customer

is Dhonewadi, Pandharpur, Solapur. It is seen that the PAN and PIN details for the customer

have not been captured in the application form. This customer of the Company also has to

spend a considerable amount of money and time to reach any of the holiday location or food

outlet of the Company as all the locations are at a distance.

- I note that both the said customers of the Company have to spend a considerable amount

of money and time to physically reach to any of the holiday locations or food outlets of the

Company in order to spend the respective entitlements. As demonstrated availing the so

called claimed facilities will be difficult and the same hints that the investment was made only

for the returns as demonstrated in the brochure.

- The Certificates submitted for the said 500 customers do not match with the 'sample

certificate' submitted along with the reply. The fields like the plan amount, plan entitlement,

accumulated entitlement, etc. are missing in the certificates submitted for the samples

selected.

- The Certificates of such 500 customers also contains a statement for 'Redemption of Points'

i.e. 'Towards Accommodation, Free Room nights, Room Up-gradation, Ticketing, Travel, Food Coupons,

Sight Seeing, gift Shoppe, Allied Holiday Facilities & Multi Facility Schemes as announced by the Co. from

time to time on per annum basis at Co. owned & or through tie-ups with its affiliated hotels & resorts, @

Rs.100/- per point.'

- The acknowledgement in the application form is without the signature on behalf of the

Company.

g. Having considered the above, now I proceed to deal with the charges leveled against the

Company. The main allegation leveled against the Company is that it is operating CIS without

obtaining registration from SEBI. Before proceeding further in the matter, it is necessary to

note the background of CIS Regulations and how the provisions came to be framed. Several

entities were mobilizing huge money by issuing various instruments and offering very high rates

of return inconsistent with the normal rate of returns and then misutilising these funds, for the

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purposes not disclosed at the time of inviting the 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 Government of India felt that it was necessary to set up an 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 Government of India communicated its decision that schemes through

which instruments such as agro bonds, plantation bonds, etc., are issued by the 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 CISs. It was against this background that Section

11AA of the SEBI Act 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 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 CIS. The press releases further stated that instruments such as agro bonds,

plantation bonds should be treated as CIS coming under the SEBI Act. All the companies

having such activities were required to file information with SEBI. Moreover, general public

was also informed that no person can sponsor or cause to be sponsored any new CIS and

thereafter raise further funds. Meanwhile, a committee was formed to examine and finalize the

draft regulations for CIS to structure a comprehensive regulatory framework. Subsequently, the

notification of CIS Regulations was issued on October 15, 1999. As per the CIS Regulations,

any person who has been operating a CIS at the time of commencement of the CIS Regulations

was required to make an application to SEBI for the grant of registration under the provisions

of the regulation, within a period of two months from the date of the notification. No entity

was allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI.

h. The definition for ‘collective investment scheme’ was inserted in the SEBI Act, 1992, vide the Securities

Laws (Amendment) Act, 1999 w.e.f. February 22, 2000. 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:

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"(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or [sub-section (2A)]1

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 the exemptions from CIS sub-section (3), involving a corpus amount of one hundred Crore rupees

or more shall be deemed to be a collective investment scheme.]2

(2) Any scheme or arrangement made or offered by any [person]3 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.

1 Inserted by Securities Laws (Amendment) Ordinance, 2014 2 Inserted by Securities Laws (Amendment) Ordinance, 2014 3 Substituted for 'company' by The Securities Laws (Amendment) Ordinance, 2014

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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 in its submissions

has said that the meaning of 'pooled' presupposes inherent/ prior knowledge on the part of

the persons that they shall be working as group towards achieving a commercial objective by

contributing certain amount to a common/ corpus fund. It has also been said that the

amounts received from the customers was the sale proceeds. The Company has argued that

it is selling hotel rooms/ holiday plans which its clients have the right to avail of and it is

only in the event of non usage of the said holiday plan that the client can receive financial

benefits. The sale of holiday plan by Royal is said to be a 'sale at a discounted price' and there

is no commonality of the objects of customers. It has also been said that the amount received

from the customer is not credited to any common/ corpus fund after deducting various

expenses incurred for achieving the sales of the holiday plans, the Company earns certain

profit and also pays income tax on the said profit. The payments received by Royal is used

only when a customer decides to avail the facilities offered to him and till that time money

remains with the Company.

