Order against Green Buds Agro Farms Ltd

Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999 against Green Buds Agro Farms Ltd. (PAN No. AACCG5554E) and its Directors Mr. Bettahalli Ravindranath Lakshmegowda (DIN No. 00828755), Ms. Jayanthi Subbarayappa (DIN No. 03164415) and Ms. Aruna Prasad (DIN No. 03164425). 1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") noticed a news report which was telecast on July 14, 2013 in a TV Channel and also a report in certain News Papers on July 15, 2013 in respect of the alleged fraud perpetrated by one Mr. Ravindranath and his wife on the investors of the Company Green Buds Agro Farms Ltd. (hereinafter referred to as "GBAFL"), to the tune of around 300 crores from six Lakh investors spread across the state of Karnataka.

2. As a part of a preliminary enquiry into the alleged fraud on the investors by GBAFL, SEBI gathered information from the website of GBAFL and also from the website of Ministry of Corporate Affairs (MCA), in relation to the business activity of GBAFL. In the meanwhile, SEBI received a complaint from Greenbuds Workers and Depositor’s Protection Committee (hereinafter referred to as "GWDPC") on March 5, 2014, alleging that GBAFL has mobilised funds mainly from villagers and women offering high rates of interest as returns. It was also alleged that the Directors of the company have diverted the funds mobilised from investors and have amassed properties in their own names and in benami names. Further, it is alleged that the investors were deprived of any money promised by GBAFL. Following documents/material have been forwarded alongwith the aforesaid complaint,

• "Brochure"/circulation material, issued by GBAFL, • A copy of the cheque dated October 25, 2013 issued by GBAFL to an investor, • Several copies of "Acknowledgement Slip", issued by GBAFL to various investors, • Several copies of "Unit Certificate" issued to various investors, • "Pamphlet" containing the details of various plans offered by GBAFL, • A list of pending cases and complaints filed by investors against GBAFL.

2.1 Pursuant to this, SEBI, vide letter dated March 10, 2014 required GBAFL to furnish the following information, i. Financials of GBAFL for the last 3 years, ii. Brochures, iii. Amount collected from investors, iv. Amount refunded investor-wise, v. Remaining amount to be paid to the investors, vi. Copy of Memorandum of Association of GBAFL

2.2 However, it is noted that the aforesaid letter sent by SEBI, was returned undelivered with a remark "Door Locked". Subsequently on April 28, 2014, the aforesaid complainant(GWDPC) forwarded copies of several complaints filed against GBAFL and its Directors in various police stations.

3. I have perused the aforementioned information/material available on record such as, information collected from the website of GBAFL, complaint received by SEBI alongwith the documents/information contained therein in relation to its alleged mobilization of funds. In this context, the issue for determination in the instant matter is whether the mobilization of funds by GBAFL is a ‘collective investment scheme’ in accordance with Section 11AA of the SEBI Act, 1992 (hereinafter referred to as "SEBI Act").

4. On an examination of the aforementioned material/information available on record, it is prima facie observed that:

i. Green Buds Agro Farms Ltd. (CIN No. U01409KA1999PLC025634) was established in 1999 and had commenced its operations on August 24, 1999. The registered office of GBAFL is at No. 395/1, Masjid Road, Opp. Post Office, Nazarabad, Mysore, Karnataka - 570001.

ii. The Directors of GBAFL are, Mr. Bettahalli Ravindranath Lakshmegowda, Ms. Jayanthi Subbarayappa and Ms.Aruna Prasad.

iii. GBAFL was involved in the business of micro financing, agricultural business etc., and has 80 branches spread across Southern India in Karnataka, Tamil Nadu, Andhra Pradesh and Kerala.

iv. GBAFL purchases land using the funds/investments collected from the "unit holders"/investors and would develop Forestry/Agriculture/Industry in these lands and the profits thereon will be distributed to the investors.

v. For the aforementioned purpose, GBAFL offers various "schemes"/plans to the "unit holders"/investors with the promise to distribute the profits among them.

vi. The "schemes"/plans start from a monthly instalment of 100/- to 1,000/- per unit, promising returns upto 20-25% per annum. The said schemes also offer the option of quarterly or half-yearly instalments/payments to the "unit holders"/investors. It is observed that the said "scheme"/plan also requires a "unit holder"/investor to make a investment amount for a specified period and promises a return after that period. The details of one of the plans as shown in the "Brochure" is reproduced below: Plan 3: 750 days Plan Daily investment Total amount Interest (20%) Amount on amount (₹) (₹) (₹) Maturity(₹) 10 7,500 1500 9,000 20 15,000 3000 18,000 30 22,500 4500 27,000 40 30,000 6000 36,000 50 37,500 7500 45,000 60 45,000 9000 54,000 70 52,500 10,500 63,000 80 60,000 12,000 72,000 90 67,500 13,500 81,000 100 75,000 15,000 90,000 *"If all the instalments are paid punctually at the end of the plan, then those unit holders will get 5% for the money invested"

vii. GBAFL provides accidental insurance to the "unit holder"/investors.

viii. GBAFL pays commission ranging from 0. 15% to 15% to its agents for canvassing and bringing in investors to the scheme. One such commission structure as appeared in the website of GBAFL is reproduced as under,

Commission Structure for Plan -3 (Daily) Rank 1st Year 2nd Year 3rd Year F.R. 12% 12% 12% F.O. 1.50% 1% F.D.O. 1.50% 1% S.D.O. 1% 075% F.A. 1% 075% D.A. 0.75% 050% S.D.A. 0.75% 0.50% CA 0.50% 0.25% CA 1 0.50% 0.25% CA 2 0.50% 0.25% CA 3 0.25% 0.15% CA 4 0.25% 0.15% ix. On analysing the various documents/material received from the complainant such as the "Brochure" issued by GBAFL for the benefit of investors, it is observed that, a. GBAFL has reiterated the promises it has made to the investors on its website, wherein it has promised interest rates ranging from 20% to 25% as returns.

b. The GBAFL has also promised commission to agents at rates varying from 0.15% to 12.00 % working under ranks such as Chief Adviser to Field Representative.

c. "Brochure" contains the details of jurisdictions of various regulatory authorities in India and is seen to have mentioned that GBAFL falls under the jurisdiction of SEBI.

d. The "Brochure" circulated by GBAFL while explaining jurisdiction of various regulatory authorities in India, is seen to have recorded that GBAFL falls under the jurisdiction of SEBI. Despite being aware of the jurisdiction of SEBI, GBAFL has not registered any of its schemes as Collective Investment Scheme with SEBI. I, therefore, find that GBAFL has deliberately misrepresented the investors through its "Brochure".

e. Following Clauses are noted from the sample copy of "Application Form" under the head "General Terms and Conditions" in the "Brochure", • "The investors shall have no right to participate in the development of farms which shall be exclusively looked after by the company,

• The allotment of land is entirely at the discretion of the company and the company has right to reject any application without assigning any reason, • The investor has satisfied himself/herself with the rate of interest and understand all the limitations and objectives of the company, • The Company shall plant suitable seedling in the allotted plot, • The investor shall not be entitled to take possession of any product or output from the said land during the period of the agreement and it will be exclusive property of the company".

x. From the copies of "Unit Certificate" issued by GBAFL to the investors, after receiving money from them, it is observed that, a) The investor, who has paid the money on the basis of the scheme opted, is certified as the "unit holder". b) It is noted that in Plan No. 1 for an amount of 6000/- the monthly installment is 100/- and after 5 years, the "unit holder"/investor is entitled for a maturity amount of 10,000/- xi. From the material/information collected from the website of GBAFL, following are mentioned in the website,

• “This Company is engaged in business with Forestry and Agriculture as its primary activity. Land will be purchased using the investments made by the public; Forestry and Agriculture will be introduced in these lands and the profits there on will be distributed to the investors.

• The Company gives added income in the form of interest, more than investments with post office, Banks or any other investment. This rate of interest will be as per the regulations on interest rate by Reserve Bank of India (RBI).

• The company will provide saplings of plants like…….to those farmers who opt or, and thus provides a facility to earn more income. The company has been making profits by selling the aromatic products out of these plants purchased from the farmers in the international market. The company directly purchases these plants and provides market facilities.

• Projects that are undertaken with the permission in 1999 from the Government, Plan 1, Plan 2 and Plan 3."

5. The aforementioned features of the plans offered by GBAFL have to be considered in light of Section 11AA of the SEBI Act, which provides for the conditions to determine whether a scheme or arrangement is a ‘collective investment scheme’. It reads as follows:

“(1) Any scheme or arrangement which satisfies the conditions referred to in subsection (2) or [sub-section (2A)] shall be a collective investment scheme. (2) Any scheme or arrangement made or offered by any company under which, (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement; (ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day to day control over the management and operation of the scheme or arrangement.”

