Order in the matter of M/s Ken Infratech Ltd

WTM/PS/54/CIS/NRO/DEC/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER Under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999 IN THE MATTER OF KEN INFRATECH LIMITED In respect of KEN Infratech Limited and its Directors viz. Mr. Sukhwinder Singh, Mr. Gurwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh Date of Hearing: June 20, 2014 Appearances: For Noticees: Mr. R.S. Bhatia, Practising Company Secretary Mr. B.K. Lohia, FCA For SEBI: Mr. Narendra Rawat, Deputy General Manager Mr. Pradeep Kumar, Assistant Legal Adviser Ms. Treasa Kuriala, Assistant General Manager 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') received complaints against one KEN Infratech Limited (hereinafter referred to as 'KIL' or 'the Company') (a company with its registered office at 3413, Mahindra Park, Rani Bagh, New Delhi). The complaints alleged that KIL has floated many investment schemes through which money is being mobilized and that the Company is neither giving any plot nor does it have any land of its own. SEBI advised KIL vide its letter dated August 18, 2011, to submit the information on the plans and schemes launched by it, the terms and conditions of each such plan/ scheme, number of investors and the amount collected in each of such plan/ scheme, application forms that are required to be submitted by the investors/ applicants to participate in such plans/ schemes and names of promoters/ directors/ key management personnel of KIL, in order to ascertain whether it was carrying on the activities of Collective Investment Schemes (hereinafter referred to as 'CIS').

2. The letter addressed to the 'Registered office' of KIL in Delhi, returned undelivered. An attempt was made to deliver the letter to its 'Corporate office' in Ferozepur City. KIL vide its letter (received by SEBI on September 19, 2011) replied to the letter of SEBI and submitted the information with regard to the details of payment plans for its schemes, application form, agreement between the Company and the investor, details of the amount mobilized, terms and conditions of the Company mentioned on the plot registration letter as well as in the agreement and also submitted that it has mobilised about ₹4.5 crore in cash down payment plan and about ₹3 crore in installment payment plan and has not purchased the land yet. It also submitted that it will purchase the land at the earliest.

3. In order to further analyse the case, SEBI vide its letters dated September 23, 2011, December 20, 2011 and June 06, 2012 advised KIL to submit additional information/ documents. However, these letters were returned undelivered. Thereafter, SEBI vide its letter dated May 21, 2012, sought the same set of information from the directors of KIL. They also failed to provide the details/ documents sought for by SEBI.

4. On the basis of material available on record, SEBI prima facie found that KIL and its directors namely Mr. Sukhwinder Singh, Mr. Gurwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh are engaged in mobilizing funds from the public, by floating/ sponsoring/ launching CIS as defined in Section 11AA of the SEBI Act, 1992 (hereinafter referred to as the ‘SEBI Act’) without obtaining a certificate of registration from SEBI for operating CIS as required under Section 12(1B) of the SEBI Act read with Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as ‘CIS Regulations’). Thereafter, SEBI vide an ad interim ex-parte order dated June 18, 2013 (hereinafter referred to as the ‘interim order’) directed KIL and its directors including Mr. Sukhwinder Singh, Mr. Gurwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh as under: a. not to collect any money from investors or to launch any scheme; b. the properties/ assets which have been owned or acquired in respect of or in respect of or in pursuance of the plans/ schemes or earmarked/ allotted to the investors under the plans/ schemes, shall not be disposed of by KIL without prior permission of SEBI. c. not to divert any funds raised from public at large which are kept in bank accounts(s) and/or in the custody of KIL. KIL and its directors were also advised to file their reply, if any, within fifteen (15) days, from the date of receipt of the said interim order and also avail opportunities of personal hearing, if they so desire. The interim order further stated that the order shall be treated as a show cause notice by KIL and its directors and they may show cause as to why appropriate directions under the SEBI Act and CIS Regulations, including directions for winding up of such plans/schemes in terms of Regulation 73 and formulation of the scheme of repayment in terms of Regulation 74 of the CIS Regulations, should not be taken against them.

