Andhra CID asks ED, IT dept to probe Margadarsi chit fund; Company denies any wrongdoing

New Delhi: The Andhra Pradesh CID has asked central agencies like the ED and the Income-tax department to probe the Margadarsi chit fund company, floated by media baron Ramoji Rao, for alleged violations of the chit fund law after it found that the firm's cash deposit records were "bloated and incorrect", a senior state police officer said Wednesday.

Additional Director General (ADG) of Police (CID) N Sanjay told reporters that Margadarsi Chit Fund Private Limited (MCFPL) allegedly raised deposits "without permission of the RBI" and the company owned by Rao, chairman of Telugu news group 'Eenadu', "diverted" the amount collected from the depositors to the "risky stock market".

However, the company - in a statement - denied it was involved in any wrongdoing and claimed that action is being taken against it to "tarnish and destroy" its reputation as the state government thinks media coverage by 'Eenadu' is "biased".

"Clearly, the object of the entire exercise is to financially cripple the company, intimidate the management and staff and cause panic amongst subscribers," the MCFPL alleged, adding "we are initiating legal action to protect our interests".

Elaborating on the allegations, the ADG said the CID suspects that the people depositing the funds with the chit fund company could be "common people or fictitious".

He said while there are no complainants in the case, the state government cannot be a "silent spectator" to these alleged violations.

The Criminal Investigation Department (CID) chief alleged that the chit fund company was not filing its balance sheets under the Chit Fund Act of 1982 but under the Companies Act and the state CID considered this an irregularity as public funds were being handled by private entities.

The ADG said they have written to the Enforcement Directorate (ED), the Income-Tax Department and the serious fraud investigation office (SFIO) to probe these charges.

The CID has filed seven FIRs against the company and has named five people, including Ramoji Rao and his daughter-in-law Sailaja Kiran, as accused in the case. All five have also been questioned, the CID ADG said. The AP CID said it registered a criminal case against the company, its promoters and its managers on the complaint of the Commissioner and IG of Stamps and Registrations of the state which found "glaring violations" in the affairs of the Margadarsi group.

A total of 17 chit fund companies in the state are under the CID scanner, Sanjay said.

Established in 1961, the Margadarsi company has 108 branches in the states of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu, and as per the CID, the annual turnover of the company in the two states of AP and Telangana, during 2021-22 fiscal, stood at Rs 9,677 crore. The CID chief told reporters that when the auditor of the company was asked about the 'cheques on hand' the company had, he was not able to give the investigators a convincing answer and the figures were found to be "bloated".

"The auditor is ignorant as to what is happening....there was no convincing explanation. Why is the Chit Fund Act (of 1982) not being followed?" he said.

The amount collected by the chit fund company was "simply diverted to the risk of the stock market. We have written and also met the officials of the ED, Income-tax department and the SFIO to inform them about this case so that they can also take up an investigation under their respective laws," the CID ADG said.

Asked if there were any complaints from depositors who would have lost their money, Sanjay replied in the negative but said that the government cannot be a "silent spectator".

"Should I wait when the public sits before the government crying that they have been cheated? The government cannot wait till total collapse happens," he said, alleging the Margadarsi company had committed an "economic crime." He said the cooperation from the top management of the company in this probe was "found wanting" but their investigation will continue.

Meanwhile, the company said the allegations made by the state CID in its press note issued in the national capital were "fabrications".

MCFPL was targeted by the Andhra Pradesh government in a "thinly disguised attempt to tarnish its reputation and destroy its reputation" in November 2022, the company alleged.

The Registrar of Chits launched simultaneous inspections under the Chit Fund Act, 1982 in 17 branches of MCFPL on November 15, 2022 and obtained copies of all documents from the branches, it said.

"Explanations were asked for by the jurisdictional Registrars for alleged violations of the Chit Fund Act. These were duly provided by MCF but were brushed aside," the company claimed.

It further said that the applications of MCF for starting new chits were not acted upon, thereby stymying the day-to-day business of the company.

The Chit Security Deposits of the company with the Registrar which ought to have been refunded on completion of chits have been retained by the Registrars.

"The total amount of such refunds that have been held amounts to Rs 48.81 crore as on date despite the closure of respective chits," it said.

Seven FIRs were lodged not just for alleged violations of the Chit Fund Act but also for offences under the IPC and the Andhra Pradesh Protection of Depositors of Financial Establishments Act on the complaint of the jurisdictional Registrars.

"Searches of various premises, including the Corporate Office in Hyderabad were conducted and copies of information and documents were taken away. Even today (April 12), the CID officials visited the Corporate Office at Hyderabad," the company added.

The officials from the company alleged the action of the CID was at the behest of the state government led by Chief Minister Y S Jaganmohan Reddy which has been "constantly attacking" the Ramoji Group because of Eenadu's coverage which the former considers "biased".

They said "no genuine subscriber" has complained against the group which has been operating for more than six decades.

The company officials further alleged that the state government falsely implicated them under the non-applicable act - Andhra Pradesh Depositors Protection and Financial Establishments.

Also, the company has not diverted the depositors' money into mutual funds but only transferred the "income generated in the branch", they said.

Even investments in subsidiaries were made from free reserves accumulated over years of income generated from the branches as per provisions under the Chift Fund Act, they added.

They said the Chit Funds Act of 1982 provides for a "self-regulatory mechanism" and the state government has no role in this.

Inputs from PTI