I have considered the submissions of the noticees and note that the amounts received from

the customers was shown as sale proceeds. However, admittedly no delivery of hotel room

services is given by the noticees to such customers for the amount paid. The amounts

received from the customers also admittedly remains with the noticees until the customer

decides to avail the facilities offered. In case the customer does not avail the facilities by the

end of the term of the plan, the amount is returned to the customers with the assured return,

as stated in its brochure. In its brochure, the Company has stated that "RTSC offers its

customers/ guests a variety of Holiday Plans to choose. The Plans are based on the Internationally famous

Points System. A Point is the currency used to book your Holiday needs...". It is seen that the brochure

contains the details of various plans offered by the Company. Royal has sub divided the plans

(Table A) and given attractive themes to it like 'Do pe Ek Free, Bury Your Worry, 1+1 Offer, Best

Deal to Seal, Unique Entitlement at Zero Cost'.

As per the 'application form' and 'entitlement certificate', the customer applies for certain

plan as mentioned in the 'brochure'. Thus, the objective for a customer is to subscribe to one

of the plans offered by the Company for purchase of points. I note that for the investors of

Royal, there is commonality of the objects in the plans of the Company i.e. of getting the

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assured returns. I also note that the amounts paid by the customers are retained and remains

at the disposal of the Company till the expiry of the plan. From the same, it can reasonably

concluded that the amounts received from the customers were being pooled by the Company

and utilized for its scheme. Admittedly, the idle amount was invested by the Company in

certain assets. The interim order noted that around 98% of customers of the Company had

not availed the holidays. Even from the sample of 500 customers, it is seen that no single

customer therein has availed the holidays. The Company has argued that its 13,877 customers

had opted for rent out option and the remaining customers have either availed the holiday

facilities or have opted to accumulate their entitlement over the plan term. The same also, if

compared with the total number of customers is miniscule.

From the above facts, it can be said that the amount collected from the customers remains

with the Company, which is used only when certain customer of the Company avails the

holidays. If no holidays are availed by the customer, the amount remains with the Company.

In view of the above, the first condition that 'contributions or payments made by the

investors, by whatever name called, are pooled and utilised for the purposes of the scheme/

arrangement, as stipulated in Section 11AA(2)(i) of the SEBI Act is satisfied.

ii. 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. In this regard, let me again refer to the plans of the Company (i.e.

Table A). From the same, it is noted that the plans provided the subscription points and the

holidays worth points along with the term of the plan. I note that one point is worth ₹ 100.

The same shows that the customer at the time of subscribing of the plan is made aware of

the assured return. On the basis of the same, the customer makes the payment.

The noticees have argued that the amount paid by the customers entitles them to redeem

points which can be used for holidays and dining out options. In the event that the customer

chooses not to avail these services, then he may avail the services of rent out option i.e. the

plan holder is allowed to 'rent out' un-utilised portion of the holidays. It has been said that

the un-utilised portion of the holidays are rented out by the Company in open market and

rent realized is paid to the customer opting for the facility. The Company also states that "...

In the unlikely event of insufficient rent out realisation of unutilized portion of holidays, the company

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undertakes & guarantees to make good to the plan holder out of the profits/ assets realisation of the Twinkle

Group companies having common Board of Directors." The same indicates that the Company ensures

to pay the returns promised to the customers and in parallel it also attempts to rent out the

holidays accrued.

Further, the customer is also promised a value added benefit i.e. 'Voluntary Care Scheme'.

The same is also a benefit. The 'certificate' issued by the Company also finds mention about

the points accrued which indicates the profits/ income (i.e. points accrued * ₹ 100/-). This

makes it clear that the customer makes contribution/ payment with a view to receive the

profits/ income/ property/ return on their initial investments that may accrue to them as

applicable, thus attracting the second condition as stipulated in Section 11AA(2)(ii) of the

SEBI Act.

iii. 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 Company admittedly invests the idle amounts of the customers for

advancing loans to associate companies, investment in shares and other similar assets.