5. KIL vide its letter dated August 01, 2013, submitted its reply to the interim order. Before proceeding further, KIL was afforded an opportunity of personal hearing on June 30, 2014. On the date fixed for personal hearing, Mr. R.S. Bhatia, a Practicing Company Secretary and authorized representative of the Company along with Mr. B.K. Lohia, a Fellow Chartered Accountant appeared before me and made submissions. The authorised representative also filed the written submissions along with certain documents. The Company also submitted a list of investors to whom the Company claimed to have repaid and names of the four investors to whom it is yet to refund.

6. The submissions made by KIL, in brief are as under:

a. The Company is in real estate sector, it offers its services to the investors who intend to purchase plot/ land as a part of development of residential area. b. The Company acts as a conduit/ facilitator between the seller and the buyer. The Company acquires agricultural land for the purpose of reselling the same in small units to enable the customer to make dwelling units on it, subject to the necessary approvals. The Company has land pieces at more than one place. Lands at different places are valued differently and plots are sold at different prices. The customers have options and choices to book plots as per their requirements and preferences. Each booking is done on individual basis. c. The pamphlets circulated were to make people aware about the activity of the Company and to make them aware about the size and cost of the plot. The Company invites applications to book plots of land for residential/ commercial units. d. Development of the land is done by the Company out of the proceeds received from the different potential purchasers of land. e. Once the land is sold then sale proceeds are taken as revenue receipt and cost of land is shown as expenditure in the company’s books of account. It has been said that till March 31, 2013, no land is sold by the Company and only sale agreements have been established. f. There is no collective stock of land, there were no account of increased value of stock of land which were paid or to be paid to the customers.

g. The plots to be sold are on the basis of pricing of land based on its location and sizes. The land units are actual pieces of land and are not fungible. There are no fixed plans/ schemes for selling land. h. The specification of the land sold are given in the agreement/ sale deeds and there will be actual transfer/ sale of land. i. The Company acts as a seller in the ordinary course of business. No ownership rights are left with the Company once sale deed is executed. The owner has the freedom to use the land in any manner he thinks appropriate. j. The Company does booking of plot and units in advance and takes booking amount to ensure the sincerity/ interest of the customers and execute an agreement with customers to ensure safety of their deals/ money. This agreement do provide for exit options. Once the plots are arranged, sale deeds will be executed and sale proceeds will be booked in the books of accounts. k. The money received from intending purchasers is as advance for purchase of plot/ unit which is a common practice in ‘real estate’ industry. There is no expectation of profit sharing. l. The Company is not managing any schemes on behalf of the customers.

It takes its own decisions where customers have no role to play. m. There is no scheme offering any fixed return. n. Company was in possession of land measuring 12.04 acres of land, out of which for 9.025 acres of land, an agreement for sale has been established. o. The Company has never collected ₹7.5 crores under any schemes. It has received booking amounts against purchase of plots which never exceeded ₹2 crore, at any point of time. The Company has paid back money to those who have asked for it, as on March 31, 2013, the outstanding booking amount is ₹99,57,916. It has not collected any money towards booking of plots after the date of audited balance sheet as on March 31, 2013 (copy of which is submitted along with the reply). p. The development charges are on very lower side of the total booking amount. It has made pre-bookings and based on the demand, it arranges and acquires land. It has also been said that an individual investor is neither equipped nor has capabilities to make the land useable for constructing a house. q. Its customers are not at loss, the company has never deceived its customers.

The Company has refunded ₹99.57 lakhs during the financial year 2013-2014 and only ₹16.44 lakhs is outstanding as liability towards four persons as on March 31, 2014. The outstanding amount of ₹16.44 lakhs would be paid to the four investors at the earliest.

7. I have considered the interim order, the oral and written submissions of KIL, the documents furnished by KIL and the material available on record. The main allegation against KIL is that the plans/schemes operated by it are in the nature of CIS and KIL is offering these schemes without obtaining registration from SEBI in contravention of the provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations read with Section 11AA of SEBI Act. The directors of KIL have also been alleged to be responsible for the illegal conduct of the business of KIL. The issue that now arise for my consideration is: Whether KIL is operating a CIS without obtaining registration from SEBI?

