SEBI CUTS LOOP OF UNREGISTERED CIS OPERATING UNDER GARB OF DAIRY BUSINESS

Give me money to buy buffalo, will feed and milk buffalo, will earn by selling milk and share returns with you.

A good business proposition or an unlawful pool of fund?

SEBI says No…. an unregistered Collective Investment Scheme (CIS) !!!

On December 02, 2014 , SEBI passed an Ex-parte ad-interim order against Sai Multi Services and its Proprietor, Mr. Sanjay B Tenginkai (from Belgaum, Karnataka) on prima facie observation that the firm is legally mobilizing funds from the public through schemes in the nature of CIS without registration. The entity is estimated to have collected around Rs. 4.2 crores from Investors within short span of time.

THE SCHEME:
Alleged Parties made scheme under which they would buy buffalos of fine breed, sell their milk and distribute profits to the investors. Let’s have a look at how this scheme was projected to investors:

The Project:
The project is based on buying buffaloes of “Morra” breed. The particular breed is known for giving output of milk of approximately 7 to 15 litres per day for a period 5-7 months in a year. The promoters have planned to have 2000 number of buffaloes and expect to generate 1400 litres of milk per day which can be sold in the open market or through a franchisee

Anticipated Profit in the Project:
The daily milk output is expected to be around 14,000 litres. Looking at present price of milk which is at Rs.20/- to Rs.25/-, there will be generation of revenue of Rs.3 lacs/- per day. The cost of maintenance of the buffaloes, investment, daily expenditure will be approximately Rs.125/- per buffalo. Therefore, the expected cost would be Rs.1, 25,000/- per day. The expected revenue generation will be approximately Rs.1,75,000/- per day. Therefore, the Anticipated Profit per day is expected to be Rs.150000- per day…..

Returns:
a. Fixed Monthly Return
b. Profit Sharing returns

THE ORDER
The parties involved did not submit any reply nor provided any information to SEBI. After carrying out its investigation SEBI found that the whole scheme was of an unregistered CIS falling under Section 11AA of the SEBI Act, 1992 and was aimed to pool money from public under the garb of dairy business model. Thus, SEBI on 10.05.2016 passed its final order wherein amongst other, issued following directions against Sai Multi Services and its proprietor Mr. Sanjay B. Tenginkai to:

1. abstain, either directly or indirectly, from collecting any money from the investors or launch or carry out any CIS;
2. Wind up the existing CIS and refund money collected under the schemes with returns within a period of 3 months from the date of the Order;
3. Sell their assets only for the sole purpose of making the refunds and recipts to be made in separate escrow account;

Further, the parties are restrained from accessing and dealing the securities market for a period of 4 years, this period will be automatically increased if directions of SEBI are not complied with.

In its order SEBI has further specified that if its directions are not followed, SEBI will proceed to initiate civil and criminal actions and attachment and recovery proceedings besides other actions.

LEGAL DOSE:

Indian Investors has suffered perilous tremors of Ponzi be it Shardha, PACL or the breed of schemes in form of Plantation, Real estate & Land Acquisition, Agro & Dairy businesses and etc. Therefore, vide Securities Laws (Amendment) Act, 2014 SEBI has been vested with wider unfettered powers to crackdown Ponzi schemes which have a direct hit on Indian Economy.

With the clear mandate of eliminating such malpractices SEBI is rigorously scanning all susceptible cases across the nation. It is also significant to note that the jurisdiction of SEBI in these cases are irrespective of the nature and form of business/activity i.e. whether listed or unlisted, in form of company or in any other form and is not restricted to a specific nature of business. Decision as to whether a business model operates as CIS is dependent on the parameters given in SEBI Act, which are again wide enough to take into their ambit all kinds of schemes of business models. Our analysis of SEBI orders on subject of CIS shows that SEBI has continued to take stern actions in such cases.