SEBI Court Finds Firm Guilty of Illegal Investment Scheme After 28 Years

After 28 years, the special SEBI court has found a company guilty of operating a Collective Investment Scheme (CIS) without registration in 1997. The company also failed to shut down the scheme and return funds to investors. While the court has imposed a fine of Rs5 lakh on the company, all its directors are now dead.

According to the prosecution, several private firms engaged in floating investment schemes where owners contributed minimal amounts while raising the majority of funds from ordinary investors, exploiting the absence of a regulatory framework.

To regulate such schemes, the government issued a circular on November 18, 1997, bringing all such investment schemes under the category of CIS under SEBI. In 1999, SEBI introduced regulations to govern the activities of collective investment schemes. The firm, M/s Bhu Bhairav Agro Tech Ltd, had launched such a scheme in October 1997 and had raised an amount of nearly Rs14 lakh from the general public till January 1998. It has filed the details with the SEBI regarding its CIS.

The prosecution had claimed that, as per the regulations, the firms which failed to register their schemes with SEBI, had to wind up their schemes and return the funds to investors. However, the prosecution claimed that the company neither applied for registration under the said regulations nor took any steps for winding up of the schemes and repayment to the investors. Hence SEBI filed a complaint against the firm and its three directors. All three directors died pending the trial.

The court while examining the case noted that on scrutinizing the evidence on record, it appears that the entire case to prove the guilt of the accused rests upon the evidence of Deepak Lingot, the officer of SEBI.

The court, based on the evidence of the officer and documents presented by him, held the firm guilty and has directed the firm to pay a penalty of Rs 5 lakh