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NFIFWI, Tirunelveli Division [email protected]
Tue, Jun 28, 2011 | Updated 05.01PM IST
Sruthijith KK,ET Bureau
Rs 20,000 crore deposits & a land bank the sizeof Bangalore: 'Realtor' PACL's 'illegal schemes'may drown millions' money
NEW DELHI: On a recent Saturday afternoon, the A6 DDA market in West Delhi's Paschim
Vihar looked desolate. Rows of shops remained shut and a few people milled about unhurriedly
as the summer heat soared. On the third floor of the complex, up a dark flight of stairs with
betel-juice-stained walls, the office of an obscure real estate company called PACL India Ltd
was an oasis of activity.
Hundreds of people had gathered there, giving it the appearance of a busy bank branch on
payday. Transactions abounded across counters, people chatted animatedly in small groups,
and streamed in and out amid long, snaking queues.
From this office and 279 more across India, PACL runs an operation that the Securities and
Exchange Board of India (Sebi) deems illegal because it considers it a collective investment
scheme in the garb of a real estate company. But the final word has not yet been said about
what kind of an animal PACL actually is. That dispute will be settled by the Supreme Court,
where the case has lain for eight long years.
ET spent six weeks interviewing about two dozen people to piece together the picture of a
company that looks suspiciously like a pyramid scheme and whose downfall could wipe out the
savings of millions of people. While the dispute waits to be resolved by the Supreme Court,
PACL has grown a 100-fold, aided by customers who have given money to the company
ostensibly to book a plot of land they can't see or choose. Deposits with PACL-the companycalls them 'customer advances'-have ballooned to Rs 20,000 crore.
It has used the money to buy land in various parts of the country, including barren desert land.
Its land bank, PACL said in a filing with the Registrar of Companies, is 1.85 lakh acres, roughly
the size of Bangalore (In comparison, large realty firms such asDLFor Unitech typically own
12,000-15,000 acres). More than the prospect of owning land, customers are more likely lured
by the 'expected value of land' the company indicates for investment terms ranging from 5 to 10
years.
This works out to more than a 12.5% annual return on investment. PACL's deposits are brought
in by a network of about 8 lakh agents, who are organised in the manner of a classic pyramid
scheme, or "chain system", and stake their credibility for the company in return for attractive
commissions on deposits brought in by them and other agents linked to them in the chain.
If the Supreme Court decides in favour of Sebi and says PACL indeed operates a collective
investment scheme that must be strictly regulated, several million small investors risk losing the
savings they have invested in the hope of an attractive return.
Those at the bottom of the pyramid will be the worst affected. PACL is perhaps only the largest
among a number of such schemes mushrooming across the country.
http://economictimes.indiatimes.com/dlf-ltd/stocks/companyid-12393.cmshttp://economictimes.indiatimes.com/dlf-ltd/stocks/companyid-12393.cmshttp://economictimes.indiatimes.com/dlf-ltd/stocks/companyid-12393.cmshttp://economictimes.indiatimes.com/dlf-ltd/stocks/companyid-12393.cms -
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NFIFWI, Tirunelveli Division [email protected]
Their growth is fuelled by the universal lure of getrich-quick schemes, protected by lackadaisical
enforcement and, in some cases, ambiguous rules. Arrests have occurred on consumer
complaints in a few cases. The ministry of corporate affairs has launched an awareness
campaign through major newspapers across the country, warning investors against collective
investment schemes.
Looks, Walks & Talks Like Pyramid Plan
MCA secretary DK Mittal said the
government's advertising campaign was
prompted by a number of complaints
against online schemes and other
collective investment schemes. They have
not received complaints against PACL, he
said. Elsewhere, there have been
complaints. Gwalior collector Akash
Tripathi said he has received more than
10,000 complaints against 16 companies
running collective investment schemes,
including PACL.
His administration last month moved to
freeze the bank accounts of PACL and
similar companies, and started sealing theproperties owned by them. "This is a big
menace. These companies are saying they
are collecting deposits for land or cattle or
what not, but they are essentially a finance
operation," Tripathi said. PACL may look
like a pyramid scheme, walk like a pyramid
scheme and talk like a pyramid scheme, but it is not called a pyramid scheme.
"We are a real estate company. We are in the sales purchase business of land. Customers pay
us to buy land," said PACL director S Bhattacharya. "Customers pay for the land in instalments
and at the end of their term, they can decide to either get a randomly allotted plot, or we will
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NFIFWI, Tirunelveli Division [email protected]
help them sell that plot and get whatever is the value of the land at that time." Irrespective of
where the plot is-suburban Mumbai or rural Madhya Pradesh-the company treats them alike,
and assigns identical expected returns.
A brochure of the company distributed by its agents says PACL has more than 10 crore 'plot
owners'. Bhattacharya said the company has no more than 50 lakh customers. Even that
estimate means one in every 170 Indians over 15 years of age is a PACL customer.
PACL is unique in that not only are its plots randomly allotted, but when money is paid, the
company issues a certificate with the amount the customer is expected to get at the end of theplan term. If a customer puts down Rs 50,000 for a 500 square yard plot, he or she can expect
to get back Rs 1,01,365 in six years, or Rs 1.85 lakh in 10 years. Bhattacharya said abou t 80%
of customers opt to take the money at the end of the plan term instead of the plot of land they
supposedly paid for.
From a customer's point of view, he or she can entirely ignore the plot of land that is supposed
to back their investment, walk into a PACL branch, deposit money and expect to get a very
attractive return at the end of the plan term.
It is not hard to see how this plan quickly gets morphed into a "double your money in six years"
scheme. That is exactly what happens. Through the army of agents who get up to a 15%
commission on investments they help bring in, PACL's schemes have acquired a cult-like
following in many parts of the country, particularly in small towns and rural India.
Anyone who joins a PACL scheme can become an agent. It is these agents, a network of
exponentially growing microentrepreneurs, who give word-ofmouth publicity for PACL, staking
their credibility among friends, relatives and community for the company. From Paschim Vihar to
Madurai to Navi Mumbai, their elevator pitch remains the same. "PACL is a public limited
company". "It is a company under the Ministry of Corporate Affairs". "It's a company operating
since 1983 and has never missed a payment". A number of agents across the country repeated
these claims, indicating systematic training.
Any company with more than 50 shareholders is deemed a public limited company, even though
PACL agents use this term to insinuate some kind of government backing or the sanction of law.
Same is the case with the MCA claim, as all companies have to register with the ministry's
Registrar of Companies. The claim of a 28-year record is a more complex truth, as the company
was registered only in 1996. It is perhaps a reference to a related company- PGF Ltd-that was
indeed founded in 1983 and was asked to wind up and pay back investors in 2002.
Bhattacharya said the agents may make many promises or talk up the company to maximise
commissions but the company cannot be blamed for it. But at the Paschim Vihar office, wherethis correspondent spent the better part of two days, plenty of agents were peddling the "double
your money" line quite openly, using brochures and pamphlets that had complex charts showing
return on investments and agent commissions across levels.
Little effort seemed underway by the company to regulate these pitches. The agents perpetuate
the PACL cult, and the company benefits from it the most. Thirty-one-yearold Anil Verma, who
contracted polio as an infant and walks with the aid of crutches, is one such agent. Verma said
working as an independent agent for PACL has given him hope and a steady income. Unable to
pass the Class X exam, he dabbled in many jobs, including as a plumber.
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NFIFWI, Tirunelveli Division [email protected]
But Verma said it was not until he became a PACL agent that he started dreaming of a better
future. The PACL network of agents around him was a testimony to that. Verma knows one
agent who used to be a vegetable vendor at the Azadpur wholesale vegetable market in North
Delhi.
"Now he is big. He bought his own house, he has a car... you know, steady income every
month," Verma said. Two levels above Verma in the pyramid is a man who clears Rs 10 lakh in
commissions every month. "He has shown everyone the cheques." Under an incentive scheme,
PACL gifts motorcycles and cars to agents who recruit the most investors.
Typical of such networks, the few who make big money are motivation to the majority, like
Verma, who make a few thousand rupees every month in commission. On each depo sit, as
much as 33% is paid out as commission by the company to the network of agents linked to the
person recruiting the investor, according to the commission chart with the company's agents.
Bhattacharya said the company pays 7-8% as commission on each deposit. The company's
balance sheet suggests this figure is at least 12%.
Bhattacharya is not comfortable with the description of his agent network as a pyramid scheme
or a ponzi scheme. "There is a chain system, that's true," he said. There are agents with
thousands of agents below them-one agent in Madurai spoke of his boss who has 8,000 people
under him. Along with the millions of investors, lakhs of these agents will suffer if PACL runs into
trouble and payments are disrupted. It is a prospect that Verma said he cannot even imagine,
but is sure will never happen.
"If for the sake of argument let's say the company is not returning your money. The land is still
yours, no?" But there is no title deed to the land, only a computer-generated receipt. Verma said
there is still no problem. "You can always go to the MCA and show the slip. They are bound to
give you the land because this is a company under the MCA." This is the kind of disinformation
that sustains and perpetuates the PACL network.
HISTORY AND PROMOTERS
PACL started life in 1996 as Gurwant Agrotech Ltd, a company selling magnetic pillows and
other therapeutical products. (It subsequently changed its name to Pearls Agrotech Corporation
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NFIFWI, Tirunelveli Division [email protected]
Ltd and PACL India Ltd). Between 1996 and 1998, Nirmal Singh Bhangoo was a director of the
company.
Bhangoo was also the chairman and managing director of Pearls Golden Forest Ltd
(subsequently named PGF Ltd). PGF Ltd and PACL Ltd both followed similar business models,
even though at the time PGF was a much larger entity. In 1997, there was a huge uproar
against plantation companies, agro companies and other similar schemes that promised a high
rate of return and disappeared with investors' money.
The government announced that such companies would be regulated, and efforts commencedwith the formation of acommittee chaired by former UTI chairman SA Dave. The committee's
report formed the basis of Sebi's Collective Investment Scheme Regulations, 1999. The Dave
committee defined CIS schemes by three important characteristics-pooling of investments,
management by a separate entity and absence of day-to-day control of investors. "The principle
of no day-to-day control of the investor in management of the property should be the prime
criterion in determining the status of such schemes," the committee said.
