Interim Order in respect of IHI Developers India Ltd. and its Directors

WTM/SR/CIS-NRO/ 50 /08/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, 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 Schemes) Regulations, 1999 in respect of IHI Developers India Ltd. (CIN: U70200PB2010PLC033974) and its Directors/Promoters, viz. Mr. S. Harjit Singh (DIN: 01558133 ); Mr. S. Kulbir Singh (DIN: 01558152 and PAN:BKHPS1704D); Mr. Sanjeev Kumar (DIN: 01558230) and Mr.Ranjit Kaur (DIN: 05316732). 1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") received a complaint on October 07, 2011 wherein it was alleged that one Mr. Harjit Singh was collecting funds from the public through his company viz. M/s IHI Developers India Ltd. (hereinafter referred to as "IHI Developers"). It was also stated that Mr. Harjit Singh was earlier collecting funds through another company viz. M/s Imbowers Housing & Development Ltd. (hereinafter referred to as "Imbowers Housing"). The complainant also forwarded, "Registration Letter" (bearing number 0002377), "Application form for agency", "pamphlet", etc. alleged to have been issued by IHI Developers, along with the said complaint.

2. As a matter of preliminary inquiry into the alleged fund mobilization by IHI Developers and Imbowers Housing, SEBI vide several letters and reminders, particularly those dated October 14, 2011, June 07, 2012, August 30, 2012, etc., sought the following details/documents, a. Number of plans/schemes launched/proposed, b. Structure of such plans/schemes, c. Terms and conditions of each Plans/Schemes, d. Details of the Plan(s)/Scheme(s) wise amount mobilized till date along with the number of investors under such Plans/Schemes, e. Copies of offer documents, application forms that are required to be submitted by the investors/applicants to participate in the plans/schemes and copies of pamphlets, brochures of the schemes etc, f. Sample copies of the registration letter/allotment letter/agreements, g. Memorandum and Articles of Association (MoA and AoA) of IHI Developers, h. Annual Returns of IHI Developers since incorporation as filed with Registrar of Companies (RoC), i. Details of past and present Directors of IHI Developers.

2.1 The aforesaid letters, except the letter dated August 30, 2012 were returned undelivered. Even though, IHI Developers has duly acknowledged the said letter dated August 30, 2012, they did not reply.

2.2 In the meantime a physical inspection was conducted by SEBI during November 2011 at the office address of IHI Developers, during which it was revealed that IHI Developers was operating at Makhu Gate, Opp Blind Home, Ferozpur City, Punjab. A sample copy of "Pamphlet" issued by IHI Developers was also collected from the said office.

2.3 SEBI, vide letters dated June 07, 2012 and August 30, 2012 also sought information/details from the complainants, in respect of the scheme offered by IHI Developers. One of the complainants, vide his letter (received by SEBI on July 04, 2011), provided a sample copy of the "brochure" issued by Imbowers Housing, alleging "….the same persons are now collecting money from public by the name of IHI Developers India Ltd…."

2.3.1 SEBI collected details/information such as Memorandum and Articles of Association, Form 32, details of directors/promoters etc. of IHI Developers, from the website of Ministry of Corporate Affairs (MCA). Further, on examining the details of Imbowers Housing as available on the website of MCA, it was found that both the companies, viz. IHI Developers and Imbowers Housing have common directors viz. Mr. S. Harjit Singh, Mr. Sanjeev Kumar, and Mr.Ranjit Kaur.

2.4 It is noted that IHI Developers failed to respond to any of the aforesaid letters issued by SEBI. In view of this SEBI, vide letters and reminders dated November 21, 2012 and February 06, 2013, sought comments from IHI Developers. In addition to this, IHI Developers was also asked to furnish the information/details as sought by SEBI, vide its previous letters.

2.5 IHI Developers did not respond to any of the aforesaid letters issued by SEBI. In view of this, another letter dated July 11, 2013 was issued to IHI Developers. Copies of the said letter were also forwarded to its Directors viz. Mr. S. Harjit Singh, Mr. S. Kulbir Singh Mr. Sanjeev Kumar and Mr.Ranjit Kaur. However, the aforesaid letters sent to the Directors, were returned undelivered.

