SAT upholds Sebi's order on Osian's CIS;sets aside refund part

The Securities Appellate Tribunal today upheld Sebi's order that art fund Osian's was running Collective Investment Scheme (CIS), but asked the markets regulator to decide afresh while setting aside the directions for refund to investors.
The Securities and Exchange Board of India (Sebi), in April 2013, had ordered Osian's-Connoisseurs of Art Private Ltd, to wind up its CIS and refund the investors' money with 10 per cent interest within three months.
Besides, the company, which had raised Rs 102.4 crore from 656 investors for one of its art fund schemes, was barred by Sebi from the capital markets.
This was the first order issued against any art fund.

Following Sebi's order, Osian's Art Fund approached the Tribunal.
In an order passed today, SAT said it upholds "the impugned order of Sebi to the extent it holds that the scheme operated by the appellant (Osian's Art Fund) during the period from 2006 to 2010 constituted CIS."

However, it added: "We set aside the directions contained in the impugned order to the extent it directs the appellant to refund the money collected by it under the said scheme but remaining unpaid to all the investors and also set aside the direction given by Sebi to the appellant to pay profits/income due to the investors or pay interest at the rate of 10 per cent per annum from the date of investment till the date of refund, whichever is higher."

SAT directed Sebi to decide those issues afresh after affording an opportunity of hearing to the appellant and respondent (one A K Muthuswamy), who had invested in the scheme and had complained against the art firm.
Except finding fault with the art firm in not seeking registration before operating the scheme, no fault is found in the scheme operated by the company, SAT said.
Sebi did not find fault with the scheme of Osian's Art Fund, which neither offered guaranteed return nor offered interest on the amount invested, SAT said. In such a case, on what basis the firm was directed to refund the amount invested along with interest, it added.

According to SAT, the markets regulator itself was not sure till 2013 as to whether the scheme in question is covered under CIS or not.
In fact, when a person who had invested in the scheme had made a complaint against the art firm, Sebi had informed him in January 2011 that the scheme was not covered under CIS and therefore, investors cannot seek redressal of their grievances from the regulator.
Later, in November 2012, SAT had set aside the Sebi's communication of January 2011 and had directed it to re-examine the issue afresh. Then, Sebi passed the order in April 2013 holding that the scheme floated by the appellant is covered under CIS.