SEBI labels Growpital agri-investment startup model as 'fraudulent scheme': Here's why?

In a shocking turn of events, the Securities and Exchange Board of India (SEBI) has issued a strict order against agri-investment startup Growpital, labeling its investment model as a 'veiled,' 'illegal,' and 'fraudulent' scheme. The startup, which claimed to offer urban Indians a taste of farm ownership with minimal investments, is now under scrutiny for potential regulatory violations.

Growpital's modus operandi involved enticing investors with the promise of owning a fraction of farmland, requiring as little as ₹5,000 as an investment. The startup pledged to manage the farms and crops, offering an attractive guaranteed return of nearly 15%, coupled with the allure of tax-free agricultural income. The investment model resembled a mutual fund, with diversified crops replacing traditional equities and bonds.

However, SEBI received a complaint, prompting a closer examination of Growpital's operations. The regulatory body asserts that the startup set up Limited Liability Partnerships (LLPs) to sidestep SEBI regulations, operating solely under the LLP Act of 2008. The LLP structure allowed Growpital to attract investors without being subject to specific partner limits or investment caps.

SEBI's primary concerns revolve around whether Growpital's investment scheme constitutes a Collective Investment Scheme (CIS), subject to regulations. Two core factors in question are the pooling of investments and the issue of control. The use of a payment aggregator suggested a commingling of funds, while investor control over LLP decisions was deemed minimal, as acknowledged even by the founder in a YouTube video.

SEBI's strict initial order includes a freeze on all existing funds and investments, preventing Growpital from soliciting additional investments. The startup is instructed to remove misleading information from its websites and marketing materials. Investors are now left in limbo, unable to access their funds until SEBI concludes a comprehensive investigation.

This incident draws parallels with historical cases, such as the 1990s pyramid scheme orchestrated by Anubhav Plantations, which exploited regulatory gaps and left investors in financial ruin. SEBI's regulatory framework for Collective Investment Schemes, established in 1999, was a response to such schemes. The current investigation reflects SEBI's concerns that agri-investment schemes like Growpital might be operating in a similarly unregulated manner, potentially putting investor funds at risk.

As the investigation unfolds, the fate of Growpital and its investors remains uncertain. SEBI's actions aim to protect investors and prevent a recurrence of past financial debacles in the realm of agricultural investments.