# M/S. P.G.F. LIMITED & ORS v. UNION OF INDIA & ANOTHER

- **Citation:** [2013] 6 S.C.R. 32
- **Court:** Supreme Court of India
- **Decided:** 2013-03-12
- **Case number:** Civil Appeal No.6572 of 2004
- **Bench:** Dr. B.S. Chauhan, Fakkir Mohamed Ibrahim Kalifulla
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-p-g-f-limited-ors-v-union-of-india-another-29269
- **Pages:** 54

## Headnote

Securities and Exchange Board of India Act, 1992.
ss. 11 AA - Constitutional validity of - Held: The provision
is constitutionally valid - It does not intrude into the specific
activities of sale of agricultural land and development - The
provision cannot be struck down on the ground of legislative
o competence, being in conflict with Entry 18 of List /I of Seventh
Schedule of the Constitution - Constitution of India, 1950 -
Schedule V/I, List /I, Entry 18.
s.2(ba) and 11AA(2) - Collective Investment Scheme -
Whether covers appellant-Company's business activity of
E
sale and development of agricultural land - Held: The activity
of the company is nothing but a scheme/arrangement in the
guise of sale and development of agricultural land - The
agreement between the investors and the company shows that
it was one-sided and arbitrary and there was uncertainty in the
F
transactions to the disadvantage of the investors - Therefore
the business activity squarely fell within the definition of
Collective Investment Scheme uls. 2(ba) rlw. s. 11 AA(2) - In
view of the fact that the whole attempt of the Company was
vexatious, and it perpetuated the present litigation with evil
G
intention, exemplary cost of Rs. 50 lakhs imposed -
Appropriate inquiry and investigation directed to be
conducted by CBI and Income Tax Department apart from the
inquiry by the second respondent.
H
32
P.G.F. LIMITED & ORS. v. UNION OF INDIA
33
Practice and Procedure - Writ petition - Challenging
A
validity of provision of law - Held: In such cases, it is
imperative to examine at the threshold, by applyng the
principle of lifting of veil as to whether such challenge is bona
fide or there is any hidden agenda in perpetrating such
litigation - Writ court should also keep in mind certain criteria
B
for the purpose of entertaining such challenge and also while
granting interim relief in such cases.
Words and Phrases - 'Collective Investment Scheme' -
Meaning of, in the context of s. 11 AA of Securities and C
Exchange Board of India Act.
The appellant-Company was involved in business
activity of sale of agricultural land, sale and development
of agricultural land and joint ventures scheme. The
second respondent by a public notice as well as by
D
specific letter called upon the appellant-company to
furnish certain details regarding its Collective Investment
Schemes. It also asked the company to get itself credit
rated from credit rating companies approved by the
second respondent. Thereafter the second respondent
passed an order dated 20.2.2002 in exercise of its powers
u/s. 11 B of SEBI Act, issuing stringent directions against
E
F
the appellant-company. The order was challenged. The
High Court directed the Company to furnish the details
required by the second respondent and also directed the
respondent to give personal hearing to the company. In
compliance with the Court direction, second respondent
passed its order dated 6.12.2002 l)olding that the
business activity of the company i.e. sale and
development of. agricultural land and its joint venture
G
schemes were Collective Investment Schemes and
directed the Company neither to collect money from
investors nor to launch any new Scheme as it had failed
to comply with the statutory requirement as provided
under SEBI (Collective Investment Schemes) Regulation,
H
34
SUPREME COURT REPORTS
[2013) 6 S.C.R.
A
1999. It also directed the Company to refund the money
collected under the schemes, to the investors as per
terms of the offers.
The company challenged the order dated 6.12.2002
8
contending that its business activities in sale of
agricultural land and sale and development of
agricultural land would not fall within the category of
Collective Investment Scheme specified u/s. 2(ba) r.w.
s.11AA of SEBI Act. The Company also challenged the
C vires of s.11AA of SEBI Act. The High Court dismissed
the petition holding that the business activities of the
Company were Collective Investment Schemes falling uf
s. 11AA (2)(ii) and

## Text

_Characters 0–39,915 of 112,555. This is a partial read: ask again with offset=39915 for what follows._

A
B
c
[2013] 6 S.C.R. 32
M/S. P.G.F. LIMITED & ORS.
v.
UNION OF INDIA & ANOTHER
(Civil Appeal No.6572 of 2004)
MARCH 12, 2013
[DR. B.S. CHAUHAN AND FAKKIR MOHAMED
IBRAHIM KALIFULLA, JJ.]
Securities and Exchange Board of India Act, 1992.
ss. 11 AA - Constitutional validity of - Held: The provision
is constitutionally valid - It does not intrude into the specific
activities of sale of agricultural land and development - The
provision cannot be struck down on the ground of legislative
o competence, being in conflict with Entry 18 of List /I of Seventh
Schedule of the Constitution - Constitution of India, 1950 -
Schedule V/I, List /I, Entry 18.
s.2(ba) and 11AA(2) - Collective Investment Scheme -
Whether covers appellant-Company's business activity of
E
sale and development of agricultural land - Held: The activity
of the company is nothing but a scheme/arrangement in the
guise of sale and development of agricultural land - The
agreement between the investors and the company shows that
it was one-sided and arbitrary and there was uncertainty in the
F
transactions to the disadvantage of the investors - Therefore
the business activity squarely fell within the definition of
Collective Investment Scheme uls. 2(ba) rlw. s. 11 AA(2) - In
view of the fact that the whole attempt of the Company was
vexatious, and it perpetuated the present litigation with evil
G
intention, exemplary cost of Rs. 50 lakhs imposed -
Appropriate inquiry and investigation directed to be
conducted by CBI and Income Tax Department apart from the
inquiry by the second respondent.
H
32
P.G.F. LIMITED & ORS. v. UNION OF INDIA
33
Practice and Procedure - Writ petition - Challenging
A
validity of provision of law - Held: In such cases, it is
imperative to examine at the threshold, by applyng the
principle of lifting of veil as to whether such challenge is bona
fide or there is any hidden agenda in perpetrating such
litigation - Writ court should also keep in mind certain criteria
B
for the purpose of entertaining such challenge and also while
granting interim relief in such cases.
Words and Phrases - 'Collective Investment Scheme' -
Meaning of, in the context of s. 11 AA of Securities and C
Exchange Board of India Act.
The appellant-Company was involved in business
activity of sale of agricultural land, sale and development
of agricultural land and joint ventures scheme. The
second respondent by a public notice as well as by
D
specific letter called upon the appellant-company to
furnish certain details regarding its Collective Investment
Schemes. It also asked the company to get itself credit
rated from credit rating companies approved by the
second respondent. Thereafter the second respondent
passed an order dated 20.2.2002 in exercise of its powers
u/s. 11 B of SEBI Act, issuing stringent directions against
E
F
the appellant-company. The order was challenged. The
High Court directed the Company to furnish the details
required by the second respondent and also directed the
respondent to give personal hearing to the company. In
compliance with the Court direction, second respondent
passed its order dated 6.12.2002 l)olding that the
business activity of the company i.e. sale and
development of. agricultural land and its joint venture
G
schemes were Collective Investment Schemes and
directed the Company neither to collect money from
investors nor to launch any new Scheme as it had failed
to comply with the statutory requirement as provided
under SEBI (Collective Investment Schemes) Regulation,
H
34
SUPREME COURT REPORTS
[2013) 6 S.C.R.
A
1999. It also directed the Company to refund the money
collected under the schemes, to the investors as per
terms of the offers.
The company challenged the order dated 6.12.2002
8
contending that its business activities in sale of
agricultural land and sale and development of
agricultural land would not fall within the category of
Collective Investment Scheme specified u/s. 2(ba) r.w.
s.11AA of SEBI Act. The Company also challenged the
C vires of s.11AA of SEBI Act. The High Court dismissed
the petition holding that the business activities of the
Company were Collective Investment Schemes falling uf
s. 11AA (2)(ii) and (iv) of SEBI Act and therefore the
second respondent was authorized to proceed against
the Company. The Court also held that s.11AA was valid
D as Union of India was competent to introduce the said
provision. Hence the present appeal.
Dismissing the appeal, the Court
E
HELD: 1.1. On very many occasions a challenge to
a provision of law, as to its constitutionality is raised with
a view to thwart the applicability and rigour of those
provisions and as an escape route from the applicability
of those provisions of law and thereby create an
impediment for the concerned authorities and the
F
institutions who are to monitor those persons who seek
such challenges by abusing the process of the Court.
Such frivolous c~llenges always result in prolongation
of the litigation, which enables such unscrupulous
elements who always thrive on other peoples money to
G take advantage of the pendency of such litigation
preferred by them and thereby gain, on the one side,
unlawful advantage on the monitory aspect and to the
disadvantage of innocent victims, and ultimately, gain
unlawful enrichment of such ill-gotten money by
H
P.G.F. LIMITED & ORS. v. UNION OF INDIA
35
defrauding others. In effect, such attempts made by
A
invoking the extraordinary jurisdiction of the writ Courts
of many such challenges, mostly result in rejection of
such challenges. However, at the same time, while taking
advantage of the long time gap involved in the pending
proceedings, such unscrupulous litigants even while
B
suffering the rejection of their stand at the end as to the
vires of the provisions, always try to wriggle out of their
liabilities by stating that the time lag had created a
situation wherein those persons who were lured to part
with huge sums of money are either not available to get C
back their money or such unscrupulous petitioners
themselves are not in a position to refund whatever
money collected from those customers or investors. It is,
therefore, imperative and worthwhile to examine at the
threshold as to whether such challenges made are
0
bonafide and do require a consideration at all by the writ
courts by applying the principle of 'lifting the veil' and as
to whether there is any hidden agenda in perpetrating
such litigation. [Para 31] (65-A-G]
1.2. Therefore, certain criteria to be kept in mind
whenever a challenge to a provision of law is made before
the Court. The Court can, in the first instance, examine
whether there is a prima facie strong ground made out
in order to examine the vires of the provisions raised in
the writ petition. The Court can also note whether such
challenge is made at the earliest point of time when the
statute came to be introduced or any provision was
brought into the statute book or any long time gap exist
as between the date of the enactment and the date when
E
F
the challenge is made. It should also be noted as to
G
whether the grounds of challenge based on the facts
pleaded and the implication of provision really has any
nexus apart from the grounds of challenge made. With
reference to those relevant provisions, the Court should
be conscious of the position as to the extent of public
H
36
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[2013] 6 S.C.R.
