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The Securities Appellate Tribunal on Tuesday admitted an appeal filed by Osian's art fund against market regulator Securities and Exchange Board of India (Sebi)'s order, wherein the fund was asked to wind up its 'collective investment schemes' and refund investors' money with interest within three months.
In its first clampdown against art funds raising money from public without its approval, Sebi passed this order on April 15, asking Osian's to wind up all its collective investment schemes and refund the investors' money within three months with an annualised interest of 10 per cent. Challenging the order, Osian's approached SAT and its petitions came up for hearing on Tuesday, with the Tribunal deciding to admit the plea.
Osian's had earlier submitted before Sebi that the regulator's collective investment scheme (CIS) regulations do not cover specialised funds, such as art funds.
Sebi has also said it would initiate proceedings against Osian's and its promoters, directors and other top executives for "possible offences of fraud, cheating, criminal breach of trust and misappropriation of public funds", if a winding up and repayment report was not submitted within three months.
In its order against Osian's, Sebi has cited the high- profile Sahara case, wherein two unlisted Sahara firms were asked by the Supreme Court to refund to investors over Rs 24,000 crore raised through certain bonds.
Osian's-Connoisseurs of Art Pvt Ltd, which had raised Rs 102.4 crore from 656 investors for one of its art-fund schemes, has also been restrained by Sebi from accessing the capital markets till it winds up its collective investment schemes and refunds the investors' money. The case is widely expected to have bearing on many other entities, which could be raising money from the investors without required approvals from Sebi and other regulators.
Sebi had begun a probe in 2007 after noticing that Osian's was soliciting contribution in the nature of investments from the investors under the scheme of art fund with an objective to invest in the art works. Sebi, however, said the company's activities were in the nature of collective investment schemes and therefore required a registration with Sebi.
In an advisory issued in February 2008, Sebi had said art funds were collective investment schemes and had advised investors against investments in such funds operating without a certificate of registration from Sebi.
Osian's has said CIS norms were aimed at schemes involving the public and did not apply to art funds offered to sophisticated investors on a private placement basis.
Under the scheme, people can invest minimum Rs 10 lakh and in multiple of Rs 5 lakh thereafter.
The regulator said CIS regulations do not make any distinction with regard to the various classes of investors and "it cannot be anybody's case that law protects only the small investors and affluent investors are left on the peril of unscrupulous business men".
