Ion Exchange Enviro Farms Ltd. vs Sebi

Order Reserved on: 05.08.2019

Date of Decision : 18.10.2019

Appeal No. 49 of 2017

Ion Exchange Enviro Farms Ltd. Ion House, Dr. E. Moses Road, Mahalaxmi, Mumbai - 400 013. ..... Appellant

Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ....Respondent

Mr. Somasekhar Sundaresan, Advocate with Mr. Amey Nargolkar, Advocate i/b Vox Law for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Dr. C.K.G. Nair, Member

1.

This appeal has been filed aggrieved by various orders

and recovery certificates issued by Securities and Exchange

Board of India ("SEBI' for short) directing the appellant to 2

either deposit a specific sum and / or attaching various assets

of the appellant with a further direction not to alienate or

transfer any of the assets etc. The impugned recovery

certificates / attachment notices / orders issued by the

concerned authority in SEBI are the recovery certificates,

bank account attachment notice, demat account attachment

notice all dated December 30, 2015 as well as the orders

dated August 12, 2016, September 14, 2016 and recovery

certificate dated January 27, 2017.

2. Vide the impugned order dated August 12, 2016

appellant was directed to pay an amount of Rs. 3 crore to

SEBI within one week from the date of receipt of the order;

pay Rs. 5 crore per month commencing from September 20,

2016 till the completion of payments due to the investors and

to submit all original title deeds of all the properties owned by

the appellant to SEBI with PAN details etc. The impugned

order dated January 27, 2017 prohibited the appellant from

disposing, transferring, alienating or charging in respect of

immovable properties held by the appellant including a list of

properties specified in the order as well as all other movable

properties held by the appellant. The appellant was also

prohibited from taking any benefit under such disposal,

transfer, alienation or charge as well as directed to furnish a 3

complete list of movable and immovable properties to SEBI

within two weeks from the date of the order.

3. Basically, all these orders are emanating from the

initiation of recovery proceedings against the appellant

consequent to the disposal of the appeal filed by the appellant

by the Hon'ble Supreme Court of India vide its judgement

dated February 26, 2013. This appeal therefore has a long and

chequered history, as follows. Vide order dated November 27,

2003 SEBI directed the appellant to refund the amount

collected from the investors since the appellant was carrying

on the business of Collective Investment Scheme ('CIS' for

short) without obtaining a certificate of registration from

SEBI. This order was challenged by the appellant before this

Tribunal and the appeal was dismissed by this Tribunal on

May 5, 2006. Thereafter, a Civil Appeal was filed before the

Apex Court which affirmed the order of this Tribunal by its

judgement dated February 26, 2013. Pursuant to this, a

recovery certificate (no. 847 of 2015) was issued by the

Recovery Officer of SEBI on December 30, 2015 which was

challenged by the appellant in Appeal No. 383 of 2016. This

Tribunal allowed the appellant to withdraw the said appeal on

January 10, 2017 with liberty to file a fresh appeal. The 4

present appeal before us is the same filed by the appellant on

February 3, 2017 thereby challenging various directions

relating to depositing specific amount and / or various

directions relating to attachment and / or alienating the

properties etc.

4. The basic contention of the appellant is that it was

conducting a genuine weekend farming business wherein 891

contributors provided funds for acquisition of land,

developing it and transferring it to the contributors. A total

sum of Rs. 23.44 crore was collected from these 891

contributors. Vide its order dated November 23, 2003 SEBI

held that the scheme mooted by the appellant was a CIS and

directed that the contributions made to the scheme must be

returned. Though the appellant has challenged this order

questioning the decision that it was a CIS the same was

dismissed by this Tribunal and the Tribunal's order was

subsequently upheld by the Hon'ble Supreme Court. The

appellant now challenges the various recovery certificates and

the orders relating to the recovery / attachment notices passed

by the Recovery Officer on the ground that the appellant had

already returned either money or conveyed the parcels of land

due to majority of the investors / contributors and only an 5

amount of Rs. 2.37 crore remains to be paid. In a nutshell

appellant submits as follows:

(a) 690 contributors who had contributed Rs. 17.84

crore have actually been conveyed the parcels of

land due to them;

(b) 122 contributors to whom Rs. 3.23 crore were to

be paid, have been returned the monies contributed

by them in terms of the Original SEBI order; and

(c) 79 contributors who had contributed Rs. 2.37 crore

remain to be paid - land for these contributors is

ready and available, but being agricultural land

and such contributors not being agriculturists, the

land is incapable of being conveyed.

5. Therefore, the appellant's contention is that even prior

to the order of the Apex Court (supra) whereby the issue of

CIS was finally settled, the appellant had distributed land or

returned monies to majority of the contributors / investors and

only 79 such contributors who had contributed Rs. 2.37 crore

remains to be paid. Even for this purpose land is readily

available but such land being agricultural land and the

contributors being non-agriculturalists the land cannot be 6

distributed amongst them. Therefore, the direction of SEBI by

the recovery notice dated December 30, 2015 to remit an

amount of Rs. 20,06,42,109/- (20.06 crore approximately) and

the consequential directions subsequently issued vide various

impugned orders is arbitrary and unsustainable.

6. Shri Somasekhar Sundaresan, learned counsel for the

appellant submits that appellant, unlike many other CIS was

not constituted with a purpose of mobilizing funds by

promising high returns. It was a group of informed

entrepreneurs trying to fulfill an aspiration of people to do

weekend farming and hence mooted the idea of developing

and managing the farm land for each of the contributor by

aggregating the same. That is the reason why it did not enroll

a large number of people and total number of enrolment was

only 891 contributors. Moreover, it had applied for and

obtained an initial / provisional registration from SEBI for the

scheme.

7. Learned counsel for the appellant further contended that

the objective of Section 226 of the Income Tax Act, 1961 is

not to be dogmatic about the certificate once drawn up; the

Recovery Officer has the power to cancel or modify the

certificate issued by him in the case of fresh evidence. 7

Therefore, when 690 contributors were actually provided with

parcels of land through registered sale deeds and some of

those who received the land have further sold those land

pieces (105 of the 690) and made profits with an appreciation

of 422% of the amounts contributed by them, the Recovery

Officer could not have directed refund of the amount

collected from these contributors. One cannot direct to give

the land as well as to return the amount collected for the

same. Further, 122 contributors have been paid cash soon

after the SEBI order in 2003.

8. As regards the remaining 79 contributors with a total

due of Rs. 2.37 crore the said amount has been deposited with

the Recovery Officer. In addition, title deed for free and

marketable land worth Rs. 5.95 crore has also been deposited

with the Recovery Officer. Accordingly, the appellant has

already returned the amount collected to 122 contributors,

land to 690 contributors and deposited sufficient money /

assets for paying to the remaining contributors. Therefore a

further direction to deposit Rs. 20 crore set out in the recovery

certificate and consequential directions are not sustainable.

9. The learned counsel for the appellant further submitted

that various documents such as conveyance deeds, bank 8

statements etc. were produced before the Recovery Officer to

show that land has been indeed given to a number of original

contributors but the Recovery Officer has not considered all

such documents and passed the impugned directions. This is

neither in tune with the law of the land nor as held in various

judgments that orders should clearly deal with the objections

being raised. The appellant has relied on Bhavan Vaja and

Others vs Solanki Hanuji Khodaji Mansang and Another

(1973) 2 SCC 40, Lakshmi Ram Bhuyan vs Hari Prasad

Bhuyan and Others (2003) 1 SCC 197 and Parayya Allayya

Hittalamani vs Sri Parayya Gurulingayya Poojari and

Others (2007) 14 SCC 318, to emphasize its contentions.

10. The learned senior counsel for the respondent SEBI Shri

Gaurav Joshi, on the other hand, contended that stating some

reason or other, the appellant has been dithering on their

responsibility of refunding the monies due to the investors for

more than 16 years. When the appellant took provisional

registration for a CIS it in fact had admitted that it was

running a CIS. Despite this, they withdrew the provisional

registration and when SEBI passed the refund order in 2003

decided to appeal against the same and when this Tribunal

upheld the refund part of the order in 2006 the appellant

decided to go on appeal in the Supreme Court. When the 9

Supreme Court rejected their appeal in 2013 and the Recovery

Officer drew up the certificate in December 2015 they

challenged it by stating that they had already returned the

monies and / or land to majority of the investors. The value of

the land was only 1/6th of the amount collected and the

balance amount was for development. The appellant has been

given multiple chances by this Tribunal itself to prove the

veracity that they in fact returned the money or land which is

not forthcoming and the appellant keep on giving some

piecemeal information relating to the same to SEBI. The

respondent SEBI also relied on this Tribunal's order in the

case of PACL Ltd. vs SEBI, 2015 SCC OnLine SAT 1.

11. In 2003 the appellant never stated that part of the

amount collected was returned to the investors in cash nor

they had given any land, neither before SEBI nor when they

came on appeal before this Tribunal. Such a stand was not

taken even before the Supreme Court. After more than 16

years, in the present appeal, they are taking this stand for the

first time. Therefore, the submissions of the appellant lack

veracity and credibility. Multiple opportunities have been

given to them to show the relevant documents to SEBI. What

is available on the other hand is evidence relating to the fact 10

that the land supposedly given to 690 investors are mostly

being held under the overall management of the appellant. In

this context, it is important to note that the amount collected

for buying, developing and maintaining the land and what is

supposed to be returned in the form of land is only the raw

land, not the developed one as per the scheme floated.

Therefore, the appellant's contention that money or land has

been given to majority of the investors and therefore the

investors rights have been fully extinguished is not correct

both on account of the fact that the land is mostly under the

management of the appellant and what is refunded is only the

cost of land not the gross amount including for development

and maintenance which was collected upfront. That is the

reason why the appellant is not forthcoming with all the

documents and evidence as directed.

12. Moreover, we note that the provisional registration of

the appellant for running a CIS was withdrawn and direction

to refund the monies was issued by SEBI in November 2003

on account of the appellant defaulting in complying with the

provisions of Regulation 71 of the CIS Regulations which

required the appellant to send an information memorandum to

its investors. Further, while upholding the order of SEBI in 11

May 2006, this Tribunal directed the appellant to refund the

amount to the investors. The direction was not to return land

but to refund the amount collected. At that time the appellant

did not make any representation stating that part of the

monies had been already refunded or some investors had been

given land. This stand was not taken before the Hon'ble

Supreme Court as well, which dismissed their appeal in 2013.

13. Dehors the same this Tribunal had given ample

opportunities to the appellant to prove the veracity of their

statements with documents before SEBI. The appellant is not

able to prove that. Therefore, just making bold statements

with part documentation by which no conclusion can be

reached do not prove refund of money to the investors in full

or refund in the form of land with full transfer of ownership

and all rights. We also note that the impugned orders dated

August 12, 2016 and September 14, 2016 deal with the

documents furnished by the appellant in detail and we are not

able to find fault with the same.

14. The appellant is not able to prove whether land has been

given to the investors in accordance with the terms and

conditions i.e. after development of the land etc. and what

happens to the maintenance aspect. In fact, we are told by the 12

learned counsel for the SEBI that a large number of plots are

still being maintained by the appellant which is not disputed.

If that be the case the contention that land parcels have been

handed over to the investors as ultimate beneficiaries and as

full and final transfer is not correct. Therefore, in the absence

of appropriate and complete evidence relating to full refund of

the investors' amount, either in the form of money or in the

form of developed land and maintenance amount we are

unable to interfere with the impugned directions in the various

orders.

15. In the result, appeal fails and is dismissed. No orders on

costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 18.10.2019 Prepared and compared by:msb