Calcutta, Jan. 4: The Securities and Exchange Board of India (Sebi) has banned Bengal-based Rose Valley from collecting money from the public as it does not have the market regulators approval to run such a scheme.
While Rose Valley claimed that it was mobilising funds for real estate business, Sebi came to the conclusion that the company was in fact running a collective investment scheme and did not seek the market regulators permission.
Sebi directed Rose Valley, not to collect any money from investors or to launch any scheme, not to dispose of any of the properties or delineate assets of the schemes and not to divert any fund raised from public at large kept in bank account and or at the custody of the company.
The company has been raising funds from the public in certain areas of Bengal in the name of the sale of plots of land under its Ashirbad scheme.
According to Sebi, Rose Valley had collected Rs 1,271.98 crore till March 2010.
When contacted, Rose Valley spokesperson Debdas Mukherjee said the company had not yet received any order. Well comment upon when we get the order. Mukherjee, said.
We are not mobilising any public deposit. Our scheme is about allotment of land plots against the deposit of some earnest money or advances. Sebi had asked for some documents and we had provided the same, he added.
Through the scheme, Rose Valley invited applications from the public for booking of land plots in various sizes for residential or commercial purposes at various places of Bengal as well as at Chhindwara (Madhya Pradesh) and Orissa.
However, Sebi noted, It is observed that the scheme of allotment as purported to be real estate by the company (read, Rose Valley), is in fact a garb for collecting money for collective investment and then providing returns.
The regulator pointed out that in the financial year 2009-10, the number of plots provisionally allotted under the scheme definition stands at 5,08,792 cottahs.
However, only 4,045 plots (measuring 9,132 cottahs) have actually been handed over to investors. The number of plots for which refunds have been made during the financial year was 1,18,880 cottahs. Hence even though the company is collecting huge amounts as earnest money, the actual allotments do not seem to form a substantial number as compared to the number of plots provisionally allotted, the market regulator said in its order.
In fact, using loopholes in the definition of public deposits, a number of companies have been fraudulently mobilising public deposits and investors who unknowingly invest their money in such schemes for getting higher returns ultimately burn their fingers, said a senior official of the Reserve Bank of India.
When these companies raise enough money, they just vanish, he added.
Even in Rose Valleys Ashirbad scheme, Sebi had noted that though there was a clause in the agreement for sale that the company (read, Rose Valley) shall forfeit 25 per cent of the amount paid by the investor if he/she does not want to purchase the agreed master plot in spite of making payment of the entire consideration money, the scheme actually allowed for cancellation before the payment of entire consideration money without any penalty.
The company, on the other hand, offered a benefit to investors who chose to opt out of land allotment by providing them the option of gaining lucrative returns in the form of credit value. Thus this appears to be more of an investment avenue rather than a real estate scheme, Sebi noted.