After an over seven-year probe into alleged money-pooling through ‘art funds’, SEBI on Tuesday let off Bajaj Capital and two other entities as they were not found to be running illicit ‘collective investment schemes’.
Bajaj Capital was found to be only into an advisory business with regard to art as an investment option, while it did not launch any ‘art fund’ to actually collect money from investors, SEBI said in an order.
At least two other entities, Marwah Fine Art Dealers and RR Investors Capital Services, were also let off by SEBI after the regulator’s probe concluded that they were not running any art fund schemes in contravention of the CIS (Collective Investment Schemes) regulations, the regulator said in separate orders passed on Tuesday.
SEBI had begun probe into various cases of art funds being sold as investment schemes way back in 2006-07. At that time only, SEBI had issued notices to Bajaj Capital, part of a leading business conglomerate, as also to Marwah and RR Investors among others.
Some other entities are still being probed for allegedly running illicit investment schemes in name of art funds.
So far, only one major entity, Osian’s Art Fund, has been found guilty by SEBI of violating its norms with regard to collection of money from investors through art fund schemes.
Soon after SEBI passed an order against Osian’s in April 2013, the entity approached the Securities Appellate Tribunal (SAT) against the regulator’s direction to refund over Rs 100 crore and stop running any such schemes. The case is still being heard by SAT.
Way back in February 2008, SEBI had also issued a public notice warning investors against “investments in Art Funds, funds/schemes launched by companies or any entity formed for the purpose” and had said that such activities were in nature of ‘collective investment schemes’ and need its approval.
Among the three cases disposed by SEBI on Tuesday, Marwah group had sought SEBI’s guidance in January 2007 to set up an art fund, after the regulator had issued a show-cause notice to them.
The regulator had prima facie observed that the entity was carrying out activities in the nature of a collective investment scheme without registering for the same. Similar prima facie observations were made by SEBI with regard to Bajaj Capital and RR Investors as well.
After detailed probe into these cases, SEBI however concluded later that neither did they launch any art funds, nor they collected money from investors for such schemes till date regarding any scheme of ‘art fund’.
Consequently, SEBI has found that these are not fit cases to impose any penalty and therefore the proceedings have been disposed off without any regulatory actions.
The case relates to media reports during the year 2005-2006 regarding the fund mobilisation activities by- Bajaj Capital, RR Investors and Marwah Fine Arts.
After coming across the reports the market watchdog had asked the three entities to furnish certain information and documents including structure of the fund, number of schemes launched, terms and conditions of the art schemes, number of investors and amount collected in each schemes.
In reply to the show-cause notice, Bajaj Capital had submitted that it was not engaged in soliciting investments from the investors under any scheme of ‘art fund’.
Further, it had stated that it had neither set up any ’art fund’ nor intend to set up an ‘art fund’ in the future and that it did not accept money from its investors for being pooled and utilised for the purpose of any scheme.
“I have perused the material available on record and find that there is nothing to show that Bajaj Capital Ltd had mobilised funds under the scheme of ‘art fund’ or launched any scheme of such nature,” SEBI whole-time member Prashant Saran said in the order.
Among others, SEBI noted that Bajaj Capital’s audited financial statements for the accounting periods from the financial year 2006-2007 till the financial year 2011-2012 did not show any entry for advance taken from the investors.
“Having seen the said audited financial statements, I am unable to conclude that the activities of Bajaj Capital Ltd were in the nature of CIS as defined under...SEBI Act,” Mr. Saran noted.
Similar findings were noted by the market regulator in the case of RR Investors.
In the case of Marwah Fine Arts, the entity had stated to SEBI that it is engaged only in the sale of paintings and never indulged in collection of money.
Noting, among others, that the credit entries in the Marwah’s bank account had no regular receipt of money or credit of huge amount, SEBI concluded that the entity was not indulged in any unauthorised money-pooling activity.
Besides, SEBI observed that it had not received any complaint against all the three entities “till date regarding any scheme of art fund.”