A interest involved when the provision operates the field as
against the prevention of such operation. The Court
should also examine the extent of financial implications
by virtue of the operation of the provision vis-a-vis the
State and alleged extent of sufferance by the person who
B seeks to challenge, based on the alleged invalidity of the
provision with particular reference to the vires made.
Even if the writ Court is of the view that the challenge
raised requires to be considered, then again it will have
to be examined, while entertaining the challenge raised
C for consideration, whether it calls for prevention of the
operation of the provision in the larger interest of the
public. The Writ Court should also examine such other
grounds on the above lines for consideration while
considering a challenge on the ground of vires to a
0 Statute or provision of law made before it for the purpose
of entertaining the same as well as for granting any
interim relief during the pendency of such writ petitions.
It is also imperative that when such writ petitions are
entertained, the same shoul,d be disposed of as
expeditiously as possible and on a time bound basis, so
E that the legal position is settled one way or the other.
[Paras 31 and 32] [65-H; 66-A-G]
2.1. The paramount object of the Parliament in
enacting the Securities and Exchange Board of India Act
F itself and in particular the addition of Section 11AA was
with a view to protect the gullible investors most of whom
are poor and uneducated or retired personnel or those
who belong to middle income group and who seek to
invest their hard earned retirement benefits or savings in
G such schemes with a view to earn some sustained
benefits or with the fond hope that such investment will
get appreciated in course of time. Certain other Section
of the people who are worstly affected are those who
belong to the middle income group who again make such
H investments in order to earn some extra financial benefits
P.G.F. LIMITED & ORS. v. UNION OF INDIA
37
and thereby improve their standard of living and on very A
many occasions to cater to the need of the educational
career of their children. [Para 37] [71-E-G]
2.2. A reading of s.11AA of SEBI Act discloses that it
talks of any scheme or arrangement, which would fall
8
within the definition of a collective investment scheme.
Section 2 (ba) under the definition clause states that a
collective investment scheme would mean any scheme
or arrangement, which satisfies the conditions specified
in Section 11AA. Under sub-Section (2) of Section 11AA,
. it is stipulated that any scheme or arrangement made or C
offered by any company by which the contribution, or
payment made by the investors, by whatever name
called, are pooled and utilized for the purposes of
scheme or arrangement; contributions or payments are
made by the investors with a view to receive profits, D
income, produce or property, whether movable or
immovable, based on the scheme or arrangement, any
property, contribution or investment which forms part of
the scheme or arrangement is identifiable or not, is
managed by someone on behalf of the investors shall be
E
collective investment scheme. Further the investors
should not have day to day control over the management
and operation of the scheme or arrangement. A detailed
analysis of sub-section (2) of Section 11AA, which defines
a collective investment scheme disclose that it is not F
restricted to any particular commercial activity such as
in a shop or any other commercial establishment or even
agricultural operation or transportation or shipping or
entertainment industry etc. The definition only seeks to
ascertain and identify any scheme or arrangement, G
irrespective of the nature of business, which attracts
investors to invest their funds at the instance of someone
else who comes forward to promote such scheme or
arrangement in any field and such scheme or
arrangement provides for the various consequences to
H
38
SUPREME COURT REPORTS
[2013) 6 S.C.R.
A
result there from. [Para 35] (69-H; 70-A]
8
c
D
E
F
G
H
Sahara India Real Estate Corporation Limited and Ors.
vs. Securities and Exchange Board of India and Anr. (2013)
1 sec 1 - relied on.
2.3. Sub-Section (3) of Section 11AA of SEBI Act
provides that those institutions and schemes governed
by sub-clause (i) to (viii) of sub-Section (3) of Section
11AA will not fall under the definition of collective
investment scheme. Sub-clauses (i) to (viii) shows that
those are all the schemes, which are operated upon
either by a co-operative society or those institutions,
which are controlled by the Reserve Bank of India Act,
1934 or the Insurance Act of 1938 or the Employees
Provident Fund and Miscellaneous Provisions Act, 1952
or the Companies Act, 1956 or the Chit Fund Act of 1982
and contributions, which are made in the nature of
subscription to a mutual fund, which again is governed
by a SEBI (Mutual Fund) Regulations 1996. Therefore, by
specifically stipulating the various ingredients for
bringing any scheme or arrangement under the definition
of collective investment scheme as stipulated under subSectio n (2) of Section 11 AA, when the Parliament
specifically carved out such of those schemes or
arrangements governed by other statutes to be excluded
from the operation of Section 11AA, one can easily
visualize that the purport of the enactment was to ensure
that no one who seeks to collect and deal with the
monies of any other individual under the guise of
providing a fantastic return or profit or any other benefit
does not indulge in such transactions with any ulterior
motive of defrauding such innocent investors and that
having regard to the mode and manner of operation of
such business activities announced, those who seek to
promote such schemes are brought within the control of
an effective State machinery in order to ensure proper
P.G.F. LIMITED & ORS. v. UNION OF INDIA
39
working of such schemes. [Para 39) [72-D-H; 73-A-BJ
A
2.4. The implication of Section 11AA was not intended
to affect the development of agricultural land or any other
operation connected therewith or put any spokes in such
sale-cum-development of such agricultural land. By
seeking to cover any scheme or arrangement by way of
collective investment scheme either in the field of
agricultural or any other commercial activity, the purport
B
is only to ensure that the scheme providing for
investment in the form of rupee, anna or paise gets
registered.with the authority concerned and the provision
C
would further seek to regulate such schemes in order to
ensure that any such investment based on any promise
under the scheme or arrangement is truly operated upon
in a lawful manner and that by operating such scheme
or arrangement, the person who makes the investment D
Is able to really reap the benefit and that he is not
defrauded. Sub- clauses (i) to (viii) of sub-Section (3),
which excludes those schemes and arrangements from
the operation of Section 11AA in as much as those
schemes are already governed under various statutes
and are operated upon by a co-operative society or State
machinery and there would be no scope for the
concerned persons or the institutions who operate such
schemes within the required parameters and thereby the
common man or the contributory's rights or benefits will
E
F
not be in any way jeopardized. It is, therefore, apparent
that all other schemes/arrangements operated by all
others, namely, other than those who are governed by
sub-section 3 of Section 11AA are to be controlled in
order to ensure proper working of the scheme primarily
G
in the interest of the investors. [Para 40) [73-C-H; 74-A]
2.5. What sub-section (2) of Section 11AA intends to
achieve is only to safeguard the interest of the investors
whenever any scheme or arrangement is announced by
H
40
SUPREME COURT REPORTS
[2013] 6 S.C.R.
A such promoters by making a thorough study of such
schemes and arrangements before registering such
schemes with the SEBI and also later on monitor such
schemes and arrangements in order to ensure proper
statutory control over such promoters and whatever
B investment made by any individual is provided necessary
protection for their investments in the event of such
schemes or arrangements either being successfully
operated upon or by any mis-fortune happen to be
abandoned, where again there would be sufficient
c safeguards made for an assured refund of investments
made, if not in full, at least a part of it. [Para 42] [74-F-H;
75-A]
2.6. The factors, which weighed with the Parliament
to introduce Section 11AA cannot be held to be done
D with a view to affect any particular category of business
activity much less the activity of agriculture. Therefore,
the stand of the appellant-Company that what it sought
to carry out under its scheme was merely sale and
development simplicitor of agricultural land and not a
E collective investment scheme cannot be accepted [Para
43] [75-B-C]
2.7. Section 11AA of the SEBI Act is constitutionally
valid. The provision is not suffering from any infirmity, as
F it does not intrude into the specific activities of sale of
agricultural land and its development. Thus, there is no
scope to apply Entry 18 of List II of Seventh Schedule of
the Constitution, in order to strike down the said
provision on the ground of legislative competence. [Paras
G 43 and 53] [75-D; 81-F]
3.1. The activity of the appellant-Company, namely,
the sale and development of agricultural land squarely
falls within the definition of collective investment scheme
under Section 2(ba) read along with Section 11AA (ii) of
H the SEBI Act and consequently the order of the second
P.G.F. LIMITED & ORS. v. UNION OF INDIA
41
respondent dated 06.12.2002 is perfectly justified and
A
there is no scope to interfere with the same. [Para 53} [81F-GJ
3.2. In the present case, once the customer signs the
application form and the agreement, virtually he would be
8
left high and dry with no remedy, in the event of any
breach being committed by the appellant-Company,
while on the other hand he will have everything to loose
if such breach happened to occur at the instance of the
customer. The agreement, thus, demonstrates to be C
wholly one sided· and arbitrary in all respects. [Para 49]
[78-D-F]
3.3. A conspectus consideration of the scheme of
development of the land purchased by the customers at
the instance of the appellant-Company and the promised
D
development under the agreement disclose that there
was wholesale uncertainty in the transactions to the
disadvantage of the investors' concerned. The above
factors disclose that appellant-Company under the guise
of sale and development of agricultural land in units of E
150 sq. yrds. i.e. 1350 sq. ft. and its multiples offered to
develop the land by planting plant, trees etc., and thereby
the customers were assured of a high amount of
appreciation in the value of the land after its development
and attracted by such anticipated appreciation in land
F
value, which is nothing but a return to be acquired by the
customers after making the purchase of the land based
on the development assured by the appellant-Company,
part with their monies in the fond hope that such a
promise would be fulfilled after successful development G
of the bits of land purchased by them. [Para 51] [79-G-H;
80-A-C]
3.4. The appellants, however, failed to supply any
material to demonstrate as to how and in what manner
any of the lands said to have been sold to its customers
H
A
B
c
D
E
F
G
H
42
SUPREME COURT REPORTS
[2013] 6 S.C.R.
