Order in the matter of Sumangal Industries Ltd.

WTM/SR/IMD-ERO/01/04/2013 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11, 11B & 11(4) OF SEBI ACT 1992 READ WITH SEBI (COLLECTIVE INVESTMENT SCHEMES) REGULATIONS 1999 IN THE MATTER OF SUMANGAL INDUSTRIES LIMITED

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") came across an advertisement dated September 11, 2012 published in the Bengali newspaper ‘Anandabazar Patrika’ at Kolkata by Sumangal Industries Ltd. (hereinafter referred to as “SIL” or “the company”) soliciting funds from the public promising returns of 20% to 100% under a ‘Flexi Potato Purchase Scheme’ (hereinafter referred to as "the Scheme").

2. The main features of the scheme as stated in the aforesaid advertisement are as follows:- a. Funds collected from public by SIL shall be used to buy potatoes from the market on behalf of the investors when the price is low and preserve them in their own Cold Storage and later on sell them when the market price rises.

b. There is a guarantee of 20% to 100% profit. The percentage of profit shall depend upon the market price of potato.

c. It takes 15 months to complete the whole business and return to the investor the sale value of his potatoes.

3. The aforesaid advertisement further states the following:- a. "Those who will invest this year by September, hopefully they will get a profit of 58% b. Invest Rs. 1 lac for 15 months in potato, you will get a guaranteed return of Rs.1.20 lac, it may reach upto Rs.2 lac c. Purchase potato bond of Rs.1 lac. After one week, on any day sell it to us against a return of 15.6% P.A. "

4. SEBI vide letter October 11, 2012, had advised SIL to note that in terms of section 12 (1B) of the SEBI Act, 1992 and the provisions of the SEBI (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as the "CIS Regulations") no entity can carry on or sponsor or launch a Collective Investment Scheme (hereinafter referred to as "CIS") without obtaining a certificate of registration from SEBI. The abovementioned letter also advised SIL to, inter alia, submit the following details/documents with respect to the schemes launched by it :- (a) Terms, conditions and structure of the schemes launched (b) Details of the scheme(s) wise amount mobilized till date along with the number of investors under the schemes (c) Copies of offer documents, application form, pamphlets, brochures of the schemes (d) Sample copies of the registration letter / allotment letter/ agreement letter / contract issued to or entered with the investors who subscribed to the schemes

5. Vide its reply dated dated October 20, 2012 SIL denied that it is mobilizing funds from public. It also submitted that it is trading in potatoes for which it has a trading licence and it is dealing in agricultural and non-agricultural products both within and outside India. The company denied that it was running a Collective Investment Scheme and submitted that the question of obtaining a certificate of registration from SEBI does not arise. The company did not provide the information and documents sought by SEBI.

6. I have carefully considered the features of the Scheme as advertised and widely circulated in the newspaper advertisement, SIL's reply dated October 20, 2012, as well as documents available on record, and note the following:- a. The money invested by each of the investors is pooled and used for buying potatoes from the market which are then stored by SIL in its own cold storages in order to be sold later when the prices are high.

b. The investors are assured a guaranteed return of 20% to 100% in 15 months. It is further stated that investors are also being given an option to buy ‘Potato Bond’ of Rs 1 Lac and sell them back to company after one week to receive a return of 15.6% p.a.

c. The property (‘Potatoes’ in the instant case) is managed on behalf of investors.

d. The complete control of the management of the Scheme starting from purchase of the potatoes, storing them in cold storages, exploring market for buyers, execution of MoU with State governments are with the company. The investors do not have any day to day control over the management and operation of the Scheme.

7. The term "Collective Investment Scheme" has been defined in Section 11AA of the SEBI Act, 1992 which is reproduced below for reference:- "Collective Investment Scheme. 11AA. (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) 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.

8. Regulation 12 (1B) of the SEBI Act, 1992 states that "No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment schemes including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations:"

9. Regulation 3 of the CIS Regulations states that "No person other than a Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme". A collective investment management company is required to be registered with SEBI as per the definition of a Collective Investment Management Company in section 2 (1) ( h) of the CIS Regulations which states that ""Collective Investment Management Company” means a company incorporated under the Companies Act, 1956 (1 of 1956) and registered with the Board under these regulations, whose object is to organise, operate and manage a collective investment scheme;"

10. It is observed from SIL's advertisement dated September 11, 2012 that the company had invited subscription from the general public for its ‘‘Flexi Potato Purchase Scheme’’ guaranteeing 20% to 100% profit. It is also noted that the company has been issuing bonds with a buyback offer promising returns of 15.6% per annum. The investors' contributions are pooled and utilised for the purpose of investment in purchase of potatoes which are proposed to be sold with a view to receive profits. The Scheme is managed on behalf of investors, who in turn appear to have no day-to-day control over the affairs of the Scheme. Thus, the Scheme appears to satisfy all the attributes of a collective investment scheme as defined under section 11AA (2) (i) to (iv) of the SEBI Act. 1992. It is also noted that the company merely has a trade licence from The Kolkata Municipal Corporation to supply food items, vegetables, spices and beverages.

11. In view of the foregoing, it prima facie appears that the company is running a CIS without obtaining a certificate of registration from SEBI as required under section 12 (1B) of the SEBI Act, 1992 and the CIS Regulations. Thus, the company has prima facie 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.

12. The interest 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. I note that SIL has to be prevented from carrying on further with its activity related to collective investment scheme without obtaining due registration from SEBI in accordance with law.

13. In view of the above, I, in exercise of the powers conferred upon me under section 11B and 11(4) of the SEBI Act, 1992 and Regulation 65 of CIS Regulations, hereby direct SIL:

a. not to collect any money from investors or to launch any scheme;

b. not to dispose of any of the properties or alienate the assets of the scheme;

c. not to divert any fund raised from the public at large, whether kept in bank account(s) and/or in the custody of the company.

14. The above directions shall come into effect immediately and will continue until further orders.

15. SIL shall, within 15 days from the date of receipt of this order, file its reply, if any, to the prima facie observations made herein. The company may also indicate, in its reply, whether it wishes to avail an opportunity of personal hearing in the matter.

DATE: April 10, 2013 S. RAMAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA