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Calcutta HC issues notice in plea to declare assured return on equity investment illegal

Calcutta HC issues notice in plea to declare assured return on equity investment illegal

Aditi Singh

The Calcutta High Court has issued notice in a plea seeking a direction to the Central Government and the Reserve Bank of India to frame guidelines clarifying that an assured return on equity investment is illegal.

The petition filed through advocate Sanjib Kumar Ghosh alleges that “optionality clauses” which provide assured return on equity investment, by their very nature, are illegal in India.

It is the petitioner’s case that such investment agreements on assured return on equity are in the teeth of foreign investment regulations and flout the basis tenants of difference which exist between equity shareholding and a debt instrument.

It is alleged that such investments are nothing but “usurious unregulated debt instruments” which are draining out an enormous amount of money from India and foreign investors are using relaxed modus of equity investments to garner the benefits associated with debt instruments through such agreements.

The petitioner also claims that there exists negligible enforcement of foreign investment regulations in India, leading to the “imminent collapse” of the present start-up culture.

“..there exist no stringent steps taken by the Respondents to ensure that Indian start-ups are held hostage to usurious debts, under the garb of equity investments.”

Thus, invoking Section 11 of the SEBI Act and Section 16 of the Securities Contracts (Regulation) Act, the petitioner submits that the Centre is empowered to issue specific directives prohibiting such contracts in India.

Apart from seeking to curb the menace of assured return on equity investments, the petitioner also seeks declaration that any contract in violation of the Foreign Exchange Management Act and its regulations are void ab initio.

[Read Petition]