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      Question

      A real estate developer, "Grandeur Estates," launches a

      "Plot Buy-Back Scheme" where investors pay ₹10 lakhs each for a proportionate undivided interest in a massive 500-acre land bank. The total corpus collected is ₹120 Crores . The developer argues that this is a simple real estate transaction and not a CIS. SEBI issues a show-cause notice. Which of the following is the most legally sound argument for SEBI to classify this as a CIS?
      A Any real estate project exceeding ₹100 Crores is automatically a CIS under the Real Estate (Regulation and Development) Act (RERA). Correct Answer Incorrect Answer
      B The scheme satisfies the "Deeming Provision" under Section 11AA(1A) because the corpus exceeds ₹100 Crores and it does not fall under any statutory exclusions. Correct Answer Incorrect Answer
      C Since the investors do not have day-to-day control over the management of the land, it satisfies the "Management by Proxy" test under Section 11AA(2). Correct Answer Incorrect Answer
      D Both (B) and (C) are correct and can be applied concurrently to establish jurisdiction Correct Answer Incorrect Answer
      E The scheme is exempt because "Real Estate" is a state subject under the Seventh Schedule of the Constitution, and SEBI lacks territorial jurisdiction. Correct Answer Incorrect Answer

      Solution

      Explanation: To classify a scheme as a CIS, SEBI can use two paths. First , it can prove the scheme meets the functional criteria in Section 11AA(2) (Pooling, profit motive, and lack of day-to-day investor control). Second , even if there is ambiguity in the functional criteria, the ₹100 Crore threshold in Section 11AA(1A) acts as a "catch-all" deeming provision. In the case of PGFL vs. Union of India, and later in the Sahara and PACL cases, the courts upheld that real estate "buy-back" or "land-allotment" schemes often function as disguised CIS. If the corpus exceeds ₹100 Cr, the burden of proof shifts heavily to the entity to prove they fall under a specific exclusion (like RERA, though RERA registration does not automatically exclude an entity from SEBI's CIS net if the "pooling" characteristics are dominant).

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