How Punjab-based milkman pulled a Rs 50,000 crore scam; duped more than 5 crore people across India

PACL Scam: Scams are unfortunately common, often involving the stock market or various investment schemes. What makes these scams so effective is that they constantly evolve, appearing genuine and enticing. One of the largest scams in India was orchestrated by Nirmal Singh Bhangoo, the founder of Pearls Group, who deceived 5.5 crore people out of more than Rs 50,000 crores. This massive fraud involved 70 lakh agents across the country. Bhangoo, who was recently hospitalized due to deteriorating health, passed away on August 26, 2024, at Deen Dayal Upadhyay Hospital in West Delhi. Here’s how a milkman pulled off one of India’s biggest financial scams.

The PACL Scam

The PACL (Pearl Agrotech Corporation Limited) scam was executed by Nirmal Singh Bhangoo, a former milkman. This pyramid scheme promised investors substantial returns by allegedly using their money to purchase land. The company claimed that the land would be developed for agricultural and commercial purposes and sold at a significant profit, from which investors would receive high returns. However, instead of land ownership documents, investors received nothing more than receipts, which held no real value.

Who Was Nirmal Singh Bhangoo?

Nirmal Singh Bhangu was a resident of Barnala, Punjab. In his youth, he sold milk with his brother while pursuing a postgraduate degree in political science. During the 1970s, he moved to Kolkata for work and joined Pearls, a well-known investment firm. Later, he worked for Golden Forest India Limited, a company that also defrauded investors. After it shut down, Bhangoo was left unemployed, setting the stage for his future fraudulent ventures.

The Ponzi Scheme

As a classic Ponzi scheme, the PACL scam initially paid returns to earlier investors using the funds of new investors. The promise of high returns attracted more people, and the company began operating as a pyramid scheme, encouraging everyone to recruit two others. Agents received significant commissions, leading them to bring in friends and family. The company organized numerous seminars to promote itself and lure more investors.

Misleading Investors

The company falsely claimed to have been operational since 1983 when, in fact, it started in 1996. Another Pearls Group company, PGF, was established in 1983. To gain investor trust, PACL assured that if the company ever shut down, the Ministry of Corporate Affairs would intervene. However, this was misleading, as the receipts issued held no real value.

Legal Battles and SEBI's Involvement

In 1998-99, SEBI received multiple complaints about such schemes and introduced the Collective Investment Scheme (CIS) Regulation. SEBI found that PACL and PGF were not complying with these regulations and ordered both companies to shut down and refund investors. However, the companies challenged SEBI in court, with PGF going to the Punjab High Court and PACL to the Rajasthan High Court. In 2003, the Rajasthan High Court allowed PACL to continue, ruling that it was not a CIS scheme.

Supreme Court Ruling and Investigation

SEBI eventually took the matter to the Supreme Court, which ruled on February 25, 2013, that PACL was indeed a CIS and ordered SEBI to take action. Meanwhile, the company continued its operations, even launching a news channel and sponsoring an IPL team, further building trust among the public. By the time SEBI intervened, 5.5 crore people had been scammed, particularly in Punjab, Rajasthan, Haryana, and Delhi.

SEBI Orders Refunds

On August 22, 2014, SEBI ordered PACL to refund investors, but the company failed to comply. The Enforcement Directorate (ED) stepped in, seizing assets and interrogating Bhangoo. Property worth Rs 500 crores was discovered in Australia alone. In 2016, the CBI arrested Bhangoo and found 1,300 suspicious bank accounts. Assets worth Rs 280 crores were seized, along with documents valued at Rs 20,000 crores.

Even after SEBI initiated the refund process, investors were further duped by fraudsters claiming they needed to pay a 10 per cent charge to receive their refunds. SEBI eventually set up a dedicated website, sebipaclrefund.co.in, to facilitate refunds. So far, only those who invested up to Rs 17,000 have received their money back.