Collective Investment

Schemes An
Overview
Vinod Kothari
Vinod Kothari & Company
1012 Krishna
224 AJC Bose Road
Kolkata 700017
Phone 033-22811276/
22813742/ 22817715
601C, Neelkanth,
98, Marine Drive,
Mumbai-400002
Phone: 022-22817427
www.vinodkothari.com
Email: vinod@vinodkothari.com
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2
About Us
Vinod Kothari & Company,
Company Secretaries in
Practice
Based out of
Kolkata, Mumbai
We are a team of
consultants, advisors &
qualified professionals having
recently completed 25 years of
practice.
3
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Related Articles
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Articles on Venture capital and PE: http://india-
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capital.html
Article on CIS: http://india-
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Articles on bonds and debentures at other articles
on bonds and debentures at http://india-
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Articles on NBFCs at http://india-
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4
Various small savings schemes
Household savings in India
6
Household savings in India
(As per cent of GDP at current market prices)
2011-12 2012-13
1 Currency 1.6 1.6
2 Bank deposits 8.6 8.8
3 Non- banking deposits 0.1 0.1
4 Life insurance fund 2.9 2.9
5 Provident and pension fund 1.7 1.7
6 Claims on Government 0.8 0.8
7 Shares & debentures 1.2 1.3
8 Gross Financial Assets (1 to 7) 16.8 17.1
9 Gross Financial Liabilities 5.1 5.2
10 Net Financial Savings (8 9) 11.7 11.9
11 Physical Savings 11.5 11.7
12 Household total Savings (10+11) 23.2 23.6
Source: http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=662#4
Government savings schemes
Name of The
Scheme
Limits of Investment
Amount
Outstanding at
end-Mar.2011 P
(Rs. Billion)
Since Sep.2,
1993
Post Office
Savings Bank
Accounts
Minimum Rs.50 and Maximum Rs. 1,00, 000 for an
Individual Account (Rs. 2 lakh jointly)
301.01 #
Public Provident
Fund 1968
Minimum Rs 500 and Maximum Rs. 70,000 in a Fiscal
Year
315.83 15
Post Office Time
Deposit Account
Minimum Rs 200 and no Maximum Limit 284.45 1,2,3 and 5
Post Office
Recurring Deposit
Account
Minimum Rs 10 per month or Any Amount in Multiples
of Rs. 5 and No Maximum Limit
612.5 5
National Savings
Scheme 1992
Minimum Rs.100 and No Maximum Limit 4.78 4
Post Office
Monthly Income
Scheme
Minimum Rs 1500 and Maximum Rs 4.5 Lakh in Single
Account and Rs. 9 Lakh in Joint Account
2186.74 6
NSC VIII issue Minimum Rs. 100 and No Maximum Limit 546.42 6
Indira Vikas Patra No Limit 10.2 5 1/2
Kisan Vikas Patra Minimum Rs.100 no Maximum Limit 1585.84 5 1/2
Senior Citizens
Saving Scheme
Minimum Rs 1.000 and Maximum Rs.15 Lakh 309.13 -
7
Various collective investment devices
8
Collective
investment
devices
Corporate
form
Issue of
securities
Deposits
Non
corporate
form
public
Collective
investment
schemes
Mutual
funds
Private
Portfolio
management
Alternative
investment
funds
Mutual
saving
schemes
Chit funds
Nidhis
Barred
devices
State-wise investments in small
savings in Government Securities*
State 2007-08 2008-09 2009-10
Andhra Pradesh 387 323 1531
Arunachal
Pradesh
27 24 54
Assam 72 115 163
Bihar 847 793 1852
Chhattisgarh 81 68 253
Goa 114 49 175
Gujarat 915 671 3829
Haryana 172 107 806
Himachal Pradesh 158 103 468
Jammu and
Kashmir
62 43 127
Jharkhand 169 178 863
Karnataka 388 114 661
Kerala 180 13 72
9
* Source: http://finmin.nic.in
State-wise investments in small savings in
Government Securities contd..
State 2007-08 2008-09 2009-10
Madhya Pradesh 246 71 810
Maharashtra 2188 1538 4314
Manipur 203 203 2
Meghalaya 12 11 69
Mizoram 0 0 12
Nagaland 1 2 6
Orissa 169 161 756
Punjab 729 190 1576
Rajasthan 105 63 144
Sikkim 0 0 0
Tamil Nadu 534 62 695
Tripura 16 3 64
Uttar Pradesh 1956 1213 4985
Uttaranchal 230 189 777
West Bengal 1470 1654 7992
Delhi 746 429 1769
Pondicherry 16 22 38
10
Small Savings in West Bengal
11
-2000
0
2000
4000
6000
8000
10000
12000
1
9
9
2

