The chit funds assets to the tune of ₹1,035 crore have been attached — ₹793 crore on 29 May and ₹242 crore on 15 June.
CID chief said Margadarshi accepted deposits illegally in violation of the Chit Fund Act, 1982, to derive undue benefits from subscriptions of the common people.. (Creative Commons)
The Andhra Pradesh State Crime Investigation Department (CID) probing the alleged irregularities in the accounts of the Margadarsi Chit Fund Pvt Ltd (MCFPL) has said the firm’s misuse of depositors’ money warranted a deeper probe.
Additional Director General of Police (CID) N Sanjay said though the MCFPL was not cooperating with the investigators, the agency would get to the bottom of the alleged financial impropriety.
The CID reportedly found illegal activities such as money laundering, siphoning off funds, corporate frauds, helping ghost subscribers to indulge in benami transactions, and evading income tax.
“As these violations pertain to the domain of central enforcement agencies, we have met agencies concerned in Delhi and Hyderabad and requested them to take timely action against the company,” Sanjay said in a statement on Tuesday, 20 June.
He said that MCFPL accepted deposits illegally in violation of the Chit Fund Act, 1982, to derive undue benefits from subscriptions of the common people.
“Diversion of funds to its associate companies and other unknown investments clandestinely, laundering money by accepting cash subscriptions in high amounts in violation of various prevailing laws…,” Sanjay detailed the company’s modus operandi.
He also said that Margadarsi forced subscribers to park their money with the company, offering interest, which was illegal.
Inflating cash balances, failing to file mandatory balance sheets as per the Chit Fund Act at the branch level, or with the Registrar of Chits at the state level, and not submitting necessary documents to regulators were some other violations, the officer said.
Elaborating on the legal action initiated so far, the CID chief said that all the accused, including media baron and chairman Ch Ramoji Rao, managing director Sailaja Kiran, and auditor K Shravan, were named in seven FIRs filed under various sections.
However, he said that the accused were providing evasive answers and avoiding producing required information and documents either to the chit registrar or the CID.
Sanjay said that the chit fund company’s assets to the tune of ₹1,035 crore have been attached — ₹793 crore on 29 May, and ₹242 crore on 15 June.
The company has been operating 37 branches in Andhra Pradesh and has a total of 108 branches, including in Telangana, Karnataka, and Tamil Nadu, he said.
Sanjay said MCFPL had a total subscriber base of 1.04 lakh and 2,351 chit groups with a turnover of ₹9,677 crore in the twin Telugu states during the 2021-22 financial year.
The statement also said that in violation of the Chit Fund Act, the company diverted the subscribers’ money to high-risk stock market speculation such as mutual funds.
Sanjay said the probe so far exposed fudging of books and accounts by ‘window dressing the balance sheet and by not submitting the required Information. Instead of cooperating with the investigators, the accused were indulging in defaming and blaming the CID.
The violations and fraudulent methods adopted by MCFPL bear similarities with Satyam Computers, Sahara, and Saradha chits fraud, necessitating a deeper probe into its account books, Sanjay said.
The Satyam Computer Services scandal pertained to the founder and directors of the IT company falsifying the accounts, inflating the share price, and stealing large sums from the firm.
The Sahara case is about the the issuance of Optionally Fully Convertible Debentures (OFCD) issued by the two companies of Sahara India Pariwar to which the Securities and Exchange Board of India (SEBI) claimed to be in its jurisdiction. The SEBI questioned Sahara for not seeking its permission.
Sahara claimed that the bonds were hybrid products, and hence do not come under the jurisdiction of SEBI. The company said it had permission from the Registrar of Companies (ROC).
Sahara said that it had already repaid 93 percent of the investors and discharged its OFCD liability to the tune of ₹23,500 crore and only around ₹2,260.69 crore were pending. It said it had already deposited more than ₹12,000 crore which has, with interest, swelled to ₹16,000 crore.
The Saradha Group (a consortium of over 200 private companies) financial scandal became a political hot potato after the firm’s Ponzi scheme collapsed in April 2013.
The group had collected around ₹200 to 300 billion from over 1.7 million depositors before it collapsed.
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