SAT upholds penalty imposed on appellant for failing to distribute proceeds and to wind up a scheme under VCF norms
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Case Details: Cinema Capital Advisory (P.) Ltd. v. Securities and Exchange Board of India - [2021] 133 taxmann.com 209 (SAT - Mumbai)
Judiciary and Counsel Details
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- Justice Tarun Agarwala, Presiding Officer and M.T. Joshi, Judicial Member
- Somasekhar Sundaresan, Ms. Yugandhara Khanwilkar, Deepak Deshmukh and Jahan Chokshi, Advs. for the Appellant.
- Ms. Anubha Rastogi, Abhiraj Arora, Ms. Rashi Dalmia and Karthik Narayan, Advs. for the Respondent.
Facts of the Case
In the instant case, the Appellant launched a scheme under the SEBI (Venture Capital Funds), Regulations 1996 (‘VCF Regulations’) which had a term of five years and was extendable twice a year as per private placement memorandum. The term of the scheme expired on 14-11-2015.
The Appellants gave three options to investors and also requested SEBI to extend the term. However, the appellants decided to wind up the scheme as per regulation 23 on 7-3-2016. But, since the scheme was not wound up and proceeds were not paid back to investors within the stipulated period as provided under regulation 24, Adjudicating Officer passed impugned order imposing the penalty.
The Appellant contended that action to wind up scheme was incapable of performance despite best efforts and therefore this factor had to be taken into consideration and therefore penalty should not have been imposed.
SAT Held
SAT found that as of date, more than 5 years had elapsed and admittedly entire proceeds had not been distributed to investors, nor scheme had been wound up.
Assuming that regulations 23 and 24 are directory in nature, nonetheless, appellants were required to wind up scheme and distribute proceeds at the earliest.
Therefore, there being a failure on part of the appellant to perform obligations under regulation 24(2) read with regulation 23(1)(2A) of VCF Regulations, the impugned order passed by Adjudicating Officer imposing a penalty on the appellant was justified, ruled SAT.
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