Collective Investment Scheme & SEBI

8/13/2019 Collective Investment Scheme & SEBI

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EquiCorp Associates

Advocates & Solicitors

Collective Investment Scheme & SEBI

www.equicorplegal.com


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Collective Investment Scheme

An investment scheme

wherein several individuals

come together to pool their

money for investing in a

particular asset(s) and for

sharing the returns arising

from that investment as per

the agreement reached

between them prior to

pooling in the money


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Is CIS a Ponzi Scheme???

Many companies especially in semi-

urban and rural areas are accepting

deposits in their firms name and

also promising two to three times

returns in two to four years without

taking any legal permissions. These

ponzi schemes are running on the

false promise of doling out high

returns to the gullible investors.

Ponzi scheme may be treated as

either a chit fund or a collective

investment scheme. But then a

further complication arises who will

regulate a ponzi scheme????


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SEBIs Action

In light of a lot of news relating to sham entities garnering funds through

fraudulent investment schemes with promise of huge returns mainly in

the name of property development and agriculture, SEBI has in the last

few ears intensified its scrutin of investment structures that raisedomestic capital on an unregulated basis. Securities Appellate Tribunal

(hereinafter the SAT) recently passed an order upholding SEBIs

findings against Alchemist Infra Reality Limited. The SAT order along

with recent pronouncement by the Supreme Court have probed

unregulated investment arrangements to conclude whether or not they

constitute CIS, as Schemes are required to be registered with SEBI inpursuance to Securities And Exchange Board Of India (Collective

Investment Schemes) Regulations, 1999 (hereinafter referred to as the

Regulation).


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Alchemist Infra Realty Limited

The Company accepted contribution from investors for collective utilization and

pooled the investment with the object of carrying out the overall scheme/

arrangement because the Company had the discretion to allot such area in itsproject as it considered appropriate. Further, under a conveyance deed the area

of plot for each individual was denoted as proportionate undivided interest.

The purchaser was thus not entitled to claim division and/or partition of the said

proportionate undivided interest. The purchasers could not either interfere with

the working, managing, controlling and supervising of the said plot in any

manner whatsoever.

This inSEBIsview, were not limbs of a buy-sell arrangement, but a pooling of

money pursuant to a scheme or arrangement.

Based on these findings, SEBI concluded that thecompanysactivity were in the

nature of a CIMC and held it to be in violation of the Regulation as the company

didnthave the requite approvals from SEBI.

SEBI accordingly passed directions to the Company and its directors to wind up

the existing Scheme and further ordered the Company to refund all the collectedmoney.

SAT confirmedSEBIsfinding and upheld the SEBI order under appeal which

was made by the Company and its directors, by adopting the reasoning similar to

that provided by SEBI in the SEBI order.


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Collective Investment Scheme

or CIS CIS is defined in Section 11AA of the Securities and Exchange Board of

India Act, 1992 (hereinafter referred to as theAct)as per which CIS is

any scheme made or offered by a company under which

common scheme or arrangement;

Contributions and payments made by individuals with a view to receive

profits, income, produce or property, whether movable or immovable

from such scheme or arrangement;

Property, contribution or investment forming part of scheme or

arrangement, whether identifiable or not, is managed on behalf of theinvestors; and

Investors do not have day to day control over the management and

operation of the scheme or arrangement.


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Exclusions to CIS

There are many types of schemes and arrangements to collect funds from individuals

which has been excluded by SEBI from the definition of CIS. CIS will not include

schemes and arrangement

Offered by Co-operative Societies or societies registered under any state or central

act;

Offered by Non-Banking Financial Companies to accept deposits;

Contract of insurance to which Insurance Act applies;

Providing for pension or insurance schemes under Employees Provident Fund and

Miscellaneous Provisions Act, 1952;

Under which deposits are accepted under Section 58A of the Companies Act, 1956;

Under which deposits are accepted by a company declared as a Nidhi or a mutualbenefit society under section 620A of the Companies Act, 1956;

falling within the meaning of Chit business as defined in clause (d) of section 2of the

Chit Fund Act, 1982; and

Under which contributions made are in the nature of subscription to a mutual fund.


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Collective Investment ManagementCompany or CIMC

As per the Regulation no other entity other than a CIMC registered with SEBI can launch a CIS.

The eligibility criteria for an entity to be granted SEBI approval for operating as a CIMC are as

follows:-

Registered as a company under the Companies Act, 1956;

Memorandum of Association specifies managing of CIS as one of its main objectives;

,INR 3 crores which is to be increased by applicant to INR 5 crores within three years of date of

registration as a CIMC;

Fit and proper person for grant of such certificate;

Has adequate infrastructure to enable it to operate CIS in accordance with the provision of these

regulations;

Directors or key personnel shall have relevant experience and have not been convicted for an

offence involving moral turpitude or for any economic offence or for the violation of anysecurities laws;

At least 50 percent of the directors are independent;

No person directly or indirectly related to the applicant entity has been refused registration by

SEBI under the Act; and

At least one director not subject to retirement is representative of the trustee.