When Sebi notified the CIS regulations in 1999, more than 1,000 companies were asked to wind
down and refund investors. Both PACL and PGF found themselves in the list. Both petitioned
high courts-PGF Ltd in Punjab and PACL Ltd in Rajasthan, where it is registered. The Punjab
High Court ruled that PGF Ltd was clearly a collective investment scheme, and asked it to shut
shop.
The court said PGF's claim that its sole activity was the sale, purchase and development of
agricultural land was "a sham and a mere paper transaction" carried out "with the aim and
object of screening its real activity". In 2008, a Sebi inquiry found that the company had not
complied with the order to refund investors, and banned its promoters and executives from the
securities markets for 10 years. Those thus banned include Bhangoo, PACL's Bhattacharya
(then a general manager at PGF) and PACL company secretary SK Gaur, who was also
company secretary of PGF Ltd. The schemes of PACL and those that PGF ran were identical.
Gaur said they were different in that in the case of PGF, plot sizes were much larger.
But the Rajasthan High Court took the view that PACL could not be considered a collective
investment scheme. Sebi appealed against this decision in the Supreme Court. The securities
market regulator declined to comment for this story While the question of the legality of PACL's
operations went to the Supreme Court, two things happened that helped PACL grow
dramatically. One was that the company now had a virtual monopoly as most competing
schemes wound up because of Sebi action. Another was that the group started a TV channel-
P7-in 2005.
The channel runs advertisement for PACL, giving the company the sheen of a credible
brand."It's on TV all the time. Don't you watch P7?" an agent in Navi Mumbai asked. In the
demographic PACL draws its business from, many claims go unquestioned, and television news
is highly credible. The exact relationship between PACL and group companies such as Pearls
Infrastructure Projects Ltd and the company that runs the Hindi news channel P7 are not clear.
Bhattacharya said they are all associate companies, refusing to comment on the ownership.
The ownership of PACL and other Pearls companies is hard to determine. PACL, for instance,
is owned by 73 different entities, many of them shell companies owned by other companies in
the list. It's an elabo-rate network that disguises the real owners of the company, and because
Indian laws don't mandate the disclosure of beneficial ownership, it works. Some clues are to be
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found in regulatory filings with the Registrar of Companies. There are at least 17 companies that
are shareholders in both PACL Ltd and Bhangoo-promoted PGF Ltd.
In April 2010, Bhangoo and his wife Prem Kaur transferred 14,78,000 shares (amounting to
7.36% of the company's paid-up capital) held by them in PACL to a number of different entities.
PACL MD Sukhdev Singh is a relative of Bhangoo, Bhattacharya revealed on persistent
questioning, although he maintained that Bhangoo has nothing to do with the company. The
website of an entity called Pearls Australasia is more instructive. The Australia-based company,
"launched by New Delhibased Pearls group", owns the Sheraton Mirage hotel on the GoldCoast. Bhangoo and son Harvindar Singh sit on the board of that company, which describes the
Pearls group on its website as one of India's "largest private landowners" and as "one of I ndia's
fastest-growing corporate groups".
Pearls Infrastructure, PACL India, Pearls Broadcasting Corporation, Pearls Spices, Pearls
Tourism and the Gian Sagar Medical College are listed on the website as part of the Pearls
group. While PACL does not advertise heavily, associate company Pearls Infrastructure
Projects has done some high-profile marketing. The company is now the lead sponsor of IPL
team Kings XI Punjab, and has hired Australian pacer Brett Lee as the brand ambassador. The
"Pearls Group" is also the title sponsor of the India-West Indies one-day international and T20
tournaments underway in the Caribbean islands.
"HYPOTHETICAL QUESTION"
Bhattacharya and Gaur dismissed as "a hypothetical question" the prospect of an adverse
Supreme Court ruling, which will instantly plug the cashflow required to keep up with the
company's burgeoning commitments. "We will obey the law and follow whatever instructions we
receive," Bhattacharya said.
The company has started valuing the vast land bank it owns with help from two global real
estate consulting firms. Bhattacharya claims provisional reports from the companies- JonesLang LaSalle and CB Richard Ellis-say the company's land bank is worth at least Rs 70,000
crore. Last year, stakeholders received an inadvertent peek into a small sample of the
company's land bank.
On January 25, 2010, The Times of India reported about a curious incident that had alarmed
officials in the ministry of defence. They realised that a company had been buying up land in the
barren desert in Barmer district in Rajasthan, close to the sensitive India-Pakistan border.
Through 681 separate transactions, the company had accumulated 10,000 acres of desert land,
typically not known to appreciate and regarded useless for all practical purposes. That company
was PACL Ltd.
http://economictimes.indiatimes.com/markets/real-estate/realty-trends/rs-20000-crore-deposits-a-land-bank-the-size-of-bangalore-realtor-pacls-illegal-schemes-may-drown-millions-money/articleshow/9020795.cms?curpg=1
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