DIRECTOR GENERAL OF INVESTIGATION And REGISTRATION vs DESERT GOLD INDIA IRRIGATION LTD.

ON an application filed by the Director General of Investigation & Registration (DG) under Section 36B(c) of the MRTP Act, 1969, the Commission issued a Notice of Enquiry (NOE) on 7th Nov.,94 charging the respondent M/s. Desert Gold India Irrigation Ltd. of having indulged in certain unfair trade practices under Section 36A(1) of the Act. Briefly the facts as contained in the application of the DG are as follows:

THE respondent M/s. Desert Gold India Irrigation Ltd. is a public limited company having its registered office at Bombay and having been incorporated on 20th August, ''92. THE respondent launched a scheme known as "Desert Gold Teak Wood Scheme" and released two brochures one under the caption "Teak Wood Desert Gold Green Revolution" and the other under the caption "Desert Gold Teak Wood Shceme." The respondent in its brochures made the following claims and assertions seeking investments from the general public. (a) An investment of Rs. 1000/- for each prime teak wood sapling will give an estimated return of Rs.51,000/- after 20 years. Every investor will be given an ownership certificate. (b) Each tree will yield atleast 30 cubic feet of prime teak wood at around Rs. 1,700/- (estimated) per cubic foot. (c) A discount of Rs. 40/ - per tree will be offered on purchase of five or more trees. (d) Facility for transfer and for nomination is available. (e) After seven years, the investor can pledge the saplings to avail of a loan or surrender the certificate and obtain full payment. (f) The agricultural income under the scheme is exempt from income-tax. (g) The scheme is insured. (h) The investment is 100% secure. (i) An early bird incentive of Rs. 20/- off will be available on every tree purchased before 14th Sept. ''92.

The respondent further claimed in its brochures that it would develop in the first phase 8,400 acres of land in Jaisalmer District in Rajasthan for agro produce like grapes, spices, pulses, grams, oil seeds, fruits, vegetables, flowers, medicinal plants etc. 250 acres of land in Jodhpur District and another 250 acres of land near Pune will be used for teak wood cultivation.

UNDER the scheme, the respondent after three years but before the end of five years gave an opinion to the investors to either continue with the investment originally proposed or convert the investment into equity shares at the premium as may be decided by the respondent. The offer, however, would be subject to the guidelines issued by SEBI or to any other provision of law that may apply. The DG after examining the scheme has observed that it is "alluring and is difficult to be implemented". He has added that the respondent has made false and misleading claims, as the growth of the trees depends on uncertain conditions of nature and that in particular the claim that the return would be Rs. 51,000/- after 20 years on an investment of Rs. 1000/- is misleading. A long gestation period of 20 years, according to the DG, is prima facie, deceptive and unfair, as the respondent would be legally answerable to an investor only after the completion of 20 years, if the scheme fails. At that point of time, after 20 years, the investor "might not be in a position to make complaints and pursue the matter". The DG has further alleged that the claim of the respondent that the investment is 100% secure is false. Similarly, when the law relating to the income-tax changes from year to year, it is not correct but misleading to presume that the law would be the same over the entire span of this scheme lasting 20 years and in that context to say that the income from the scheme is tax-free.

IN the premises, the Commission after considering the application of the DG issued the Notice of Enquiry (NOE) charging the respondent of having indulged in unfair trade practices falling under Clauses (ii), (iv), (vi) and (viii) of Section 36A(1) of the Act. It has also been stated in the NOE that such unfair trade practices are prejudicial to public interest. A copy of the NOE alongwith the application of the DG was sent to the respondent for its appearance at the hearings in the Commission and for its reply. In the reply filed by the respondent, it has averred as follows: 1 The DG has failed to appreciate the nature of the scheme floated by the respondent and has reached a ''wrong and untenable conclusion''. The application is frivolous and baseless. 2 The DG has not sought any expert opinion on the viability of the scheme floated by the respondent. This is not the first scheme of its kind in India. There have been as many as 24 others companies which have similar schemes in operation. 3 The duration of the scheme is not ''unduly long''. As the crops under the scheme may get affected by uncertain climatic conditions, the respondent has ''undertaken steps to ensure the safety of teak wood crops'' and has notified the investors of the risks involved in the scheme. 4 The respondent has taken the help and assistance of a foreign company namely "Gold Queen Gil", an Israel-Japanese Company, for exploring the possibilities in the development of agriculture. The respondent has entered into a collaboration with a reputed international company which has installed projects all over the world. There are as many as 24 other companies besides the respondents who have floated similar schemes which are at par with the scheme of the respondent. The collaborating company is also investing 100,000 U.S. dollars equivalent to 20% share in the scheme. 5 The scheme floated by the respondent is not prejudicial to public interest or to those who have made investments in it. 6 The DG misusing his power and acting in an "unreasonable and whimsical manner". There are other companies who have floated similar schemes but no action has been taken against any of them and the DG has chosen only the respondent for this enquiry. 7 The DG has failed to consider that the respondent has been negotiating with the State of Rajasthan for the purchase of 40 sq. mtrs. of land for the implementation of the scheme and that the negotiations are at the final stage. Already 250 acres of land are available with the company which has been used by it to cultivate crops, spices, vegetables and fruits. The respondent is in the process of acquiring an additional 8,400 acres of land in Jaisalmer.

The scheme of the respondent seeks to implement its project with ''economic use of water'' for assuring ''maximum economic returns to the farmer''. There will be minimum loss of water during conveyance and application of irrigation besides prevention of soil erosion, degradation of soil structure and raising of the ground water table. The DG has made allegations which are merely a "figment of imagination and superficial knowledge of the project" on his part. The respondent has taken note of every small detail involved in the project so as to safeguard the interest of the promoters as well as that of investors. 1 The discount of Rs. 40/- on purchase of five or more trees is "neither a very heavy discount nor does it go into making very big difference to the respondent-Company". It is only to ensure that "the investors have bona fide interest in the project". 2 The law relating to income tax has not changed since its very inception as far as the provisions relating to the income from agriculture is concerned. Agricultural income-tax has always been exempt. There has been no misrepresentation to the public in this regard.

The respondent has finally stated that it has not indulged in any unfair trade practice falling under Section 36A(1) of the Act. In support of its reply, it has enclosed various correspondence between it and the Collector, Jodhpur, the Collector Jaisalmer, the Collector Barmer, the Government, the Revenue Minister, the Chief Minister and other Government functionaries to the effect that it is negotiating with the Government for securing land for the project. Copies of the powers of attorney in respect of the land to be acquired by private parties have also been enclosed to its reply.

THE DG filed his rejoinder to the said reply. He served a notice on the respondent for interrogatories and discovery of documents. THE respondent was present during the initial stages of the enquiry but after it filed its reply and the DG his rejoinder, it absented itself with- out any reason or notice after 13th Sept. ''95. On the 15th Nov. ''95, Ms, Veena Kalra, proxy Counsel for the Ms. Jaswinder Kaur, regular Counsel for the respondent was present, and through her, the respondent was directed to give replies to the interrogatories and discover the documents sought by the DG. After the said date of hearing, neither the replies to the interrogatories was filed nor the documents discovered by the respondent nor for that matter, the respondent put in its appearance at the further hearings. THE respondent was issued a notice by RPAD for the hearing scheduled for 21st May, ''96. After the DG filed his evidence by way of affidavit of Mr. V.P. Singhal, Joint Director (Legal), we gave a hearing to Mr. Singhal.

IN the absence of the Counsel for the respondent at the concluding portion of the hearings, we have only the evidence of the DG. IN the interest of justice, however, we have taken into account the detailed reply filed by the respondent in adjudicating this enquiry. Essentially, the charge is that because of the alluring advertisements and representations of the respondent, the unsuspecting investors have been put to a grave risk insofar as their investments are concerned. We will have to, therefore, examine if the representations have misled and lured the investors into making their investments in the scheme which might after some years result in pecuniary loss and damage to them.

One of the essential representations of the respondent is that some land has been sought to be acquired with the help of Governmental Authorities particularly in Rajasthan. From the reply of the respondent, it is amply clear that the respondent "is in the process of acquiring additional 8,400 acres of land". The expression "additional" has to be read in conjunction with the averment made by the respondent that already 250 acres of land are available with it. We have perused the correspondence enclosed to the reply of the respondent and note that it has been pursuing the allotment and acquisition of land with various Governmental Authorities in Rajasthan. But there is nothing to indicate that the land has been placed at the disposal of the respondent nor for that matter it is in any sense of the term in physical possession of the respondent. Having floated the scheme in 1992, it is very intriguing that even as late as on 15th Nov. ''95 when the respondent appeared through. Ms. Veena Kalra, proxy Counsel for Ms. Jaswinder Kaur, Counsel for the respondent, there has been no indication whatsoever that the land has been allotted or given in possession to the respondent. Thus even after more than three years, the scheme does not appear to have taken off in the real sense of the term. The scheme itself is operational for 20 years and already more than three years have passed, since the scheme was floated. Even in the risk factors indicated on the rear of the application form for investment, there is no caution about land availability running into possibility of delays or even negation.

ANOTHER important dimension of this case is whether the risks relating to the scheme are fully insured. We have only a statement at item B8 on the rear of the application form which reads as follows: "DG II-L shall insure the agricultural crop and teak wood plantation on cost basis for fire, earthquake, flood, drought and other natural calamities". (DG II-L means the respondent). The above extracted statement of the respondent merely declares its intention to insure the teak wood plantation on cost basis against certain risk factors. This declaration does not constitute 100% security for the investment made by the investors in the scheme. The reasons are two fold. One is that this is a mere declaration and no steps have been taken for insuring the teak wood plantation even after three years of the commencement of the scheme. In any case, no proof has been adduced in support of any steps in this direction, that might have been taken by the respondent. The presumption, therefore, is against the respondent. The other reason is that the insurance covers only the cost of plantations. What the investors have to be assured is the insurance of the final expected return which is Rs. 51,000/- for each teak wood sapling.

THUS what has been represented by the respondent in its brochures, is not in line with the reality and also not in line with the action taken by the respondent. Similarly, the representation given by the respondent that no tax is payable in respect of the agricultural produce in the scheme, in an unqualified manner as it stands now, is misleading. One cannot prognosticate that the income tax law will stand unchanged during the tenure of 20 years of the scheme in question. An appropriate caveat should have been added in the terms and conditions governing the scheme. The argument of the respondent, in its reply, that no action has been initiated against other companies who have floated similar schemes, is totally misplaced as this Commission has dealt with plantation schemes of the same or similar kind floated by others in respect of which the representations given to the public have been scrutinised and adjudicated upon.

THERE is no need to go into the remaining parts of the reply of the respondent, as we are fully convinced that the representations of the respondent are not realistic and fall short of prudent assessment and estimation. They are also misleading besides being alluring to the investors. The trade practices of the respondent are unfair trade practices under Section 36A(1) of the Act. They are clearly prejudicial to public interest and to the interest of investors in the scheme.

WE, therefore, direct the respondent to discontinue the unfair trade practices forthwith and not repeat the same in future as the aforesaid unfair trade practices falling within Section 36A(1)(ii), (iv), (vi) and (viii) are manifestly prejudicial to the investors and the public in general. However, as the investment has already been made by the investors, the respondent shall make a fresh representation to them about the risk factors involved and on the action taken by the respondent so far, and give an option to them to withdraw from the scheme, if they desire. Such a fresh representation should be communicated to all the investors individually and also published in a couple of largely circulated newspapers. Should some of the investors withdraw from the scheme, the amounts deposited by them with interest at the current bank rate shall be refunded to them by the respondent.

The respondent shall file an affidavit of compliance within six weeks from the date of this order. There shall be no order as to costs. Enquiry disposed of.