The Securities and Exchange Board of India (Sebi) has ordered agriculture-focused investment platform Growpital and its directors to stop offering any form of investment options through collective investment schemes (CIS) and has frozen all the assets held by the startup.
The market regulator also stopped the startup’s founders from dealing in the capital markets directly or indirectly until further orders.
The platform has collected investments worth more than Rs 180 crore, Sebi’s investigation has found.
In an order dated January 29, Sebi said Growpital, which collects investments from individuals in lieu of very attractive returns, will have to stop accepting any further deposits from the public. The regulator’s investigation has found the company’s business model to be collective investment schemes, operated illegally without any licence or registration from Sebi.
Sebi directed Cashfree Payments, a Bengaluru-based payment aggregator platform, to stop processing any online payments on behalf of Growpital. The regulator has frozen all the bank accounts of the company and also asked it to remove all advertising materials from its website and other platforms.
How it worked
Founded by Rituraj Sharma and Krishna Joshi in 2020, Jaipur-registered Growpital offered investment schemes to individuals. It promised guaranteed tax-free profits in the range of 11-14% generated through investments in the agriculture sector, Sebi’s order said, citing public documents.
Any investor who would invest in these schemes would become a partner in a limited liability partnership (LLP) set up to process the investments. According to Sebi, the company claimed that these funds would be further invested in agricultural projects, which would generate sufficient returns to be distributed among the investors.
The investigation found that around Rs 184.3 crore was transferred to the escrow accounts held by Growpital from multiple online payment sources, Sebi said.
For the purpose of processing these investments, Sebi found that Growpital had created three LLP projects. An analysis of the bank account statement of Growpital showed that people invested anywhere between Rs 5,000 and Rs 1.4 lakh into these projects, Sebi said.
Impact of Sebi’s order
To understand the business model of the company, the regulator looked at the existing CIS regulations under the Sebi Act. According to the regulations, any investments of more than Rs 100 crore pooled together with a promise of a return and managed by a different party come under the purview of CIS regulations.
“I am of the view that under the guise of an LLP, the designated partners…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,” observed Amarjeet Singh, a Sebi whole-time director who authored the judgement.
While Sebi’s orders can be contested in appellate bodies, such instances could create panic among investors. Also given the Sebi instruction on freezing of all bank accounts of the company, the investors would not be able to immediately withdraw the funds they had invested already.
“This issue creates massive uncertainty — and if investors want to panic exit, it might simply not be able to repay. There are potentially enough legal loopholes and probably enough capital, to pay back at least some amount of the money taken. But it’s going to see pain,” Deepak Shenoy, a Sebi-registered portfolio manager and founder of investment platform CapitalMind, wrote on microblogging platform X.
