Order in the matter of Samruddha Jeevan Foods India Limited[SAT Appeal No.:469/2015][SAT Appeal No.:469/2015]

WTM/PS/48/IMD-CIS/SEPT/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 and regulation 65 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999

In respect of – 1. Samruddha Jeevan Foods India Limited (CIN - U15204PN2002PLC016950 / PAN - AAICS0865N), and its directors 2. Mr. Mahesh Kisan Motewar (DIN - 00054860/ PAN - AKMPM3895K) 3. Mrs. Vaishali Mahesh Motewar (DIN - 02750035 / PAN - ATTPM4634Q) 4. Mr. Ghanshyam Jashbhai Patel (DIN - 02703676/ PAN - ARJPP0156A) and 5. Mr. Rajendra Pandurang Bhandare (DIN – 00054872 / PAN - ALKPB5263D)

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) had, vide an ex-parte interim Order dated October 31, 2013 (hereinafter referred to as “the interim order”), prima facie, observed that the company, Samruddha Jeevan Foods India Limited (hereinafter referred to as “the Company” or “Samruddha” or “SJFIL”) is engaged in fund mobilizing activities from the public by floating or sponsoring or launching Collective Investment Scheme (“CIS”) in terms of section 11AA of the Securities and Exchange Board of India Act, 1992 (“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 (“the CIS Regulations”).

2. In order to protect the interest of investors and also to prevent the Company from further carrying on with its alleged illegitimate investment activities through CISs, the interim order restrained the Company and its directors, Mr. Mahesh Kisan Motewar, Mrs. Vaishali Mahesh Motewar and Mr. Ghanshyam Jashbhai Patel (collectively referred to as “noticees”) from - a. collecting any more money from investors including under the existing schemes;

b. launching any new schemes; c. disposing of any of the properties or alienate any of the assets of the schemes; d. diverting any funds raised from public at large which are kept in bank account(s) and/or in the custody of the Company.

The interim order also directed the noticees to immediately submit full inventory of the assets owned by the Company out of the amounts collected from the purchasers/investors under its various schemes.

3. The aforesaid 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. The interim order further advised that it shall be treated as a show cause notice and the noticees may show cause as to why appropriate directions under the SEBI Act and the CIS Regulations, including directions in terms of the regulations 65 and 73 of the CIS Regulations, should not be issued against them.

4. Though the Company vide its letter dated November 12, 2013, confirmed that it would submit its reply within 15 days of receipt of the interim order, it had vide another letter dated November 22, 2013, requested SEBI to provide copies of following documents and also an opportunity of inspection of documents relied upon by SEBI while passing the interim order: a. Complaints as mentioned in paragraph 1 of the interim order. b. Order of the Hon'ble High Court of Madhya Pradesh. c. Letter received from the CID, Economic Offences Cell, Panjim, Goa. Accordingly, SEBI, vide letter dated November 27, 2013, advised the Company that an opportunity of inspection of documents was afforded on December 02, 2013. However, the Company did not avail such opportunity. Thereafter, vide letter dated December 20, 2013, the Company stated that SEBI did not reply to its letter dated November 22, 2013 and that it shall file its reply only after inspecting the documents. The Company also mentioned that it had submitted the annual accounts of the Company which include necessary details about its assets. Thereafter, on January 10, 2014, the Company’s representative appeared and inspected the following documents: a. Undated complaints received on November 16, 2011. b. Order dated July 13, 2012 passed by Hon'ble High Court of Madhya Pradesh. c. Reference dated October 13, 2012 received by SEBI from CID, EOW, Goa.

d. Reply submitted by the company.

5. SEBI, vide its letter dated January 20, 2014 also provided copies of the above mentioned documents. The Company vide its letter dated January 24, 2014, requested SEBI for extension of 15 days’ time for submission of its reply to the SCN. However, as no information was received from the Company within the said period, SEBI vide letter dated February 13, 2014 advised the Company to submit its reply to the interim order cum SCN dated October 31, 2013 on or before February 21, 2014.

6. The Company filed its reply vide letter dated February 19, 2014. The reply stated that it was filed on behalf of its directors also. The Company also submitted that one of its directors, Mr. Ghanshyam Jasbhai Patel had expired on January 13, 2014. While denying the allegations in the interim order, the Company also sought an opportunity of personal hearing.

7. An opportunity of personal hearing was afforded to the Company on May 18, 2015 and the same was communicated to the noticees vide SEBI letter dated April 09, 2015. On a request for adjournment of hearing made by the Company vide letter dated May 05, 2015, SEBI afforded another opportunity on June 22, 2015. Thereafter, vide letter dated June 08, 2015, the company made a request to attend the personal hearing after availing the inspection of documents and receipt of documents with respect to the 'alleged money mobilisation through multi state co-operative society'. As the instant proceedings have commenced vide the SEBI interim order cum notice dated October 31, 2013 and the personal hearing fixed was also in respect of the said proceedings, the request was rejected and the noticees were advised that the personal hearing in the captioned proceeding commenced vide the SEBI Order dated October 31, 2013 shall be held as scheduled. The noticees failed to appear in the said hearing scheduled on June 22, 2015. The noticees were afforded a final opportunity of personal hearing on June 30, 2015 to afford the fullest opportunity to noticees to plead their case. On the said date, Mr. P. N. Modi, Senior Advocate made submissions on the lines of the replies of the company. As requested, the Company was granted liberty to file written submissions.

8. Thereafter, the Company's Advocate Mr. Asim Sarode, vide letter dated July 14, 2015 submitted the written submission on behalf of the Company. The written submissions were majorly a reiteration of the submissions made by the Company in its reply dated February 19, 2014.

9. Before proceeding further, I note that the Company has made the following submissions:

a. Submissions with respect to the business activities of the Company: o The main business of the Company is buying, selling, trading, breeding and rearing live stock; i.e. goats and buffalos, and the by-products such as milk, dung etc.

o The business model of the company is effectively in two areas. On the one hand it carries on the business of simply buying, selling and trading in animals/livestock. Therefore, according to him his activities are covered within Sale of Good Act, 1930, wherein the instalment payment contracts are mere contracts for sale of goods and therefore cannot amount to a CIS Scheme.

o The other part of the company’s business is “rearing contract”, under which customers would deliver their animal/livestock to the company to look after, maintain and breed them. At the end of the agreed duration of each rearing contract, the livestock is returned to the customer along with the additional offspring of the age, size, weight etc., as agreed in the contract. For such services the customer, had to pay “rearing fees”, which had to be utilized to feed, maintain and safeguard the animals.

o The company has its own farms and infrastructure in various states in India, where it provides such rearing facilities. The company submits that it had expert knowledge and personnel to maintain the animals in a healthy and proper condition and to optimize their breeding etc.

o The Company has never given any commitment of financial returns to its customers against livestock. The Company only sold livestock to the purchasers and at the end of the rearing contract period, the livestock was returned to the customer or sold as per their instructions and the proceeds were paid to the customer.

o According to the company, the customer who had paid the full price for and who had either purchased an animal from the company or who already had his own animal, may approach the company for “rearing contracts”. It also said that the customer could decide the duration for which he wanted to have the rearing facilities and the customer accordingly could also choose between the various options/ plans.

o The rearing agreements were executed only after the sale agreement. There was also no simultaneous entering into sale/ purchase and rearing contract.

o Plan no. 5 and 2 mentioned in the interim order have been misunderstood by SEBI. In plan no. 5, the contract for a single lump sum payment would be for Rs.10,000 of which a part only would be for the purchase of 2 goats by the customer as per the agreed rate as would be shown in the invoice, at the then existing market price, and the rest would be towards the rearing fees. At the end of the rearing contract of 4 years, the customer would be given 4 goats of 87 kgs. Similarly for plan 2, once the full purchase price is paid, the rearing contract would commence. Part of Rs.6000/-is the agreed purchase value as per the sale agreement and the balance is the rearing contract charges/fees. At the end of rearing contract of 5 years, the customer would be given 2 goats of 44 kgs. This would be the contractually agreed accretion which the customer is entitled to.

o Sale Plan no. 7 as reproduced in paragraph no. 7.1 (g) of the Order is not the plan of the Company and the same has wrongly been shown as the plan of the company.

o “Plans” were constantly changing depending on the current market prices. Further, the plans are only a one line representation of the contract options, and the detailed terms and conditions were as set out in the respective invoice / sale agreement and the rearing agreement. Such sales cum rearing plans were offered long back and the same were stopped since 01.01.2012.

o The company had always maintained itself to only be a “contractor” in all its agreements of rearing. Although the purchaser was the owner of the livestock, both by way of security for balance payments due and as it was essential to have authority to deal with the livestock in emergency situations, as also if the purchaser wishes the company to sell his/ her live stock in the market on behalf of the purchaser, the original previous rearing agreement did have a clause that the company would have all the rights in the livestock, while at the same time referring to the purchaser as a “co-owner’ which makes it clear that the purchasers rights also continued, while physical custody would be with the company as a contractor. In the company’s records, such livestock would not be shown as being owned by the company, and at the end of the agreed rearing contract period, the livestock would be returned to the customer as per the plan/ contract.

o The sale option is an alternative and the customer had the right to take physical delivery of the livestock instead. If the customer chose to request the company to sell the livestock, then the company would do the same and pay the customer.

o The agreement that offspring if any would belong to the company, is obviously subject to the express plan to give one off the spring to the customer as aforesaid. Further, the same is factored into fees charged for rearing cattle and reduces the burden on the customer. On the other hand, other by products like milk, dung etc, belong to the company.

o The interim order has referred to only a few selected clauses of the sale agreement and rearing contract. The said agreements and all connected documents have to be considered in totality and all the clauses give a proper and correct understanding of the business activities of the Company.

o According to the company, SEBI’s main objection as alleged in the interim order was in respect of such rearing contracts and SEBI has wrongly concluded them to be CIS schemes. The company also submitted that since 01/04/2010, it had decided to restructure its business module by reducing the number of rearing contracts and increasing the business of mere sale and purchase of livestock. It also said that the company has totally stopped accepting any fresh rearing contracts since 01.01.2012 as it was not interested in continuing with such business. However, it was honoring the pre-existing contracts for the agreed duration of such old contract. The rearing contracts were durations ranging upto six years and the last such contracts would expire on its own in April, 2017. Copy of present sample sell agreement of instalment plan, invoice and delivery note were furnished with the reply dated February 19, 2014.

o According to the company, the interim order relied on the fact that the contracts mentioned ‘estimated value’ and that SEBI has incorrectly assumed that the estimated value is the amount assured or promised to be paid by the company to the customer. The estimated value was only the amount which the company projected that the livestock may be able to fetch in the market at the end of the contract period. This was only indicative as to the potential value of the animal at a future date, based on the company’s experience etc. At the end of the contract period, the customer had to take delivery of the livestock as per the contract. If the customer so requested, the company assisted the customer in disposing of the livestock as per the contract and then the customer only got the sale price, whether it is more or less than the “estimated value”. Therefore, there was no promise or assurance of payment of the “estimated value” as incorrectly concluded by SEBI.

o The customers invest in buying livestock in the hope of good return. The ‘investments’ received were always only for purchase of livestock by lump sum or installment payment or for rearing contracts. No deposits were accepted by the Company.

o SEBI had wrongly concluded that the amounts received from the customers are investment by way of deposits, which the company says is incorrect. The investors were the shareholders of the company and not its customers. The company had submitted that the customers only made payment of either the purchase price or the rearing fees in the respect of the livestock, which monies only belong to the company and were not refunded to the customers. Therefore the same were not deposits and it was only when the customer paid some instalments for the purchase of livestock and then defaulted in paying the balance, the company terminated the purchase /sale contracts. The company would also refund part of the amounts paid although it was not contractually bound to do so.

o The interim order of SEBI proceeded on the incorrect assumption that the customers were compelled to enter into rearing contracts. According to the company the same was incorrect and no customer was forced to execute a rearing contract, as a condition for sale of livestock. The company submitted that large number of customers simply purchased the livestock/animals on lump sum or instalment basis and took delivery thereof, without any rearing contracts. Those customers who had asked for the rearing contracts were given such options. Even in such cases, the company submitted, that it was the customer who decided for what duration and on what terms such rearing contracts had to be made. The allegation about the customers being compelled to enter into rearing contracts is also belied by the fact that since 01/04/2010, the company had changed its business model and started reducing the number of rearing contracts, and further from the fact that it has completely discontinued accepting any fresh rearing contracts since 01/01/2012.

o The interim order, according to the company had rightly recorded and accepted that payments received by the company were under two categories, i.e., sale/purchase or rearing fees and that rearing fees were collected only after all the purchase instalments were paid. The interim order also recorded that the purchase/sale may be by payment of lump-sum or instalment and that the company agreed to physically handover the concerned animal upon receipt of full purchase price.

o The company also submitted that the interim order adversely commented on the fact that the old rearing agreements inter alia stated that for the duration of the rearing contract, the company would have all rights in the livestock including the right to sell the same. According to the company, the old contracts were to be read as a whole and should not be read in isolation. Also, the contracts expressly stated that the livestock will be returned to the customer at the end of the duration of the contract along with accretions as agreed in the contract and the company had never defaulted in this regard. The animals in the custody of the company under the Rearing Contracts were not shown in the company’s record as owned by it. The provision of the contract giving the company full rights over the animal for the duration of the rearing contract were intended to give the company full authority for emergency situations such as diseases, infections etc., which required immediate action and also for the reasons of securing balance payments from the customers. The very same rearing agreement referred to company as the “contractor” and the customer as “co-owner” which also made clear that the company did not have full ownership of such animals.

o The interim order also adversely commented on the stipulation in the old rearing agreement that the offspring of the animals would belong to the company. In this regard, the company has submitted that SEBI overlooked the fact that the contracts also expressly stipulated the number of off springs to be handed over to the customer at the end of the rearing agreements. Therefore, the stipulation that the offspring belonged only to the company was intended to prevent customers from raising allegations that the animal given by them for rearing had produced more offspring and also to prevent customers from claiming them from the company. As the company had the expertise to maximize breeding, it was able to give assured accretions/ offspring to each customer. If the company could achieve higher productivity, the same would belong to the company and such factor is considered to reduce the rearing fees.

o The interim order alleged that the company incurred expenses towards advertisement and sales promotion, in the range of 27% to 43% of its total income during 2009-2012. The company denied the same and submitted that it had spent 8.57% in 2011-12, 15.14% in 200-11 and 17.41% during 2009-10 of the total of sales and advance and the same was normal for any business activity and invites no adverse comments. According to the Company, the monies received under instalment plans are treated and accounted for as “advance”. The Company submitted that the total of sales, rearing and advance from customers should be added while drawing a comparison in respect of expenditure on advertisement and sales promotions. Again, the company submitted that the company has completely discontinued fresh rearing contracts since 01/01/2012. According to the company there was no law limiting the company’s expenditure on advertising and sales promotion and the allegation was irrelevant.

o The company has purchased fixed assets for setting up of project farms and hence the increase in the amount invested in fixed assets. The inter-corporate transactions during the period of 2011-12 with other group companies were in the ordinary course of business and relevant disclosures were made in the annual report which has been filed with the Registrar of Companies.