1
9
9
3

1
9
9
4

1
9
9
5

1
9
9
6

1
9
9
7

1
9
9
8

1
9
9
9

2
0
0

2
0
0
1

2
0
0

2
0
0

2
0
0

2
0
0
5

2
0
0

2
0
0
7

2
0
0

2
0
0

2
0
1
0

2
0
1
1

Net collections of small

savings in West Bengal (Rs
*Source: West Bengal Economic Survey 2012-13
CISs: Actions againts defaulting
companies*
As on December, 2012, there were 171 CIS companies against
which court proceedings have been initiated
Penalty imposed in such from 30,000/- t0 10,00,000/-
(depending upon the money mobilized in contravention of the
CIS Regulations)
Rigorous imprisonment up to 6 months
Recently, in March, 2013, proceeding against a company
named Maitreya Services Pvt Ltd and all its directors have
been barred
Charges like offences of fraud, cheating, criminal breach of trust
and misappropriation of public funds have been filed
As per SEBIs latest data, around 664 entities collected Rs
3,518 crore in 1998-99
Among these 75 wound up their schemes and returned money to
investors
Prosecution action has been launched against remaining 589
entities
12
*Source: www.sebi.gov.in
An Overview
13
Overview of regulatory framework
Pooling of
Money by way
of:
Deposits
Deposit Rules,
NBFC Guidelines
Issue of
securities
Refer next
slide
CIS
Publicly
offered
SEBI CIS
Regs
Privately
offered
SEBI AIF
Regs
Mutual Funds MF Regs
Money
circulation
schemes
Prize Chit and Money
Circulation Schemes
(Banning) Act
Chit funds Chit Fund Act
Non
Corporate
Bodies
Prohibited
14
Issue of Securities
To 49 or less:
Privately placed issue
To 49 or more [proviso to section 67 (3)]:
Deemed public issue
Issue of prospectus and other public issue formalities to apply
Whether deemed public offer rule apply to NBFCs?
As per general definition of a public offer, offer resulting into
securities being available to a person other than the one to whom
the offer was made is regarded as public offer, applies to all
companies.
Hence, in our view, rule applies to NBFCs also
However, taking benefit of the proviso, many chit funds use
NBFC to raise money
generally through debentures which are neither covered by
Deposit Rules nor comes into public offer due to proviso to sec
67(3)
15
Issue of Debentures (depending on nature of
the issuing company)
Debenture
issue
By Public
Cos
NBFC
Issue to 50
or more
sec 67 does
not apply
But issue
will be
public issue
Issue up to
49
Pvt offer
NBNC
Issue to 50
or more
Deemed
public offer
Issue up to
49
Pvt offer
By Private
Cos
cannot
issue to
public
16
Issue of Debentures (by NBNCs) When
Deposit?
Debentures
Secured by
Mortgage of
immovable
property
Issue on or
before March
20, 2013 -
Exempted
Mortgage of
fixed assets*
Having MV
more or equal
to issue size
Exempted
Any other
case
Deposit Rules
apply
Any other
case
Deposit Rules
apply
Unsecured
Convertible
Exempted
Non
Convertible
Deposit Rules
apply
17
*As per MCA Notification dated March 21, 2013
18
Issue of Debentures by NBFCs- When Public
Deposit?
Debentures
Secured by
Mortgage of
immovable
property
Having MV
more or
equal to issue
size
Exempted
Any other
asset
Having MV
more or
equal to issue
size
Exempted
Any other
case
Directions
apply
Unsecured
Convertible
Exempted
Non
Convertible
Directions
apply
Meaning of Deposit
Simple meaning: money given/taken in advance to
execute a monetary transaction
Sec 45I(bb) of RBI Act provides inclusive definition
as to include any receipt of money by way of deposit
or loan or in any other form but excludes:
amounts raised by way of share capital;
amounts contributed as capital by partners of a firm;
amounts received from banks and financial
institutions
amounts received by way of security deposit or
advance against orders
any amount received from a registered money lender
any amount received by way of subscriptions in
respect of a chit.
19
Meaning of Public Deposit
Paragraph 2(i)(xii) of NBFC Directions defines public deposit as a
deposit as defined by RBI Act but further excludes:
Amount received from Public financial institutions
Amount received from any other company
Share/debenture application money
Amount received from directors, or shareholders in case of a private
company
Amount received by issue of secured mortgage bonds, or convertible
bonds
Promoters loans brought according to loan agreement with term lending
institutions
Amount received from mutual funds
Hybrid debt or subordinated debt, maturity not less than 60 months
Amount received on issue of commercial papers
Any amount received by SI-NBFC-ND by issuance of 'perpetual debt
instruments' in accordance with the rules framed by the RBI from time
to time.
20
In-substance Deposit
Money to money transactions to be treated as in-
substance deposit
Generally, where there exists debtor-creditor
relation
Some examples are:
Share application money lying un-allotted for long
time
Advances received without any purpose
Subscription money received for issue of
preference shares
21
Deposits: Rules applicable
RBI Act, 1934
Companies (Acceptance of Deposits) Rules, 1975
Under these, companies can accept deposits upto 10%
of capital and free reserves
Minimum NOF of 1 crores required
A maximum of 12.5% interest can be charged
NBFC Acceptance of Public Deposit (Reserve Bank)
Directions, 1998
NBFC-D can accept upto 10 times of its NOF
Minimum credit rating: investment grade
Capital Adequacy: 15%
Rate of interest max. 12.5% or as specified from time
to time
22
Collective Investment Schemes
(CIS): Meaning
Scheme or arrangement made or offered by any
company
under which the contributions, or payments made
by the investors are pooled and utilised with a
view to receive profits, income, produce or
property
is managed on behalf of the investors.
Investors do not have day to day control over the
management and operation of such scheme or
arrangement.
23
Schemes not treated as CIS
scheme or arrangement made or offered by a co-operative society;
scheme or arrangement under which deposits are accepted by
NBFCs;
scheme or arrangement being a contract of insurance to which the
Insurance Act, applies;
scheme or arrangement providing for any Scheme, Pension Scheme
or the Insurance Scheme framed under the Employees Provident
Fund and Miscellaneous Provisions Act, 1952
scheme or arrangement under which deposits are accepted under
section 58A of the Companies Act, 1956;
scheme or arrangement under which deposits are accepted by a
company declared as a Nidhi or a mutual benefit society under
section 620A of the Companies Act, 1956;
scheme or arrangement falling within the meaning of Chit business
as defined in section 2(d)of the Chit Fund Act, 1982;
scheme or arrangement under which contributions made are in the
nature of subscription to a mutual fund;
24
SEBI (Collective Investment Schemes)
Regulations, 1999
25
Eligibility Conditions
applicant is set up and registered as a
company under the Companies Act, 1956
applicant has a net worth of not less than Rs.
5 crores
managing of collective investment scheme as
one of its main objects is states in its MoA
Atleast 50% directors shall be independent
CIS company is not the trustee of any CIS
SEBI CIS Regulations contd..
26
Obligations before the launch of
any scheme
Scheme to be approved by trustee
Registered as debenture trustee are
eligible to be appointed as trustees
Appraisal by an appraisal agency and
credit rating by any such agency.
Duration of schemes shall not be less than
3 days
No scheme shall provide guaranteed or
assured returns
Scheme to be open for not more than 90
days
All unit certificates to be freely transferable
Listing of schemes allowed, if mentioned in
the offer document
Disclosures
An annual report and annual
statement of accounts to be
prepared in respect of each
financial year
within two months from the
date of closure of each
financial year forward to SEBI
a copy of the Annual Report
Publish unaudited results
within 1 month of end of each
quarter in newspapers
SEBI CIS Regulations contd..
27
Terms and
conditions
after issue
of
certificate
inform
SEBI of any
material
change
director to
be appointed
with prior
approval of
the trustee
no change in the
controlling
interest without
prior approval of
SEBI , trustee
and 50% unit
holders
grievances
redressal
within 1month
SEBI CIS Regulations
Restrictions on business activities
undertake any activity other than that of managing the scheme
act as a trustee of any scheme
launch any scheme for the purpose of investing in securities
invest in any schemes floated by it
Obligations of CIS company
be incompetent to enter into any transaction with or through its
associates or relatives relating to the scheme
give receipts for all monies received by it and give a report to
SEBI every month, particularly of receipts and payments
hold a meeting of its BoD at least twice in every three months
obtain adequate insurance against the property of the scheme
28
Meaning of Alternate Investment
Funds (AIFs)
A fund
established or incorporated in India in the form of
a trust or a company or a limited liability
partnership or a body corporate which:
is a privately pooled investment vehicle collecting
funds from investors, Indian and foreigners, both
is not a MF or any other fund as regulated by SEBI
29
AIFs: Categories
Depending upon the activities in which
investment can be made and on the basis of
power to borrow, AIFs has been divided into:
Category 1 AIF: investing in starting or early stage
ventures
Eg. social venture funds, SME funds, and infrastructure
funds
Category 2 AIF: which cannot borrow except for day to
day operations
Eg.,PE funds
Category 3 AIF: employing diverse or complex trading
strategies
eg., hedge funds, real estate funds, venture capital funds
30
Features of an AIF
An investment vehicle
Must be engaged in investment activities with an objective of
generating a rate of return, other than by carrying on a
substantive activity
Segregating ownership of money and management of money
Pooling of money not in form of ownership capital
Vehicle pooling money from persons other than its own
shareholders is an AIF
Collective and Managed vehicle
A fund managed by managers and a commingled pool of money
that collectively makes investment
Private vehicle
Raising and pooling money on private placement basis
However, no. of investors may go up to 1000
Therefore, pvt placement will mean that accepting of offer by
person to whom offer was made
31
AIF and CIS
AIFs:
Almost same as a CIS
But pooling money on private placement basis
CIS:
Engaged in pooling of money through public
offers
32
AIFs and VCFs
AIFs:
Privately pooled investment vehicle
AIF Regulations defines VCFs as an AIF investing
in unlisted securities of emerging business models
VCFs:
VCF Regulations were loose regulations resulting
in AIF regulations
A VCF is a fund raising and investing money in
terms of VCF Regulations
33
Who cannot be an AIF?
34
family trusts
set up for the
benefit of
relatives
employee
welfare trusts
or gratuity
trusts
Other SPVs not
established by
Fund
managers, secur
itization trust
ESOP Trusts
holding
companies as
per Companies
Act
Funds managed
by securitisation
company or
reconstruction
co.
Any such pool of funds which is directly regulated by any other
regulator in India
AIFs: Registration procedure
35
Application
Application in Form A
Accompanied by non-refundable application fee as specified
in Part A
In the manner as in Part B
Requirements
Board to consider all the requirements laid down in AIF
Regulations for the purpose of grant of certificate
Validity
Certificate of registration to be valid till the AIF is wound up.
AIFs: General investment
conditions
36
Companie
s outside
India
AIFs may invest in securities of companies incorporated
outside India subject to such conditions
Category
I, II and
III
Category I and II to not invest more than 25% of corpus in one investee
company
Category III to invest not more than 10% of corpus in one investee company
Un-
invested
portion?
Un-invested portion of the corpus may be invested in liquid mutual funds
or bank deposits or other liquid assets of higher quality till deployment of
funds as per the investment objective.
Thus, AIFs can invest funds according to their investment objectives
states in IM. In case of the un-invested portion, may be invested in liquid
assets
Mutual Funds: Meaning
A fund
registered
under MF
Regulations
established in the
form of a trust
to raise monies
through the sale of
units to the public
under its schemes
for investing in
securities including
money market
instruments or
gold or gold related
instruments or real
estate assets
37
Mutual Fund Regulations, 1996
Eligibility criteria
sponsor should have a sound track record and general reputation
of fairness and integrity in all his business transactions
Sponsor contributes at least 40% to the net worth of the AMC
appointment of trustees, AMC , custodian
Application for registration
Ensure that main objects of company allow carrying on of mutual
fund activities
Submit the following along with Form A:
complete list of group/associate companies registered with SEBI
in any capacity
Whether any of the sponsor or its group/associate companies is
listed?
Details of any disciplinary action taken by RBI against the
sponsor or group/associate companies
38
Mutual Fund Regulations, 1996
contd..
39
Mutual fund may invest only in:
securities;
money market instruments;
privately placed debentures;
securitised debt instruments, which are either
asset backed or mortgage backed securities;
gold or gold related instruments;
Real estate assets
Investment
obligations
Not to borrow except to meet temporary liquidity
needs for the purpose of repurchase, redemption
of units or payment of interest or dividend to the
unitholders
Not to advance loans for any purpose
Restrictions on gold exchange traded fund scheme
provided separately.
Restrictions
40
What are chit funds
The recent happenings in West Bengal (Sharadha
scam and political bickerings thereafter) have
painted the chit fund industry shady.
Periodically, the chit fund industry has faced similar
episodes
Chit funds are perfectly legal, regulated instrument
Declining over the past few years, but prevalent
mainly in Andhra Pradesh, Karnataka, Tamil Nadu
and Kerala. To some extent in Delhi
Unregulated, informal chit funds are countless
41
Chit funds are mutual savings
associations
Chit funds are what is globally known as
Rotating Savings and Credit Associations.
These prevail in many countries.
In Germany and Austria, Bausper-kassen is a well
regulated model for mortgage financing
In India, these are known by various names such
as chit funds, kuries, Nidhis, mutual benefit
companies, etc
42
Number of Chit Fund Companies*
As on November 6, 2008, number of registered chit
fund companies: 10269
As on date, number has fallen down to 4256
*Source: www.mca.gov.in
43
Chit Funds
The central act is The Chit Funds Act, 1982
Having overriding effect on other acts and
MOA/AOA of companies
State wise laws prevalent
Following states have their own laws:
Karnataka
Tamil Nadu
Delhi (U.T.)
44
Chit Funds: Meaning
Meaning of Chit:
a transaction by whatever name
wherein a person enters into an agreement with a
specified number of persons
every one of them shall subscribe a certain sum of
money by way of periodical installments over a
definite period and
that each such subscriber shall, in his turn, as
determined by lot or by auction or in any other
manner as in the chit agreement, be entitled to the
prize amount.
45
Transactions not treated as Chit
Transactions not to be treated as chit if in such
transaction:
some alone (not all) of the subscribers get the
prize amount without any liability to pay future
subscriptions, or
all the subscribers get the chit amount by turns
with a liability to pay future subscriptions
46
The Chit Funds Act, 1982
47
A
p
p
l
i
c
a
t
i
o
n

p
r
o
c
e
s
s1. Application for the
conduct of chit fund to
be made to the State
Government.
2. Certificate of
commencement shall be
provided after all the
tickets specified in the
chit agreement are fully
subscribed and the
Registrar is intimated of
the same.
F
o
r
m
a
t

o
f

C
h
i
t

A
g
r
e
e
m
e
n
t
1. Shall be in duplicate
and signed by each of
the subscribers and the
foreman.
2. Every chit agreement
to be registered with the
Registrar of Chit
R
e
q
u
i
r
e
m
e
n
t
s1. Paid up capital of not
less than Rs. 1 lakh
2. Create and maintain a
reserve and transfer a
sum not less than 10%
of such profit.
3. No foreman to
continue chit business if
the aggregate chit
amount exceeds Rs. 25
lakhs
4. Minutes of
proceeding of each draw
to be filed with the
Registrar within 21 days
from the date of draw.
Chit Funds registration in Delhi
Documents to
be submitted
Bank certificate for deposit of Rs. 1,00,000/- as paid-up capital
MOA, AOA, e-form 2, 18, 32
Resolution for appointment of foreman of the company
Net-worth certificate issued by CA of the company in respect of all the Directors
Balance sheet(s) of the company
Framing of
bye laws
Submit following particulars
name under which chit business is done
full details of the working of the chit
area of operation of the chit
mode of custody and investment of money.
rate of commission to which the foreman is entitled
Other
obligations
Change in registered office or director to be filed in e-form 18, 32
and submitted
Chit can be pre-terminated if all the non-prized and unpaid
subscribers consent in writing to the termination or foreman being
an individual dies
48
Money Circulation Schemes:
Meaning
Any scheme, by whatever name called,
for the making of quick or easy money, or for the
receipt of any money or valuable thing as the
consideration for a promise to pay money
on any event or contingency relative or applicable
to the enrolment of members into the scheme,
whether or not such money or thing is derived
from the entrance money of the members of such
scheme or periodical subscriptions
Such schemes are BANNED
49
Prize Chit: Meaning
Includes any transaction or arrangement by whatever name called
under which a person collects through foreman, agent or in any other
capacity,
Monies by way of :
contributions or subscriptions or
by sale of units, certificates or other instruments or
as membership fees or admission fees or
service charges
in respect of any savings, mutual benefit, thrift, or any other scheme or
arrangement and
utilises the monies so collected for following purposes:
specified number of subscribers as determined by lot, draw or in any other
manner, prizes or gifts in cash or in kind
not won any prize or gift, the monies collected, with or without any
bonus, premium, interest or other advantage, on the termination of the
scheme
Such chits are BANNED
50
Money Circulations Schemes:
Examples
Multi level marketing or network marketing schemes
ways to sell the products directly to the consumers in which
the salesmen are compensated not only for the work done
by them but also for the sales of people who have joined the
company through them
Pyramid Schemes
non-sustainable business which involves payments to
participants primarily to recruit other people into the
scheme and there is no real investment or sale of products
Ponzi Schemes
returns are paid to investors from their own money or
money of subsequent investors rather than actual profit
earned.
51
Penalties provided in
Regulations/Acts
52
Chit Funds: Penalty for violations
53
In Delhi
Starting any chit group without
registration of Bye-laws by the R.C.F. Delhi
Imprisonment for a term which may
extend to one year or with fine which may
extend to Rs.500/- or both.
Inviting the public to subscribe in a chit
group, the Bye-laws of which are not
registered with R.C.F. , making false
statement
Not filing chit agreement Punishable with fine which may extend to
one hundred rupees.
Not filing copy of the entry with the R.C.F.
Delhi regarding substitution/removal of
subscriber
For not furnishing proper security duly
pledged with the RCF Delhi before the
commencement of chit group
For not depositing the unpaid amount of
subscription in the Statutory Deposit A/C.
of an approved bank in respect of a non-
