Dismissed

Pagoda Forests Ltd. v. Chairman, SEBI

SAT28 Mar 2002

Case brief

AI extract

What is this about?

In an appeal against SEBI's rejection of an application for registration under the Collective Investment Schemes Regulations, the Tribunal rejected the argument that a change in management by investors' nominees cured prior defaults and non-compliance, holding the appeal dismissed.

What did the court decide?

The impugned order of SEBI rejecting the application for registration is sustained; the appeal is dismissed.

What the court decided

Pagoda Forests Ltd. Vs. Chairman, SEBI — Securities and Capital Markets | SAT (2002)

Dismissed

Pagoda Forests Ltd. v. Chairman, SEBI

SAT28 Mar 2002

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Case brief

AI extract

What is this about?

What did the court decide?

The impugned order of SEBI rejecting the application for registration is sustained; the appeal is dismissed.

What the court decided

¶26

Shri Bharat Merchant, Counsel for the Appellant submitted that the ownership and management of the Appellant have changed since filing of the application for registration in December 1999. He narrated the changes that have taken place in the management of the scheme and in the shareholding pattern of the Appellant and stated the efforts put in by the present management to protect the interests of the investors in the schemes. He stated that the impugned order has been made without taking into consideration the relevant material placed before the Respondent. He submitted that though the Respondent is required to issue a speaking order, it has opted to issue a cryptic order without disclosing adequate reasons for arriving at the decision to reject the application. He stated that for the purpose of considering the application for registration the Respondent is required to go by the requirements specified in regulation 70, that as per the said regulation the Respondent is required to satisfy that (a) the schemes of the applicant are in the nature of collective investment scheme(s); (b) the affairs of the applicant are not being conducted in a manner detrimental to the interest of existing investors, (c) the applicant has at least 50% independent directors in its Board of Directors at the time of making the application and (d) any person, directly or indirectly connected with it has not been granted registration by the Respondent under the Act. Learned counsel stated that by way of explanation, it has been stated in the regulation that "independent directors" means directors who are not associates of the persons operating the existing collective investment scheme. Shri Merchant submitted that as per the impugned order the reason for rejecting the application is that the Appellant did not fulfil the requirements of clause (b) and (c) of regulation 70(1). Learned counsel submitted that the promoter directors and those directors who were in the Board of the Appellant, during the period in which the Appellant had failed to make prompt repayment to the investors are no longer managing the Appellant’s affairs. He stated that some of the affected investors, have formed and registered an association namely "Pagoda Kshetriya Kamgar Sangh" (the Sangh) with the sole object of securing and protecting the interests of the investors, and the

¶28

In this context he referred to the cha details:	nge in management of the Appellant and furnished the following
A) Directors at the time of formatio	n of the Appellant
Name	Date of Appointment Date ofcessation
(1) Shri Bijoy Kumar Gupta	08.03.1996 28.12.2000
(Managing Director)
(2) Smt. Puspha Gupta	08.03.1996 28.12.2000
(3) Shri Hemant Kumar Mahale	08.03.1996 28.12.2000
(4) Mr. Musa B. Maqdoom	08.03.1996----
B) Changes effected in the year 20	00.
Name	Date of Appointment Date ofcessation
(1) Shri Jaypal B. Singh	27.12.2000 12.04.2001
(2) Shri Amjad Latif Sabuwala	27.12.2000 12.04.2001
(3) Shri Digamber Vishnu Dali	27.12.2000 02.05.2001
C) Changes effected in the year 20	01.
Name	Date of appointment Date of cessation
(1) Shri N.G. Vaidya	11.04.2001---
(2) Shri S.K. Aware	11.04.2001---
(3) Shri D.P. Solanki	11.04.2001---
(4) Shri P.L. Patil	02.05.2001---
(5) Shri A.N. Dawane	22.05.2001---
(6) Shri Y.B. Rane	02.05.2001---

¶43

Learned representative further submitted that M/s. Baweja & Kaul, the statutory auditors of the Appellant for the financial year 1996-97 and 1997-98, in a letter addressed to the Respondent had stated that during the course of audit of the Appellants records for the financial year 1997-98, they found lot of discrepancies and misutilisation of public fund and when the same was communicated to the officials of the Appellant, they did not co-operate, Learned representative stated that since the statutory auditors did not toe the line of the management, a new auditor viz M/s. Bharat J. Rughani & Co, was appointed in the place of the said Baweja & Kaul for completing the audit work of the same period i.e. the year 1997-98 in contravention of the provisions of section 224(7) of the Companies Act 1956. He cautioned against accepting the authenticity of the "clean report" given by the newly appointed auditors. In this context Shri Trivedi referred to the report dated September 23, 1998, by M/s. Khandelwal Jain & Co., special auditor appointed by the Respondent and stated that the said auditors had made several adverse observations on the affairs of the company, that in the report, interalia the auditors had stated that the money mobilised by the Appellant was exposed to great risk as the financial position of the Appellant was not sound enough to pay the returns promised to the investors and it may find it difficult to repay the principal amount on maturity. Learned representative stated that the Appellant is also aware of the findings of the special auditor, as a copy of the same was given to the Appellant as well. Learned representative stated that the Appellant in its letter dated June 20, 2000 addressed to the Respondent had admitted that "presently the company is not in a position to repay to the investors as per the terms as on the one hand return on investment utilised for the longer gestation projects are not forthcoming and on the other hand the new regulations prohibits company from taking fresh collection until the company is registered" under the Regulations. Shri Trivedi further stated that the Appellant’s financial position is very unsound as its net

Pagoda Forests Ltd. v. Chairman, SEBI

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Pagoda Forests Ltd. v. Chairman, SEBI

Case brief

What is this about?

What did the court decide?

What the court decided

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

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