1998 (11) TMI 457 - HC - Companies Law

Summary

Issues:
1. Protection of depositors and investors in Collective Investment Schemes and Plantation Companies.
2. Lack of regulatory framework for protecting investors.
3. Role of SEBI and other regulatory authorities in addressing investor grievances.
4. Need for legislation to safeguard the interests of small investors.
5. Enforcement of regulations and orders to prevent fraudulent activities by companies.
6. Responsibility of State Governments and Central Government in regulating investment schemes.

Analysis:
1. The petition was filed to protect the interests of depositors and investors in Collective Investment Schemes and Plantation Companies promising high returns. The petition sought the State Government to promulgate an Investor Protection Act similar to Tamil Nadu and Goa. The petition highlighted concerns about companies diverting funds, issuing bounced cheques, and engaging in unproductive activities, affecting thousands of investors.

2. The lack of regulatory laws or rules to safeguard investors led to the interim order by the High Court on 11-6-1998. The order allowed SEBI to caution investors against investing in such schemes without proper credit ratings. Various petitions against plantation companies were pending, and interim orders were issued to protect investors' interests, including seizure of properties and bank accounts of companies.

3. SEBI's Advisory Committee submitted a report on regulating plantation companies. The court directed SEBI to publish warnings about investing in companies with low credit ratings like 'Care-4' or 'Care-5'. SEBI was also tasked with ensuring that investors are aware of the risks associated with such companies and their schemes.

4. The State of Maharashtra was directed to issue a circular to Revenue Officers to take appropriate action under relevant Acts before transferring agricultural lands to companies. The court emphasized the need for legislation to protect small investors and hold company directors personally accountable for investors' funds.

5. The judgment highlighted the need for immediate legislative action to prevent fraudulent activities by companies operating Collective Investment Schemes. The court acknowledged the efforts of SEBI in regulating such schemes and emphasized the importance of protecting illiterate and needy depositors from exploitation by unscrupulous companies.

6. The judgment concluded by disposing of the petition, expecting the Central Government to take necessary steps, including enacting laws, to safeguard small investors. The State of Maharashtra was directed to implement the court's orders by a specified date, ensuring compliance with regulations related to land transfers and investment schemes.