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.
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. 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 cores. The JVG group's turnover increased from Rs 102 cores in 1994-95 to Rs 700 cores 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 cores empire by 2000. He announced that he would invest over Rs 4000 cores 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
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 cores in cash and take on the Rs 130 cores liability to the various FIs. JVG paid off Rs 14 cores to the Mehras in March 1997. According to the schedule worked out by the FIs, JVG agreed to pay the second installment 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.