SEBI VS PACL: Trouble in Paradise

EquiCorp AssociatesAdvocates & Solicitors

Trouble In Paradise

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Trouble In Paradise

From Milkman to BusinessTycoon

In just over 30 years,Nirmal Singh Bhangoo,the man behind PearlsAgrotech CorporationLimited (“PACL”) whouse to sell milk nearAttari border in Punjabbecame the owner of1.83 lakh acres of landaround the country.

A charismatic businessman who milked smallinvestors to makePearl(s) and always kepthis investors satisfied.

In just over 30 years,Nirmal Singh Bhangoo,the man behind PearlsAgrotech CorporationLimited (“PACL”) whouse to sell milk nearAttari border in Punjabbecame the owner of1.83 lakh acres of landaround the country.

A charismatic businessman who milked smallinvestors to makePearl(s) and always kepthis investors satisfied.


Trouble in Paradise

In its biggest-ever crackdown on a large-scale money pooling schemeestimated at nearly Rs. 50,000 crore (twice the amount to be recoverfrom SAHARA group), regulator SEBI has ordered PACL to refundinvestors within three months and wind up operations.

SEBI had found PACL violating Collective Investment SchemeRegulations by mobilizing the money without being registered with theregulator, SEBI.

Besides, closure of PACL operations, SEBI is initiating furtherproceedings against PACL and its nine promoters and directors forfraudulent and unfair trade practices, as also for violation of SEBI's CISRegulations, among others, as per a direction from the Supreme Court.

In its biggest-ever crackdown on a large-scale money pooling schemeestimated at nearly Rs. 50,000 crore (twice the amount to be recoverfrom SAHARA group), regulator SEBI has ordered PACL to refundinvestors within three months and wind up operations.

SEBI had found PACL violating Collective Investment SchemeRegulations by mobilizing the money without being registered with theregulator, SEBI.

Besides, closure of PACL operations, SEBI is initiating furtherproceedings against PACL and its nine promoters and directors forfraudulent and unfair trade practices, as also for violation of SEBI's CISRegulations, among others, as per a direction from the Supreme Court.


PACL Business Activities

PACL offered two kinds of plans to its customers—a cash-down payment planand an instalment payment plan. Under the former, it offered to allot land tocustomers within 270 days of payment and under the latter within 90 days. Infact, business model of PACL isn’t very complicated. It collects money frominvestors and invests in cheap land which is likely to see changes in end use.Once that happens, the cheap land becomes a goldmine that PACL monetizes topay investors 12.5% interest.

At present, it is being estimated that PACL has more than 58.5 millioncustomers, more than twice the 22 million demat accounts in the entire countryand has paid commission of Rs 7,893.8 crore up to March 2012 to more than its8 lakh agents who works as network of chain system for collection of publicdeposit in return for attractive commissions on deposits brought in by them andother agents linked to them in chain. PACL is yet to allot land to 46.3 millioninvestors where as PACL claimed it was in the business of purchasing anddeveloping land, adding the developed land was transferred to investors, whocould sell it for gains.

PACL offered two kinds of plans to its customers—a cash-down payment planand an instalment payment plan. Under the former, it offered to allot land tocustomers within 270 days of payment and under the latter within 90 days. Infact, business model of PACL isn’t very complicated. It collects money frominvestors and invests in cheap land which is likely to see changes in end use.Once that happens, the cheap land becomes a goldmine that PACL monetizes topay investors 12.5% interest.

At present, it is being estimated that PACL has more than 58.5 millioncustomers, more than twice the 22 million demat accounts in the entire countryand has paid commission of Rs 7,893.8 crore up to March 2012 to more than its8 lakh agents who works as network of chain system for collection of publicdeposit in return for attractive commissions on deposits brought in by them andother agents linked to them in chain. PACL is yet to allot land to 46.3 millioninvestors where as PACL claimed it was in the business of purchasing anddeveloping land, adding the developed land was transferred to investors, whocould sell it for gains.


SEBI VS PACL

SEBI clamps down the business activities of PACL categorizing thecollection of public deposits under the garb of allotment of farm land todepositors without any maintenance of proper records/data and withoutregistration of its scheme with SEBI under Collective InvestmentScheme Regulations and declare the activities of PACL are in the natureof a Ponzi scheme.

