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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 ..... ed through the Growpital platform in ZF Project 1 LLP alone. In fact, the website of Growpital had advertised that an amount in excess of ₹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. Considering that no prior registration was obtained in the instant matter, 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. The amount of money, prima facie, observed to have been mobilized in the Growpital escrow account of over ₹ 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 brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. Banks, depositories and Registrar and Transfer Agents are directed to freeze the bank accounts, demat accounts belonging to the Entities and not to allow transfer or redemption of securities of the Entities named in paragraph 27.1. The Order shall be sent to all the Entities, Market Infrastructure Institutions, Banks and Registrar and Transfer Agents to ensure compliance with the directions. - AMARJEET SINGH WHOLE TIME MEMBER ORDER Entity N o. Name of the Entity PAN 1. Farm Silo Tech LLP (also known as Growpital) AAHFF4274C 2. Yotta Agro Ventures Pvt. Ltd. AABCY2263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ZF Project (such as ZF Project 1, ZF Project 2, etc., collectively referred to as ZF Project LLPs ). The LLPs, as projected, are in the business of agriculture and allied activities, cultivation, growing, production harvesting and dealing in agriculture produce. Further, their activities, inter alia, include processing, preservation or storage with installation for plant, machinery, cold storage, air conditioning, refrigeration and other equipment and providing consulting and support services. 2.3. On the website of Growpital, it is currently claimed that they manage over 20,000 acres of land. It is further claimed that from every farmland, they have a gross margin of 60 70% and after operating expenses, they are left with a buffer of 20% to 25%, enabling them to offer guaranteed returns to partners in the LLPs. 2.4. As per the bank statement of an escrow account of Growpital (Bank Account No.: 0712XXXXXXX0055), as on December 31, 2023, over ₹184 crore has been mobilized from various sources. Growpital had claimed on its website that it has mobilized investments in excess of Rs 160 crore. A screenshot obtained from the website of Growpital is placed below: Image - 1 Note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 /- 14% Quarterly 1 year 4.3. When an investor invests through the Growpital platform, the investor becomes a partner in an LLP and supplementary agreements are issued reflecting their names in the LLP. As observed from the fund trail (elaborated in subsequent paragraphs), there are at least three LLPs to which funds are transferred from the escrow account of the Farm Silo Tech LLP (Bank Account No.:0712XXXXXXX0055), namely ZF Project 1 LLP, ZF Project 2 LLP and ZF Project 3 LLP. 4.4. From a perusal of the information available on the MCA database, and LLP agreements available on record, the details of the ZF Project LLPs are given below: Table 2 Details of the ZF Project LLPs Name of LLP Date of incorporation Designated Partners Registered address ZF Project 1 September 29, 2021 Yotta Agro Ventures Private Limited and Farm Silo Tech LLP# F No S 2, V Cube Lavender, P No 166A, Triveni Nagar, Vishveriya Nagar, Gopalpura Bypass, Jaipur, Rajasthan 302 018 ZF Project 2 October 18, 2021 Ms. Gayatri Rinwa and Mr. Krishna Sharma## ZF Project 3 October 30, 2021 Ms. Gayatri Rinwa and Mr. Krishna Sharma## # Yotta Agro Ventures Private Limited and Farm Silo Tech LLP are the Designated Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A screenshot of the video is placed below: Image - 4 An extract of the video, as downloaded, can be viewed by scanning the QR Code given below: 4.10. I note that the consent letter, that is signed by an investor while investing in the plans offered by Growpital, states the following: I hereby authorize Growpital (Farm Tech Silo LLP) to do, execute and perform all or any of the following acts, deeds, matters and things as mentioned herein, on my behalf: (A) To sign and execute: i. the LLP Agreement, any subsequent amendments to the LLP Agreement including to record my retirement from the LLP, any consent letter required to be executed by me as partner in the LLP in any matter and any other documents, forms etc. required to be executed by me in accordance with the terms of the Limited Liability Partnership Act, 2008 ( collectively referred to as the Transaction Documents ); . iii. to accept any modification in the Transaction Documents or under any other document in relation thereto (B) Exercise all the rights, powers, authority and privileges conferred by, and pursuant to, the LLP Agreement , the Limited Liability Partnership Act, 2008 or applicable law, in respect of my interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs will be required to introduce a partner to the LLP and Designated Partners shall have the right to appoint a Partner to the LLP. (Reference: Point 15.1 of original LLP Agreements) vi. The designated partner M/s Yotta Agro Ventures Private Limited mentioned under this LLP Agreement cannot be changed as designated partner unless consent to change has been provided by majority of 50% of the partners mentioned under Schedule II of this LLP Agreement. (Reference: Point 3.1 of the supplementary LLP Agreement dated December 01, 2023) vii. Further, it has been agreed between the parties that a Partner individually cannot change the Farm Silo Tech LLP as its authorized representative for signing this Agreement, unless consent to change the authorized representative has been provided by majority of 75% of the Partners. (Reference: Point 3.2 of the supplementary LLP Agreement dated December 01, 2023) viii. ZF Project 1 LLP cannot take loan with higher priority debt than partner s debt under this LLP unless consent has been provided by majority of 60% of the partners mentioned under Schedule II of this LLP Agreement. (Reference: Point 3.5 of the supplementary LLP Agreement dated December 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Farm Silo Tech LLP are seen to be transferred to bank accounts of ZF Project 1 LLP (Bank Account No.: 0712XXXXXXX0034), ZF Project 2 LLP (Bank Account No.: 0712XXXXXXX0044) and ZF Project 3 LLP (Bank Account No.: 0712XXXXXXX0064). As on December 31, 2023, from the available narrations, the amounts transferred by Farm Silo Tech LLP in the 3 bank accounts of ZF Project 1 LLP, ZF Project 2 LLP and ZF Project 3 LLP were at least Rs 1,17,82,88,732/-, Rs 12,09,94,780/- and Rs 6,50,00,000/-, respectively amounting to a total of Rs 1,36,42,83,512/- (Rs 136.42 crore) and the account had a cash balance of Rs 15,82,23,440/-. 