8. Whether KIL is operating a CIS without obtaining registration from SEBI?

a. The interim order has discussed in detail about the application form, which talks about the plans/ schemes operated by KIL. The Company in its submissions has argued that it is in the real estate sector and offers its services to the investors who intend to purchase plot/ land. KIL has submitted that it invites application to book plots of land. KIL has admittedly circulated pamphlets in order to bring awareness to the public about the activity of the company.

b. I have perused the copy of the 'agreement cum application form', 'registration letter', 'receipt' and 'payment plans' as submitted by KIL and a brief analysis of these is being discussed below. The sample 'agreement cum application form' is a pre-printed document with blanks to be filled and contains the details such as the name, father's name, address, etc. of the applicant. It also provides for payment plan number, consideration, area, etc. The relevant terms and conditions of the application form are as under: "AND WHEREAS THE COMPANY has made arrangements for purchasing/procuring the land with clear and marketable title and with possession, which forms part of various plans launched by THE COMPANY. ... .... AND WHEREAS THE COMPANY has agreed to arrange for the sale of PLOT in favour of the CUSTOMER and to develop the same at its expense by undertaking various development activities in which the Company possesses the requisite expertise and skill. ... .... ... ....

1. Sale of Plot The land shall be allotted in the name of the Customer, in case of Cash Down Payment Plans after completion of nine months from the date of agreement and in Installment Payment Plans after having receipt of 50% of the consideration amount of the plot and development charges within a period of 270 days ... ... ... .... ... .... 5. Possession The Customer shall be owner in vacant physical possession of the plot at all times, after execution of registered sale deed. The Company shall enter upon the plot only for the limited period for the purpose of undertaking development of the plot, as per the terms of this agreement between the customer and the company in that regard. ... ... The overall security of the Plot shall, however, be the responsibility of the Company till the expiry of the development period of Plan opted for by the customer..... " 6. Irrigation System The Company shall provide such irrigation system as it may deem appropriate, which shall be part of the overall irrigation system, ... .... ... ... 9. Sale Of Produce Unless specifically otherwise directed by the Customer, the Company shall be responsible for arranging, the sale of the produce, if any, out of the plot, on behalf of the Customer.

For the purposes of arranging the sale of the produce as aforesaid, the Company shall have the sole discretion to decide as to whether the produce shall be sold in the wholesale market: and/ or in the semi-wholesale market, and/or to one or more marketing Company, or may decide to sell it to any other market which the Company may consider appropriate for the sale of a particular grade of the produce. 10. SALE PRICE The task of sale of the produce, undertaken by the company under the provision of the aforesaid clause 9, shall be subject to the condition that depending upon the grade of the produce harvested from the plot, market conditions and other relevant factors, the Company may decide to sell the produce at such price which it may deem fit and reasonable in the circumstances prevailing at that point of time. It shall be the endeavour of the company to sell the product at the best prevailing prices and terms. The customer shall accept the net sale proceeds, so obtained by the company from the sale of the said produce as final and no dispute shall be raised in respect of the same. ... .... ... ....

20. OPTING OUT (A) Under Cash Down Payment Plans, the Customers shall have the facility to opt out after two years from the date of purchase of plot, before or after the allotment of the plot. … ... the payment received by the Company from the Customer shall be refunded after deducting 20% of the consideration ... .... (B) In Cash down Payment Plan, if the Customer chooses to opt out after allotment of the plot, in his/ her favour, he may do so after completion of five years ... ... he/ she will have to submit a specific written request ... ... .” From the above, I note that KIL offers two kinds of plans i.e. 'cash down payment plan' and 'installment payment plan'. This indicates that the Company has 'plan' with respect to its transactions with its contributors/ investors. Under the cash down payment plan, the land is allotted to the customers after completion of nine months from the date of agreement while under the installment payment plan, the land is allotted within a period of 270 days from the date of receipt of 50% of the consideration amount and development charges. I also note that KIL at the stage of agreement makes arrangements for purchasing/ procuring the land.

