Bombay HC disposes SEBI's 26-Year-Old Plea Seeking Regulatory Reforms To Address Fraudulent Financial Schemes

Mumbai: The Bombay High Court has disposed of a 26-year-old petition filed by the Securities and Exchange Board of India (SEBI) that sought urgent regulatory reforms to address fraudulent financial schemes, such as agro and plantation bonds. These schemes promised high returns but lacked tangible security. It left investors exposed to significant financial risk in the late 1990s.

The petition, filed in 1998, aimed to curb the proliferation of these high-return schemes that operated without tangible security, leaving investors vulnerable. A bench of Justices MS Sonak and Jitendra Jain disposed of the petitions after being informed that the legal and regulatory framework has since evolved.

SEBI’s counsel explained that in the late 1990s, such schemes, particularly Collective Investment Schemes (CIS), were widespread but unregulated. Companies like Libra Plantation Ltd., the primary respondent in this case, exploited this regulatory gap.

Libra Plantation had raised around Rs16 crores through 18 financial schemes with a maturity of about 15 years, promising high returns. However, the promoters absconded after collecting funds, leaving investors in financial distress. Hence, SEBI filed the petition stating there was no effective legal mechanism to control these fraudulent schemes. The market regulator argued that the lack of oversight led to the unchecked growth of unregistered CIS, exposing investors to significant financial risk.

However, in 1999, SEBI introduced the Collective Investment Scheme Regulations, which provided a robust framework to regulate such schemes and protect investors. This regulatory shift was highlighted by SEBI in its submissions to the court, emphasising that the legal vacuum identified in 1998 had since been filled.

With the introduction of these regulations, SEBI now possesses the authority to regulate and monitor CIS activities, which was the primary concern of the original petition. Considering the developments, the parties agreed that the petition had served its purpose, leading the court to formally dispose of it.

The court also detagged a related company petition concerning the winding-up of Libra Plantation Ltd. The HC has directed that the company’s liquidation process, including asset sales and investor repayment, be handled by the National Company Law Tribunal (NCLT).

The court further instructed the Deputy Commissioner of Police and the Reserve Bank of India (RBI) to submit pending investigation and audit reports related to the matter within eight weeks, ensuring due diligence in the case’s final closure.