se
"My only mistake was that I shot my mouth off without really doing anything. Naturally, the media made me out to be a joker."

- Vijay Kumar Sharma, Chairman, JVG Group, in 1998.

The Doomed Depositors

In October 1997, the Reserve Bank of India (RBI) banned all non-banking financial companies (NBFCs) of the JVG Group of companies - JVG Finance, JVG Leasing and JVG Securities - from accepting deposits from the public. This was after an investigation revealed that these companies had been accepting deposits in excess of their stipulated limits. Soon after, JVG downed the shutters of several of its offices in small towns of Maharashtra, Uttar Pradesh and Bihar, claiming it had detected huge irregularities in the operations. The closing of the offices created a panic among the depositors and strong voices were raised against the group in the media.
In November 1997, JVG hurriedly rented an office in Gurgaon (Haryana) to accommodate irate investors. Hundreds of investors and agents camped on the grounds of the office. The agents (or the field-workers), who raised deposits from investors on behalf of JVG, were extremely worried. They said they could not go back to their local offices without collecting the dues fearing the wrath of the investors. More and more depositors and field workers teemed over the next few days with hopes of getting their money back.
The situation seemed rather bleak with rumors of the JVG group being in deep financial crisis. At this point, JVG Chairman V.K.Sharma (Sharma) dropped another bombshell on the investors. He claimed that a majority of the certificates were fake and hence they would not be paid back. For many depositors who had invested as little as Rs 500 and who could not even dream of taking the dispute to court, it meant kissing their investments goodbye. Analysts remarked that the investors and agents had themselves to blame for the loss - because the activities of the JVG Group had always been looked at with suspicion by the industry.

JVG Group - The Background

From being a small-time contractor earning less than Rs 2500 a month, Sharma went on to run a group, which on paper had an annual turnover of Rs 1000 crore, in just seven years. Known for his lavish lifestyle - his farmhouse in Delhi, his fleet of expensive cars and the helicopter he had taken on lease to tap deposits from small towns in north India were talked about quite often. A graduate from Kurukshetra University, Sharma began his career as a materials supplier to Swadeshi Polytex in 1979. Between 1985 and 1989, Sharma supplied construction materials and equipment to contractors. In September 1989, Sharma launched his first company JVG Finance.

JVG Group - The Background Contd...

Over the next few years, the company brought over 3000 small firms under its control. Sharma also launched JVG Steels, JVG Departmental Stores, JVG Foods, JVG Petrochemicals and many other companies. In 1992, Sharma acquired San Tosha Resorts and India Cero Oil, an oil extraction unit from the Dalmias in 1993.

However, most part of the JVG empire was created largely from public fixed deposits. In the early 1990s, Sharma opened branches of his finance companies in various towns and villages. He followed it up with heavy advertising on the interest rates, which were as high as 30%. Investors flocked to buy the company's schemes and the deposit base soon crossed Rs 1000 crore. The JVG group's turnover increased from Rs 102 crore in 1994-95 to Rs 700 crore in 1995-96. Sharma was a man with strong political connections - he was close to politicians from Bihar and was involved with the Dalit Sena headed by the then railway minister Ram Vilas Paswan. It was reportedly through these connections that he was able to make JVG Department Stores one of the largest suppliers of commodities to the Government of India.

Sharma had grand plans for making JVG a Rs 12000 crore empire by 2000. He announced that he would invest over Rs 4000 crore in diverse areas such as power, cement, hotels, steel, textiles and aviation. JVG went ahead with its plans although it came in for a lot of flak in the media. Soon, JVG launched the ‘Avatar' brand of detergent and washing bars in an attempt to enter the FMCG segment. Sharma wanted to set up mega townships in Gurgaon, Patna, Mumbai and Hyderabad, and to acquire the hotel and cement interests of the Delhi-based Jaiprakash Industries, the steel units of Rathi Alloys and the aircraft of ModiLuft.1
JVG had acquired Orkay's polyester yarn plant and a part of its office space in Mumbai in March 1997 through a tripartite agreement with financial institutions led by IDBI and the Mehras who controlled Orkay. As per the agreement, JVG agreed to pay the Mehras Rs 98 crore in cash and take on the Rs 130 crore liability to the various FIs. JVG paid off Rs 14 crore to the Mehras in March 1997. According to the schedule worked out by the FIs, JVG agreed to pay the second instalment in the first week of September 1997. Although JVG could not meet the deadline, it was allowed to run the plant on job-work basis from September 1997. The understanding was that JVG would pay up by the end of September. However, JVG failed to meet the end-September deadline as well and Orkay sought the intervention of IDBI to take possession of the plant. Production at the plant was suspended in October 1997. Following this, the agreement between the Mehras, JVG and the FIs became null and void.

