Investor refund panel in Pearls' imbroglio

In an important order, the Supreme Court has appointed a committee of retired high court judges K Ramamoorthy and Eshwar to liquidate the seized properties of the Pearls group, and begin repaying the investors. The group ran afoul of the law for a large-scale ponzi scheme. The SC order was about seven months after the Securities and Exchange Board of India (Sebi), on directions from the court, investigated and passed an order to refund Rs 46,000 crore to 58.5 million investors. The Sebi order has been under challenge at the Securities Appellate tribunal.

Apart from Rs 79.9 crore attached in bank accounts, the Central Bureau of Investigation (CBI) said it had seized ‘papers’ relating to 348 properties of PGF and 14,000 properties of PACL, group companies.

The April 1 order by the apex court suggested the two-member panel could follow the modalities suggested by Sebi but also gave them the freedom to do it differently, and to engage professionals such as chartered accountants. The SC did not specify when the exercise was to be completed, beyond saying it hoped this would be done “at the earliest possible time”. It also directed the CBI, Sebi and Pearls group to assist the committee.

While cheering the investors, it could also be a precedent for other cases, such as of the Sahara group, lingering on for years. Incidentally, senior advocate Kapil Sibal, who recently won Sahara a 90-day window to raise the bail money for its jailed chief, Subrata Roy, represented Pearls, while Arvind Datar was the Sebi lawyer in both cases.

Though having many similarities, the two cases have followed a different course. The Sahara case progressed rapidly under the apex court’s direct supervision. The final order of refund of Rs 24,029 crore with interest was passed by the Supreme Court in August 2012, less than three years from the time Sebi first discovered irregularities. However, it has since lingered on. The Pearls case reached the SC as early as 2004 and lingered for years before the court finally gave a nod last year for Sebi to probe and pass a final order. In August last year, Sebi passed the landmark order on refunds.

In less than a year after, it has reached the committee for disposal of assets. However, CBI's findings, recorded by the court, show the committee has a monumental task. Already, differences are cropping up.

While CBI said it had seized papers of over 14,000 properties, Pearls gave a list of 25 which, it said, were attached by CBI. In an affidavit on March 26, the CBI said of these 25 properties, original title documents were available only in respect of seven, seized by it, while papers of another seven were for an ‘agreement to sell’. For three properties, the agency had only a photocopy. “Papers of the remaining eight of the said 25 do not figure in the list of papers seized by CBI.” The affidavit warned there could be more such discrepancies.

Even as the committee navigates this minefield, it would be of great help to the investors if Sebi communicated its two-phase proposal, on which the committee is likely to base its liquidation and refund programme, in greater detail on the public domain.