Mumbai: More than two years after it cracked down on PACL Ltd, which ran India’s largest illegal money-pooling scheme, the securities regulator has recovered only a fraction of the money the company had collected and is unsure how to distribute it among its 58 million duped investors.
A committee set up by the regulator has managed to recover only around Rs230 crore, or just 0.47% of its Rs49,100 crore dues, three people, including an official at the Securities and Exchange Board of India (Sebi), said. All three spoke on condition of anonymity.
“Some money has been recovered, but it is not clear to Sebi as to what type of investors should be refunded first; on what basis investors should be selected to start the refund process; and in what proportion (of investment amount) each investor should be refunded to begin with, so that all investors are treated equitably. There has to be written rules to manage the refund process. Sebi has asked the panel formed for PACL refunds, under former chief justice of India, R.M. Lodha, to help with the rules as soon as possible,” the first of three people cited above said. All three spoke on condition of anonymity.
Founded in 1996 as Pearls Agrotech Ltd, PACL collected money from investors across the country until it was stopped by a Sebi order in September 2014. While prohibiting it from raising any more public money, Sebi said PACL owed investors Rs49,100 crore. On 11 December 2015, the regulator initiated recovery proceedings against PACL and its top officials. As directed by the Supreme Court, a three-member Sebi panel led by former Supreme Court chief justice R.M. Lodha on 30 September 2016 initiated the process to auction PACL’s properties in 192 districts. However, this didn’t help much, and recently, after selling a few luxury vehicles owned by some of the PACL promoters, Sebi received around Rs30 crore, according to the second of the three people.
An email sent to Sebi, seeking comments on the story, remained unanswered.
“The PACL case is somewhat different from other collective investment schemes since a dedicated committee has been formed in PACL’s case. In the case of PACL, even though no winding-up and repayment report has been filed with Sebi, unlike other cases, the recovery and refund process should ideally start sooner because of the Supreme Court order,” the second person said, adding, Sebi, too, expects the refund process to start faster than in other cases.
According to the second and the third person, the Lodha panel may recommend a roadmap for refunds by the end of this month, and the refund process may begin from April.
“Refunding investors in such cases is not an easy job,” said Kumar L. Desai, a senior advocate at the Bombay high court, who is familiar with cases related to collective investment schemes. “Whatever amount is coming through recovery should be invested in some interest-earning securities till the full amount is recovered. While continuing the recovery, the refund process should be started by giving money first to investors whose investments have matured. While refunding this money, the interest amount due should be paid first to everyone so that all investors can be brought to one level. Once the interest amount is paid off, the principal amount should be paid to the investors on a pro-rata basis,” said Desai.
Refunding the money will be a tedious task, said Sumit Agrawal, a partner at Suvan Law Advisors and an ex-Sebi official. “Sebi has to verify the genuineness of each and every claimant in the scheme and ensure that the cost of refunding money is not more than the refund itself at any stage, especially because there may be a lot of small investors involved.”