Detailing the Frauds

JVG’s troubles started in June 1997, after the Securities and Exchange Board of India (SEBI) asked JVG Finance to refund the Rs 45 crore it had raised from a public issue in March 1997. A day after the issue had opened, RBI issued a show-cause notice asking why JVG Finance should not be barred from accepting deposits as the group companies had already exceeded their deposit limits. By the time RBI conditionally cleared the issue after assurances from Sharma, the 70-day stipulated period for listing the shares had passed.
Because of the time-lapse, SEBI intervened and ordered the refund of the public’s money according to the allotment rules. Sharma refused to refund the money to the investors and appealed against the order to the Finance ministry. He admitted that JVG had exceeded its limits while accepting deposits but claimed that since December 1996 (much before the RBI ban) it had stopped accepting deposits on its own and had even given RBI an undertaking. RBI did not accept the argument and barred the group from accepting any more public deposits.
In September 1997, post-dated cheques issued for principal as well as interest on JVG’s deposits bounced. Investors then complained to the civil courts, consumer courts, Company Law Board and criminal courts under the Negotiable Instruments Act upon which legal proceedings were initiated against the group. The government received a large number of complaints on non-repayment of deposits on maturity by the JVG group. On a complaint filed by the RBI, the Delhi High Court ordered the winding up of the company. The court also appointed an official liquidator and said that the RBI did not consider the revival scheme filed by the company viable. The RBI also filed criminal prosecution petitions in the Metropolitan Magistrates’ Courts in New Delhi.
RBI alleged that the company had accepted deposits worth Rs 88.82 crore which was 756.68% of its net owned fund. This was much higher than the permissible limit of 25%2. Similarly, JVG Leasing had received deposits worth Rs 19.28 crore which was 147.58% of its net owned fund. The RBI complaint also said that the deposit forms issued by the JVG Group did not contain any information regarding premature withdrawals, which was necessary as per RBI provisions. The companies had not provided any information about the rate of interest to the investors on the receipts issued to them. Further, the companies failed to submit their audited balance sheets for the period ending March 31, 1994 and 1995 15 days after their annual general meeting (AGM) and did not inform the RBI about the changes in the composition of the board of directors.
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."

Deflated Dreams

Sharma was well-known in the industry circles for shooting his mouth off. His grand comments and claims were frequently splashed in business dailies and magazines. In fact, Sharma claimed that it was only the attention he drew to himself by making grandiose announcements that led to his downfall.
In May 1998, The Economic Offence Wing of Chandigarh police lodged an FIR against Sharma under Section 420 of the Indian Penal Code. However, Sharma failed to appear in the court despite repeated warrants. He then moved the Mumbai High Court for transferring of all criminal cases registered in various states against the JVG group to the Central Bureau of Investigation (CBI) for further investigation. In June, the court transferred only the cases registered in Maharashtra to the CBI. The next day, Sharma moved an application for anticipatory bail in the high court, upon which he was granted interim bail till July 6. The Mumbai High Court granted four weeks bail to Sharma and directed him to appear in the appropriate court in Delhi. Sharma did not appear before any court in Delhi and went underground.
Following this, a team of officers from the Economic Offences Wing of the crime branch was sent to Mumbai in November. The team arrested Sharma at a flat in Bandra, a suburb in northwest Mumbai. In June 1999, after 16 months in jail, Sharma was granted bail on a personal bond of Rs 1 lakh and a surety of a similar amount and was directed not to leave the country without the court's permission and not to tamper with evidence. Sharma had sought bail on health grounds claiming that he was suffering from hypertension, angina and chest pain. The JVG companies were delisted and barred permanently from indulging in NBFC activities in the future. However, JVG's demise and Sharma's stint in jail would perhaps never replace the dreams and hopes of the investors whose hard-earned money had vanished forever.