Status as on- 30.10.2020

Securities market regulator Security Exchange Board of India (SEBI) has imposed a penalty of Rs 1.05 crore on Kalpbut Real Estate Ltd. and its directors for raising funds from investors through unregistered collective investment schemes.

Background

On March 31, 2013, SEBI found that Kalpbut Real Estate has generated a sum of Rs 15.65 crore from 2,338 investors under its various collective investment schemes without approval of SEBI.

The company and its directors ran collective investment scheme without obtaining registration from SEBI, as required under the norms, and illegally raised funds by means of such collective investment schemes (CIS).

Response by SEBI

In July 2014, SEBI ordered Kalpbut Real Estate to refund the illegally raised Rs 15 crore back to investors along with 15 per cent interest annually on the refund amount.

As the company violated the provision of the SEBI Act, CIS Regulations and PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms by indulging in such activities. Therefore, the regulator imposed a penalty of Rs 1.05 crore and also barred the firm and its directors from capital markets for four years.

Conclusion

The aforementioned decision reflects the malpractices in securities market and how SEBI regulates and controls the same. The companies and its directors use different misdeeds to raise money by exploiting investors.

Inspite of abundance of provisions, number of such cases are only rising with time. Thus, the regulating authority needs to work on neutralizing the root cause by bringing clarity in companies transactions and deciding accountability of the directors.

Disclaimer: The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at support@centrik.in