In 1990s there were various instances of collection of money by numerous agro-based and plantation companies, which eventually failed to provide any return on the investments (despite promising around 18-30% returns) including the repayment of principal amount. In this context, the Government of India, vide its press release dated November 18, 1997, decided that an appropriate regulatory framework for regulating entities which issue instruments like agro bonds, plantation bonds etc., will be put in place. The government decided that the schemes through which such instruments are issued would be treated as “Collective Investment Schemes” (CIS) coming under the provisions of the SEBI Act.
Accordingly, SEBI vide its press release dated November 26, 1997 and December 18, 1997, prohibited collective investment schemes from sponsoring any new scheme till the CIS regulations are notified. The press releases further stated that instruments such as agro bonds, plantation bonds would be treated as CIS coming under the SEBI Act, 1992. All the companies having such activities were required to file information with SEBI. Moreover, general public was also informed that no person can sponsor or cause to be sponsored any new collective investment scheme and thereafter raise further funds.
Meanwhile, a committee was formed under Dr. S.A. Dave to examine and finalize the draft regulations for CISs. The committee submitted its report on 5th April 1999.
Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999 was issued on October 15, 1999. As per the CIS regulations, any person who has been operating a Collective Investment Scheme at the time of commencement of the CIS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the Regulation, within a period of two months from the date of the notification. In case, such an application is rejected, the entity was required to wind up its existing schemes in the manner as specified in the Regulations. No entity was / is allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI.
In 2013, in the backdrop of Sahara / Sharada scams, SEBI modified the definition of CIS to include any scheme / arrangment floated by any person (instead of a company as was defined earlier); and any such scheme with corpus of more than Rs. 100 Crore shall also be deemed to be a CIS by SEBI.
Source: arthapedia.in