Order in the matter of M/s Step Up Marketing Private Limited

WTM/PS/114/CIS-NRO/DEC/2015 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999 and Regulation 4(2) (t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 In the matter of Step Up Marketing Private Limited In respect of: 1. Step Up Marketing Private Limited [PAN : AAZFS6704Q], 2. Mr. Harjit Singh Dhariwal [PAN: ADJPD2284P] and 3. Ms. Raghbir Kaur [DIN: 00362477]. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had, vide an interim ex-parte Order dated August 22, 2014 (‘the interim order’), prima facie found that one Step Up Marketing Private Limited (hereinafter referred to as ‘the Company’ or ‘Step Up’) is engaged in activities of fund mobilization with promise of returns, which is in the nature of Collective Investment Scheme (hereinafter referred to as 'CIS') as defined in Section 11AA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘the SEBI Act’), without obtaining a certificate of registration from SEBI as required under Section 12(1B) of the SEBI Act and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as ‘the CIS Regulations’). The interim order was issued in order to protect the interest of investors, to prevent the Company from collecting further funds and to safeguard the assets/ property acquired by the Company by using the funds collected from the investing public. This Order directed Step Up Marketing Pvt. Limited and its directors Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur (hereinafter collectively referred to as ‘noticees’):

" not to collect any fresh money from investors under its existing schemes; not to launch any new schemes or plans or float any new companies to raise fresh moneys; to immediately submit the full inventory of the assets including land obtained through money raised by SUMPL; not to dispose of any of the properties or alienate the assets including land obtained directly or indirectly through the money raised by SUMPL; not to divert any funds raised from public at large, kept in bank account(s) and/or in the custody of SUMPL;

to furnish all the information/details sought by SEBI within 15 days from the date of receipt of this order, including, i. Details of amount mobilized and refunded till date, ii. Scheme wise list of investors and their contact numbers and addresses, iii. PAN of Directors of SUMPL and iv. Audited accounts for the past three years.” The said directions came into force with immediate effect and the noticees were advised to file their reply within a period of fifteen (15) days from the date of receipt of the interim order and also to indicate whether they wish to avail an opportunity of personal hearing in the matter.

2. The interim order was forwarded to the Company and its directors vide separate letters all dated September 01, 2014. However, all the letters had returned undelivered. SEBI vide another letter dated October 14, 2014, once again attempted to intimate the noticees about the interim order. This time again the letters had returned undelivered. In view of the same, attempts were made to deliver the interim order by hand delivery/ pasting on the last known addresses of the noticees and also issued letter dated March 09, 2015. SEBI also issued a public notice in the newspapers namely ‘Hindustan Times’ (English edition) and ‘The Economic Times’ (Hindi edition) on March 13, 2015. Thereafter, on March 19, 2015, two persons namely Mr. Ajay Dabas and Mr. Manjesh Kumar visited the SEBI office on behalf of the Company and acknowledged the copy of the interim order. Pursuant to the same, SEBI on April 10, 2015, received a letter from the Company signed by its director Mr. Harjit Singh. Vide this letter, the Company requested for further time to file the relevant documents. SEBI vide email dated April 27, 2015, issued reminder to the Company for filing of the reply to the interim order. As no reply was forthcoming, SEBI proceeded further and granted an opportunity of personal hearing to the Company and its directors on June 25, 2015. The date of personal hearing was also communicated vide the public notice on June 21, 2015, in the newspapers namely Times of India’ and ‘Navbharat Times’. The Company and its directors were advised that in case they fail to appear before SEBI on the aforesaid date, then the matter would be proceeded ex-parte on the basis of material available on record. The Company and its directors failed to turn up for the personal hearing. Considering that reasonable opportunities were already afforded to the Company and its directors for making the submissions in the matter, I proceed further as against these on the basis of the material available on record.

3. I have considered the interim order issued in the matter and the material available on record. It is noted that the Company was incorporated on June 13, 2002. The registered office of the Company is situated at SCF – 67 & 68, Sector 16A, Opposite Nehru College, Faridabad, Haryana. The interim order has discussed about the schemes offered by the Company. Such facts and observations are as under:

a. The Company is engaged in the activities of trading of livestock in the name of ‘Real Step Pashupalan’ (hereinafter referred to as ‘RSP scheme’) and breeding, rearing and keeping of livestock in the name of ‘Real Step Breeding Farms’ (hereinafter referred to as ‘RSBF scheme’).

b. The purchaser/ investor of goat had the option of keeping the purchased livestock with the Company for breeding and rearing purposes for a period of three and half (3½) years. For the same, the purchaser/ investor was required to sign on both the aforesaid application forms (i.e. for the purchase of livestock and for goat keeping).