were developed and thereby any of the customer was or
would be benefited by such development. It is imperative
that the transaction of the appellant-Company vis-a-vis
its customers has necessarily to be examined as to its
genuineness by subjecting itself to the statutory
requirement of registration with the second respondent
followed by its monitoring under the regulations framed
by the second respondent. All the above factors disclose
that the activity of sale and development of agricultural
land propounded by the appellant-Company based on
the terms contained in the application and the agreement
signed by the customers is nothing but a scheme/
arrangement. Apart from the sale consideration, which is
hardly 1/3rd of the amount collected from the customers,
the remaining 2/3rd is pooled by the appellant-Company
for the so called development/improvement of the land
sold in multiples of units to different customers. Such
pooled funds and the units of lands are part of s_uch
scheme/arrangement under the guise of development of
land. It is quite apparent that the customers who were
attracted by such schemes/arrangement invested their
monies by way of contribution with the fond hope that
the various promises of the appellant-Company that the
development of the land pooled together would entail
high amount of profits in the sense that the value of
developed land would get appreciated to an enormous
extent and thereby the customer would be greatly
benefited monetarily at the time of its sale at a later point
of time. As per the agreement between the customer and
the appellant-Company, it was the responsibility of the
appellant-Company to carry out the developmental
activity in the land and thereby the appellant-Company
undertook to manage the scheme/arrangement on behalf
of the customers. Having regard to the location of the
lands sold in units to the customers, which were located
in different states while the customers were stated to be
from different parts of the country it is well-neigh possible
P.G.F. LIMITED & ORS. v. UNION OF INDIA
43
for the customers to have day to day control over the A
management and operation of the scheme/arrangement.
In these circumstances, the conclusion of the Division
Bench in holding that the nature of activity of the
appellant-Company under the guise of sale and
development of agricultural land did fall under the B
definition of collective investment scheme under Section
2(ba) read along with Section 11AA of the SEBI Act was
justified. [Para 52] [80-D-H; 81-A-E]
4.1. The appellant-Company is bound to comply with c
the direction of the second respondent dated 6.12.2002.
While ensuring compliance of the order dated 06.12.2002,
the second respondent shall also examine the claim of
the appellant-Company that it had stopped its joint
venture scheme as from 01.02.2000 is correct or not by 0
holding necessary inspection, enquiry and investigation
of the premises of the appellant-Company in its registered
office or any of its other offices wherever located and also
examine the account books other records and based on
such inspection, enquiry and investigation issue any
further directions in accordance with law. Whatever E
amount deposited by the appellant-Company, pursuant
to the interim orders of this Court relating to joint venture
scheme shall be kept in deposit by the second
respondent in an Interest Bearing Escrow Account of a
Nationalized Bank. The second respondent shall also
F
verify the records of the appellant-Company relating to
the refund of deposits of the customers who invested in
the joint venture schemes and ascertain the correctness
of such claim and based on such verification in the event
of any default noted, appropriate further action shall be G
taken against the appellant-Company for settlement of the
monies payable to such of those investors who
participated in any such joint venture schemes operated
by the appellant-Company. It will also be open to the
second respondent while carrying out the above said H
44
SUPREME COURT REPORTS
[2013] 6 S.C.R.
A
exercise to claim for any further payment to be made by
the appellant-Company towards settlement of such claims
of the participants of the joint venture ·schemes and
charge interest for any delayed/defaulted payments. As
far as the deposit made by the appellant-Company with
B the second respondent on the ground that the such
amount could not be disbursed to any of the investors
for any reason whatsoever the second respondent,
based on the verification of the records of the appellantCom pa ny, arrange for refund/disbursement of such
c amount back to the participants of the joint venture
schemes with proportionate interest payable on that
amount. The above directions are in addition to the
directions made by the Division Bench of the High Court.
[Para 53] [81-G-H; 82-A-G]
D
4.2. The whole attempt of the appellant-Company
was thoroughly vexatious and calls for severe indictment.
In view of the evil intention of the appellant-company in
having perpetrated this litigation, apart from mulcting the
appellant-Company
with
exemplary
costs
of
E Rs.50,00,000/- (fifty lakhs) it also calls for appropriate
enquiry and investigation to be made not only by the
second respondent but also by the prime criminal
investigating agencies, namely, the Central Bureau of
Investigation and also by the Department of Income Tax,
F
in order to find out the extent of fraud indulged in by the
appellant-Company under the garb of development of
agricultural lands that too at the cost of gullible investors, .
who were offered fragmented pieces of so called
agricultural lands in multiple units of 150 sq. yds. per unit.
