wtm/ps/150/cis-nro/chlo/feb/2016 before the securities … · under the head ‘product sale...

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WTM/PS/150/CIS-NRO/CHLO/FEB/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER

ORDER

Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999 In the matter of G.C.A. Marketing Private Limited In respect of:

1. G.C.A. Marketing Private Limited [CIN: U52599PB2005PTC28378], 2. Mr. Amardeep Singh Cheema [PAN: ADEPC5281C] and 3. Mr. Gurdeep Singh [PAN: BIVPS7069D].

Date of Hearing: August 06, 2015 Appearances: For Noticees: Mr. Rakesh Puri, Advocate For SEBI: Dr. Anitha Anoop, Deputy General Manager, Mr. Vishal Shukla, Assistant General Manager and

Mr. Pradeep Kumar, Assistant General Manager.

1. Hon’ble High Court of Madhya Pradesh vide its order dated July 13, 2012, in the

matter of Dharmvir Singh & Anrs. Vs. Union of India & Ors. [W.P. No. 3332/2010]

[wherein Central Bureau of Investigation (CBI) had inter alia conducted preliminary

investigation regarding the activities of G.C.A Marketing Private Limited (hereinafter

referred to as ‘the Company’ or ‘GCA’)] had directed various authorities including

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) to take

appropriate action in accordance with law. SEBI advised GCA advised vide its letter

dated November 22, 2012, to submit certain details/ documents including

Memorandum and Article of Association, details of the past and present directors of

the Company, brochures pertaining to the schemes/ offers, application forms, sample

copies of the registration letter and allotment letter issued to the investors, sample

agreement letter/ contract, scheme wise amount mobilized along with the number of

investors under the schemes, audited financial statements for the financial years 2009-

http://cbi.nic.in/

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10, 2010-11 and 2011-12, etc., in order to ascertain whether it was carrying on the

activities of a 'Collective Investment Scheme' (hereinafter referred to as ‘CIS’).

However, the same had returned undelivered.

2. Later, on obtaining alternate address of GCA, SEBI vide its another letter dated

September 02, 2013, sought the information from it. GCA vide its letter dated

September 19, 2013, requested for twenty one days’ time for replying to the SEBI

letter. A representative of the Company also visited the Local Office of SEBI at Indore

on September 27, 2013 and requested for an extension for replying to the letter of

SEBI. Thereafter, the Company vide its letter dated September 30, 2013, replied to the

SEBI letter and submitted the documents/ details namely Memorandum and Articles

of Association, details of the past and present directors of the Company, brochure

pertaining to investment scheme, copy of the application form, agreement and

allotment letter, details of the scheme wise amount mobilized along with the number

of investors under the scheme, copy of the financial statements for the financial years

2009-10, 2010-11 and 2011-12, copies of the income tax returns for three years. In the

meantime, Hon’ble Supreme Court of India also vide its Order dated January 03, 2014,

disposed of the Special Leave Petition filed by GCA and also ordered that ‘it shall be

open to the SEBI to determine the controversy without being influenced by any finding on the matter

heretobefore’. Vide this Order of Hon’ble Supreme Court, the parties to the Special Leave

Petition were directed to appear before SEBI on February 03, 2014.

3. In compliance with the directions of Hon’ble Supreme Court of India, a representative

of GCA appeared before SEBI on February 03, 2014 at its Local Office at Indore.

However, as the matter was being handled by the Northern Regional Office of SEBI

at New Delhi, the representative was advised to appear Northern Regional Office of

SEBI at New Delhi on February 06, 2014. On the date fixed, the representative was

advised to make an application detailing the matter and to submit a complete paper

book of the Special Leave Petition. The representatives sought time till February 11,

2014, for submitting the details/ documents. Thereafter the representatives vide letter

dated February 11, 2014, submitted a representation before SEBI, while submitting

that the GCA is involved in the business of product sale, farming and agriculture.

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4. SEBI upon examining the material available on record, prima facie found that the

activity of mobilising funds by GCA under the scheme/ plan with promise of returns

satisfies the features of CIS as defined in Section 11AA of the Securities and Exchange

Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’) without obtaining

a certificate of registration from SEBI for operating CIS as required under Section

12(1B) of the SEBI Act read with Regulation 3 of the SEBI (Collective Investment

Schemes) Regulations, 1999 (hereinafter referred to as ‘CIS Regulations’). The

mobilization of funds by GCA through its schemes, was also prima facie found to be 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

(hereinafter referred to as ‘PFUTP Regulations’).

5. Thereafter, SEBI vide an ad interim ex-parte order dated December 30, 2014 (hereinafter

referred to as the ‘interim order’) directed GCA and its directors namely Mr. Amarjeet

Singh Cheema and Mr. Gurdeep Singh (hereinafter collectively referred to as

‘noticees’):

“● not to collect any fresh money from investors under its existing schemes; ● not to launch any new schemes or plans or float any new companies to raise fresh moneys; ● to immediately submit the full inventory of the assets obtained through money raised by GCA; ● not to dispose of or alienate any of the properties/assets obtained directly or indirectly through money raised by GCA; ● not to divert any fund raised from public at large which are kept in bank account(s) and/or in the custody of GCA; ● to furnish all the information/documents sought by SEBI within 15 days from the date of receipt of this order, including: (i) Details of amount mobilised and refunded till date as certified by statutory auditor of GCA

and (ii) Scheme wise list of investors and their contact numbers and addresses.”

The aforesaid directions came into force with immediate effect and the noticees were

advised to file their reply within a period of twenty one (21) days from the date of

receipt of the interim order and also to indicate whether they wish to avail an

opportunity of personal hearing in the matter.

6. The interim order was forwarded to the Company and its directors. The Company and

its directors vide respective letters all dated January 16, 2015, requested for an

extension of time for replying to the interim order. Thereafter, one Mr. Rakesh Puri,

vide his email dated March 04, 2014, while submitting that he has been retained by the

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Company and its directors in connection with the interim order, requested for four

weeks’ extension for submitting the reply. Thereafter, the advocate for the noticees

vide another e-mail dated March 17, 2015, requested for an inspection of the

documents available on record. The request was considered and an inspection of the

documents available on record was granted to GCA on March 30, 2015.

7. Thereafter, the GCA and its directors submitted the common reply vide letter dated

April 01, 2015 and requested for an opportunity of personal hearing. The Company

along with the reply submitted the full inventory of the assets obtained through money

raised by GCA and the details of scheme-wise list of investors. Accordingly, GCA was

afforded an opportunity of personal hearing on June 25, 2015. The advocate for the

noticees vide e-mail dated June 17, 2015, requested for an adjournment of the personal

hearing. As the request was not supported with any cogent reason, the same was

rejected. On the date fixed, the noticees failed to turn up for the personal hearing.

However, in the interest of natural justice, another opportunity of personal hearing

was granted to the noticees on July 27, 2015. The advocate for the noticees vide e-

mails dated July 14, 2015 and July 24, 2015, submitted that they are in the process of

preparing an additional reply to the SCN comprising of updated information on the

amount of refund and obtaining a certificate for the same from the statutory auditor.

For the said reason, the advocate requested for an adjournment. The request of the

noticees was considered and the matter was adjourned to August 06, 2015. On the

date fixed Mr. Rakesh Puri, Advocate appeared for the personal hearing and filed the

certificate from the Chartered Accountant. He also made oral submissions while

relying on the reply filed by the Company. On conclusion of the personal hearing, the

Company and its directors were granted fifteen days’ time for submitting the written

submissions and documents, if any. No written submission or documents have been

filed by the Company after the date of personal hearing

8. The submissions of the noticees, in brief, are as under:

a. The Company is in the business of product sales, farming, agriculture and is governed

by the ‘The Punjab Agricultural Produce Markets Act, 1961’. The business of the

Company is under four heads and the income generated from these as per the

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financials of the Company (i.e. profit and loss account/ balance sheet since its

inception from 2005 onwards - till 2014) are as under:

- agricultural income (selling saplings, trees and its produce) – 41.44%

- product sale income (selling herbal, cosmetic and ayurvedic products) – 0.86%

- selling of farm land and other miscellaneous income – 0.95%

- contract farming lease income (contract farming agreements with farmers for lease

of plants/ farms) – 56.74%.

b. Under the head ‘agricultural income’, the Company acquires land for farming. The

Company has sufficient land either by purchase or lease in the states of M.P., Rajasthan

and Andhra Pradesh to develop the plants. Once the maturity of the plant is attained

(i.e. in 8 - 9 years) the Company can utilize these for the commercial purposes. The

plants planted by the Company i.e. Rattanjot, Kranj, Jojoba were not successful in the

early years but later the plants of Neem, BarmiDek, Sheesham, Amla, Banana, Papaaya,

etc. were successfully planted. Under this head, the Company sells its plantations and

its yield through its distribution and marketing channel and there is no scheme/

investors.

c. The Company also sells saplings of various plants for which it has developed its own

nurseries in various states with plants of different uses viz. medicinal, ornamental,

flowering, decorator and herbal varieties. The fully developed saplings of the said

plants are sold by the Company, however, due to the pending proceedings, the

Company is compelled to sell its mid age plants on throw away price in order to make

refund to its lessees.

d. Under the head ‘product sale income’, the Company undertakes marketing and

distribution of herbal, medicinal, ayurvedic and cosmetic products along with different

types of food supplements. For the same, the Company has also entered into

agreement with various companies. Under this head, the materials purchased from

different vendors/ stock was transferred from one point to another for retail sales on

cash basis and there was no plan/ scheme or the investor.

e. In the business of ‘selling of farm land’, the Company develops the unfertile barren

land and sell it as farm land/ plots by making the duly approved change of land use,

the land is situated in different states and the same is sold to its customers by

registering the sale deeds. This head also does not have any scheme/ investors.

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f. Under the head ‘contract farming lease income’, the Company has adopted the model

of contract farming through ‘self-help group’ in order to cater to its requirement of

sufficient raw material for making different type of products on large scale. Contract

farming can be of various types depending upon the capacity of farmers to handle the

size of the farm, manpower, etc.

The Company gives fully developed farm on lease to farmers who are interested in

growing crops. For the same, an agreement of contract farming/ lease agreement is

executed between the Company and the person interested. Once the person interested

takes the plants planted in the farms of the Company on lease basis, she/ he is

responsible for the care and maintenance of the said plants. Any produce grown by

her/ him belongs to her/ him only and the Company is not involved in it. No

commitment/ guarantee on the quantum of produce is given by the Company. The

Company has no share in the profits and there is no buy back arrangements except

optional proposals, if any lessee/ investor goes for the assured crop income option,

wherein the Company gives assured crop income @ ₹7 per kg. The farmer/ lessee has

the day to day control over the leased land. The lessee has full right to visit the farm

and can inspect the same for the yield, etc.

g. It will not be possible for a company to do the project of ‘contract farming’ without

involving farmers/ lessees/ commission agents, etc. The conclusion made out for

GCA that it falls under ambit of CIS without complete study of ‘contract farming’ is

not fair and needs a re-examination. The ‘contract farming’ done through GCA is by

following the procedure as defined in the law with pre-defined terms and conditions

laid down in the agreement of ‘contract farming’ of the Company. The lessees are

categorized in two types i.e. those who opt for assure crop income only and those who

opt to take care and maintain their plants at their own level. In the second type, the

lessees maintain the plants/ farms and enjoy the produce, whatsoever comes out under

their own control and management.

h. The Company was webbed in the net of ‘chit business’ and in the public interest

litigation of Dharmvir Singh & Anrs. Vs. Union of India & Ors. The Company has

redressed grievances of all 32 complainants.

i. The Company has not received the report of CBI dated October 23, 2013. The report

of CBI describing the non-availability of the Jojoba plants (2,81,740 in numbers),

Krunj plants (330 in numbers), Rattanjot plants (2,49,90,920 in numbers) totalling to

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2,52,72,990 is without a note that during the years of 2007, 2008 and 2009 a total of

11,65,843 plants had died and the lessees were informed of the same. The lessees were

asked either to go for the alternative plantations or to get their lease money paid back.

Up to the date of last submissions, there were 53,434 lessees who were paid with some

marginal profits of ₹75,64,02,549 on their agreement cancellation requests. The total

agreement holders were 3,54,398 out of which 53,434 agreement holders had their

agreements cancelled and the balance 3,00,964 lessees had paid ₹219 crore. Out of

these only 98,503 lessees had paid the full lease money and the rest i.e. 2,02,461 lessees

were yet to pay for their further lease money for the allotment of the plants.

Those who opted to continue with their lease for alternative plantations were having

total coverage of 20,06,250 plants of Barmi Dek, Neem and Krunj, etc. on the land

possessed by the Company (self-owned – 676.7991 acres and land on lease of

4,224.0258 acres). CBI report has not mentioned about the total farms and plants of

the Company.

j. The report of CBI has only taken into consideration the 53,434 lessees who were paid

the basic lease money refund without any profit and just made calculations that instead

of 2,52,72,990 plants, the Company was having 2,70,720 plants.

From the fully paid up lessees (i.e. 98,503) and partially paid up lessees (i.e. 2,02,461)

the Company had received ₹219 crore which was having support of forest wealth

cover of 20,06,250 plants of Barmi Dek, Neem and Krunj upon the total possessed

4900.8749 acres of farm land. The report of CBI no-where shows that the Company

is having 4224.0758 acres of land on lease for its farming purposes, upon which

17,35,530 plants were planted. The report only mentioned that the Company is having

676.7991 acres land with 2,70,720 plants of Barmi Dek, Neem & Krunj. The forest

wealth cover of the Company is evaluated in the open market for the total value of

₹737,29,68,750 @ ₹3,675 per plant of total 20,06,250 plants which would become tree

upon the age of maturity. The open market value of the land owned and possessed

by the Company i.e. 676.7991 acres was also over looked by CBI. The net produce

and open market value of plants namely Rattanjot, Krunj, Jojoba, and Barmi Dek,

Neem, Krunj completely differs but the same was ignored.

k. GCA had 2,81,171 lease agreement holders under its ‘contract farming’ business and

had mobilized ₹150,32,29,442 crores. As per the report of CBI, the total lease

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agreement holders were 3,54,398 with the expected lease money receivable from

2,02,461 lessees of ₹567 crores out of which GCA received ₹219 crores against unpaid

lease money. The current liability as taken from the balance sheet of the Company as

of August 31, 2012 i.e. of ₹209.95 crores is without analyzing the records properly.

The current liability is a set which includes tax provisions/ payables, commission

payables, performance incentives, club incentives and advance lease money was only

₹179.83 crores.

l. The allotment of plants and the option of assured harvest is subject to payment of the

lease dues. A mere single monthly payment of ₹100 made by the lessee to the Company

does not attract the assured harvest but the same was only subject to the paid up lease

amount by compensating her/ him subject to the crop assessments. None of the

stakeholders are having any complaint/ any doubt about the concept and projects of

the Company. The commission paid to the distributors is after TDS deduction. The

interim order has hampered the operations of the Company. The Company has

requested that the said order may be modified to allow the receipt of funds and refunds

as per its commitments prior to the date of the interim order.

m. The Company has not issued any instruments/ units/ security, its relation with the

customers is based only on the agreement, application form and allotment letter,

without the operation of any other external factor and the same do not create any

marketable securities. The terms ‘rate of crop share’ refers to the average minimum

yield to be given to the customers/ lessees of GCA and the same cannot be interpreted

to mean that any securities issued by GCA. The agreement executed by GCA are with

regard to the immovable assets and the term ‘crop share’ refers to fixed number of

plants of farm land and hence such documents can neither be considered to be

movable assets nor are they capable of being listed/ traded on the stock exchange.

They are not ‘instruments’/ ‘securities’ deriving their value from the underlying assets

such as land, unlike the agro bonds/ plantation bonds/ scheme of plantation

companies. Therefore, the transactions carried out by GCA cannot be held to be

‘securities’ as defined under Section 2(h) of the Securities Contract (Regulation) Act,

1956. On execution of the agreement, the lessees are free to take option of self-control

and management or consent to give it to GCA for taking care and maintaining the said

plants.

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n. The agricultural business carried on by GCA does not fall within the ambit of CIS.

The agricultural land falls within domain of the state laws and only states have

jurisdiction in this regard. CIS Regulations are not intended to regulate the sale and

purchase of land. The mandate of the Dave Committee Report was to assist SEBI in

evolving a framework for the regulation of the schemes that issued instrument like

‘agro and plantation bonds’ and not the business activities relating to the development

of land and agriculture activities. The interim order fails to set out any reason for the

urgency. There is no irregularity/ non-compliance by the Company in the course of

its business and therefore the interest of customers requires to be protected by not

disturbing the agreements executed by them.

o. GCA is duly complying with the directions issued vide the interim order.

p. For fixing liability of a director not only a specific role has to be attributed to these

directors but it is also to be shown as to how the directors were connected with or

were in-charge of the conduct of the business of the Company. The Company has

relied on the order of the Hon’ble Supreme Court of India in the matter of National

Small Industries Corporation Limited Vs. Harmeet Singh Paintal and Anrs. [(2010) 3 SCC 330]

and the orders of the Hon’ble Securities Appellate Tribunal in the matter of Ketan

Parekh Vs. SEBI (decided on July 14, 2006] and Vijay Remedies Vs. SEBI (decided on

February 11, 2005). For holding a person vicariously liable as being a person who is

either sponsored any CIS, specific averments ought to be made against such person.

q. During the pendency of the proceedings most of the ‘agreement holders’ have made

extra ordinary requests to cancel the lease agreements of ‘contract farming’ and

demanded the lease money back. The Company has accepted the requests and has

cancelled all the said agreements by refunding their paid amounts with some calculated

premature agreement benefits so that reputation of the Company may not be damaged.

