Angry investors lock up PACL staff in Sirsa, Haryana. India’s capital markets regulator yesterday ordered the property developer to return at least $8.1bn raised from retail investors after finding the company had failed to register its land investment scheme.

 

Reuters/MCT/Mumbai

 

 

India’s capital markets regulator has ordered property developer Pearl Agrotech Corporation Ltd  (PACL) to return at least $8.1bn raised from retail investors after finding the company had failed to register its land investment scheme.

The action by the Securities and Exchange Board of India (Sebi) marks the country’s continued scrutiny of companies which raise funds from mostly low-income investors by offering higher interest rates than available on bank savings accounts.

According to the Sebi Order, PACL ran an investment scheme that promised depositors returns on investments in agricultural land. The regulator said the company allowed investors to deposit money in instalments or in a lump sum, guaranteeing returns after a fixed tenure.

Phone calls from Reuters to PACL’s office were unanswered.

The amount that PACL has been ordered to return would be well above the $3.7bn in deposits Kolkata-based media conglomerate Saradha was ordered to return last year, after running an unlawful deposit scheme that went bust.

In a 92-page order issued on Friday, Sebi said PACL’s investment product qualified as a so-called collective investment scheme, or deposit-taking payment plan, which should be registered with the regulator.

Although Sebi did not specify how much money PACL would need to return to investors, it estimated the amount raised under the scheme amounted to Rs491bn ($8.1bn), collected from 58.5mn customers.

It said the amount raised could be higher, but it had not obtained records from the company for the period from April 2012 to February 2013.

The regulator said all money raised from the plan would need to be returned to investors within three months and barred the company and its executives from raising any additional money.

The Delhi-based PACL operates from 15 regional offices and had 3.35mn field associates in 2011-12.

Sebi said the company offered two kinds of plans – a cash-down payment plan and an instalment payment plan. Under the former, it offered to allot land to customers within 270 days of payment and under the latter within 90 days. The company had allotted land to some 12.2mn customers till March 2012, when its total customer advances stood at Rs14,331 crore, Sebi said. PACL told Sebi on August 11 that it had collected another Rs29,420.65 crore from 46.31mn customers to whom it is yet to allot land.

The case of PACL first came to light in 2002, when Sebi had ruled that the investment schemes offered by it were in the nature of CIS and the company needed to abide by the rules. This order was quashed in 2003 by the Rajasthan high court, which was challenged by Sebi the following year.

Following this, in September 2011, Sebi had moved the Supreme Court seeking an early hearing in the case. In March 2013, the apex court had directed Sebi, the income-tax department and the Central Bureau of Investigation to scrutinise the company.

In February, CBI registered a case against the promoters of PACL after an investigation into allegations of collection of public deposits under the garb of allotment of farm land to depositors.

On Friday, Sebi said in a 92-page order that the company does not have enough land and plots to meet the allotment requirements for customers who have been investing money in the company’s two schemes.

Sebi said the value of total land of PACL on March 31 was Rs11,706.96 crore – agricultural land worth Rs7,322.11 crore and commercial land worth Rs4,384.84 crore.

“The company has only lands worth Rs11,706.96 crore...out of which it has not only to satisfy the claim of 4.63 crore customers who have deposited Rs29,420 crore with it, but also to satisfy 1.22 crore customers to whom the land has been allotted but sale deeds have not been executed. In view of the above, the proposal does not appear to be serious and reasonable,” Sebi’s whole-time member Prashant Saran said while issuing the order.

Sebi found that till March 2012, PACL mobilised public funds worth Rs44,736 crore. Later, between 26 February 2013 and 15 June 2014, PACL admitted to have collected another Rs4,364.78 crore from some 4mn customers. Hence, the total amount mobilised adds up to at least Rs49,100 crore. This figure could have been more if the firm had provided the details of funds mobilized between 1 April 2012 and 25 February 2013, Sebi said.

For raising such huge sums of money from the public over several years without securing regulatory permissions, Sebi directed PACL, its promoters and directors Tarlochan Singh, Sukhdev Singh, Gurmeet Singh and Subrata Bhattacharya to wind up all the existing schemes and refund the money within three months.

After the refund, the company has been ordered to wind up its businesses within 15 days. Sebi said it will bar the company and its promoters and directors from accessing the capital market if they fail to comply with the order.

The markets regulator said it will make a reference to the state governments and local police to register civil or criminal cases against PACL, its promoters, directors and managers for fraud, cheating, criminal breach of trust and misappropriation of public funds if the money is not refunded. Sebi will initiate attachment and recovery proceedings if the money is not refunded to the public within the deadline set by it.

The order against PACL comes just weeks after Parliament approved legislation aimed at giving Sebi more power to crack down on CIS. The Securities Laws (Amendment) Bill, 2014, which was passed in the Rajya Sabha on August 12, will empower Sebi investigators to conduct searches and seek information from suspects.

 

 

 

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