4. I have seen the documents as submitted by the Company vide its letter dated November 19, 2013 (forwarded prior to the interim order) i.e. application form for the purchase of livestock (i.e. one goat) in RSP scheme, application form for the ‘Goat(s) Keeping in RSBF schemes and certificate of goat keeping.

a. The relevant clauses of the ‘terms and conditions’ on the reverse of the application form for the purchase of livestock are as under: “Real is company which deals in the trading of Livestock (Farm of Domestic animals) and a Distributor is the person on company which buys any Livestock Product from Real Step Pashupalan. These terms govern the way in which a DISTRIBUTOR conducts business with Real. These terms and conditions and the Compensation Plan (Collectively referred to herein as the “Agreement”), such as may exist or hereafter be amended constitutes the complete and binding agreement and understanding between an Independent Distributor and Real. Failure to comply with the provisions of any of these documents may result in the termination of the Agreement. …” b. Another document is the application for the ‘Goat(s) Keeping’. The same is a pre-printed document having fields for name and address of the applicant, surrender date of goats, number of goats (maximum 6), goat identification numbers (this field is said to be filled by Real Step Pashupalan Farms (P) Limited), number of years for which the customers want to keep the goat with ‘RSP’ etc. The ‘terms and conditions’ as noted on the said application form are as under:

“1. The applicant hereby unconditionally authorise the Real Step Breeding Farms (RSBF) to take all the necessary and appropriate decision in respect of his/ her Goat(s)’ breeding, rearing and other keeping purposes. 2. Only the RSFB shall be entitled to the accretions i.e. ownership and physical custody of the offspring etc. of the said Goat(s) which are the subject matter of this present Goat Keeping application form.” The ‘application for the Goat(s) Keeping’ on the reverse also contains certain terms and conditions’. The following clauses of the same are relevant to be noted:

“Real Step Breeding Farms (RSBF) is a company which is preliminary engaged in the business of Breeding. Rearing and Keeping of Livestock i.e. Farm of Domestic animals. The applicant hereby is an Independent Goat(s) Owner (IGO) who wants to keep his/ her Goat(s) with RSBF for keeping and breeding purposes. 1. The RSBF promises to pay/give approx. 40% of the breeding produce (i.e. offspring of the particular Goat provided by the IGO at the end of 3½ years as selected by the applicant. Rest approx. 60% shall be kept by RSBF for profit, rearing & keeping purpose. 2. The RSBF shall not in any circumstances/event be liable for payment of any damages in case of failure to perform any acts stated herein above wherein the said failure of as possible occurred due to unforeseen reasons such as war, earthquake and any other natural calamities, etc. and any other reasons incidence beyond control of the contractor. 3. The IGO shall not be paying any charges for the feeding, insurance, mediation, rearing or any other keeping purpose at all. 4. The IGO can visit the RSBF to see the keeping progress of his/her Goat(s) at his/her own cost with prior appointments only.

5. The IGO hereby agrees that he/ she is not at all in any circumstances eligible to receive any monitory benefits/payments before 3½ years of surrendering his/her Goat(s) at RSBF. 6. The IGO hereby agrees that he/she shall not demand any monetary proceeds/payments from the RSBF before 3½ years of surrendering his/her Goat(s). If IGO demands so, it shall only constitute a violation/breach of the terms and conditions, by virtue of which all the rights of the applicant pertaining to the said Goat(s) and the amount if any, receivable by the IGO from the RSBF shall be terminated automatically & the IGO will have no claim whatsoever against the RSBF. … 8. Only the RSBF is entitled to take all the benefits such as subsides, financial, tax exemptions and all other such benefits likely to be provided by the Government/state government or any other organization. 9. RSBF reserves the right to amend, change or modify the terms and conditions time to time and all the updated terms will be posted on. 10. The IGO must claim his/her Goat(s) after completion of 3½ years, within 6 months. After 6 months he /she will not liable to claim any Goat (s) and benefits. …” c. The next document is the ‘Certificate of Goat Keeping’, the same reads as under:

“Certifies that Independent Goat Owner …. is willing to keep a livestock i.e. One Goat on … whose registration number is …. RSBT make the arrangements/ tie-ups to keep this Goat for breeding and keeping purposes at its “Associated Farms”. At the end of Three and half (3 1/ ) years. “Associated Farms” will return him/ her Maximum upto Four (04) Goats to the respected owner of this registered Goat. These Four (04) Goats will be returned to him/ her from the kinds of the respective Goat. Rest of the Kids will be kept by the “Associated Farms” for the breeding, insurance, feeding, medication, profits and other keeping purposes”. 5. I have seen the balance sheet of the Company as available on record and note that it had paid substantial amounts as commissions during the financial year 2004-05, 2005-06 and 2006-07.

