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    Synopsis: Arman (B.A.LL.B. (H) /2010/012)

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    Arman Das
    1) SEBI was established as an independent regulator to oversee India's securities market and protect investors. 2) In the 1990s, many plantation companies raised capital through collective investment schemes (CIS) with high returns but low disclosure, leading the government to give SEBI authority to regulate these schemes. 3) A committee examined CIS and defined their key characteristics. SEBI interprets CIS regulations broadly to include any scheme that pools public money, in order to facilitate market development and investor protection.

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    Synopsis: Arman (B.A.LL.B. (H) /2010/012)

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    Arman Das
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    1) SEBI was established as an independent regulator to oversee India's securities market and protect investors. 2) In the 1990s, many plantation companies raised capital through collective investment schemes (CIS) with high returns but low disclosure, leading the government to give SEBI authority to regulate these schemes. 3) A committee examined CIS and defined their key characteristics. SEBI interprets CIS regulations broadly to include any scheme that pools public money, in order to facilitate market development and investor protection.

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    1) SEBI was established as an independent regulator to oversee India's securities market and protect investors. 2) In the 1990s, many plantation companies raised capital through collective investment schemes (CIS) with high returns but low disclosure, leading the government to give SEBI authority to regulate these schemes. 3) A committee examined CIS and defined their key characteristics. SEBI interprets CIS regulations broadly to include any scheme that pools public money, in order to facilitate market development and investor protection.

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    Download as docx, pdf, or txt
    42 views3 pages

    Synopsis: Arman (B.A.LL.B. (H) /2010/012)

    Uploaded by

    Arman Das
    1) SEBI was established as an independent regulator to oversee India's securities market and protect investors. 2) In the 1990s, many plantation companies raised capital through collective investment schemes (CIS) with high returns but low disclosure, leading the government to give SEBI authority to regulate these schemes. 3) A committee examined CIS and defined their key characteristics. SEBI interprets CIS regulations broadly to include any scheme that pools public money, in order to facilitate market development and investor protection.

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    Arman [B.A.LL.B.(H)/2010/012] SEBI was established as a regulator and an arm of the state which was statutorily designed to be an independent and autonomous body to facilitate, develop and ensure order in the vast infrastructural network that constitutes the securities market in India. The SEBI Act, 1992 drafted so as to confer legislative and executive powers in order to effectively regulate the vast securities market. In its Preamble it determines the broad scope of action of the board. It provides an assurance to protect the interests of the investors. BACKGROUND OF THE SCHEME After a few years of its incorporation, it was observed that the private entrepreneurs started agro plantation activities on a commercial scale which was in conformation with the government policies of afforestation. But it was found that the promoters made very low investments. Therefore they devised a scheme to outsource the money from ordinary investors with high returns and minimum level of disclosure. The scheme was popularized in the rural areas and it was great success. The companies drew huge sums of money through this scheme which gave them the mobilising fund to start off.1 The government finally decided to put in place the instruments issued by these entities under the regulation of the board in order to protect the investors. The board was asked to draft regulations for these schemes which they referred as Collective Investment Schemes (CIS). Post the enforcement of these regulations, the investments were to be legitimately promoted. To finalize the drafting of the regulations, a committee was formed under the chairmanship of Dr.S.A.Dave. DAVE COMMITTEE REPORT2 The Dave Committee in its report, after analyzing the data provided and site visitations, concluded that the high returns suggested by the companies were not realistic always. An

    Report of The S.A.Dave Committee on Collective Investment Scheme, available at http://www.sebi.gov.in/commreport/collreport.html (accessed on 11.02.2012) 2 Id.

    independent study by the Gangadhar Committee (Ministry of Forestry) reported that the returns on the investment cannot be assured as there is no ready market for those products. The Committee defined Collective Investment Scheme to consist of three characteristics, namely - Pooling of Investments, Management by a separate entity and Absence of day to day control of the investors. They posed certain requirements for a company to qualify as Collective Investment Management Company (CIMC) as follows: 1. Any non independent director in the registered CIMC shall not hold the office of the director in another CIMC. This provision is to ensure avoidance of conflict of interest in business activities of separate entities. 2. The CIMC must inform SEBI about any material change in the information or particulars which may have a bearing on the approval granted it. 3. The CIMC would undertake to comply with the regulations notified by SEBI from time to time. 4. Any change in the controlling interest of the CIMC shall be subject to prior approval of the trustee, the Board and the unit holders. 5. The CIMC shall furnish such information and documents to the Trustee as and when required. 6. The payment of prescribed fee shall have to be made to the Board. The scope of CIS decided by the committee was incorporated in Sec.11AA of SEBI Act which defined Collective Investment Scheme (CIS) as:

    Money pooled and utilized in the scheme or arrangement, Contribution made with the view to receive profits or income etc., The property, contribution, or investment whether identifiable or not, Investors do not have day to day control over the management and operation.
    The question that arises in mind: What is the scope to interpret the CIS and intention of the board for such interpretation?

    In the Statement of Objects and Reasons of Securities Law (Amendment) Act, 1999, the definition of security was amended in order to include collective investment scheme where it was stated: Recently many companies especially plantation companies have been raising capital from investors...........it has been decided that the Securities and Exchange Board of India would frame regulations with regard to collective investment schemes. It is, therefore, proposed to amend the definition of securities so as to include within its ambit the derivatives and the units or any other instruments issued by any collective investment scheme to the investors in such schemes. SAT interpreted the CIS regulation with the intention to include the investors market in order to protect their investment. The CIS Regulation does not apply retrospectively but it makes mandatory for all existing CIS Schemes to get registered. 3 Non-redressal of a large number of investor complaints was also considered as a ground for rejection of provisional registration.4 The jurisdiction of the Board extends to the companies even who are unlisted. Thus any scheme which pools large amounts of public investment comes under the control of SEBI. In a recent judgment of the Calcutta High Court5, it was decided that any scheme launched by an unlisted company similar to CIS was violative of the SEBI Guidelines. The Ashirvad Scheme launched by the company pooled investment from the public which were mobilized to develop lands. Thus it came under the purview of the CIS Scheme and the CIS Regulations were violated. SEBI ordered Nicer Green Forests Ltd.6 to wind up the CIS as the activities of the company were found to be consistent with the features of a CIS, as defined under section 11AA of the SEBI Act, 1992 read with Regulation 3 of the SEBI (CIS) Regulations, 1999. Thus it can be concluded that the Board interprets the provisions with a broad scope so as to include most of the transactions which pools money for the investors to facilitate the development of the securities market and protection of investors.

    3 4

    Varindhan Forests Limited v. SEBI, Appeal No. 55/2001, SAT Order Dated 13.09.2002 Surabhi Agrotech Limited v. SEBI, Appeal No. 47/2001, SAT Order Dated 17.07.2002 5 Rose Valley Real Estates & Constructions Ltd. v. SEBI [2011] 106 SCL 598 (Cal) 6 Order of SEBI in Nicer Green Forests Ltd., available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1293431555181.pdf (accessed on 14.02.2012)

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