The right of development is retained by KIL. Further, KIL retains the right of arranging the sale of produce on behalf of the customer. KIL agrees to pay the land tax and other public dues/ levies, payable on the land/ plot to the appropriate authorities on behalf of the customer and it is entitled to get the same reimbursed from the customer. These facts indicate that even though a customer has subscribed to a plan, the possession of the property, if and when it comes into existence is with KIL and not with the customer.

c. The second document is the 'Registration letter' and 'receipt' issued by KIL. I have perused a copy of the 'registration letter' which contains the details such as the name of the applicant, address, registration number, date of commencement, plan, plot size, consideration, installment details, nominee details, etc. A reading of the same makes it clear that KIL does not identify the plot/ land in the registration letter. I note that the 'registration letter' provides the 'expected value of land at the end of the term'. In my opinion, this document is more in the nature of a deposit advice, recording the investment made by the customer and the increased value of the investment available on completion of the term, if opted for the same.

d. I have also perused the sample 'sale deeds' submitted by the authorised representatives of KIL. However, these sale deeds are for the purchase of land by KIL mainly in the year 2012, expect for one which was executed in the year 2011.

At this stage, I also refer to the two 'agreements of sale' for the land as submitted by KIL (in Punjabi language), by which the land is agreed to be transferred in the name of the joint holders. I have perused these documents and note that in one of the agreements, the reason for sale of land has been stated as 'requirement of money for family use' and 'for purchase of other property'. It is not clear whether these agreements for sale were entered into with the customers/ investors of KIL. And thus, the claim of KIL that the ownership of land is transferred is incorrect as not a single 'sale deed' has been submitted by KIL for the sale of land in favour of its customers.

e. Another document available on record is the document named as 'payment plans'. KIL in its reply has contended that a very small percentage of the total booking amount is received towards development charges and has claimed that developmental charges are very low. However, on perusal of the 'payment plans' of KIL, it becomes clear that the 'development and other charges' accounts for about 64% of the total cost of land in almost all the plans offered by it.

f. From the above discussion and the interim order, I note as under: - The customer while applying authorises KIL for development/ maintenance, without which agreement will not be entered with the customer/ investor. - On entering into the agreement, the customer hands over all the rights of development of the land/ plot to KIL. KIL retains the right for arranging the sale of produce. - KIL does not identify the plot at the execution of agreement or even at the time of issuing of registration letter. - KIL guarantees a certain value in the form of 'expected value of land at the end of term'. - KIL reserves the right to discontinue, change, amend or modify any of the rules/ regulation, plans and introduce new plans at any time at its sole discretion with or without notice to the customer. - The development and other charges accounts for 64% of the total cost of land. - No sale deed in favour of the customer has been registered yet.

g. Having considered the above, now I proceed to deal with the charges levelled against KIL. The main allegation levelled against KIL is that it is operating CIS without obtaining registration from SEBI. Before proceeding further in the matter, it is necessary to note the background of CIS Regulations and how the provisions came to be framed. Several entities were mobilizing huge money by issuing various instruments and offering very high rates of return inconsistent with the normal rate of returns and then misutilising these funds, for the purposes not disclosed at the time of inviting the investments, thereby not only causing loss to the investors who lost their life savings to such unscrupulous entities, but also eroding the confidence of the general public. Considering the high element of risk associated with such schemes, the Government of India felt that it was necessary to set up an appropriate Regulatory framework to regulate such entities. Hence, in order to protect the interest of the investors and to ensure that only legitimate investment activities are carried on, vide press release dated November 18, 1997, the Government of India communicated its decision that schemes through which instruments such as agro bonds, plantation bonds, etc., are issued by the entities, would be treated as Schemes under the provisions of the SEBI Act and directed SEBI to formulate Regulations for the purpose of regulating these CISs.

It was against this background that Section 11AA of the SEBI Act and the CIS Regulations came to be framed. Thereafter, several press releases and newspaper advertisements/ notices were issued by SEBI from time to time in the leading newspapers bringing to the notice of the investors and the persons concerned, the various instructions issued by SEBI/ Central Government from time to time in respect of the functioning of the CIS. The press releases further stated that instruments such as agro bonds, plantation bonds should be treated as CIS coming under the SEBI Act. All the companies having such activities were required to file information with SEBI. Moreover, general public was also informed that no person can sponsor or cause to be sponsored any new CIS and thereafter raise further funds. Meanwhile, a committee was formed to examine and finalize the draft regulations for CIS to structure a comprehensive regulatory framework. Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999 was issued on October 15, 1999. As per the CIS Regulations, any person who has been operating a CIS at the time of commencement of the CIS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the regulation, within a period of two months from the date of the notification.

