Order in the matter of M/s Rose Valley Real Estates and Constructions Ltd.

WTM/RKA/ERO/ 59 /2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11 & 11B of the Securities and Exchange Board of India Act, 1992 read with regulation 65 and 73 of the SEBI (Collective Investment Schemes) Regulations, 1999 in the matter of Rose Valley Real Estates and Constructions Ltd.

In respect of (1) M/s Rose Valley Real Estates and Constructions Ltd. and its promoters/directors (2) Mr. Gautam Kundu, (3) Mr. Shibamoy Dutta, (4) Mr. Ram Lal Goswami, (5) Mr. Abir Kundu and (6) Mr. Ashok Kumar Saha

1. Securities and Exchange Board of India (hereinafter referred to as SEBI) passed an ad-interim ex-parte order dated January 03, 2011 (hereinafter referred to as "interim order") in respect of M/s Rose Valley Real Estates and Constructions Ltd. (hereinafter referred to as RVRECL). In the interim order it was prima facie observed that RVRECL was inviting contributions from the general public through a scheme namely ‘Ashirbad’ (hereinafter referred to as 'the scheme') in the nature of "collective investment scheme" without obtaining a Certificate of Registration as required under section 12(1B) read with section 11(2)(c) of the SEBI Act and regulation 3 of the SEBI (CIS) Regulations, 1999 (hereinafter referred to as "the CIS Regulations) thereby prima facie violated regulation 3 of CIS Regulations read with section 11AA of the SEBI Act. SEBI vide the interim order dricted RVRECL to:- (a) not to collect any money from investors or to launch any scheme; (b) not to dispose of any of the properties or delineate assets of the scheme; (c) not to divert any fund raised from public at large kept in bank account and/or at the custody of the company. 2. By the interim order, RVRECL was also provided 15 days time to file its reply to the allegations and to avail opportunity of personal hearing, if it so desires. Instead of submitting a reply to the interim order, RVRECL filed a Writ Petition before the Hon'ble Calcutta High Court, challenging the interim order, which was dismissed on March 23, 2011 due to availability of alternate remedy of appeal with liberty to approach the Hon'ble Securities Appellate Tribunal (hereinafter referred to as 'SAT'). Challenging the judgment of the Single Judge, a Writ Appeal was filed by RVRECL before the Division Bench of Hon'ble Calcutta High Court. The Division Bench In the matter of Rose Valley Real Estates and Construction Ltd.

dismissed the Writ Appeal on July 13, 2011 as was not pressed by RVRECL. However, the Division Bench granted liberty to file a fresh Writ Petition to challenge the vires of any Act under which the decision of SEBI was taken. Thereafter RVRECL filed a fresh Writ Petition no. 725 of 2011 before the Hon’ble Calcutta High Court, challenging the vires of inter alia provisions of SEBI Act and CIS Regulations. The Hon'ble Calcutta High Court vide order dated August 03, 2011 granted interim relief to RVRECL by restraining SEBI from proceeding further with the pending proceedings. Thereafter, SEBI moved the Hon'ble Supreme Court praying for directions to be issued to the Hon'ble Calcutta High Court to dispose of the pending proceedings in a time bound manner as repeated attempts by SEBI for early listing were rejected by the Hon'ble High Court. The Hon'ble Supreme Court vide its order dated July 02, 2013 had directed the Hon'ble Calcutta High Court to take up the Writ Petition preferably within two weeks from July 02, 2013 or at least consider vacating the stay on the proceedings pending with SEBI, particularly, in view of the fact that the RVRECL was continuing to invite deposits from general public.

3. The Hon’ble Calcutta High Court vide its order dated July 23, 2013 while upholding constitutional vires of the challenged provisions of SEBI Act and CIS Regulations, dismissed the Writ Petition filed by RVRECL and imposed a cost of ` 10,00,000/- on RVRECL. However, the Hon'ble High Court granted RVRECL liberty to challenge the interim order of SEBI before SAT. RVRECL filed an appeal against this order before the Division Bench of the Hon'ble Calcutta High Court. The Division Bench of Hon'ble Calcutta High Court vide its order dated August 21, 2013 refused to grant stay on the pending proceedings with SEBI, however the cost imposed vide Hon’ble Calcutta High Court order dated July 23, 2013 was reduced from `10,00,000/- to `2,00,000/-. Further, RVRECL was granted liberty to file an appeal before Hon'ble SAT within a period of four weeks. 4. After the stay on pending proceedings in the matter was vacated by the Hon'ble Calcutta High Court, SEBI scheduled a personal hearing in the matter on October 1, 2013. A notice to that effect was issued to RVRECL. In the meanwhile RVRECL filed an appeal before the Hon'ble SAT challenging the interim order.

Hon'ble SAT vide its order dated September 26, 2013 directed SEBI to furnish additional documents, if any to RVRECL within two weeks, directed RVRECL to file its objection within four weeks and directed SEBI to pass its final order in the matter within four months thereafter. In view of the Hon'ble SAT’s direction, the hearing which was scheduled on October 01, 2013 was cancelled and SEBI vide its letter dated October 3, 2013 provided the following documents to RVRECL:- a. Letter dated December 7, 2009 from the Director of the Economic Offences Investigation Cell, Government of West Bengal. b. Letter dated July 27, 2011 received from the Directorate of Income Tax, Kolkata. c. SEBI letter dated May 15, 2012 to RVRECL informing about the appointment of KPMG to as independent auditors to examine the books of accounts of RVRECL. d. Letter dated May 16, 2012 from RVRECL e. Letter dated May 21, 2012 received from Ministry of Finance, Govt. of India. f. Letter dated June 20, 2012 received from office of the Director, Bureau of Investigation, Assam g. Complaint dated April 03, 2013 filed by SEBI against RVRECL, with the Baguiati Police Station, for preventing the SEBI officers from discharging their duty as public servants, when they had visited the premises of RVRECL for inspecting the books of accounts. h. Complaint received from Mr. Saugat Ray Chaudhury dated April 27, 2013. i. Complaint received from Mr. Amitava Ghosh dated June 11, 2013. j. Complaint received from Ms. Munmun Podder dated September 25, 2013. 5. RVRECL did not file its reply within four weeks as directed by SAT.

Thereafter, personal hearing in the matter was fixed on December 10, 2013 which was later rescheduled to January 02, 2014. In the interim, RVRECL had filed a miscellaneous application before SAT for an extension of time to file its reply. SAT vide its order dated December 04, 2013 had extended the time line given to RVRECL to file its reply by another four weeks. Thereafter RVRECL vide its letter dated January 01, 2014 filed its reply and its objections to the additional documents provided by SEBI. The hearing in the matter which was scheduled on January 02, 2014 was adjourned at the request of RVRECL. The next date of hearing was scheduled on March 13, 2014 which was rescheduled to April 09, 2014. The Advocates of RVRECL vide their letter dated April 08, 2014 again sought for an adjournment in the matter which was not acceded to. 6. The Advocates on behalf of RVRECL appeared for the personal hearing on April 08, 2014 and again sought for a short adjournment in the matter to make their submissions. Based on their request the hearing was rescheduled to April 16, 2014 wherein Mr. Sudipta Sharkar, Senior Advocate and others appeared on behalf of RVRECL and made their submissions.

RVRECL vide its letter dated April 23, 2014 filed its written submission in the matter. RVRECL had filed a miscellaneous application before Hon'ble SAT inter alia requesting to direct SEBI to grant another opportunity of personal hearing. Hon'ble SAT vide its order dated April 29, 2014 had directed SEBI to give an opportunity of personal hearing to RVRECL within two weeks, and to pass its final order within six weeks thereafter. In view of this direction another opportunity of personal hearing was granted to RVRECL on May 07, 2014 wherein Mr. Sudipta Sharkar, Senior Advocate and others appeared on behalf of RVRECL and made its submissions on the line of reply on record. Vide letter dated May 20, 2014 RVRECL submitted additional documents in support of its submissions on record. The submissions made by RVRECL in the matter inter-alia are as follows:- i. RVRECL has not issued any securities to the public. The advances received are installments for purchase of properties and are carried in the balance sheet as unsecured loan. No trust has been created by RVRECL as is envisaged in a collective investment scheme.

There is no pooling of funds, there is no issue of “units” and there is no management of properties on behalf of investors. In the event of winding up the creditors will have a right to claim against the properties of RVRECL as against a collective investment scheme. Thus the provision of section 11AA of the SEBI Act and SEBI (CIS) Regulations are not applicable in the instant case. Such instalment raised by RVRECL are exempted from being ‘deposits’ under the provisions of the RBI Act and the Companies Act. If the said deposits are not found exempted then also the jurisdiction will lie with MCA or RBI and not with SEBI. SEBI erred in making certain factual assumptions with regard to the business of RVRECL. SEBI erred in giving a narrow definition of what should be a real estate business. SEBI had wrongfully assumed jurisdiction in the matter. ii. RVRECL is not a listed company. SEBI Act provides that the Board may take measures against any listed public company or a company which intends to get its securities listed. Since RVRECL does not deal in securities and is not a part of the securities market, the provisions of the SEBI Act does not apply.

Since RVRECL does not and has not ever dealt in securities, the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "SCR Act") has no application to the business of RVRECL. The direction passed by SEBI arises from the assumption that RVRECL is running a collective investment scheme without obtaining a certificate of registration from SEBI under section 12 of the SEBI Act. Further, none of the cases as specified in section 11B and on satisfaction of which, direction can be issued, applies to RVRECL. Direction under 11B can only be issued inter alia in the interest of investors or orderly development of securities market. Admittedly the business of the RVRECL does not fall under SCR Act and SEBI Act. iii. SEBI has acted in an arbitrary and coercive manner for wholly extraneous reasons. In this connection it is pertinent to mention that RVRECL had filed a FIR with the Anti-

Corruption Branch of the Central Bureau of Investigation in January 2010 against a particular officer of SEBI for demanding illegal gratification. iv. RVRECL has furnished all relevant documents/information sought for by SEBI. Further, the interim order is passed in a complete breach of principles of natural justice. No opportunity of hearing was granted before the passing of the order. v. With regard to the letter dated December 7, 2009 from EOC, Govt. of West Bengal stating that "Rose Valley Group" had been raising funds through schemes in the nature of CIS, RVRECL submitted that this letter was never served on it before. No hearing was given before coming to the alleged conclusion in the letter. There is a breach of natural justice, since SEBI proceeded to pass an interim order based on this letter, which was never provided to RVRECL before. vi. With regard to letter dated July 27, 2011 from Income Tax stating that during a search operation held in RVRECL and Rose Valley Hotels & Entertainment Ltd., it was found that these companies were raising deposits from investors promising high return and the books of accounts do not reflect the true financial position, RVRECL submitted that this letter is served for the first time.

