PACL being probed for various violations

Income tax search yielded Rs 200 crore of 'additional income' in June 2013

For seven years, Vijaybhanu Yadav, a mechanic at MTNL in Mumbai, deposited Rs 1,000 every six months in a scheme of PACL, a Pearls group entity. "Maturity poori ho gayi December mein; abhi tak paisa nahi mila (the scheme matured in December; I haven't received the money yet)," Yadav said by phone. He added through the past eight months, he had been running from pillar to post to recover the maturity amount of Rs 24,000.

Yadav had invested through an agent, who had returned to his native Jaunpur in Uttar Pradesh, citing illness. "Agent bhi UP wale, investor bhi UP wale zyaada the (both agents and investors were largely from UP)," Yadav said.

Like Yadav, 58.5 million investors in the company are stuck, with PACL freezing payments. Following the Central Bureau of Investigation registering a preliminary inquiry against PACL and its brass, including founder Nirmal Singh Bhangoo, the Securities and Exchange Board of India (Sebi) last week ordered the company to refund the Rs 49,100 crore it had collected, claiming the collection was illegal.

Sebi's refund order, it seems, is the latest in a long line of battles PACL is fighting. An analysis of the company's annual report by Business Standard showed PACL was under investigation by the Income Tax Department and the Registrar of Companies. Also, its agents were cheating it of thousands of crores, leading to litigation. It had also declared in the case of some workers, it hadn't complied with the PF and ESI Act provisions.

Two detailed questionnaires to the company, sent on Saturday and Monday, didn't elicit any response. Subrata Bhattacharya, director of PACL and one of those named in the Sebi order, said he didn't want to add anything to the company's official statement.

In its statement, PACL had said it wasn't running a collective investment scheme, as claimed by Sebi, adding it would move the Securities Appellate Tribunal against the Sebi order. "We assure our customers their investments are safe and their interests will not be jeopardised," it said.

It added it had "sufficient asset holdings vis-a-vis the money raised for its real estate business". One of the first qualifications by the auditor in the balance sheet for year ended March 2013 was on the huge sums given by the company as advances to its agents for purchase of land. On several instances, these agents didn't procure the land and didn't return the money, leading to legal proceedings. "The company has advanced a sum of Rs 1,753,58,76,071 (Rs 1,753 crore) to various parties for procurement of land on the basis of agreements/MoUs (memoranda of understanding) entered into by the company with such parties. Since the parties to agreements/MoUs had not procured land against the advances made and/or did not refund the unadjusted advances, the company initiated legal actions/proceedings," the auditor said.

In June 2013, the Income Tax Department conducted searches at various company offices. "Pursuant to such operations and based on the statements of directors, recorded during search/post-search proceedings, the company has recognised additional income of Rs 200,00,00,000 (Rs 200 crore) in the financial statements, with a corresponding debit to the receivable business assets account, of the total sum of Rs 275,00,00,000 disclosed as additional income," it said.

The auditor said adjustments made by the company in its accounts weren't in compliance with accounting standards. "In accordance with accounting standard-4, contingencies and events occurring after the balance sheet date, adjustment to assets and liabilities are required for events occurring after the balance sheet date that provide additional information, materially affecting the determination of the amount relating to conditions existing on the balance sheet date. Thus, the recognition of additional income of Rs 200,00,00,000 in the financial statements is not appropriate, as the event does not relate to the conditions existing on the balance sheet date." It added the accounting treatment, in terms of disclosure of additional income given by the company in the financial statements, wasn't in accordance with accounting standard-4.

The company said, "The Registrar of Companies, Delhi and Haryana, has further initiated the inspection of books of accounts and other statutory records of the company, under section 209A of the Companies Act, 1956, for the last three years."

The company's annual report suggested it had filed several compounding applications. "All the compounding applications have been successfully compounded by Company Law Board and the regional director with respect to the inspection conducted by the Department of Corporate Affairs. As on date, no application is pending on the part of the company."

The auditor said, "During the year under review, the company failed to deduct and contribute the equivalent sum of PF and ESI from the wages paid to certain temporary workers at development sites, resulting in non-compliance of the provisions of the relevant Act."

The company's financial statements reflected a slump in its prospects. On a standalone basis, revenue from operations for 2012-13 was Rs 6,141.42 crore, compared with Rs 15,661.71 crore in the previous year. The company incurred a loss of Rs 98.32 crore before taxes, against a profit of Rs 234.7 crore in the previous year.

UNDER SCANNER

• 58.5 mn Number of people stuck as PACL froze payments because of a multi-agency probe
   
• Rs 49,100 cr Refund ordered by Sebi to the firm, claiming alleged illegal collections
   
• One of the first qualifications by the auditor in the balance sheet for year ending March 2013 was on the huge sums given out by the company as advances to its agents for purchase of land