o The company submitted that the purchase price and the rearing fees paid by the customers belonged to it and not to the customer and they were not refundable deposits. Therefore, there was no question of “pooling” as alleged in the interim order of SEBI.

o The interim order, according to the company had incorrectly concluded that there was no identification of the livestock, that there was no delivery of the animals and that the same was done symbolically only in paper. The company stated that actual physical delivery was given, which proved that there was adequate identification. The sale agreement and invoice mentioned the required details, and the facts such as large number of customers taking delivery at the time of purchase itself, large number of customers taking delivery at the time of expiry of rearing contracts showed clear identification of customers and animals. Further, the company had stopped accepting fresh rearing contracts since 01/01/2012 and had focused only on trading activities which included the delivery of livestock. The company has also submitted that it could produce delivery challans to prove that actual delivery was given, if required.

o That the interim order incorrectly proceeded on the assumption that the rearing business of the company amounted to a CIS Scheme and that the various premises, farms, sheds, stables, etc., which were used for rearing and breeding of the livestock were part of the assets of the alleged CIS schemes. The company submitted that all such properties belonged to it exclusively and that the customers made no investments therein and hence had no rights. The investments from the customers were only in the livestock as per the respective contracts or in procuring rearing services.

o The company had submitted that the Government had the stated intention to protect and promote farm animals and the noticee provided service in such field. Mere buying and selling contracts would not amount to CIS schemes. In such contracts, the purchasers/ customers got the benefit of the pre agreed price and could make lump sum payments or instalments payments. On full payment, the customers were entitled to and were given the delivery of animals as per the respective contracts. Abrupt termination of preexisting contracts would be counterproductive to SEBI’s stated intention of protecting the customers. Therefore, the company prayed that they should be permitted to honour the existing rearing contracts till they expired. They also stated that automatic shut down and winding up of their business would cause harm, prejudice and damage to the customers. It also requested that for the purposes of upkeep and maintenance of livestock under the old pre 01/01/2012 rearing contracts, the company will have to continue with the collection of the rearing fees which were to be paid by the respective customers at pre agreed intervals as per their respective contracts to meet the cause of maintaining, protecting and safeguarding the said animals/ livestock.

o The purchase price paid by customers and the rearing fees paid by the customers belong absolutely to the company and not to the customer. As the said amount is not refundable, the question of pooling does not arise.

o Large numbers of customers do take delivery at the time of purchase itself. Large numbers of customers do take delivery at the end of rearing contract. The company has actually given the delivery of livestock, which proves that there is adequate identification of livestock. Thus there is clear identification of the customers and livestock.

o All the property such as premises, farms, sheds, stables etc. are assets of the company and belong exclusively to the company. The customers have made no investments therein and have no rights therein.

b. With respect to the observations made in the interim order as to how the scheme of the company satisfied prima facie the 4 conditions of section 11AA(2) of the SEBI Act, the Company submitted that - o The company’s business activities are such that they do not fulfil the conditions of a collective investment scheme and hence not within the purview of section 11AA of the SEBI Act.

o The Company also submitted that its business of sale and purchase of livestock was legitimate and genuine and not a guise to mobilize fund from public as alleged.

o The Company also submitted that even as per the ratio in PGF Limited vs. UoI, its business is not within the purview of section 11AA of the SEBI Act. The company does not attract any “investors” nor does it accept any “investment” from the customers as aforesaid, nor does the company have any “scheme”. The company has always protected the interests of its customers and honoured all its commitments. The company has always maintained sufficient stock to ensure proper delivery to its customers. The purported complaint relied on by SEBI is by an unknown party who does not even appear to be a customer of the company and appears to have been set up by a business competitor. The company submits that one of its directors, Mr. Ghanshyam Jasbhai Patel deceased on 13/02/2014.

o The legislative intent of CIS Regulations and section 11AA of the SEBI Act, is primarily to regulate Agro Bonds and plantation bonds as they are in nature of Collective Investment Schemes. However, the said company is in the business related to animal husbandry and such CIS Regulations cannot be applied to the business of the company without it even being analyzed by an expert qua the animal husbandry industry.

c. Submissions made with respect to the complaint mentioned in the interim order: The interim order refers to a complaint received by SEBI and although inspection was granted to the company, the name of the complainant was concealed. However, the company submitted that based on the contents, it appeared that the purported complainant was not a customer of the company, rather set up by some competitor. Although the company had sought cross examination, the same was not provided and therefore SEBI cannot rely on the complaint.

d. With reference to the Order of the Hon’ble High Court of Madhya Pradesh referred to in the interim order, the Company submitted that it is not a finance company and has not collected any ‘deposits’ from the public or made any promise to pay back any money with any returns or interest.

e. As regards the findings of CBI as mentioned in the interim order, the Company submitted that – o The company has denied the allegation made in the CBI report, which observed that the company had 6,48,406 customers but only 16,876 livestock, although it had rearing contract with 35,105 customers, stating that CBI verified only two projects farms whereas the company had 11 project farms at that time. According to the company, the figure of 6,48,406 appears to be the total number of customers of the company since its inception and most of them had ceased to be customers, on completion of their respective contracts. The company had never defaulted in delivering the requisite live stocks/ animals as per the respective contracts. The Company has further stated that CBI overlooked the fact that for a customer paying on installment basis, the livestock/animal is required to be made available for delivery only upon payment of the last installment. Therefore, the company submitted that there was no requirement to have a possession of an animal until the payment of the last instalment.

o The CBI had allegedly concluded that most of the customers were aware that the company would be purchasing cattle against their payments and would rear them in the farms. Therefore, even the CBI investigations have substantiated the case of the company that the customers were fully aware of the true and correct facts.

o The CBI allegedly concluded that the company’s agent had informed the customers that the end of the rearing contracts, they would have an option to take away the cattle or take the amount equal to “estimated value”, which according to the company was factually incorrect. The company never offered or agreed to pay the ‘estimated value” to the customers. The “estimated value” is only the company’s projection/estimation of what the market value of the animal would be at the end of the contract period, when the customer has to take delivery of the livestock. If any customer requested, the company assisted in the disposal of the animal and the customer was given the sale proceeds irrespective of whether it was more or less than the estimated amount.

o CBI had allegedly concluded that some of the documents did not contain the details of the cattle; however, according to the company other relevant documents did contain all the required details.

o It is also the contention of the company that SEBI cannot rely on the reports of third parties and if SEBI intended to rely on the same, the company ought to be given the opportunity to cross-examine.

f. As regards the observations of CID Goa made in its reference, the Company submitted that the interim order referred to reference from CID, Panaji, Goa, which allegedly stated that the company did not have any farms or rearing sites in Goa, and that while the company promised to return the cattle to its customers after the stipulated period, it had not returned any cattle in Goa till then. The company also said that such report admittedly acknowledged that the maturity of the scheme would after two to three years. The interest allegedly paid by the company was 16% p.a. The company’s response in respect of the reference of CID, Goa were as below :

i. The CID by letter dated July 25, 2011, recorded that they conducted and closed an inquiry and concluded that the company was in the business of livestock and that there were no complaints against it. However, the CID has allegedly submitted the second report dated October 13, 2012 after the Company has stopped entering into any new rearing contract and without conducting any new investigation. ii. The contention that the company did not have farm in Goa is irrelevant and that it had farms in several states. Not having a project farm in a specific State is irrelevant. Once the full payment is received by the Company, the livestock is made available for delivery. If the livestock was given under a rearing contract, the Company would honour the same on one of its developed project farms. The Company also helps its customers with livestock transportation facility at its own cost. iii. The allegation that the company had promised to return the cattle but not returned any in Goa had to be read with the admission that the rearing contracts matured after 2 - 3 years (the cattle to be returned after 2-3 years as per the contract). iv. The company denied the payment of interest @ 16%, stating that the same was without any basis. v. The insinuation that the Company is promising to return livestock after stipulated time but has not returned any livestock in Goa till date is misleading because in cases where term of rearing agreements has been concluded, livestock has been handed over to the customers. The company never defaulted in returning the cattle /livestock animals as per the respective contract and the end of the contract duration. Neither SEBI nor any other authority had brought forward a single customer to whom the company refused to hand over requisite livestock as per the contract. In cases where the rearing agreements would be concluded only after 2-3 years, the handing over of the livestock to the customer will happen on conclusion of rearing agreements. The Company has not defaulted in delivering or returning any livestock.