The noticees have submitted that the utilization of the plan was completely at the discretion

and control of the customer. It has been said that from the holiday commencement date, the

customer has power (i) to transfer their holiday plans in full, (ii) to gift the said holiday plan

to any person they desire, (iii) to use the holiday packages in any manner as the customer

desires within the holiday plan/ period. It has been said that the Royal does not operate any

scheme/ arrangement and only sells holiday plans. The Company in its submissions has also

said that when the scheme is managed on behalf of the investors', the manager/ management

is required to give to the beneficiaries its report stating therein the status and financial

position of the affairs managed by him, which has not happened in the present case. Further,

the Company has never exercised its discretion 'to refuse/ prohibit cancellation/ surrender

of holiday plan before the due date' and it has always permitted such cancellation after

deduction of the stipulated amounts.

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To begin with, I consider the argument proferred by the Company as irrelevant to the

conditions laid down in Section 11AA of the SEBI Act, 1992. The fact that the customer can

act on any of the limited set of options has nothing to do with the control that the noticees

enjoy over the funds so collected. Admittedly the noticees used the funds for its several

group companies. The same is also confirmed from the ‘notes on accounts’ for the financial

year 2010-2011, at point number 6, that the Company had granted unsecured loans to parties

covered in the register maintained under Section 301 of the Companies Act, 1956,

aggregating to ₹ 517,36,25,000.

In this regard, I note the relevant clauses from the 'offer document' containing the

definitions, terms and conditions, i.e. "The Plan holder can avail the Benefits only after completion of

one year from the date of purchase of holidays". This condition is similar for Comfort Holiday Plan

and Royal (Economic) Holiday Plan. However, in the case of Luxury Holiday Plan, it has

been said that the benefits can be availed only after completion of the quarter/ half year from

the date of purchase of holidays. The documents further contains the clause that the

Company shall make best possible efforts to generate rent out in the open market. Further,

the Company reserves the right to discontinue any of the holiday plans at its sole discretion.

These give an inference that the Company always has control over the plans and the same

are managed by the Company only. I also note that in the plans of the Company, at the time

of making contribution/ payment, the customer only decides the plan name, duration of the

plan and option of payment.

Further, as seen from the sample of 500 customers as selected, none of the investors have

exercised the so called power to transfer holiday plans/ gifting of the holiday plan to any

person they desire/ rent out option. The facts and circumstances of the case show that the

customers of the Company at the end of the term of the plan only gets the amount invested

along with the promised return. The same shows that the customer does not manage his

investments in the plans rather his investments are managed and utilized by the Company.

In rent out option also the Company only controls the day to day management and operation

of the scheme. From the records, it is not clear as to how and when a customer is paid back

the money so received in the rent out option.

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The above discussion and the general scheme of activities of the Company, shows that the

property, contribution and investment pertaining to the plan/ scheme are managed by the

Company. Further, it is also clear that the customer does not have day to day control over

the management and operations of the scheme or arrangement.

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. 6572 of 2004):

"Therefore, the paramount object of the Parliament in enacting the SEBI Act itself and in particular the addition of Section 11AA was with a view to protect the gullible investors most of whom are poor and uneducated or retired personnel or those who belong to middle income group and who seek to invest their hard earned retirement benefits or savings in such schemes with a view to earn some sustained benefits or with the fond hope that such investment will get appreciated in course of time. Certain other Section of the people who are worstly affected are those who belong to the middle income group who again make such investments in order to earn some extra financial benefits and thereby improve their standard of living and on very many occasions to cater to the need of the educational career of their children. 38. Since it was noticed in the early 90s that there was mushroom growth of attractive schemes or arrangements, which persuaded the above vulnerable group getting attracted towards such schemes and arrangements, which weakness was encashed by the promoters of such schemes and arrangements who lure them to part with their savings by falling as a prey to the sweet coated words of such frauds, the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act. ... ... ... 40. It will have to be stated with particular reference to the activity of the PGF Limited, namely, sale and development of agricultural land as a collective investment scheme, the implication of Section 11AA was not intended to affect the development of agricultural land or any other operation connected therewith or put any spokes in such sale-cum-development of such agricultural land. It has to be borne in mind that by seeking to cover any scheme or arrangement by way of collective investment scheme either in the field of agricultural or any other commercial activity, the purport is only to ensure that the scheme providing for investment in the form of rupee, anna or paise gets registered with the authority concerned and the provision would further seek to regulate such schemes in order to ensure that any such investment based on any promise under the scheme or arrangement is truly operated upon in a lawful manner and that by operating such scheme or arrangement the person who makes the investment is able to really reap the benefit and that he is not defrauded ... ... It is, therefore, apparent that all other schemes/arrangements operated by all others, namely, other than those who are governed by sub-section 3 of Section 11AA are to be controlled in order to ensure proper working of the scheme primarily in the interest of the investors. ... ... 42. Therefore, in reality what sub-section (2) of Section 11AA intends to achieve is only to safeguard the interest of the investors whenever any scheme or arrangement is announced by such promoters by making a thorough study of such schemes and arrangements before registering such schemes with the SEBI and also

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later on monitor such schemes and arrangements in order to ensure proper statutory control over such promoters and whatever investment made by any individual is provided necessary protection for their investments in the event of such schemes or arrangements either being successfully operated upon or by any misfortune happen to be abandoned, where again there would be sufficient safeguards made for an assured refund of investments made, if not in full, at least a part of it. ... ... In the light of our above conclusions on this ground it will have to be held that Section 11AA is a valid provision, not suffering from any infirmity, as it does not intrude into the specific activities of sale of agricultural land and its development. ... ... It is needless to state that 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. ... .... 53. We, therefore, hold that Section 11AA of the SEBI Act is constitutionally valid. We also hold that the activity of the PGF Limited, namely, 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 and consequently the order of the second respondent dated 06.12.2002 is perfectly justified and there is no scope to interfere with the same. In the light of our above conclusions, the PGF Limited has to comply with the directions contained in last paragraph of the order of the second respondent dated 06.12.2002 ... ..."

k. To carry on CIS, the entity needs to be registered with SEBI in that capacity. I note that the

interim order was issued against the Company and its directors namely Mr. Omprakash Basantlal

Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram

Kotnis. These persons are continuing as directors of the Company and are responsible for

carrying on unregistered CIS activities. Therefore, I have no hesitation in holding that Royal and

its directors were engaged in the fund mobilising activity by floating/ sponsoring/ launching,

unregistered/ unauthorised CIS under the garb of 'time share', as defined in the Section 11AA

of the SEBI Act.

l. 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 other than a Collective Investment

Management Company which has obtained a certificate under the said regulations shall carry on

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or sponsor or launch a 'collective investment scheme'. A person can launch or sponsor or cause

to sponsor a collective investment scheme 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 the Company has

launched a CIS without obtaining certificate of registration from SEBI, it has contravened the

provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

14. At this stage, I note that the submissions of the noticees that the relationship between the

Company and its customer is governed by the terms of the contract executed between them. In

the event that SEBI passes an Order directing the noticees to wind up their schemes, SEBI will

in fact be passing an order directing the noticees to commit a breach of their contracts executed

with their clients without SEBI having first declared the contract to be illegal. The noticees have

also argued that if for any reason SEBI holds that the Company is a CIS, then SEBI is bound

to give notice to register themselves as a CIS. Even in the event of winding up, SEBI is bound

to follow the procedure as laid down under Regulation 73 of the CIS Regulations. The Company

would be deemed to be an existing CIS as per the Regulation 74A of the CIS Regulations and

the Company would have to comply with the provisions of Regulation 5 of the CIS Regulations.

SEBI would have to give the Company an opportunity to make an application for the grant of

Certificate of Registration as per the relevant regulations.

With respect to the above request and submissions, I note that in terms of the scheme and

structure of the CIS Regulations, the operation of CIS after the commencement of the CIS

Regulations without necessary certificate from SEBI, as required under Section 12(1B) of the

SEBI Act and the Regulation 3 of the CIS Regulations, is ab-initio illegal and unauthorised. In

view of the same, the Company is not eligible for any notice to register as CIS for the scheme

under consideration. At this stage, I also note that Hon’ble Supreme Court in State of Jharkhand

& Ors. Vs. Ambay Cements and Anr.4 (also relied upon by Royal) had observed that when a statute

provides for a procedure then the same should be followed. The relevant observation is “… It

is the cardinal rule of interpretation that where a statue provides that a particular thing should be done, it should

4 (2005) 1 Supreme Court Cases 368

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be done in the manner prescribed and not in any other way. … Since the requirement, in the instant case, of

obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the

concession made in favour of the grantee, the respondent herein.” In view of the same it was necessary for

Royal to seek a certificate of registration prior to the mobilization of money under its scheme

which were CIS in nature. As the Company is found to have engaged in unregistered CIS

activities, consequences in terms of Regulation 65 of the CIS Regulations shall be followed.

Further, the concern of the Company that in the event, SEBI passes an Order directing the

noticees to wind up their schemes, SEBI will in fact be passing an order directing the noticees

to commit a breach of their contracts executed with their clients, appears to misplaced. Having

found that the Company is operating a CIS without registration from SEBI, I note that the plans

of the Company are unauthorized and illegal and therefore, it becomes necessary for SEBI to

intervene in order to protect the interest of the investors. In view of the same, I find no merit

in the above submission of the Company. If any customer sues the Company for breach of

contract or any other violation of law, the situation is of Company’s own making having initiated

a contract under an illegal plan.

15. As regards the concern of the advocate appearing for the 16 customers of the Company, I note

that the proceedings undertaken by SEBI is for protecting the larger interests of the customers/

investors of the Company. I note that by ordering that the monies of the investors be returned

with returns that are promised by the Company and due to them is a natural consequence having

found that the activities of the Company in the nature of unregistered CIS. It is seen that Mr.

Abhay Kumar N. Jadhav has not submitted the 'application form'/ 'certificate' for such

customers. The submission of the advocate that the directions to the Company will adversely

affect the interests of customers who want to avail the holiday facilities as offered by the

Company appears to be a tactic to mislead the proceedings as mere 3-4% customers of the

Company have availed the holidays. I also note from the list of the customers who claimed to

have utilised the part of their holiday entitlements (i.e. 38 customers) that the customers at serial

numbers 36 and 38 i.e. Mr. Stella H. Noronha and Mr. Sanotsh T. Sapkal are shown to have

utilised the plan for destination 'Mumbai- Banglore Return' (Flight Ticket Booking) and 'FGC

of JNM130002694' (at Sony Smart Phone, Kolhapu' respectively. The same appears to be

discrepancy with the data and raises question on the veracity of the documents.

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16. During the course of personal hearing, the representatives of the noticees had emphasized that

as a hotel company, the noticees had started the ‘time share’ plans to utilize the unoccupied

rooms in their hotels. In my view the amounts collected through their so called ‘time share’

plans are grossly disproportionate to the size of operations of the group. As per the balance

sheet of the Company as on March 31, 2011, the share capital of the Company is only ₹ 5,00,000.

It is noted that the promoters of Royal have not made any substantial investment in Royal by

way of subscription to its equity. On the other hand the Company has admittedly mobilized

huge sums of money from public i.e. ₹ 2656,01,17,417. During the course of personal hearing

dated December 10, 2014, the noticees were asked to submit the balance sheet of all the group

companies of Royal as on March 31, 2014. The said details were submitted by the noticees vide

letter dated February 03, 2015. The share capital and networth details of these companies have

been extracted below for reference:

TABLE D

S.No. Name of the Company Share Capital (₹ )

Networth (Share Capital +

Reserves & Surplus) (₹ )