No entity was allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI.

h. The definition for ‘collective investment scheme’ was inserted in the SEBI Act, 1992, vide the Securities Laws (Amendment) Act, 1999 w.e.f. February 22, 2000. According to the definition, CIS means any scheme or arrangement which satisfies the conditions specified in Section 11 AA of the SEBI Act, which provides as under: "(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or [sub-section (2A)]1 shall be a collective investment scheme. [Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under the exemptions from CIS sub-section (3), involving a corpus amount of one hundred Crore rupees or more shall be deemed to be a collective investment scheme.]2 (2) Any scheme or arrangement made or offered by any [person]3 under which, 1 Inserted by Securities Laws (Amendment) Ordinance, 2014 2 Inserted by Securities Laws (Amendment) Ordinance, 2014 3 Substituted for 'company' by The Securities Laws (Amendment) Ordinance, 2014 (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." The term ‘securities’ in section 2(h) of the Securities Contracts (Regulation) Act, 1956 was amended vide the Securities Laws (Amendment) Act, 1999, w.e.f. February 22, 2000, to include units or any other instrument issued by any collective investment scheme to the investors in such schemes.

i. Having discussed the above, let us now examine whether the schemes floated by KIL satisfy all the four conditions prescribed under Section 11AA(2) of the SEBI Act.:

i. The first condition, under Section 11AA(2), is that the contributions or payments made by the investors, by whatever name called, are pooled and utilised for the purposes of the scheme/ arrangement. In the instant case, KIL admittedly collects the money/ investments from customers by offering investment plans/ scheme. The said monies are utilized for the purposes of the scheme, which is sale/ purchase and development of land. KIL has admitted that it had no land at the time of mobilizing money from the investors. Further, it is evident from the agreement/ registration letter issued to the investor that no specific plot is mentioned at the time of entering into the agreement (i.e. the plot is not identified). The same leads one to infer that the land is being purchased subsequently. Therefore, it is apparent that money from the investors are pooled and utilized for the purposes of the scheme i.e. procuring the land/ plot, developing the same, etc.

Further, I note from the clause contained in the 'application form cum agreement' that the buyer/ customer is desirous of purchasing plot of land and getting the same developed and maintained through KIL. The 'application form cum agreement'/ registration certificate does not mention about the location of the plot of land/ property. I also note that a customer who is investing its money with KIL is mandatorily required to give authority for the development and maintenance of the land/ plot in favour of KIL. I note that KIL inspite of getting sufficient opportunities has not been able to produce any sale deed in favour of its customers. Therefore, it becomes clear that KIL is pooling payments from its customers and utilising it for the purposes of the scheme/ arrangement, thus satisfying the first condition as stipulated in Section 11AA(2)(i) of the SEBI Act.

ii. The second condition, is that the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement. KIL in its submissions has argued that it does not provide any return in the form of credit value at the end of the scheme. However, a perusal of the brochures/ payment plans/ registration letters issued by the Company reveals that KIL gives ‘expected cost at the end of term’/ the projected land/ plot value at the end of the term. I note that the contribution/ payments are made by customers to KIL by selecting the options available as detailed in the brochure containing the payment plans about the profits/ income/ property. Under those options, the customer clearly makes contribution/ payment with a view to receive the profits/ income/ property on their initial investments that may accrue to them as applicable, thus attracting the second condition as stipulated in Section 11AA(2)(ii) of the SEBI Act. In view of the same, the submission of KIL that it has no expectation of profit sharing finds no merit.

iii. The third condition is that the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed by KIL on behalf of the investors. By KIL's own admission, the customers give it the authority to develop and maintain the plot of land/ property. I note that the said authority is given to KIL by the customers vide the 'application form cum agreement' which is a primary document for becoming the customer of KIL. The customer does not manage his investments in the scheme rather his investments are managed and utilized by KIL as per its own discretion. Thus, it is clear that the plot of land/ property are not managed by the customers at any stage of the scheme. The same therefore, satisfies the third condition as stipulated in Section 11AA(2)(iii) of the SEBI Act.

