Growpital platform ordered to cease operations for running unregistered collective investment scheme worth Rs. 184 crore

SEBI found that entities operating the Growpital platform prima facie violated provisions of SEBI Act and CIS Regulations by running an unregistered collective investment scheme that mobilized over Rs. 184 crore from investors. The Board determined this constituted fraudulent practice under PFUTP Regulations as no prior registration was obtained. SEBI issued an ad-interim ex-parte order directing entities to cease CIS activities, stop collecting funds, not divert existing funds, freeze assets, provide asset inventory within 15 days, remove all promotional materials, and refrain from securities market access. Banks and depositories were directed to freeze accounts of named entities.

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Issues Involved:
1. Whether the scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (CIS).
2. Whether the Entities have prima facie violated any provisions of the SEBI Act, CIS Regulations, and PFUTP Regulations.
3. Who all are responsible for the violations.
4. Whether urgent directions need to be issued against those responsible for the prima facie violations.

Issue-wise Detailed Analysis:

Issue A: Whether the scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (CIS)Rs.

Analysis:

1. Nature of the Scheme:
- Growpital offers fixed tax-free profits ranging from 11-14% through investments in the agriculture sector.
- Investors become partners in an LLP, with their investments treated as capital contributions to the LLP.
- The funds are pooled and utilized for agricultural projects, and investors are promised assured returns.

2. Pooling of Contributions:
- The contributions from investors are pooled and used for agricultural projects.
- The LLP agreements facilitate easy entry and exit of investors, indicating an open-ended scheme.

3. Assured Returns:
- The website and YouTube videos claim guaranteed returns, which are distributed as per the consent letters signed by the investors.
- The LLP agreements state that profits are distributed to partners as per mutually agreed terms, with losses covered by the designated partners.

4. Management of Investments:
- The designated partners manage the funds and operations on behalf of the investors, who do not have day-to-day control over the scheme.
- The investors authorize Farm Silo Tech LLP to perform various functions on their behalf, including signing and executing LLP agreements.

5. Legal Framework:
- The scheme satisfies the four conditions mentioned in Section 11AA(2) of the SEBI Act, indicating it is a CIS.
- The scheme does not fall under any exceptions mentioned in Section 11AA(3) of the SEBI Act.

Conclusion:
The scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (CIS).

Issue B: Whether the Entities have prima facie violated any provisions of SEBI Act, CIS Regulations, and PFUTP RegulationsRs.

Analysis:

1. Violation of SEBI Act and CIS Regulations:
- Section 12(1B) of the SEBI Act requires registration to sponsor or carry on a CIS.
- Regulation 3 of CIS Regulations mandates that only a registered Collective Investment Management Company can carry on or sponsor a CIS.
- The Entities have not obtained the necessary registration, leading to a prima facie violation of Section 12(1B) of SEBI Act and Regulation 3 of CIS Regulations.

2. Fraudulent Practice under PFUTP Regulations:
- The illegal mobilization of funds through an unregistered CIS amounts to a fraudulent practice under Regulation 4(2)(t) of PFUTP Regulations.

Conclusion:
The Entities have prima facie violated the provisions of the SEBI Act, CIS Regulations, and PFUTP Regulations.

Issue C: Who all are responsible for the violationsRs.

Analysis:

1. Involvement of Entities:
- The funds are transacted through the bank accounts of Farm Silo Tech LLP and the three ZF Project LLPs.
- Yotta Agro Ventures Private Limited and Farm Silo Tech LLP are the designated partners of ZF Project 1 LLP.

2. Designated Partners and Directors:
- Ms. Gayatri Rinwa and Mr. Krishna Sharma are the designated partners in ZF Project 2 LLP and ZF Project 3 LLP.
- Mr. Rituraj Sharma and Ms. Gayatri Rinwa are designated partners in Farm Silo Tech LLP.
- Mr. Rituraj Sharma and Mr. Krishna Sharma are directors in Yotta Agro Ventures Private Limited.

3. Liability under SEBI Act:
- Section 27(1) of SEBI Act holds the designated partners/directors liable for the contraventions committed by the LLPs.
- The designated partners are responsible for the conduct of the business/affairs of the LLPs and are thus liable for the violations.

Conclusion:
Mr. Rituraj Sharma, Ms. Gayatri Rinwa, and Mr. Krishna Sharma are prima facie liable for the activities undertaken through the Growpital platform.

Issue D: Whether urgent directions need to be issued against those responsible for the prima facie violationsRs.

Analysis:

1. Investor Protection:
- The CIS Regulations aim to protect investors by ensuring transparency and proper management of funds.
- The increasing trend in fund collection and extensive social media activity indicate a significant threat to investors.

2. Immediate Action Required:
- To prevent further illegal mobilization of funds and protect investors, urgent directions are necessary.
- An ex-parte ad interim order is required to cease the unregistered CIS activities and safeguard the assets acquired from investor funds.

Conclusion:
Urgent directions need to be issued to protect the interests of investors and prevent further illegal activities.

Order:

1. Cease and Desist:
- Farm Tech Silo LLP (Growpital), ZF Project LLP 1, ZF Project LLP 2, ZF Project LLP 3, Yotta Agro Venture Private Limited, and the directors/designated partners are directed to cease and desist from floating any CIS and collecting money from investors.

2. Freeze Assets:
- The entities are directed not to dispose of or alienate any assets and to provide a full inventory of all assets held by them.

3. Withdraw Advertisements:
- The entities must immediately withdraw all advertisements and representations related to the unregistered CIS activities.

4. Market Restrictions:
- The entities are prohibited from accessing the securities market and dealing in securities.

5. Compliance and Reporting:
- The entities must submit details of partners/investors and contributions received within 15 working days.

6. Freezing of Accounts:
- Banks, depositories, and RTAs are directed to freeze the bank accounts and demat accounts belonging to the entities.

7. Communication:
- The order shall be sent to all relevant entities and authorities to ensure compliance.

8. Opportunity for Hearing:
- The entities may file their reply/objections within 21 days and indicate if they desire a personal hearing.

9. Further Action:
- The order is without prejudice to SEBI's right to take any other action in accordance with the law.

10. Immediate Effect:
- The directions shall take effect immediately and remain in force until further orders.

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