Osians Connoisseurs Of Art Pvt. Ltd. vs Securities and Exchange Board of India

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This case is in regard to the Collective Investment scheme and discusses an important ruling of Supreme Court in determining that a collective investment scheme (CIS) operated by a private trust is illegal and the same can be only floated by a  collective investment management company and in no other form.


  • Through the execution of Indentures of Trust dated 15.06.2005 and 01.12.2006, two trusts named Yatra Art Fund Trust (Fund I) and Yatra Art Fund II (Fund II) were established respectively under the Indian Trusts Act, 1882.
  • According to the trust deed, both of these trust Funds were established for a period of 4-4½ years with the first Fund ending on 15th September 2011, following a one-year extension. In terms of the second Trust Fund, it was also similarly extended and ended on the 31st of January 2012.
  • The main purpose of the establishment of these trust funds was to enable investors to invest in works of art. In the Confidential Information Memorandum of these funds the investors well warned that these were high-risk investments, and that they should invest in these Trusts Funds with their eyes open, fully aware of the aforesaid risks.
  • For the first fund, which attracted 50 investors as per the information, total capital of Rs.10.95 crores was gathered from these investors. In the case of the second Fund, the total capital gathered was Rs.21.92 crores where 132 investors contributed.
  • The Securities and Exchange Board of India (SEBI) on 18th June, 2017 first informed the trustees of these two trust funds that since these trust funds are Collective Investment Schemes therefore they need to apply for certificates of registration in relation to these funds.
  • On 16th July, 2007 the trustees responded to this by denying that the activities of these funds amounted to those of a Collective Investment Scheme. In response to this SEBI on 12th October 2007 issued Show Cause Notice which required the Yatra Art Fund to show the cause why it should not register with SEBI in the necessary corporate form and if it is not able to do so the Trust’s collective investment scheme would be declared illegal. The show cause notice further stated that any funds collected by the investors must be reimbursed to them within 30 days of the date of the show cause notification.
  • The trustees responded to the said show cause notice on 5th November 2007, indicating that there was absolutely no infringement of Section 12 (1B) of the Securities and Exchange Board of India Act,1992, (SEBI Act) read with Regulation 3 of SEBI (Collective Investment Scheme) Regulations 1991 and these Regulations in itself would not applicable on them since the trustees were not registered in the form of a company. Also in addition with it the trustees also presented specific detailed arguments in regard to why the schemes in question could not be classified as collective investment schemes.
  • After a year on 3rd November, 2008, the trustees filed a joint representation to SEBI asserting that the aforementioned schemes floated by them were not collective investment schemes explaining again that they were not made in the corporate form.
  • Till this point SEBI was itself not sure in regards to whether such funds would amount to collective investment schemes but in 2013 the matter was revived and in light of the fact that nine investors, including an Investors Association, had complained against Trust Fund No. 2, and after hearing the appellants for the same an order was issued on 6th November 2015 by a full-time member of SEBI stating that in exercise of the powers conferred upon him under Section 19 of the SEBI Act, 1992 read with Sections 11 and 11B thereof and Regulation 65 of the SEBI (Collective Investment Scheme) Regulation, 1999 following directions was issued to the funds-
  • Yatra Art Fund is not allowed to collect any money from investors, nor is it allowed to develop or implement any Collective Investment Schemes, including the scheme defined as a Collective Investment Scheme in this Order.
  • Within three months of the date of this Order, Yatra Art Fund is required to reimburse all money received under its scheme to all investors with 10% pa  annual returns, and then submit a winding up and repayment report to SEBI in compliance with the SEBI (Collective Investment Schemes) Regulations including the funds claimed to be repaid, bank account statements reflecting refunds to investors, and receipts from investors of such refunds within a span of 15 days.
  • For a period of four years, Yatra Art Fund is forbidden from entering the securities market and from purchasing, selling, or otherwise dealing in securities.
  • Yatra Art Fund is also required to give a thorough and accurate inventory of its assets as soon as possible.
  • In case Yatra Art Fund fails to comply with the aforementioned directions the following consequences will be taken:
  • Yatra Art Fund will be prohibited from accessing the securities market and from buying, selling, or dealing in securities, even after the said four years restraint period talked about above, until all of the monies mobilised through such schemes are refunded to its investors with interest.
  • SEBI would refer a civil/criminal complaint against Yatra Art Fund, its promoters, directors, and managers/persons in charge of the firm and its schemes to the State Government/Local Police for fraud, deceit, criminal breach of trust, and misuse of public funds.
  • SEBI would also begin attachment and recovery actions under the SEBI Act and implement the rules and regulations framed under the said act.
  • Aggrieved by the same, an appeal was filed by the trustees in front of the Securities Appellate Tribunal. The Appellate Tribunal disposed of the appeal setting aside paras of the order of SEBI requiring the State Government to submit a referral to the SEBI to register civil/criminal complaints against the Fund and to begin attachment and recovery procedures under the SEBI Act and Rules and Regulations. However in regard to the para asking yatra to refund the entire monies collected under the said scheme, the matter was remanded to SEBI by the Appellate Tribunal adopting the same ground that was taken by earlie tribunal judgements i.e. based in the arguments of both the sides it is not possible to state that the Schemes in the present case cannot be categorized as Collective Investment Schemes.
  • Since the said dispute wasn’t able to be resolved according to the satisfaction of the litigants therefore an appeal was ultimately filed in the Supreme Court.
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The counsel on the side of appellants made an argument in relation to the language of Section 11AA of the SEBI Act. It was said that in the year 1995 Section 12(1B) was introduced in the SEBI Act which made it clear that ‘no person can sponsor or cause to be sponsored or carry on or cause to be carried on any collective investment scheme unless a certificate of registration is obtained by him from the Board in accordance with the regulations,’ what is important to be noticed is that this section uses the word “person” wheres in Section 11AA which was introduced by an amendment in the year 1999 and talks about the collective investment scheme it is said that .- (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) shall be a collective investment scheme.

As for the purpose of this section the subsection (2) refers “any scheme” as “Any scheme or arrangement made or offered by any company under which:  the contributions, or payment made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement; the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors,” therefore it is contended by the counsel of appellants that it is not possible for them to cause any violation of the law since Section 11AA refers to the word company and not person, and because his client conducted his business via a Trust, the provisions and the restrictions of the SEBI Act would not applicable to them.

Summary of Court’s decision

The court in regard to the contention put by the appellants said that such argument flies in the face of Section 12(1B) and the CIS Regulations particularly Regulation 2(h), which defines a Collective Investment Management Company as “a company formed under the Companies Act of 1956 and registered with the Board under these regulations with the purpose of organizing, operating, and managing a collective investment scheme” and the Regulation 3 of the CIS Regulations states that collective investment scheme can only be carried out, sponsored, or launched by a Collective Investment Management Company that has received a certificate under these regulations

Therefore it can be said that according to the statutory scheme a collective investment scheme can only be floated by a person in the form of a collective investment management company and not in any other form and this is why, under sub-section 2 of Section 11AA, the term “company” is used instead of “person.” The same is not used in section 12(1B) since it was introduced in the year 1995 whereas the CIS Regulation came in force in 1999. Section 11AA was enacted in 2000.

The court then said that as the statutory scheme has become clear it is also clear that the collective investment scheme of appellants which was carried out through a private Trust, would be in violation of the said Statute and the CIS Regulations making it illegal. Thereby in its opinion the SEBIs order cannot be overturned by the court except the part that has been already overturned by the Appellate Tribunal.

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However since the court thinks that this lawsuit has been dragged on for far too long therefore instead of remanding the case back to SEBI for a new decision on the refund issue following orders were passed by the Supreme Court itself i.e.-

The principal amount repayable to each investor of both Schemes must be paid back within six months starting from today. Though since in the case of the Fund 1 and Fund 2 the payment of 81.32% and 50% of the total principal sum of Rs.10.95 crores and 21.92 crores respectively has already been done therefore the sum owed to the 50 investors in Fund No. 1 and the 132 investors in Fund No. 2 must be returned within six months of the date of this ruling.

In terms of the ten percent interest, this amount will be paid on the principal outstanding amount from the date it becomes due to each such member until the end date of each Fund i.e. until 15.09.2011 and 31.01.2012 for Fund 1 and Fund 2 respectively. The said interest needs to be paid within nine months of the giving of judgement and after such repayment is done a compliance report needs to be filed with SEBI. In the light of the same the appeal was disposed of.


The judgement in the prevalent case has been rightly decided by the Hon’ble Supreme Court. This judgement has helped in resolving the years long dispute that was going on between SEBI and the Trust funds. The judge has looked into every small aspect of the situation and has rightly interpreted it in the light of the current laws. It has listened to the contention made by the appellant and has justly answered their concern by minutely referring to different sections of the SEBI Act and explaining to them how their interpretation backfires their case only.

Lastly while giving their judgement the Court has also looked into that the matter is not dragged for any longer time and in light of the same issued directions too to the company in regard to the steps that need to be taken by them for securing the interests of the investors who invested in the said scheme instead of remanding the case back to SEBI.


This case makes it clear that a collective investment scheme (CIS) operated by a private trust is illegal and the same can be only floated by a  collective investment management company and in no other form.