3. It is observed that till date, IHI Developers has not responded to any of the letters issued by SEBI as a part of the preliminary inquiry into the alleged fund mobilizing activities of IHI Developers. In these facts and circumstances and also considering the fact that sufficient opportunities have been provided to IHI Developers to respond, I am constrained to proceed with the matter on the basis of the documents and materials available on record. I have carefully considered the materials available on record such as, complaints received by SEBI along with the documents contained therein; documents and information collected during the inspection conducted by SEBI, documents/materials, as downloaded from MCA website etc. In this context, the issue for determination in the instant matter is whether the mobilization of funds by IHI Developers is a ‘collective investment scheme’ in accordance with Section 11AA of the SEBI Act, 1992 (hereinafter referred to as "SEBI Act").

4. On an examination of the material available on record, it is prima facie observed that:

a) IHI Developers India Limited (CIN:U70200PB2010PLC033974) was incorporated on May 31, 2010 and has its registered office at Makhu Gate, Ferozpur City, Punjab-152002.

b) The Directors are Mr. S Kulbir Singh, Mr. Sanjeev Kumar, Mr. Harjit Singh and Mr. Ranjit Kaur.

c) As per the Memorandum of Association of IHI Developers, one of the main objects is "to carry on the Business of Sale & Purchase of real estate and properties ……… and to purchase, sale, develop any land for basic infrastructure, commercial industrial, residential including housing complexes ….."

d) From the sample "Pamphlets" collected during physical inspection of IHI Developers and the "Registration Letter" (bearing number 0002377, issued by IHI Developers), forwarded by the complainant, it is observed that IHI Developers invites funds from the public for the scheme of Sale/purchase and development of land through various payment plans. The details of the payment plans are widely circulated by IHI Developers, by way of the "Pamphlets". Following are the various payment plans under the aforementioned scheme offered by IHI Developers :

1) "IPP Plan A for 66 Months. 2) IPP Plan B for 72 Months. 3) IPP Plan C for 120 Months 4) Cash Down Payment Plan for various period." One of the plans is reproduced below for illustrative purpose: IPP Plan "A" for 66 Months Plot Cost of Developme Installments Projected Plot Size Plot nt & Other Value of Expiry Charges of Agreement Term* Mly. Qly. Hly. Yly. 650 15000 7000 250 700 1375 2725 22000 650 18000 8400 300 840 1650 3270 26400 650 24000 11200 400 1120 2200 4360 35200 650 30000 14000 500 1400 2750 5450 44000 780 60000 28000 1000 2800 5500 10900 88000 1170 90000 42000 1500 4200 8250 16350 132000 1560 120000 56000 2000 5600 11000 21800 176000 1950 150000 70000 2500 7000 13750 27250 220000 2340 180000 84000 3000 8400 16500 32700 264000 3120 240000 112000 4000 11200 22000 43600 352000 e) The "customers"/investors are required to make payment as per the payment plan opted by them towards sale/purchase and development of land after executing an "Agreement" with IHI

Developers and the said agreement is considered as a confirmation from the "customers"/investors for both booking and development of plot to be purchased by IHI Developers. IHI Developers issues a "Registration Letter" based on the application and agreement executed by the "customers"/investors. The said "Registration Letter" contains the details regarding the "Payment Plan", Cost of plot", "Instalment amount, "Projected plot value on expiry of the term" "General Terms And Conditions" etc. Following clauses are noted in the "General Terms And Conditions" from the said "Registration Letter" issued by IHI Developers:

• "Land shall be allotted in the name of the customer, in the case of cash down payment plan, after receipt of full payment within a reasonable period generally not exceeding 270 days end in the case if Instalment payment Plan(s) within a reasonable period generally not exceeding 90 days after the receipt of 50% of the total amount of installment. Subject to the foregoing land ownership will be transferred to the customer within a reasonable period after allotment. [ Clause(2)]

• In case of discontinued plot booking/contract the nominee or the legal heir / successor may be allowed to avail the revival facilities. [Clause(3)]

• When the installment is not paid within the grace period the plot booking/contract stands discontinued. But the same can be revived at any time within next 12 months on payment of all dues together with Simple Interest @ 12 % p.a. and the liquidated damages @ 5 % p.a. for the period of default. However payment of such shall be accepted by IHI developers India Ltd. only in cash / demand draft." [ Clause(5)]

• .........................cost of the said property includes the cost of land, development charges, other inputs, saplings, plants, trees, crops, planting expenses maintenance and other muse expenses." [ Clause(7)]

• The customer has the right to retain or sell the said property, as he/she may deem fit on expiry of the tenure for this agreement. To facilitate easy liquidity, IHI developers India Ltd. provided(s) to customer(s) the marketing services for sale of developed plots. In case customer decides to avail aforesaid services, he/she must notify IHI developers India Ltd. That effect at least 180 days before the expiry of period of agreement. the sale can be made only at the end of the tenure of this agreement of such price which may be mutually agreed between the parties in the opinion of the company based on current market situations and related factors, a developed plot of land 650 sq yds upon completion period and owing to value addition may fetch on estimated price as per details given below, depending up to the development period. The estimated value mentioned against each development period is the composite value of land, plants, trees etc. and structures thereon. [ Clause(8) ]

• In case of Joint sale deeds the little deeds performing to the sale of property shall be kept in the sole custody of trustee(s) appointed by IHI Developers Ltd. for the purpose, a certificate copy of the said title deed issued by the sub-registrar or by the public Notary as may be feasible or practicable, shall be made available to the costumer by the said trustee9s). The name and address of trustee(s) shall be informed to the customer by the letter of allotment. The customer shall have the liberty the title deed of the office of frust(s) during the normal working hours on any working day. After furnishing a formal writer request there for 15 day(s) in advance. [ Clause(11) ] • ..........................The sold Property cannot in any other manner be sold, assigned, mortgaged, pledged or alienated without obtaining No Due Certificate from the company in case of installment payment plan(s)." [ Clause(9) ]

• The management of company reserves the right to discontinue/amend/ modify or after prospectively only of the rules/regulations and payment plan(s) and introduce new plan(s) of any time at its sole discretion with or without any notice.” [ Clause(10) ]" f) It is pertinent to note that despite several letters and reminders from SEBI, IHI Developers has not furnished any information/materials in respect of its scheme of Sale/Purchase and development of plot. The aforesaid observations are on the basis of the information/materials forwarded by the complainants and also as per the documents collected during the inspection conducted by SEBI of IHI Developers.

5. The aforementioned features of the so-called sale/purchase and development of land offered by IHI Developers appear to be a "scheme". In view of this, the scheme offered by IHI Developers, have to be considered in light of the provisions of Section 11AA of the SEBI Act. Section 11AA provides for the conditions to determine whether a scheme or arrangement is a ‘collective investment scheme’. It reads as follows:

“(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) shall be a collective investment scheme. (2) Any scheme or arrangement made or offered by any company 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.”

6. In the context of the abovementioned Section 11AA of the SEBI Act, the scheme of Sale/Purchase and development of plot offered by IHI Developers, is examined as under:

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.

IHI Developers collects funds from the "customers"/investors for the purchase of the plot/land and undertakes to develop the land forming part of various plans offered by it. The contribution or investment made by a "customer"/ investor are in accordance with the various “Payment Plan(s)" offered under the Scheme for Sale/Purchase and development of plot viz. "Cash Down Payment" and "Instalment Payment Plan". It is important to note that no plot/land is identified and demarcated when an individual "customer"/investor is issued "Registration Letter" pursuant to the execution of the "Agreement". The "Registration Letter" issued to the "customer"/investor and the "General Terms and Conditions" forming part of the said registration letter does not indicate the ownership aspect of the land/plot forming part of the scheme offered by IHI Developers. It is further observed that even after the receipt of full payment, in case of Cash Down Payment Plan, some land/plot (unidentified) is only agreed to be allotted to the "customer"/investor, within a period not exceeding 270 days. Similarly, in case of Instalment Plan, the allotment of a similar (unidentified) land is agreed within a period, not exceeding 90 days after the receipt of 50% of the total amount in accordance with the “Payment Schedule(s)” (Clause 2 of the "General Terms and conditions"). Further, it is observed that the "General Terms and conditions" provide no clarity in so far as time period wherein which actual possession of property or any individual ownership right is given to "customer(s)"/ investors. In view of the aforesaid, it is evident that IHI Developers is collecting funds from the 'customer(s)'/ investors for its scheme and the contributions/funds collected from the 'customer(s)'/ investors are pooled and utilized for the purpose of the 'scheme' offered by IHI

Developers. Hence, it is clear that the instant 'scheme' satisfies the first condition of "pooling of contribution or payments", stipulated in Section 11AA(2)(i) of the SEBI Act.

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.

As per the "pamphlet" issued to the "customer(s)"/ investors, it is observed that a "Projected Plot Value of Expiry of Agreement Term" is indicated against specific payment plan offered by IHI Developers. For instance, in respect of the scheme of "IPP Plan B for 72 months", for the "Projected Plot Value of Expiry of Agreement Term " of `22,000/-(which includes cost of land and development charges; i.e `15000 plus `7000), the total amount required to be paid by a "customer"/investor is only `18000/-(paid as monthly instalment of `250 for 72 months as the investment in a plot). It is also noted that the "customer(s)"/ investors are provided with option for buy back by IHI Developers wherein the rate for the said transaction is specified at the time of issue of "Registration Letter". An indication of the same is also made available to the "customer(s)"/ investors in the "General Terms and Conditions” of the "Registration Letter" stating "Projected Plot Value of expiry of Agreement term"/ "Estimated Realizable Value at the end of the term". Hence, it is clear that the second condition, which stipulates 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 as stipulated in Section 11AA (2) (ii) of the SEBI Act is also fulfilled.

iii. The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors, and iv. The investors do not have day-to-day control over the management and operation of the scheme or arrangement.

As has been noted in the preceding paragraphs, IHI Developers agrees to allot the plot (unidentified) to the “customer”/investor upon execution of the “Agreement”. It is further noted that the said execution of the agreement is construed as the confirmation by the “customer”/investor to get the land developed by IHI Developers. From this, it is clear that the 'customer'/investor is making contribution or investment in an unidentified and non-distinguishable land unit. The allotment of such plot/land to the 'customer'/investor is at IHI Developers's discretion. The following enabling clauses as per the "General Terms and Conditions" of the "Registration Letter" also indicate that the 'customer'(s)/ investors neither, at any stage, manage the property, contribution or investment forming part of the 'Scheme' nor they have day-to-day control over the management and operation of the scheme or arrangement, and the contribution or investment is managed and utilized by IHI Developers on behalf of the "customers"/investor.

a) The investor is indicated as a unit holder in the "Registration Letter" and the specification of the land/Plot(s) mentioned in the "Registration Letter", is not in terms of any khata/khasra etc. b) The right of possession of the land/plot(s) in the hands of the IHI Developers for developing, cultivating and allied activities indicates that all such plots, whether identified or not, which form part of the scheme(s) are managed by the company on behalf of the investors. c) In respect of Joint Sale deeds, the provision for retention/custody of title deeds by the trustee(s) appointed by IHI Developers indicates that IHI Developers continues to exercise discretionary/residual rights even after sale by way of retention of the title deeds through the trustees appointed by them. d) IHI Developers has right, without disclosing reasons, to discontinue, at any point in time, the rules/regulations of the company, deposit scheme(s) /plan(s) of the company or payment plan(s) with or without any notice. e) The provision for obtaining "No due Certificate" from IHI Developers for the purpose of sale/assign/mortgage/pledge indicates the total authority of IHI Developers over the subject land/plot(s). In these facts and circumstance, it is clear that the 'customer(s)'/investors do not have day-to-day control over the management and operation of the 'Scheme(s)/ Plan(s)' and that the 'customer'(s)/ investors do not, at any stage, manage the property, contribution or investment forming part of the 'Scheme / Plan(s) 'and the contribution or investment is managed and utilized by IHI Developers on behalf of the "customers"/investor. In view of the above, I find that the instant 'Scheme/ Plan(s)' satisfies the third and fourth conditions stipulated in section 11AA(2)(iii) and (iv) of the SEBI Act.

7. In light of the above analysis and examination, it appears that the activity of fund mobilization by IHI Developers, under the 'scheme' with a resultant promise of return/"Estimated Realizable Value at the end of the term", when considered in light of peculiar characteristics and features of such scheme, as discussed in the preceding paragraphs, prima facie satisfies all four conditions specified in Section 11AA (2) of the SEBI Act.

8. In terms of Section 12(1B) of the SEBI Act, "no person shall sponsor or cause to be sponsored or cause to be carried on a 'collective investment scheme' unless he obtains a certificate of registration from the Board in accordance with the regulations”. Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as "CIS Regulations), provides that no person other than a Collective Investment Management Company which has obtained a certificate under the CIS Regulations shall carry on or sponsor or launch a 'collective investment scheme'. 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.

8.1 I note that all the factors and characteristics of the activity of sale/purchase and development of plot/land propounded by IHI Developers based on the payment plans circulated through the "pamphlets" and the "General Terms And Conditions” indicated in the "Registration Letter", as already detailed in the preceding paragraphs, is nothing but a smoke screen of its fund mobilizing scheme/arrangement from the public, and IHI Developers has not obtained any certificate of registration under the CIS Regulations for the same. Upon consideration of the above, it prima facie appears that IHI Developers is running a 'collective investment scheme' without obtaining a certificate of registration from SEBI as required under Section 12 (1B) of the SEBI Act, 1992 and the CIS Regulations. Thus, it has violated Section 12 (1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations read with Section 11AA of the SEBI Act, 1992.

9. IHI Developers was advised to respond to the preliminary enquiry conducted by SEBI, through several SEBI letters dated October 14, 2011, June 07, 2012, August 30, 2012, November 21, 2012, February 06, 2013, etc. However, on all these occasions, IHI Developers failed to respond. In these circumstances, I find that reasonable opportunity has been afforded to IHI Developers. The non-co-operation on the part of IHI Developers with the preliminary inquiry conducted by SEBI, when considered in the light of the abovementioned prima facie findings, lead to the inescapable conclusion that such refusal to furnish the information sought by SEBI was only to conceal the true nature and operation of the fund mobilizing activity.

10. Protecting the interests of investors is the first and foremost mandate for SEBI and therefore, steps have to be taken to ensure that IHI Developers does not collect further funds under its scheme(s). It is further noted that Mr. S. Harjit Singh; Mr. S. Kulbir Singh; Mr. Sanjeev Kumar; Mr. Ranjit Kaur are the directors who are in charge of and responsible for the day to day affairs of IHI Developers. Further, in order to safeguard the assets/property, acquired by IHI Developers and its promoters/directors using the funds collected from the investing public until full facts and materials are brought and final decision is taken in the matter, it is incumbent on SEBI to take preventive action. In the light of the above and also considering the refusal of IHI Developers to co-operate with the preliminary inquiry conducted by SEBI, I find no other alternative but to take recourse through an interim order against IHI Developers and its Directors/Promoters for preventing them from further carrying on with its existing fund mobilizing activity.

11. In view of the above, I, in exercise of the powers conferred upon me under sections 11(1), 11B and 11(4) of the SEBI Act, 1992 read with Regulation 65 of CIS Regulations, hereby direct M/s IHI Developers India Ltd. (CIN :U70200PB2010PLC033974); and its Directors Mr. S. Harjit Singh (DIN: 01558133); Mr. S. Kulbir Singh (PAN : BKHPS1704D); Mr. Sanjeev Kumar (DIN: 01558230) and Mr. Ranjit Kaur ( DIN: 05316732)

• not to collect any money from investors under its existing scheme; • not to launch any new schemes or plans or float any new companies to raise fresh moneys;

• to immediately submit the full inventory of the assets owned by IHI Developers out of the amounts collected from the "customers"/investors under its existing schemes; • not to dispose of any of the properties or alienate the assets of the existing scheme; • not to divert any funds raised from public at large, kept in bank account(s) and/or in the custody of the company, and • to furnish all the information sought by SEBI including, i. Details of amount mobilized and refunded till date, ii. Scheme wise list of investors and their contact numbers and addresses, iii. Sample copies of all the documents pertaining to scheme including the documents/agreements/contracts executed with the "customers"/investors, and iv. PAN numbers of the aforementioned Directors.

12. This order is without prejudice to the right of SEBI to take any other action that may be initiated against IHI Developers and its Directors/ Promoters, in accordance with law.

13. The above directions shall take effect immediately and shall be in force until further orders.

14. The prima facie observations contained in this Order are made on the basis of the material available on record. This order is without prejudice to the right of SEBI to take any other action that may be initiated against IHI Developers, its promoters and Directors in accordance with law.

15. IHI Developers and its abovementioned directors shall, within 15 days from the date of receipt of this Order, file their reply, if any, to the prima facie observations made herein. IHI Developers and its aforesaid directors may also indicate, in such reply, whether they wish to avail an opportunity of personal hearing in the matter.

S RAMAN Date: August 11, 2014 WHOLE TIME MEMBER Place: Mumbai SECURITIES AND EXCHANGE BOARD OF INDIA