TaxTMI 
TaxTMI 
2024 (8) TMI 796
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....lic and is claiming to invest the funds so mobilized in agricultural projects to generate tax-free assured returns for its investors. SEBI was requested to look into the matter and take necessary action to safeguard the interests of investors. 2. Pursuant to receipt of the aforesaid communication, SEBI undertook a preliminary examination of the matter in order to ascertain whether the schemes / arrangements / plans being offered through the website https://www.growpital.com are in violation of any of the provisions of the securities laws, in particular, the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 ("CIS Regulations"). As a part of the said examination, details on the website of Growpital, Limited Liability Partnership agreements, consent letters, particulars of bank accounts, bank statements and documents available on Ministry of Corporate Affairs' ("MCA") database were analyzed. SEBI's preliminary examination, inter alia, revealed the following: 2.1. Growpital is a platform that is offering various investment plans to the public, in the agricultural sector. As on January 26, 2024, 3 plans are offered on the platform (avai....
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....orm is prima facie a Collective Investment Scheme ("CIS")? B. If the answer to issue A is in the affirmative, whether the Entities have prima facie violated any provisions of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"), CIS Regulations and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations")? C. If the answer to issue B is in the affirmative, who all are responsible for the violations? D. If the answer to issue C is in the affirmative, whether urgent directions, if any, need to be issued against those responsible for the prima facie violations? Issue A: Whether the scheme / arrangement operated through the Growpital platform, is prima facie a Collective Investment Scheme? 4. In this regard, I note the following from the material available on record: 4.1. As per the website of Growpital, it is a platform offering fixed tax-free profits in the range of 11 to 14% through investments in the agriculture sector. A screenshot that was obtained from the website of Growpital is placed below: Image - 2 Note: The above screenshot was taken on....
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....rma throughout the order. 4.5. As observed from the original LLP agreements, ZF Project 1 LLP, ZF Project 2 LLP and ZF Project 3 LLP are in the business of agriculture and allied activities, cultivation, growing, production harvesting and dealing in agriculture produce, etc. 4.6. Further, as per the information available on the MCA database, the details of the Designated Partners ("DPs") of ZF Project 1 LLP i.e. Yotta Agro Ventures Private Limited and Farm Silo Tech LLP, are as follows: Table 3 - Details of Designated Partners of ZF Project 1 LLP Name of Entity Date of incorporation Directors/Designated Partners Registered address Yotta Agro Ventures Private Limited April 15, 2020 Mr. Rituraj Sharma and Mr. Krishna Sharma F No S 2, V Cube Lavender, P No 166A, Triveni Nagar, Vishveriya Nagar, Gopalpura Bypass, Jaipur, Rajasthan - 302 017 Farm Silo Tech LLP## September 05, 2020 Mr. Rituraj Sharma and his wife, Ms. Gayatri Rinwa# # This relationship is established on the basis of bank KYC records. ## The address given on the website of Growpital is 4th Floor, B13-14, Sector 32, Gurgaon, Haryana - 122022. ....
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....rs in respect of voting) on any matter and give all consents, waivers and ratifications on my behalf and otherwise act with respect thereto as though it were the out right owner there of; ii. give and receive, make, execute and sign all notices, ratifications, consents, declarations, and any other documents required to be given or received." 4.11. The acknowledgement to the terms that is signed by a partner in the LLP, further states the following: "I am assured that, in the event of any losses, the Designated Partner, Yotta Agro Ventures Pvt. Ltd., will shoulder the responsibility of covering such losses." 4.12. Further, the terms and conditions mentioned in the original LLP Agreements (of ZF Project 1, 2 and 3) and the supplementary LLP Agreement (of ZF Project 1 LLP) include the following: i. "Profit/Loss Sharing Ratio: The Profit or Loss of the LLP shall be distributed to all the partners other than the Designated Partners to the extent such distribution provides the respective Partner with a return as may be mutually agreed between the partners in writing as mentioned in Schedule II in accordance with the consent letters signed by t....
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....gnated Partners by simple majority: Appointment, change and / or removal of the auditors, legal advisors, technical consultants and other key service providers and defining their powers and duties; Approval of the annual statement of accounts for adoption; Incurring any indebtedness or loans in the ordinary course; Entering into or any... arrangement outside ordinary course of business or otherwise not on arm's length basis with a related party." (Reference: Annexure 1 to the original LLP agreement) 4.13. It is seen from the supplementary agreement of ZF Project 1 LLP dated December 01, 2023 that there are approximately 4,500 partners in the LLP, and the amounts contributed by the partners, individually, is as low as Rs.5,000/-. The total capital contribution of the LLP is Rs.1,32,21,88,759/-. 4.14. In relation to the fund trail of investments made on the Growpital platform, the preliminary examination revealed the following: i. The funds invested on the platform flow to collection accounts of Cashfree Payments India Private Limited (CIPL). ii. CIPL is a payment aggregator that collects money from various accounts on behalf of its clients. Growpi....
