Order in the matter of M/s JSR Dairies Limited

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 SEBI (Collective Investment Schemes) Regulations, 1999 and Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 In respect of – 1. JSR Dairies Limited and its Directors (past and present), namely, 2. Mr. Rajesh Khera (DIN 02170555), 3. Mr. Rajesh Niranjan (DIN 02633927), 4. Mr. Lalit Kumar Arora (DIN 02625265), 5. Mr. Parveen Kumar (DIN 02969923) and 6. Mr. Om Parkash Khurana (DIN : 03445496)

Date of hearing: May 22, 2015 Appearance: For noticees: 1. Mr. Sanjay Kumar, Practicing Company Secretary and Mr. Kamal Kumar Goyal, Chartered Accountant appeared on behalf of noticees, JSR Dairies Limited and its directors, Mr. Rajesh Khera, Mr. Rajesh Niranjan and Mr. Lalit Kumar Arora. 2. Mr. O. P. Khurana, a present director of the Company appeared in-person. 3. Noticee, Mr. Parveen Kumar appeared in-person. For SEBI: Mr. Mohammad Atif Alvi, Deputy General Manager Ms. Jyoti Sharma, Assistant General Manager Mr. T. Vinay Rajneesh, Assistant General Manager

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) vide an interim ex-parte Order dated June 05, 2014 (“the interim order”) prima facie observed that the company, JSR Dairies Limited (hereinafter referred to as “the Company”) is prima facie engaged in fund mobilizing activity from the public, by floating or sponsoring or launching 'collective investment scheme' as defined in Section 11AA of the SEBI Act without obtaining a certificate of registration from SEBI as required under section 12(1B) of the SEBI Act, 1992 and SEBI (Collective Investment Schemes) Regulations, 1999 (“the CIS Regulations”). It was also alleged that the fund mobilizing activity of the Company through its schemes prima facie was a fraudulent practice in terms of regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations").

2. In order to protect the interests of the investors and to prevent the Company from carrying on with its fund mobilizing activity through its alleged CISs, SEBI issued the following directions vide the interim order:

“………….. 11. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11(1), 11B and 11(4) of the SEBI Act read with the CIS Regulations and PFUTP Regulations, hereby direct JSR Dairies and its Directors, viz. Mr. Rajesh Khera, Mr. Rajesh Niranjan, Mr. Lalit Kumar Arora and Mr. Praveen Kumar – a. not to collect any more money from investors including under the existing schemes; b. not to launch any new schemes; c. to give a full inventory of the assets owned by the company; d. not to dispose of any of the properties or alienate any of the assets of the schemes; e. 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.”

3. The interim order was passed without prejudice to the right of SEBI to take any other action that may be initiated against the Company and its directors, Mr. Rajesh Khera, Mr. Rajesh Niranjan, Mr. Lalit Kumar Arora and Mr. Parveen Kumar (for convenience the company and its directors are collectively referred to as ‘noticees’), in accordance with law. The interim order advised the noticees to file their response and also indicate whether they wish to avail an opportunity of personal hearing in the matter. The interim order was delivered to all the noticees.

4. Mr. Parveen Kumar Sardana (referred as Praveen Kumar in the interim order), vide letter dated June 19, 2014, submitted that he joined the Company as a director on December 26, 2009 and resigned from such position on October 28, 2010. He submitted that during his short tenure, he had raised several questions regarding the process of collecting deposits/advances to the ‘Board of members’ on several occasions. He further submitted that he was not aware of fraudulent activities done during the period and that on coming to know that the activities were not as per the guidelines, he had resigned. He was told by the Company that it would be selling dairy products which he found was not true. He also stated that he is not in touch with the Company or any Board member after his resignation. He submitted Form-32 in support of his resignation.

As per the Form-32, the date of his cessation as a director was on August 28, 2010.

5. The Company vide its letter dated June 25, 2014 and the noticees, Mr. Rajesh Niranjan and Mr. Lalit Kumar Arora, vide separate letters dated June 30, 2015, submitted that - (a) The Balance Sheet for the year ended March 2014 was under preparation and may be finalized by July 2014. (b) It had received the monies from parties for supply of goods (milk and milk products). It has either supplied the goods or partly refunded the monies. (c) According to the Companies Act, 2013, advance against supply of material received shall be a deposit after 365 days from the date of receipt or from commencement of the Companies Act, 2013. All the advances against supply of material as on the date of commencement of the Companies Act, 2013 i.e. April 01, 2014 will either be refunded to the parties on or before March 31, 2015 or will supply material. (d) The following were its assets: (i) Furniture and fixture (ii) Mobile (iii) Invertor (iv) Hot beverage machine (v) Motor car (vi) Computers (vii) Printer (viii) UPS (ix) Hot case

6. Noticee, Mr. Rajesh Khera vide letter dated June 30, 2014 submitted that he has resigned from the directorship of the Company with effect from April 01, 2011. He submitted copy of Form-32. As per this document, the noticee had resigned with effect from April 01, 2011.

7. SEBI also, vide letter dated September 22, 2014, advised the Company to submit, within 10 days- (a) Full inventory of its assets (b) Bank account details including bank name and account number (c) Total amount mobilized by the Company till date under its various schemes, since incorporation’ (d) Details of investors in the format (specified therein).

As such information/documents were not sent by the Company, SEBI issued a reminder dated October 07, 2014 advising the Company to forward such details immediately.

8. The Company vide letter dated October 22, 2014 submitted the details, a summary of the same as below: (a) Schedule of assets as on March 31, 2014 consisting of assets already informed by the Company. Such assets were valued at Rs.4,75,840/-. (b) As per the Company, it had mobilized Rs.84,28,112/- as of the date of this letter. (c) Details of investor: The Company had submitted two lists. As per List I (Payment Details of Agreement Holders as on 31.03.2014), the Company has 315 investors from whom Rs.50,22,000/-was collected. As per List II, the Company has 185 investors from whom it has collected Rs.34,06,110/-.

9. Thereafter, vide SEBI letter dated April 23, 2015, the Company was advised that a personal hearing was scheduled in the matter on May 22, 2015. Vide another letter dated April 23, 2015, SEBI while referring to the Company’s submission that it would refund monies along with interest on or before March 31, 2015, had advised the Company to submit status of the same. In response, the Company vide e-mail dated May 20, 2015, stated that it has refunded the monies to the parties and undertook to submit documentary evidence in the hearing scheduled on May 22, 2015.

10. In the personal hearing held on May 22, 2015, the Company, Mr. Rajesh Khera, Mr. Rajesh Niranjan and Mr. Lalit Kumar Arora, were represented by Mr. Sanjay Kumar, Practising Company Secretary and Mr. Kamal Kumar Goyal, Chartered Accountant. Noticee, Mr. Parveen Kumar appeared in-person. One Mr. O. P. Khurana who is stated to be a present director in the Company also appeared. The representative stated that the Company had paid all its liabilities and submitted a file containing the following:

(a) Provisional Balance Sheet as at March 31, 2015 (b) Audited balance Sheet as at March 31, 2014 (c) List of repayments made with cheque numbers and amount (d) Reconciliation statement of Bank and (e) Receipts from customer. Mr. Parveen Kumar stated that he was a director in the Company for 6-8 months and requested SEBI to seek the details regarding repayment from the Company.

11. I have considered the interim order, the submissions and documents filed by the noticee and the other material on record. The allegations against the Company is that it is engaged in activities which are in the nature of CIS without obtaining registration from SEBI as required to operate/launch CIS under section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. From the submissions, it is noted that the noticees have not disputed the allegation of carrying on or launching CIS. Their only contention is that as per the Companies Act, 2013, the ‘advance’ received against supply of material shall be a ‘deposit’ after 365 days from the date of receipt or from commencement of the Companies Act, 2013.

12. It is noted that the Company issues a “Proposal Form” soliciting investments from the public towards purchase and allotment of calf/ghee under various subscription plans. Such subscriptions plans were either lump-sum payment plan or instalment payment plan.

