Osian’S -Connoisseurs Of Art Private ... vs Sebi

Order Reserved On: 30.06.2021 Date of Decision: 09.07.2021

Misc. Application No. 760 of 2021 And Misc. Application No. 761 of 2021 And Misc. Application No. 762 of 2021 And Appeal No. 442 of 2021

Osian's -Connoisseurs of Art Private Limited 24-B Nariman Bhavan, Nariman Point, Mumbai- 400 021 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051 ...Respondent

Mr. Vyapak Desai, Advocate with Ms. Payel Chatterjee, Mr. Mohammad Kamran, Mr. Adimesh Lochan and Ms. Lakshmi Narayan, Advocates for the Appellant.

Mr. Abhiraj Arora, Advocate with Ms. Rashi Dalmia and Mr. Karthik Narayan i/b. ELP for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Justice M. T. Joshi, Judicial Member

Per: Justice Tarun Agarwala, Presiding Officer 2

ORDER:

1. The appellant has filed the present appeal against the

order dated May 28, 2021 passed by the Whole Time Member

("WTM" for convenience) of the Securities and Exchange

Board of India ("SEBI" for convenience) whereby certain

directions have been issued to refund the amount within six

months along with interest.

2. The facts leading to the filing of the present appeal is,

that the appellants launched a scheme/ fund in 2006 known as

"The Osian's Art Fund Scheme Contemporary-1" by way of

subscription from private investors to enable the appellant to

make investments in artworks. In this process the appellants

raised a sum of Rs. 102.40 crores from 656 investors. This

scheme ended in July 2009.

3. Certain complaints were made by some investors based

on which SEBI made an inquiry and, on January 31, 2011

closed the complaint on the ground that it does not come within

its purview. Subsequently, SEBI had second thoughts and

contended that the fund launched by the appellant was nothing

but a Collective Investment Scheme ("CIS") and, accordingly, a 3

show cause notice was issued. The WTM by an order of April

13, 2013 held that the fund launched by the appellant was a CIS

scheme which was not registered and therefore it was violative

of Section 12(1)(B) of the SEBI Act read with Regulation 3 of

the SEBI (Collective Investment Scheme) Regulations, 1999.

An appeal against this order being Appeal No. 62 of 2013 was

filed which was partly allowed by this Tribunal by an order

dated October 13, 2015. This Tribunal upheld the finding that

the fund launched by the appellants was nothing but a CIS but

did not accept the finding on the interest imposed by the WTM.

This Tribunal held that on account of delay made on the part of

the SEBI the appellant cannot be burdened with the payment of

interest for the entire period. The matter was accordingly

remanded to the WTM to decide quantum of the amount of the

refund as well as the interest. For facility paragraph 35 and 36

of the order of the Tribunal is extracted hereunder:-

"35. Thus, it is evident that even after issuing show cause notice in the year 2007, SEBI did not adjudicate the same, because even according to SEBI the scheme was not covered under CIS. Thus decision of SEBI that the scheme in question does not fall within the purview of SEBI held the field till SEBI changed its stand and passed the impugned order on April 15, 2013. In 4

such a case, for the error committed by SEBI in misconstruing its own regulations and for the inordinate delay on part of SEBI in arriving at correct conclusion whether the appellant can be penalized by directing to refund the amount with interest at the rate of 10% from the date of investment needs consideration, especially when the scheme has come to an end in the year 2010 and the terms of the said scheme neither offered guaranteed return nor offered interest on the amount invested. Although regulation 65 of CIS Regulations empower SEBI to direct refund with interest in appropriate cases, how in the facts of present case, directing refund of the amount invested with interest is justified, is not set out in the impugned order. Explanation given by the appellant that due to recession in the market the art works could not be sold at a profit is not doubted in the impugned order. In such a case, it is not known as to on what basis direction to pay amount of profits/income to the investors is given. Even counsel for respondent no. 2 finds fault with the impugned order, and submits that the WTM has not done the work of ascertaining the profits if any, at the time when the scheme ended and further submits that NAV (ex-income) ought to have been taken into consideration by the WTM while passing the impugned order.

5 36. In these circumstances, while upholding the impugned order of SEBI to the extent it holds that the scheme operated by the appellant during the period from 2006 to 2010 constituted CIS, we set aside the directions contained in the impugned order to the extent it directs the appellant to refund the monies collected by it under the said scheme but remaining unpaid to all the investors and also set aside the direction given by SEBI to the appellant to pay profits/income due to the investors or pay interest at the rate of 10% per annum from the date of investment till the date of refund, whichever is higher and direct SEBI to decide those issues afresh after affording an opportunity of hearing to the appellant and the respondent no. 2."

4. The appellant filed Civil Appeal before the Supreme

Court which was eventually dismissed as withdrawn by an order

dated 12.02 2020 of the Supreme Court. As a result, the order

of the Tribunal became final and the finding that the fund

launched was a CIS became final.

5. It may be stated here that similar appeals were also filed

by other entities before the Supreme Court which was decided 6

by an order dated 12.02.2020 in Civil Appeal No. 19936 of

2017 Pravin Gandhi vs. SEBI which related to the scheme of

Yatra Art Fund Pvt. Ltd. In this judgment, the Supreme Court

upheld the decision of this Tribunal with regard to the CIS

scheme and instead of remanding the matter with regard to

computation of the amount to be refunded and the payment of

interest, the Supreme Court considering the long lapse of time,

passed the order for payment of the balance amount within six

months and further directed payment of interest at the rate of 10

% per annum from the date when the principal amount became

due till the closure of the fund within nine months.

6. The WTM on the basis of the directions given by this

Tribunal in its order dated October 13, 2015 and after

considering the order of the Supreme Court dated 12.02.2020 in

the matter of Pravin Gandhi held that the appellant had collected

Rs. 1,02,40,00,000/- and had refunded a sum of

Rs. 30,86,62,832/-. The WTM accordingly directed the

appellant to refund the balance principal amount within six

months and further direct to pay interest from the date when the

refund became due till the closure of the scheme within nine 7

months. For facility paragraph 16 of the impugned order is

extracted hereunder:-

"16. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11 and 11B read with Section 19 of the SEBI Act, 1992 and Regulation 65 of CIS Regulations, hereby issue the following directions:

a. Osian shall refund the balance amount to remaining investors. Osian shall also pay on the total principal amount collected from each of the remaining investors, an interest at the rate of 10% per annum, from the date when amount to such investors first became due and till the date of closure of its scheme. The aforesaid balance amount shall be refunded within a period of Six months from the date of this order and the aforesaid interest on total amount shall be paid within a period of Nine months from the date of coming into force of this order.

b. Osian shall file winding up and repayment reports, duly certified by an auditor, to SEBI in the format provided under SEBI (Collective Investment Schemes) Regulations, 1999, along with the trail of funds claimed to be so refunded, bank account statements indicating refund to the investors and receipt from the 8

investors acknowledging such refunds, within a period of 15 days after the expiry of aforesaid Six months and Nine months period, respectively, as referred in para 16(a) above. These reports shall be forwarded by Osian to "The Division Chief, EFD, DRA-3, Securities and Exchange Board of India, SEBI Bhawan, Plot NO. C4 A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400051.

c. Osian shall not alienate or dispose of or sell any assets except for the purpose of making refund to its investors, as directed above.

d. SEBI, on failure of Osian Capital Art Fund, to effect the refunds as directed in the para 16(a) or to file reports as directed in para 16(b), above, within the period provided thereunder, shall recover such amounts, in accordance with Section 28A of the SEBI Act, 1992.

e. Other directions, as contained in paragraph 45(b) and (c) of the SEBI order dated April 15, 2013 passed against the Noticees shall remain intact and be mutatis mutandis enforced against the Noticee subject to the directions given above.

9 f. The direction in para 16(c) above shall cease to operate once Osian has complied with the directions in para 16(b) above."

7. We have heard Shri Vyapak Desai, the learned counsel

for the appellant and Shri Abhiraj Arora, the learned counsel for

the respondent.

8. The only contention raised by the learned counsel for the

appellant was that the direction to pay interest at the rate of 10%

per annum was wholly illegal and against the teeth of the

directions given by this Tribunal in its order of October 13,

2015. It was contended that this Tribunal came to a specific

conclusion that the appellant cannot be fastened with the

liability of payment of interest on account of delay made by

SEBI in the initiation of the proceedings. It was thus contended

that on a reading of paragraph 35 and 36 of the order of this

Tribunal it would be apparently clear that the Tribunal had

specifically directed that no amount of interest could be paid.

9. We have perused the order of this Tribunal dated

October 13, 2015 as well as the order of Supreme Court in the

case of Pravin Gandhi. We are constrained to observe that the

arguments raised by the learned counsel for the appellant does 10

not hold any water. The WTM in its earlier order had directed

payment of interest at the rate of 10% per annum from the due

date till the amount is refunded. It was in this regard, that this

Tribunal held that payment of interest cannot be saddled upon

the appellant on account of the inordinate delay made by SEBI

in initiating the proceedings. This factor was considered, and

accordingly, the Supreme Court in the case of Pravin Gandhi

culled out the payment of interest to be paid from the date when

it became due till the date of the closure of the fund and

accordingly directed that 10% interest should be paid within

nine months. Same direction has been given by the WTM in the

impugned order.

10. In the light of the aforesaid, we do not find any error in

the directions issued by the WTM with regard to payment of the

balance principal amount which is not disputed by the appellant

before us and the payment of interest at the rate of 10% per

annum from the date when it became due till the closure of the

scheme which is in consonance with the directions given by the

Supreme Court in the case of Pravin Gandhi. The appeal

accordingly fails and is dismissed with no order as to cost. 11

Misc. Application Nos. 760, 761 and 762 of 2021 are also

disposed of accordingly.

11. The present matter was heard through video conference

due to Covid-19 pandemic. At this stage it is not possible to sign

a copy of this order nor a certified copy of this order could be

issued by the Registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of the bench

and all concerned parties are directed to act on the digitally

signed copy of this order. Parties will act on production of a

digitally signed copy sent by fax and/or email.

Justice Tarun Agarwala Presiding Officer

Justice M. T. Joshi Judicial Member 09.07.2021 RAJALA Digitally by signed

PK KSHMI NAIR RAJALAKSHMI H

Date: 2021.07.13 H NAIR 10:43:11 +05'30'