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TMI Blog2024 (8) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... ree 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 (available after creation of a login), namely, Leafy Eleven, Ever Green Returns and Harvest Bloom, which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ima 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 December 05, 2023 and the said details have now been deleted from the website of Growpital. However, this information still appears on the website of Zetta Farms (https://www.zetta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. 4.7. As per its Memorandum of Association ("MoA"), Yotta Agro Ventures Private Limited is in the business of farming, agriculture and allied activities, manufacturing of agro products, etc. As per the LLP agreement of Farm Silo Tech LLP, it is in the business of software designing and development, providing internet / web based applications, database mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 the partners.... (Reference: Point 2.1 of the supplementary LLP Agreement dated December 01, 2023) ii. The losses of the LLP including loss of capital, if any, will be borne and paid by the designated partners in the LLP's interest. The assets of the designated partners will be pledged against the losses. (Reference: Point 2.6 of the supplementary LLP Agreement dated December 01, 2023) iii. Bank account: The Designated Partners may open bank ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Growpital is a client of CIPL. From the details obtained from CIPL it is seen that these funds aggregated on behalf of Growpital are transferred to a bank account named Farm Silo Tech LLP Escrow Account maintained with Yes Bank (Bank Account No.: 0712XXXXXXX0055, Opening date: January 13, 2022). Further, it was observed on a sample basis that names mentioned in the narrations of transfers from individual partners / investors to CIPL matched with names of partners / investors listed at Schedule II of supplementary LLP agreement of ZF Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement, 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 movable or immovable, from such scheme or arrangement; iii. the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; iv. the investors do not have day-to-day control over the management and operation of the scheme or arrangement. (2A) Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act. (3) Notwithstanding anything contained in sub-section (2) or sub-section (2A), any scheme or arrangement: i. m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 designated partners. The LLP Agreement is thus open-ended, facilitating the entry and exit of investors acting as "partners". b. The website of Growpital and various YouTube videos claim that the amount invested through the platform is considered as capital contribution to the LLP. It is also observed from the annual financial statements of ZF Project 1 LLP for FY 2022 - 23, that the sources of funds of the LLP are primarily the funds mobilized from investors that are shown under the head of "Partners Fixed Capital Accounts". The expenses of the LLP include "Farm Operation Expenses". It is apparent that the "contributions" of the investors / partners are being pooled as capital contributions to the LLP and utilized for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that under the guise of an LLP, the designated partners of the ZF Project LLPs are 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 SEBI Act. 6.2. 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 movable or immovable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging 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 all meetings of partners of the LLP, exercising powers in respect of voting and giving all consents and waivers. ii. The LLP agreements of the ZF Project LLPs that are available on record, confer a number of rights and powers to the DPs. For instance, the original ZF Project LLP agreements state that DPs shall be in charge of the business, management and policy decisions of LLP. Further, no person can be added as a partner to the LLP without prior written consent of the DPs and DPs have the right to appoint a partner to the LLP without obtaining the consent of the partners / investors. The DPs are also empowered to take decisions on appointment of auditors, enter into agreements including those not in ordinary course of business, etc. Further, the DPs can open bank accounts and determine the authorized signatories who can operate the bank accounts. In the instant case, the authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime 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 which the Insurance Act, 1938 (4 of 1938), applies; (iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952); (v) under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956); (vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956); (vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982 (40 of 1982); (viii) under which contributions made are in the nature of subscription to a mutual fund; (ix) such other scheme or arrangement which the Central Government may, in consultation with the Board, notify, shall not be a collective investment scheme." 8. In view of the above discussion, the prima facie findings arrived at in preceding paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 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.160 crore has been mobilized. The activity of illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on any collective investment scheme by any person also amounts to a fraudulent practice in terms of Regulation 4(2)(t) of PFUTP Regulations, which reads as follows: "Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely: ... (t) illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person". 13. Considering that no prior registration was obtained in the instant matter, I am of the prima facie view that the Growpital platform is being used to illegally mobilize funds from the public, which amounts to a fraudulent practice in terms of Regulation 4 (2) (t) of PFUTP Regulations. Issue C: If the answer to issue B is in the affirmative, who all are responsible for the violations? 14. It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. (2) Notwithstanding anything contained in sub-section (1), where an contravention under this Act has been committed by a company and it is proved that the contravention has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Explanation : For the purposes of this section,- (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm." 17. On perusal of the aforesaid provision, it is observed that for the purpose of the aforementioned Section, the term 'company' also includes a body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Period of transaction in escrow account Amount credited in account (In ◻) 1. January 13, 2022 to December 31, 2022 16,64,65,611/- 2. Quarter ended March 2023 24,18,29,531/- 3. Quarter ended June 2023 40,44,04,328/- 4. Quarter ended September 2023 47,40,34,281/- 5. Quarter ended December 2023 55,70,32,786/- 21. The capital contribution made to ZF Project 1 LLP is also increasing, as brought out below: Table 5 S. No. Date of supplementary agreement Capital contribution (In Rs.) 1. April 30, 2023* 40,98,54,759/- 2. May 30, 2023 49,36,03,759/- 3. August 21, 2023 84,56,48,759/- 4. October 11, 2023 1,05,81,35,759/- 5. November 06, 2023 1,21,59,33,759/- 6. December 01, 2023 1,32,21,88,759/- *As per the draft agreement obtained from https://linktr.ee/growpitalbyzettafarms 22. From the above Tables 4 and 5, it can be seen that there is an increasing trend in fund collection. The capital contribution in ZF Project 1 LLP has more than tripled in a period of 7 months, from Rs. 40.98 crore to Rs. 132.21 crore, and the funds collected in the escrow account of Growpital are also increasing and averaging over Rs. 61 lakhs per day in the quarter ende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the rights of the Entities herein vis-a-vis multitude of prospective and current investors. The potential loss of investors that are investing in unregistered CIS cannot be retrieved, if, prima facie unregistered CIS activities are permitted to be continued by not passing an ex-parte interim order at this stage. The upcoming plans as disclosed by Mr. Rituraj Sharma, including of a "pre-IPO" equity funding round, raise additional concerns that other potentially unregulated activities may be undertaken in future. Therefore, I consider that the balance of convenience is not in favour of the Entities. 26. The amount of money, prima facie, observed to have been mobilized in the Growpital escrow account of over Rs. 184 crore, indicates the magnitude of the prospective threat of investors getting lured to the unregistered activities being carried out by the Entities. In light of the same, in order to ensure that additional funds are not mobilized through the Growpital platform under its scheme / arrangement / plans and to safeguard the assets acquired from the funds of the investing public until full facts and materials are brought out and final decision is taken in the matter, I am of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dress, date of enrolment) who have contributed to the ZF Project LLPs (now or in the past) through Growpital or any other platform and to submit details of contributions received from each such partner / investor immediately, but not later than 15 working days from the date of receipt of this order. 27.2. If the aforementioned entities (mentioned at paragraph 27.1 above) have any open positions in any exchange traded derivative contracts, as on the date of the order, they can close out / square off such open positions within 3 months from the date of order or at the expiry of such contracts, whichever is earlier. Further, the aforesaid entities are permitted to settle the pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order. 27.3. Cashfree Payments India Private Limited is directed not to accept any payments made through Growpital or on behalf of Growpital. Further, no funds shall be transferred to the escrow account of Farm Silo Tech LLP / Growpital until further orders. 28. Banks, depositories and Registrar and Transfer Agents are directed to freeze the bank accounts, demat accounts be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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