Most of the agreement holders are based on ‘self-help group’ who had opted for only

assured crop income by authorizing company to do all agricultural operations and to

pay or refund to the existing lessees of their lease money on account of cancellation

of their lease agreements has become a compulsion for the Company for its further

existence by paying the agreement cancellation money in the present scenario, specially

by virtue of the interim order.

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The Company along with its reply also submitted the details of amount mobilized and

refunded as certified by the statutory auditor of GCA under the certificate dated March

26, 2015. GCA in its reply has also submitted that the lease money receipts with

assured crop income clause were to the tune of ₹428,07,11,396 out of which

₹183,98,82,450 were paid as refund of agreement cancellations upto March 31, 2014.

Further, the lease money receipts up to December 30, 2014 was ₹47,83,01,071 and the

refund of agreement cancellations were of ₹279,97,13,084 upto February 28, 2015.

The net lease money receipts with the Company are ₹11.94 crores as on February 28,

2015. Further, GCA has assets worth ₹157,89,87,226 inclusive of ‘forest wealth’

against its ‘assured crop income’ out of which the fixed assets of land and buildings

are of ₹17,98,99,096 at different locations of 108 properties.

9. I have considered the interim order, the replies received along with the documents

submitted and the material available on record. The interim order has alleged that GCA

under the schemes/ plans has mobilized funds with promise of returns, which are in

the nature of CIS and that the Company was offering these plans/ schemes without

obtaining the registration from SEBI, in contravention of the provisions of Section

12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations read with Section

11AA of the SEBI Act. The directors of GCA were also alleged to be responsible for

the illegal conduct of the business of the Company. The interim order has noted the

features of the alleged scheme offered by the Company. The following are the

observations from the interim order:

“8.1 GCA (CIN: U52599PB2005PTC28378) was incorporated on May 09, 2005 having its registered office at F 0-77, Civil Lines, Bhatinda (Punjab). The Directors of GCA are Shri Amardeep Singh Cheema and Shri Gurdeep Singh.

8.2 As per the MoA of GCA the main objects are “to operate a Multilevel Marketing of Ayurvedic, Desi Medicines, Herbs (Within India or Abroad) as non-store retail sale either through direct buying and selling or on agreement basis (to deal in any product / commodity)…to carry on the Business of Multilevel Marketing, Growers, Care Takers, Producers, Cultivators, Nurserymen, Seedmen Farmers, Contract Farmers, Sellers…”

8.3 As seen from the MoA and reply of GCA dated September 30, 2013, it is observed that GCA is engaged in the following activities:

i. Selling herbal, cosmetic and ayurvedic products through multilevel marketing. ii. Contract Farming agreements with farmers for sale of plant saplings or lease of farms etc.

8.4 As regards the business of 'multilevel marketing of herbal products and tree saplings', it is noted that GCA appoints distributors /agents for herbal products and plant saplings and gives them initial starter kit. These distributors/ agents further introduce new agents. GCA

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has evolved a commission structure for various levels of distributors incentivising the sale of

herbal products and tree saplings. It is noted that GCA earned a revenue of ₹67 lakh in

2011-12; ₹25 lakh in 2010-11; ₹42 lakh in 2009-10; and ₹54 lakh in 2008-09 from sale of its products. The analysis of financial statements of GCA reveals that the business of selling herbal medicines and products is minuscule as compared to the revenues earned by the ‘contract farming’ business of GCA.

8.5 As regards 'Contract Farming', it is noted from the marketing brochure, application forms, copies of agreement and certificates issued by GCA that it enters into contract farming agreements with farmers/investors to raise bio-diesel plants like 'Jatropha,' 'Kranj 'and 'Ratanjot'. The farmers/investors can either get allotment of the plants/trees themselves and be entitled to entire sale proceeds or seek the caretaker from the GCA under an agreement to share profits. The farmer can also enter into a ‘Buy Back Agreement’ with GCA under which the company buys the seeds/harvest from the farmers and sells it on behalf of farmers. GCA also offers ‘Assured Harvest’ scheme to the farmers/investors. The said scheme provides an option to the farmers/investors to invest and receive an assured buyback price

(‘Assured Harvest’) @ ₹7/- per Kg. The farmers/investors make a onetime payment or deferred payment for the allotment of plants to GCA and in return assures buyback price of the crop /plantation for an investment period of 6 years, 15 years or 19 years. Under this plan, the farmers/investors have no claim whatsoever except for the ‘Assured Harvest’ amount at the end of the agreement period.

…” 10. I have seen the plans/ schemes of the Company as detailed in the brochure. As per

the brochure, persons intending to purchase the farm land from the Company have to

apply for the same vide an application form. The documents submitted by the

Company are discussed below:

a. As per the brochure the lessee farmer/ customer has three options i.e.:

Option i. – the customer takes care of the plants himself at his own cost,

Option ii. - the Company arranges for a caretaker for the plants for which it gets the

lease rentals and the profits are shared with the customer,

Option iii. - the customer gets the assured buyback price. A sample of the plans

offered by the Company, as also noted in the interim order are as under:

TABLE A

(Lease amount for 1,000 plants of Ratnajot or 200 plants of Kranj for 6 years)

Lease amount

One time Part Payment - i Part Payment – ii

1st Year 40%

2nd Year 30%

3rd Year 30%

Total lease amount

Per month

Total months

Total lease amount

1,00,000 48,000 36,000 36,000 1,20,000 2,000 72 1,44,000

Note: At least 50 plants of Ratnajot or 10 plants of Kranj can be taken on lease.

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From above table, it is noted that the customer has to choose the payment option

between one time, yearly and monthly. The assured harvest details under this plan are

as under:

TABLE B Assured harvest details

S.No. Duration C-1 C-2 C-3

Assured harvest (in quintals)



1 After 1 year 16.50 … …

2 After 2 years 16.50 … …


4 After 4 years 16.50 75 …


6 After 6 years 16.50 +150 200 300

(the assured buy back price is ₹7 per Kg) C-1: In this option, the customer gets the return in the form of assured harvest (in quintals) yearly. In case the investor chooses monthly returns in place of yearly then he gets 1.35 quintal of crop. For monthly returns, the customer has to take lease of atleast 500 plants. C-2: Under this, the investor gets the return after 4 years and on completion of 6 years. C-3: In this option, the customer receives return in the form of assured harvest of 300 quintals on completion of 6 years

As per the brochure, the Company has two more plans having tenure of 15 years and

19 years.

b. Another document is the sample ‘application form’ which is a pre-printed document

having blanks for the details of the applicant, address details, contact number, details

of plants, details of lease period. From the sample of executed application form as

submitted by the Company, it is noted that the space for the type and number of plants

have been left blank.

c. The following clauses as stated in the ‘agreement’ for ‘contract farming’ are relevant

to be noted:

“… Whereas The company is carry on the business of the Business of producer of Bio Diesel plants and related activities like developers of rattanjot, kranj, jojoba and other plants which can be used as raw material in the process of production of bio-diesel through direct farming of the same or through contract farming. Whereas the company is having the ___ pants at the Farm measuring total area ___ at Village ___ Tehsil ____ District ____ State ________ in India having sufficient irrigation facilities.

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AND WHEREAS the farmer is interested in contract farming of _____ plant/ crops (hereinafter called The Subjected plants) for the period of __ Years i.e. (Hereinafter called the tenure of the agreement) and at the request of The Farmer, The Company has agreed to hand over/ give possession of minimum of 12 Months developed subjected plants for care and maintain and to get/ enjoy the agriculture produce of the farm during the tenure of this agreement. … Clause 3: The Company will hand over/ give possession of the Subject plants to The Farmer within 18 months from the date of execution of this agreement. Clause 4: During the tenure of the agreement the Farmer will be liable for take care and maintain the subjected plants with the time to time guidance/ instructions/ practices given by the company regarding Land preparation, fertilization, pest management, irrigation, harvesting etc., at his own cost and get/ enjoy the agricultural produce. … Clause 6: In the event of The Farmer refuses/ fails to maintain/ care/ picking/ plucking/ cutting/ dispose off the Agriculture Produce of Subjected plants due to many reasons of his own, due to which damages may cause to the said plants. The Company is free to dispose off/ take action after giving due notice, the Agriculture produce in the any manner and pay/ receive to/ from The Farmer the balance/deficient after deducing the expenses of disposal and the damages to the Farm. … Clause 12: The agreement is irrevocable but the Farmer can transfer/ endorse this agreement after 3 Years by paying the 5% of the total premium of the agreement or Rs. 300/- which ever is higher after taking No Objection Certificate from the company. The transfer fee shall be paid at the time first transfer by the Transferor and after that by the Transferee. Clause 13: The Agreement shall considered to be cancelled if the farmer fails to pay, as agreed in the agreement, the due after 12 months from the date of due date of payment and the Agreement will be treated as cancelled and The company is free to take possession and dispose of the entire subject plants any manner. … Clause 15: The Farmer can build some temporary infrastructures, mode of irrigations, intercropping only after taking previous consent of the company. …

Consent Letter II … due to my personal and unavoidable circumstances/ reasons I am Unable to take care and maintain the said farm so I give my consent and request to the company to arrange the care taker of the Company itself in any way to take care and maintain the Farm for the period of ___ years i.e. from ___ to __. I further agree and give my consent for signing if required any agreement with the company or with some other persons as the company may direct/ guide me from time to time for taking care and maintaining the farm for the said period. I will agree with all the terms & conditions of the Company for the said purposes and agree to receive Produce of the said farm as follows:

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I hereby gave my consent for the captioned subject, subject to the fulfillment of the following terms and conditions.

1. I will give/ hand over the possession of the ___ plants to The Care Taker and The Care Taker is to take care, maintenance and cultivation the said Plants/ Crops/ Farm for _____ years as shown in the annexure to the agreement.

2. The company will take care and maintain in the farm/ plants/ crops at its own cost and the Company will not charge anything from me.

3. I shall not be responsible for the developments of the said Farm i.e. for Care/ Maintenance/ Inspection for any time during the tenure of this letter.

4. The final Agriculture produces shall be given as per the details given above. 5. I will have No right to interfere the process of development of Plants. 6. I agree that The Company is free to do intercropping, put inventions, pesticides or any other

thing for getting maximum produce. 7. This will be my sole responsibility to carry my share of agricultural produce from the said farm

within 30 days from the date of intimation given to me if I fail to do so. The Company has full right to dispose of my share in any manner and given to me the balance, if any, after deducting the expenses of disposal. Consent Letter III … due to my personal and unavoidable circumstances/ reasons I am Unable to take care and maintain the said farm so I give my consent and request to the company to arrange The Care Taker or The Company itself in any way to take care and maintain the Farm for the period of ___ years i.e. from ___ to __. I further agree and give my consent for signing if required any agreement with the company or with some other persons as the company may direct/ guide me from time to time for taking care and maintaining the farm for the said period. I will be agreed with all the terms & conditions of the Company for the said purpose and agree to receive of 50% of Agriculture Produce of the said plants. I hereby given my consent for the captioned subject, subject to fulfillment of the following terms and conditions.

1. I will give/ hand over the possession of the ____ plants to The Care Taker and The Care taker is to take care, maintenance and cultivation the said Plants/ Crops/ Farm for ____ years as shown in the annexure to the agreement.

2. The Care Taker will take care and maintain the farm/ plants/ crops at its own cost and the Company will not charge anything from me.

3. I may inspect the developments of the said Farm at all level upto cutting and selling the agriculture produce of the said farm in reasonable time if any time I feel dissatisfied in the care and maintenance of the said plants I can revoke the care taker agreement after cutting of available agriculture produce and take care and maintain the farm myself.

4. I agree that The Care Taker is free to do intercropping without damaging the plants I will not claim the profits from the said intercropping.

