SEBI Issues Ad-Interim Ex-Parte Order Restraining ‘Growpital’ from Mobilising Funds Without CIS Registration

Case Details: [2024] 158 taxmann.com 704 (SEBI)[29-01-2024]

Judiciary and Counsel Details

• • Amarjit Singh, Member

Facts of the Case

In the instant case, SEBI received an online complaint through an email dated 23.06.2023 drawing its attention to an online platform – Growpital offering various investment plans to the public and claiming to invest the funds so mobilized in agricultural projects to generate tax-free assured returns for its investors. The SEBI undertook a preliminary examination of the matter to ascertain whether the schemes/arrangements/plans being offered by Growpital are in violation of any of the provisions of the securities laws.

Modus operandi

(a) When an investor invests through the Growpital platform, the investor becomes a partner in a Limited Liability Partnership (“LLP”) floated by Growpital and the amount invested is treated as capital contribution to the LLP. Multiple LLPs were incorporated for this purpose, prefixed with the name of “ZF Project” (such as ZF Project 1, ZF Project 2, etc., collectively referred to as “ZF Project LLPs”).

(b) Amount pooled from investors is claimed to be invested in agri projects, the Farm projects are managed either through an in-house team or by partnering established market players. 70+ crops grown across 14+ states

(c) After sale of agri produce, profits are claimed to be paid to partners (other than designated partners) as agreed in the LLP Agreement.

The questions that arose in the matter were as under:

(a) Whether the scheme/arrangement operated through the Growpital platform is prima facie a Collective Investment Scheme (“CIS”)?

(b) Whether the Entities have prima facie violated any provisions of the SEBI Act, CIS Regulations and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)?

(c) Who all are responsible for the violations?

(d) Whether urgent directions, if any, need to be issued against those responsible for the prima facie violations?

SEBI Held

The SEBI observed that under the guise of an LLP, the designated partners of the ZF Project LLPs were sponsoring a pooled investment scheme. With the promise of assured returns, retail investors are being attracted to become “partners” in the LLP, by making a “contribution” to the capital of the LLP. The contribution of each investor/partner is then apparently invested into agricultural projects, to generate profits/returns for all the partners. Hence, the instant scheme/arrangement prima facie satisfies the first condition of “pooling of contribution or payments”, stipulated in Section 11AA(2)(i) of the SEBI Act, which specifies the conditions for being called CIS.

On prima facie, it was observed a CIS was being operated and run through the Growpital platform without obtaining any certificate of registration from SEBI and over Rs. 132 crores had been mobilized through the Growpital platform in ZF Project 1 LLP alone.

SEBI passed ad-interim ex-parte order to ensure that additional funds were not mobilized through Growpital platform under its scheme/arrangement/plans and to safeguard assets acquired from funds of the investing public until full facts and materials were brought out and the final decision was taken in the matter.