prized subscriber.
MFs: Penalty for violations
54
Mutual Funds
Fails to furnish any information or
furnishes wrong information relating
to its activity as a mutual fund as
required
Shall be dealt with in the manner
provided under the Securities and
Exchange Board of India (Procedure
for Holding Enquiry by Enquiry Officer
and Imposing Penalty)
Regulations, 2002 Fails to submit periodic returns
Fails to resolve complaints or give
satisfactory reply
indulges in unfair trade practices in
securities.
Violates the conditions of registration
CIS: Penalty for violations
55
Collective Investment Scheme
furnishes any information which is
false or misleading or suppresses any
material information
Shall be dealt with according to
Chapter V of the Securities and
Exchange Board of India
(Intermediaries) Regulations, 2008
fails to make an application for listing
or fails to list units of a Scheme in a
recognized stock exchange
fails to resolve the complaints of the
investors or fails to furnish to SEBI a
satisfactory reply in this behalf
AIFs: Penalty for violations
Alternate Investment Funds
Contravenes the Regulations Punishable under Securities and
Exchange Board of India
(Intermediaries) Regulations, 2008
fails to furnish any information to
SEBI
Furnishes false or misleading
information
Does not submit returns to SEBI
fails to resolve the complaints of
investors
56
Money Circulation Schemes-
Penalty
Contraventions punishable with
imprisonment up to three years, or
fine up to five thousand rupees,
or with both
57
58
Suman Motels Ltd. vs SEBI
Suman Motels Ltd. vs SEBI (2003 42 SCL 433
SAT)
SAT affirmed the SEBI order passed to refund the
public money
Appellant Company cannot claim that it is not
required to comply with the requirements of the
CIS Regulations
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Paramount Bio-Tech Industries Ltd.
vs UOI
M/S Paramount Bio-Tech Industries Ltd. vs
UOI (Civil Misc Writ Petition No 51911 of 1999
decided on November 25, 2003)
Sizeable portion of amount mobilized paid for
commission expenses
View framed by SEBI that company was deploying
the funds received from the public for non
banking financial companies, real estate
Allahabad HC ruled that SEBI has the legislative
competence to frame the Act and Regulations and
CIS Regulations applies to this case.
60
P.G.F. Ltd. vs Union of India
P.G.F. Ltd. vs Union of India (2005 124
CompCas 201 P H)
It was held that transaction for purchase of
agricultural land in the name of several investors
is a money circulation scheme
Reason being that it was not proved whether land
was actually bought at all, or registered in the
name of the so-called investors.
Hence, the Scheme was treated as money
circulation scheme and not CIS by the Punjab
Haryana HC
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Amway India Enterprises
Amway India Enterprises
AP High court ruling at :
http://indiankanoon.org/docfragment/1369717/
Company argued that :
its networking scheme did not infringe the Prize Chits &
Money Circulation Schemes (Banning) Act since there is
no quick money involved
And that money received by the sponsor members was
not dependent on any event or enrolment of new
members
However, Court held that:
Companys marketing scheme is money circulation
scheme as it allegedly provided inducement since a
sponsor members income partly also came through the
commission earned by those made members
subsequently
62
Other rulings on collective
investment schemes
Brijeshwar Jaiswal vs SEBI (27
th
March 2012)
[http://indiankanoon.org/docfragment/17567204
8/]
Ankur Forest and Project (8
th
Feb 2011)
[http://indiankanoon.org/docfragment/36651229
]
PACL India vs Axis Bank
[http://indiankanoon.org/doc/1670110/]
Rose Valley [on the question of SEBIs
jurisdiction]
[http://indiankanoon.org/doc/13648517/]
63
Muddle of Regulations
It is not clear who will regulate the schemes
which takes various forms
For example, money is raised by strange
instruments like preference shares or debentures
which, arguably, is not a deposit at all hence,
comes another regulator, MCA
Money is raised in disguise of such instruments,
regulators keep waiting, investors suffer
LLPs- not regulated by SEBI, RBI or Deposit
Rules
Only AIF Regulations cover LLPs
64