A bullet point analysis of SEBI’s MVL decision under SEBI CIS regulations

By December 28, 2014 December 20th, 2019 No Comments
Following is a bullet
point analysis of the recent SEBI
in the matter of MVL Limited under the SEBI CIS Regulations,
holding that MVL was guilty of operating a collective investment scheme without
adequate registrations as per the applicable regulations and Section 11AA of
the SEBI Act. This decision is of high importance for real estate developers,
investors in real estate sector and also for public at large.
Specific issues identified with the

Application form
Plans are tentative and subject to change;
No specific unit identified;
No option for buyback/lease by the allottee.
Assured return agreement
No specific unit identified either by unit
number, floor or otherwise.
Other issues
Layout, plans, maps and charts not part of the
MVL shall manage the maintenance and upkeep;
Search for competent tenant for first lease by
MVL only;
Buy back was found to be not an option but was
applicable for all allottees;
High returns promised of up to 96%;

Condition-wise analysis
Condition 1:
The contributions, or payments made by the investors, by whatever name
called, are pooled and utilized solely for the purposes of the scheme or
i.    No
unit identified, location not identified;
ii.    Floor
not specified;
iii.    Manner
of possession, sale etc. by allottee not specified;
iv.    Total
project cost was Rs. 216 crores and loan taken was 128 crores.
                         Therefore, the balance was funded by the monies collected from allottees .

Therefore, first
condition satisfied, since money taken was used for the scheme.

Condition 2:
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
i.    MVL
offers assured return;
ii.    No
unit identified;
iii.    Allottees
invested for profit only.
Therefore, second
condition satisfied

Condition 3:
The property, contribution or investment forming part of scheme or arrangement,
whether identifiable or not, is managed on behalf of the investors;
i.    MVL
manages and carries out construction;
ii.    MVL
shall manage maintenance;
iii.    The
possession will be handed over only after sale deed.
Therefore, third condition satisfied
Condition 4:
The investors do not have day to day control over the management and
operation of the scheme or arrangement
i.    Construction
managed by MVL;
ii.    Allottee
cannot lease etc. Without consent of MVL.
Therefore, fourth condition satisfied
Other Important Factors

1.      The projects were uniformly priced at different
locations and floors which is not possible in a real estate transaction;
2.      MVL continuously defaulted in making assured
return payments to allottees and even suggested them to cancel the allotment.
SEBI received a number of complaints.

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