iv. The fourth condition is that investors do not have day to day control over the management and operation of the scheme or arrangement. As stated above, KIL obtains the unconditional authority from its customers for developing and maintaining the land/ plot intended to be purchased by the customers. As the contribution/ investment and the plot of land/ property are managed by KIL on behalf of its customers, they do not have any role in their management. This makes it clear that the customer does not have day to day control over the plot of land/ property as the same remained in the custody/ use of KIL which satisfies the fourth and last condition as stipulated in Section 11AA(2)(iv) of the SEBI Act.

j. At this juncture, I refer to the letter of KIL received by SEBI on September 19, 2011, stating that it has not bought any land and will buy soon. From the same, an inference can be drawn that KIL had no land at the time of mobilizing funds from the public and there was no identifiable land at the time of allotting property to its customer. In view of the same, KIL could not have fixed the price of the land at the stage of issuing 'registration letter'. In addition to the above, usually price of a piece of land cannot be fixed at a stage where the land is not even allotted as is being done by KIL. Further, a perusal of the financial statements of KIL, shows that the ‘land and development inventory’ of KIL has remained the same at ₹1.5 crore for the financial year ending March 31, 2014. The same confirms that there has been no transfer of ownership of land by the Company to its investors.

k. Considering the above discussion, it can be said that the transactions between KIL and its customers are not real estate transactions in true sense, rather they satisfy all the ingredients of a CIS as defined under Section 11AA of the SEBI Act. In this regard, I place my reliance on the observations of the Hon'ble Supreme Court, made in the matter of PGF Limited & Ors. Vs. Union of India & Anrs. (Civil Appeal No. 6572 of 2004): "Therefore, the paramount object of the Parliament in enacting the SEBI Act itself and in particular the addition of Section 11AA was with a view to protect the gullible investors most of whom are poor and uneducated or retired personnel or those who belong to middle income group and who seek to invest their hard earned retirement benefits or savings in such schemes with a view to earn some sustained benefits or with the fond hope that such investment will get appreciated in course of time. Certain other Section of the people who are worstly affected are those who belong to the middle income group who again make such investments in order to earn some extra financial benefits and thereby improve their standard of living and on very many occasions to cater to the need of the educational career of their children.

38. Since it was noticed in the early 90s that there was mushroom growth of attractive schemes or arrangements, which persuaded the above vulnerable group getting attracted towards such schemes and arrangements, which weakness was encashed by the promoters of such schemes and arrangements who lure them to part with their savings by falling as a prey to the sweet coated words of such frauds, the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act. ... ... ... 40. It will have to be stated with particular reference to the activity of the PGF Limited, namely, sale and development of agricultural land as a collective investment scheme, the implication of Section 11AA was not intended to affect the development of agricultural land or any other operation connected therewith or put any spokes in such sale-cum-development of such agricultural land.

It has to be borne in mind that by seeking to cover any scheme or arrangement by way of collective investment scheme either in the field of agricultural or any other commercial activity, the purport is only to ensure that the scheme providing for investment in the form of rupee, anna or paise gets registered with the authority concerned and the provision would further seek to regulate such schemes in order to ensure that any such investment based on any promise under the scheme or arrangement is truly operated upon in a lawful manner and that by operating such scheme or arrangement the person who makes the investment is able to really reap the benefit and that he is not defrauded ... ... It is, therefore, apparent that all other schemes/arrangements operated by all others, namely, other than those who are governed by sub-section 3 of Section 11AA are to be controlled in order to ensure proper working of the scheme primarily in the interest of the investors. ... ... 42. Therefore, in reality what sub-section (2) of Section 11AA intends to achieve is only to safeguard the interest of the investors whenever any scheme or arrangement is announced by such promoters by making a thorough study of such schemes and arrangements before registering such schemes with the SEBI and also later on monitor such schemes and arrangements in order to ensure proper statutory control over such promoters and whatever investment made by any individual is provided necessary protection for their investments in the event of such schemes or arrangements either being successfully operated upon or by any misfortune happen to be abandoned, where again there would be sufficient safeguards made for an assured refund of investments made, if not in full, at least a part of it. ... ...

In the light of our above conclusions on this ground it will have to be held that Section 11AA is a valid provision, not suffering from any infirmity, as it does not intrude into the specific activities of sale of agricultural land and its development. ... ... It is needless to state that as per the agreement between the customer and the PGF Limited, it is the responsibility of the PGF Limited to carry out the developmental activity in the land and thereby the PGF Limited undertook to manage the scheme/arrangement on behalf of the customers. Having regard to the location of the lands sold in units to the customers, which are located in different states while the customers are stated to be from different parts of the country it is well-neigh possible for the customers to have day to day control over the management and operation of the scheme/arrangement. In these circumstances, the conclusion of the Division Bench in holding that the nature of activity of the PGF Limited under the guise of sale and development of agricultural land did fall under the definition of collective investment scheme under Section 2(ba) read along with Section 11AA of the SEBI Act was perfectly justified and hence, we do not find any flaw in the said conclusion. ... ....

53. We, therefore, hold that Section 11AA of the SEBI Act is constitutionally valid. We also hold that the activity of the PGF Limited, namely, the sale and development of agricultural land squarely falls within the definition of collective investment scheme under Section 2(ba) read along with Section 11AA (ii) of the SEBI Act and consequently the order of the second respondent dated 06.12.2002 is perfectly justified and there is no scope to interfere with the same. In the light of our above conclusions, the PGF Limited has to comply with the directions contained in last paragraph of the order of the second respondent dated 06.12.2002 ... ..." In view of the foregoing, I am of the considered view that the plans/ schemes/ of KIL is in the nature of a CIS as all the four conditions specified under Section 11AA (2) of the SEBI Act are satisfied. I, therefore, find that the Company is engaged in the fund mobilising activity from the public by floating/ sponsoring/ launching 'collective investment schemes' as defined in Section 11AA of the SEBI Act. It is clear that the business run by the KIL is nothing but that of a CIS, as all the conditions of Section 11AA of the SEBI Act are satisfied by the plans/ schemes operated by KIL.

Therefore, I have no hesitation in holding that KIL and its directors are engaged in the fund mobilising activity from pubic by floating/ sponsoring/ launching CISs as defined in the Section 11AA of the SEBI Act.

l. Section 12(1B) of the SEBI Act mandates that no person, shall sponsor or cause to be sponsored or carry on or caused to be carried on any CIS unless it obtains a certificate of registration from SEBI in accordance with the CIS Regulations. KIL has clearly failed to do so. Regulation 3 of the CIS Regulations provides that no person other than a Collective Investment Management Company which has obtained a certificate under the said regulations shall carry on or sponsor or launch a 'collective investment scheme'. A person can launch or sponsor or cause to sponsor a CIS only if it is registered with SEBI as a Collective Investment Management Company. Therefore, the launching/ floating/ sponsoring/ causing to sponsor any 'collective investment scheme' by any 'person' without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. I note that KIL has launched a CIS without obtaining certificate of registration from SEBI, it has contravened the provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

m. KIL in its reply dated August 01, 2013, has denied collecting ₹7.5 crores under any scheme and has stated that the booking amount against purchase of plots has not exceeded ₹2 crore. This submission of KIL is contrary to its own submission made vide its letter received by SEBI on September 19, 2011, that it has collected about ₹4.5 crores in the 'cash down payment plan' and ₹3 crore in 'installment payment plan'. This shows that KIL is making attempts to mislead the proceedings.

I note that the Company vide its reply dated August 01, 2013, has informed that it has paid back the full amount to the investors who desired to exit out of the scheme. KIL has also mentioned that various customers have taken back their money. KIL in its reply dated August 11, 2013, has more specifically informed that it had outstanding liability of only ₹99,57,916 as on March 31, 2013 and it has repaid the same to 55 customers during 2013 - 2014. However, the Company has not submitted any documentary evidence in support of its claim like the request letter asking for refunds and the proof of receipt of having refunded the investors.

Further, vide a 'Chartered Accountant' certificate dated June 10, 2014, filed during the course of personal hearing has informed SEBI that it has an outstanding liability of only ₹16.44 lakhs to only four investors. From the balance sheet and profit & loss statement of KIL for the financial year ending 2013 and provisional balance sheet and profit & loss statement for the financial year ending 2014, I note as under: - The cash and cash equivalents of KIL were merely ₹5.26 lakhs and ₹4.70 lakhs as on March 31, 2012 and March 31, 2013. The same has further came down to ₹19,965 as on March 31, 2014. - The 'booking amount against plot' as on March 31, 2012 was ₹1,44,34,524, which has come down to ₹99,57,916 as on March 31, 2013. - As mentioned above, KIL has not sold any property/ land/ asset as the ‘land and development inventory’ has remained constant.

Therefore, it is clear that the Company do not have sufficient funds to make a refund of such huge funds and the same raises serious doubt on the claim of KIL regarding refund. Further, it is also noted that during the course of personal hearing on June 20, 2014, KIL had made submissions that it would repay ₹16.44 lakhs at the earliest. However, the Company has not made any further submissions to SEBI regarding the status of repayment.

n. As regards the liability of the directors of KIL (both present and past), it is noted that the interim order had named Mr. Sukhwinder Singh, Mr. Gurwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh as the directors of KIL. I note from the information available on record that Mr. Sukhwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh are the present directors of KIL. In view of the same, all these are liable and responsible for the violations committed by KIL in running CIS without obtaining registration from SEBI as required under law.

As regards, Mr. Gurwinder Singh who was a director of KIL since incorporation, it is noted that he had resigned from KIL on November 27, 2010. In view of the same, he is liable and responsible for the violations committed by KIL in running CIS without obtaining registration from SEBI as required under law, during the period when he was a director.

9. Therefore, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 and Sections 11(1), 11B and 11(4) thereof and Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, hereby issue the following directions:

a. KEN Infratech Limited [PAN: AAECK1605J] and its directors namely Mr. Sukhwinder Singh [PAN: CUEPS1687K], Mr. Sukhchain Singh [DIN: 03294730] and Mr. Kuldeep Singh [PAN: BQXPS7815M] shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the scheme which have been identified as a Collective Investment Scheme in this Order. b. KEN Infratech Limited and its directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh, and Mr. Kuldeep Singh 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 month 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. c. KEN Infratech Limited and its directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh, and Mr. Kuldeep Singh shall not alienate or dispose off or sell any of the assets of KEN Infratech Limited except for the purpose of making refunds to its investors as directed above. d. KEN Infratech Limited and its directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh, and Mr. Kuldeep Singh are also directed to immediately submit the complete and detailed inventory of the assets owned by KEN Infratech Limited. e. In the event of failure by KEN Infratech Limited and its directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh to comply with the above directions, the following actions shall follow: - KEN Infratech Limited and its directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh shall immediately (on expiry of the three months period available for making refunds) be restrained from accessing the securities market and would further be prohibited from buying, selling or otherwise dealing in securities market till all the Collective Investment Schemes of KEN Infratech Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them. - SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against KEN Infratech Limited, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and - SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the company, KEN Infratech Limited. - SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder. f. Without prejudice to the above, KEN Infratech Limited and its directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh and Mr. Kuldeep Singh are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of four (4) years.

g. Mr. Gurwinder Singh [PAN: CLEPS7179D] is restrained from accessing the securities market and would further be prohibited from buying, selling or otherwise dealing in securities market for a period of two (2) years.

10. Further, for the contraventions as found in this Order and the contravention of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, SEBI may examine whether to initiate appropriate proceedings under Sections 11(4) and 11B of the SEBI Act read with Regulation 65(e) of the CIS Regulations and/ or Chapter VI A of the SEBI Act against KEN Infratech Limited and its Directors namely Mr. Sukhwinder Singh, Mr. Sukhchain Singh, Mr. Kuldeep Singh and Mr. Gurwinder Singh, in accordance with law.

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

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

DATE : December 17th, 2014 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA