Supreme Court Directs SEBI Recovery Officers To Decide 106 PACL Property Attachment Objections

The Supreme Court  has recently directed that 106 applications challenging the attachment of properties linked to PACL Ltd. be examined by Recovery Officers under Section 28A of the SEBI Act.

A bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar was dealing with a batch of interlocutory applications filed by individuals and companies against the recommendations of Justice Retd. R.S. Virk, who had recommended dismissal of their objections.

Justice Virk had been appointed to examine objections concerning properties identified as belonging to PACL.

After examining some of the matters, the court said, “We are of the view that the applications require a detailed scrutiny of documentary material to determine the true nature and ownership of the properties in question.”

It held that this enquiry “can legitimately be conducted by adopting the mechanism provided under Section 28A of the SEBI Act, 1992,” which incorporates the procedure for recovery under Section 220 and the Second Schedule to the Income Tax Act, including the powers of a Recovery Officer.

The proceedings arise from SEBI's action against PACL Ltd. SEBI had held that the company's schemes constituted Collective Investment Schemes. By order dated August 22, 2014, SEBI directed PACL, its directors, and promoters to wind up the existing schemes and refund monies collected from investors. The Securities Appellate Tribunal dismissed the appeals and confirmed SEBI's order.

In February 2016, the Supreme Court appointed a committee headed by Justice Retd. R.M. Lodha for disposing of land purchased by PACL so that the sale proceeds could be paid to investors. Later, on November 15, 2017, the court directed that grievances and objections pertaining to PACL properties be taken up by Justice Retd. R.S. Virk. A public notice subsequently clarified that the orders passed by Justice Virk were only recommendations and required affirmation by the Supreme Court.

On August 8, 2024, the court directed that no fresh applications be filed before Justice Virk and that such applications be filed before the Committee, which was to deal with them as per the provisions of Section 28A of the SEBI Act. Acting on suggestions of the amicus curiae, the pending applications were later categorized into five groups for convenience.

The present batch falls under Category B. These are cases in which Justice Virk had recommended dismissal of the objections raised by the applicants.

The court directed that all Category B applications be placed before the Recovery Officers appointed under Section 28A. “We are informed that the Recovery Officers have already been appointed and are empowered for the purposes of Section 28A of the SEBI Act,” the Bench noted.

It added that the Recovery Officers “will be entitled to seek necessary assistance from SEBI and other authorities in examining the applications.”

The remit of the recovery officers has been confined to determining whether the properties were in fact purchased by PACL or are relatable to its associate entities, subsidiaries, or sister concerns, and whether the applicants establish, on the basis of documentary materials and evidence, that the properties are held by them in their independent capacity.

“The adjudication shall be confined to documentary evidence. No oral evidence shall be permitted,” the court directed.

The Bench clarified that the recommendations of Justice Virk “shall not be determinative of the issues but may be taken into consideration as one of the factors while adjudicating the claims.”

It further observed that “a party will not be denied a claim over a property solely for the reason that at one point and time the property was owned by PACL or its associated entities,” if it is otherwise clear that the party is a bona fide purchaser for value having actually paid the amounts through banking channels.

The Recovery Officers have been directed to dispose of all Category B applications by May 31, 2026.

The court also ordered that “status quo shall be maintained in respect of the properties until the Recovery Officers pass orders and for a further period of 15 days thereafter, enabling the filing of appeal.”

In the event no appeal is preferred within 15 days, the Recovery Officers shall be at liberty to proceed with sale or auction of the property in accordance with law.

For Appellant: Advocate Ayush Sharma

For Respondents: Advocates Rachana Joshi Issar, Kamakshi S Mehlwal, KJ John and Co, Hetu Arora Sethi, Shalu Sharma, Somiran Sharma, Ritesh Agarwal, Aditya Singh, Mukesh Kumar Maroria, Vinod Sharma, Aviral Kashyap, Farhat Jahan Rehmani and Raj Bahadur Yadav