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Setting up a CIMC


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Launch a CIS contd.

Close ended scheme and durationCIS has to be a close ended scheme

with duration not lesser than three years.

InsuranceCIMC to obtain insurance for protection ofCISproperty.

ReturnsCIMC shall not provide guaranteed returns. Offer document can

only mention indicative returns assessed by Appraising Agency.

Filling Fees CIMC to pay filling fees to SEBI as prescribed in the

Regulation;

Disclosure in offer document - Offer Document has to contain

information as set forth in Sixth Schedule of the Regulation and all

information provided shall be true and enable investors to take an informeddecision. SEBI may in interest of investors require CIMC to carry out

changes to the offer document. CIMC can file offer document if SEBI

doesntsuggest any changes within 21 days from date of filling.


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Launch a CIS contd.

Advertising materialAdvertisement in respect of CIS have to comply

with code provided in Seventh Schedule of the Regulation and shall

disclose investment objectives and periodicity of valuation of the CIS

property.

er per o s a no e open or more an ays orsubscription.

Allotment of units and refunds of moneyCIMC to disclose in offer

document the minimum and maximum subscription amount under the CIS

along with allotment process in case of oversubscription. Application

money has to be refunded within six weeks of closure of subscription list if

CIS fails to receive minimum subscription.

Unit CertificatesCIMC has to issue unit certificates to accepted

applicants no later than six weeks from date of closure of subscription list.


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Launch a CIS contd.

Transfer of UnitsUnit certificates shall be freely transferable and CIMC

shall register any such transfer within thirty day of production of unit

certificate along with instrument of transfer.

Account and utilization of moneySubscription amount received shall be

ep n a separa e an accoun n name o e an s a e u zeonly for the objectives of the CIS.

Listing of CIS - The units of every CIS shall be listed immediately after the

date of allotment of units and not later than six weeks from the date of

closure of the CIS on each of the stock exchanges as mentioned in the offer

document.


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Consult the Experts

Complete assistance for making the necessary filings,

applications etc. for obtainingSEBIsapproval to operate

as CIMC and to launch CIS.

Informal discussion with contact ersonnel within SEBIso as to perfect the application before the same is

submitted.

Follow up support at various points in time during and

after the pendency of the application so as to ensure that

any additional documents/records requested by SEBI is

submitted in a systematic and timely manner.

Updating Company on a regular basis as to the status of

the pending application.


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About Us

Equi Corp Associates (ECA) is a mission driven, start-up law practice based in New

Delhi, India and founded in 2012 for providing affordable access to legal counsel

benefitting start-ups, small and growing businesses, social business enterprises, impact

investors and non-profit organizations. Our boutique service offerings are primarily at the

intersection of start-up, sustainable development, social enterprise and investment

sectors, designed to help clients wade through laws that were not originally designed

with them in mind.

The basic idea behind starting ECA was to be a part of Indias growth by reaching out to

novel start-ups and established businesses, and helps them adapt best global

practices/technologies in local conditions and in advising them about legal aspects

involved in modern markets in order to keep our clients in pace with the dynamic

competitive environment.

ECA is instrumental in advising various social enterprises and start ups in setting up

their business in India.

ECA not only having some of the best legal minds, but the best business minds too:

lawyers are intimately familiar with the business environment, and know the emerging

risks and opportunities of their industries and practice groups.


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ECAs Network Presence

Delhi/NCR

Dehradun

Jaipur Allahabad Guwahati

Mumbai

Bangalore

Our Associated

Office

Kolkata

Hyderabad

Chennai

ECA


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WHY Equi Corp Associates??

ECA is a multispecialty law firm, with its founding partners having a vastexperience for providing legal services to a variety of domestic & internationalclients, corporations, financial entities & government agencies.

Our respected clients - from individuals to small businesses to Fortune 500companies -- turn to us for trusted legal counsel.

ECA is equipped with required professional setup of Qualified, Experienced and

now e gea e mem ers. We advise and assist NRIs/PIOs, Foreign Investors and Indian entrepreneurs

with legal services that enables them to compete with best in world in themodern economy characterised by technology based, venture capital funded,futuristic businesses governed by complex and ever evolving legal andstatutory framework.

ECA is also effective in providing match making partner/locating strategicalliance, follow up and representation with Government of India or any other

incidental work related to investment or legal guidance in India.


