sebi:WTM/SR/CIS-CHLO/NRO/123/12/2014

SEBI · SEBI · 2012-11-22 · S Raman, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Interim order restraining GCA and its Directors from collecting fresh money, launching new schemes, disposing of assets, and diverting funds; directions to submit asset inventory and information within 15 days; show-cause with 21 days to reply and seek personal hearing

Provisions invoked

• s. 11A
• s. 12

Regulations

• Reg. 3
• Reg. 13
• Reg. 4(2)(t)

Parties

• G.C.A. Marketing Private Limited (CIN:U52599PB2005PTC28378)
• Shri Amarjeet Singh Cheema (PAN-ADEPC5281C)
• Shri Gurdeep Singh (PAN-BIVPS7069D)

Holding

The schemes floated by GCA for mobilising funds under its 'contract farming' business prima facie satisfy the conditions of a 'collective investment scheme' under Section 11AA of the SEBI Act, 1992, and GCA carried on such CIS activities without registration in contravention of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. An interim order was passed restraining GCA and its Directors from further fund mobilisation and disposing of assets.

Full text

Page 2 of 14 (f) Sample copies of agreement letter/contract required to be entered by investor, (g) Details of scheme wise amount mobilised along with number of investors, (h) Certified copies of audited financial statements and Income Tax Returns filed for the last three years. 3 The aforesaid letter dated November 22, 2012 was returned undelivered by the postal authorities with the remark ‘premises locked.’ SEBI issued reminders dated July 22, 2013 and September 02, 2013. In response thereto, GCA vide letter dated September 19, 2013 sought extension of time upto 21 days to submit documents and the same was granted vide SEBI’s letter dated September 27, 2013. 4 Subsequently, GCA vide letter no. GCA/BO/2013-14 dated September 30, 2013 furnished information such as MOA, details of Directors, investment scheme brochures, financial statements for the years 2009-10, 2010-11 and 2011-12 and Income Tax Returns for the last three years. GCA also sought 15 days time to furnish information regarding scheme wise amount mobilised along with number of investors. 5 Thereafter, SEBI received a copy of the 'Report' on preliminary investigation conducted into the affairs of GCA as forwarded by Central Bureau of Investigation, New Delhi ('CBI') vide letter no. 8604/PE/01/2011 BPL/EOZONE/CBI/New Delhi dated October 23,

Page 3 of 14 agreement holders, company requires at least 93 times the inventory it has with it. In addition there are another 2,02,461 agreement holders who have to be allotted plants; v. The total lease money receivable by the company against all lease agreements was approximately `567 crores and out of which company has received `219 crores. The total buyback assured price against agreements not cancelled is `510 crores; vi. The above indicates that company is only collecting funds from the customers under garb of sale or lease of plants which it does not have; vii. It is also found that complainant / agreement holders who had filed refund claims with District Collector that they were under the impression that it was an investment policy with good returns and that they would be paid the amount shown in brochures at the end of agreement period." 6 Thereafter, GCA vide letter no. GCA/BO/2013-14 dated October 14, 2013 submitted details regarding scheme-wise amount mobilised and number of investors. 7 I have carefully considered the material available on record such as correspondence exchanged between SEBI and GCA along with the documents contained therein,

Page 4 of 14 ii. Contract Farming agreements with farmers for sale of plant saplings or lease of farms etc. 8.4 As regards the business of 'multilevel marketing of herbal products and tree saplings', it is noted that GCA appoints distributors /agents for herbal products and plant saplings and gives them initial starter kit. These distributors/ agents further introduce new agents. GCA has evolved a commission structure for various levels of distributors incentivising the sale of herbal products and tree saplings. It is noted that GCA earned a revenue of `67 lakh in 2011-12; `25 lakh in 2010-11; `42 lakh in 2009-10; and `54 lakh in 2008-09 from sale of its products. The analysis of financial statements of GCA reveals that the business of selling herbal medicines and products is minuscule as compared to the revenues earned by the ‘contract farming’ business of GCA. 8.5 As regards 'Contract Farming', it is noted from the marketing brochure, application forms, copies of agreement and certificates issued by GCA that it enters into contract farming agreements with farmers/investors to raise bio-diesel plants like 'Jatropha,' 'Kranj 'and 'Ratanjot'. The farmers/investors can either get allotment of the plants/trees themselves and be entitled to entire sale proceeds or seek the caretaker from the GCA under an agreement to share profits. The farmer can also enter into a ‘Buy Back Agreement’ with GCA under which the company buys the seeds/harvest from the farmers and sells it on behalf

Source: SecMarx — sebi:WTM/SR/CIS-CHLO/NRO/123/12/2014. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.