Income Tax Authorities have no jurisdiction to proceed or make any observation on the business carried on by RVRECL vii. With regard to SEBI’s letter dated May 15 2012 informing RVRECL that M/s. KPMG has been appointed as independent auditors to examine the books of accounts of RVRECL and RVRECL's reply dated May 16, 2012, RVRECL submitted that by its letter RVRECL had clearly stated that at the time of issuing of SEBI’s letter, interim orders passed by the Hon'ble Calcutta High Court were subsisting, in view whereof SEBI could not have issued any further direction on RVRECL in the matter. viii. With regard to letter dated May 21, 2012 from Ministry of Finance forwarding a representation from various investors of Rose Valley group alleging that they have been cheated by the said group, RVRECL disputed the authenticity of this document. All signatures are initials. Further, names of the districts mentioned in letter indicating address of the investors, do not exist in West Bengal. ix. With regard to letter dated June 20, 2012 from Bureau of Investigation, Assam wherein inter-alia SEBI was requested to examine the activities of RVRECL post SEBI interim order and to determine if the same has been complied with, RVRECL submitted that this letter admits that RVRECL has stopped the business of “Booking Schemes” and from taking any new members.

Mere communication by an authority on the basis of a purported ex-parte conclusion has no legs to stand. x. With regard to Complaint/General Diary filed by SEBI vide letter dated April 03, 2013 at the Baguiati Police Station stating that two officers of SEBI had visited the office of RVRECL for conducting inspection and they were prevented from discharging their duties as public servant, RVRECL submitted that complaint filed by SEBI was on a completely erroneous basis, as SEBI could not inspect the books of accounts as the order of the High Court was in place. xi. RVRECL has not issued any pamphlets or brochures of the Ashirbad scheme. It is incorrect to suggest that the earnest money was received in advance in installments. RVRECL at the relevant point of time used to receive only a part of the earnest money by way of advance installment. Upon payment of installments of such part of the earnest money, RVRECL used to call the purchaser to put in the balance earnest money and to enter into an agreement to sale. It was specially mentioned in the said agreement that the entire transaction of sale is to be completed within a period of 90 days from the date of the agreement to sale, in default thereof the customer and/or purchaser will be refunded the money upon deduction of 25% of the amount so paid by such purchaser to RVRECL. xii.

It is also incorrect that a portion of the agreed sale price of the plot is given as earnest money as per pre-fixed table. The credit value was being offered and was adjusted as against the value of land to be paid by RVRECL. RVRECL states that on an application being made by the purchaser for refund a part of the earnest money, RVRECL used to return such part of the earnest money so paid by the purchaser together with credit value. RVRECL has disputed the correctness of the table mentioned under sub-paragraph (d) of paragraph 5 of the interim order. xiii. It is denied that the RVRECL did not have the basic data similar to unit holders register as alleged. Since the business of the RVRECL is spread all over India, RVRECL had sought three months’ time to submit the relevant data. xiv. The observation that the land allotment is not made vis-à-vis the investor is erroneous as the customer does not pay the entire earnest money while paying the installment. The purchaser used to pay a part of the earnest money and once the part of such earnest money was paid by installments, the purchasers were called upon to pay the balance earnest money whereupon a formal agreement is entered into.

As such there is no question of physical demarcation of land before the entire earnest money is paid by the purchaser and then the agreement is entered into. xv. The real estate business now a days applies various formulas to attract more buyers. In some cases fully furnished units including amenities are provided, in some cases ground floor flats are offered as a terrace flat and in some cases the purchasers are called or invited to pay the value of the property in installments on a pre-launch basis. In some cases, while inviting such offers, the builders show the benefit of the customer in booking any unit by way of pre-launch offer. Such pre-launch offers are spread over from two years to 5 years during which the customer is to pay installments for such unit even when the unit is not constructed. Even such units are saleable by the purchaser at a higher price or before handing over possession. The price difference from the date of booking and the date of handing over possession are always shown as benefits of the investment of such customer. xvi. The real estate business cannot be said to be always dependent on the location, terrain of current and future potential use of land/land bank.

In the instant case RVRECL used to take into consideration the entire cost of procuring the land in its land bank and then to figure out an average price per sq. ft. and then used to offer to sell the piece of land at a unique uniform price. Such pricing of land is the prerogative of vendor and is not necessarily required to be as per prevalent rate in the area. RVRECL used to make an average pricing of plots of land taking into consideration of the cost of procuring of entire land bank and the cost of development thereof under RVRECL. xvii. RVRECL used to purchase chunks of land and then used to sub-divide the same into plots by making provision of approach roads and other utilities. Such sub-divided plots were numbered as per the master plan of RVRECL as plot numbers as per the prevailing system. As would appear from the schedule of a specimen deed of conveyance submitted to SEBI, that the plot of land has been duly identified with J.L number, Khatian number and other relevant numbers of identification as per prevailing system in the State of West Bengal. It is pertinent to mention that two schedules have been mentioned in the said deed of conveyance.

The first schedule contains the description of land which has been sub-divided into plots and second schedule contains the specific plot number in the said chunk of land as mentioned in the deed.

xviii. So far as the management of the land goes, as per the system of the sale of land, unless the purchaser pays the entire consideration money and the conveyance is executed, the purchaser does not or cannot have any control over the plot. As per the usual system of sale of land the advance or earnest money paid by the customer remains in exclusive control of the vendor. The purchaser cannot have any right to the advance or earnest money paid by him except a right of refund in the event of cancellation. However, once the plot is sold the purchaser becomes the absolute owner thereof and takes physical control thereof upon execution of conveyance and in such cases RVRECL has no control, over the said plot of land either by way of management or otherwise. xix. The offering of credit value to the persons who pay part of the earnest money and then do not opt to pay balance earnest money to enter into an agreement is a unique business policy of RVRECL. RVRECL in such cases pays back the earnest money to avoid litigation which would or may restrain RVRECL from dealing in its land. Further RVRECL does itself get benefited as the value of the land increases as time passes.

It has been denied that there is any lucrative return in the form of credit value as alleged. xx. It has been denied that the scheme of RVRECL was in fact a garb for collecting money for collective investment, and in this context the case of PGFL is different than that of RVRECL on factual basis. In any event, in view of closure of the scheme with effect from December 2010 and in the view of continuous process of payment, the interim order becomes irrelevant. Moreover, there is no complaint as of date that the customers are not getting back the advance paid. xxi. RVRECL also states that in respect of some of the plots of land earmarked for the customers, the State of West Bengal has initiated proceedings under the provisions of Urban Land (Ceiling and Regulation) Act. And RVRECL has already challenged this, and the matter is now pending before the Hon'ble Calcutta High Court. xxii. The interim order has been passed on certain assumptions. SEBI has noted that by a letter dated November 15, 2010 RVRECL had sought three months time to provide the information called for by SEBI, and RVRECL had assured that the information will be provided for in a phased manner. xxiii.

RVRECL has provided all the information sought for at various points of time and no complaints have ever been received by RVRECL. Further, `342 crores had already been paid as on August 20, 2010 to those purchasers who did not want to go ahead with the purchase of the land. Most of the money due by way of refund to its customers in view of the closing of the Ashirbad scheme in December 2010 has been cleared in the last three years. RVRECL has clearly stated before the Hon'ble Calcutta High Court that ‘Ashirbad’ scheme has been discontinued since the end of December 2010. RVRECL has continued to refund the advances received from its customers and a very negligible amount remains to be refunded as on date. xxiv. Scheme launched by RVRECL does not fit into the definition of a collective investment scheme because RVRECL had enters into a proper agreement for booking of plot. The development cost of the land is the responsibility of the customer as specifically stated in the agreement. Therefore, contrary to the provisions of the 1992 Act, the earnest money so received is not utilized by RVRECL for the land.

The agreement further provides that for all development costs etc. shall be paid by the allottee, and the agreement for sale is signed in presence of two witnesses. Even the old form provides for cost of land only. The cost of development had never been part of the sale price. The cost of development of land was required to be paid separately at the time of registration of land. The application form sent to and relied upon by SEBI is an outdated form which was discontinued long before closing of the ‘Ashirbad’ scheme in December 2010. The application form which is part of the reply at page 120 is the form which used by RVRECL till December 2010.

xxv. Up to January 2014, a total amount of ` 700 crore has been refunded for the period April 2013 till January 2014. The total amount due to customers is approximately ` 200 crore. 7. I have carefully considered the facts observed in the interim order, the submissions made by RVRECL and the other relevant material available on record. Before I proceed to deal the matter on merit, I feel it appropriate to deal with jurisdictional issue raised by RVRECL. I note that RVRECL has argued that the installments collected by it are in the nature of deposits exempted under the RBI Act and Companies Act, and even if the exemption is contested the jurisdiction will in any case lie with RBI or MCA – not SEBI. RVRECL has further argued that it has neither issued any securities nor has ever dealt in the securities. In this regard, I note that section 2(h) of SCR Act defines "securities" as securities include inter alia "units or any other instrument issued by any collective investment scheme to the investors in such schemes". I, therefore, find that if the scheme launched by RVRECL is found to be collective investment scheme, it is very much in the jurisdiction of SEBI to act upon. In the present matter the issue before me is whether the scheme launched by RVRECL is collective investment scheme or not.

8. I note that RVRECL has submitted that direction under section 11B of SEBI Act cannot be issued in the present matter. In this regard it is pertinent to mention that Hon'ble Supreme Court in matter of SEBI vs. Ajay Agarwal, civil appeal no.1697 of 2005, decided on February 25, 2010 has held that "section 11-B of the Act thus empowers the Board to give directions in the interest of the investors and for orderly development of securities market, which, as noted above, is one of the twin purposes to be achieved by the said Act". I am of the view that if after due consideration of the issue it is found that the scheme launched by RVRECL is in the nature of collective investment scheme and RVRECL has not obtained certificate of registration to that effect as mandated under section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations, it would be in the interest of investors and for orderly development of securities market to pass suitable direction under section 11B of the SEBI Act. 9. I note that RVRECL has submitted that it has been denied an opportunity of personal hearing before passing of the interim order, in violation of principles of natural justice.

In this regard the Hon'ble Bombay Court in the matter of Anand Rathi and Ors. vs Securities and Exchange Board of India, has held that "it is a settled position that while ex parte interim orders may always be made without a pre - decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given, if demanded.". I note that the order passed against RVRECL was an interim order cum show cause notice which had provided a post decisional opportunity to RVRECL to file its reply within 15 days time and also to indicate if it desired an opportunity of personal hearing, but RVRECL instead of filing a reply and availing of an opportunity of hearing, it has been involved in various rounds of litigation as detailed in paras above. Further, the present proceedings are in continuation of the proceedings which were initiated by the interim order and RVRECL has now replied to the interim order and it has availed opportunities of personal hearing in the matter.

I, therefore am of the view that RVRECL's submission in this regard is not acceptable. 10. Further, contrary to the claim of RVRECL that it has provided all information/documents sought for by SEBI, I note that SEBI vide its letter dated November 03, 2010 had sought for details pertaining to investors like name, address, amount paid, no. of plots allotted and address of the land allotted. RVRECL vide its letter dated November 15, 2010 had sought three months time to submit the same, however till date this information is not received by SEBI. This was crucial information which RVRECL had chosen not to provide.

