Securities and Exchange Board of India (SEBI) has issued a notice against Gurugram-based agri investment platform Growpital, barring the company from collecting money from new partners and investors or diverting any funds collected until further orders.
The notice comes on the back of SEBI’s preliminary investigation into Growpital’s investment model which assured ‘partners’ fixed income with 11%-14% tax-free returns. The regulator concluded that Growpital was in violation of certain regulations under CIS (Collective Investment Schemes) Regulations, 1999.
Specifically, SEBI concluded that there is a violation of Section 12(1B) of SEBI Act read with Regulation 3 of the CIS Regulations. Under the CIS Regulations, no entity, other than an approved Collective Investment Management Company, is allowed to sponsor or launch a collective investment scheme.
Growpital’s Tax-Free Returns Promise
Growpital claims to have more than 20,000 acres of farm portfolio, which investors can earn returns from through a collective investment scheme.
On its website, Growpital claimed that profits on investments are “absolutely assured, without any catch, this happens because the profits are distributed as advance share to the fractional owners from the revenues generated by the farm projects.”
As on January 26, 2024, Growpital’s website also said, “As we have a gross margin of 60-70% from every farmland and after paying all the returns, land lease and operating expenses we are left with a good buffer of 20-25%, we keep this buffer amount to hedge the risk part. That’s why we can commit the guaranteed profit share.”
However, Inc42 was not able to find the same details on the FAQ section on Growpital’s website on Tuesday (January 30), to verify these statements that have been published by SEBI.
Growpital offered various investment plans, each of which had a specified minimum investment amount, a tenure of 12 months, and payouts at different frequencies. The platform assured returns ranging from 11%-14%.
When an investor invests through the Growpital platform, they become a partner in a limited liability partnership (LLP) and the amount invested by them is treated as capital contribution to the LLP.
SEBI also revealed that multiple LLPs were incorporated for this purpose, prefixed with the name of ‘ZF Project’. “The activities of Growpital… show that prima facie a CIS is being operated. However, no material is available on record to indicate that any of the entities involved in the instant arrangement has formed a Collective Investment Management Company that has obtained a certificate under CIS Regulations,” SEBI said.
As per CIS Regulations, entities have to make quarterly disclosures of financial results but no quarterly or half-yearly financial results were shared by the LLPs with its investors and partners, SEBI found.
As on December 31, 2023, over INR 184 Cr were mobilised through Growpital from various sources. This is also a violation of SEBI rules on collective investments which are limited to a quantum of INR 100 Cr.
SEBI’s Order Against Growpital
SEBI also found multiple other violations. For instance, Growpital claims that the assets (farm projects) are owned by the LLP and all the partners in the LLP are considered legal co-owners. However, SEBI found that there is nothing on record that indicates any earmarking or segregation of the assets across its investors or partners.
“It thus appears that these provisions are being mis-utilised in order to run a pooled investment scheme by inducting any number of investors as “partners” in the LLP (approximately 4,500 investors have been made partners in ZF Project 1 LLP as per the supplementary agreement dated December 01, 2023) with a capital contribution of as low as INR 5,000,” the market regulator found.
SEBI further said that Growpital is running a veiled investment scheme, claimed to offer an investment opportunity in alternative asset classes and compared itself to a mutual fund. The regulator ordered Growpital to “cease and desist” from floating any collective investment schemes until further orders.
The platform has been ordered to “immediately” withdraw and remove all websites, advertisements, representations, literatures, brochures, materials, publications, documents, and communications, concerning the unregistered CIS activities.
Besides this, Growpital has been barred from accessing the securities market and buying, selling or dealing in securities directly or indirectly. SEBI also directed Cashfree Payments India Private Limited to not to accept any payments made through Growpital or on behalf of Growpital, until further orders.
Commenting about the notice on X, Capitalmind founder and CEO Deepak Shenoy said investors need to be wary of phrases such as “guaranteed profit” or “tax free” returns from such schemes.
“The company [Growpital] will appeal, undoubtedly. But this issue creates massive uncertainty – and if investors want to panic exit, it might simply not be able to repay. There is potentially enough legal loopholes and probably enough capital – to pay back at least some amount of the money taken. But it’s going to see pain,” Shenoy posted.
It is pertinent to note Growpital has an extensive social media presence – a YouTube channel with over 5,400 subscribers, a WhatsApp community, and at least two Telegram channels.
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