Kolkata/Mumbai: India’s capital markets regulator has ordered MPS Greenery Developers Ltd to immediately deposit Rs 1,169.39 crore, the amount it has so far collected from depositors, in an escrow account of a state-run bank and desist from raising any new deposits.
The Securities and Exchange Board of India (Sebi) also said in its order, issued on 11 May and made public on Monday, that MPS will not be allowed to access Indian capital markets.
MPS is one of a few firms that continue to run collective investment schemes.
Prashant Saran, whole-time member of Sebi, said MPS should treat his order as a notice to “show cause as to why an order for winding up” its collective investment schemes should not be issued as the firm has failed to comply with the regulations governing companies raising public deposits.
P.N. Manna, MPS’s chairman, said the regulator was “unnecessarily” imposing restrictions and that the firm had several court orders to support that it could legitimately accept public deposits. Most of the money MPS has so far collected from depositors was invested in its projects, Manna said, adding that his firm will legally challenge Sebi’s order.
In a recent newspaper advertisement, MPS said it had 1.4 million investors and 125,000 sales agents. That apart, MPS claimed to provide 10,000 direct and indirect jobs through its various agricultural projects into which the public deposits are invested. Its advertisement also said that it was looking to develop projects entailing an investment of Rs 30,000 crore, of which 80%, or Rs 24,000 crore, would come from public deposits.
Restrictions on raising public deposits could affect MPS’s sustainability. Credit ratings agency Icra Ltd said in a report a year ago that MPS’s operations were “constrained by the highly leveraged capital structure” and that its “cash flows were inadequate to service debt...highlighting its dependence on mobilization of fresh debt.”
Sebi and MPS have been fighting legal battle for over a decade. In September 2002, Sebi asked MPS to wind up its schemes and repay all its depositors, rejecting the firm’s application filed in 2000 for registration as a manager of collective investment schemes.
In that order, Sebi said MPS continued to raise public deposits without receiving registration, ignoring orders issued by the Delhi high court. Sebi held that the company was run in a manner “detrimental to the interest of investors.”
MPS moved the Calcutta high court, which in June 2009 asked Sebi to reconsider the firm’s application for registration as a collective investment scheme manager. But the court, according to Sebi, did not remove the restrictions the regulator had imposed on the company.
In August 2009, Sebi agreed to grant MPS a provisional registration, but even under it, the firm wasn’t allowed to raise public deposits. But the company, Sebi said in its latest order, didn’t stop taking money from depositors. The provisional registration expired in August 2011, according to Sebi.
Starting in January 2009, MPS issued several letters to its sales agents asking them not to collect public deposits. Some of them filed petitions in district courts of West Bengal challenging the directive issued by MPS and obtained stay orders on its operation.
Sebi said in its latest order that one such petition was found to have been filed by two of MPS’s directors, adding that this indicated the “collusive” nature of the legal action and that it was intended to “circumvent” the restrictions imposed on raising more money. While granting provisional registration in 2009, the market regulator had asked MPS to transfer its projects to independent trustees. Its inability to comply with it, Sebi said, was one of the key reasons for its recent action.
Manna said that MPS couldn’t comply with this directive because, in West Bengal, exemptions from land ceiling laws aren’t transferable. The West Bengal government had allowed MPS to hold up to 1,200 acres for its agricultural projects, and the exemption couldn’t be transferred to trustees, he said.