11. RVRECL has also claimed that SEBI has acted in an arbitrary and coercive manner for wholly extraneous reasons and in this regard it has stated that RVRECL had filed a FIR with the Anti- Corruption Branch of the Central Bureau of Investigation in January 2010 against a particular officer of SEBI for demanding illegal gratification. I am of the view that, the argument of RVRECL does not hold any relevance as far as the issue of determining if RVRECL's activity falls under the ambit of CIS Regulations is concerned. 12. With regard to the additional documents which were provided to RVRECL, I note that RVRECL has denied the allegations made therein without substantiating the same with any documentary evidence. With reference to the letter from the Bureau of Investigation, Assam wherein inter-alia SEBI was requested to examine the activities of RVRECL post SEBI interim order and to determine if the same has been complied with. RVRECL has claimed that the letter clearly mentions that "RVRECL has stopped enrolling new customers". This letter has to be read in its entirety and not in bits and pieces for a distorted argument.

I have perused the said letter, wherein it is mentioned that RVRECL has stopped enrolling new customers, but in the same letter in the very next sentence it is clearly mentioned "that RVRECL has continued to collect installments from already enrolled customers". RVRECL has also disputed the authenticity of the letter dated May 25, 2012 received from Ministry of Finance wherein RVRECL has stated that signatures of the investors in the said letter, are only initials and the district names given in the corresponding address does not exist the State of West Bengal. On a perusal of the said letter I note that the names of the investors are clearly mentioned along with their signatures. Further, the address of each of the investor have also been mentioned, however the name of the place has been wrongly mentioned against the column "district" and the details of the district is stated clearly in the next sentence. RVRECL has also claimed that it has repaid all the investors, whose complaints were forwarded, but no documents to substantiate the same have been submitted. In the absence of the documentary proof and reasons stated above I do not find any reason to agree with the arguments of RVRECL raised above.

13. Now I proceed to deal the matter on the basis of merit of the case. It has been observed that RVRECL is raising funds under the scheme named "Ashirbad" on the pretext of selling plot of land on a future date against earnest money received in advance in installments. Application forms to that effect have been circulated. As per the scheme, a portion of claimed sale price of the plot is collected from the investors as earnest money, as per a pre fixed table mentioned in application forms, RVRECL issues money receipt against each such deposit. RVRECL provides a pre-determined credit value against the earnest money so deposited and the same is adjusted against the purchase value of the plot. The scheme gives an option to the investors to not to take possession of the plot and receive the pre -determined credit value. The credit value so determined is substantially more than the total earnest money deposited. For better understanding of the scheme, earnest money / investment and corresponding credit value / return has been depicted in the following tables:

Table – 1 Ashirbad Scheme – A (for 1 katta) Option Monthly Total EMD Credit Value Excess amt Annualised return instalment ( ) ( ) ( ) refunded ( ) * E (12 months) 420/- 5040/- 5400/- 360/- 12.50% (Approx) E-1 (24 months) 210/- 5040/- 6050/- 1010/- 17.50% (Approx) E-2 (36 months) 140/- 5040/- 6838/- 1798-/ 19.00% (Approx) E-3 (60 months) 90/- 5400/- 8812/- 3762/- 18.00% (Approx)

Table – 2 Ashirbad Scheme – A (for 2 kattas) Option Monthly Total EMD Credit Value Excess amt Annualised return instalment ( ) ( ) ( ) refunded ( ) * E (12 months) 840/- 10080/- 10800/- 720/- 12.80% (Approx) E-1 (24 months) 420/- 10080/- 12100/- 2020/- 17.50% (Approx) E-2 (36 months) 280/- 10080/- 13676/- 3596/- 19.00% (Approx) E-3 (60 months) 170/- 10200/- 17624/- 7424/- 20.00% (Approx)

Table – 3 Ashirbad Scheme – A (for 3 kattas) Option Monthly Total EMD Credit Value Excess amt Annualised return instalment ( ) ( ) ( ) refunded ( ) * E (12 months) 1250/- 15000/- 16200/- 1200/- 14.00% (Approx) E-1 (24 months) 630/- 15120/- 18150/- 3030/- 17.50% (Approx)

E-2 (36 months) 420/- 15120/- 20514/- 5394/- 20.00% (Approx) E-3 (60 months) 250/- 15000/- 26436/- 11436/- 21.00% (Approx)

Table – 4 Ashirbad Scheme – A (for 5 kattas) Option Monthly Total EMD Credit Value Excess amt Annualised return instalment ( ) ( ) ( ) refunded ( ) * E (12 months) 2090/- 25080/- 27000/- 1920/- 13.50% (Approx) E-1 (24 months) 1050/- 25200/- 30250/- 5050/- 17.50% (Approx) E-2 (36 months) 700/- 25200/- 34190/- 8990/- 19.00% (Approx) E-3 (60 months) 420/- 25200/- 44060/- 18860/- 21.00% (Approx)

Table – 5 Ashirbad Scheme – A (for 10 kattas) Option Monthly Total EMD Credit Value Excess amt Annualised return instalment ( ) ( ) ( ) refunded ( ) * E (12 months) 4170/- 50040/- 54000/- 3960/- 13.50% (Approx) E-1 (24 months) 2090/- 50160/- 60500/- 10340/- 18.00% (Approx) E-2 (36 months) 1390/- 50040/- 68380/- 18340/- 20.00% (Approx) E-3 (60 months) 840/- 50400/- 88120/- 37720/- 21.00% (Approx)

Table – 6 Ashirbad Scheme – B(for 1 katta)** Options Initial payment Credit Value ( ) Excess amt refunded Annualised return * ( ) (`) E-2 (36 Months) 5000/- 7000/- 2000/- 11.40 % (Approx) E-3 (70 Months) 5000/- 10000/- 5000/- 12.00% (Approx) * The interest rate has been calculated on ‘Quarterly compounding’ basis. ** In this case the credit value is proportionate for 1 katta, 2 kattas, 3 kattas, 5 kattas & 10 kattas.

