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The Calcutta High Court has served notice tothe Central Governmentand the RBI to frame guidelines to make it clear that it is illegal to have an assured return on equity investments. Public Interest Litigation for the same was filed by an advocate Sanjib Kumar Ghosh who alleged that assured return on equity investment under “optional clauses” is illegal in India.
The petition provided that these investment agreements on assured returns on equity are against the foreign investment regulations and curtails the basic difference between equity shareholder and a debt instrument. These investments are usurious unregulated debt instruments that are taking away a huge amount of money from India and foreign Investors are using these to take benefit associated with debt instruments. It is also claimed that there is negligible enforcement of foreign investment regulations in India which leads to “imminent collapse” of present start-up culture. It is alleged that
Therefore, the petitioner submitted that the central government is empowered to issue specific directives to prohibit such contracts in India as per Section 11 of the SEBI Act and Section 16 of the Securities Contacts (Regulation) Act. He also seeks for the declaration that any contract made in India in violation of Foreign Exchange Management Act and regulations should be void ab initio.
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