Updated at 3.15pm on 31 January 2024 to add comment from Growpital
Market regulator Securities and Exchange Board of India (SEBI) has asked Farm Tech Silo LLP (also known as Growpital) and its associate entities ZF Project 1 LLP, ZF Project 2 LLP, ZF Project 3 LLP, Yotta Agro Venture Pvt Ltd and the directors or designated partners of these entities Rituraj Sharma, Gayatri Rinwa and Krishna Sharma not to float any new collective investment scheme (CIS) or collect funds from investors for its existing CIS.
In an
ex-parte interim order, SEBI directed Cashfree Payments India Pvt Ltd 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 or Growpital until further orders.
It also asked banks, depositories and registrar and transfer agents (RTAs) to freeze bank accounts and demat accounts belonging to these entities and not to allow the transfer or redemption of securities of these entities.
In the order, Amarjeet Singh, whole time member (WTM) of SEBI, says, "If an ex-parte ad interim order is not passed at this stage, many prospective investors may get lured with the promise of assured returns and potentially part with large contributions resulting into irreparable injury to them. However, if an ex-parte ad interim order is passed, what is at stake is the rights of the entities herein vis-a-vis a 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 Rituraj Sharma, including 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."
"The amount of money, prima facie, observed to have been mobilised in the Growpital escrow account of over Rs184 crore indicates the magnitude of the prospective threat of investors getting lured to the unregistered activities being carried out by these entities. In light of the same, in order to ensure that additional funds are not mobilised through the Growpital platform under its scheme, arrangement or 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 the view that pending completion of the detailed examination initiated by SEBI, there is a need to pass an ad-interim ex-parte order to protect the interests of investors at large," he added.
After receiving a communication, SEBI investigated Growpital and its business model. SEBI found as of 26 January 2024, three plans are offered on the Growpital platform (available after creation of a login), namely, Leafy Eleven, Ever Green Returns and Harvest Bloom, which have a specified minimum investment amount, tenure of 12 months, and offer payouts at different frequencies with assured returns ranging from 11% –14%.
On the Growpital website, SEBI found claims that it manages 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.
Growpital was offering various investment plans with an assured return of 11% to 14% by claiming to invest the funds mobilised in agricultural projects to generate tax-free assured returns for its investors. Growpital was making investors a partner in a limited liability partnership (LLP) and treated their investments as a capital contribution to the LLP.
"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 or partner is then apparently invested into agricultural projects to generate profits or returns for all the partners," Mr Singh from SEBI says.
He further noted that allowing fundraising to continue through the plans or investment opportunities offered by Growpital, in effect, means that investors are contributing funds to an unqualified entity without following the safeguards, including norms for transparency, mentioned in the CIS Regulations.
For instance, Mr Singh says the CIS Regulations require quarterly disclosures of financial results; however, the ZF Project LLPs do not share quarterly or even half-yearly financial results with their investors or partners. "From the material available on record, including the agreements and websites, it appears that the specific locations of the farms have not been disclosed to investors or 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."
SEBI asked Growpital, the three ZF Project LLPs, Yotta Agro Venture, Rituraj Sharma, Gayatri Rinwa and Krishna Sharma, to cease and desist from floating any CIS, directly or indirectly, and end soliciting or undertaking such activity determined as CIS, in any manner whatsoever, until further orders.
It also directed them not to collect any money from new partners or investors or any additional funds from existing partners or investors in existing schemes or plans. These entities are also barred from diverting any funds collected from partners or investors, kept in bank accounts, payment wallets and/or in their custody, or dispose of any assets until further orders.
UPDATE:
In an email, Rituraj Sharma, founder of Growpital, says they are reviewing with their legal team the SEBI order. "We are fully committed to cooperating with SEBI, ensuring a comprehensive resolution in line with regulatory guidelines. We are in the process of requesting SEBI to unfreeze accounts for business continuity, crucial for partner payouts, farm operations, and supporting over 4,000 krishiveer (farmer) families, over 100 office employees, and collecting sales proceeds from the market against the farm produce sold."
