Suspecting investor frauds in the projects being launched by numerous real estate developers, capital markets regulator Sebi
is probing them for possible violations of Collective Investment Scheme regulations.
The regulator has been flooded with complaints of investors being duped by the real estate companies promising huge returns in the projects proposed to be developed from the scratch through public money, prompting it to launch probe against 50-60 such developers, a senior official said.
Most of these companies are operating in the northern and western states, while some of them are also active in West Bengal, Assam and other parts of the country, he said.
The Securities and Exchange Board of India (Sebi) is probing whether these companies are operating Collective Investment Schemes
(CIS) without registering themselves for such activities with the regulatory authority.
A CIS entity typically raises funds from the public to invest the money in a project or investment scheme proposed with the capital collected from a pool of investors and the returns are shared on pro-rata basis at a later stage.
However, a number of fraudulent CIS entities have been found to be operating in the country over the past many years and many of them come under the radar only after duping the investors of their hard-earned money.
The real estate projects appear to have emerged as a favourite for entities operating such fraudulent schemes and complaints in this regard have been pouring in consistently at Sebi, which is mandated to regulate the CIS entities.
Typically in these fraudulent schemes, the companies lure investors into putting in their money for purchase of land and thereafter for development of projects and promise them huge returns at a later stage.
The companies even offer to buyback the properties with considerable appreciation to the original investment, but the investors often find them at the receiving end soon after putting in their money, or after being given some small initial returns in certain cases.
In the recent past, Sebi has already taken actions against some real estate firms for operating unathorised CIS schemes, while in some other cases the courts have ruled in favour of actions taken by the market regulator for such fraudulent schemes.
Earlier this month, Sebi passed an order against Nicer Green Forest Ltd (NGFL) and its directors, restraining and debarring them from accessing the securities market directly or indirectly till the time te company wound up all its schemes refunded the money raised through its collective investment schemes.
Incidentally, similar order against these entities was issued in 2010 as well, but its orders were not complied with and the regulator has decided to take fresh action against them.
There have been several instances of the debarred CIS entities resurfacing with similar schemes under different names to dodge the regulatory scanner.
Sebi has been pursuing a case since way back in 1997 against a company named PGF Ltd, which is engaged in sale and development of agricultural land.
In an order passed this month in the PGF case, the Supreme Court ruled that the company could have raised several thousands of crores from the public through its collective investment scheme and could be duping the investors of their hard-earned money.
The apex court said that the company was playing "a hide and seek" with the regulator and was also taking the courts for a ride with its frivolous petitions. The court has directed an investigation by the CBI and the Income Tax Department, in addition to further probe by Sebi of the company, its executives and other premises.