SAT upholds Sebi’s Rs49,100-cr refund order against PACL
18 Aug 2015
The Securities Appellate Tribunal (SAT) has upheld an order by the market regulator Securities and Exchange Board of India (SEBI) directing property developer PACL to refund Rs49,100 crore (about $7.5 billion) raised from investors through ''sham'' collective investment schemes (CIS).
This was the largest CIS in the country so far, both in terms of money collected and the number of investors, and the ST order upholding the Sebi order, is seen as a test of the watchdog's ability to clamp down on unregulated investment products.
Sebi had, over an year ago, passed an order against Jaipur-based real estate major PACL Ltd, directing it to refund Rs49,100 crore the company had collected through illegal investment products that did not comply with rules on so-called collective investment schemes.
Sebi had found that PACL was selling fixed-return investment products disguised as land-for-fund schemes. It told the firm to return Rs49,100 crore ($7.52 billion) it raised from 58.5 million investors.
PACL, according to the Sebi order, was running a land purchase scheme, collecting money from investors by promising that the investments in the company's schemes were highly profitable and were running for 15 years.
Of the 58.5 million customers, many customers, PACL had issued sale deeds to only 19,284 investors.
PACL had appealed the Sebi order before SAT last year arguing it sold land to customers and not investment products.
But the SAT, in an order published on Tuesday, backed the regulator.
The SAT order also noted that although PACL had collected Rs49,100 crore, the total value of the lands that PACL held in the form of stock in trade was Rs11,707 crore. There was also nothing on record for the company to suggest that PACL had any other assets.
Sebi has stepped up its scrutiny of unregistered investment products over the past two years, plugging regulatory loopholes that had long allowed unregulated entities to raise billions of dollars from small investors. Many ended up losing their life savings in pyramid schemes.
In 2015 alone, Sebi has passed 91 new orders closing down unregulated funds and demanding refunds for investors.
While Sebi can regulate it has so far not been empowered to enforce its decisions, as seen in the case of Sahara.