G In the event of any malpractice indulged in by the
appellant-Company, to launch appropriate proceedings,
both Civil, Criminal and other actions against the
appellant-Company, as well as, all those who were
responsible for having indulged in such malpractice.
H [Paras 24 and 56] [59-G-H; 60-A-C; 84-H; 85-A-F]
P.G.F. LIMITED & ORS. v. UNION OF INDIA
45
4.3. The appellant-Company is directed to appoint a
A
nodal officer, not below the rank of a Director, of its
company who shall be responsible for furnishing
whatever information, documents, account books or
other materials that may be required by the second
respondent, the Central Bureau of Investigation as well
B
·as the Income Tax Authorities. [Para 56] [85-C]
K.K. Baskaran vs. State represented by its Secretary,
Tamil Nadu and Ors. (2011) 3 SCC 793: 2011 (3)
SCR 527; Sona/ Hemant Joshi and Ors. vs. State of C
Maharashtra and Ors. (2012) 10 SCC 601; State of
Maharashtra vs. Vijay C. Puljal and Ors. (2012) 10 SCC 599;
New Horizon Sugar Mills Ltd. vs. Government of Pondicherry
and Anr. (2012) 10 SCC 575: 2012 (8) SCR 874; Naga
People's Movement of Human Rights vs. Union of India (1998)
0
2 SCC 109: 1997 (5) Suppl. SCR 469; Union of India vs.
Shri Harbhajan Singh Dhillon (1971) 2 SCC 779: 1972 (2)
SCR 33; S.P. Mittal vs. Union of India and Ors. (1983) 1 SCC
51: 1983 (1) SCR 729; Kartar Singh vs. State of Punjab
(1994) 3 SCC 569: 1994 (2) SCR 375; Mohinder Singh Gill
and Anr. vs. The Chief Election Commissioner, New Delhi and
E
Ors. (1978) 1 SCC 405: 1978 (2) SCR 272; Commissioner
of Police vs. Gordhandas Bhanji- 1952 SCR 135; Delhi Cloth
and General Mills Co. Ltd. vs. Union of India and Ors. (1983)
4 SCC 166: 1983 (3) SCR 438; Reserve Bank of India vs.
Peerless General Finance and Investment Co. Ltd. and Ors.
F
(1987) 1 SCC 424: 1987 (2) SCR 1; Narendra Kumar
Maheshwari VS. Union of India 1990 (Suppl.) sec 440: 1989
(3) SCR 43; E. V. Cinnaiah vs. State of A.P. and Ors. (2005)
1 SCC 394: 2004 (5) Suppl. SCR 972 - cited.
Case Law Reference:
2011 (3) SCR 527
(2012) 10 sec 601
c2012) 10 sec 599
cited
cited
cited
Para 15
Para 15
Para 15
G
H
46
SUPREME COURT REPORTS
[2013] 6 S.C.R.
A
2012 (8) SCR874
cited
Para 15
1997 (5) Suppl. SCR 469 cited
Para 15
1972 (2) SCR33
cited
Para 15
B
1983 (1) SCR 729
cited
Para 15
1994 (2) SCR 375
cited
Para 15
1978 (2) SCR 272
cited
Para 15
1952 SCR 135
cited
Para 15
c
(2013) 1 sec 1
relied on
Para 36
1983 (3) SCR 438
cited
Para 16
1989 (3) SCR 43
cited
Para 16
D
2004 (5) Suppl. SCR 972
cited
Para 16
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6572 of 2004.
E
From the Judgment & Order dated 26.07.2004 of the High
Court of Punjab & Haryana in C.W.P. No. 188 of 2003.
·
A.K. Ganguli, Parag P. Tripathi, Debesh Panda, Barnali
Basak, Chhitanya Safaya, Roh it Tandon, Subramonium Prasad,
P.N. Puri, Suruchii Aggarwal, Manish Kumar, Siddharth
F
Jaiprakash, Monisha Handa, Sidharth Luthra, Sushma Suri, J.K.
G
Mohopatra, Supriya Juneja, Aakansha Tandon, B.V. Balaram
Das, Shovan Mishra, Milind Kumar for the Appearing Parties.
The Judgment of the Court was delivered by
FAKKIR MOHAMED IBRAHIM KALIFULLA, J. 1. This
appeal is directed against the Division Bench Judgment of the
High Court of Punjab & Haryana at Chandigarh in Civil Writ
Petition (CWP) No.188/2003 dated 26.07.2004. Since the
Division Bench has dealt with elaborately the back.ground of the
H case for filing the writ petition at the instance of the appellant,
P.G.F. LIMITED & ORS. v. UNION OF INDIA
47
[FAKKIR MOHAMED IBRAHIM KALIFULLA, J.)
we do not wish to state the same in detail in our judgment. A
However, we only wish to refer such of those bare facts required
to support our decision and conclusion. At the very outset, we
wish to note that though this appeal has been preferred by PGF
Limited, its Chairman-cum-Managing Director and two other
individuals who are stated to be residents of village Khabra and B
Samaspur of Punjab but the same has been really contested
by the appellant No.1 whom we will hereinafter refer to as 'PGF
Limited'.
2. The appellant, known as Pearls Green Forests Limited
·and called PGF Limited from 1997, is having its registered C
office at S.C.O. No.1042-43, Sector 22-B, Chandigarh and its
Head Office at 2nd Floor, Vaishali Building, Community Centre,
Paschim Vihar, New Delhi. Though the Memorandum and
Articles of Association of the Company provide for carrying on
very many activities by way of business operations, we are only D
concerned with three of the activities of the PGF Limited,
namely, sale of agricultural land, sale and development of
agricultural land and joint venture schemes. Of the above three
operations, when the writ petition was heard by the Division
Bench of the High Court it was reported on 28.05.2004 by the E
learned counsel for the appellants that the PGF Limited took a
decision to disband all its schemes, other than its operations
relating to the business connected with sale of agricultural land
and/or sale and development of agricultural land. Based on the
said representation, an interim order came to be passed by
F
the Division Bench on 28.05.2004 with which we are also not
seriously concerned.
3. There was a public notice issued by the second
respondent herein on 18.12.1997, apart from specific letter G
addressed by the second respondent to the PGF Limited dated
20.04.1998, by which the PGF Limited was called upon to
furnish various details as regards to the Collective Investment
Schemes, within 15 days of the issuance of its letter dated
20.04.1998. The second respondent also stated to have issued
further communication based on the order of the Delhi High H
48
SUPREME COURT REPORTS
(2013] 6 S.C.R.
A
Court in CWP No.3352/1998 dated 7th and 13th October 1998,
wherein all plantation companies, agro companies and
companies running collective investment schemes, to get
themselves credit rated from credit rating companies approved
by the second respondent. The PGF Limited was directed to
B
comply with the said directions also. ·
4. In the above-stated background, the second respondent
passed an order on 20.02.2002 in exercise of its powers under
Section 11 B of the SEBI Act, by issuing some stringent
directions against the PGF Limited. The PGF Limited
C
challenged the said order before the Punjab and Haryana High
Court in CWP No.4620/2002 wherein the second respondent
came forward to keep its order dated 20.02.2002 in abeyance,
provided the PGF Limited agreed to furnish the information
sought for within two weeks. Based on the said stand of the
D second respondent by order of the High Court: dated
29.04.2002, the PGF Limited was directed to submit its reply
to the show cause notice and furnish all requisite information
to the second respondent. The second respondent was also
directed to provide an opportunity of personal hearing to the
E
PGF Limited. The order dated 20.02.2002 was also directed
to be kept in abeyance, till the final order was passed.
Subsequent to the said order of the High Court dated
29.04.2002, after following the directions contained in the said
order, the second respondent passed its order on 06.12.2002,
F
by which it was held that the business activity of the PGF
Limited, namely, the sale and development of agricultural land,
as well as its joint venture schemes, were all collective
investment schemes and since the PGF Limited failed to
comply with the statutory requirement as provided under the
G SEBI (Collective Investment Schemes) Regulation, 1999,
directed the PGF Limited not to collect any money from
investors nor to launch any new scheme with a further direction
to refund the money collected under the schemes, which were
due to the investors as per the terms of the offer within a period
H of one month from the date of its order and failing which
P.G.F. LIMITED & ORS. v. UNION OF INDIA
49
[FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]
threatened to initiate actions as available under the SEBI Act
A
and SEBI (Collective Investment Schemes) Regulation, 1999.
5. Aggrieved by the said order of the second respondent
dated 06.12.2002, the appellants preferred the writ petition
before the High Court of Punjab and Haryana in CWP No.188
B
of 2003 wherein the order impugned dated 26.07.2004 came
to be passed. Before the Division Bench of the High Court, on
behalf of the appellants herein, two contentions were raised,
namely, that apart from its joint venture business, its other
business activities, namely, sale of agricultural land and sale
C
and development of agricultural land, would not fall within the
category of collective investment schemes as specified under
Section 2(ba) read with Section 11AA of the SEBI Act and
consequently the order impugned dated 06.12.2002 cannot be
sustained.
