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 (accessed on 11.02.2012) 2 Id.

The scope of CIS decided by the committee was incorporated in Sec. The Committee defined Collective Investment Scheme to consist of three characteristics.  The property. or investment whether identifiable or not. They posed certain requirements for a company to qualify as Collective Investment Management Company (CIMC) as follows: 1. 3.11AA of SEBI Act which defined Collective Investment Scheme (CIS) as:  Money pooled and utilized in the scheme or arrangement. the Board and the unit holders.  Contribution made with the view to receive profits or income etc. 6. The payment of prescribed fee shall have to be made to the Board. contribution.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. 2. The CIMC shall furnish such information and documents to the Trustee as and when required. The CIMC would undertake to comply with the regulations notified by SEBI from time to time. Any change in the controlling interest of the CIMC shall be subject to prior approval of the trustee. This provision is to ensure avoidance of conflict of interest in business activities of separate entities..  Investors do not have day to day control over the management and operation. 5. namely . Management by a separate entity and Absence of day to day control of the investors. The question that arises in mind: What is the scope to interpret the CIS and intention of the board for such interpretation? . Any non independent director in the registered CIMC shall not hold the office of the director in another CIMC. The CIMC must inform SEBI about any material change in the information or particulars which may have a bearing on the approval granted it. 4.Pooling of Investments.

. In a recent judgment of the Calcutta High Court5..4 The jurisdiction of the Board extends to the companies even who are unlisted. 1999..In the Statement of Objects and Reasons of Securities Law (Amendment) Act. v.. 47/2001.. Appeal No. Thus it came under the purview of the CIS Scheme and the CIS Regulations were violated. 1999. 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.07. The Ashirvad Scheme launched by the company pooled investment from the public which were mobilized to develop lands. available at http://www. The CIS Regulation does not apply retrospectively but it makes mandatory for all existing CIS Schemes to get registered..02. as defined under section 11AA of the SEBI (accessed on 14. SAT Order Dated 13. therefore. Appeal has been decided that the Securities and Exchange Board of India would frame regulations with regard to collective investment schemes.2002 5 Rose Valley Real Estates & Constructions Ltd... 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. Thus any scheme which pools large amounts of public investment comes under the control of SEBI. SEBI [2011] 106 SCL 598 (Cal) 6 Order of SEBI in Nicer Green Forests Ltd.” SAT interpreted the CIS regulation with the intention to include the investors‟ market in order to protect their investment.6 to wind up the CIS as the activities of the company were found to be consistent with the features of a CIS.. SEBI. It is. 55/2001.2012) . 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.sebi. SAT Order Dated 17. SEBI ordered Nicer Green Forests Ltd. it was decided that any scheme launched by an unlisted company similar to CIS was violative of the SEBI Guidelines. 3 4 Varindhan Forests Limited v.2002 Surabhi Agrotech Limited v. 1992 read with Regulation 3 of the SEBI (CIS) Regulations. 3 Non-redressal of a large number of investor complaints was also considered as a ground for rejection of provisional registration.

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