The Securities and Exchange Board of India has ordered PACL, formerly called Pearl Agrotech Corporation, and its promoters to refund over Rs 44,376 crore that it collected until March 2012 through collective investment schemes (CIS).
This is the biggest crackdown by Sebi on an entity in monetary terms. PACL has three months to comply with the order. The regulator has said that it would take steps to register a civil/criminal case in case of non-compliance.
“PACL Limited, its promoters and directors, shall wind up all the existing Collective Investment Schemes of PACL Limited and refund the monies collected by the said company under its schemes with returns which are due to its investors… within a period of three months,” said the Sebi order passed by its whole-time member Prashant Saran.
Armed with the new powers conferred upon it under the new Sebi Bill, the order further said, “Sebi shall also initiate attachment and recovery proceedings under the Sebi Act.”
In a statement on Friday, PACL said that it will approach the Securities Appellate Tribunal against the directive of the capital markets regulator. “Sebi has unfortunately failed to recognise the submissions of the company that it can’t be treated like a CIS. The company would now appeal this order before the Securities Appellate Tribunal,” PACL said.
“PACL limited, in its submission to the Sebi bench had submitted that it is not running a CIS,” the statement added.
Sebi has been pursuing the case for almost 17 years and its probe spanned various locations including Delhi, Mumbai and Rajasthan.
The case against PACL and its promoters and directors including Tarlochan Singh, Sukhdev Singh, Gurmeet Singh and Subrata Bhattacharya, dates back to 1997, when Sebi first alleged that the company was running a CIS without its permission.
It found that the company was running a land purchase scheme where it was collecting money from investors to buy land. PACL moved the Rajasthan High Court, which in an order on November 28, 2003, held that the schemes of were not CIS and quashed two letters Sebi sent in 1999.
Sebi appealed to the Supreme Court against the order. The apex court on February 26, 2013, set aside the high court order, paving the way for Sebi to pursue the case, which has resulted in Friday’s order.
PACL had claimed to Sebi that it got its revenue from the sale of land, flats, commercial space etc and had other business activities such as sale of farm produce.
The Sebi probe, however, established that until March 2012, the company had received a total customer advance of Rs 44,736 crore under two land-linked plans and had also paid commissions of Rs 7,893 crore to its agents.
Sebi also found out that while PACL had 4.63 crore customers until March 2014 and the amount outstanding against them stood at Rs 29,420 crore, the value of total lands with the company at that point was only Rs 11,707 crore.
PACL asked for five years to complete the repayment. Sebi, however, found that with the current balances, PACL had to refund customers and also land owners who were allotted plots but were given no sale deeds.
Further in the absence of details from the company of its land holdings, Sebi said in its order that the timeline for refunds proposed did not appear reasonable.