INDIA. Mumbai: While SEBI has issued penalty notices to directors of the erstwhile Pancard Club Limited (PCL), a timeshare company, in a Rs.7035 crore collective investment fraud, due to the stay granted by the Bombay high court, SEBI has been unable to auction properties of PCL spread across the country.
Up till now, the SEBI has been able to sell only two properties and two cars by way of public auction. SEBI sold two properties- Panvel (Rs 68.09 lakh), Mumbai( Rs 1.34 crore) by auction on June 20, 2018, These properties were purchased by Dilip Dipchand Manwani and Dimple Barola respectively.
Fire at PCL’s hotel
While the issue of refund to investors remains unresolved, a hotel of PCL located at Baner in Pune was gutted in a fire on January 06, 2020. It was stated that the fire broke out due to a short circuit. However further investigation remained inconclusive. Some of the investors have filed a petition in the Bombay High Court alleging that the fire was deliberately set. The petition is yet to come up for hearing.
Notices to Directors
Now the Securities and Exchange Board of India( SEBI) has served notices on March 26, 2021 (proceedings 6460 -2021, recovery certificate No 3253 dated February 08, 2021) on PCL, Prabhadevi, and independent and non-executive directors- Shobha Ratnakar Barde (Borivali), Manish Kalidas Gandhi (Vasai), Chandrakant Ganpatrao Bhise (Sion) and Ramchandran Ramakrishnan (Malad) directing them to pay- Rs. 21,26,25,658/-(Penalty Rs 20 crore, Interest @ 12 percent (July 31, 2020, to February 08, 2021)- Rs.1.26,24,658/- and recovery cost Rs 1000/-), as directed by SEBI’s Adjudicating Officer vide order dated July 31, 2020.
The SEBI has asked all the banks and mutual fund companies in India to attach the accounts of the above four directors, accused of duping 51.55 lakh investors to the tune of Rs.7035 crore. The National Securities Depository Limited, Lower Parel, Mumbai and Central Depository Services (I) Limited, Dalal Street, Mumbai have also been asked to attach the accounts of these directors.
Notices under SEBI Act
Attachment notices have been issued under sections 28(A) 1, 11(2) (ia) of SEBI Act 1952, read with section 226 of the second schedule to the IT Act 1961 and rule 4(2)(t) of the Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)( PFUTP) Regulations, 2003.
PCL started in 1990 mobilized money under its holiday scheme. It offered one and half time returns on money invested for three years, double returns after 6 years, two and half times returns after 9 years, and two and three times returns after 10 years. PCL allegedly duped investors between 2002 and 2014 through its various holiday and collective investment schemes.
The packages offered by PCL included: New Comfort Holiday Membership and New Luxury Holiday for 3 years, Dezire Holiday For 37 months, Relax Holiday for 3.3 years, Golden Holiday Membership and Sunrise Holidays for 5 years, Divine Holiday For 66 months, Luxury Membership and Platinum Holiday Membership for 6 years, Delight Holiday for 6.3 years, New Royal Holiday, Royal Membership, Standard Membership, Supreme Holiday Membership, and Regal Holiday Membership for 9 years, Premium Holiday Membership, Regular Holiday Membership, New Premium Holiday and New Regular Holidays for 10 years. Under All these schemes, the applicants were also offered free insurance benefits from IRDA-approved Insurance companies.
The Analysis of these schemes showed that most of the customers/ investors of PCL preferred surrendering the room nights to PCL and except for one scheme, the percentage of such customers/ investors was over 99%. In one scheme viz. “Pancard Clubs – Golden Holiday Membership For 5 years” till March 31, 2014, 100% of room nights were surrendered by the customers/ investors. Apart from the above options, an option of converting the unutilized room nights to the extent of surrender value into shares, debentures at the discretion of PCL was also given.
Hotels in India and abroad
PCL was a part of “Panoramic Holidays Limited(PHL)” engaged in hospitality, timeshare, travel, and tourism. PHL was set up on December 12, 2006, by the close relatives of late Sudhir Moravekar, the founder of PCL. The last PHL was held on September 27, 2017. The PHL is stated to be having a presence in India, the USA, Thailand, and New Zealand and is having hotel properties at 31 locations across the globe with 22 hotels in India, four hotels in the USA, one hotel in New Zealand, and condominium units in Thailand. It Also has reciprocal club affiliation with several clubs and resorts across India.
Action by SEBI
In 2010, SEBI scrutinized the documents of PCL and objected to its activities saying that its share capital stood at Rs 50 lakh, while it mobilized over Rs. 7000 crore under its holiday schemes. Besides, it invested over Rs 1,000 crore to acquire hotels and resorts, thereby expanding the inventory of properties on offer in the holiday scheme by utilizing the proceeds of its money doubling scheme. SEBI noted that PCL mobilized Rs 7,035 crore from nearly 51,55,516 investors from 2002 to 2014 through its holiday schemes. On July 31, 2014, SEBI asked the company and its directors not to collect any fresh money from investors under its existing schemes and not to launch new schemes or float new companies to raise fresh money.
In November 2015, the Securities Appellate Tribunal (SAT) (established under SEBI Act 1992) asked PCL to immediately repay investors who had filed the intervention applications. On February 29, 2016, SEBI ordered PCL, to provide a full inventory of all the assets and details of properties held by its directors.
However, the company failed to comply with SEBI’s directions to refund money to investors. The PCL functionaries were: CMD late Sudhir Morawekar (expired in (July 22, 2017) and Directors- late Usha Arun Tari(expired on September 11, 2018), Shobha Ratnakar Barde, Manish Kalidas Gandhi, Chandrasen Ganpatrao Bhise, and Ramchandran Ramakrishnan.
After the hearing on March 08, 2017, SAT bench comprising Justice J P Devadhar, Jog Singh, and Dr. CKG Nair, in it’s their order dated May 12, 2017, confirmed that “the corpus of money accumulated by PCL by way of contributions to the holiday scheme was well above the limit of Rs 100 crore set under the proviso of clause 1 of subsection 2 of Section 11AA of the SEBI Act, crossing which, a scheme is deemed to be a Collective Investment Scheme(CIS)”.
The Bench stated, that “the PCL transferred these investments to other schemes but gave a false affidavit that investors have voluntarily switched over to the non-refundable schemes. This was an attempt to deprive the investors of benefits which were originally promised by the company under its earlier schemes.” The bench upheld SEBI’s order that PCL is a CIS and needs to be wound up and directed PCL to refund investors’ money within three months. However, the PCL did not refund the money. Its office located at Kalyandas Udyog Bhawan, Prabhadevi in Central Mumbai, was closed down by SEBI in May 2017.
Economic Offences Wing
Besides SEBI s action, one of the investors- Narendra Vataukar( a resident of Dadar) complained about December 10, 2017, against PCL for cheating him of Rs 40,000. Also, 82 other investors approached the Economic Offences Wing (EOW) of Mumbai Police. The EOW took over the case on December 17, 2017, and registered a case against the PCL under the Indian Penal Code (IPC) and also invoked provisions of the Maharashtra Protection of Interest of Depositors (MPID) Act 1999.
Confiscation of property
Subsequently, SEBI attached 34 properties and froze 250 accounts of the company and its directors. The then Maharashtra Chief Minister Devendra Fadnavis told the Maharashtra Legislative Council on February 28, 2018, that PCL’s property worth Rs 4500 crore (SEBI-Rs 3000 crore, Rs 1500 crore EOW) was confiscated and the action against its directors will be taken soon.
PCL’ properties are spread across India including Maharashtra, Goa, Gujarat, Rajasthan, Madhya Pradesh, Karnataka, Kerala, Tamil Nadu, West Bengal, Haryana, and Uttarakhand.
Investors approach the court
Four organizations of investors- “Action Forum Charitable Trust” (IAFCT)(Mumbai), “Rashtrashakti Investors’ Coordination Committee” (RICC) (Pune), “Ladha”(Amravati), and “Marketing Personnel Welfare Association” (MPWA) (Kolhapur) were formed to resolve the dispute.. Subsequently, “Ladha” and MPWA merged into RICC.
In meanwhile R S Mogaveera and 14 other investors filed a writ petition in the Bombay high court on January 10, 2019, alleging that the SEBI had undervalued PCL’s assets while fixing their reserved price for the auction. In response to the petition, the bench comprising Justices B P Dharmadhikari and Revati Mohite-Dere restrained SEBI from auctioning PCL properties and directed it to file a reply to the petition.
Vishwas Utagi, a member of IAFCT said that although the argument that SEBI undervalued the properties was correct, the decision to approach the court to stop the auction of PCL properties was erroneous. The court’s direction has put a total stop to the sale of properties.
Dnyaneshwar Darvatkar, the founder President of RICC spearheading the cause of the investors had organized agitations in front of residences of MPs and had submitted a memorandum to them. He had also held a meeting with the then Union Finance Minister late Arun Jaitley on December 21, 2017. Two BJP and three Shiv Sena MPs were present in the meeting. In the meeting, Jaitley had reported instructed SEBI Chairman Ajay Tyagi to initiate immediate action to give relief to the duped investors. Darvatkar had also organized a dharna at Mumbai’s Azad Maidan in 2018 and had urged the then chief minister Devendra Fadnavis to resolve the issue immediately. Darvatkar said that some of the hurried actions of the Mumbai group of investors were not correct due to which the sale of PCL’s properties has come to a standstill and no investor has received the refund of money invested till now..