Lost in the forest of deception

It may be recalled that thousands of ordinary investors in Kerala and Tamil Nadu were duped by a number of such dubious companies and the very same people are now floatingsimilar schemes in other parts of the country.

Despite the public outcry raised a few years ago over these companies, the Reserve Bank of India and SEBI authorities came into the picture only after the multicrore CRB debacle.

The entry of SEBI was, of course, late, typically a case of bolting the stable doors after the horses have fled. "By the time the government took a decision about regulating the so-called plantation companies and SEBI stepped in, much damage has been done. It is going to be a tough time for the SEBI to bring these companies under the regulatory framework. SEBI can monitor the part raising money from investors. But what about the assets (like plantations or goats or pigs where the company invests money)? Who will monitor these matters? How can you make sure that the company will put the money in developing plantations?” said a member of the S A Dave committee set up by the SEBI to frame regulations for this sector.

Sebi officials said they are visiting various plantation companiesto see how the funds collected from the investors are being utilised. Some of these companies have land with plantations and others have only barren land. They have also been talking to representatives from these plantation companies. They say that it will take six months to finalise regulations for plantation companies during which time a draft recommendation will be circulated for public opinion.

SEBI chairman D R Mehta says that 315 companies which have floated collective schemes have filed information with SEBI. Pray, where are the rest of the companies? What will happen to the amount already collected by these companies. Some of them offered ridiculously high returns of nearly 50-70 per cent to the investors. "Several scams will surface when the amount invested by investors is ready for redemption. As most of the companies raised money in the last three years and most of the schemes are for 3 to five years, it will be ready for maturity in the next one or two years. Many of the companies which hadcollected money may not be existing now. Out of several hundreds of plantation companies, genuine companies are only two or three dozens,” said a banking source.

It’s not only fly-by-night operators, even well-known business groups like the DSJ group, the Parasrampurias, Suman Motels and so on are in the business. The first two have already defaulted on their commitments to the investors. SEBI, on its part, is facing stiff opposition while bringing plantation companies under its control. SEBI has dragged Chandigrah-based Golden Forests to the court to prevent the company from making payments to promoters and ensure that monetary transactions are limited to day-to-day requirements. This company had raised a whopping Rs 1,000 crore — the largest fund mobilisation in the sector — deposits without possessing proper assets to match the collection.

Moreover, even as the SEBI is putting the regulatory framework in place, plantation companies are continuing with their fund mobilisation spree. "You can investmoney in our Enbee Agro Bonds… the last date is February 15,” said an official of Enbee Plantations Ltd, when this correspondent approached the company posing as an investor. Similarly, an official of Ace Agro Products said, "I will send my representative to your house to collect money under our Ace Agro Bond-series I scheme.”

The MRTP Commission has ordered an inquiry against Enbee Plantations for misleading investors and raising Rs 103 crore from them last year. During the preliminary investigation by the commission, it was found that the company has not utilised the funds collected from the investors according to its stated plan. "Most of the companies spend almost 15-20 per cent — in some cases even 50 per cent — of amount collected as expenses like advertising and agent commission. In several cases there are no assets to back the deposits and money was siphoned off for other purposes. The plantation company sector is a can of worms,” said an RBI official.

Gullible investors are normally luredby the high returns offered by these companies. Ace Agro Bonds, for example, offers a scheme under which Rs 4,000 will become Rs 10,000 after three years. This means an interest rate of over 50 per cent for the investor. There is no wonder people are even putting their gratuity and pension money in such schemes.

The regulator will have to tackle the issue of assets backing the deposits mobilised by companies. The money raised from the public is supposed to be invested in developing land, planting trees and nurturing them for a specific period. Ditto is the case with pig and goat farms. The monitoring of this process will be a tough job for the SEBI. Some plantation companies have proposed a two-pronged regulatory strategy for regulation of collective investment schemes. By this, the SEBI would supervise the entry of companies floating these schemes while a secondary government body would supervise the agricultural output.

According to the plantation companies, monitoring by the secondary body has beensuggested because SEBI does not have the infrastructure to supervise these farmlands and their output. The Dave Committee has already defined collective investment schemes of the sector by taking into consideration the land, management of property and investment by investors. SEBI chairman said that the regulator was in the process of sending across a circular to all the plantation companies to get their existing schemes rated by the credit rating agencies.

Merchant bankers and rating agencies are also likely to play a crucial role in the plantation scheme sector in the new scheme of things. Once the regulations are finalised these companies will have to get their various projects appraised like manufacturing companies. "But SEBI should ensure that things don’t end up like the NBFC sector. The Reserve Bank framed the rules, reversed them and re-reversed them, creating confusion among finance companies. This should not be repeated,” said a merchant banker.

Almost all the companies which raised moneythrough various schemes are private unlisted companies. Before the SEBI finalises the regulations, it is clear that investors will burn their fingers for putting money in such "collective investment schemes”.