The Bombay High Court on Monday disposed of a 26-year-old petition filed in public interest by the Securities and Exchange Board of India (SEBI), which had sought urgent regulatory reforms to tackle certain fraudulent financial schemes, including agro bonds and plantation bonds [SEBI v. Libra Plantation].
These schemes, which promised high returns but lacked tangible security, had left investors exposed to significant financial risk in the late 1990s.
A Bench of Justices MS Sonak and Jitendra Jain disposed of the petition which was filed in 1998, when there was no effective framework to regulate the widespread operations of such Collective Investment Schemes (CIS).
SEBI’s counsel recounted before the Court that such schemes were proliferating without proper oversight at the time, and that investors were vulnerable to exploitation. Companies like Libra Plantation Ltd., the primary respondent in this case, were raising funds from the public through unregistered agro and plantation schemes that promised high returns but ultimately defrauded investors, the Court was told.
The company had raised around ₹16 crores through 18 financial schemes, each maturing after about 15 years. However, the company’s promoters and directors absconded after collecting the funds, leaving investors stranded.
The Bench was told that the SEBI's petition in the matter was filed at a time when there was a vacuum in the legal framework to address such schemes.
However, the parties agreed that the legal vacuum identified in 1998 had since been filled by the introduction of the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999. These regulations, which grant SEBI the authority to regulate and monitor CIS, were seen as a sufficient and effective framework to safeguard investors from fraudulent schemes.
With the legal and regulatory framework now in place, the Court decided to dispose of the petition, bringing an end to a long-running legal battle.
“Learned Counsel for the parties agreed that this petition could be disposed of now, given that the 1999 regulations already address the situation highlighted in it,” the Court observed in its order.
In addition to disposing of the petition, the court also agreed with the parties’ suggestion to detag a related company petition — which concerns the winding-up of Libra Plantation Ltd. — from this case.
The Court noted that it would be more appropriate for the company court (NCLT) to handle the winding-up process, including the sale of assets and repayment to investors, applying the well-settled principles of company law.
"Now that the main petition can be disposed of, it would not be appropriate for this Court to continue with the proceedings in the Company Petition," the Bench said.
The company court will now oversee the liquidation process, including the distribution of funds and adjudication of claims, following the earlier seizure of Libra Plantation Ltd.'s assets by the Official Liquidator.
The Court also directed the Deputy Commissioner of Police and the Reserve Bank of India (RBI) to file overdue investigation and audit reports in the matter within eight weeks.
Advocate Prathamesh Kamat along with Advocates Kayush Zaiwalla, Omprakash Jhah, Radha Naik instructed by the Law Point appeared for SEBI.
Government Pleader H Kantharia along with Additional Government Pleaders Jyoti Chavan, Abhay Patki, Nazia Sheikh appeared for the State of Maharashtra.
Advocate Ranjeev Carvalho appeared for the Official Liquidator and Advocate Chetan Shelke appeared for the Assistant Official Liquidator.
[Read Order]