Mobilizing funds for purchase of future land and pre-booking of plots constitutes Collective Investment Scheme

Security and Exchange Board of India (SEBI): In a setback to Adel Landmarks Limited, a real estate enterprise,
the SEBI directed the company and its directors to refund the money collected
from the public under
its ‘pre-booking of plots’ scheme. Adel, without registration and approval
under SEBI’s Collective Investment Schemes (CIS) Regulations, collected the
money from the public for purchase /acquisition of future land for development
of residential colonies. Adel contended that it collected the money for
pre-booking of plots being developed on the land already owned by it either
directly or through subsidiaries. The SEBI through its whole time member, on
the other hand, examining the agreements by Adel with perspective buyers and
other materials on record found that Adel was pooling money to purchase future
land which amounts to scheme/arrangement under S. 11AA(2)(i) of the SEBI Act,

He observed that the Company has solicited
investments with a promise of refund of investment amount along with return in
the nature of compensation. Hence, the second condition, which stipulates 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 as
stipulated in Section 11AA (2) (ii) of the SEBI Act is satisfied. He ruled that
agreements with the investors do not identify exact plot/land; and till the
sale deeds are executed the control of land will be with Adel, therefore the
third and fourth conditions to constitute a scheme as CIS stipulated in Section
11AA(2)(iii) and (iv) of the SEBI Act are satisfied. He held that Adel has
launched a CIS without obtaining certificate of registration from SEBI; thereby
it has contravened the provisions of Section 12(1B) of the SEBI Act and
Regulation 3 of the CIS Regulations. Adel and its directors are also found
guilty under regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and
Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

The order restrained Adel from accessing the
securities market and prohibited from buying, selling or otherwise dealing in
securities market for a period of 4 years. Criminal proceeding under 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 may also be initiated against Adel and its
director for indulging into fraudulent practices. [In re Adel Landmarks Limited, Case No. WTM/PS/61/IMD-CIS/NRO/OCT/2015,
decided on 07.10.2015]
Source: Legal news India

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