Sebi asks Pearls Agrotech to refund Rs29,420 crore to investors
3 min read 22 Aug 2014, 06:49 PM ISTSebi finds firm violating CIS norms by mobilizing the money without being registered with the regulator
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Mumbai: The capital markets regulator on Friday ordered Pearls Agrotech Corp. Ltd to refund at least ₹ 29,420.65 crore raised from some 58.5 million customers through collective investment schemes (CIS) in the guise of land allotments.
The Securities and Exchange Board of India (Sebi) found Pearls Agrotech violating CIS regulations by mobilizing the money without being registered with the regulator. Delhi-based Pearls Agrotech operates from 15 regional offices and had 3.35 million field associates in 2011-12.
Sebi said the company offered two kinds of plans—a cash-down payment plan and an instalment payment plan. Under the former, it offered to allot land to customers within 270 days of payment and under the latter within 90 days.
The company had allotted land to some 12.2 million customers till March 2012, when its total customer advances stood at ₹ 14,331 crore, Sebi said. Pearls Agrotech told Sebi on 11 August that it had collected another ₹ 29,420.65 crore from 46.31 million customers to whom it is yet to allot land.
The case of Pearls Agrotech first came to light in 2002, when Sebi had ruled that the investment schemes offered by it were in the nature of CIS and the company needed to abide by the rules. This order was quashed in 2003 by the Rajasthan high court, which was challenged by Sebi the following year.
Following this, in September 2011, Sebi had moved the Supreme Court seeking an early hearing in the case. In March 2013, the apex court had directed Sebi, the income-tax department and the Central Bureau of Investigation to scrutinize the company.
In February, CBI registered a case against the promoters of Pearls Agrotech after an investigation into allegations of collection of public deposits under the garb of allotment of farm land to depositors.
On Friday, Sebi said in a 92-page order that the company does not have enough land and plots to meet the allotment requirements for customers who have been investing money in the company’s two schemes.
Sebi said the value of total land of Pearls Agrotech on 31 March was ₹ 11,706.96 crore—agricultural land worth ₹ 7,322.11 crore and commercial land worth ₹ 4,384.84 crore.
“The company has only lands worth ₹ 11,706.96 crore...out of which it has not only to satisfy the claim of 4.63 crore customers who have deposited ₹ 29,420 crore with it, but also to satisfy 1.22 crore customers to whom the land has been allotted but sale deeds have not been executed... In view of the above, the proposal does not appear to be serious and reasonable," Sebi’s whole-time member Prashant Saran said while issuing the order.
Sebi found that till March 2012, Pearls Agrotech mobilized public funds worth ₹ 44,736 crore. Later, between 26 February 2013 and 15 June 2014, Pearls Agrotech admitted to have collected another ₹ 4,364.78 crore from some 4 million customers. Hence, the total amount mobilized adds up to at least ₹ 49,100 crore. This figure could have been more if the firm had provided the details of funds mobilized between 1 April 2012 and 25 February 2013, Sebi said.
For raising such huge sums of money from the public over several years without securing regulatory permissions, Sebi directed Pearls Agrotech, its promoters and directors Tarlochan Singh, Sukhdev Singh, Gurmeet Singh and Subrata Bhattacharya to wind up all the existing schemes and refund the money within three months.
After the refund, the company has been ordered to wind up its businesses within 15 days.
Sebi said it will bar the company and its promoters and directors from accessing the capital market if they fail to comply with the order.
The markets regulator said it will make a reference to the state governments and local police to register civil or criminal cases against Pearls Agrotech, its promoters, directors and managers for fraud, cheating, criminal breach of trust and misappropriation of public funds if the money is not refunded.
Sebi will initiate attachment and recovery proceedings if the money is not refunded to the public within the deadline set by it.
The order against Pearls Agrotech comes just weeks after Parliament approved legislation aimed at giving Sebi more power to crack down on CIS. The Securities Laws (Amendment) Bill, 2014, which was passed in the Rajya Sabha on 12 August, will empower Sebi investigators to conduct searches and seek information from suspects.
The legislation was brought against the backdrop of thousands of small investors being duped by fraudulent investment schemes like the ₹ 2,000-crore scam in West Bengal involving the Saradha Group, a deposit-taking firm, that came to light last year.
Following the collapse of the Saradha Group in April 2013, the Union government formed an inter-ministerial group to look at ways to plug regulatory loopholes around so-called multi-level marketing or pyramid schemes.