6. I note that Step Up has not provided the list/ details of its customers/ investors. From the above discussion, it is observed that Step Up was inviting applications from the purchasers/ investors for the purchase of goats. It had mainly two schemes i.e. ‘trading of livestock’ (i.e. RSP Scheme) and ‘breeding, rearing and keeping of livestock’ (i.e. RSBF Scheme). I also note the following in respect of the schemes of the Company, i.e.:

i. The customer/ investor is named as distributor in RSP Scheme. ii. The customer/ investors gives his/ her right in goat to Real Step Breeding Farm (RSBF), a unit of Step Up. The Company manages the goats of the customers/ investors. iii. There is a promise of return i.e. about 40% of the breeding produce (offspring’s) at the end of 3½ years. The rest 60% offspring’s are retained by the Company. iv. The goat identification number in the ‘goat keeping’ application form is filled in by Real Step Pashupalan (RSP) and there is nothing to indicate that the customer/ investor is made aware of the said number, at any stage. v. The customer/ investor has to claim his goat within six months of the expiry of the term i.e. 3½ years. After the passing of the said six months the customer/ investor gets no right to claim any goat(s) and benefits. vi. Before, expiry of the term i.e. 3½ years of handing over the goats to the Company, the customers/ investors cannot demand any monetary proceeds/ payment for the Company. From the discussed details, it can be inferred that the schemes of the Company were not mere sale of livestock rather these were in the nature an investment scheme. 7. Now I proceed to deal with the charges levelled against the Company and also to test the characteristics of the impugned schemes/ plans floated and carried on by the Company against the four conditions under Section 11AA(2) of the SEBI Act as alleged in the interim order. To conclude whether a scheme is a CIS or not, all the four conditions under Section 11AA(2) of the SEBI Act should be satisfied.

i. The first condition is that the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement. The Company had invited its customers/ investors to subscribe to its schemes of purchase and rearing/ keeping of the goat by paying ₹6,900. Step Up had accepted the contribution/ investments of the customers/ investors. The goats allotted to the customer remains unidentified and only a certificate in respect of keeping and rearing of the purchased goat is given to the customer. The sample certificate as submitted by the Company vide its letter dated November 19, 2013, finds mention about ‘registration number’, the same hints to certain internal numbering of customer. The said certificate does not mention about any goat identification number. As per the said certificate, RSBF (a unit of Step Up) had made arrangements/ tie ups for goat keeping and breeding at its associated farms.

From the same, it can be inferred that the 'contributions, or payments made by the investors, are pooled and utilised by Step Up for the purposes of the scheme or arrangement', the scheme being to accept contributions/ payments in the name of sale and rearing of goats. 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. As discussed above, the ‘application for goat keeping’ clearly states that ‘RSBF promises to pay/ give approx. 40% of the breeding produce (i.e. offspring of the particular Goat provided by the IGO at the end of 3½ years as selected by the applicant. Rest approx. 60% shall be kept by RSBF for profit, rearing & keeping purpose’. The promised 40% of the breeding produce (offsprings) at the end of the expiry of the 3½ years indicates the element of return for which the investors/ customers had made the contribution/ payment. Therefore, it is concluded that the contributions or payments made to the scheme of the Company with a view to receive profits, income, produce or property from such scheme. The scheme of the Company involving purchase and rearing of goat therefore satisfies the second condition under Section 11AA(2) of the SEBI Act.

