New teeth for Sebi, hot chase for PACL

Rs 7,269-crore penalty on firm is for money raised after the market regulator got new powers

Market regulator Securities and Exchange Board of India (Sebi)’s latest order on Tuesday, which slapped its highest-ever fine of Rs 7,269 crore on PACL (formerly Pearls Agrotech Corporation Limited ), could be the final blow for the company’s collective investment schemes. The order is on alleged offences committed by the realty firm, after Sebi was given new powers in 2013. The powers, that allow the regulator to use coercive methods to recover its dues, are likely to make life difficult for PACL, if it does not pay up within 45 days.    

Last year, Sebi whole-time member Prashant Saran directed repayment of Rs 49,100 crore to investors in these PACL schemes. A Supreme Court order earlier this year appointed two retired judges to recover that money. Last month, the Securities Appellate tribunal (SAT) upheld Saran’s order, after an appeal against it by PACL.

The regulator's 17-year chase of the firm heated up after the Supreme Court cleared a hurdle for Sebi action two years ago. On June 14, 2013, Sebi issued show-cause notices to PACL, its founder Nirmal Singh Bhangoo, and its past and present directors. (A show-cause notice asks the recipient to produce satisfactory grounds for application of or exemption from a procedure or penalty.) It took Sebi another 14 months to complete enquiry and proceedings as the accused sought clarifications, hearings, and adjournments.

During this period, PACL continued to raise money. Now, the Tuesday’s order is on the money raised after the original show-cause notice was issued.

The Tuesday’s order said another show-cause notice was issued to PACL and its four current directors in January 2015, for raising Rs 2,686 crore without registering collective investment schemes. This amount was raised by PACL between September 1, 2013, and June 2014.

THE PACL CASE

• Feb 2013: Supreme Court sets aside Rajasthan High Court order and allows Sebi to act against PACL
• Jun 2013: Sebi issues show-cause notice to PACL, founder, and nine past and present directors
• Jul 2013: Ordinance giving Sebi new powers over money-raising schemes and recovery of dues
• Aug 2014: Sebi passes order against PACL for refund of Rs 49,100 crore
• Aug 2014: Securities law amendment Act passed in parliament
• Jan 2015: Fresh show-cause notice to PACL and current directors for money raised after Sep 2013
• Apr 2015: Supreme Court appoints two retired judges to realise PACL assets and settle dues
• Aug 2015: SAT upholds Sebi's August 2014 order
• Sep 2015: Order giving penalty based on show-cause in Jan 2015

An ordinance giving Sebi powers to recover money owed to it was announced in July 2013. It was repromulgated and eventually passed by parliament as law in August 2014.

Started in 1996 by former Peerless group agent Bhangoo, PACL came on the regulator’s radar two years later, when the collective investment schemes rules were announced.

PACL offered two major plans for a land parcel: A cash-down payment plan and an instalment plan. PACL says it gets customers to invest in land in undeveloped areas. The company says it develops this land.

PACL also offered an exit option to customers. Most customers exited the plans. This convinced the regulator the plans were money circulation schemes. But, in 2003, the Rajasthan High Court said collective-investment-scheme rules did not apply to PACL schemes. With most of PACL’s rivals cornered by the regulator, it had a near monopoly. In February 2013, the Supreme Court set aside the Rajasthan High Court order. But by then, PACL had already enlisted more than 58.5 million customers.