A. For reference, I reproduce few such plans/schemes as mentioned in the interim order. Table I IDS Plan 1 (12 months) (1 year) Unit Forecasted Instalments ( ₹) Value of Cow/Ghee value of Monthly Quarterly Half Yearly on maturity Ghee Yearly 1 4.80 Litre 100 295 580 1150 5.00 Litre 2 9.60 Litre 200 590 1160 2300 10.00 Litre 3 14.40 Litre 300 885 1740 3450 15.00 Litre 4 19.20 Litre 400 1180 2320 4600 20.00 Litre 5 24.00 Litre 500 1475 2900 5750 25.00 Litre 10 48.00 Litre 1000 2950 5800 11500 50.00 Litre

#(1 unit = 4.80 Litre * price of 1 Litre of ghee ₹ 250)

Table II One-time Payment Dairy Plans

Price of Calf/Cows available in JSR Dairy Farms Forecasted price of – Maturity Price of – i. Sahiwal Cow @ ₹5000 i. Sahiwal Cow @ ₹6750 [LDS – II (3 years)] ii. Jersey Cow @ ₹5000 ii. Jersey Cow @ ₹10000 [LDS – III (6 years)] iii. Holstein Friesian Cow @ ₹5000 iii. Holstein Friesian Cow @ ₹15000 [LDS – IV (9 years)] Table III LDS Plan II (36 months) (3 years) Unit Forecasted value of cow/ ghee Value on maturity of cow/ ghee 1 20.00 Litre 27.00 Litre 2 40.00 Litre 54.00 Litre 3 60.00 Litre 81.00 Litre 4 80.00 Litre 108.00 Litre 5 100.00 Litre 135.00 Litre 10 200.00 Litre 270.00 Litre #(1 unit = 20 Litre * price of 1 Litre of ghee ₹ 250)

The investor could subscribe to the various plans offered by the Company by entering into an Agreement with the Company. The salient features of the said Agreement are reproduced below: “AGREEMENT 1. Whereas JSR Dairies is engaged in the business of running dairy (farms) with scientifically modern style and managing/dealing in livestock, breeding of high quality cattle fodder production, animal farm management including animal production, processing and trading of milk products & dairy farming. … 2. Whereas JSR Dairies is also engaged in sales of calves to prospective customers and undertake the maintenance & upbringing of the same and sale of ghee alongwith multiplication of ghee. 3. Whereas JSE is in the process of making arrangements/has made arrangements for purchasing/procuring the calves and ghee forming part of various plans launched by JSR Dairies. 4. And whereas the Customer, by means of an Application bearing number _____ which is the basis of this Agreement and which contains the salient Terms & Conditions of the various plans, has/have expressed his/her/their desire of buying the said calf/ghee. 5. And whereas the Customer has/have requested JSR Dairies to arrange for the sale of the said calf/ghee (hereinafter referred to as the Said Product) in his/her/their favour and to maintain/up bring/multiply the same by rendering various services in accordance with the said plan. 6. And whereas JSR Dairies has agreed to arrange for the sale of the Said Product in favour of the customer and to maintain/up bring/multiply the same by rendering various services as aforesaid. … NOW THEREFORE THIS AGREEMENT WITNESSETH AS FOLLOWS: 1. (i) Sale & Allotment of Calf

The customer shall be entitled for allotment of the Said Product within such period after receipt by JSR Dairies, of full consideration in case of Lump Sum Payment Plans, as have been set out in the Terms & Conditions contained in the Proposal Form. … JSR Dairies will hand over the possession of brought up calf or cattle to the customer at the end of the plan. (ii) Sale of Ghee The Customer shall pay the agreed value of ghee in installments as has been set out in the plan. JSR Dairies will procure/manufacture/multiply the ghee by sale/purchase or by any other method as it deems fit for the benefit of both the parties. JSR Dairies will hand over the possession of increased quantity of ghee to the customer at the end of the plan. 2. Preliminary Work (i) … (ii) JSR Dairies or its nominees shall set up dairy farms for proper up bringing & maintenance of calves subject to the Terms and Conditions laid down elsewhere in this Agreement. 3. Consideration The Customer shall pay, in aggregate, sum of Rs. ______ as of the agreed aggregate amount as per payment schedule of Plan opted for by him/her towards Consideration for the acquisition, sale, maintenance … for the aforesaid Product by JSR Dairies and for such other allied expenses as may be allocable or appropriate to the Said Product.

4. Maintenance, Up-bringing & Multiplication JSR Dairies shall provide such up-bringing/maintenance/multiplication system, as it may deem appropriate, which shall be part of the overall up-bringing … of plans, depending upon the breed and quality of the Said Product. … The Customer shall not ordinarily interfere with the method and mode of maintenance … of the Said Product… 5. Possession The Customer shall be owner of the Said Product at all times. JSR Dairies shall be having the possession of the Product only for the limited purposes of maintenance/… of the Said Product as per the Terms of the agreement between the customer and JSR Dairies in this regard. … 6. … 7. Sale of Produce Unless specifically written otherwise, JSR Dairies shall be the sole owner of all the produce, if any, out of the Said Product. For the purpose of selling/utilization of the produce as previously mentioned, JSR Dairies shall have the sole ownership & discretion to decide as how to sell/utilize the said produce. 8. Net Sale Proceeds It is agreed that during the course of up-bringing… of Said Product, the Customer shall not make any claim for any produce during the period of first seven years.

Thus, only Customers who have opted for the Product beyond the period of seven years would have the right to be credited with sale proceeds of the produce pertaining to the period beyond seven years …

… General Terms & Conditions … 13. During the currency of this agreement, the Customer will be the owner of the calf which would be under the possession of JSR Dairies for its maintenance and upbringing purpose … 14. Cost of the calf includes its maintenance and miscellaneous charge. 15. On the expiry of agreement, the customer has the right to either take the possession or sell brought up calf. …"

The Company issues a Certificate to the investor against the subscriptions/investments. The following portion from one such sample Certificate is relevant to note:

"Certified that the person described hereunder is a registered & bonafide customer of the Company in one of its Plans. The said customer has entered into an agreement with the company for purchase of Calf/Cattle/Ghee as described hereunder subject to General Terms & Conditions … and detailed out in the Agreement ... It is hereby decided that Schedule, Terms & Conditions & Rule Book … shall be deemed to be a part of this Certificate."

13. The Scheme/plans offered by the Company is to be tested whether they satisfy all the four conditions enumerated under section 11AA(2) of the SEBI Act in order to categorize the business/activities of the Company as a CIS. In this regard, the provisions of section 11AA(1) and (2) are mentioned below: “11AA. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) shall be a collective investment scheme: Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme. (2) Any scheme or arrangement made or offered by any person under which,— (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;

(iv) the investors do not have day-to-day control over the management and operation of the scheme or arrangement.”

14. Accordingly, the features of the alleged schemes/plans are tested against each of the above said conditions. The first criteria 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. a) The interim order has made the following prima facie observations: “JSR Dairies has launched the JSR Scheme, inviting investment from the public towards the purchase and allotment of calf/ghee under various subscription plans. The investment made by a ‘Customer’ or investor is in the form of monetary payment in installments or lump-sum in accordance with Payment Plans contained in the Rule Book. As per the Agreement contained in the Proposal Form (executed between JSR Dairies and the ‘Customer’, in lieu of investment in the JSR Scheme), it has been stated that the company is engaged in sales of calves to prospective customers and undertake the maintenance and upbringing of the same and sale of ghee alongwith multiplication of ghee. Further, arrangements for purchasing calves and ghee forming part of various Payment Plans launched by the company, were stated to have been made. Accordingly, upon investment in the JSR Scheme, the 'Customer' shall be entitled for allotment of calf within such period after receipt of full consideration in case of lump-sum payment or increased quantity of ghee in case of installment payments. Further, as per the Agreement, "The Customer shall pay, in aggregate, sum of Rs. ______ as of the agreed aggregate amount as per payment schedule of Plan opted for by him/her towards Consideration for the acquisition, sale, maintenance … for the Product (i.e. calf or ghee) by JSR Dairies." In view of the aforesaid, it would appear that the contribution or investment received from the ‘Customer’ is pooled and utilized for the purpose of the JSR Scheme.”

b) As per the Agreement which is executed between the Company and its customer/investor, the customer shall pay the consideration for the acquisition, sale and maintenance of calves/product of the Company and also for allied expenses as may be required. The Company has floated plans under lump-sum payment and instalment payment schemes for purchase of cattle and ghee. The Company has represented that it is – (i) engaged in the sale of cattle and maintaining and upbringing them and also sale of ghee along with ‘multiplication of ghee’ and (ii) process of making arrangement/has made arrangement for purchasing/procuring the calves and ghee forming part of various plans launched by it.

The Agreement also states that the Customer has requested the Company to arrange for the sale of calf/ghee in his favour and to maintain/up-bring/multiply the same by rendering various services in accordance with the plan and that the Company has agreed to arrange for sale of the ‘said product’ in favour of the customer and to maintain/multiply the same. The investor subscribes to the scheme/plans of the Company in order to receive appreciated value on his investments. Therefore, it is proved that the Company has solicited investments from the investors for the purposes of pooling and utilizing the same for the purposes of the scheme or arrangement.

c) The Company issues a Certificate to the investor against the subscriptions/investments. As per one such certificate, it is "Certified that the person described hereunder is a registered & bonafide customer of the Company in one of its Plans. The said customer has entered into an agreement with the company for purchase of Calf/Cattle/Ghee as described hereunder subject to General Terms & Conditions … and detailed out in the Agreement ... It is hereby decided that Schedule, Terms & Conditions & Rule Book … shall be deemed to be a part of this Certificate."

d) In view of the above, I hereby hold that the first condition i.e. the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement, are satisfied by the Scheme of the Company.

15. 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.

(a) As mentioned above, the Company promises the customer that it would arrange for sale of the product (i.e. calf/ghee) and to maintain/up-bring/multiply such product.

(b) In all the Schemes of the Company, the investor is promised a return on his investment. As per instalment payment plan, a customer shall pay Rs.100/- on a monthly basis for 4.80 litre of ghee and on completion of the 12 months period, the value would equal to 5 litres of ghee. As per the Company, 1 litre of ghee is valued at Rs.250/-. In monetary terms, the investors pays Rs.1200/- in 12 months and gets a return of Rs.1250/- i.e. Rs.50/- over and above his investment. Similarly, for a contract of 36 months duration, an investor pays for 20 litres of ghee and is promised 27 litres of ghee after 3 years. In case of one-time payment plan, the investor pays Rs.5000/- for a ‘Sahiwal cow’ and is eligible for Rs.6750/- at the end of 3 years term.

(c) The following clauses from the Agreement is also important to be noted in this regard. (i) “Sale & Allotment of Calf The customer shall be entitled for allotment of the Said Product within such period after receipt by JSR Dairies, of full consideration in case of Lump Sum Payment Plans, as have been set out in the Terms & Conditions contained in the Proposal Form. … JSR Dairies will hand over the possession of brought up calf or cattle to the customer at the end of the plan. (ii) Sale of Ghee The Customer shall pay the agreed value of ghee in installments as has been set out in the plan. JSR Dairies will procure/manufacture/multiply the ghee by sale/purchase or by any other method as it deems fit for the benefit of both the parties. JSR Dairies will hand over the possession of increased quantity of ghee to the customer at the end of the plan”.

(d) If it was a simple, purchase of calf or ghee, there was no need for any such plans. It appears that the Company is taking deposits (fixed as well as recurring) from customers under the guise of agreement for sale and rearing contract of goats and buffaloes.

(e) Therefore, from the above discussion, it is concluded that the contributions or payments made to the scheme of the Company are with a view to receive profits, income, produce or property from such scheme. The Scheme of the Company therefore satisfies the second condition under section 11AA(2) of the SEBI Act.

16. The third and fourth conditions under section 11AA(2) of the SEBI Act can be discussed together. These conditions are that the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors and the investors do not have day-to-day control over the management and operation of the scheme or arrangement.

(a) At the cost of repetition, the following clauses from the Agreement, General Terms and Conditions are referred to: “Maintenance, Up-bringing & Multiplication JSR Dairies shall provide such up-bringing/maintenance/multiplication system, as it may deem appropriate, which shall be part of the overall up-bringing … of plans, depending upon the breed and quality of the Said

Product. … The Customer shall not ordinarily interfere with the method and mode of maintenance … of the Said Product… Possession The Customer shall be owner of the Said Product at all times. JSR Dairies shall be having the possession of the Product only for the limited purposes of maintenance/… of the Said Product as per the Terms of the agreement between the customer and JSR Dairies in this regard. …

Sale of Produce Unless specifically written otherwise, JSR Dairies shall be the sole owner of all the produce, if any, out of the Said Product. For the purpose of selling/utilization of the produce as previously mentioned, JSR Dairies shall have the sole ownership & discretion to decide as how to sell/utilize the said produce. Net Sale Proceeds It is agreed that during the course of up-bringing… of Said Product, the Customer shall not make any claim for any produce during the period of first seven years. Thus, only Customers who have opted for the Product beyond the period of seven years would have the right to be credited with sale proceeds of the produce pertaining to the period beyond seven years … … General Terms & Conditions … 13. During the currency of this agreement, the Customer will be the owner of the calf which would be under the possession of JSR Dairies for its maintenance and upbringing purpose …”

(b) All the above clauses indicate that the contribution, property, operations relating to sale of calf/ghee are managed by the Company on behalf of its investors. Further, the investors do not have any control over the management and operations of the scheme. Therefore, it can be concluded that the scheme of the Company satisfies the third and fourth conditions specified under section 11AA (2) of the SEBI Act also.

17. In view of the above discussions, the Scheme of the Company i.e. sale of calf/ghee and maintaining and up-bringing them and multiplying them satisfies all the four conditions under section 11AA(2) of the SEBI Act. The activities of the Company are not exempt under the clauses under section 11AA(3) of the SEBI Act. Accordingly, it is concluded that such schemes/arrangements of the Company with its customers fall within the ambit of the definition of Collective Investment Scheme under section 11AA of the SEBI Act. The Hon’ble Supreme Court in the matter of PGF Limited vs. UoI and another (ref.

MANU/SC/0247/2013, has observed "…..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." The Hon'ble Supreme Court further observed - “… sub-section (2) of Section 11AA, which defines a collective investment scheme disclose that it is not restricted to any particular commercial activity such as in a shop or any other commercial establishment or even agricultural operation or transportation or shipping or entertainment industry etc. The definition only seeks to ascertain and identify any scheme or arrangement, irrespective of the nature of business, which attracts investors to invest their funds at the instance of someone else who comes forward to promote such scheme or arrangement in any field and such scheme or arrangement provides for the various consequences to result there from. …"

"Inasmuch as the said Section 11AA seeks to cover, in general, any scheme or arrangement providing for certain consequences specified therein vis-a-vis the investors and the promoters…….,”.

18. The Company has contended that as per the Companies Act, 2013, the ‘advance’ received against supply of material shall be a ‘deposit’ after 365 days from the date of receipt or from commencement of the Companies Act, 2013. In the instant case, the Company promised a supply of product (ghee/ calf) and not monetary returns, on maturity against the investment of investors. As mentioned above, the scheme of the Company satisfied the conditions under section 11AA(2) of the SEBI Act read with CIS Regulations to be termed as Collective Investment Scheme and therefore cannot be deemed as an ‘Advance’. The argument is therefore rejected.

19. To carry out the activity of CIS and mobilize public funds from such schemes, it is mandatory under law to obtain a certificate of registration from SEBI. 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. 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 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. The Company does not have a certificate of registration as mandated under law and has launched CIS without obtaining certificate of registration from SEBI, thereby contravening the provisions of section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations.

20. The activities of the Company are not exempt under the clauses under section 11AA(3) of the SEBI Act. Therefore, having concluded that the activities of the Company are CIS in terms of section 11AA of the SEBI Act and that the same were carried out without obtaining registration from SEBI, suitable enforcement action should necessarily follow in the interest of investors.

21. In view of such unregistered CIS activities carried on by the Company, it becomes necessary to issue suitable directions in the interest of investors and the securities market. In this regard, regulation 65 provides for various directions by SEBI. The said provision is reproduced below for reference:

“65. The Board may, in the interests of the securities market and the investors and without prejudice to its right to initiate action under this Chapter, including initiation of criminal prosecution under section 24 of the Act, give such directions as it deems fit in order to ensure effective observance of these regulations, including directions: (a) requiring the person concerned not to collect any money from investors or to launch any [collective investment scheme]; (b) prohibiting the person concerned from disposing of any of the properties of the [collective investment scheme] acquired in violation of these regulations; (c) requiring the person concerned to dispose of the assets of the [collective investment scheme] in a manner as may be specified in the directions; (d) requiring the person concerned to refund any money or the assets to the concerned investors along with the requisite interest or otherwise, collected under the [collective investment scheme]; (e) prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specified period.”

22. As the Company is carrying out unregistered CIS activities, it becomes necessary to direct the Company to wind up the CIS and refund its investors’ money or assets along with requisite interest along with other necessary directions. In this regard, the interim order has observed - “From the audited financial statements of JSR Dairies for the FY 2009–10 and 2010–11, it is observed that the amounts mobilized under the Scheme have been recorded in the relevant Balance Sheet under the head 'Current Liabilities'. The same is reproduced below:

Particulars As on March 31, 2011 (`) As on March 31, 2010 (`) Advances from 99,76,082 10,78,440 Customers/Advance Received for Business:

From the audited financial statements of JSR Dairies for the FY 2009–10 and 2010–11, it is observed that the fixed assets were as follows:

Particulars As on March 31, 2011 (`) As on March 31, 2010 (`) Fixed Assets 11,03,039 14,463 …”

Further, on perusal of the provisional Balance Sheet for 2015, it is noted that the amount under head “Long term liabilities: Received from customer for FD & RD” has been reduced to Nil as of 31.03.2015 whereas this amount stood at Rs.84,28,112/- as of 31.03.2014.

The Company and its directors, Mr. Rajesh Khera, Mr. Rajesh Niranjan and Mr. Lalit Kumar Arora, represented, during the personal hearing, that the Company had paid of all its liabilities and inter alia submitted two list of repayments made with cheque numbers and amount. The following are noted on perusal of documents submitted by the Company: (a) The Company had raised Rs.84,28,110 from 503 investors i.e. Rs.34,06,110/- from 187 investors under the IDS Plan and Rs.75,39,726/- from 316 investors under LDS Plan. (b) One list (List I) pertained to cheques which were cleared and the other (List II) which pertained to cheques issued but not cleared till May 15, 2015. As per List I, the Company stated that it has paid a total of Rs.75,39,726/- to 316 investors. However, it is noted that for many entries, it is mentioned “chq.nt cleared”. (c) List II pertains to payment of Rs.7,51,240.80/- claimed to be made but cheques not cleared. These details are therefore not sufficient to accept the claim of the Company that it has paid all its liabilities. It is necessary that the Company provides the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipts from the investors acknowledging such refunds.

The Company and its directors have submitted that all the customers would either be refunded or would be supplied with goods by 31.03.2015. Further, as per the provisional Balance Sheet dated 31.03.2015, the Company does not appear to have sufficient funds in its bank account to repay the customers in List II.

23. The interim order has alleged that the fund mobilizing activity of the Company through its schemes prima facie amounts to a fraudulent practice in terms of regulation 4(2)(t) of the PFUTP Regulations. I note that in terms of regulation 4(2)(t), dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and includes illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person. This provision in the above Regulations has been brought into effect from September 06, 2013. Accordingly, it could be held that by mobilizing public funds through CIS without obtaining registration from SEBI as required under section 12(1B) of the SEBI Act read with regulation 3 of the CIS Regulations, after the provision coming into force, the Company has contravened the above provision and liable for action.

24. The interim order was issued in respect of Mr. Rajesh Khera, Mr. Rajesh Niranjan, Mr. Lalit Kumar Arora and Mr. Parveen Kumar. As per the details available in the website of the MCA, it is seen that Mr. Rajesh Niranjan, Mr. Lalit Kumar Arora and one Om Parkash Khurana are the present directors. It is seen that noticees Mr. Rajesh Khera and Mr. Parveen Kumar are no more the directors of the Company.

Mr. Parveen Kumar Sardana submitted that he joined the Company as a director on December 26, 2009 and resigned on October 28, 2010. As per Form-32, the date of his cessation as a director was on August 28, 2010. He submitted that during his short tenure, he had raised several questions regarding the process of collecting deposits/advances to the ‘Board of members’ on several occasions. He further submitted that he was not aware of fraudulent activities done during the period and that on coming to know that the activities were not as per the guidelines, he had resigned. He was told by the Company that it would be selling dairy products which he found was not true. He also stated that he is not in touch with the Company or any Board member after his resignation. It is noted that the Company was incorporated on July 16, 2009 and as per the details of claimed repayments, the Company had started mobilizing public funds through its schemes from the year of its incorporation. This noticee has resigned during August 2010. Therefore, he is responsible for the violation by the Company in carrying out CIS without registration from SEBI.

Mr. Rajesh Khera (DIN-02170555) has submitted that he resigned from directorship w.e.f. April 01, 2011. As per details available in the MCA portal, this noticee was a director from July 16, 2009 till April 01, 2011. Accordingly, he is also responsible for the violation by the Company in carrying out CIS without registration from SEBI.

It is noted that one Om Parkash Khurana is a director who has been appointed on April 01, 2011 and continues to be a director in the Company. Though he is not covered vide the interim order, he would be, as a present director, under liability to wind up the unregistered CIS activity of the Company and make refunds to the investors and also for other remedial and preventive directions.

25. In view of the foregoing observations and findings, 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), 11(4) and 11B thereof and regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, hereby issue the following directions:

1. JSR Dairies Limited and its Directors (past and present), namely, Mr. Rajesh Khera (DIN 02170555), Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265), Mr. Parveen Kumar (DIN: 02969923 / PAN: AIGPS2913N) and Mr. Om Parkash Khurana (DIN: 03445496) shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the schemes which have been identified as a Collective Investment Scheme in this Order.

2. JSR Dairies Limited and its Directors, Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265) and Mr. Om Parkash Khurana (DIN : 03445496) 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.

3. JSR Dairies Limited and its Directors, Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265) and Mr. Om Parkash Khurana (DIN : 03445496) shall not alienate or dispose off or sell any of the assets of the aforesaid company except for the purpose of making refunds to its investors, as directed above.

4. JSR Dairies Limited and its Directors (past and present), namely, Mr. Rajesh Khera (DIN 02170555), Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265), Mr. Parveen Kumar (DIN 02969923) and Mr. Om Parkash Khurana (DIN : 03445496) are directed to immediately submit the 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.

5. JSR Dairies Limited and its Directors (past and present), namely, Mr. Rajesh Khera (DIN 02170555), Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265), Mr. Parveen Kumar (DIN 02969923) are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of 4 years.

6. In the event of failure by JSR Dairies Limited and its Directors (past and present), namely, Mr. Rajesh Khera (DIN 02170555), Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265), Mr. Parveen Kumar (DIN 02969923) and Mr. Om Parkash Khurana (DIN : 03445496), to comply with the directions in sub-paragraphs 1-4 above, the following action shall follow:

i. JSR Dairies Limited and its Directors (past and present), namely, Mr. Rajesh Khera (DIN 02170555), Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265), Mr. Parveen Kumar (DIN 02969923) and shall remain restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities market, even after the completion of period of 4 years of restraint imposed vide sub-paragraph 5 above, till all the Collective Investment Schemes of JSR Dairies Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them.

ii. SEBI would initiate proceedings against Mr. Om Parkash Khurana (DIN : 03445496) {who had joined the board in 2011 and continues as a director till now and not covered under the interim order} for appropriate directions including directions restraining him from accessing the securities market and prohibiting him from buying, selling or otherwise dealing in securities market for an appropriate period.

iii. SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against JSR Dairies 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 mis-appropriation of public funds.

iv. SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the company, JSR Dairies Limited.

v. SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder.

26. This order shall come into force with immediate effect.

27. 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 JSR Dairies Limited and its Directors (past and present), namely, Mr. Rajesh Khera (DIN 02170555), Mr. Rajesh Niranjan (DIN 02633927), Mr. Lalit Kumar Arora (DIN 02625265), Mr. Parveen Kumar (DIN 02969923) and Mr. Om Parkash Khurana (DIN : 03445496), including other persons who are in default, for the violations as found in this Order.

28. Copy of this Order shall be forwarded to the stock exchanges and depositories for necessary action.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: November 20, 2015 Place: Mumbai