SEBI will make a reference to the state governments and local police toregister civil or criminal cases against PACL, its promoters, directorsand managers for fraud, cheating, criminal breach of trust andmisappropriation of public funds if the money is not refunded. SEBI willalso initiate attachment and recovery proceedings if the money is notrefunded to the public within the deadline set by it.

SEBI clamps down the business activities of PACL categorizing thecollection of public deposits under the garb of allotment of farm land todepositors without any maintenance of proper records/data and withoutregistration of its scheme with SEBI under Collective InvestmentScheme Regulations and declare the activities of PACL are in the natureof a Ponzi scheme.

SEBI will make a reference to the state governments and local police toregister civil or criminal cases against PACL, its promoters, directorsand managers for fraud, cheating, criminal breach of trust andmisappropriation of public funds if the money is not refunded. SEBI willalso initiate attachment and recovery proceedings if the money is notrefunded to the public within the deadline set by it.


Is PACL involved in PonziScheme?

Is PACL involved in CollectiveInvestment Scheme?

An investment schemewherein several individualscome together to pool theirmoney for investing in aparticular asset(s) and forsharing the returns arisingfrom that investment as perthe agreement reachedbetween them prior topooling in the money

An investment schemewherein several individualscome together to pool theirmoney for investing in aparticular asset(s) and forsharing the returns arisingfrom that investment as perthe agreement reachedbetween them prior topooling in the money


Now, the most basic questions which arises, has PACL been altogetherinvolved in Ponzi Scheme or it was failure on part of PACL to get itsscheme registered with SEBI under Collective Investment SchemeRegulations? Has PACL cheated any of its investor till date?

Though at this moment we may not have all answers, however fewthings are very clear:

i. The Collective Investment Scheme operated by PACL was not registeredwith SEBI;

ii. There are more than 46.31 million customers to whom PACL is yet to allotland

Today, many companies especially in semi-urban and rural areas areaccepting deposits in their firm’s name and also promising two to threetimes returns in two to four years without taking any legal permissionsand there was cardinal mistakes by PACL group that often operated inthe regulatory twilight zone. A shadowy empire giving up closelymonitored financial services to slowly venture into real estate would nothave necessarily drawn the attention of unfriendly politicians and a no-nonsense SEBI.

Now, the most basic questions which arises, has PACL been altogetherinvolved in Ponzi Scheme or it was failure on part of PACL to get itsscheme registered with SEBI under Collective Investment SchemeRegulations? Has PACL cheated any of its investor till date?

Though at this moment we may not have all answers, however fewthings are very clear:

i. The Collective Investment Scheme operated by PACL was not registeredwith SEBI;

ii. There are more than 46.31 million customers to whom PACL is yet to allotland

Today, many companies especially in semi-urban and rural areas areaccepting deposits in their firm’s name and also promising two to threetimes returns in two to four years without taking any legal permissionsand there was cardinal mistakes by PACL group that often operated inthe regulatory twilight zone. A shadowy empire giving up closelymonitored financial services to slowly venture into real estate would nothave necessarily drawn the attention of unfriendly politicians and a no-nonsense SEBI.


Past Perfect-Nirmal SinghBhangoo & Subrata Roy Sahara

Run Similar BusinessStructure i.e. raising publicdeposit via unregistered CIS

Involved in Realty projectsand hotels

Interests in Sports.

PACL- Sponsored IPL teams & Kabadditournaments

Sahara- Indian Cricket team, owned F1& Pune IPL team

Runs news channels &businesses are in the hands of

a few trusted men, mainlyfamily members


Wayout

After the first round of battle, where SEBI has ordered PACL to refund Rs.49,100 crore to its investors, PACL is getting ready for second round and toknock on Securities Appellate Tribunal (“SAT”) against SEBIs order. Thewhole battle between SEBI and PACL is on the issue that whether thebusiness activities of PACL comes within the ambit of CIS or not? However,in middle of this battle, there are millions of small investors who had beenexposed to high degree of risk, who may lose everything if PACL shrinks.

Is there any way-out to regulate their micro finance business/raising publicdeposits in real estate?? Though there are not many legal options available,however, PACL could have registered their public raising schemes in realestate under Collective Investment Scheme with SEBI.

In near future we can expect further crackdown on other companies engagedin similar activities like PACL.

After the first round of battle, where SEBI has ordered PACL to refund Rs.49,100 crore to its investors, PACL is getting ready for second round and toknock on Securities Appellate Tribunal (“SAT”) against SEBIs order. Thewhole battle between SEBI and PACL is on the issue that whether thebusiness activities of PACL comes within the ambit of CIS or not? However,in middle of this battle, there are millions of small investors who had beenexposed to high degree of risk, who may lose everything if PACL shrinks.

Is there any way-out to regulate their micro finance business/raising publicdeposits in real estate?? Though there are not many legal options available,however, PACL could have registered their public raising schemes in realestate under Collective Investment Scheme with SEBI.

In near future we can expect further crackdown on other companies engagedin similar activities like PACL.


In the recent past, SEBI has discovered several entities such as Sahara, Rose Valleyetc. been deployed to raise capital from investors without following the prescribedregulatory framework. To safeguard the interest of hapless investors and curb theproliferation of unregulated schemes being operated, SEBI has brought under thescope of the CIS Regulations all such schemes launched by any operator in any fieldas long as they fell within the four corners of the definition of a CIS.

Recent amendments to the SEBI Act provide more powers to SEBI for enforcementagainst unregistered pooling vehicles. Under the amendments SEBI has been grantedpowers to regulate any scheme or arrangement, if such scheme is not registered withSEBI, and involves a corpus of INR 100 Crore (INR 1 billion) or more. This powercan be viewed as an attempt to limit any challenges from parties contending that aparticular fund raising activity is not covered under the purview of CIS Regulationsmerely because it is not specifically covered under Section 11AA of the SEBI Act.Further, SEBI has now been granted the authority to carry out search and seizureoperations and attach assets in case of non-compliance.

If you are interested in further details and inclined to know the procedure of CISregistration, click on the link below or contact us:

http://www.equicorplegal.com/Pdfs/ECA-%20Collective%20Investment%20Scheme.pdfor contact us at [email protected]

In the recent past, SEBI has discovered several entities such as Sahara, Rose Valleyetc. been deployed to raise capital from investors without following the prescribedregulatory framework. To safeguard the interest of hapless investors and curb theproliferation of unregulated schemes being operated, SEBI has brought under thescope of the CIS Regulations all such schemes launched by any operator in any fieldas long as they fell within the four corners of the definition of a CIS.

Recent amendments to the SEBI Act provide more powers to SEBI for enforcementagainst unregistered pooling vehicles. Under the amendments SEBI has been grantedpowers to regulate any scheme or arrangement, if such scheme is not registered withSEBI, and involves a corpus of INR 100 Crore (INR 1 billion) or more. This powercan be viewed as an attempt to limit any challenges from parties contending that aparticular fund raising activity is not covered under the purview of CIS Regulationsmerely because it is not specifically covered under Section 11AA of the SEBI Act.Further, SEBI has now been granted the authority to carry out search and seizureoperations and attach assets in case of non-compliance.

If you are interested in further details and inclined to know the procedure of CISregistration, click on the link below or contact us:

http://www.equicorplegal.com/Pdfs/ECA-%20Collective%20Investment%20Scheme.pdfor contact us at [email protected]


Consult the Experts-ECA

Complete assistance for making the necessary filings,applications etc. for obtaining SEBI’s approval to operateas CIMC and to launch CIS.Informal discussion with contact personnel within SEBIso as to perfect the application before the same issubmitted.Follow up support at various points in time during andafter the pendency of the application so as to ensure thatany additional documents/records requested by SEBI issubmitted in a systematic and timely manner. Updating Company on a regular basis as to the status ofthe pending application.

Complete assistance for making the necessary filings,applications etc. for obtaining SEBI’s approval to operateas CIMC and to launch CIS.Informal discussion with contact personnel within SEBIso as to perfect the application before the same issubmitted.Follow up support at various points in time during andafter the pendency of the application so as to ensure thatany additional documents/records requested by SEBI issubmitted in a systematic and timely manner. Updating Company on a regular basis as to the status ofthe pending application.


SEBI VS PACL: Trouble in Paradise

Business

Transcript of SEBI VS PACL: Trouble in Paradise