The firms against whom SEBI passed orders, were found to be engaged in fund-raising activity that was classified as Collective Investment Scheme, but did not have required clearances from the regulator
In the month of December itself, the Securities and Exchange Board of India took action against 26 entities for illegal money pooling activities. This was followed by a recent set of orders from SEBI, barring 260 entities for suspected tax evasion and money laundering.
In the first set of cases, there seems to have been a clear focus on companies engaged in the real estate business or raising funds under the aegis of infrastructure projects or real estate projects. Some of the companies barred by SEBI were Garima Real Estate & Allied Limited (“GREAL”), Raghav Capital & Infrastructures Limited (“RCIL”), M/s Vee Realties India Limited (“VRIL”) & Arise Bhoomi Developers Limited (“ABDL”). SEBI ordered these companies “not to collect any fresh money from investors, not to launch any new schemes and has injuncted the companies from alienating or disposing any properties and assets and funds raised from public,” Securities Law Newswire reported.
The real estate industry is known to be among the biggest movers of unaccounted for cash and when fund-raising takes place under the radar or in an unregulated manner, there is a lot of scope for fraud or the ballooning of ponzi schemes.
“In India, this sector despite being of key importance has always faced financial crunches. To cover up finance needs, various new methodologies are adapted and tested by the Real Estate sector to meet the business requirements. Of late, this sector has evidenced a large number of investment schemes floated by real estate companies for accessing public money and offering returns to the investors either in cash or kind (i.e. by paying an adjustable amount or offering share in the land/ project),” the report said.
These orders by the SEBI have been made possible since the passage of the new Securities Laws Amendments Act. With this law, the government enhanced the powers of SEBI to take action against illegal money-pooling activities involving Rs100 crore or more.
“For example, if the "applicant"/investor is investing in "One time Installment plan" for an amount of Rs12,500/- for a plot size 25 yards, he/she will get the Income/return in the form of "adjusted amount" amounting to Rs25,000/- after 5 years and 11 months. The "adjusted amount" will further increase with the passage of time and Rs87,500/- will be given to the investor at the completion of 15 years,” the report added.