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....I now proceed to examine the scheme/ arrangement / plan offered by / through the Growpital Platform in light of Section 11AA of SEBI Act read with Regulation 2(2) of the CIS Regulations. Section 11AA, which provides for the conditions to determine whether a scheme or arrangement is a CIS, reads as follows: Collective investment scheme. "(1) Any scheme or arrangement which satisfies the conditions referred to in sub- section (2) or sub-section (2A) shall be a collective investment scheme: Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme. (2) Any scheme or arrangement made or offered by any person 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 mov....
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....d to be a CIS. In this context, the scheme offered by Growpital is examined in light of the four conditions mentioned in Section 11AA (2): 6.1. The contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement. i. I note that the Growpital platform mobilizes funds through various investment plans that are then claimed to be used for the purpose of investment in agriculture projects. The investors through the platform sign a standard consent letter and are then made "partners" in an LLP with the promise of assured returns on their investment (as agreed in the consent letters). ii. A relevant issue here is whether prima facie, the arrangement / scheme offered by the Growpital platform is a veiled pooled investment scheme, being run under the guise of an LLP. In this context, I note the following: a. The ZF Project LLP Agreements empower the designated partners of the LLP to introduce new partners in the LLP, without the consent of any other partner. The Agreement also facilitates easy exit of a partner through voluntary resignation by giving 30 days' notice to the de....
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....strictions on the capital contribution that can be made by a partner. It thus appears that these provisions are being mis-utilized 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 Rs.5,000. f. The fact that Growpital is running a veiled investment scheme is also corroborated from the statements made on the website of Growpital wherein it claims to offer investment opportunity in alternative asset classes and compares itself to a mutual fund. Extracts from its website are reproduced below: * "Think of it as a mutual fund, where diversified crops are grown over the farm projects instead of equities and bonds." * "Growpital is one such alternative investment option which focuses on democratizing farm investment by providing access to high profit opportunities to retail investors. Moreover, the returns are guaranteed and tax free." (As on January 26, 2024) iii. Considering the above, prima facie, I am of the view ....
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....unt to hedge the risk part. That's why we can commit the guaranteed profit share." (FAQs as on January 26, 2024) iii. In consideration of the above, I am of the prima facie view that the second condition, which stipulates that the contributions or payments are made to such scheme of arrangement by the investors with a view to receive profits, income, produce or property as stipulated in Section 11AA (2) (ii) of SEBI Act is also fulfilled. 6.3. The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; and 6.4. The investors do not have day-to-day control over the management and operation of the scheme or arrangement. i. I observe from the consent letter that the partners in ZF Project LLPs authorize Farm Silo Tech LLP (Growpital) to perform wide ranging functions on their behalf which, inter alia, include: * Signing and executing LLP agreement, any subsequent amendments to the LLP Agreement including record of retirement from LLP, * Exercising all the rights, power, authority and privilege pursuant to the LLP Agreement including attending al....
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.... / the persons in charge of such DPs, on behalf of the investors/partners and the investors / partners do not have day-to-day control over the management and operation of the scheme or arrangement. Thus, prima facie, I find that the "scheme / arrangement" offered through the Growpital platform satisfies the third and fourth conditions stipulated in Section 11AA(2) (iii) and (iv) of SEBI Act. 7. I also note that the scheme / arrangement being run by Growpital does not fall under any of the exceptions mentioned in Section 11AA (3) of SEBI Act, which provides as under: "3) Notwithstanding anything contained in sub-section (2) [or sub-section (2A)], any scheme or arrangement- (i) made or offered by a co-operative society registered under the Co- operative Societies Act, 1912 (2 of 1912) 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; (ii) under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (iii) being a contract of insurance to wh....
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....nt, may continue to operate till such time regulations are made under clause (d) of sub-section (2) of section 30." 10. Further, as per Regulation 3 of CIS Regulations, registration is mandatory to launch a CIS. Regulation 3 of CIS Regulations provides that, "No person other than a Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme". 11. The activities of Growpital, as brought out from the various materials described above, 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. This prima facie leads to a conclusion that there is violation of Section 12(1B) of SEBI Act read with Regulation 3 of the CIS Regulations. 12. Additionally, as brought out in the preceding paragraphs, over Rs.132 crore has been mobilized through the Growpital platform in ZF Project 1 LLP alone. In fact, the website of Growpital had advertised that an amount in excess of Rs....
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....te Limited are Mr. Rituraj Sharma and Mr. Krishna Sharma. The designated partners of Farm Silo Tech LLP are Mr. Rituraj Sharma and Ms. Gayatri Rinwa. 16. I note as per Section 27(1) of SEBI Act, for a contravention committed by a company (including a body corporate), apart from the company, the directors of company (partners, in case of firm) who at the time of the contravention, were in charge and responsible to the company for the conduct of the business of the company are also deemed to be liable for the contravention. The relevant provisions in this regard is reproduced below: "Contravention by companies 27. (1) Where a contravention of any of the provisions of this Act or any rule, regulation, direction or order made thereunder has been committed by a company, every person who at the time the contravention was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable....
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....a and Mr. Krishna Sharma are prima facie liable for the acts and deeds of Yotta Agro Ventures Private Limited, Farm Silo Tech LLP ("Growpital") and the three ZF Project LLPs and consequently, for the activities being undertaken through the Growpital Platform. Issue D: If the answer to issue C is in the affirmative, whether urgent directions, if any, need to be issued against those responsible for the prima facie violations? 19. Protecting the interests of investors is the first and foremost mandate for SEBI. The CIS Regulations have been made with an objective of ensuring that the funds or properties of the CIS are managed in the best interests of the unit-holders and hence registration of the company as Collective Investment Management Company with SEBI has been made mandatory. The same is imperative for the protection of interests of investors and to safeguard the integrity of the securities market. 20. From the bank statement in the escrow account of Farm Tech Silo LLP (Growpital), I note that the fund collection is showing an accelerated trend, as brought out below: Table 4 S. No. Period of transaction in escrow account Amount credited in accoun....
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....uraj Sharma at 1:06:30 of the YouTube video referred to in paragraph 4.9). From the material available on record including the agreements and websites and in light of the discussion at paragraph 6.4 (iv) above, it appears that the specific locations of the farms have not been disclosed to investors / partners. Further, the CIS Regulations do not permit any collective investment scheme to offer assured or guaranteed returns. The Growpital platform is however attracting investors, on the promise of assured tax-free returns. 24. Thus, an investor receiving a service from an unregistered CIS that prima facie appears to be run in the instant case, does not have the protection envisaged under the CIS regulations. Availing of service from such an entity is detrimental to investors and such unqualified service results in irreparable harm as the investors' money is invested based on unqualified and un-regulated service. 25. If an ex-parte ad interim order is not passed at this stage, many prospective investors may get lured with the promise of assured returns and potentially part with large contributions resulting into irreparable injury to them. However, if an ex-parte ad interim ord....
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.... funds collected from partners / investors, kept in bank account(s), payment wallets and/or in their custody, until further orders. iv. Not to dispose of or alienate any assets, whether movable or immovable, or any interest or investment or charge on any of such assets including moneys lying in bank accounts belonging to the Entities, except with the prior permission of SEBI, until further orders. v. To provide a full inventory of all the assets held by them, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, demat accounts and mutual fund investments, immediately, but not later than 15 working days from the date of receipt of this order. vi. To immediately withdraw and remove all websites, advertisements, representations, literatures, brochures, materials, publications, documents, communications, etc. in relation to the unregistered CIS activities or any other unregistered activity in the securities market, until further orders. vii. Not to access the securities market and buy, sell or otherwise deal in securities in any manner whatsoever, directly or indirectly, u....
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....right of SEBI to take any other action against the Entities in accordance with law. 33. The above directions shall take effect immediately and shall be in force until further orders. ============= Document 1 • WHAT ARE WE PROUD ABOUT? Agriculture Sector is growing rapidly. Join us in the fast growing industry TOTAL INVESTMENTS €160+ CRORES PROFIT RETURNS 14% PER ANNUM Invest Now MANAGED AREA 16500+ ACRES Subscribed 100% in 6 hours on Tyke Invest Trusted by investor community spread across 10+ countries and 150+ cities Document 2 Growpital Home About Blogs FAQS Contact Us Agriculture Investments Invest and earn assured profits → Sure Thing| Diversify your portfolio with safe agri-investments. Grow your capital Invest Now 11% to 14% returns of profit Managed farm projects Document 3 Investment made Investment through Growpital by an investor LLP Agreement Investor signs consent letter and becomes a partner in a ZF Project LLP Agri Investments Amount pooled from investors is claimed to be invested in agri projects Payout of Profits A....