The Ketan Parekh Scam

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Detailing the Frauds Contd...

RBI's petition also stated that the company had not maintained liquid assets as required by section 45IB of the RBI Act, 1934. RBI further contended that JVG Securities accepted public deposits through JVG Leasing Ltd. and had illegally credited it to the account of JVG Finance Ltd. Thus, JVG Securities facilitated collection of further deposits by JVG Finance Ltd., a company which had already accepted public deposits beyond the permissible limit in spite of the warning from RBI not to accept any further deposits. A total of 31 bank accounts of the JVG group of companies were seized and an amount of Rs 5 lakh lying in these accounts was frozen. Land and property, including 238 acres in Gurgaon, Rewari and Faridabad, in the name of JVG group of companies were attached. Nine company vehicles were taken into police possession and a number of properties located in Bombay and Delhi (held by the company) were identified and the income-tax authorities in Delhi and Bombay were informed. Meanwhile, JVG, fearing a withdrawal rush on its deposits, asked all its depositors to send their certificates to the Delhi office for scrutiny and also issued notices in the dailies assuring investors that all deposits which had matured would be redeemed immediately.

Sharma revealed that all genuine matured amounts had been repaid and only Rs 30 crore was to be paid to depositors of JVG Finance by January 1998 and another Rs 100 crore to JVG Leasing depositors between July 1998 and June 1999. He also admitted that it was impossible for him to repay all his depositors, including those whose deposits had not matured. Sharma's allegation that his agents had issued fake certificates to depositors for more than Rs 100 crore was seen as a ploy to wash his hands off the responsibility to pay them. Analysts remarked that if the certificates were issued by agents who were handpicked by Sharma himself, he could not disown them. There was suspicion as to the dubious nature of the investments Sharma had made with the money, which had not yielded the returns he had expected. As a result, he serviced the interest on the old deposits out of fresh deposits.

After he was barred from raising fresh funds, he tried to get rid of the depositors by dubbing their certificates fake. However, Sharma claimed that his investments fetched him the expected returns. He also refuted allegations that most of his investments were in the JVG Group. He said that he had invested in automobiles, plant and machinery and other equipment through hire purchase and lease schemes, and only a minor amount was in group companies. Sharma commented that the depositors with fake certificates would anyway use their own resources to recover their money. They were sure to apprehend the agents for issuing fake certificates. He said, "We are responsible only for the proper investor who is listed with us."

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2] The other prevailing norms for NBFCs included a minimum capital base of Rs 25 lakh and a capital adequacy ratio of 12%. Besides, there were ceilings on the interest rates offered.