1. Mirah Realtors Pvt. Limited 4,99,30,000 7,37,61,2592

2. Mirah Hospitality & Food Solutions Pvt. Limited 5,00,00,000 -2,33,38,173

3. Earn More Capital Services Pvt. Limited 30,00,000 34,78,47,219

4. Edifice Properties Pvt. Limited 5,00,00,000 111,29,57,575

5. Trueworth Properties Pvt. Limited 1,00,000 3,33,752

6. Gladiolus Hotels Pvt. Limited 10,00,000 2,00,00,000

7. Royal Marwar Hospitality Pvt. Limited 3,80,00,000 14,79,49,891

8. Nouvelle Cuisine Pvt. Limited 10,00,000 -71,78,001

9. Mangii Cafes Pvt. Limited 1,40,00,000 -5,70,63,976

10. I-Base Services Pvt. Limited 1,00,000 -4,57,31,929

11. Citrus Resorts Bardez Pvt. Limited 1,00,00,000 -44,18,947

12. Citrus Chambers Mahabaleshwar Pvt. Limited 4,40,000 1,31,14,944

13. Citrus Resorts Chennai Pvt. Ltd. 50,90,000 -1,99,67,452

14. Citrus Resorts Pvt. Limited 10,00,000 -20,98,27,065

15. Citrus Retreats (Kerala) Pvt. Limited 5,50,000 -9,90,25,410

16. Citrus Resorts Bengaluru Pvt. Limited 1,00,00,000 -12,45,54,071

17. Bon Voyage Tours & Travels Pvt. Limited 5,00,000 12,90,462

18. Edifice Recreational Clubs Pvt. Limited 2,00,000 -5,48,536

19. Luxora Properties Pvt. Limited 28,33,330 1,46,77,539

20. Mirah Catering and Allied Services Pvt. Limited 9,90,00,000 65,70,521

21. Scenic Properties Pvt. Limited 1,00,000 32,53,024

Total 33,68,43,330 181,39,53,959

From the above table, it is seen that the total networth of the group companies of Royal is

₹ 181,39,53,959, which is very less compared to the admitted total amount i.e. ₹ 2656,01,17,417

collected by Royal from its customers through its nine (9) plans. This clearly indicates that the

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so called ‘time share’ plan is just a sham and the real purpose of the Company is to mobilise the

money from the unsuspecting investors.

17. I note the admission of the noticee that it is still accepting the installment from its customers. I

also note the submission of the Company that it is using its assets only in the ordinary course

of business and has not disposed off any of its assets after the passing of the interim order. As

submitted the bank balance of Royal as on the date of interim order and as on April 30, 2014 was

₹ 1,96,79,738 and ₹ 4,23,42,571 respectively.

Further, it is noted that SEBI vide its order dated June 03, 2015 against Citrus Check Inns

Limited and its directors has alleged that despite SEBI order directing Royal and its directors,

inter alia, not to collect any more money from investors including under the existing schemes

and not launch any new schemes etc., the directors of Royal were continuing its fund mobilizing

activity through Citrus, circumventing the aforesaid directions issued by SEBI. In this regard,

SEBI is directed to look into the matter expeditiously and initiate appropriate action against the

Company and its defaulting directors at the earliest.

18. 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. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal

Goenka [PAN: AECPG3854J], Mr. Prakash Ganpat Utekar [PAN: AALPU9100E], Mr.

Venkatraman Natrajan [PAN: ACUPV4686K] and Mr. Narayan Shivram Kotnis [PAN:

ABIPK5022D] 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. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka,

Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis 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.

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c. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka,

Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis 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.

d. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka,

Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis shall

not alienate or dispose off or sell any of the assets of Royal Twinkle Star Club Limited except

for the purpose of making refunds to its investors as directed above.

e. Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka,

Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis 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.

f. In the event of failure by Royal Twinkle Star Club Limited and its Directors, namely, Mr.

Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr.

Narayan Shivram Kotnis to comply with the above directions, the following actions shall

follow:

- Royal Twinkle Star Club Limited and its Directors, namely, Mr. Omprakash Basantlal Goenka,

Mr. Prakash Ganpat Utekar, Mr. Venkatraman Natrajan and Mr. Narayan Shivram Kotnis

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 18(b) above, till all the Collective Investment Schemes of

Royal Twinkle Star Club 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 Royal Twinkle Star Club 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

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- SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of

winding up of the company, Royal Twinkle Star Club Limited.

- SEBI shall initiate attachment and recovery proceedings under the SEBI Act and rules and

regulations framed thereunder.

19. 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 Royal Twinkle Star Club Limited and its Directors,

namely, Mr. Omprakash Basantlal Goenka, Mr. Prakash Ganpat Utekar, Mr. Venkatraman

Natrajan and Mr. Narayan Shivram Kotnis, including other persons who are in default, for the

violations as found in this Order and the contravention of Regulation 4(2)(t) of the SEBI

(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)

Regulations, 2003.

20. This order shall come into force with immediate effect.

21. Copy of this Order shall be forwarded to the stock exchanges and depositories for necessary

action.

DATE : August 21, 2015 PRASHANT SARAN PLACE : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

wtm/ps/42/imd/cis/aug/2015 before the … · before the securities and exchange board of india...

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