4.15. I also note that Growpital has extensive social media presence. There is a Youtube channel (Growpital By Zetta Farms with over 5,400 subscribers, accessible at the following link-https://youtube.com/@GrowpitalByZettaFarms?si=FKqJyipJLC_sVPP7), a Whatsapp community, and at least 2 Telegram channels that can be viewed even without joining the channel (Growpital Official with 2,536 subscribers and Growpital Official Discussion with 2,753 members as on January 24, 2024). A screenshot of the Telegram channels is placed below: Image 7 5. In view of the aforesaid discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 6. In terms of the above Section, any arrangement or scheme to be considered as CIS has to satisfy the four conditions mentioned in Section 11AA (2) of SEBI Act and the same should not fall within any of the exceptions mentioned in Section 11AA (3) of SEBI Act. Further, in case the amount pooled under the arrangement or scheme exceeds ₹100 crore, it shall be deemed 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he designated partners) as per the consent letter signed by them. Thus, the LLP Agreement is structured in a manner that guaranteed returns can be provided to the investors / partners in the LLPs. d. On its website, Growpital claims that the asset (farm projects) is owned by the LLP and all the partners in the LLP are considered legal co-owners. However, as part of the consent letter, the investors / partners authorize Farm Tech Silo LLP to exercise all rights conferred by the LLP Agreement in respect of their interest in the LLP and also give their consent for Farm Tech Silo LLP to act as though it was the outright owner. There is also nothing on record that indicates any earmarking or segregation of the assets across investors / partners. e. I note that the LLP Act, 2008 ( LLP Act ) does not place any upper cap on the number of partners that can be on-boarded in an LLP formed under the LLP Act. The Act also does not place any restrictions 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sured profit share. Relevant extracts from the FAQs on the website of Growpital are placed below: What is Growpital? (In a Nutshell) The all -new Agri investment platform with tax-free income. It s the new clutter-free, fixed-income platform with 11% -14% Tax free assured profit share. Is the profit really assured or there's a catch? The profits that Growpital provides on your investments is absolutely assured, without any catch, this happens because the profits are distributed as advance share to the fractional owners from the revenues generated by the farm projects. Are the returns guaranteed? As we have a gross margin of 60-70% from every farmland and after paying all the returns, land lease and operating expenses we are left with a good buffer of 20-25%, we keep this buffer amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two ways:- Our in-house team who follows the schedule to grow crops and sell it in market- We get into an operational partnership with established or experienced players in market and get fixed revenue from them . In the video referred at paragraph 4.9 above, in response to a question requesting a list of farms managed in India, Mr. Rituraj Sharma replied that these details cannot be disclosed. It thus appears that the investors/partners are not even aware of the farm locations. An extract of the video, as downloaded, can be viewed by scanning the QR Code given below: v. In light of the aforesaid discussion, it is clear that the funds received from investors/ partners are managed by the DPs / 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 exception ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used to be carried on any venture capital funds or collective investment schemes including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations: Provided that any person sponsoring or causing to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment schemes operating in the securities market immediately before the commencement of the Securities Laws (Amendment) Act, 1995, for which no certificate of registration was required prior to such commencement, 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 indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject LLPs. Yotta Agro Ventures Private Limited and Farm Silo Tech LLP are the designated partners of ZF Project 1 LLP. In this regard, I note that as per the LLP Act, only individuals can be designated partners. Thus, prima facie, there appears to be an infirmity in the LLP agreement of ZF Project 1 LLP. The DPs mentioned in the original LLP agreements of the three LLPs are Ms. Gayatri Rinwa and Mr. Krishna Sharma. Further, the directors and shareholders [as on March 31, 2022] of Yotta Agro Ventures Private 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/ affairs of the ZF Project LLPs, with other partners actually being investors seeking a monetary return. Thus, for the purposes of Section 27 of SEBI Act, designated partners being in-charge of the affairs of the LLPs, are equivalent to the directors of a company and are therefore deemed to be liable for the violations committed by the LLP. 18. In light of the above, in terms of Section 27(1) of SEBI Act, Mr. Rituraj Sharma, Ms. Gayatri Rinwa 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 Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transparency, mentioned in the CIS Regulations. For instance, the CIS Regulations require quarterly disclosures of financial results; however, quarterly or even half-yearly financial results are not shared by the ZF Project LLPs with their investors / partners (Reference Statement of Mr. Rituraj 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-reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny manner whatsoever, until further orders. ii. Not to collect any money from new partners / investors or any additional sum of money from existing partners / investors in existing schemes / plans, until further orders. iii. Not to divert any 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 un ..... 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