14. I note that RVRECL vide its letter dated August 20, 2010 has submitted that it has mobilised `1271.98 crore till March 31, 2010 under the scheme and has made a refund of ` 342.20 crore to those investors who opted for the ‘credit value’ instead of the land booked. The land bank of the RVRECL consists of land located in various areas of West Bangal namely Rajarhat, Durgapur, Salboni, Jhargram, Bankura, Saltora, Bagnan, Malbazar, Siliguri, Birbhum, Maldah, Ranaghat and places in other states inter alia Agartala (Tripura), Chindbara (MP), Orissa etc. As per the details provided by RVRECL the details of the fund mobilized and refund made by RVRECL are shown in the following table: Table-7 Financial No. of Plots No of Plots Total Total EMD No. of Amount of Total Year allotted under (along with Amount received as plots(along EMD in amount of the Ashirbad area) received as on date with area) refund refund scheme actually on date under where cases made till handed under Ashirbad refunds date over Ashirbad Scheme have been Scheme (Cl (Cl Bal) given Bal) (Kattas) ( /Cr) ( /Cr) (Kattas) ( /Cr) ( /Cr) 2003-04 1020 Plots: 4045 2.55 2.55 - - - 2004-05 1528 Area: 9132 3.82 3.82 - - - 2005-06 1500 3.75 3.75 208 0.52 0.52 2006-07 18372 (agreement 45.93 45.93 712 1.78 1.78 2007-08 90208 for sale 225.52 225.52 1056 2.64 2.64 2008-09 226552 made 566.38 566.38 1592 3.98 3.98 2009-10 508792 (area towards 1271.98 1271.98 118880 297.20 342.20 under allotment) provisional allotment)

15. I note from the material on record and submission of RVRECL that the land allotments have not been made vis-à-vis the investors i.e. there is no demarcation of land for each of the investor. The identity of the land to be sold and its specification are not delineated in terms of any khata/khasra/street etc. as generally land is identified in Revenue Department. Further, a typical real estate business would price its plots depending on the location, terrain, current and future potential use of the land. It is a prevalent and innate feature of real estate that even within the same location, there may be differential pricing for different value additions like view, direction, accessibility to the plot etc. However, as per the scheme no demarcation in terms of pricing of land exists. The land is proposed to be sold according to the plans offered under a scheme and not on the basis of location and other facilities. 16. Further, RVRECL has stated that the offering of credit value to the persons who pay part of the earnest money and then do not opt to pay balance earnest money to enter into an agreement is a unique business policy of RVRECL.

RVRECL in such cases pays back the earnest money to avoid litigation which would or may restrain RVRECL from dealing in its land. Further, RVRECL does itself get benefited as the value of the land by that time increases. It has denied that there is any lucrative return in the form of credit value as alleged. I am of the view that a typical real estate business would make a case for selling the portions of land by penalizing the investor(s) backing out from the agreement by forfeiting the earnest money. Contrary to the general practice, in the current case, the scheme incentivises backing out from allotment of land. Consequently as RVRECL has stated that “many of the intending purchasers do not opt for execution of agreement”. I, therefore am of the view that the scheme launched by RVRECL is not a real estate scheme as has been contended by it rather an investment contract entered into by the investors with an expectation of profits and the ostensible real estate business is just a garb to run a business in the nature of accepting investment from general public. 17. However, in order to qualify for the scheme of RVRECL to as a 'collective investment scheme', the conditions specified in section 11AA of the SEBI Act should be satisfied by that scheme.

Section 11AA of the SEBI Act reads as follows:

"(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) shall be a collective investment scheme. (2) Any scheme or arrangement made or offered by any company under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day to day control over the management and operation of the scheme or arrangement." 18. For this purpose, it is pertinent to examine the features and characteristics of the scheme/arrangement of RVRECL on basis of the documents, information and material available on record, as against each conditions of section 11AA (2)(i) to (iv).

19. I note that RVRECL was circulating the application forms inviting general public to invest in the scheme by offering guaranteed return. Thus, it is clear that the contribution or payments received from investors were pooled and had to be utilised by RVRECL for its scheme/arrangement. I, therefore, find that the scheme of the RVRECL satisfies the first condition stipulated in section 11AA(2)(i) of the SEBI Act. 20. I note from the submissions of RVRECL that it had provisionally allotted 5,08,792 kattas of land to the investors, but had actually handed over only 9,132 kattas of land, which is a very small fraction (1.79 %) in comparison to the land provisionally allotted. I therefore, find that the investors made investment /contribution/payment in the name of earnest money in the scheme of RVRECL, with a view to receive profits, income and return promised to them. I note that the average return offered by RVRECL is about 11.40% to 21%, depending on the plan of the scheme. Thus, the scheme satisfies the second condition in section 11AA(2)(ii) also. 21. RVRECL has admitted that the management of the land remains with it till the investor pays the entire consideration money and the conveyance deed is executed.

Further, it is an admitted fact that only a fraction of investors have actually got the conveyance deed executed and majority of the investors chose to receive return on their investment. I, therefore find that majority of the plots, whether identified or not, which form part of the scheme are managed by RVRECL on behalf of the investors. Further, RVRECL has promised assured return on the investment of the investors, I, therefore, find that RVRECL is responsible for the further investment of the funds collected and repayment of the return to the investors. I, therefore find that the management of the property, contribution, investment and scheme lies with RVRECL and the scheme satisfies the third condition stipulated in the section 11AA(2)(iii). 22. It is also an admitted fact that the purchaser does not have any control over the plots on which the earnest money/investment is collected. It has also been established that the investors do not have any day to day control over the management and operation of the scheme. I, therefore, find that the scheme offered by RVRECL satisfies even fourth condition stipulated in the section 11AA(2)(iv).

23. In view of the above analysis and examination, I find that the scheme launched by RVRECL satisfy all four conditions of section 11AA of the SEBI Act. I, therefore, find that RVRECL is engaged in the fund mobilising activity from public through collective investment scheme as defined in section 11AA of the SEBI Act. 24. I note that in terms of section 12(1B) of the SEBI Act, no “person” shall sponsor or cause to be sponsored or cause to be carried on a 'collective investment scheme' unless he obtains a certificate of registration from the Board in accordance with the regulations. Regulation 3 of the 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'. Therefore, 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. Since RVRECL has launched 'collective investment schemes' without obtaining certificate of registration from SEBI, it has contravened provisions of section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. 25. I further note that RVRECL vide its letter dated August 20, 2010 had submitted that it had mobilised 1271.98 crore till March 31, 2010 under the ‘Ashirbad’ scheme and has made a refund of ` 342.20 crore to the investors. I note from the balance sheet of RVRECL for the year 2010- 2011 that the money collected under the scheme has been indicated as entry "advance from customers against plot booking & others" as on March 31, 2010 has been shown as ` 1,358 crore. However, as per RVRECL's letter dated August 20, 2010 the same has been shown as ` 1271.98 crore and this difference has not been explained by RVRECL. In this regard, on examination of the balance sheet for the year 2009-2010, I note that RVRECL had shown ` 1271.98 crore under the heading "unsecured loan" and an amount of ` 86,10,34,017 under the head "advance from customers" it appears that both these amounts have been clubbed (86,10,34017 + 1271,98,90,725 = 1358,09,24,742) and reflected in the balance sheet for the year 2010-2011.

26. Thereafter, the amount of ` 1,358 crore has increased substantially to ` 2,016.32 crore in the year ended March 31, 2011. As per the balance sheet for the year ended March 31, 2012 this amount has fallen to ` 1,538.58 crore and this has further fallen to ` 742.45 crore as on March 31, 2013. RVRECL has further submitted that it has repaid ` 481.95 crore between the period April 2013 to January 2014. However the unaudited/provisional balance sheet for the period April 2013 to January 2014 or any other material to substantiate the same has not been submitted. The details as mentioned above are enumerated in the table below:-

Table - 8 Sl. no. Period Particulars `(crores) 1. As on 31.03.2010 money collected under "advance from ` 1,358 crore customers against plot booking & others" 2. As on 31.03.2011 money collected as "advance from ` 2,016.32 crore customers against plot booking" 3. As on 31.03.2012 money collected as "advance from ` 1,538.58 crore customers against plot booking" 4. As on 31.03.2013 money collected as "advance from ` 742.45 crore customers against plot booking"

27. I note from the above table, that the money collected by RVRECL has increased from `1,358 crore to `2016.32 crore during the period April 01, 2010 to March 31, 2011.Though, RVRECL has submitted that it has wound up its scheme as on December 2010, the same has not been substantiated with any document. In this regard Bureau of Investigation, Assam vide letter dated June 20, 2012 had inter alia informed that RVRECL has continued to collect from already enrolled investors, even after passing of interim order. Further, SEBI has also come across a news paper report dated April 22, 2014 published in the “Mint” suggesting that the Rose Valley group was still mobilizing funds from the investors under new schemes. The said report was sent to RVRECL for its comments. Though, RVRECL vide its letter dated May 23, 2014 has denied those reports, I am of the view that there is a strong probability that RVRECL has continued collecting money from investors under the scheme even after the SEBI had passed interim order. 28. Further, it is pertinent to note that the Statutory Auditor of RVRECL for the year ended March 31, 2013 has qualified his audit opinion by stating that the balances of advances from customers against plot booking and others, outstanding payment due (buy-back), inventory, fixed assets etc are arrived at after considering the respective closing balances as on March 31, 2012 and as certified by the management.

This makes it amply clear that the Auditor could not carry out required audit procedures to satisfy himself with regard to the genuineness of these items in the annual accounts of RVRECL and has relied on self certification by RVRECL and has thus issued a qualified audit report. 29. I am of the view that the sharp decrease in the amount appearing under the heading "advance from customers against plot booking & others" from `2,016 cr. as on 31.03.2011 to `1,538.57 crore as on 31.03.2012 and thereafter to `742.44 crore as on 31.03.2013 has to be seen in the context of corresponding increase in the loans and advances received from related parties. It is observed that the amount of loans and advances received from related parties has increased from `378.60 crores to `1,084.89 crores (increase of `706.29 cr.) during the period 2012-2013. On a scrutiny of the balance sheet for the year ended March 31, 2013 it is observed that the said amount of `1,084.89 crores pertains to loan taken from "Rose Valley Hotels & Entertainment Ltd (RVHEL)" which has been described as the "Holding Company cum Subsidiary Company" by RVRECL in its annual accounts.

Further, it is pertinent to mention that SEBI had passed an ad-interim ex-parte order dated July 10, 2013 against Rose Valley Hotels & Entertainment Ltd. (RVHEL) wherein it was prima-facie observed that the fund mobilizing activity of RVRECL was in the nature of collective investment scheme. 30. Further, the Statutory Auditor of RVRECL for the period March 31, 2013 has issued a qualified audit report including serious qualifications with respect to matters falling under clause 5(a) under the Companies (Auditor's Report) Order, 2003. The Auditor has stated that based on the audit procedures applied by them and according to information and explanations provided by the management, the particulars of contracts or arrangements with related parties that are referred to in section 301 of the Companies Act, 1956 have not been entered in the register required to be maintained under that section. I note that the quantum of transactions with related parties is considerably large. Further, the Auditor has stated that RVRECL has granted loans to 16 companies required to be listed in the register maintained under section 301 of the Companies Act, 1956 amounting to `145.13 crore as on March 31, 2013. The unsecured interest free loans have been granted for an indefinite period.

The Auditor has observed that the terms prima facie appear to be prejudicial to the interest of RVRECL. There has been neither demand of repayment made by RVRECL nor any repayment of the loan by the other companies during the year. The serious qualifications made by the Auditor with respect to loans and advances involving related parties transactions is a matter of grave concern and the same may be brought to the notice of Ministry of Corporate Affairs (MCA) and Registrar of Company (RoC) for necessary action. 31. I note that the amount from revenue from operations under the heading "construction, trading & property development" for the year 2011 is a meagre `4,85,67,631 which had fallen further to `1,11,77,500 and thereafter to `20,36,000 in the consecutive years. The continuous fall in the revenue from operations vis-a-via reduction in the liability on account of "advance from customers against plot booking" during the same period is perplexing as to how and in what manner the reduction in liabilities are funded. In case RVRECL had actually repaid its investors by giving possession of the plots then this must have been reflected under the head "revenue from operations" and the same should have increased in proportion to the reduction under the heading "advance from customers against plot booking" which is not the case here.

32. It is crucial to note here that RVRECL till date has not provided any documentary evidence to substantiate its claim that it has refunded the money to the investors. It has also claimed that it has not received any complaints in this regard. I note that while furnishing additional documents to RVRECL, SEBI had furnished complaints received by SEBI, RVRECL has merely claimed that it has already paid these customers, however no evidence has been adduced. Further, it is pertinent to mention that even till date we are receiving complaints from various investors/agencies stating that RVRECL has failed to pay the maturity amount due. SEBI had also come across a news paper report dated April 29, 2014 published in the “The Statesman” wherein it was reported that the investors of Rose Valley had blocked a road in one of the districts in West Bengal protesting against Rose Valley for failure to pay their maturity amounts. 33. It is also observed from the scrutiny of the Auditor's Report including the statement made under the Companies (Auditor's Report) Order, 2013 (CARO, 2013) for the years ended 31.03.2012, 31.03.2011 and 31.03.2010 that the Statutory Auditor of RVRECL for those years has failed to exercise reasonable due diligence when providing his comments required under the said Order.

As per CARO, 2013 the Auditor is required to give comments on all 21 matters covered under the paras 4 & 5 of the said Order. However, it is observed that the Statutory Auditor for these years has only provided his comments on 11 points instead of the required 21. The deficiency noted in this regard may be referred to the Institute of Chartered Accountants of India (ICAI). 34. Considering the facts and circumstances of the case, I, in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 hereby issue following directions under section 11 and 11B of the said Act read with regulations 65 and 73 of Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 :- i. M/s Rose Valley Real Estates and Constructions Ltd. and its promoters/directors Mr. Gautam Kundu (DIN no. 00773899), Mr. Shibamoy Dutta (DIN no. 00774250), Mr. Ram Lal Goswami (DIN no. 01320525), Mr. Abir Kundu (DIN no. 01517458), Mr. Ashok Kumar Saha (DIN no. 00939075), to wind up its scheme and refund the money collected by it under the scheme with returns which are due to the investors as per the terms of offer within a period of three months from the date of this order and submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refund, failing which the following actions shall follow: (a) A reference would be made to the State Government/ local police to register a civil/ criminal case against them for apparent offences of fraud, cheating, criminal breach of trust and misappropriation of public funds, and (b) Making a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of M/s Rose Valley Real Estates and Construction Ltd. (c) Without prejudice to the above, SEBI shall also initiate attachment and recovery proceedings under section 28A of the SEBI Act.

ii. M/s Rose Valley Real Estates and Constructions Ltd. and its promoters/directors Mr. Gautam Kundu, Mr. Shibamoy Dutta, Mr. Ram Lal Goswami, Mr. Abir Kundu and Mr. Ashok Kumar Saha are directed to not to access the securities market and are further restrained and prohibited from buying, selling or otherwise dealing in the securities market till all collective investment schemes launched by M/s Rose Valley Real Estates and Constructions Ltd. are wound up and all the monies mobilised through it are refunded to the investors.

iii. Without prejudice to the above, SEBI would examine the feasibility of initiation of prosecution proceedings under section 24 and adjudication proceedings under Chapter VI of the SEBI Act against them. 35. The above directions shall come into force with immediate effect. 36. Copy of this Order shall be forwarded to the stock exchanges and depositories for necessary action.

Date: June 18th, 2014 RAJEEV KUMAR AGRAWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA