Order in the matter of Karmbhoomi Real Estate Limited[SAT Appeal No.:195/2019]

Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of SEBI (Collective Investment Schemes) Regulations, 1999 in the matter of Karmbhoomi Real Estate Limited Sr. Noticee(s) PAN CIN/DIN No. 1. M/s Karmbhoomi Real AAECK1255G U70102UP2010PLC040423 Estate Limited 2. Mr. Manoj Kumar Sengar BBIPS1965G 03031042 3. Mr. Devindra Pal Singh BJVPS0029N 01832091 4. Mr. Sardar Singh ABDPS2787C 02477583 5. Mr. Mahipal Singh ATSPS3033N 05308568

The aforesaid entities are hereinafter referred to by their respective names/serial numbers or collectively as “the Noticees”.

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI/ Board") vide Order dated November 30, 2015 found that M/s Karmbhoomi Real Estate Limited (hereinafter referred to as "Karmbhoomi/ Company) was engaged in operating Collective Investment Scheme by mobilizing funds from the public, as defined under Section 11AA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act, 1992), in contravention of the Section 12 (1B) of the SEBI Act, 1992. In order to protect the interest of investors in the securities market, SEBI vide aforesaid Order dated November 30, 2015, inter alia, directed the above Company and its directors, among other, to wind up the existing collective investment schemes and refund the money collected by the Company with returns which are due to the investors as per the terms of offer within a period of three months from the date of said Order.

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2. The Noticees (the Company and aforementioned directors) challenged the said SEBI Order dated November 30, 2015 by filing an appeal before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”). The Hon’ble SAT vide Order dated November 21, 2017 while disposing of the appeal (SAT Appeal No. 143 of 2016) observed as under: 1. This appeal is filed to challenge the order passed by the Whole Time Member (‘WTM’) of Securities and Exchange Board of India (‘SEBI’ for short) on 30th November, 2015. By the said order inter alia it is held that the schemes floated by the Appellant no.1 are Collective Investment Schemes and the appellant and its directors are interalia directed to refund the money collected from the investors within the time set out therein. 2. Counsel for the appellants state that without prejudice to their rights that the schemes floated by the Appellant no.1 do not constitute Collective Investment Schemes the appellants have refunded part of the amounts collected from the investors and that the appellants are ready and willing to refund the balance amount to the investors in a time bound manner.

3. Counsel for SEBI states that the refunds allegedly made by the appellants are yet to be verified by SEBI. 4. Since the appellants are ready and willing to refund the amounts to the investors as stipulated in the impugned order passed by SEBI, without going into the merits of the contention raised by the appellants that the schemes floated by the appellants do not constitute CIS, we dispose of the appeal by permitting the appellants to make a representation to SEBI setting out in detail the names and the quantum of amount refunded to the investors and the mode and the manner in which the balance amount would be refunded to the investors. Appellants are also directed to furnish all information/documents demanded by SEBI. 5. Accordingly, we dispose of the appeal by directing the appellants to make a representation to SEBI within a period of 4 weeks from today giving details of the amounts already refunded and the mode and the manner in which balance amount would be refunded. If the appellants make a representation within period of 4 weeks from today, then SEBI shall consider the same and pass appropriate order in accordance with law.

If the appellants fail to submit the representation within 4 weeks from today, then the impugned order shall stand revived and SEBI shall be entitled to enforce the same in accordance with law. 6. Appeal is disposed of in the above terms with no order as to costs. (emphasis supplied) 3. I note that after disposal of the aforesaid appeal, SEBI received a representation dated December 18, 2017 from the Noticees along with copies of certain documents viz. (i) copy of Order dated November 21, 2017 passed by Hon’ble SAT, (b) affidavit affirmed by one of the complainant Md. Meenzabin Razi Hasan dated October 21, 2017 and (c) balance sheet of the P age 2 | 11

Company as on March 31, 2016 and (d) a list of investors claiming repayment made to them. The submissions made in their letter dated December 18, 2017 are summarized as under:

1. The Hon’ble Securities Appellate Tribunal had set aside the SEBI Order dated 3rd December, 2015 and directed the Appellants to file a representation with SEBI.

2. The SEBI action against the Company is based on false and frivolous complaints filed by few blackmailers and that the complainant had no connection with the Company nor had made any investment in the schemes of the Company. The Company has also filed an affidavit affirmed by one of the complainant stating that he had not filed any complaint with SEBI and that he had no investment in the schemes of the Company. 3. That all customers of the company have been repaid. SEBI had relied upon the balance sheet of the Company of the year 2013-2014 to arrive at a figure Rs. 13.61 Crores as advance from customers which was contrary to the records. The balance sheet under current liabilities is “other current liabilities” and not advanced raised from the customers alone and the latest audited balance sheets of the Company reflect that the liabilities have been cleared.

4. The information and documents provided by the Noticee were prima facie observed as not complete and, therefore, SEBI vide its letter dated September 10, 2018 asked the Company to provide the requisite details and the supporting documents. The Company again vide letter dated October 03, 2018 reiterated the same as submitted vide its earlier letter dated December 18, 2017. The submissions made vide letter dated October 03, 2018 are summarised as under: a. That they had filled detailed representation dated December 18, 2017.

b. SEBI has filed criminal prosecution case against them without considering the fact that their representation was already pending for consideration and that any other documents will be furnished before the Hon’ble Criminal Court where the matter is pending adjudication.

c. That after filling a criminal case SEBI is asking to submit evidence against themselves which may be used against them before the Criminal Court. d. That if SEBI is not satisfied with their letters, SEBI can direct special audit by approved auditor to satisfy itself about the repayment/ refund of Rs. 16, 96, 19,802 made to the investors. P age 3 | 11 e. That SEBI may withdraw the criminal cases against them as they have never carried out and collective investment business as prescribed under the SEBI Act, 1992.

5. In compliance with the principles of natural justice, the Noticees were afforded an opportunity of personal hearing on January 04, 2019 when Mr. M. S. Bharadwaj, Advocate, from M/s MSB Legal, appeared on behalf of all the Noticees and submitted that the requisite details of refund made to the investors have been submitted to SEBI vide their representation dated December 18, 2017. Further, referring to the prosecution proceedings, stated to have been initiated by SEBI, the Advocate further submitted that any additional information/ documents if filed by them, may be used against them in the Criminal Court in pending prosecution proceedings. He also submitted that SEBI may conduct special audit by approved auditor to satisfy itself in respect of refund made to the investors.

6. During the course of hearing, it was pointed out that in the representation dated December 18, 2017, the Noticees have submitted a list of 6786 investors claiming that refund has been made to all the investors. However, on perusal of the same, it was noted that mode and manner of repayment made to the investors, as directed by the Hon’ble SAT vide its Order dated November 21, 2017 have not been mentioned in most of the cases and the list of investors and repayment details were not complete. Therefore, the Noticees were directed to submit the following information and supporting documents within a period of one month:

a. A list containing name of the investors, amount collected from him, the date of collection of money from the investor, amount of refund, date of refund and mode or repayment made to the investors;

b. Document evidencing the trail of source of funds from where refund has been claimed to have been made to the investors;

c. Documents evidencing mode of payment made to the investors like bank account statements etc. indicating transfer of money in the account of investors and receipt from the investors acknowledging such refunds;

P age 4 | 11 d. In terms of SEBI’s order dated November 30, 2015, complete and detailed 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.

7. After conclusion of the hearing proceedings held on January 04, 2019, the record of proceedings, containing the aforementioned directions given during the course of hearing, were also communicated to the Advocate of the Noticees Mr. M. S. Bharadwaj by SEBI vide email dated January 07, 2019. However, the Noticees have not filed any reply or information / documents which were sought during the course of hearing held on January 04, 2019, even after expiry of the time period of one month granted for the same.

CONSIDERATION OF ISSUES: 8. The Hon’ble SAT in its Order dated November 21, 2007 noted the submissions made by the appellants that they were willing to refund the amounts to the investors, as stipulated in the impugned SEBI Order dated November 30, 2015 and, therefore, without going into the merits of the contention raised by the appellants that the schemes floated by the appellants do not constitute CIS, the Hon’ble SAT directed the appellants to make a representation to SEBI setting out in detail the names and the quantum of amount refunded to the investors and the mode and the manner in which the balance amount was to be refunded to the investors. The appellants were also directed to furnish all information/documents demanded by SEBI.

9. Pursuant to aforementioned Order of Hon’ble SAT dated November 21, 2017, the Noticees made their representations dated December 18, 2017 whereby, among other, the Company has submitted a list of 6786 investors in nine columns viz. serial number, buyer (investor) name, CSC, Registration Number, Plan, amount of deposit, net payment paid, cash/ cheque and the bank name tabulated in following manner: Sr. BUYERS CSC REGD PLAN DEPOSIT NET CASH/ BANK No. NAME NO. PAYMENT CHEQUE MADE

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10. On perusal of the aforesaid list of investors, it is observed that plans of the schemes are indicated as ‘MIS’ & ‘SIS’ whereas CSC are indicated as Lakhimpur, Sitapur, Paliya, Orai, Etawah, Jahanabad, Moradabad etc. Registration numbers are mentioned as L011/899, L01/784, SO51/1380, etc. Although deposit and net payments paid are mentioned against each of the serial number, however, neither the date of deposit nor the date on which refund claimed to have been made are mentioned. The last two columns indicate the mode or repayment (cash/ cheque) and the bank. However, it is noted that approximately 85% of investors, the mode of repayment and bank name has not been mentioned and the said two last columns are left blank. The mode of repayment are mentioned only for approximately 15% investors which reflects that the repayments to those investors are claimed to have been made by Demand Draft or Cheque (for example in respect of sr. no. 2454 and 2455, the mode of repayment are shown as “3632-AXIS-15/06/15” and “9843-ICICI-28/05/15”, respectively). It is noted that payments to 15% of investors claimed to have been made through cheque/demand draft during the year 2015 and 2016 i.e. before the order of Hon’ble SAT dated November 21, 2017.

11. It is further observed from the list that out of those 85 % investors for which the mode of repayment and name of bank has been left blank, there are various investors to whom payments are claimed to have been paid more than Rs. 20,000/- such as Rs. 45,185/- (sr. no. 34), Rs. 96,000/- (sr. no. 141), Rs. 2,05,000/- (sr. no. 2519), Rs. 2,64,000/- (sr. no. 2605) etc. I note that as per clause (h) of Regulation 11 of the CIS Regulations, 1999 CIS is allowed to accept the subscription through cheque or demand draft or thorough other banking channel and were prohibited to deal in cash. Further, Regulation 31(3) of the CIS Regulations provides that refund is to be made by cheque or demend draft market ‘A/C Payee’ to the applicants (investors) in case collective investment scheme fails to receive the minimums subscription amount. I, further, note that Section 269T of the Income Tax Act, 1961 prohibits any person to repay the loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account where the amount of loan or deposit, including interest amount is Rs. 20,000/- or more and the contravention of this provision of Income Tax Act, 1961 attracts 100% penalty of the loan or deposit amount. In the absence of providing mode of repayment and particulars of cheque/

P age 6 | 11 demand draft, bank name or receipt from investors acknowledging receiving of refund, etc. it is difficult to accept the claim of the Noticees that they have made repayment to those 85% of investors.

12. The Noticees vide their representation dated December 18, 2017 submitted that SEBI had relied upon the balance sheet of the company of the year 2013-2014 in arriving at a figure of Rs. 13.61 Crores as advance from customers was contrary to records and that the balance sheet under current liabilities is “other current liabilities” and not advance raised from the customers alone. It was further submitted that the balance sheets of the Company as on March 31, 2016 which reflect that the liabilities have been cleared. I note that this submission made by the Noticee is beyond the scope of present proceedings. Further, such claim of refund will not stand satisfied merely by producing the balance sheet as on March 31, 2016 reflecting reduction of liabilities but the same need to be satisfied by providing supporting documents like trail of funds claimed to have been refunded, bank account statements indicating refund made to the investors, Receipt or acknowledgement from the investors, date of such payment etc. As regards payment made to 85% investors no details of mode of payment has been mentioned and for 15% investors who are shown to have been paid by cheque/ DD, the period of repayment made is 2015 and 2016 and no payment appears to have been made after the Order of Hon’ble SAT dated November 21, 2017.

13. The Noticees vide their letter dated December 18, 2017 have also submitted that the action of SEBI was based on incorrect and frivolous complaints made by the complainants who were not associated nor invested in the schemes of the Company. The Noticees have also submitted an affidavit affirmed by one of such complainants. In this respect, I note that SEBI vide Order dated November 30, 2015 have already found that Noticees were engaged in operating Collective Investment Scheme by mobilizing fund from the public, as defined under Section 11AA of the SEBI Act, 1992. Thus, there is no relevancy of such submissions made by the Noticees at this stage. The scope of the present proceedings, as set out by Hon’ble SAT vide its Order dated November 21, 2017 is limited to consider the representation of Noticees detailing the names and the quantum of amount claimed to have been refunded to the investors

P age 7 | 11 and the mode and the manner in which the balance amount would be refunded to the investors who had invested in the schemes being operated by the Noticee No. 1.

14. I note that, as regards repayment claimed to have been made by the Noticees through list referred to in para 9 above, SEBI vide letter dated September 10, 2018 gave another opportunity to the Company to, among other, provide the supporting documents evidencing the refund of money made to the investors viz. the trail of funds claimed to have been refunded, bank account statements indicating refund made to the investors, receipt of acknowledgement from the investors and a certificate of repayment of such refund made to investors from an independent Chartered Accountant. However, the Company did not provide any such information and in the contrary vide letter dated October 03, 2018 contended that by issuing that letter dated September 10, 2018 (seeking requisite information and supporting documents) SEBI was asking to submit evidence against themselves which, as per the apprehension of the Noticees, may be used against them before the Criminal Court where the complaint filed by SEBI is pending. The Noticees also requested to conduct an special audit if it is not satisfied with the claim of refund made by the Company and also requested to withdraws the criminal complaint filed by SEBI against them.

15. In respect of the above contention, I note that in such cases where a person or entity operate collective investment schemes without obtaining registration from SEBI, in order to protect the interest of investors, SEBI issues directions under Section 11B of the SEBI Act, 1992 and CIS Regulations to refund the money collected from the investors and also initiate prosecution proceedings for operating unregistered collective investment scheme and thereby contravening the provisions of SEBI Act, 992 and CIS Regulations, 1999. In this respect, it would be relevant to refer to the Order dated August 12, 2011 passed by Hon’ble SAT in the matter of Dipak J Panchal vs. SEBI, SAT Appeal No. 198 of 2011 wherein it was observed that:

“It will, thus, be seen that the Act contemplates three types of proceedings, namely 1) remedial and preventive under Chapter IV of the Act; 2) penalties under Chapter V and VIA (proceedings civil in nature); and 3) prosecution under Section 11C(6) and Section 24 (proceeding criminal in nature). There is no bar under the Act in P age 8 | 11 taking all the three actions simultaneously or taking only one of the actions as the Board may deem fit. 16. I also note that SEBI has filed the criminal complaint on August 31, 2017 i.e. much before the representation dated December 18, 2017 received from the Noticees and apprehension of the Noticees that any information relating to repayment provided by them will be used against them is unfounded. Further, the request made by the Noticee to withdraw the complaint filed by SEBI before Criminal Court against the Noticee is beyond the scope of present proceedings and such request cannot be entertained.

17. As mentioned in above paras, the Noticees were also provided an opportunity of hearing on January 04, 2019 when, among other, they reiterated their claim of making refund to all the investors. During the course of hearing, the Noticees were given another oppurtunity to submit, inter alia, the information and supporting documents evidencing the trail of source of funds from where refund has been claimed to have been made to the investors, mode of payment made to the investors like bank account statements etc. indicating transfer of money in the account of investors and Receipt from the investors acknowledging such refunds. The Noticees were asked to provide those information and documents within a period of one month, however, SEBI has not received any reply or information from the Noticees till date.

18. I note that the Noticees vide letter dated October 03, 2018 have made a request to direct special audit by approved auditor to satisfy the claim of the Noticees that they have made refund to all the investors. In this respect, it is observed that since the Noticees have failed to provide the basic information and supporting documents such as cheque number, bank details, receipt of acknowledgement from investors, bank details from which such payments are claimed to have been made, etc. to satisfy their claim that refund has been made to all the investors, no purpose would be served by conducting any special audit as without such information auditor will not be able to verify the records in respect of claim of Noticees that repayment have been made to all the investors.

19. I also note that the Noticees vide their letter dated December 18, 2017 and October 03, 2018 have stated that the Hon’ble SAT vide its Order dated November 21, 2017 has set aside

P age 9 | 11 the SEBI Order dated November 30, 2015. In this respect, I note that the interpretation made by the Noticees is not correct. The Hon’ble SAT vide its Order dated November 21, 2017 allowed the appellant to file their representation before SEBI, and SEBI was directed to consider the same. It would be appropriate to reproduce the relevant portion of the Hon’ble SAT Order dated November 21, 2017 which are as under: “…we dispose of the appeal by permitting the appellants to make a representation to SEBI setting out in detail the names and the quantum of amount refunded to the investors and the mode and the manner in which the balance amount would be refunded to the investors…..

..If the appellants make a representation within period of 4 weeks from today, then SEBI shall consider the same and pass appropriate order in accordance with law. If the appellants fail to submit the representation within 4 weeks from today, then the impugned order shall stand revived and SEBI shall be entitled to enforce the same in accordance with law.”

20. The Hon’ble SAT vide aforesaid Order dated November 21, 2017 disposed the appeal filed by the appellant allowing them to make a representation setting out in details of refund claimed to have been made by them and also the mode and the manner of refund of balance amount proposed to be made by them. Further, SEBI was directed to consider the representation made by the appellant and then to pass appropriate Order in accordance with law. As such, the issue before SEBI is limited to consider the representation of the appellant/ Noticees with regard to the details of repayment claimed to have been made to the investors and the mode and manner proposed for making refund to rest of the investors/ amount.

21. As noted above, the Noticees have not provided the particulars of repayment claimed to have been made to the investors, mode and manner of repayment to be made to the rest of investors as directed by Hon’ble SAT vide Order dated November 21, 2017. Further, the Noticees have also failed to provide the requisite information and documents sought by SEBI vide letter dated September 10, 2018 whereby the Noticees were, inter alia, asked to provide the documents evidencing the refund of money claimed to have been made to the investors viz. the trail of funds claimed to have been refunded, bank account statements indicating refund made to the investors, receipt of acknowledgement from the investors and a certificate P age 10 | 11 of repayment of such refund made to investors from an independent Chartered Accountant. The Hon’ble SAT vide aforesaid Order dated November 21, 2017, had specifically directed the appellants (Noticees herein) to furnish all the information/ documents demanded by SEBI. However, the Noticees have failed to provide the information as sought by SEBI vide its letter dated September 10, 2018. Another opportunity was also given during the hearing on January 04, 2019 to furnish the detail but the Noticees failed to provide the requisite information/ documents. ORDER: 22. Under the above circumstances, I, in exercise of the powers conferred upon me under Section 19 read with Sections 11(1), 11(4) and 11B of the SEBI Act, 1992 read with Regulation 65 of the CIS Regulations, 1999, hereby, dispose of the representation made by the Noticees vide letter dated December 18, 2017 and October 03, 2018 in accordance with the findings contained above. Accordingly, the Noticees shall comply with the SEBI Order dated November 30, 2015 within a period of 45 days from the date of this Order, failing which SEBI shall take appropriate action in accordance with law.

Date: February 22, 2019 ANANTA BARUA Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

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