g. With respect to the allegation of diverting funds mobilized from public for other purposes, the Company submitted that it was entitled to invest/utilize the funds as the same belonged to it.

h. As regards the submission of inventory of assets, the company contended that all of its assets were bought out of the funds belonging to it. A list of all the company’s assets that stated in the Annual Accounts which are already submitted to SEBI.

i. With respect to the directions issued vide the interim order, the Company contended that such directions do not protect the customers of the company, and in fact the same severally harms and damages their interests as follows : o As regards the customers who have already entered into Sale Agreements with the company of the purchase of livestock on instalment basis, they have already paid some instalments, but by the said order the company is restrained from accepting their balance instalments or delivering the livestock to them. o Although the company has not accepted any Rearing Agreement since 01/01/2012, the previous subsisting rearing agreements have to be honoured. The livestock entrusted to the company under such old agreements have to be fed, looked after and maintained. The costs / charges/ fees for the same were being paid by the respective customers as per the terms of their respective Rearing Agreements. However, by the said order the company is restrained from accepting their balance instalments of rearing fees/ charges which it requires to feed and maintain the livestock. The company is also restrained from delivering the livestock to them upon the end of the duration of Rearing Agreements or even prematurely. o SEBI has been making enquiries in the matter since 2011, and there was no urgency or emergency situation which could justify the passing of any such order.

j. The company requested that the ad interim ex parte Order dated 31.10.2013 be modified so as to:

(i) Permit the company to carry on the business of sell and purchase of livestock and accept the balance instalments from the customers who have already entered into Sale Agreements with the Company for purchase of livestock on instalment basis and permit the company to deliver the livestock to them as per their respective Sale Agreements; and to (ii) Permit the company to honour the previous subsisting rearing agreements entered into before 01.01.2012, collect the balance instalments of charges/ fees as per the old rearing contracts terms so that the company can continue to feed, look after and maintain the livestock entrusted to the company under such old agreements and permit the company to hand over all such customers the livestock as agreed at the end of the duration of the Rearing Agreement.

10. I have considered the interim order cum show cause notice, the submissions made by the Company along with documents filed by it and other material available on record. The interim order has prima facie observed that the scheme of “purchase and rearing of goats and buffaloes” offered by the Company fulfills the conditions of a CIS as defined under section 11AA of the SEBI Act and has alleged that the Company is operating a CIS without registration from SEBI as required under section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. The interim order has captured the salient features of the nature of the alleged scheme offered by the Company. It would therefore be pertinent to refer to such facts and observations:

(a) The Company is a public limited company and its directors are Mr. Mahesh Kisan Motewar, Mrs. Vaishali Mahesh Motewar and Mr. Ghanshyam Jashbhai Patel.

(b) The main object of the Company as per its Memorandum of Association (MoA) is to produce, breed, purchase, sell, transfer all type of livestock/ farm cattle, to establish, organize, promote and run goat/buffalo farm at various places in India, to sell and purchase any and all types and kinds of livestock including goats on outright, cash and installment basis.

(c) The Company also carries on the business of rearing goats, sheep farming etc. as incidental or ancillary objects to the main objects.

(d) The Company offers various schemes under which money is collected from the public against the alleged scheme of "Purchase and Rearing of Goats/Buffaloes”.

(e) The Company accepts monies from the public towards its scheme under two categories:

(i) Payment towards the "Sale/purchase of Goats/Buffaloes" as per the "Application Form" and "Agreement for Sale" executed between SJFIL and the "Purchasers"/investors.

(ii) Payments towards the "Rearing/breeding of Goats/Buffaloes" as per the "Goat/Buffaloes Rearing Contract" executed between SJFIL and the "Purchasers"/ investors (the SJFIL is referred as "Contractors" and the "Purchasers" are referred as "Co-owners" in the said rearing contract).

(f) Both the aforementioned agreements are simultaneously entered into between SJFIL and the "purchasers"/investors and the payments towards the "Rearing/breeding of Goats/Buffaloes" shall begin only after making the total payments due to SJFIL on the basis of the payment schedules for the "Sale/purchase of Goats/Buffaloes".

(g) As per the copy of "Rules for customers", the Company has launched two different sales plans for the "Sale/purchase of Goats/Buffaloes". These are divided into two types, viz., Type I &II:  Single Installment Sales Plan (SIP) and;  Installment Sales Plan (IP).

(h) A few of the sales plans as offered by the Company are : Single Installment Basic Sales Plan No. 5 for 4 years. Considered Projected number of developed Goat/ Cattle at the end Accidental Death Help Purchase Contract of the Term (No. of Cattle or Goats equivalent to (`) Value weight) (Rs) 10,000 4 Goats of 87 kgs 15,000 15,000 6 Goats of 113 kgs 22,500 20,000 8 Goats of 150 kgs 30,000 50,000 1 Milking & 1 Child Cattle 75,000 1,00,000 3 Milking Cattle 100,000

Sales Plan No. 02 (Installment Payment Basis Sales Plan for 60 Months/ 5 years) Projected number of developed Goat/ Installment Purchase Value Cattle at the end of the Term & Contract Value Consideration No. of Cattle or Goats Accidental MLY QLY HLY YLY equivalent to weight Death Help 6,000 100 295 585 1,160 2 Goats of 44 kgs 9,000 12,000 200 590 1,170 2,320 4 Goats of 87 kgs 18,000 18,000 300 885 1,755 3,480 7 Goats of 131 kgs 27,000 24,000 400 1,180 2,340 4,640 1 Cattle 36,000 30,000 500 1,475 2,925 5,800 1 Milking Cattle 45,000 60,000 1,000 2,950 5,850 11,600 1 Cattle & 1 Milking Cattle 90,000 (i) The following clauses stated in the "Application Form" and the "Agreement to Sale" for the "Sale/purchase of Goats, Buffaloes and Calves" are relevant to note:  “The Purchaser is hereby purchasing Goats/Buffaloes from the seller on his free will and that he also hereby promises to pay entire/total amount for the said purchases as mentioned herein below to the seller [the payment schedules]. Moreover, it is specifically understood that along with the Purchaser herein there may be several co-owners of the farming animals, i.e. Goat/Buffalo.  The seller hereby agrees to hand over physical custody of Buffaloes/Calves/Goats (which are subject matter of present sale transaction) to purchase only upon receipt of total purchase price as set out in Column (D) above. After payment of all the due installments, seller shall deliver the agreed Buffaloes/Calves/Goats on demand by purchaser or his/her representatives.  The company has a right to establish infrastructure including office premises, farm land, sheds, stables etc. out of the amount/returns received from Purchaser and business. But the purchaser shall not have any right, title, interest or lien on the said property (i.e. infrastructure such as office premises, farm lands, sheds, stables, etc.) purchased by the company. The company shall be the exclusive owner of the said property.  The Purchaser hereby unconditionally authorizes the Seller to take all the necessary decisions in respect of all the aspects of present transactions of sale that have not been specifically set out herein and which are incidental to present transaction of sale and /or arising by virtue thereof without causing financial loss to the purchaser.

 The Purchaser after purchasing Goats/Buffaloes from the seller on his own free will and that he also promise/agree, to the seller that after completion of all installment as per the Agreement to Sale, when the purchaser become absolute owner of the Goat/Buffaloes he will give authority to Mr./Ms…..to handover said Goat /Buffaloes to the Samruddha Jeevan Agro India Ltd. and or any other company for rearing purpose." (Clause 10 of the "General Terms and Conditions" in the Sample "Application Form")

(j) As per the "Pamphlet", the Company had launched 18 different sales plans in respect of its Scheme of "Rearing/breeding of Goats/Buffaloes". Details of one such plan is reproduced below:

SALES PLAN No. 07 - Single Instalment Basis - 5 1/2 Years. Considered Purchase & Estimation of projected value Accidental death help. Contract Value of developed Livestock (goats & buffaloes) at the end of the term. 5000 10000 7500 10000 20000 15000 25000 50000 37500 50000 100000 75000 100000 200000 100000 (k) The following clauses of the Company’s Rearing Contract are relevant to be noted:  "WHEREAS the Contractor [SJFIL] is engaged in the business of rearing and breeding of farm animals i.e. Goats/Buffaloes, Sheep etc.  AND WHEREAS the Co-owner ["Purchaser"/ investor] has inspected the said lands and the animal rearing and economical breeding activities of the Contractor in this highly profitable and unorganized sector…..hence Co-owner is desirous of entering into a contract for economical breeding/rearing of the farm animals belonging to the Co-owner, to be done by the Contractor.  This present Goats/Buffaloes rearing contract shall come into force immediately but the Co-owner shall start paying for the Goats/Buffaloes Rearing contract charges in installments as mentioned in Para 3 above only and immediately after the clearance of payment due to the Company (Contractor) vide the Sales Agreement No. ……dated….

 The Co-owner hereby entrust the physical custody of the farm animals …which are subject matter of this contract agreement, to the contractor so as to avail the relevant expertise ……The Contractor will maintain the said animals from the said funds received from Co-owner vide this present contract agreement…….  The Co-owner will become eligible to receive an estimated amount of Rs. ---/- or the original number of goats/buffaloes given to the contractor, only after the end of this Goats/Buffaloes rearing contract, which being the proceeds due the possible profits likely to be made by the contractor arising due to the accretions mentioned herein above.  OR  The Co-owner shall become entitled to receive an estimated amount of Rs. -------/- every month/year till the end of this present Goats/Buffaloes Rearing Contract, and Rs. ------/- only, after the end of this Goats/Buffaloes Rearing Contract, or his/her Goats/Buffaloes delivered to the Contractor which being the proceeds due to the possible profits likely to be made by the Contractor arising due to the accretion mentioned herein above.  All the rights (i.e. title, ownership, possession etc.) of the said Goats/Buffaloes under reference herein shall unconditionally pass on to the contractor and the Co-owner shall have no right over the said Goats/ Buffaloes and anything whatsoever in reference /context to the said Goat/Buffaloes. The Contractor shall be entitled to sell the said goats/buffaloes and all its accretions.  The Co-owner hereby unconditionally authorizes the contractor to take all the necessary decisions and to perform any acts irrespective to all the aspects remaining untouched and which are incidental to this Goats/Buffaloes rearing contract and/or arising by virtue of this Goats/Buffaloes Rearing Contract, the Co-owner shall not have to say in all such matter neither shall Co-owner file any proceedings against the any decisions of the Contractor.  …….. Only the contractor shall be entitled to all the accretions i.e. ownership and physical custody of the off spring etc. of the said farm animals which are the subject matter of this present Goats/Buffaloes Rearing Contract Agreement and the Co-owner shall have no claim of any nature whatsoever on the said accretions.

(l) From the audited financial statements of SJFIL for the FY 2009-10, 2010–11 and 2011–12, details such as amounts mobilized under the "Scheme" as advance from customer, amount towards sales of livestock, amounts spent on advertisement and sales promotions were mentioned. The same are summarized below:

Particulars March 31, 2012 March 31, 2011 March 31, 2010 (Rs.) (Rs.)) (Rs.)) Sales of livestock’s 1,96,29,15,563 92,17,36,913 78,42,63,667

Advertisement & sales 53,66,17,865 39,49,03,594 22,27,04,076 promotions (inclusive of commission) % of amount spent on 27.34 42.84 28.40 advertisement to sales Advance from customers 3,31,29,05,497 1,63,77,73,180 36,06,59,927 Additional of Fixed assets 10,43,73,899 52,56,60,393 20,44,76,338

 From the above table, it is observed that the Company had paid substantial amount on advertisements and sales promotions (inclusive of commission). It is further observed that during the FY 2009-10 and 2010-11 substantial amount was invested in fixed assets.

(m) Further, it is observed from the letter dated April 24, 2013 of the Company, that there is inter-corporate transaction with other group companies of SJFIL to the tune of Rs. 2,84,49,530/-during the period - April 1, 2011 to March 31, 2012.

11. The interim order has tested the alleged Scheme i.e. purchase and rearing of goats and buffaloes of the Company against the 4 conditions mentioned under section 11AA(2) of the SEBI Act and has prima facie observed that the Scheme is a CIS. The Company has stated that its main business is buying, selling, trading, breeding and rearing livestock i.e. goats and buffaloes and their by-products such as milk, dung etc. The Company has admitted that its business model includes (i) sale and purchase of such animals and (ii) rearing contracts. The Company has also admitted that it sells livestock either by receiving a lump sum payment or receives the consideration through instalments. According to the Company, it would deliver the livestock on receiving the full consideration and submitted that its transactions were in accordance with sections 4 and 5 of the Sale of Goods Act, 1930. The Company contended that the said Act makes it clear that in case of a contract for sale of goods, payment of price may legitimately be by instalments and delivery can lawfully be agreed to take place at a later date, including date of payment of the last instalment. The Company also contended that in law, such installment payment contracts are contracts for sale of goods and therefore the same cannot be construed as a CIS.

12. The Company has denied offering schemes under which monies are collected from the public in order to carry out any business of purchase and rearing of goats/ buffaloes. As regards the ‘rearing contracts’, the Company has submitted that these were separate contracts under which customers would deliver their livestock/animals to it for maintenance and breeding. The Company further stated that it keeps the animals in its own farms and looks after and maintains them and also breeds them so as to rear additional offspring. At the end of the agreed duration of each rearing contract, the livestock is returned to the customer along with the additional offspring of the age, size, weight etc as agreed in the contract. The Company submitted that for such services, it charged a ‘rearing fee’ from its customer. The Company further submitted that it had its own farms and infrastructure in various States in India and had expert knowledge and personnel to maintain the animals in a healthy and proper condition and to optimize their breeding and multiplication. The Company further submitted that a customer could approach it for a rearing contract in respect of an animal purchased from it after paying the full price for the animal or the customer’s animal and decides the duration of such rearing facilities and that the customer may choose from various options and plans. The Company had contended that SEBI had incorrectly concluded that the rearing contracts amounted to CIS and that since January 01, 2012, it had totally stopped accepting fresh rearing contracts and therefore no action against it was called for. However, the Company is honouring the pre-existing rearing contract for the agreed duration and that on expiry of such rearing contracts, the concerned animals are delivered to the respective customers. As the rearing contracts were for durations ranging upto 6 years, the last such contract would expire on April 2017.

13. Given the above information and submissions, it is to be tested whether the scheme of the Company is a CIS 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. The first condition under the said section is that 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.

