AP Stamps and Registrations department to issue show-cause notice to Margadarsi Chits for violating norms

Ramakrishna added that the show-cause notice was being issued to intimate the firm to maintain due before issuing approval for commencing any new chit.

Stating that MCPL staff did not cooperate during the inspections Ramakrishna said a forensic audit would be conducted into its accounts after issuing the show-cause notice.

Eenadu Group and its founder Ramoji Rao had often come under criticism by YSRCP supremo YS Jagan Mohan Reddy.

The chief minister often alleged that a gang of four (Dushta Chathusthayam), including Ramoji Rao, was trying to destabilise his government to aid the opposition N Chandrababu Naidu-led TDP to return to power.

Ramakrishna also accused MCPL of accepting deposits under the guise of future subscriptions with interest payable, in violation of Section 12 of the AP Chit Fund Act, 1982.

MCPL holds shares in other firms

The search teams also observed that MCPL has been holding shares in other companies, which were tantamount to investing funds in other non-chit fund businesses. It was in violation of Section 12 of the Chit Fund Act.

AP Stamps & Registrations IG V Ramakrishna (Supplied)

“It is observed that MCFPL never filed the balance sheet and profit and loss accounts after the reorganisation of the combined state,” Ramakrishna told reporters on Monday, 28 November.

“It is observed that Margadarsi Chit Fund Private Limited has been investing in non-chit fund businesses like movies, TV as some investee companies appear on their balance sheets submitted to the Registrar of Companies under the Companies Act,” he added.

The submitted balance sheets revealed that MCPL has equity holdings in Ushakiron Movies Limited, Dolphin Hotels Limited, Colorama Printers Private Limited, Margadarsi Investment and Leasing Co, and Ushodaya Enterprises Private Limited.

“On November 15, 18 Units of M/s. Margadarsi Chit Fund Private Limited were inspected/searched.  During the search, the non-cooperation of the foreman and their staff was noticed. Large-scale violations and irregularities were unearthed,” the IG said.

“It is noticed that the representative foreman doesn’t have any control of the chit accounts and he is not having any knowledge of the bank accounts and affairs of the chits business. For every query, they are answering that they don’t have the information and all the information including the bank accounts are with the head office which is not in the state of Andhra Pradesh [sic[,” he added.

The MCPL was also directed to “park all the funds held by foreman/MCPL in the name of security offered by the prized subscribers towards future subscriptions in a separate account opened at each branch under the control of the chit registrar. Furnish security for the future subscriptions in respect of the chit amount claimed by the foreman as a subscriber and submit the balance sheet for the State of Andhra Pradesh as per the Chit Fund Act, 1982, as detailed in Section 24,” the IG said.

Govt teams intimidated staff: MCPL

Days after the inspections, the MCPL management accused the stamps and registrations department officials of abusing their power.

In a statement, it said that the department officials failed to find any evidence of wrongdoing during the searches but created false and fictitious documents of alleged violations and intimidated and forced its staff to sign them.

The department denied the charge. “This is an unfortunate and baseless allegation. The material examined during the recent inspections points to halting lapses in the way Margadarsi Chit Funds is carrying out its operations. Through a show-cause notice, Margadarsi Chit Funds is being offered a reasonable opportunity to produce their records,” Ramakrishna said.

Risky diversion of funds 

The registrar of chits further said that chit-fund companies that had other business interests diverted chit funds as advances to allied firms or financial activities.

“Many of those advances often become irrecoverable which in turn affected the liquidity of the chit-fund companies and as a result, the chit-fund companies fail to pay the dues to the subscribers. Some of the companies have been utilising the funds in the businesses for venturing into fields with a high degree of risk,” he pointed out.

“Some of those ventures had flopped and the chit-fund companies consequently defaulted in paying the dues to the subscribers,” he said.

Ramakrishna also said that the inspections were carried out in the “public interest” and “the interest of the subscribers to the chit” and to prevent irregularities chit-fund companies or individuals conducting the chit business might commit.