iii. The third condition is that the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors. The fourth condition is that the investors do not have day to day control over the management and operation of the scheme or arrangement. With respect to the above said conditions, the following clauses on the application form for the goat keeping are relevant to be noted: “1. The applicant hereby unconditionally authorise the Real Step Breeding Farms (RSBF) to take all the necessary and appropriate decision in respect of his/ her Goat(s)’ breeding, rearing and other keeping purposes. 2. Only the RSFB shall be entitled to the accretions i.e. ownership and physical custody of the offspring etc. of the said Goat(s) which are the subject matter of this present Goat Keeping application form.” … The RSBF shall not in any circumstances/event be liable for payment of any damages in case of failure to perform any acts stated herein above wherein the said failure of as possible occurred due to unforeseen reasons such as war, earthquake and any other natural calamities, etc. and any other reasons incidence beyond control of the contractor. … The IGO can visit the RSBF to see the keeping progress of his/her Goat(s) at his/her own cost with prior appointments only. … The IGO hereby agrees that he/ she is not at all in any circumstances eligible to receive any monitory benefits/payments before 3½ years of surrendering his/her Goat(s) at RSBF. … Only the RSBF is entitled to take all the benefits such as subsides, financial, tax exemptions and all other such benefits likely to be provided by the Government/state government or any other organization.” The above clauses rule out any intervention or participation by the customer/ investor in the scheme of the Company.

The customer/ investor has no role in the acquisition or rearing of the goats. Further, the investments of the customers/ investors were managed and utilized by the Company. The goats remain with the Company. The customer/ investor did not have day to day control over the management and operations of the scheme. Such day to day control over management and operations of such scheme were also looked after and exercised by the Company and its directors. In view of the same, it can be concluded that the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors and the investors do not have day-to-day control over the management and operation of the scheme or arrangement. Thus, the scheme of the Company also satisfies the third and fourth conditions under Section 11AA (2) of the SEBI Act.

8. As all the four conditions specified under Section 11AA(2) of the SEBI Act are satisfied in this case, the schemes/ plans promoted, launched, carried on and operated by the Company are in the nature of CIS in terms of Section 11AA(1) of the SEBI Act.

9. I note that the interim order was issued against the Company and its directors namely Mr. Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur. As per the details available at the 'MCA 21' portal of Ministry of Corporate Affairs (accessed on October 23, 2015), Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur are continuing as directors of the Company. In view of the same, these persons are responsible for carrying on the unregistered CIS activities.

Therefore, I have no hesitation in holding that Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur were engaged in the illegal fund mobilising activity by floating/ sponsoring/ launching, unregistered/ unauthorised CIS, as defined in the Section 11AA of the SEBI Act. The interim order has observed that the Company has failed to furnish the details of the scheme as sought by SEBI. The directors of the Company namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur have also chosen not to respond to the interim order and have remained silent.

10. Further, in terms of the Regulation 4(2)(t) of the PFUTP Regulations, dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and includes illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person. Accordingly, it could be held that by mobilizing public funds through CIS without obtaining registration from SEBI as required under Section 12(1B) of the SEBI Act read with Regulation 3 of the CIS Regulations, the Company has contravened Regulation 4(2)(t) of the PFUTP Regulations and is liable for action.

11. 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. The Company 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 'CIS'. 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 Step Up had launched CIS without obtaining certificate of registration from SEBI, it contravened the provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

12. In view of the observations made in this Order, 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. Step Up Marketing Private Limited [PAN: AAZFS6704Q] and its directors namely Mr. Harjit Singh Dhariwal [PAN: ADJPD2284P] and Ms. Raghbir Kaur [DIN: 00362477] 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. Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur 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.

c. Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur shall wind up the existing Collective Investment Schemes and refund the money collected by the said company under the schemes with returns which are due to its investors as per the terms of offer within a period of three months from the date of this Order and thereafter within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds.

d. Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur shall not alienate or dispose off or sell any of the assets of Step Up Marketing Pvt. Limited except for the purpose of making refunds to its investors as directed above.

e. Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form.

f. In the event of failure by Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur to comply with the above directions, the following actions shall follow:

- Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur shall remain restrained from accessing the securities market and would further be prohibited from buying, selling or otherwise dealing in securities, even after the period of four (4) years of restraint imposed in paragraph 12(b) above, till all the Collective Investment Schemes of Step Up Marketing Pvt. 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 Step Up Marketing Pvt. 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, Step Up Marketing Pvt. Limited. - SEBI shall initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder.

13. This Order shall be without prejudice to the right of SEBI to initiate prosecution proceedings under Section 24 and adjudication proceedings under Chapter VIA of the Securities and Exchange Board of India Act, 1992 against Step Up Marketing Pvt. Limited and its directors namely Mr. Harjit Singh Dhariwal and Ms. Raghbir Kaur, including other persons who are in default, for the violations as found in this Order.

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

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

Date: December 15th, 2015 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA