Regulatory orders may seem bleak and boring, but sometimes they have their mic-drop moments as well.
In response to the market regulator Securities and Exchange Board of India's (Sebi) interim order on April 26 that froze the bank account and other assets of agri-investment platform Growpital, the company cited its connections in high places.
Growpital submitted that it was running its business "with the blessings of the central and state governments as well as other government agencies".
To this, the market regulator responded that this contention (of being blessed by government or governments) has "little relevance/impact" on the proceedings.
The Securities and Exchange Board of India's (Sebi) confirmatory order dated April 26 captured an exchange with the company.
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"Merely entering into a Memorandum of Association or receiving funds/ token of appreciation, etc. from government cannot legalise the activities undertaken by the entities (the platform and its directors/designated partners)," the order said.
That is, everyone--even the ones that have been validated or blessed by government/governments/ government agencies--has to follow the law.
Can someone catch the mic that Sebi just dropped?
Sebi’s April 26 order came after considering a proposal by Growpital and its associates to allow day-to-day running of its business. The Securities Appellate Tribunal (SAT), after hearing a petition by the platform, had asked Sebi to consider the proposal
The April 26 order confirmed most of the directions given in the interim order. The one relief given was to unfreeze bank accounts of individuals involved. The regulator’s investigations going on.
Background
It all started about a year ago, in June 2023, when the market regulator received an email complaint that Growpital was offering various investment plans to the public and is claiming that the funds would be used to invest in agricultural projects to generate "assured, tax-free" returns.
Farming income is not taxed in India.
Growpital had set up various limited liability partnerships (LLPs) to accept funds from investors. But the market regulator found that, prima facie, the LLPs were being used to disguise an unregistered, pooled-investment scheme or collective investment scheme.
The regulator, seeing that Growpital's escrow account had already mobilised Rs 184 crore, recognised the "the magnitude” of the threat posed to investors and passed the interim order on January 29, 2024.
In response to this order, Growpital made submissions including its connections with various governments and government agencies.
'Connections in high places'
The company said that the Designated Partners of the schemes, named Yotta Agro Ventures Pvt Ltd, has been recognised as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT).
The company also said that it has received a portion of the grants given to startups by the government of India, and that its efforts were recognised by a government agency that falls under the Department of Planning and Transformation of the government of Nagaland, and it has partnered with a cooperative society that has been granted a tender by the Rubber Board of India.
Growpital also said that the entities were invited by the government of Uttarakhand to participate in a conclave and that its projects could play a pivotal role in the state government's efforts to reconstruct the area, and so on.
The company submitted that Sebi's interim order went against "the doctrine of legitimate expectation that the entities are running the business with the blessing of the central and state governments as well as other government agencies".
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The regulator, after stating that such partnerships and associations cannot legalise the actions of the entities, added: "Government authorities, such as the Department of Agriculture and Farmers Welfare, Government of India, and the Department of Planning and Transformation, Government of Nagaland, etc., have not gone into the aspect of whether the fund-raising model adopted by the entities violated the securities laws. Therefore, the recognition of any kind received from the aforesaid authorities can, in no manner, be considered as a validation of the fund-raising model /structure adopted by the entities."
The order added that the regulator did not find "any merit" in the submissions of the entities in this regard.
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