How does Timeshare Investments fall under the 

SEBI"s CIS Regulation, 1999 ?

If we examine the provisions, it falls very much under the definition of  CIS Regulations, 1999. Let us see what the Regulation says and how it applies to Timeshare investments:

Under the Regulations, a Collective Investment Scheme is any scheme or arrangement, which satisfies the conditions, referred to in sub-section (2) of section 11AA of the SEBI Act.

Any scheme or arrangement made or offered by any company under which,—

(i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement;

(ii) 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;

(iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;

(iv) the investors do not have day-to-day control over the management and operation of the scheme or arrangement.

In case of timeshare, the payments made by the investors are pooled and utilised for the purpose of the scheme, with a view to receive a part of the property and the income & benefits arising out of it. 

The property / investment is managed on behalf of the investors by the timeshare company or its associate company formed for this specific purpose and the investors do not have day-today control over the management and operation of the scheme.

Therefore, timeshare is a Collective Investment Scheme under the SEBI Regulations and these companies fall under these Regulations.

 Moreover, Investment in Timeshare is not specifically excluded under the scheme; As per the CIS Regulation, The following do not constitute a CIS:

1. any scheme or arrangement made or offered by a co-operative society or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;
2. any scheme or arrangement under which deposits are accepted by non-banking financial companies
3. any scheme or arrangement being a contract of insurance to which the Insurance Act, applies;
4. any scheme or arrangement providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952
5. any scheme or arrangement under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956);
6. any scheme or arrangement under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956);
7. any scheme or arrangement falling within the meaning of Chit business as defined in clause (d) of section 2of the Chit Fund Act, 1982 (40 of 1982);
8. any scheme or arrangement under which contributions made are in the nature of subscription to a mutual fund;

Obviously timeshare investment is not a FD with a NBFC, Pension Scheme, Insurance Scheme, Nidhi or Mutual Fund, as mentioned above. It is not forming part of the list of specific exclusions. 

Therefore, it is clearly evident from the above definitions explanations that, these investments very much come under the SEBI’s CIS Regulations, 1999.

Since it ( is not specifically excluded from the Regulation and ) fits into every explanation / defenition of a CIS, it is high time these investments are regulated in order to save lakhs of investors !

Why should THE TIMESHARE INDUSTRY  

be brought under the 

 SEBI’s COLLECTIVE INVESTMENT SCHEME REGULATIONS, 1999 ?

(The website of a timeshare company claims repeatedly that "Invest once at today"s prices" & "get your holidays at today"s prices-your holidays are inflation-proof")

 WHY SHOULD THEY BE REGULATED ?

1.     Lakhs and lakhs of investors across the Country are investing.

2.    Huge money is collected from the middle class and lower middle class investors.

3.    Lots of promises are made at the time of investment but not kept later.

4.   More and more money is collected again and again every year for purposes ( for which corpus monies  have been collected already in the beginning ).

5.    Lacks transparency and accountability on various counts.There is no one to regulate.

6.  Investors” money is locked and possibly lost forever, as they do not have a structured exit option.

7.  Investors are lured by misleading advertisements offering expensive gifts for investing and for referring, leading to the likes of MLM – Multi Level Marketing.

The key issues:

1.    Steep hike in Annual Amenities Charges, year on year, without any basis, even where huge lump sum amounts had been collected at the time of Original Investment itself.

2.     Sudden introduction of or Levy of Guest Charges in an arbitrary manner, without any logic or purpose.

3.      Unilateral and unjustified increase in Utility Charges at frequent intervals.

4.    No proper accounting or display of accountability for the monies collected initially at the time of investments, for the said purposes including the above.

5.     Accumulation & carry forward of holidays – mis-interpretation of the clauses in the Agreements, to unduly benefit the Timeshare Companies.

6.   Possibility that while on the one hand the investor is not motivated to utilize his entitlement & discouraged by various charges, non-availability and lack of transparency, on the other hand, the Company may be selling the same to outsiders – who are not members – in order to make hefty profits out of such sales.

7.     More importantly, selling of the product to the innocent/gullible investors at a lump sum price, under the guise that it entitles them to  “inflation proof” holidays, has led to large scale dissatisfaction amongst the investors.Go to the websites of some of these companies and you can see how misleading it is!

8.    When a disgruntled investor approaches the companies for an exit option, he/she  is dis-incentivised by means of various deterrents. No proper guidance is given in a timely manner to them on the procedures to be followed to sell it.

9.    In respect of a class of Timeshare Ownership, called Property Timeshare, the initial collection is made to cover the duration of ownership, which is beyond the lives of the original Investors. This class comes squarely under SEBI’s Regulations as the Immovable Assets are managed on behalf of the Investors by the Timeshare Company.

There are many more such issues and the list is endless; the attitude of the Companies is unthinkable. They lack responsibility as the entire money is taken in advance from the investor in full and apparently, having already been unduly benefited, they are not bothered. 

The very fact that they are not regulated makes them more bold and brazen, to commit more such acts. They are selling without enough stocks on hand. Before more investors part with their money, it is pertinent that such Companies come under SEBI Regulations.

How they fall under these Regulations . . . more about it in the next installment !