(a) It is an admitted fact that the Company is accepting payments (lump sum or in instalments) from customers in respect of its Scheme, i.e. the purchase and rearing of goats and buffaloes. The Company enters into an Agreement for Sale and the Rearing Contract with its customers and that each of such agreements prescribes payments as mentioned therein. The application form/agreement for sale clearly mentioned that along with the purchaser there may be several co-owners of the farming animals i.e. goat/buffalo. It is also clearly mentioned that the Company has the right to establish infrastructure including office premises, farm lands, sheds, stables etc. out of the amount/returns received from the purchaser and business. As per the agreements, the purchaser would also hand over the animal/s after he becomes the absolute owner, he would give authority to a person (presumed to be the Company’s personnel) to handover the animals to the Company for rearing purpose. While entering into the agreement for sale with the company, the customer has to necessarily agree to hand over the animals to the Company for rearing. Therefore, though the Company represents that there is no compulsion on any customer to enter into as rearing contract, the customer has either to ‘take it’ or ‘leave it’ as the agreements are standardized contracts.

(b) Further, as per the Rearing Contract, the Company has all the rights (title, ownership, possession etc) of the Goats/Buffaloes under the said contract and the customer has no right over the animals. The Company is also entitled to sell the goats/buffaloes and all its accretions. It was categorically mentioned in the Rearing Contract that only the Company (mentioned as ‘Contractor’ in this contract) shall be entitled to all the accretions i.e. ownership and physical custody of the off-springs of the animals which are the subject matter of the Rearing Contract and that the customer shall have no claim of any nature whatsoever on the said accretions, perhaps leaving aside an offspring mentioned in some specific contract as pleaded by the company.

(c) As per the plans of the Company, it is noted that the Company promised the customer a ‘return’ on their investment, which was generally mentioned as a projection of the number of goat/cattle at the end of the term, estimation of projected value of developed livestock at the end of the term and the “Accidental Death Help”.

(d) The Company has contended that the purchase price paid by the customers and the rearing fees paid by the customers belonged to it and not the customer and that the same are not refundable deposits. The Company contended that no question arises of ‘pooling’ as held in the interim order. This submission lacks merit. As already observed above, the Company has indicated that it has the right to erect infrastructure in respect of its business out of the monies received from customers and business. Further, in the Balance Sheets of the Company it is mentioned that the Company has received advance from customers, addition of livestock and sale of livestock. The Company’s business is that of buying/selling and rearing/breeding of livestock and the monies received from the customers are in respect of this business. The Company also admitted that its advertisement and sales promotion were from its total income.

(e) The Rearing Contract also mandated that the Contractor (i.e. Company) would maintain the animals from the funds received from the customer under the contract agreement. This also shows that the monies are pooled from investors and utilized towards the purported scheme.

(f) From the above observations, it becomes evident that the monies mobilized by the Company under its schemes through the Sale Agreement and Rearing Contract are pooled and collectively utilized for the purposes of the Scheme or arrangement. The interim order has alleged that the sale and rearing transactions are done on paper. The company contended that actual physical delivery was given, which proved that there was adequate identification. According to it, the sale agreement and invoice mentioned the required details, and the facts such as large number of customers taking delivery at the time of purchase itself, large number of customers taking delivery at the time of expiry of rearing contracts showed clear identification of customers and animals. In this regard, I note that the Company has not produced any document to show sale and transfer of possession of animals to the customer. Considering that the Company has pooled and utilized the monies (received from customers) for the purposes of the scheme, the submission that it delivered animals at the end of the rearing contract as per its promise would not be of any consequence to it, as far as the issue of pooling is concerned.

(g) Accordingly, it is concluded that from the above discussions that the Company solicited and continues to solicit investments from customers with a promise of returns in the guise of operating a scheme dealing with goats and buffaloes. Therefore, the first condition is satisfied.

14. The second condition is that the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement.

(a) It is noticed that the Rearing Contract is definitely a part and parcel of the Scheme. Though the Company contended that a purchaser after paying the full consideration could take his animal and not subscribe to the Rearing Contract, it failed to demonstrate the same with any evidence.

(b) As mentioned above, the Company solicited funds from customers through lump sum and instalment plans for purchase of goats/cattle. However, it is astounding to note that even under the lump-sum plan, a customer having paid Rs.10,000/- upfront has to wait for 4 years to receive 4 goats of 87 kgs. In this transaction, the Accidental Death Help is mentioned as Rs.15,000/-. Therefore, the same belies the contention of the Company that it delivers animal to a customer after receiving the full consideration. The Company has contended that as per plan no. 5, a part of the consideration is towards the cattle purchased and the remaining is towards the rearing fee. As per the plan, after the end of 5 years, the customer is entitled to 4 goats of 87 kgs. The same is therefore a return and is therefore more of an investment contract than a purchase contract of goat/buffalo.

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

(d) The application form/sale agreement stipulated that a customer understands that along with him, there may be several co-owners of the farming animals. If the transaction was a simple purchase of a goat, as claimed by the Company, there could not be any co-owners. Even assuming that there could be lots of animals purchased by such co-owners, the nature of the scheme makes it evident that the Company solicited/solicits investments from customers promising them that the purported scheme is only an avenue for the customer to obtain return on his investments.

(e) The same is the case with the instalment plans. For a purchase value of 6000 for 60 months/5 years, the monthly instalment is Rs.100/-. For this investment, the customer is promised 2 goats of 44 kgs with accidental death help of Rs.9000/-.

(f) The Company’s rearing contract is also of similar nature. For a single instalment plan for 51/2 years, the customer is promised an estimated value of Rs.1000/- with accidental death help of Rs.7500/- for a contract value of Rs.5000/-.

(g) The Rearing Contract clearly states that :

The Co-owner will become eligible to receive an estimated amount of Rs. ---/- or the original number of goats/buffaloes given to the contractor, only after the end of this Goats/Buffaloes rearing contract, which being the proceeds due the possible profits likely to be made by the contractor arising due to the accretions mentioned herein above. OR The Co-owner shall become entitled to receive an estimated amount of Rs. ----- --/- every month/year till the end of this present Goats/Buffaloes Rearing Contract, and Rs. ------/- only, after the end of this Goats/Buffaloes Rearing Contract, or his/her Goats/Buffaloes delivered to the Contractor which being the proceeds due to the possible profits likely to be made by the Contractor arising due to the accretion mentioned herein above.

(h) The Company has admitted that its customers invest in buying livestock in the hope of good return. The Company has contended that the estimated value is only indicative. Here too, the Company has admitted the promise of a return/profit or produce.

(i) Therefore, from the above discussion, 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 animals therefore satisfies the second condition under section 11AA(2) of the SEBI Act.

15. The third and fourth conditions under section 11AA(2) of the SEBI Act can be discussed together. These conditions are that the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors and the investors do not have day-to-day control over the management and operation of the scheme or arrangement. (a) With respect to the above conditions, the company submitted that it had the responsibility to properly maintain the animals. It referred to clause 20 of the old “Rearing Contract” whereby the company was authorized to take all the appropriate decision from the maintenance of the livestock for the duration of the rearing contract and the stipulation that the customer would not interfere with the same was obviously essential.

(b) In this regard, I refer to the following clauses made in the Company’s Application form, Sale Agreement, Rearing Contract and Pamphlet: “The seller hereby agrees to hand over physical custody of Buffaloes/Calves/Goats (which are subject matter of present sale transaction) to purchase only upon receipt of total purchase price as set out in Column (D) above. After payment of all the due installments, seller shall deliver the agreed Buffaloes/Calves/Goats on demand by purchaser or his/her representatives. The company has a right to establish infrastructure including office premises, farm land, sheds, stables etc. out of the amount/returns received from Purchaser and business. But the purchaser shall not have any right, title, interest or lien on the said property (i.e. infrastructure such as office premises, farm lands, sheds, stables, etc.) purchased by the company. The company shall be the exclusive owner of the said property. The Purchaser hereby unconditionally authorizes the Seller to take all the necessary decisions in respect of all the aspects of present transactions of sale that have not been specifically set out herein and which are incidental to present transaction of sale and /or arising by virtue thereof without causing financial loss to the purchaser. The Purchaser after purchasing Goats/Buffaloes from the seller on his own free will and that he also promise/agree, to the seller that after completion of all installment as per the Agreement to Sale, when the purchaser become absolute owner of the Goat/Buffaloes he will give authority to Mr./Ms…..to handover said Goat /Buffaloes to the Samruddha Jeevan Agro India Ltd. and or any other company for rearing purpose. The Co-owner hereby entrust the physical custody of the farm animals …which are subject matter of this contract agreement, to the contractor so as to avail the relevant expertise ……The Contractor will maintain the said animals from the said funds received from Co-owner vide this present contract agreement…….

All the rights (i.e. title, ownership, possession etc.) of the said Goats/Buffaloes under reference herein shall unconditionally pass on to the contractor and the Co-owner shall have no right over the said Goats/ Buffaloes and anything whatsoever in reference /context to the said Goat/Buffaloes. The Contractor shall be entitled to sell the said goats/buffaloes and all its accretions. The Co-owner hereby unconditionally authorizes the contractor to take all the necessary decisions and to perform any acts irrespective to all the aspects remaining untouched and which are incidental to this Goats/Buffaloes rearing contract and/or arising by virtue of this Goats/Buffaloes Rearing Contract, the Co-owner shall not have to say in all such matter neither shall Co-owner file any proceedings against the any decisions of the Contractor.

…….. Only the contractor shall be entitled to all the accretions i.e. ownership and physical custody of the off spring etc. of the said farm animals which are the subject matter of this present Goats/Buffaloes Rearing Contract Agreement and the Co-owner shall have no claim of any nature whatsoever on the said accretions.”

All the above clauses/conditions clearly rule out any intervention or participation by the customer in the business of the Company.

(c) The company also admitted that its customers do not have any day to day control over the management and operations of the company. The customers could only visit the farms. The company in its submissions has admitted that it is impossible for its customers located at different part of the country to participate or be involved in the day to day management of the company.

(d) Therefore, 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.

(e) Thus, the scheme of the Company satisfies the third and fourth conditions under section 11AA (2) of the SEBI Act also.

16. In view of the above discussion, the Scheme of the Company i.e. purchase and rearing of goats/buffaloes, satisfies all the four conditions under section 11AA(2) of the SEBI Act. Accordingly, it is concluded that the purchase and rearing (of goats/buffaloes) arrangements of the Company with its customers fall within the ambit of the definition of Collective Investment Scheme under section 11AA of the SEBI Act. The Hon’ble Supreme Court in the matter of PGF Limited vs. UoI and another (ref. MANU/SC/0247/2013, has observed "…..the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act." The Hon'ble Supreme Court further observed "Inasmuch as the said Section 11AA seeks to cover, in general, any scheme or arrangement providing for certain consequences specified therein vis-a-vis the investors and the promoters…….,”

17. The Company seems to be under a misunderstanding that SEBI’s action in the instant case is only with respect to the rearing contracts and that there is no irregularity with the Company’s sale and purchase arrangements. The interim order refers to both the “purchase” and “rearing” arrangements of the Company. Both these activities are found to be in the nature of CIS. The Company has submitted that it has stopped entering into rearing contracts from 01.01.2012. However, during an inspection conducted by SEBI at the registered/head office of the Company at Pune on March 27, 2014, it was noticed that the Company has continued to accept rearing fees despite the interim order. Even though the Company submits that it has stopped entering into rearing contracts from 01.01.2011, it has admitted to be continuing with the sale and purchase arrangements and has attached a copy of the agreement to sell, invoice for sale, delivery challan. The aforesaid copy of the agreement to sell is not very legible. The contents of such purported new document also appear to be similar to the contents of the previous agreement. Here again, the company has promised Rs.18,000/- as accident death help to the legal heirs of the customer in case of accidental death of the customer.

The Company has submitted that ‘Sale Plan no. 7’ as reproduced in paragraph no. 7.1 (g) of the Order has wrongly been shown as the plan of the company. In this regard, I note that SEBI received documents regarding the sales plans of the Company from the complainant. Copy of the complainant has also been forwarded to the Company. From such documents, it is seen that the Company has carried out 6 such plans and Sales Plan no. 7, as mentioned in the interim order, is one such plan. Further, as discussed above, there are other material admittedly of the Company which are the basis to come to the above conclusion that the Company has launched and is continuing to operate CIS without registration from SEBI. In view of the same, the request for cross-examination of the complainant is not relevant.

18. To carry out the activity of CIS and mobilize public funds from such schemes, it is mandatory under law to obtain a certificate of registration from SEBI. Section 12(1B) of the SEBI Act mandates that no person, shall sponsor or cause to be sponsored or carry on or caused to be carried on any CIS unless it obtains a certificate of registration from SEBI in accordance with the CIS Regulations. Regulation 3 of the CIS Regulations provides that no person other than a Collective Investment Management Company which has obtained a certificate under the said regulations shall carry on or sponsor or launch a 'collective investment scheme'. A person can launch or sponsor or cause to sponsor a collective investment scheme only if it is registered with SEBI as a Collective Investment Management

Company. Therefore, the launching/ floating/ sponsoring/ causing to sponsor any 'collective investment scheme' by any 'person' without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. The Company does not have a certificate of registration as mandated under law and has launched CIS without obtaining certificate of registration from SEBI, thereby contravening the provisions of section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations.

19. From the scheme or arrangement which the Company has with its customers, it is evident that the Company solicits investments from customers in its scheme of purchase and rearing of goats and buffaloes. The investor has the option to either subscribe to the lumpsum payment plan or the instalment payment plans of the Company. Under both the plans, the rearing contract is a necessary addition and the customer has to execute both the agreement to sell and the rearing contract. After execution of the agreements, the customer pays the consideration (i.e. his investment in the schemes) to the Company. Even if the customer has opted for a lumpsum payment plan, he does not readily get any animal. According to the Company, as per Plan no. 5 (taken as an example), a part of the customer’s investment of Rs.10,000/- would be towards the purported purchase of 2 goats and the remaining payment was towards rearing fees. At the end of the rearing period of 4 years, the customer is entitled to get 4 goats of 87 kgs. The Company gets complete right over the animals purportedly given for rearing. As discussed above, the scheme of the Company satisfies all the ingredients of a CIS as defined under section 11AA of the SEBI Act.

The Company has contended that the case law of PGF Limited is not applicable to it and that section 11AA is primarily to regulate agri-bonds and as the Company is in the business of animal husbandry, the CIS regulations are not applicable to it. The Hon’ble Supreme Court while dealing with the scope of section 11AA(2) of the SEBI Act had observed in the matter of PGF Limited and others vs. Union of India and others [MANU/SC/0247/2013] "……….. sub-section (2) of Section 11 AA, which defines a collective investment scheme disclose that it is not restricted to any particular commercial activity such as in a shop or any other commercial establishment or even agricultural operation or transportation or shipping or entertainment industry etc. The definition only seeks to ascertain and identify any scheme or arrangement, irrespective of the nature of business, which attracts investors to invest their funds at the instance of someone else who comes forward to promote such scheme or arrangement in any field and such scheme or arrangement provides for the various consequences to result there from."

