The Making Of A Pearly Jam

Bhangoo’s Long Run

• Why did the case linger in the SC unchallenged for 10 years till 2013?

• Why didn’t SEBI nudge the Supreme Court to take action?

• Why didn’t any state police act against the company even though 200 FIRs are pending across the country?

• Why didn’t the I-T department red-flag investments running into crores when there was no revenue model?

• Does the focus on the scam have anything to do with the forhcoming elections in Punjab?

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It’s fitting perhaps that the Intellige­nce Bureau and the prime minister’s office (PMO) turned their attention to the country’s biggest money circulation scheme—a classic ‘pyramid’ or ‘ponzi’ scam—when unkn­own entities started purchasing huge tracts of barren desert land along the international border in Barmer. For, all along, this scam of mammoth proportions wrought by the Pearl Agrotech Corp Ltd—founded by Nirmal Singh Bhangoo, a milk-seller from Attari, the group has grown to Rs 49,100 crore in 20 years, promising investors hefty returns in land it never owned—hadn’t received much media attention.

This despite the existence of at least 4.63 crore investors yet to get any land, as per PACL’s own admission in 2013. Only 19,284 of the total 5.85 crore customers have obtained verified sale deeds—but no land. The agents who lured them were usually neighbours, and the commissions they were paid were a whopping 40 per cent on each deposit. Of PACL’s 23 lakh enrolled commission agents, 1,700 earn mon­thly commissions ranging of Rs 5-7 lakh.

In short, the poor investors in Pearl fell for the oldest trick in the book: promised fantastic returns, they inv­ested in land the group did not own. It was a classic ponzi scheme, and thanks to word of mouth, more and more gullible investors were lured (see graphic). “We have no idea how many investors are yet to be refunded or how much is the amount. The Pearl group will not share details with us,” says lawyer Suruchi Agarwal, who is working for investors with a court-monitored committee.

The News Link Rajnath Singh and Kalraj Mishra at a P7 TV event

“It wasn’t easy,” recalls Akash Tripathi, the district magistrate of Gwalior, who had found in 2010 that hundreds of companies from the Pearl group were investing in land in the strangest of places, from the ravines of the Chambal to border areas in Rajasthan. He’d found himself unable to monitor the activities of small investors at the local level owing to the absence of a law. When he first started acting on complaints, he was forced to seal the offices of companies like Pearl by imposing Sec 144 of CrPC, normally used to quell rioting mobs. “I discovered there’s a parallel economy. Within three months of my first taking action in 2010-11, the number of complaints swelled to 18,000, the complainants mainly the poorest of the poor, daily-wagers and jhuggi-dwellers,” he says, saying there was no political pressure on him to act otherwise.

On February 2, the Supreme Court forced PACL to down its shutters after a 10-year battle in various courts. It appointed the Justice Lodha committee to figure out how 5.85 crore investors can be paid back. Bhangoo is in CBI custody and will face trial. It seems to have ended a sordid saga of patronage by those in power, who looked the other way as Pearl gorged on the dreams of the poor. Says SEBI counsel Arvind Datar, “It is a welcome order, as it puts an end to all the controversy and will expedite the refund process.”

The bigger questions are: how was such a huge scam pulled off for over 20 years? Who were the politicians (at the Centre and the states) who helped lub­ricate the group, which has presence in largely three states—Rajasthan, Madhya Pradesh and Tamil Nadu? Why did the courts tarry for a decade, allowing Pearl to register maximum growth despite the warning signs? What will the political fallout of the probe and SC action be, given the whispers that this is being done with an eye to the 2017 Punjab elections?

Besides his glitzy pamphlets boasting of real estate business in Australia, Madagascar and Dubai, Bhangoo was known for his Rs 35-crore sponsorship of a World Kabaddi Tournament patronised by Punjab deputy CM Sukhbir Badal. It’s now part of the CBI probe. He’s been seen in the company of Union home minister Rajnath Singh and MSME minister Kalraj Mishra. Like Sahara chief Subroto Roy (in jail for two years now), Bhangoo, who is close to Roy, sought the approval that investment in sports and the media brings. Australian cricketer Brett Lee was a brand ambassador and Sushmita Sen graced the launch of Bhangoo’s P7 TV channel. CBI sources say the kabaddi tour­ney is the only major case they are investigating, but PACL was also the lead sponsor of the Kings XI Punjab IPL team. Bhangoo is friendly with Raj Kundra, Shilpa Shetty, as well as Akshay Kumar, who is brand ambassador for Pearl-sponsored badminton matches. The group also owns the Gian Sagar Medical College, accused of paying a bribe to ex-MCI chief Ketan Desai. Later, CBI found no evidence to support its allegation and filed a closure report.

Fighting It Out Investors in Pearl at the Supreme Court, Delhi. (Photograph by Tribhuvan Tiwari)

The Aussies were also taken, it seems. He started buying and developing properties across Australia, beginning with the Sher­aton Mirage Hotel on the Gold Coast in 2009, paying $62 million. The glitzy brochures of Pearl Australasia make tall claims: plans for 1,000 apartments each in Queensland  and Victoria. As per CBI, for these properties, the company diverted 133 million Australian dollars. In 2011, New South Wales premier Barry O’Farrel felicitated the Bhangoo family at a gala awards night. Bhangoo had applied for immigration to Australia in 2012, and much of his family lives across Australia. There were other investments across continents.

How did Bhangoo pull all this off for so long? The irony is that the auth­orities were aware of what was happening. PACL first came into the crosshairs of the law in 1998, when it was one of 478 companies Delhi High Court banned. It went on to challenge the ban, but there began a series of cases to decide if PACL was a ponzi scheme or not. The Rajasthan High Court thought it wasn’t, the Punjab and Haryana High Court thought it was, the Madhya Pradesh High Court was “shocked and astonished” enough to order a CBI probe and the Delhi High Court left it to the SEBI to decide.

When SEBI decided against the company, it was challenged in the Supreme Court way back in 2003. And it is there this case lay for a full 10 years, till a chance hearing of a related Pearl group company case brought the focus back. The SC passed a stinging order and set the ball rolling. But why didn’t anybody, especially SEBI, nudge the SC? This speaks of shocking institutional failure. Pearl made its millions mainly in the intervening 10 years—an unbridled run from 2003 to 2013, building an investor base, shell companies and big money. In 1999, by the company’s own admission, it had 1,941 customers; now it has 5.85 crore.

Experts wonder how different courts could interpret a company’s affairs in such diametrically different ways. The Delhi High Court is a case in point. Eighteen years ago, in response to a PIL, the court restrained PACL and 478 other companies from floating ponzi schemes. PACL challenged this and the court asked SEBI to conduct an audit. SEBI’s conclusion was the company was running a ponzi scheme; it wasn’t a real estate company.

In response, the court appointed Justice K. Swamidurai to verify the genuineness of the agreements the company was entering into with customers. The judge concluded the sale deeds were genuine. The court then said the company could sell land to customers provided all future sale deeds were verified by Justice Swamidurai. This was an order in which SEBI was not a party to the case. When SEBI intervened, pointing out that PACL was actually running a ponzi scheme, the court said, “Neither has this court held PACL to be a collective investment scheme and nor has it held that it is not a CIS company. This would be for SEBI to decide...”

But the court did not stop the judge from verifying sale deeds. Beginning 2002 to 2013, the judge verified over 19,000 sale deeds, 70 per cent of them in 2002, when PACL had a point to prove that its land dealings were genuine. But by April 2013, when the SEBI limelight had shifted and PACL was doing roaring business safely in the shadow of a court-approved committee, the number of deeds verified dropped from 14,150 in 2002 to 16 in 2013. SEBI, in a stinging order in 2014, analysed the sale deeds executed by PACL: “During 2010-11, 99.90 per cent of the customers were allotted land in three states only—namely Rajasthan, Tamil Nadu and Madhya Pradesh. It is a sheer coincidence that the 19,284 sale deeds that were verified by Justice K. Swamidurai were for the lands in these three states only.”

It’s a different matter that while Justice Swamidurai found the sale deeds bet­ween PACL and its customers genuine, in none of the sale deeds executed did the land belong to the company. At least this is what SEBI discovered when it did an analysis of 500 samples. Cutting to the crux, Prashant Saran, a wholetime member of SEBI, says, “The real estate theory put forth by PACL fizzles out. Thus it turns out that the schemes/plans of PACL are nothing but a money mobilisation scheme.” Of course, when the SC analysed some of the sale deeds, it arrived at the conclusion that “the genuineness of the document was doubtful”.

The company, of course, never had any land. Details of the CBI’s probe in the PGF case (Pearl Golden Forest is one of the group’s schemes) accessed by Outlook found the company allotting land in a Meerut graveyard and in forest land. By the time the apex court acted, over 200 FIRs had been filed by police in various states and investigative agencies were looking for the land. The question remains: if a DM like Tripathi was acting on investor complaints, why didn’t DMs from neighbouring areas who were receiving similar complaints act on them?

The answer lies perhaps in the profile of the investors: poor, illiterate, without legal representation. That’s why the Pearl group managed to stay afloat for 20 years. It is a telling comment that when the SC was passing strictures against PACL and ordering the Lodha committee to probe it, not a single investor was made party to the case. And each time the matter came up before any relevant authority, PACL fielded the best lawyers, Kapil Sibal and Abhishek Manu Singhvi included.

There is suspicion that the company may have deviously put up some “customers’ associations” that stood up to be heard at the SEBI’s appellate tribunal (SAT). Sunanda Kadam of the Maharashtra-based Jan Lok Prathisthan says it represents some 45,000 customers, and she herself has inv­ested Rs 1.38 lakh in PACL. She says she is fighting for friends and neighbours who put their trust in her, “but the company has put up several investor forums that are fake. We just want our money back, but these forums say they want the land.”

Will investors ever get their money back? It’s a million dollar question, but the Pearl story is yet unfolding. In 2010, a small-time investor started a company from a rundown quarter of Gwalior. Kaila Mata Ki Jai or KMJ was registered as a real estate company but its actual business was chit funds. The owner,  Santoshi Lal Rathore, managed to convince neighbours and friends, mainly jhuggi-dwellers and daily-wagers, to invest. In three years, the firm grew into a Rs 1,000-crore multi-state business with corporate offices at plush Tolstoy Marg, Delhi. Like Bhangoo’s P7, Rathore has a 24-hour KMJ news channel. Surprised? Rathore learnt the ropes at Pearl. He’s an ex-employee.

The shocking thing is that the system all­owed Pearl’s scheme to flourish. That’s why more questions must be asked.

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The Rise And Fall Of Nirmal Singh Bhangoo

The Rs 49,100 crore Pearl Group scam remained below the radar despite millions of investors and shadowy political backing

• The Man
  A milk-seller in Attari in Punjab 35 years ago, Bhangoo became an insurance agent for Peerless. After that, he branched out on his own and launched the Pearl Group.

• The Group
  The Delhi-based Pearl Agrotech Corporation Limited (PACL), and Pearl Golden Forests (PGF), which is in Chandigarh

• The Scam
  Poor investors were conned into pursuing their dream of a piece of land with impossible-to-resist interest rates ranging from 12.5% to 40%

• The Accomplices
  Various members of his family played a pivotal role. Directors of PACL and PGF are behind bars now. Bhangoo himself is in CBI custody.

• The Ponzi Technique
  Classic pyramid—investments by one set of investors were returned with profits earned from funds of a second set of investors they had wooed

• The Probe
  A PIL filed in the Delhi High Court in the mid-1990s was the trigger that une¬ar¬thed the scam in Pearl and 478 other companies of like nature

• The Empire
  Spans real estate, sports, entertainment, insurance, media, in Africa, West Asia, Australia

• The Endorsements
  From film stars like Sanjay Dutt and Sushmita Sen. Bhangoo was involved in the IPL and was close to Shilpa Shetty’s husband, Raj Kundra; got endorsements from cricketers like Harbajan Singh

• The Legal Status
  SC-monitored probe looking at how money should be ret¬urned. CBI to hand over sale deeds to a SEBI panel.

• The Problem
  Dodgy records of how many investors there are, how much money is owed. Maze of companies; allotment letters for land that doesn’t exist.