One such innocent investor who was led astray by false promises was Chandrahas Tiwari. He was looking for a safe scheme to invest his retired sister’s savings. He was on the look out for a scheme that would give higher returns than banks and yet be safer than investing in the market. Then one morning, he saw the pamphlet in his newspaper, which was advertising Anubhav Plantations' scheme. The ad was enticing enough he recalled. He told CNBC-TV18, the ad said, "Put the money and they will double it in three years. They were also giving away 2 gram gold coins for people above 65 years."
The Chennai-based company owned 2,600 acres of land, on which teak plantations were to be cultivated. The saplings were already planted and insured. The deal was simple - invest money and own a part of the land. The money that Tiwari and other investors put in would be used to tend to the plantations. He immediately invested Rs 30,000 and waited for it to turn into Rs 60,000. He told CNBC-TV18, "He gave us post-dated cheques too." And then, one morning, he heard rumours that the company was going to shut operations. He did not want to take a chance with his savings. Immediately, he rushed to their office in the city to withdraw from the scheme but it was too late.
He recalled, "In the evening, I went to the office to tell them I want to withdraw from the scheme. They said come in the morning for your money." By the next morning, he says the office was shut. The operators had left town. Tiwari tried tracking the company for two years, till he finally gave up.
The reason behind Tiwari’s problems was a failed project in a small village in Chennai. On October 21, investors of Anubhav Plantations were asked to attend a meeting at the head office in Chennai. Thousands arrived in the hope of receiving repayments. When they arrived, the office was deserted and none of the officials were present. The crowd, then, went on a rampage. The owner C Natesan was arrested the same month in Chennai by the Tamil Nadu Crime Branch. In early May this year, liquidators asked investors to submit their claims. It's been seven long years since Natesan's arrest and there is still no sight of any cash showing up.
The modus operandi was simple. Newspaper and television advertisements promised the moon and returns that no other instrument could ever give you. You just had to buy a tree for Rs 500 and this would magically multiply to Rs 50,000 or even a lakh in a couple of decades.
It was just such a innovative campaign that caught the interest of Nirmal Punwani. So impressed was the 32-year-old with the whole idea that he invested in not one but three plantation schemes - Enbee, Parasrampuria and Okara.
He explained, "I saw their ads everywhere - on the television, in the newspapers. Even my insurance agent was recommending them to me. I that thought that by the time I get the returns I will be able to buy my own house." In one year, from 1996-97, Punwani invested Rs 2 lakhs in these schemes. The schemes offered him returns between 21%-27%, which was a massive amount, compared to the interest being offered by banks at that time, on long - term deposits.
His faith was reinforced when the companies gave him post-dated cheques for the interest along with the principal amount. Punwani’s dream of owning a house seemed so much easier now. He elaborated, "They gave me contracts on a stamp paper. Each contract made me an owner of a tiny plot of land. It seemed all so genuine. I never imagined eight years down the line, I would have to write that money off."
His cheques bounced one after the other. When Punwani contacted the companies, there was no response. The agent who had recommended the companies to him was untraceable. Finally, Punwani had to take a loan from a bank to help finance his house. Reports of default began to replace the ads that had once filled newspaper pages.
Meanwhile, as usual, it took a while for authorities to even figure out who should be regulating these companies. After the initial confusion between the Reserve Bank of India, RBI, the Department of Company Affairs and Sebi, a press release was issued by the government on November 18, 1997. Such schemes would then on be called Collective Investment Schemes falling under the Sebi Act, 1992. Just another instance, of shutting the door after the horse had bolted!
Even while regulators were setting up guidelines and researching these investment schemes, the post-dated cheques began to bounce. In January 1999, a committee was set up under the chairmanship of Dr S A Dave. The committee had representatives from the government ministries, regulatory bodies, consumer forums, professional bodies and the plantation industry.
The Dave Committee started analysing information submitted by these plantation companies and visited the plantation sights. It was found that a large amount of money was collected and most of them did not have any experience in agro-based activites. There was also high risk associated with these ventures due to the long gestation period that was involved. Thus, Sebi made it mandatory for all existing plantation schemes to get a credit rating from a rating agency.
When the plantation companies applied for ratings, there was a big shock in store for the investors. Almost all plantation companies got a high risk rating from the credit agencies. It also meant, that once the ratings were out, the companies would have to carry them in all their advertisements, which were aimed at mobilising funds.
Both Anubhav Plantations’ teak scheme and Enbee Plantations were assigned a Grade 5 or the lowest grade by Duff Care Rating, DCR, and CARE respectively. The ratings only confirmed the investors worst fears - they might never see their money again. Angry investors did everything from agitating in front of offices of these companies to filing petitions in courts. All through, the companies said that they ran genuine schemes and that each and every investor would be paid.
While investors were still trying to come to terms with the fact that these schemes were never going to give them what they promised, in November 1999, the Dave Committee drafted guidelines that were to regulate these companies. Today, there is not a single Collective Investment Scheme that is registered under Sebi. The units that small investors were given have never found their way to the stock exchanges.
On January 18, 2002, Sebi filed an affidavit in the Delhi High Court, according to which 513 companies had failed to wind-up their schemes and repay investors. The high court passed an order to freeze the bank accounts of these companies and their directors. The order was circulated in all the leading newspapers and the RBI was ordered to circulate this order in all the banks.
Even after court orders being passed and the properties put under liquidation, investors still haven’t got their money back. So will they ever see any sight of their money? Former Executive Director at Sebi, Dharmishta Raval who headed the legal division and was also a member of the Dave Committee admitted, "It took Sebi 4-5 years to frame regulations for these Collective Investment Schemes and these regulations were not too stringent." He added, "Sebi went to court to freeze accounts of promoters of these schemes. Also, Rs 1,200 crore has been repayed to investors."
Primary Market expert Prithvi Haldia who has culled out enormous data on these plantation schemes remarked, "Sebi had stopped new plantation schemes from coming in."
But this is cold comfort for people whose money is still in some other grubby hands and not in their own. The lesson to be learnt from this story is, to not fall prey to promises that sound too good to be true. After all, you owe it to yourself to be sure when you part with your hard earned money.
Pictures are representative.
Written for www.moneycontrol.com
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