The scheme or arrangement of the Company in taking monies from the public investors, executing two agreements with them, promising more animals after the end of the rearing contract and giving an option of monetary returns on sale of such animals would definitely fall within the sciope and ambit of section 11AA of the SEBI Act as held by the Hon’ble Supreme Court. It is also to be noted that section 11AA clearly mentions those activities that are exempted from the operation. In this regard, the following observations of the Hon’ble Supreme Court in PGFL vs. UOI are also important to note:

"A reading of sub-Section (3) of Section 11AA also throws some light on this aspect, wherein it is provided that those institutions and schemes governed by sub-clause (i) to (viii) of sub-Section (3) of Section 11AA will not fall under the definition of collective investment scheme. ........... Therefore, by specifically stipulating the various ingredients for bringing any scheme or arrangement under the definition of collective investment scheme as stipulated under sub- Section (2) of Section 11AA, when the Parliament specifically carved out such of those schemes or arrangements governed by other statutes to be excluded from the operation of Section 11AA, one can easily visualize that the purport of the enactment was to ensure that no one who seeks to collect and deal with the monies of any other individual under the guise of providing a fantastic return or profit or any other benefit does not indulge in such transactions with any ulterior motive of defrauding such innocent investors and that having regard to the mode and manner of operation of such business activities announced, those who seek to promote such schemes are brought within the control of an effective State machinery in order to ensure proper working of such schemes."

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

The Company has also contended that it was entitled to the monies from its customers under the agreements and therefore eligible to invest/utilise. In this regard, it should be appreciated that the Company dealing with the monies of the public cannot utilise or divert such funds as it deems fit. If the same is left unchecked, a company indulging in collecting and dealing with public funds under the guise of its schemes may defraud such innocent investors.

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

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

21. As the Company is carrying out unregistered CIS activities, it becomes necessary to direct the Company to wind up the CIS and refund its investors’ money or assets along with requisite interest. Accordingly, it would not be in the interest of investors to allow the request of the Company to honour the existing rearing contracts until they expire and allow it to continue to accept the rearing fees from customers. Allowing such request would only legalize the unauthorized CIS activities of the Company.

22. I also note that in terms of regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and includes illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person. This provision in the above Regulations has been brought into effect from September 06, 2013. Accordingly, it could be held that by mobilizing public funds through CIS without obtaining registration from SEBI as required under section 12(1B) of the SEBI Act read with regulation 3 of the CIS Regulations, after the provision coming into force, the Company has contravened the above provision and liable for action.

23. The interim directions are issued to the Company and its directors, Mr. Mahesh Kisan Motewar, Mrs. Vaishali Mahesh Motewar and Mr. Ghanshyam Jashbhai Patel.

(a) It is seen from the details available at MCA 21 that Mr. Mahesh Kisan Motewar, Mr. Rajendra Pandurang Bhandare and Mrs. Vaishali Mahesh Motewar were originally appointed as Directors in the Company on April 29, 2002, May 15, 2005 and October 01, 2009 respectively.

(b) From the information submitted by the company vide its undated letter, it is observed that Mr. Mahesh Kisan Motewar, was appointed as Director on December 15, 2003 and appointed as M.D. and Whole Time Director on May 15, 2005. He was reappointed as M.D. and Whole Time Director on May 15, 2010. As per MCA data, Mr. Mahesh Kisan Motewar has been re-appointed on October 25, 2013. Therefore, he is found to be the Director/M.D. & Whole Time Member Director of the Company from the year 2002 till date.

(c) As regards Mr. Ghanshyam Jashbhai Patel, the Company had submitted that he had passed away. However, no death certificate was produced either by the Company or by the family of the concerned noticee. From the information submitted by the company, it is observed that Mr.Ghanshyam Jashbhai Patel was appointed as Director on July 31, 2009. Further, from MCA21 details it is found that Mr.Ghanshyam Jashbhai Patel was director of the company during the period July 31, 2009 to February 13, 2014.

(d) Ms. Vaishali Motewar is a Whole Time Director in the Company from October 01, 2009 and continues to be a director.

The above directors are therefore liable for violations committed by the company in operating/launching and carrying out CIS in violation of the law.

As per the Company, Mr. Rajendra Pandurang Bhandare was a director of the company from March 14, 2006 to July 31, 2009. However, as from the MCA data, he is found to have been originally appointed as a director on May 15, 2015 and has been appointed at the current designation on February 17, 2014. He, being one of the present directors, though not a noticee in the interim order, is also responsible for making refunds as directed in this Order.

24. As regards the observations made by CBI, as mentioned in the interim order, the Company has contended that it had sufficient livestock to honour its commitments and that CBI has visited only 2 of its project farms, whereas the company has 11 farms, and therefore the count of animals as per CBI was incorrect. The company contended that it was not necessary to possess an animal until the payment of the last instalment as the livestock was to be delivered only after payment of the full price on completion of the last instalment. The company also submitted that it did not have 6,48,406 investors as mentioned by the CBI as most of them ceased to be customers on completion of respective contracts. It is the contention of the Company that SEBI should not rely on the findings of the CBI as their investigation is partial and incomplete. In this regard, I note that the instant proceedings are pursuant to an enquiry conducted by SEBI into the affairs of the company and based on material collected during such enquiry.

25. I also note that SEBI received a reference from Central Bureau of Investigation forwarding a complaint stating continuance of money collection by the company despite SEBI Order. Accordingly, an inspection of books of accounts, other records and documents of SJFIL was ordered vide SEBI Order dated March 05, 2014. The same was undertaken at their registered/head office at Pune on March 27, 2014. During inspection, SEBI observed that the company has accepted monies even after SEBI order dated October 31, 2013 and was also involved in the diversion of its monies. For such violations, SEBI has initiated adjudication proceedings.

26. In view of the foregoing observations and findings, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 and sections 11(1), 11(4) and 11B thereof and regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, hereby issue the following directions :

1. Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN- ATTPM4634Q) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872) shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the schemes which have been identified as a Collective Investment Scheme in this Order.

2. Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN-

ATTPM4634Q) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872) shall wind up the existing Collective Investment Schemes and refund the money collected by the said company under the schemes with returns which are due to its investors as per the terms of offer within a period of three months from the date of this Order and thereafter within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds.

3. Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN- ATTPM4634Q) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872) shall not alienate or dispose off or sell any of the assets of the aforesaid company except for the purpose of making refunds to its investors, as directed above.

4. Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN- ATTPM4634Q), Mr. Ghanshyam Jashbhai Patel (PAN-ARJPP0156A) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872) are also directed to immediately submit the complete and detailed inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form.

5. Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN- ATTPM4634Q), Mr. Ghanshyam Jashbhai Patel (PAN-ARJPP0156A) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872) are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of 4 years.

6. In the event of failure by Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN-ATTPM4634Q), Mr. Ghanshyam Jashbhai Patel (PAN-

ARJPP0156A) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872), to comply with the directions in sub-paragraphs 1-4 above, the following action shall follow:

i. Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN- ATTPM4634Q), Mr. Ghanshyam Jashbhai Patel (PAN-ARJPP0156A) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872), shall remain restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities market, even after the completion of period of 4 years of restraint imposed vide sub-paragraph 5 above, till all the Collective Investment Schemes of Samruddha Jeevan Foods India Ltd are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them.

ii. SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against Samruddha Jeevan Foods India Limited, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and mis-appropriation of public funds; and iii. SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the company, Samruddha Jeevan Foods India Limited.

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

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

28. 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 Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN-ATTPM4634Q), Mr. Ghanshyam Jashbhai Patel (PAN-ARJPP0156A) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872), including other persons who are in default, for the violations as found in this Order.

29. With respect to 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 Chapter VI A of the SEBI Act against Samruddha Jeevan Foods India Limited (PAN-AAICS0865N) and its Directors, viz. Mr. Mahesh Kisan Motewar (PAN-AKMPM3895K), Mrs. Vaishali Mahesh Motewar (PAN-ATTPM4634Q), Mr. Ghanshyam Jashbhai Patel (PAN-ARJPP0156A) and Mr. Rajendra Pandurang Bhandare (DIN – 00054872).

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

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: September 02, 2015 Place: Mumbai