Order in the matter of RR Investors Capital Services Pvt. Limited

WTM/PS/88/CIS/MAR/2014 BEFORE THE SECURITIES AND EXCHAGNE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER IN THE MATTER OF RR INVESTORS CAPITAL SERVICES PRIVATE LIMITED Under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 read with Regulations 65 and 73 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 Date of Hearing: August 19, 2013 Appearances: For RR Investors Capital Services Private Limited: Mr. Sandeep Mahajan, Director Mr. N.P.S. Chawla, Advocate For SEBI: Mr. Pradeep Kumar, Assistant Legal Adviser Mr. Mridul Rastogi, Assistant General Manager 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') came across certain media reports and newspaper articles during the year 2005-2006 regarding the mobilization of funds from the investors under the scheme of 'art fund', with an objective to invest in the works of art. While examining these reports/ articles, it appeared to SEBI that RR Investors Capital Services Private Limited (hereinafter referred to as 'RR Investors') was one such entity which had solicited investments in 'art fund'. SEBI therefore vide its letter dated December 21, 2006, inter alia advised RR Investors to furnish certain information/ documents including structure of the fund, number of schemes launched, terms and conditions of the art schemes, names of the promoters/ directors, number of investors and amount collected in each schemes.

2. RR Investors vide its letter dated December 27, 2006 submitted its reply and inter alia said that a separate company by the name of RR Fine Arts Pvt. Limited had been set up with a capital of 2 crores with an objective of investing in art. Further, it has invested in art out of its own funds and has not taken any money from any investor/ public or floated any scheme to solicit investments for any purpose including art. SEBI analysed the submissions of RR Investors and prima facie observed that RR Investors is carrying out the activities in the nature of a 'collective investment scheme' (hereinafter referred to as 'CIS') without obtaining a certificate of registration in accordance with the SEBI (Collective Investment

Schemes) Regulations, 1999 (hereinafter referred to as 'CIS Regulations'). Subsequently, SEBI issued a show cause notice dated June 14, 2007 (hereinafter referred to as 'SCN') to RR Investors advising it to show cause as to why the appropriate directions under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') should not be issued against it for the alleged violations of the provisions of section 12 read with sections 11 and 11AA of the SEBI Act and the CIS Regulations.

3. RR Investors vide its letter dated June 20, 2007 replied to the SCN. Before proceeding further, an opportunity of personal hearing was granted to RR Investors on August 19, 2013. On the date fixed for the personal hearing, Mr. Sandeep Mahajan, Director of RR Investors and Mr. N.P.S. Chawla, Advocate appeared and made submissions. During the personal hearing, RR Investors was asked to submit all the relevant accounts/ bank statements/ other documents to support their assertion that it had not collected money under the scheme of 'art fund'. RR Investors sought fifteen days’ time to submit the details as asked, which was duly granted to it. RR Investors vide its letter dated August 23, 2013, submitted certain details, which were duly taken on record.

4. I have carefully considered the SCN issued to RR Investors, the reply received, the details submitted and the submissions made during the personal hearing. The submission of RR Investors in brief are as under: a. It has never solicited/ floated any scheme in the nature of 'art fund' or any other fund/ scheme in the nature of 'art fund' or any other fund/ scheme which would fall under the category of CIS. b. No monies were ever solicited or collected by RR Investors from any investor for carrying on any 'art fund' any other fund/ scheme which would fall under the category of CIS.

5. I have perused the material available on record and find that there is nothing to show that RR Investors had mobilized funds under the scheme of 'art fund' or launched any scheme of such nature. I have also perused the audited financial statements for the accounting period from the financial year 2006-2007 till the financial year 2011-2012, as submitted by RR Investors and note that the heading 'income' comprises of commission/ brokerage/ advisory services/ trading in securities/ sale of assets. Further, the said financial statements does not show any entry for advance taken from the customers/ investors.

From the said audited financial statements, it is also seen that no money was collected from the public under the scheme of 'art fund'. RR Investors have also produced the affidavits of the directors who were on the board of the company when the SCN was issued, confirming therein that RR Investors has neither collected any money from any investor/ public nor floated any scheme/ fund to solicit investment in relation to art. On perusal of the material available on record, I am unable to conclude that the activities of RR Investors were in the nature of CIS as defined under section 11AA of SEBI Act.

6. In the absence of any relevant material, I am unable to conclude that RR Investors had acted in contravention of section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. I also note that SEBI has not received any complaint against RR Investors till date regarding any scheme of 'art fund'. Considering the above, I do not consider this a fit case to impose any penalty against RR Investors.

7. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11 and 11B thereof, hereby dispose of the show cause notice issued to RR Investors Capital Services Private Limited on June 14, 2007 without any direction.

PLACE : MUMBAI PRASHANT SARAN DATE : March 11, 2014 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA