Chit fund scam: How Ramoji Rao–led MCFPL illegally invested money in mutual funds

Vijayawada: Andhra Pradesh Crime Investigation Department (CID) has received complaints from seven assistant registrars of Visakhapatnam, Kakinada, Eluru, Vijayawada, Guntur, Palnadu, Kurnool, and Anantapur, about alleged irregularities in the Margadarsi Chit Fund Pvt Ltd (MCFPL).

Two days ago, sleuths of the CID registered multiple FIRs against media baron Ramoji Rao, chairman of Margadarsi Chit Fund Pvt. Ltd. (MCFPL), his daughter-in-law and MD of MCFPL, Sailaja, and foremen (branch managers). FIRs were registered under sections 120(B), 409, 420, 477(A), read with Section 34 of the Indian Penal Code; section 5 of the Andhra Pradesh Protection of Depositors in Financial Establishments Act 1999; and sections 76 and 79 of the Chit Funds Act 1982.

Stamps and Registration department Inspector General V Ramakrishna held a joint press meeting with Additional Director-General of Police, Crime Investigation Department (CID), N Sanjay. Ramakrishna said that many irregularities have been noticed in the MCFPL, and the government would go to any extent to take stringent action against the violations proved in the alleged chit-fund scam.

After investigating the foremen of Visakhapatnam, Vijayawada, Rajahmundry, and Guntur, they were produced in the local court. During the investigation, it was found that the money of the subscribers was diverted to other states and companies.

The stamps and registration department, the regulating authority of the chit fund business, conducted inspections/searches on 37 branches of Margadarsi Chit Fund Private Limited during October/November 2022.

During the inspections, the branch managers, who were legally called foremen, failed to provide any data about their chits and transactions of chit amount. It was observed that the chit-fund collections from the branches were being transferred to the corporate office. A huge money was being invested in mutual funds, which are contingent on capital markets' risks.

Employees told the investigators that the subscriber's money was being diverted to MCPL in Chennai, Margadarshi Chit in Bengaluru, and Ushakiron Media Private Limited in Hyderabad.

"Foremen (branch managers) nominated for the branches should be responsible for the financial transactions done in the branch. But the foremen have no powers. They do not know about bank transactions and have no bank details. foremen said everything is at the headquarters in Hyderabad, and when checks were conducted at Hyderabad, there was no authorized person at the corporate office, said Ramakrishna.

During the search operations, the staff of MCFPL needed to provide the necessary documents, but it is found that the company was operating without giving cheque powers to foremen.

"During the search, the non-cooperation of the foremen and their staff was noticed, and several irregularities and violations of rules and regulations were unearthed. The inspection teams found financial irregularities such as non-payment of monthly subscriptions/installments in respect of multiple tickets held in the name of MCFPL, non-disclosure of the revenue and expenditure account, diverting chit fund amount, mismanagement of crore of rupees belonging to chit subscribers", CID official N Sanjay said.

According to Section (12) of the Chit Funds Act, 1992, chit fund companies should not invest client money in mutual funds and equities, but it is found that the company has made violations.

"Chit-fund companies should not invest public money into other companies, especially as mutual funds. However, Margadarsi chit fund company invested Rs 2 crore (amounting to 88.5% of the paid-up capital) in Ushakiron Media Private Limited, which is not a chit-fund business.

The officials said that following raids, many customers have come forward to complain about the irregularities. Following this, the teams are to conduct more searches.