Plantation cos prefer closure to Sebi norms

A company like Wimco which diversified into the plantation business has closed down this division. Suman Motels which entered the plantation business closed down the scheme, claiming that “the division was affected by the SEBI regulations.” Analysts said the real reason for closure of plantation schemes by companies is that chances of fund manipulation have become very remote, thanks to the new guidelines.

Dalal Street Plantations was yet another fly by night operator which preferred to close down its arm instead of taking the business further. The company is now eyeing the software sector which has caught he fancy of the investors.

Moreover, according to the SEBI, in some cases where proceedings are going on in various courts, the entities which had launched CIS had proposed to make repayments to the investors.

Chandigarh-based Golden Forests which collected over Rs 1,000 crore from investors is one such company which is fighting a case against the SEBI.

However, several plantation companies which collected funds from investors in the last five years have failed to return the money. SEBI offices all over the country are flooded with complaints about complaints like Okara, DSJ, JVG, Sterling and so on for non-payment of funds. “Investors seem to have resigned to their fate… they seem to have given up hope of getting back their money,” said an investor.

While plantation schemes were brought under regulatory control only two years ago, they had mobilised over Rs 2,500 crore between 1995-1998 in the absence of any guidelines. As a result, many fly-by-night operators floated plantation companies and vanished with the investors money. Investor Grievances Forum had even estimated that around Rs 10,000 crore was mobilised by plantation companies.

“Getting back money from plantation companies is a real problem. Companies which are paying back money are not paying the full amount,” said an investor, adding, “Wimco has not paid me the full interest amount after winding up their scheme.” The fate of several goat farms and time share resorts is still not known.

SEBI has laid down tough conditions for eligibility for grant of certificate. New companies should have a minimum net worth of Rs three crore at the time of applying which is to be increased to Rs 5 crore within a period of three years from the date of grant of the certificate. Existing companies should meet the minimum net worth requirement of Rs one crore in one year and reach the level of Rs five crore in a phased manner in five years. At least 50 per cent of the directors of such companies should consist of persons who are independet and are not directly or indirectly associated with the persons who have control over the company.

The chronic problem of diversion of funds to businesses other than the one for which the money is raised — which is many times a cause for failure — is a difficult proposition as the SEBI has prohibited the plantation scheme from undertaking any activity other than that of managing CIS. This appears to be a reasonable attempt to prevent siphoning of fund. It is also prohibited from acting as a trustee of any scheme or launching any scheme for investing in securities.