D
6. Apart from challenging the order dated 06.12.2002, the
appellants also challenged the vires of Section 11 AA of the
SEBI Act. At the instance of the second respondent the
question about the territorial jurisdiction of the High Court was
raised, which was turned down by the Division Bench in the
order impugned and the same has become final and
conclusive, as there was no challenge to the said part of the
judgment of the Division Bench. As far as the stand of the PGF
Limited that its business activity of sale and development of
agricultural land would not fall within the category of collective
investment schemes, the Division Bench, after a detailed
consideration, held that having regard to the nature of offer
made by the PGF Limited, the prescribed filled in application
forms, collected from the investors before entering into the
transaction of transfer of any land by way of sale and the various
G
terms contained in the agreement for development, held that
E
F
the nature of development of the land assured to the customer
by the PGF Limited would bring the whole scheme of sale and
development of agricultural land under the concept of collective
investment schemes falling under Section 11AA(2)(ii) and (iv)
H
50
SUPREME COURT REPORTS
[2013] 6 S.C.R.
A
of the SEBI Act and, therefore, the second respondent had
every authority to proceed against the PGF Limited.
7. The Division Bench, thereafter, proceeded to examine
the correctness of the order of the second respondent dated
B
06.12.2002 and held that there was every justification for the
second respondent to pass the said order and for passing the
ultimate direction contained therein. As far as the challenge as
to the vires of Section 11AA of the SEBI Act, the Division Bench
examined the said submission threadbare and found no
substance in the said submission inasmuch as the object of
C adding Section 11AA of the SEBI Act pointed at investors'
protection, not agriculture and consequently the first respondentUnion of India had every competence to introduc~ the said
provision in the SEBI Act.
D
8. We heard Mr. A.K. Ganguli, learned senior counsel for
the appellants, Mr. Sidharth Luthra, learned Additional Solicitor
General for respondent No.1 & Mr. Parag P. Tripathi, learned
senior counsel for respondent No.2. Mr. Ganguli while assailing
the order of the Division Bench after taking us through the
E
material documents, in particular, the specimen application
form submitted by the investors along with its annexures,
copies of certain sale deeds between the vendor and the
investors, submitted that once the joint venture operattons
carried on by the PGF Limited, were stopped by them on and
F
from 01.02.2000, its other activity of sale of agricultural land nor
the sale and development of agricultural land can be brought
within the category of collective investment schemes. The
learned senior counsel by referring to the definition of 'security'
under the Securities Contracts (Regulation) Act, 1956, which
G definition was adopted for the purpose of application of SEBI
Act as mentioned in Section 2(1 )(i), contended that the
application form or the development agreement cannot be
construed as an 'instrument' in order to state that the sale and
development activity of the PGF Limited can be brought within
the category of collective investment schemes.
H
P.G.F. LIMITED & ORS. v. UNION OF INDIA
51
[FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]
9. The learned senior counsel contended that none of the
A
terms and conditions of the agreement contemplated any return
while operating the activity of development of the agricultural
land of the investors that since return is sine qua non for any
collective investment scheme, the activity of sale and
development of agricultural land cannot be construed as a
B
collective investment scheme. According to learned senior
counsel, the role of the PGF Limited was merely facilitating the
investors for purchasing agricultural lands in multiple units and
beyond that no other obligation was to be performed by the
PGF Limited, which can be construed as providing for any
C
return in the process of sale and development of agricultural
land to the investors by the PGF Limited. The learned senior
counsel, therefore, contended that the conclusion of the Division
Bench in holding that the sale and development of agricultural
land would fall within the definition of collective investment
scheme under Section 2(ba) read along with 11AA of the SEBI
D
Act, was erroneous and consequently the· judgment of the
Division Bench as well as the order of the second respondent
dated 06.12.2002 are liable to be set aside.
10. As far as the vires of Section 11AA of the SEBI Act
E
is concerned, learned senior counsel primarily contended that
the business of the PGF Limited being sale of agricultural land
and sale and development of agricultural land to its customers,
the said activity would only fall under Entry 18 of List II of the
Seventh Schedule and, therefore, the State Legislature alone
F
was competent to bring about any legislation for the purpose
of regulating its activities. The learned senior counsel contented
that none of the transactions carried on by the PGF Limited
with its customers whether directly or indirectly nor any of the
documents available on record in relation to the transaction of G
sale of agricultural land and sale and development of
agricultural land can be construed as an 'instrument' falling
under the definition of 'securities' as defined under Section
2(h)(ib) of the Securities Contracts (Regulation) Act, 1956,
which expression was 'mutatis mutandis' applied for the
H
52
SUPREME COURT REPORTS
[2013] 6 S.C.R.
A
definition of 'securities' under the provisions of the SEBI Act.
According to learned senior counsel since those documents
would not fall within the definition of 'securities' as defined under
the SEBI Act read along with Securities Contracts (Regulation)
Act, 1956 there is absolutely no scope to invoke the definition
B
of Section 2(ba) read along with Section 11AA of the SEBI Act.
11. The learned senior counsel strenuously contended that
the stand of the respondents as accepted by the Division
Bench, namely, that the collective investment scheme would fall
within the expression 'investor protection' and thereby governed
C
by Entry 97 of List I of the Seventh Schedule read along with
Article 248 of the Constitution was wholly misconceived and,
therefore, on the ground of legislative competence, Section
11AA of the SEBI Act is liable to be struck down.