5. This will be my sole responsibility to carry my share of agricultural produce from the said farm within 30 days from the date of intimation given to me if I fail to do so The Company has full right to dispose off my share in any manner and given to me the balance, if any, after deducting the expenses of disposal.”

d. The next document is ‘Brief of consent Letter I & II’. I have perused a sample of this

documents and note as under:

“Brief of the crop as per consent letter – I (option for the duration and rates per quintal):

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S.No. Duration Rate of Crop per Quintal

1. 1st to 6th Years Rs.700

2 7th to 11th Years Rs. 1000

3. 12th to 18th Years Rs. 1200

4 After 19 Years Rs. 1500

“Brief of the crop as per consent letter – II (option for the duration and rates per quintal):

S.No. Duration Crop Share

1. After 7 Years 28 Quintal

2 After 11 Years 20 Quintal

3. After 15 Years 20 Quintal

4 At the end of lease term 19 years 34 Qunital

Summary of the crop as per the consent letter I and II (option for the duration, quantity, rate and amount):

S.No. Term Quantity Date of Crop Rate (In Rs.) Amount (In Rs.)

1. After 7 Years 28.00 Q. 11/11/2016 1,000 28,000.00

2 After 11 Years 20.00 Q. 11/11/2020 1,000 20,000.00

3. After 15 Years 20.00 Q. 11/11/2024 1,200 24,000.00

4 After 19 years 34.00 Q. 11/11/2028 1,500 51,000.00

11. Considering the discussion on the documents submitted, following are my findings:

a. The ‘agreement’ is designed by the Company, to confuse the investors about the real

nature of the scheme. For instance, clause 11 of the agreement discusses about the

lease of land by GCA to farmers/ investors and clause 7 hint at leasing of plants.

b. Under Option 3, GCA assures certain value in the form of ‘assured buy back price of

₹7 per Kg.’, on making payment for the scheme of taking plants on lease from the

Company. The assured harvest from the plants also varies as per the plan.

c. The customer while applying for the scheme of the Company gives his consent and

makes a request to the Company for maintaining the farm. No clause in the

‘agreement’ expressly discusses about the consent letters. The Consent Letter - I is for

selling agriculture produce at pre-determined rates to/ through GCA. The Consent

Letter - II and III mentioned about handing over of the farm/ plants to the caretaker

provided by GCA.

d. The Company has the schemes of various tenures like 6 years, 15 years and 19 years.

e. From the details as submitted by the Company, it is noted that that the Company has

customers in various states like Bihar, Haryana, Punjab, Maharashtra, Assam, Orissa,

etc. However, the Company has farm lands mainly at Uttar Pradesh, Rajasthan and

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Andhra Pradesh. The Company in its reply has failed to explain as to how its customers

from Assam or other places will take care of plants located in Uttar Pradesh/

Rajasthan/ Andhra Pradesh.

f. As noted in the interim order, CBI in its report on the affairs of GCA had remarked

that ‘… investors were under the impression that it was an investment policy with good return against

the investment and that at end of the agreement period, they will get the agreed upon amount as shown

against the investment plan opted by them.”

12. Having discussed the above, now I proceed to test the characteristics of the impugned

plans/ schemes floated and carried on by the Company. For concluding whether a

scheme is a CIS or not, all the four conditions under Section 11AA(2) of the SEBI Act

should be satisfied.

i. The first condition is that the contributions, or payments made by the investors, by whatever name

called, are pooled and utilized for the purposes of the scheme or arrangement. In this regard, I note

that:

- Admittedly the Company accepts the money from the customers for subscribing

to its plans/ schemes in the name of ‘contract farming’.

- Customer interested in the schemes of the Company has to make an application

and an agreement in this regard is executed. For the payment of the lease amount,

the Company gives three options i.e., single payment plan, monthly payment plan

and yearly payment plan. The same makes it clear that the Company solicits the

money from its customers.

- The Company proposes to make allotment of plants after payment of 50% of the

lease amounts, which will be after 18 months to two years. The same suggests that

the Company after pooling the funds from its customers, utilizes it for the

purposes of the scheme.

- In the ‘assured buyback price’ option, the customer gives consent to receive the

assured harvest (in quintals) at an agreed buyback price (calculated in advance) (₹7

per kg.). In this option, the customer gets no claim whatsoever except for the

assured amount at the end of the agreement period.

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These facts show that the Company pools the investment made by the customers, with

an aim/ object of carrying out the overall plan/ scheme. Thus, satisfying the first

condition as stipulated in Section 11AA(2)(i) of the SEBI Act.

ii. The second condition is that 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. As discussed above, the Company

collected funds from its customers though single payment plan, monthly payment plan

and yearly payment plan for the plants on lease. The brochure of the Company

provides for the ‘assured buyback price’ option in which the assured harvest (in

quintals) is given to the customers at a pre-calculated buyback price (i.e. ₹7 per kg.).

The customer is given the option to get the agreed buyback price annually/

intermittently/ on completion of the lease. Further, the ‘brief of consent letter I and

II’ also shows the amounts payable to the customers after 7, 11, 15 and 19 years. From

this document, it is also seen that the customer is offered higher rate of crop, who opts

for longer lease periods. From the above, it is clear that the customers/ investors had

made the contribution/ payment to the Company with a view to earn profits/ income/

property/ return on the initial investments that may accrue to them as applicable, thus

attracting the second condition as stipulated in Section 11AA(2)(ii) of the SEBI Act.

iii. The third and fourth conditions under Section 11AA(2) of the SEBI Act are being

discussed together. The said conditions are that the property, contribution or investment

forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors

and the investors do not have day to day control over the management and operation of the scheme or

arrangement. In relation to the same, I note that:

- The clauses of the Consent Letters i.e. ‘the company will take care and maintain

the farm/ plants/ crops at its own cost’, the investors shall not be responsible for

the development of farm, final agricultural produce shall be given as per chosen

option, investor will have no right to interfere in the process of development of

plants suggests that the customers do not have day to day control over the

management of the plants.

- The condition i.e. “... further agree and given my consent for signing if required any agreement

with the company or with some other persons as the company may direct/ guide me from time to

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time for taking care and maintaining the farm for the said period. I will agree with all terms and

conditions of the company for the said purposes and agree to receive produce of the said farm….”

in Consent Letters - II and III, imposes limitation on the investors in participating

in the day to day affairs of the companies.

- The customer investing with the Company in the ‘assure buyback’ plan is

mandatorily required to give authority for maintenance and cultivation to the

Company. The plants are managed by GCA on behalf of its customers and the

customers do not have any role in the maintenance. The same also suggests that

the customers do not have day to day control over the management of the plants.

Taking note of the above, it can be concluded that the property, contribution or

investment forming part of the scheme or arrangement, whether identifiable or not, is

managed on behalf of the investors and the investors do not have day-to-day control

over the management and operation of the scheme or arrangement. Thus, the plans/

schemes of the Company satisfies the third and fourth conditions under Section 11AA

(2) of the SEBI Act also.

13. As all the four conditions specified under section 11AA(2) of the SEBI Act are

satisfied in this case, the schemes/ plans promoted, launched, carried on and operated

by the Company are in the nature of CIS in terms of section 11AA(1). In this regard,

I place my reliance on the observations of the Hon'ble Supreme Court, made in the

matter of PGF Limited & Ors. Vs. Union of India & Anrs. (Civil Appeal No. 6572 of

2004):

"…..the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act."

The Hon'ble Supreme Court further observed “Inasmuch as the said Section 11AA seeks

to cover, in general, any scheme or arrangement providing for certain consequences specified therein vis-

a-vis the investors and the promoters…….,”.

14. To carry out the activity of CIS and mobilize public funds from such schemes, it is

mandatory under law to obtain a certificate of registration from SEBI. Section 12(1B)

of the SEBI Act mandates that no person, shall sponsor or cause to be sponsored or

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carry on or caused to be carried on any CIS unless it obtains a certificate of registration

from SEBI in accordance with the CIS Regulations. The Company has clearly failed

to do so. Regulation 3 of the CIS Regulations provides that no person other than a

Collective Investment Management Company which has obtained a certificate under

the said regulations shall carry on or sponsor or launch a 'CIS'. A person can launch

or sponsor or cause to sponsor a CIS only if it is registered with SEBI as a Collective

Investment Management Company. Therefore, the launching/ floating/ sponsoring/

causing to sponsor 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.

15. Further, in terms of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and

Unfair Trade Practices Relating to Securities Market) Regulations, 2003, dealing in

securities shall be deemed to be a fraudulent or an unfair trade practice, if it involves

fraud and includes illegal mobilization of funds by sponsoring or causing to be

sponsored or carrying on or causing to be carried on any CIS by any person. This

provision in the above Regulations has been brought into effect from September 06,

2013. Accordingly, it could be held that by mobilizing public funds through CIS

without obtaining registration from SEBI as required under Section 12(1B) of the

SEBI Act read with Regulation 3 of the CIS Regulations, the Company has

contravened the above said provision.

16. From the scheme/ plan of the Company, it is evident that the Company solicits

investments from customers in its scheme of lease of plants. The Company has

submitted that it had 3,54,398 agreement holders out of which 53,434 agreement

holders had cancelled their agreements, 98,503 had paid the full lease money and the

rest 2,02,461 are yet to pay the full lease money. The Company has contended that the

agricultural business carried on by it does not fall within the ambit of CIS. It has also

been said that that it will not be possible for a company to do the project of ‘contract

farming’ without involving farmers/ lessees/ commission agents, etc. I note that

impugned plans of the Company are found in the nature of CIS and not that of genuine

‘contract farming’ business. As discussed, the Company accepts money from its

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customers and the same is paid back with the pre-calculated returns. In view of the

same, I do not find any merits in the argument of the noticees.

17. The Company has also argued that it is in the business of product sales, farming and

agriculture which are governed by the Punjab Agricultural Produce Markets Act, 1961

and Punjab Contract Farming Act, 2013. In this regard, a reference is made to the

Section 11AA(3) of the SEBI Act. This provision states that any scheme or

arrangement covered under the Act/ activities mentioned therein are not CIS. The

statutes mentioned by the Company are not covered/ mentioned under section

11AA(3). Therefore, this argument has no merit. It may also be noted that both these

acts are state enactment and have jurisdiction only in the specific states only. I note

that the Company has its customers spread over the country and the lands possessed

by it also mostly outside the State of Punjab. In view of the same, the noticees cannot

take shelter of the said acts. Further, I also note that the Punjab Contract Farming Act,

2013 list 108 crops to be considered as agricultural produce for the purposes of

entering into contract farming agreement and the saplings of the plants in which the

Company deals finds no mention in the said list.

18. The Company has further contended that it has not issued any instruments/ units/

security deriving their value from the underlying assets such as land. In this regard, I

note that in terms of Section 11AA(2) of the SEBI Act, a scheme shall be a CIS, if it

satisfies all the four conditions mentioned therein. As discussed hereinabove, the

schemes of the Company are found to be in the nature of CIS. GCA has acknowledged

the receipt of the funds from the investors under the scheme. In view of the same, I

find no merit in the submission of GCA.

19. I note that the Company by its own admission had received ₹428,07,11,396 from its

customers who had opted for assured crop income clause. It has been claimed by the

Company that part of this money has been repaid by it to its investors and the

Company has submitted a certificate of Chartered Accountant in support of this claim.

20. Liability of the Directors: I note that the interim order was issued against the

Company and its directors namely Mr. Amarjeet Singh Cheema and Mr. Gurdeep

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Singh. From the available records, it is seen that Mr. Amarjeet Singh Cheema and Mr.

Gurdeep Singh are continuing to be the directors of GCA.

The Company has contended that for fixing the liability of a director it is not only that

a specific role has to be attributed to these directors but it is also to be shown as to

how the directors were connected with or were in-charge of the conduct of the

business of the Company. In this regard, I note that Mr. Amarjeet Singh Cheema and

Mr. Gurdeep Singh are the original signatories to the Memorandum and Articles of

Association of the Company and continue to be the directors of the Company. The

same shows that these two are only managing the affairs of the Company since its

inception and also have role in mobilization of funds from the investors.

From the discussions in the previous paragraphs, it can be seen that the Company had

floated an unregistered CIS and had mobilized funds from the investors. I note that

the Company acts through the directors and in view of the same Mr. Amarjeet Singh

Cheema and Mr. Gurdeep Singh are responsible for the affairs of the Company. I note

that the role of directors in prevention of financial fraud is of utmost importance and

they are required to take diligent step for preventing the same. In this regard, I also

place my reliance on the order of Hon’ble High Court of Madras in the matter of

Madhavan Nambiar Vs. Registrar of Companies [2002 108 Comp Cas 1 Mad] wherein it

was observed that “In the matter of proceedings for negligence, default, breach of duty, misfeasance

or breach of trust or violation of the statutory provisions of the Act and the rules, there is no difference

or distinction between the whole-time or part time director or nominated or co-opted director and the

liability for such acts or commission or omission is equal. ...”.

I also note that the provisions of law cannot be interpreted in order to result in

consequence that violators going scot free without legal accountability. I note that

SEBI having the statutory mandate to protect the interests of investors in the securities

market is obligated not to create such situations. The public interest requires that such

violators who had involvement/ knowledge/ consent/ connivance in the act or

omission which constitutes violation of the provisions of law be made accountable to

the investors by way of refunding the money collected. Therefore, I have no hesitation

in holding that the Company and its directors namely Mr. Amarjeet Singh Cheema and

Mr. Gurdeep Singh were engaged in the illegal fund mobilising activity by floating/

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sponsoring/ launching, unregistered/ unauthorised CIS, as defined in the Section

11AA of the SEBI Act. In view of the above findings and observations made in this

Order and the violations committed by the Company, it becomes necessary for SEBI

to issue appropriate directions in order to protect the interest of investors and also to

secure the interest of the securities market.

21. In view of the observations made in this Order, I, in exercise of the powers conferred

upon me under Section 19 of the Securities and Exchange Board of India Act, 1992

and Sections 11(1), 11B and 11(4) thereof and Regulation 65 of the SEBI (Collective

Investment Schemes) Regulations, 1999, hereby issue the following directions:

a. G.C.A. Marketing Private Limited [CIN: U52599PB2005PTC28378], Mr.

Amardeep Singh Cheema [PAN: ADEPC5281C] and Mr. Gurdeep Singh [PAN:

BIVPS7069D] shall abstain from collecting any money from the investors or launch

or carry out any Collective Investment Schemes including the scheme which have been

identified as a Collective Investment Scheme in this Order.

b. G.C.A. Marketing Private Limited, Mr. Amardeep Singh Cheema and Mr.

Gurdeep Singh shall wind up the existing Collective Investment Schemes and refund

through ‘Bank Demand Draft’ or ‘Pay Order’, the money collected by the said

company under the schemes with returns which are due to its investors as per the

terms of offer within a period of three months from the date of this Order and

thereafter within a period of fifteen days, submit a winding up and repayment report

to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations,

1999, including the trail of funds claimed to be refunded, bank account statements

indicating refund to the investors and receipt from the investors acknowledging such

refunds.

In case the Company has made refunds as claimed in its submission, it shall produce

the proof for such repayment as directed above and also submit a certificate from

Chartered Accountant as directed in sub-paragraph (d) below.

c. G.C.A. Marketing Private Limited, Mr. Amardeep Singh Cheema and Mr.

Gurdeep Singh shall not alienate or dispose off or sell any of the assets of G.C.A.

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Marketing Private Limited except for the purpose of making refunds to its investors

as directed above.

d. After completing the aforesaid repayments in terms of sub-paragraph (b) above, the

Company shall file a certificate of such completion with SEBI, within a period of 15

days, from two independent peer reviewed Chartered Accountants who are in the

panel of any public authority or public institution. For the purpose of this Order, a

peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has

been categorized so by the Institute of Chartered Accountants of India (‘ICAI’).

e. G.C.A. Marketing Private Limited, Mr. Amardeep Singh Cheema and Mr.

Gurdeep Singh are also directed to provide a full inventory of all their assets and

properties and details of all their bank accounts, demat accounts and holdings of

shares/ securities, if held in physical form.

f. G.C.A. Marketing Private Limited, Mr. Amardeep Singh Cheema and Mr.

Gurdeep Singh are restrained from accessing the securities market and are prohibited

from buying, selling or otherwise dealing in securities market for a period of four (4)

years.

g. In the event of failure by G.C.A. Marketing Private Limited, Mr. Amardeep Singh

Cheema and Mr. Gurdeep Singh to comply with the above directions, the

following actions shall follow:

- G.C.A. Marketing Private Limited, Mr. Amardeep Singh Cheema and Mr.

Gurdeep Singh shall remain restrained from accessing the securities market and

would further be prohibited from buying, selling or otherwise dealing in securities,

even after the period of four (4) years of restraint imposed in paragraph 21(f) above,

till all the Collective Investment Schemes of G.C.A. Marketing Private Limited

are wound up and all the monies mobilized through such schemes are refunded to

its investors with returns which are due to them.

- SEBI would make a reference to the State Government/ Local Police to register a

civil/ criminal case against G.C.A. Marketing Private Limited, its promoters,

directors and its managers/ persons in-charge of the business and its schemes, for

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offences of fraud, cheating, criminal breach of trust and misappropriation of public

funds; and

- SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the

process of winding up of the company, G.C.A. Marketing Private Limited.

- SEBI shall initiate attachment and recovery proceedings under the SEBI Act and

rules and regulations framed thereunder.

22. This order shall come into force with immediate effect.

23. This Order shall be without prejudice to the right of SEBI to initiate prosecution

proceedings under Section 24 and adjudication proceedings under Chapter VIA of the

Securities and Exchange Board of India Act, 1992 against G.C.A. Marketing Private

Limited, Mr. Amardeep Singh Cheema and Mr. Gurdeep Singh, including other

persons who are in default, for the violations as found in this Order.

24. Copy of this Order shall be forwarded to the stock exchanges and depositories for

necessary action.

DATE : February 04, 2016 PRASHANT SARAN PLACE : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

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