PACL's Rs 50,000 cr ponzi scheme is worse than Sahara's. Why is Sebi going soft on it?

The market regulator the Securities and Exchange Board of India (Sebi) has investigated the Delhi-based PACL on the matter being remanded back to it by the Supreme Courtand has come to the conclusion that it is yet another Ponzi scheme.

It has ordered the company to return Rs 49,100 crore so far collected from 58.5 million investors ostensibly for allotment of land. As many as 46.3 million investors are yet to be allotted any land, and the Sebifound from a sample of 500 that not one of them had ever received any land thus fortifying its view that land was a just a smokescreen for its money laundering activities.

That it has 58.5 million investors, more than twice the number of demat account holders in this country 22 million at last count, shows the PACL scam can put Sahara to pale. PACL indeed has one more feather in its cap – it has worsted Sahara in terms of the deposits mobilised. Sahara had mobilised around Rs 24,000 crore.

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Yet the Sebi seems to have gone soft on PACL. It has not asked the company to hand over the amount to it so that it could in turn return the money to the true owners after verifying their identities through the KYC norms. The Sebi won plaudits for its tough stand against Sahara. It asked the money to be handed over to it so as to make Sahara stew in its own juice, which stand, correct if impish as it was, was heartily endorsed by the Supreme Court.

The Court itself later on arrested Sahara chief Subrata Roy for not appearing before it despite several summons on his inability to return the full money to the Sebi. Both the apex court and the Sebi are working to a plan insofar as Sahara is concerned – call its bluff that it is in the business of accepting deposits.

Both suspect that Sahara is actually a money laundering firm with its depositors hiding behind benamis. It is good that both have seized the initiative in mounting a frontal attack on benami in the absence of a worthwhile initiative in this regard by the government.

The Benami Transaction Prohibition Act, 1988, was a dead letter with successive governments not constituting the authority to confiscate properties held benami in the country for the fear of rocking their own boats. But one hopes the present NDA government, not beholden to any coalition partner, would provide a legal framework so that the Supreme Court and the Sebi do not have to resort to unconventional ways though admittedly effective.

The Sebi could have asked PACL to handover Rs 49,100 crore to it. It is not enough to ask it to pay back the amount itself and give a statement of money trail through which the amounts were returned. It was precisely this leeway that the wily Subrata Roy of Sahara wanted. The Sebi denied him this leeway suspecting that he would take a mile if given an inch, and hence insisted on finding the true depositors itself.

One wonders why the Sebi has not done an encore of it with PACL. The Sebi officials could not trace a single depositor of Sahara through the KYC norms, lending credence to the view that most of them were benamis or name lenders. PACL’s goose too would have been similarly cooked had the Sebi taken the same tough stand. It was just not enough to ask it to kindly refund the deposits and bar it from raising further funds from the market in any form whatsoever. Crooks should not be given any wiggle room.

For elimination of black money’s insidious role, payments must be made by governmental authorities which was why the preemptive purchases scheme under the income tax law was hailed in knowledgeable quarters. The beauty of the scheme lay in the income tax department buying a property suspected to be substantially bankrolled by black money. The result was denial of the black component to the seller or loss to the buyer if he had already parted with it. The Sebi’s role in Sahara is of a piece with the preemptive purchase scheme which unfortunately was scrapped in 2002 unceremoniously.