The Anubhav Plantations Scam

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Themes: Corporate scams / Controversies
Period : 1992 - 1998
Organization : Anubhav Group / Anubhav Plantations
Pub Date : 2002
Countries : India
Industry : Agriculture / Farming & Fishing / Financial Services

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Case Code : FINC009
Case Length : 09 Pages
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Planting the Dream Contd...

Table I
Anubha's Plantation Schemes

Scheme	Details
Anubhav Teak Farm Scheme - Option A	A 20 year scheme, it offered a 77 times return on a minimum deposit of Rs 6000 (maximum Rs 60,000). One Rs 6000 unit fetched the investor 300 square feet (sft.) of land with three teak saplings. The investor was promised Rs 1,000 every year for the first 6 years; an additional Rs 6,000 at the end of the 6th year; and another Rs 12,000 after the 12th year. Finally, at the end of the 20th year, the investor was to receive Rs 3 lakh or 40 cubic feet of teak, whichever he preferred.
Anubhav Teak Farm Scheme - Option B	Same as Option A, except that the annual returns in the first 6 years were replaced by a payback of Rs 15,000 at the end of the 6th year.
Good Earth Unit Scheme	For an investment of Rs 6,000, the investor got outright ownership of the land, as well as a 5-year lease of 100 sft. He, in turn, sublet the land to Anubhav, with the returns amounting to bi-annual payments of Rs 500, and Rs 5,000 at the end of the 5th year, and a bonus 1.13 cubic meters of teak - valued at Rs1 lakh - at the end of the 20th year.

Source: ICMR

Natesan had associated Anubhav with the World Wide Fund For Nature² (WWF) and thus conveyed a positive image of his company to the media and the investors. Besides the high returns, the investors were also attracted by the courteous, helpful behavior of the firm's employees. (Unlike the indifferent treatment they received from public sector bank officials). Since the interest earned on plantation schemes was treated as agricultural income, it was exempt from tax. As a result, Anubhav's schemes became very popular and attracted thousands of investors. Moreover, since the unit value of the teak schemes was very small, investors could easily afford them.

Anubhav seemed to have worked out its schemes very well, including plans to service the annual payment obligations. In 1998, the land prices in the interior Tamil Nadu, where Anubhav's plantations were situated were quite low, averaging Rs 35,000 for 43,560 sft. Thus, the cost of a 300 sft piece of land offered to the investor worked out to just Rs 240.³ Adding another Rs 10 for the saplings and other expenses, the unit's price worked out to Rs 250, while Anubhav was charging Rs 6000 for it.

Even if Anubhav placed this money in relatively safe investments, earning 15%, it would receive Rs 862.50 a year, falling only Rs 137.50 short of the payback liability of Rs 1000. As for the Rs 3 lakh payment after 20 years, Anubhav had estimated that each of the three trees would grow to a volume of 1.13 cubic meters, with each cubic meter fetching a price of Rs 88,286, amounting to Rs 2.99 lakh for the three trees. Thus, assuming that Anubhav's price and volume estimates were correct, it would have been in a position to fulfill its promises to its investors. Studies regarding Anubhav's cash flows also pointed out that investors could rely on these schemes.

However, officials from the Revenue & Forest Department of Maharashtra (RFD-M) stated, "It will be a miracle if they can achieve it (their projections). The timber yield of trees with a girth of 60 cm and above will be merely 5.10 cubic feet per tree in 15 years, even if one uses quality soil."

Industry and market watchers had always been skeptical about the Anubhav group. Sources commented that Natesan's business was highly speculative and that he had never done 'solid' asset-based business like leasing or hire purchase. A market watcher said, "You can never run this business on a sustained basis offering interest rates of 25-30%. Whatever he claims, his assets are far too small compared to his liabilities."

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2] WWF is an organization of world-repute dedicated to the conservation of nature. It strives to conserve the world's biological diversity, ensures that the use of renewable natural resources is sustainable and promotes the reduction of pollution and wasteful consumption.
3] (Rs 35,000/43560) * 300 = Rs 240.