How Investors of Yatra Art Fund Fought a 10-Year Long & Hard Battle To Get Their Money Back!
For a majority of investors, once they invest their hard-earned money, there is no guarantee that they would receive good returns. In fact, many struggle to even get their principal (investment) amount itself from the entity. Here is an inspiring story of a small group of investors, who fought a very long and hard battle for 10 years to not just receive their hard-earned money but also the interest. 
These are six investors of Yatra Art Fund, including Rajesh Choudhary, a chartered accountant (CA), and five others. On 12 February 2020, the Supreme Court upheld an order passed by the Securities and Exchange Board of India (SEBI) in favour of the investors and, pursuant to the order, Yatra Art Fund has now refunded the principal amount to the investors, while the interest is pending as yet.
"The SEBI order was the culmination of a fight put up by us, a group of a few investors and thereafter, the legal process followed with the Fund challenging the order before the Securities Appellate Tribunal (SAT) and thereafter before the Supreme Court," Mr Choudhary says.
The success of the investors of the Yatra Art Fund brings back memories of sufferings of investors of another art fund, Osian’s-Connoisseurs of Art Pvt Ltd (or Osian's, which managed Osian's Art Fund). In April 2013, in a change of mind, SEBI had finally asked Osian's to wind up its existing collective investment scheme (CIS) and refund the money collected from investors. But more about Osian's Art Fund later. 
In its order, the bench of justice Rohinton Fali Nariman, justice S Ravindra Bhat and justice V Ramasubramanian stated, "...we find that this litigation has been going on for an extremely long period of time and instead of remanding the matter to SEBI to decide the refund issue afresh, we order as follows...The principal amount repayable to each investor of both the schemes shall be paid back within a period of six months from today..."
Talking about interest to be paid to investors, the bench says, "So far as the interest at the rate of 10% is concerned, this amount will be paid on the principal outstanding amount from the date on which it becomes due to each such member, till the date on which each Fund came to an end, i.e., insofar as Fund No1 is concerned till 15 September 2011 and so far as Fund No 2 is concerned till 31 January 2012. The aforesaid interest shall be paid within nine months from the date of this judgment."
According to Mr Choudhary, the battle, however, was not so easy, especially, when not all investors were interested in joining. He says, "Initially, a few of us filed complaints individually before SEBI but to no avail. Thereafter, with the email data base with me (inadvertently one of the mails was copied all), I decided to send the mail to all the investors. Quite a few mails bounced, leaving us in contact with about 75 investors. We called a meeting but only six attended. However, that strength was enough for us to take the matter forward with SEBI."  
"We made a compelling argument for revival of the matter that was lying in cold storage and got excellent support from SEBI in the matter. We took some pro-bono advice from a couple of lawyers associated with the core team members and my professional background as a CA helped in the matter," he says. 
Although six of the investors had decided to chip in some funds, considering the nature of the matter, Mr Choudhary says, they were not sure of the costs that it would eventually entail. "At the end, however, we did not have to spend anything at all. Had SEBI decided against us, we might have been in a quandary and might have given up right there."
Meanwhile, the group of investors also explored the option to approach the economic offences wing (EOW) of police. However, considering the time and cost involved in this route, they decided against it.
Mr Choudhary says, "After the SEBI order against the Fund, the domain of the matter shifted to that between the Yatra Art Fund and SEBI where we did not have any role to play. Even before the SC, the investors were never made a party. In the end, justice prevailed, albeit a bit delayed. Refund after ten years means the value of money has easily halved and the promoters would not be complaining much having got to use the money all these years!"
In many of the cases, where investors are fighting hard to get back their invested money, we found that all these efforts are carried out on a sole mode instead of any class action. Moneylife Foundation, on several occasions, had tried to bring together such investors so that they can take up the matter as a group and initiate a class-action suit. But, for inexplicable reasons, investors have not come together and are individually fighting lone battles. One of the major issues that makes the investors go on the back foot is the cost involved in fighting the battle with regulators or through litigation.
"Yes, I understand the challenge surrounding the costs when it involves a group of investors and moreover the issue is that of undefined legal costs,” Mr Choudhary says, adding, "As an accountant, I would suggest putting a cap on legal expenses, say 10% of the total amount involved, which the investors might be fine with spending but still the challenge of getting everyone on board would remain." 
"With this Yatra experience, I can tell you that the first stage of the fight is very critical. If the first order is favourable, most investors would fall in line and that could also limit the legal costs going forward. It is easier said than done, though!" he added. 
Mumbai-based Sakshi Art Gallery’s Geetha Mehra, with the help of venture capitalist Pravin Gandhi and Sanjay Kumar launched Yatra Art Fund in 2005. These three, along with Nilesh Shah of Edelweiss Capital, were the four trustees and advisors of the fund. While Ms Mehra and Mr Kumar were promoter trustees, the other two were supposedly independent trustees.
For its first tranche, Yatra Art Fund was advised by Edelweiss and collected Rs10.75 crore in September 2005. The Fund had a lock-in period of five years.
Buoyed by the success of the first tranche, Yatra then launched the second tranche of its Fund. The Yatra Art Fund -II, launched in 2006, mobilised around Rs23 crore from investors, mostly high networth individuals (HNIs).
The minimum investment amount into the scheme was Rs10 lakh, out of which Rs5 lakh were paid at the time of application and the balance was called for later. The scheme became operational in January-February 2007 with a total committed corpus of over Rs21 crore. As per the terms specified, it should have ideally closed in 2011; however, investors were advised in January 2011 that it is being extended by another year as the market had turned bad.
According to the investor, each investor into the scheme was handed over only 50% of his principal in parts during 2011 and 2012 and the balance was indicated as a loss. Many investors have written to, and some have even personally met, the trustees to seek clarifications. However, no proper response was provided. 
“While it is possible for an investment to lose value, in this case, the available data seems to indicate that the actual loss was primarily due to mismanagement of the fund and its assets by the trustees. Out of the actual loss, almost 50% has been wiped out over the term of the scheme in fees and expenses. The trustees had complete right on what expenses to approve and it seems that they have used it fully for personal gains at the expense of investors,” an investor had told Moneylife in April 2013. (Read: After Osian’s will investors of Yatra Art Fund-II get justice?)
The Supreme Court's judgement mentions that, on 18 June 2007, SEBI informed the trustees of the Yatra Art Fund that both their funds are CIS and that they should apply for a certificate of registration for these two funds. Yatra Art Fund-1, however, denied that its activities fell under CIS, which led to SEBI issuing a show-cause notice on 12 October 2007 to the Fund.
The next month, Yatra Art Fund-1 responded to SEBI contending that there was no violation of Section 12 (1B) of the SEBI Act read with Regulation 3 of SEBI (CIS) Regulations and, as the appellants were not registered in the form of a company, the Regulations themselves would not apply. The Fund also made detailed representation before SEBI twice. The contention of the Yatra Art Fund that it was not a company and, hence, cannot come under SEBI's CIS regulation, however, went against it in the Supreme Court. 
"It appears that, at this point of time, SEBI itself was unsure as to whether such funds would amount to collective investment schemes. However, in 2013, the matter was resuscitated and after giving the appellants a hearing, as many as nine investors complained with regard to Trust Fund No2, including an Investors’ Association, an order was delivered by a whole-time member of SEBI on 6 November 2015," the apex court observed.
Not happy with the SEBI order, the Yatra Art Fund then approached the SAT. Referring to its own judgement in the Osian’s – Connoisseurs of Art matter, the SAT on 21 August 2017 disposed Yatra Art Fund's appeal.
Senior counsel KV Vishwanathan, appearing for the Yatra Art Fund, argued that it would not be possible for the Fund to fall foul of the law considering that Section 11AA (of SEBI Act) uses the word 'company' and not 'person', and as his client carried on this business in the form of a Trust, the provisions of the SEBI Act would not be attracted at all.
The bench, however, observed, "This argument would fly in the face of both Section 12(1B) and the CIS Regulations, in particular, Regulation 2(h), which defined a 'collective investment management company'. Regulation 3 of the CIS regulation states 'No person other than a collective investment management company, which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme.' The statutory scheme, therefore, is that, if a CIS, as defined, is to be floated by a person, it could only be done in the form of a collective investment management company and in no other form."
"Once the statutory scheme becomes clear, it is clear that the CIS that was being carried on by the appellants in the form of a private trust would be in the teeth of the Statute, read with the CIS regulations, and would thus be illegal. This being the case, it is difficult to upset any part of SEBI’s order...," the bench says.
Coming back to Osian's Art Fund, which was launched in 2006 and had raised Rs102.40 crore from 656 unit-holders across 39 cities, most of them HNIs. The scheme used to declare net asset value (NAVs) showing 30% returns, but when it was time for redemption, the money was not forthcoming. The scheme was wound up on 10 July 2009.
Osian’s-Connoisseurs of Art Pvt Ltd refused to take any responsibility for the Osian's Art Fund by claiming that it was only the sponsor to the art fund, which was a private trust formed under the Indian Trust Act, 1882. Oseta Investments Trustee Company Pvt Ltd (Oseta) was the trustee and Osian’s-Connoisseurs of Art acted just as an asset management company (AMC) for the art fund. 
Both Oseta and Osian’s-Connoisseurs of Art maintained that the SEBI's CIS regulations did not cover art funds and were meant only for plantation and agro companies.
SEBI in its order had said that provisions of Section 12(1B) and Regulation 3 are mandatory and both contain substantive provisions of law. “On careful examination of these provisions it is clear that they intend to cover the whole gamut of entities or persons, natural, juristic or otherwise, who sponsor or cause to sponsor a collective investment scheme so as to bring them into the regulatory framework of the SEBI Act and CIS Regulations through registration. Therefore, no person other than a collective investment management company that has obtained a certificate of registration from the board can sponsor or cause to sponsor a collective investment scheme,” it said. (Read: Osian’s: SEBI asks the Art Fund to shut shop and refund investors’ money with 10% interest pa)
Moneylife has extensively covered Osian’ Art fund. Click on the following links to access some of the many stories. 
1 year ago
On the same date of the Yatra judgement, Osian's withdrew their appeal .... maybe realising which way the wind was blowing .... so does this mean Osian's case needs to be re-heard by SEBI to decide on the quantum of compensation to unit holders , based on the SAT order ?
1 year ago
Is Grip Invest a CIS? I asked them they claim they are not governed by SEBI as they form LLPs and sign investors as partners.

Disc: Not Invested
Free Helpline
Legal Credit