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CIS REGISTRATION

The conditions of provisional registration are as under:
  • The entity shall not launch any new scheme or raise money from the investors even under the existing scheme, unless a certificate of registration is granted to the entity by the Board under Regulation 10 (please refer to Regulation 69 of the captioned Regulations)
  • The entity shall get its existing scheme(s) rated by a credit rating agency within two years from the date of grant of provisional registration;
  • The entity shall get its existing scheme(s) appraised by an appraising agency within a period of two years from the date of grant of provisional registration;
  • The entity shall create a trust and appoint trustees in the manner specified in Chapter IV of the captioned Regulations within a period of two years from the date of grant of provisional registration;
  • The entity shall comply with accounting and valuation norms, in respect of its existing scheme(s), as specified in Part-II of the Ninth Schedule to the captioned Regulations within a period of two years from the date of provisional registration;
  • The entity shall comply with accounting and valuation norms, in respect of its existing scheme(s), as specified in Part-II of the Ninth Schedule to the captioned Regulations within a period of two years from the date of provisional registration;
  • The entity shall meet the minimum net worth of Rupees one crore within one year from the date of grant of provisional registration which shall be increased by Rupees one crore each within two years, three years, four years and five years from the date of grant of provisional registration;
  • The entity shall meet the minimum net worth of Rupees one crore within one year from the date of grant of provisional registration which shall be increased by Rupees one crore each within two years, three years, four years and five years from the date of grant of provisional registration;
  • The entity shall not dispose off the scheme property except for meeting obligations arising under the offer document of the scheme;
  • The entity shall comply with the conditions specified in Regulation 11 of the SEBI (CIS) Regulations, 1999; The entity shall forthwith inform the Board of any material change in the information or particulars previously furnished which have a bearing on the provisional registration granted to the entity;
  • The entity shall comply with the Code of Conduct as also other instructions and other operational guidelines / directions / instructions etc. as may be issued by SEBI from time to time in the interest of investors. Any breach thereof would be treated as violation of the Regulation making the entity liable for action under the provisions of the said Regulations / SEBI Act, 1992;
  • The entity shall comply with the Code of Conduct as also other instructions and other operational guidelines / directions / instructions etc. as may be issued by SEBI from time to time in the interest of investors. Any breach thereof would be treated as violation of the Regulation making the entity liable for action under the provisions of the said Regulations / SEBI Act, 1992;
  • The entity shall abide by the SEBI (Collective Investment Schemes) Regulations, 1999 as amended from time to time in respect of the activities carried on by the entity

According to Section 11AA of the SEBI Act, CIS is any scheme or arrangement, which satisfies the following conditions :

  • The contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement
  • 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;
  • The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
  • The investors do not have day to day control over the management and operation of the scheme or arrangement.

History of CIS in India

In 1990s there were various instances of collection of money by numerous agro-based and plantation companies, which eventually failed to provide any return on the investments (despite promising around 18-30% returns) including the repayment of principal amount. In this context, the Government of India, vide its press release dated November 18, 1997, decided that an appropriate regulatory framework for regulating entities which issue instruments like agro bonds, plantation bonds etc., will be put in place. The government decided that the schemes through which such instruments are issued would be treated as "Collective Investment Schemes" (CIS) coming under the provisions of the SEBI Act.

Accordingly, SEBI vide its press release dated November 26, 1997 and December 18, 1997, prohibited collective investment schemes from sponsoring any new scheme till the CIS regulations are notified. The press releases further stated that instruments such as agro bonds, plantation bonds would be treated as CIS coming under the SEBI Act, 1992. All the companies having such activities were required to file information with SEBI. Moreover, general public was also informed that no person can sponsor or cause to be sponsored any new collective investment scheme and thereafter raise further funds.

Meanwhile, a committee was formed under Dr. S.A. Dave to examine and finalize the draft regulations for CISs. The committee submitted its report on 5th April 1999.

Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999 was issued on October 15, 1999. As per the CIS regulations, any person who has been operating a Collective Investment Scheme at the time of commencement of the CIS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the Regulation, within a period of two months from the date of the notification. In case, such an application is rejected, the entity was required to wind up its existing schemes in the manner as specified in the Regulations. No entity was / is allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI.

In 2013, in the backdrop of Sahara / Sharada scams, SEBI modified the definition of CIS to include any scheme / arrangment floated by any person (instead of a company as was defined earlier); and any such scheme with corpus of more than Rs. 100 Crore shall also be deemed to be a CIS by SEBI.

Registered Collective Investment Management Company

A Collective Investment Scheme (CIS), as its name suggests, is an investment scheme wherein several individuals come together to pool their money for investing in a particular asset(s) and for sharing the returns arising from that investment as per the agreement reached between them prior to pooling in the money. The term has broader connotations and includes even mutual funds. For instance, in UK, the unit trust scheme is a collective investment scheme. However, in India, as in US, the definition of CIS excludes mutual funds or unit trust schemes etc and is given a strict definition in Section 11AA of the SEBI Act, 1992. CISs are regulated by the securities market regulator – SEBI - under SEBI (Collective Investment Scheme) Regulations, 1999.

Through the SEBI ordinance dated 18th July 2013, any pooling of funds under any scheme or arrangement, which is not registered with SEBI, involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.

However, as per the SEBI Act, the following activities have been exempted from the CIS Regulations. Any scheme or arrangement:

  • made or offered by a co-operative society
  • under which deposits are accepted by non-banking financial companies
  • being a contract of insurance
  • under which deposits are accepted under section 58A of the Companies Act, 1956
  • under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society
  • falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982(40 of 1982);
  • under which contributions made are in the nature of subscription to a mutual fund;

A registered Collective Investment Management Company is eligible to raise funds from the public for a particular Scheme and in turn issues them what are called “units” (which are essentially shares of that Scheme given in proportion to the contribution made by the investor). These units, by law, have to be compulsorily listed on the stock exchange platform.

The FAQs on CIS may be seen at http://www.sebi.gov.in/faq/cis_faq.html

Even though SEBI had received complaints against over 660 entities, only one entity is formally registered as a CIS with SEBI; however no scheme has been known to be launched by this entity till date. In view of the same, SEBI has taken initiatives (Ordinance of 2013) to prune the definition of CIS accordingly.

The SEBI website reflects the status of the CIS cases. Such status includes name of accused (directors/ promoters), court case no., court name, date of filing of court case for these entities. This information is available at the link :

http://www.sebi.gov.in/sebiweb/home/document_detail.jsp? link=http://www.sebi.gov.in/cms/sebi_data/docfiles/21678_t.html

In addition to this, the court judgment details (along with a copy of the final court orders) are also available on the SEBI website. This information is available at the link : http://www.sebi.gov.in/cms/sebi_data/attachdocs/1315992946034.pdf