Financial Frauds Caught in a Farcical Recovery Process: Sahara, Pancard & PACL
The manner in which the Indian government, across political formations, deals with large financial frauds is a wonderland that would stump Lewis Carroll himself. Take the example of Sahara and Pancard Club or even PACL. After the death of Sahara founder Subrata Roy on 14th November, the government has quickly begun to explore the possibility of transferring funds with the market regulator to the Consolidated Fund of India (CFI).
 
In 2012, the Securities & Exchange Board of India (SEBI) won a landmark order from the Supreme Court (SC) against two Sahara group companies to deposit Rs25,000 crore with the regulator. The Sahara companies had collected this money through the issue of optionally fully convertible debentures (OFCD), without SEBI’s permission or listing them on stock exchanges as required by the rules. SC asked SEBI to refund the money to investors under the supervision of a retired SC judge.
 
Over the past decade, this kitty swelled to Rs25,163 crore including interest, after paying out a mere Rs138 crore to 17,526 investors—even though Sahara had deposited just a little over Rs15,000 crore. (Read: Sahara: Ghost, Duped Investors & Regulatory Failure)
 
Meanwhile, even after the tough 2012 order, Sahara went ahead and set up four large cooperatives, which together raised an astounding Rs86,000 crore. This was when it was apparently under intense scrutiny of the apex court and multiple ministries and their regulators. On 29 March 2023, following the home ministry’s intervention and another SC order, SEBI was asked to transfer Rs5,000 crore to the central registrar of cooperatives to pay back investors of these four cooperatives. (Read: Sahara Refunds: A Silent Regulator and a Mysterious and Confusing Supreme Court Order). The press information bureau (PIB) hailed this as a ‘historic decision’ that would give back 100mn (million) investors their money and a portal was quickly set up to upload depositors’ claims in April 2023.
 
At that time, Moneylife Foundation had filed an intervention petition (Read: Supreme Court Directs SEBI, Sahara To Respond in Interim Applications Filed by Moneylife Foundation) in SC on behalf of investors of the Sahara Cooperative Society. We also formed a Telegram group of nearly 1,000 Sahara investors, who confirm that nobody has received a single rupee from the government so far.
 
Transferring this large sum of money to CFI will, hopefully, end the futile exercise being conducted by SEBI for over a decade (Read: Sahara files contempt petition in Supreme Court against SEBI). Significantly, media leaks about this potential action make no mention about the claims of investors in the Sahara Cooperatives—instead there is talk about how a reduction in government borrowing will boost bond markets. This story repeats itself in every major Ponzi-like fraud.
 
Pancard Clubs Ltd
Consider the drama in a relatively smaller ‘collective investment’ scheme, where regulatory action began in 2010. Pancard Clubs Limited (PCL), incorporated in 1997, has been collecting public money to manage hotels and time-share projects and collected deposits in the guise of membership fees. It has been in deep financial trouble for the past decade but owns properties and assets across India purchased out of the Rs7,035 crore that it collected from over 5.15mn investors.
 
Moneylife has reported PCL’s repayment problems as far back as in 2012 (Consumer forum asks Pan Card Club to pay compensation of Rs50,000) when the widow of a deceased auto-rickshaw driver won a case in the consumer court. Her husband had got PCL membership for Rs1,000 bundled with an insurance cover of Rs50,000, which the company had refused to honour after his death.
 
In 2014, SEBI cracked down on a host of collective investment schemes including PCL. An interim SEBI order barred PCL from collecting fresh money and launching new schemes (Read: SEBI asks Pancard Clubs to stop collecting money from investors). The securities appellate tribunal (SAT) dismissed PCL’s appeal in 2017 and asked it to refund the money collected from investors across India. (Read: SAT says Pancard Clubs is pure CIS and must refund Rs7,035 crore to investors). That was also the year that the company’s founder, Sudhir Moravekar, passed away.
 
By 2018, SEBI had seized over 24 properties of PCL and appointed SBI Capital Markets to auction them (Read: 24 properties of Pancard Clubs to be auctioned on May 9: SEBI). It also attached and auctioned other assets including luxury cars, land parcels and resorts all over India (SEBI orders fresh auction of Pancard Clubs’ properties). Unfortunately, the sum total recovered by SEBI is just Rs114 crore out of Rs7,035 crore; it appears that no money has been refunded to investors, as yet, by PCL or SEBI.
 
When PCL was admitted to insolvency proceedings in September 2022, SEBI filed a petition contending that it had already initiated recovery action. SEBI’s petition was dismissed by the national company law tribunal (NCLT) as well as its appellate tribunal.  It has been asked to remit the money realised by selling PCL assets to the corporate debtor. SEBI has filed an appeal in the SC and not parted with the money as yet. Meanwhile, the resolution process has seen several hiccups the winning bid. Earlier this month, NCLT passed an order, directing the resolution professional (RP) to convene another meeting of creditors and re-evaluate the three bids that have been received.
 
Claims, Recovery and Bids: It turns out that PCL raised Rs7,035 crore from investors, while the total admitted claims in the bankruptcy proceeding are Rs7,215 crore. Over Rs2,000 crore of claims rejected outright and nearly Rs1,800 crore of claims remain unreconciled suggesting that PCL has raised or borrowed over Rs11,000 crore. Like the Sahara cooperatives, this again demonstrates how easily companies can raise enormous sums of money without any regulatory hurdles or oversight, by luring people with the promise of high returns.
 
Now consider the real value of PCL, as evident from bids by three realty companies: Ashdan Properties, a consortium led by Shanti Hospitality (with Vijay Oswal and Kantadevi Oswal) and Chem Hub Trade Link. Each bid is split into a committed sum and an unconfirmed portion that depends on certain future events or deferred payment promises. Typically, it is the committed payments that matter. In the PCL case, the consortium of Shanti Hospitality has bid nearly Rs1,200 crore, but barely Rs140 crore is committed. In contrast, Ashdan Properties has offered a committed payout of Rs360 crore, although its total bid is for Rs545 crore and six assets, while Chem Hub Trade Links has a Rs707-crore bid of which Rs280 crore is committed. All of them are a single-digit fraction of the money raised by PCL.
 
The disparity between the bids suggests that the amount actually realised could swing at least a couple of hundred crore rupees depending on how the votes are cast in the next few days. Under Section 25A(3A) of the bankruptcy law, the final decision depends on how the majority of creditors of a class who actually cast their vote. The incongruity lies in the fact that there are 5mn retail creditors. But if only 100 actually cast their vote and 60 of them favour a particular bid, the entire class is deemed to have made that decision. This provides plenty of leeway to swing the decision for or against a particular bid.
 
As far as PCL’s investors are concerned, they are guaranteed to lose heavily. There is no indication that leaving SEBI in charge of recovery would fetch much more than the Rs140 crore it has recovered. If anything, it may only drag things for several more years without anyone being paid. The bankruptcy process, may, in fact, fetch a better realisation and some employees would be paid as well.
 
The third such case of large fraud PACL Ltd (a Ponzi scheme called Pearls) which raised a staggering Rs49,000 crore from 55mn investors, thanks to benevolent stay orders from Indian courts (Read: PACL Refund: Over 1.96 Million Investors Paid Rs919.91 Crore, Says SEBI).
 
Here, too, SC finally ordered a refund, supervised by another retired SC judge, which has fared a little better than Sahara or PCL. Nearly 2mn investors with claims of up to Rs17,000 had been paid Rs919 crore by SEBI until May this year; but, again, it is a tiny fraction of the money owed.
 
The lesson is that retail investors have little hope of getting their money, thanks to farcical recovery process: cases move slowly through courts, existing laws can work against investors, or refunds are so cumbersome and slow that only a tiny number of people benefit.
 
 
Comments
sandeshpchavan129
2 months ago
when pancard club will return my money
bennystephan
6 months ago
Law does not give justice in India.
Waste of time and energy.
India is made for and led by corrupt people and system.
If you raise voice against them, then you will be gunned down.
If SEBI, Supreme Court and Government cannot return the money, then who can? What does it tell you? Simple, They are all involved in cheating the people in India.
Sadly, I’m one of the victims.
drksravichandranms
Replied to bennystephan comment 6 months ago
True
r_ashok41
7 months ago
It takes a lot of time for restoring the confidence since it is taking a long time .Maybe it has been done but it needs to be addressed very quickly
spritesh8588993579
7 months ago
I am the investor in
Sahara India real estate corp Ltd
Sahara housing investment corp Ltd

Many times,I write to SEBI, they are not responding.
I have original bonds of it , and everything that they need , every proof ,I have .
But sebi don't want to give money.
drksravichandranms
Replied to spritesh8588993579 comment 6 months ago
Very sad
suketu
7 months ago
Congrats to Moneylife for constantly exposing Sahara largscale big frauds last many yrs on and on and on.
Kamal Garg
7 months ago
This is really pitiable condition of all the investors who first deposited/invested their hard earned money to these scamsters and then even the regulators/government is completely reluctant to resolve the matter and hand over the recoverable money back to the depositors/investors.
I do not know what purpose would be served if the SEBI deposit amount of Sahara is transferred to CIF. Will this be a complete shutdown of the case.
And moreover, is it a way to resolve the investor complaints/grievances.
kesoke9407
7 months ago
Why does SEBI not readvertise for Sahara Real Estate and Housing Finance depositors? Last they did was in 2012-13, many missed that deadline . A dacade has passed since, but no fresh applications. Why is this the case? Please exert journalistic pressure on SEBI to reissue refund applications.
rmganatra
7 months ago
Thanks a zillion for such researched article. This can help the regulators to sharpen their market intelligence. I hope they will take cognizance of this.
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