Nirmal Singh Bhangoo, founder of Pearls Group, is no stranger to controversy. His company, Pearls Agrotech Corporation (PACL), accused by Sebi of running a realty ponzi scheme, has been directed to refund R49,100 crore to its investors within three months.
If the company fails to do so, Sebi will bar PACL and its directors from accessing the securities market till all the collective investment schemes (CIS) of the company are wound up and the funds mobilised repaid.
Further, the market watchdog will, in case PACL defaults, refer the firm?s case to state governments and local police, with a direction to register criminal and civil cases against the company personnel for fraudulent activities, cheating, criminal breach of trust and misappropriation of public funds.
While Sebi?s action is the biggest regulatory crackdown to date against the firm, it has, in the past, had several run-ins with the CBI. In February this year, CBI had registered a case against the company and its associated company Pearls Golden Forest (PGF) for allegedly amassing R45,000 crore under a multi-level pyramid scheme from nearly 5 crore customers.
From a small-time milk seller in Attari, Bhangoo has since 1996, expanded his company?s operations from agricultural activities to tourism, hospitality and electronic media. Primarily, his company is engaged in sale and purchase of agricultural plots as well as carrying out agricultural development activities for customers to whom the plots are sold. However, he has steered the company towards new acquisitions. Currently, his company owns the Sheraton Mirage Resort and Spa in Gold Coast in Australia along with P7, a local news channel, prime-property resorts in Goa and Himachal Pradesh and a travel-solutions provider company.
Sebi?s first interaction with Bhangoo?s company came about in March 1998, when the watchdog had shot off a letter directing PACL to restrain from raising funds under its then existing schemes and from launching new plans. PACL, however, said that its transactions concern sale and purchase of agricultural land, which were outside the purview of the securities market.
In 1998, a PIL was filed in the Delhi High Court against 478 agro-plantation companies pleading that ?hard earned money of several investors? was taken away from them. One among these 478 was PACL. The high court, then, had directed that an audit should be carried out against the company by Sebi and the watchdog, in turn, had filed a report highlighting various discrepancies being carried out by the firm. This report filed by Sebi was followed up by the high court by appointing Justice K Swamidurai (now retired) to verify the authenticity of the sale-purchase agreements entered into by the company. While the Justice held the agreements of the company to be genuine, Sebi kept checks on the company by directing it to comply with its CIS regulations.
PACL responded to Sebi?s directions by filing a petition in the Rajasthan High Court pleading that Sebi had no jurisdiction to control the company. The Rajasthan HC, ultimately in November 2003 held that the company?s schemes did not fall under the definintion of a CIS scheme. Consequently, Sebi moved the Supreme Court.
A decade after the Rajasthan High Court order, the Supreme Court , set aside the said order and directed Sebi to pass fresh orders on whether PACL?s business constitute a CIS scheme or not.