5.1 In the context of the abovementioned Section 11AA of the SEBI Act, the "schemes"/plans offered by GBAFL, is examined as under:

i. The contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement.

As can be seen from the modus operandi of the plans mentioned on the website of the GBAFL, it invites funds from the public by offering various plans. GBAFL claims that the the contributions made by the "unit holders"/investors would be pooled and utilised for purchasing land for developing forestry and agriculture. The profits earned by such cultivation were assured to be distributed among the investors. The objective of such pooling of money is given on its web-page as follows, "This Company is engaged in business with Forest and Agriculture as its primary activity. Land will be purchased using the investments made by the public; Forestry and Agriculture will be introduced in these lands and the profits there on will be distributed to the investors." Similarly, it is noted from the "Brochure" that GBAFL has declared that the amount received from the investors under the various schemes would be invested in growing economic/cash crops, which generates high returns when sold in international markets. Further, photographs provided in the "Brochure"portray that the amount received from the investors are pooled in order to invest in forestry, agriculture, industries etc. Therefore, it is clear that the contributions/investments are pooled for the purpose of the "scheme" of "purchase of land and introduction of forestry or agriculture" and the said "scheme" or arrangement is solely carried out from the funds pooled from the "unit holders"/investors. I, therefore, find that the instant "scheme"/plan satisfies the first condition stipulated in Section 11AA(2)(i) of the SEBI Act.

ii. The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement

The contributions have been collected by GBAFL under three plans. It has provided guidance charts on its website explaining the investment and returns on such investment as well as various conditions under each plan. On perusal of such charts and conditions, it appears that assured returns are guaranteed to the "unit holders"/investors. For instance, 1,000/- invested under Plan 2 is guaranteed 2,000/- after five years. It is also observed that GBAFL, in its "Brochure" stated that the investors would receive high returns by way of interest as the said investments are not similar to that of Post Office Saving Schemes or Bank deposits which are subject to limitations introduced by RBI on interest rates. Therefore, the "unit holders"/investors are enticed by promise of high returns on their investments under various scheme plans. It is clear therefore, the contributions are made by the "unit holders"/investors with an expectation to earn income/profit/return from such "scheme"/plan. In view of this, I find that the instant "scheme"/plan also satisfies the second condition stipulated in Section 11AA(2)(ii) of the SEBI Act.

iii. The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; and, iv. The investors do not have day to day control over the management and operation of the scheme or arrangement."

As noted from the website, GBAFL is using the funds pooled from "unit holders"/investors to purchase land for the purpose of carrying out activities like forestry, agriculture, industries etc. The control over such purchased lands and cultivation seem to be solely with the management of GBAFL. This shows that the funds collected from "unit holders"/investors are indeed managed by GBAFL with promise of returns to the investors. It is therefore, clear that the "scheme"/plan is managed by GBAFL on behalf of the”unit holders"/investors. In this regard, it is noted that various clauses mentioned in the General Terms and Conditions of the "Application Form", state that the "unit holder"/investor shall have no right to participate in the development of farms, which is exclusively looked after by GBAFL and the "unit holder"/investor shall have no right over the product or output from the said land, which is the exclusive property of GBAFL. From this, it is apparent that the control over such purchase of lands and cultivation seem to be solely with the management of GBAFL and the "unit holders"/investors do not appear to have any day to day control or say over the management and operation of the "scheme"/plan. I, therefore, find that the instant "scheme"/plan also satisfies the conditions stipulated in Section 11AA(2)(iii) and (iv) of the SEBI Act.

6. From the above analysis, I find that the "scheme"/plan offered by GBAFL with a resultant promise of profit/returns when considered in light of peculiar characteristics and features of such scheme, as discussed in the preceding paragraphs, prima facie satisfies all four conditions specified in Section 11AA (2) of the SEBI Act.

6.1 In this context, it is relevant to refer to the observations of the Hon'ble Supreme Court of India in the matter of P.G.F Ltd. & Ors. vs. UOI & Anr. (MANU/SC/0247/2013) (hereinafter referred to as "PGFL Case"). The Hon'ble Court held that: "..sub-section (2) of Section 11 AA, which defines a collective investment scheme disclose that it is not restricted to any particular commercial activity such as in a shop or any other commercial establishment or even agricultural operation or transportation or shipping or entertainment industry etc. The definition only seeks to ascertain and identify any scheme or arrangement, irrespective of the nature of business, which attracts investors to invest their funds at the instance of someone else who comes forward to promote such scheme or arrangement in any field and such scheme or arrangement provides for the various consequences to result there from."

6.1.1 In view of the aforementioned observations of the Hon'ble Supreme Court of India in the PGFL Case, and in view of the abovementioned analysis and examination, I find that the activity of fund mobilization by GBAFL with a resultant promise of returns clearly falls within the ambit of 'collective investment schemes' as defined in Section 11AA of the SEBI Act.

7. I note that in terms of Section 12(1B) of the SEBI Act, "no person shall sponsor or cause to be sponsored or cause to be carried on a 'collective investment scheme' unless he obtains a certificate of registration from the Board in accordance with the regulations”. Therefore, the launching of any 'collective investment scheme' by any person without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

8. Upon a consideration of the aforementioned paragraphs, I am of the view that the "scheme"/plan offered by GBAFL prima facie amounts to a 'collective investment scheme' as defined in Section 11AA of the SEBI Act and GBAFL has been carrying out such schemes/plans without obtaining a certificate of registration from SEBI as required under Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.

9. In view of the prima facie finding that GBAFL is engaged in fund mobilizing activity from public which satisfies all the ingredients of a 'collective investment scheme', without obtaining a certificate of registration from SEBI as required under Section 12 (1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations, it has violated Section 12 (1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations read with Section 11AA of the SEBI Act, 1992. Further, considering the fact that no prior registration has been obtained by GBAFL in respect of the aforesaid activities in the nature of collective investment scheme, I am of the view that GBAFL is illegally mobilizing funds from the public, which prima facie amounts to a fraudulent practice in terms of Regulation 4(2) (t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003.

10. Protecting the interests of investors is the first and foremost mandate for SEBI. Under the circumstances, SEBI has to take immediate steps to prevent activities of companies or entities defrauding investors and damaging the orderly development of the securities market. In order to safeguard the assets/property, acquired by GBAFL and its promoters/directors using the funds collected from the investing public until full facts and material are brought on record and a final decision is taken in the matter, it is incumbent on SEBI to take preventive action by way of this interim measure. In the light of the same, I find no other alternative but to take recourse through an interim measure against GBAFL and its promoter/Directors, who are in charge of and responsible for the day to day affairs of GBAFL, viz. Mr. Bettahalli Ravindranath Lakshmegowda, Ms. Jayanthi Subbarayappa and Ms. Aruna Prasad, for preventing them from further carrying on with their fund mobilizing activity by launching 'collective investment scheme' without registration from SEBI in accordance with law.

11. In view of the forgoing, I, in exercise of the powers conferred upon me under sections 11(1), 11(4) and 11B of the SEBI Act, 1992 read with Regulation 65 of CIS Regulations, hereby direct GBAFL and its directors/promoters, including Mr. Bettahalli Ravindranath Lakshmegowda, Ms. Jayanthi Subbarayappa and Ms. Aruna Prasad;-

• not to collect any money from investors from its existing "scheme" or to launch any new schemes;

• to immediately submit the full inventory of the assets owned by GBAFL out of the amounts collected from the "Unit holders"/investors under its existing "Schemes";

• not to dispose of any of the properties or alienate the assets of the existing "Schemes";

• not to divert any funds raised from public at large, kept in bank account(s) and/or in the custody of GBAFL;

• to furnish all the information/details sought by SEBI within 15 days from the date of receipt of this Order, including, i. Scheme wise list of investors and their contact numbers and addresses, and ii. PAN numbers of the aforementioned Directors.

12. The above directions shall take effect immediately and shall be in force until further orders.

13. This order is without prejudice to the right of SEBI to take any other action that may be initiated against GBAFL and its Directors/ Promoters, in accordance with law.

14. The prima facie observations contained in this Order are made on the basis of the material available on record. In this context, GBAFL and its Directors/Promoters, may, within 15 days from the date of receipt of this Order, file their reply, if any, to this Order and may also indicate whether they desire to avail themselves an opportunity of personal hearing on a date and time to be fixed on a specific request made in that regard.

Date : May 16, 2014 S RAMAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA