HC orders SEBI probe into plantation firm

February 25: The Bombay High Court ordered an inquiry by the Securities and Exchange Board of India into the operations of schemes floated b...

February 25: The Bombay High Court ordered an inquiry by the Securities and Exchange Board of India into the operations of schemes floated by Golden Forests (India) Ltd. which has collected over Rs 1,000 crore with promises of astronomical returns. Justice M B Shah and Justice R J Kochar’s directive to appoint a high-ranking officer came following a petition filed by the SEBI to freeze the Chandigarh-based plantation company’s accounts and protect the investors’ interest. The GFL has assured the court that the company will co-operate in the inquiry and produce the necessary documents.

SEBI stated promoters of GFL allegedly diverted massive funds collected for these scheme which also included other plantation companies in different parts of the company.

The SEBI came across the dubious venture last year following the Finance Ministry’s directive to regulate the operations of plantation companies which had mushroomed all over the country.

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To draft a regulatory framework the board had conducted a marketsurvey to understand agro-bonds and similar instruments and called for information from these on all such schemes from the companies. The GFL had informed that it had launched various schemes which would collectively mobilise a whopping Rs 5,000 crore. Moreover, it was revealed that the GFL merely collected money from new investors to pay the old ones under the guise of an agro-forestry concern. The company challenged SEBI’s move to issue guidelines in court.

According to SEBI’s petition, GFL issued a receipt to its customers for the investment of Rs 5,000 per unit of land of about 30 square meters.Forty per cent of investment was earmarked as development expenditure for plantation on the allotted land, while the company retained the rest as security deposit.

However, SEBI investigations found that the schemes were devised in such a way that new investors bought units representing the allotted piece of land from old investors at a pre-determined price which matched the return which GFL specified to itsinitial investors. In effect, the new investors entering the network and not the GFL end up paying the company’s promised returns, claimed SEBI’s petition.

The balance sheet of Golden Forest clearly stated that the amount paid to investors were necessarily from new investments and not from farm income as claimed the time of investment. SEBI counsel told the court that GFL’s scheme can jeopardise the hard-earned money of many investors.

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Golden Forest earned a substantial sum due to the appreciation of the real estate as it was in possession of 7,721 acres of land as of December 1997. The company promised the customers that as the cost of each unit of land increases every year, the company reduces a portion of the investors’ land.

As a result, one unit of investor’s land becomes smaller with each passing year, but the amount collected for the land always increases, the SEBI claimed.The SEBI said that it has received alarming information on the affairs of the company. The association of investors in a faxmessage alleged large scale misappropriation of funds as well as transfer of funds abroad through the hawala channels.

Due to these irregularities detected during its initial probe, SEBI has urged the HC to direct the RBI to issue orders to all banks to find out whether GFL has any bank account and restrain GFLfrom withdrawing any funds. SEBI has also asked for a special officer who will operate the company’s accounts to repay the investors.