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The Verticals

Corporate & Commercial

Banking & Finance

Real Estate

Infrastructure & Project Finance

Employment & Labour

Media, Sports & Entertainment

Litigation & Arbitration

Tax & Consulting

Intellectual Property

The Firm specializes in verticals such

as IT, ITES, Bio-tech, Power, Water,

Retail Trade, Education, Mining,

Aviation, Tourism, Insurance,

Telecom, Media & Entertainment


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Corporate & Commercial Services

Foreign Investment in India / Abroad

Drafting and vetting of Joint Venture Agreements, Corporate

Agreements, Management Agreement, Cross border transaction

agreements etc.,

Compliance Audit, Due Diligence & Transaction Advisory;

Formation & structuring of business entities;

Mergers & Acquisitions & Private Equity;

Competition & Fair Trade Practice;

Corporate Governance & Restructure;

Venture Fund, Mutual Fund, RE Trust Funds.


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Banking & Finance Services

Credit Co-operative & Financial Institutions;

Quasi Banks & Nidhi Companies;

Urban Credit Co-operative Banks;

Micro Finance Institutions;

Banks & NBFCs and other Financial Intermediaries;

Alternative Investment Funds;

Real Estate Finance including Collective investment

Schemes;

Structured & Asset Finance;

National Pension Scheme

Securitization;

Debt recovery


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Real Estate Services

Title Search & Property transactions Joint ventures in Real Estate

Build to suit campuses

Development of Technology Parks,

Integrated Townships, Warehouse &

Lo istics Parks SEZ HotelsMultiplexes Entertainment Centres,

Slum Developments, Rehabilitation

Projects etc.

Sale deeds

Lease, Leave and License Agreements

Gift deeds

Mortgage & Finance Agreements


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Infrastructure & Project Finance Services

Transaction Advisory: Energy, Oil and Gas, Highway, Road,

Airport, Ports, Water & Sanitation and Telecommunications

Drafting, negotiations and review of financing & security

Tender Documents, Bidding process, PPP, Concession

Contracts, PPA, EPC Contracts

Government Approvals & Liaisoning with statutory

authorities

Structuring, negotiation & documentations of projects


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Employment & Labour Services

Appointment/Offer letters, Termination practices

Employee Stock Option Plan

Labour Compliance

Service Bonds

Standing Orders & Service Rules

Migration & Emigration of Employees

Country specific employment relation

Grievance Settlement Procedures


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Media, Sports & Entertainment Services

Television & News Channel;

Media & Production Houses;

Endorsements, Distribution, Event Sponsorship,

Venue, Marketing Rights, Merchandise Agreements;

FM Radio Channels;

Publishing House;

Studios;

Sports Club


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Tax & Consulting Services

Company Secretarial Services:

- Incorporat ion of comp anies/branches/ l iaison

off ice/represent ative off ice

- a n enance o ecre ar a ecor an recurr ng

secretarial services

- Regis t rat ion wi th Statutory Author i t ies inc luding

Incom e Tax,RBI,EoU, STPI, Custom B ond ing, Central Excise etc.

Accounting & Payroll Services

Tax and Regulatory Services

Advising on Customs & Excise matters

Immigration Services


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Intellectual Property Services

IP Portfolio Management

IP Auditing

IP Strategic Alliances

Licensing

Technology Transfer Agreements

Search, drafting, filing and prosecution in :

Patents

Trademarks

Copyrights

Industrial Designs


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Our Commitment

Value

One stop legal boutique where assignments carried out at a fraction of

the cost of clients staff

Reduce client staff management time and overhead costs, and increase

clients profitability

Enable clients staff to concentrate on more interesting and value-added

Service

Robust management and procedures to ensure delivery on time and on

budget

Dedicated one-to-one communication with client, to ensure every

project is right first time

Full service delivery is achieved by synergies of subject matter

expertise of our in-house Lawyers, Chartered Accountants, CompanySecretaries and Tax Consultants

Quality

Two-level file review and signoff by expert Lawyers, even for the

smallest assignment


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Our Core Strengths

Dedicated team of legal professionals with strong deal exposure andknowledge of regulations of various sectors.

Proactive and structured approach

Well defined rocesses

Well defined Project methodology tailored to suit the needs of clients forservice delivery

Talented team with experience of working with some of the largestcompanies in India exposure to leading cross border transactions in India

Experience & proven capabilities to handle Diversified Multi-national Clientsi.e. Information Technology, Energy, Manufacturing, Consultancy, Oil & GasSector, Retail Trading, Hospitality, Restaurant and related sectors.

Competitive advantage of costing by virtue of expertise and experiencedresources.


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For further information

Contact :

Aashish Srivastava

Partner

Equi Corp AssociatesAdvocates & Solicitors

W-86, Classic House, GK-II, New Delhi

T: +91 11 40573261

Mobile : +919958709189

E-mail :[email protected]