Margadarsi Chit Fund: CID files FIRs against media baron Ramoji Rao, daughter-in-law

Amaravati: Sleuths of the Andhra Pradesh Crime Investigation Department (CID) registered multiple FIRs against media baron Ramoji Rao chairman of Margadarsi Chit Fund Pvt. Ltd. (MCFPL), and his daughter-in-law and MD of MCFPL, Sailaja.

In connection with the Margadarsi Chit Fund fraud case, the CID also registered FIRs against the branch managers.

Multiple raids

Acting on complaints filed by the assistant registrars of chits, FIRs were lodged in Visakhapatnam, Kakinada, Eluru, Vijayawada, Guntur, Palnadu, Kurnool, and Ananthapuramu.

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.

On 11 March, CID teams launched searches at the branches of Margadarsi Chit Fund in Visakhapatnam, Rajamahendravaram, Eluru, Vijayawada, Guntur, Narasaraopet, and Ananthapuramu. According to the CID officers, the foremen of these branches are being questioned about the alleged chit fund fraud. All the records are being examined and incriminating documents are being seized.

Meanwhile, the foremen of the Narasaraopet, Eluru, and Ananthapuramu branches are absconding. The search process is still going on.

What are the irregularities?

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 non-payment of monthly subscriptions/instalments in respect of multiple tickets held in the name of MCFPL, which were later substituted with new subscribers. Non-disclosure of the revenue and expenditure account, statement of assets and liabilities, and details of investment as per Rule 28 read with section 24 of the Chit Fund Act was noticed.

Chit fund fraud

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

Further, in view of the serious lapses observed at the branch offices of MCFPL, and as no sufficient data was made available, a search was also conducted at the corporate office of Margadarsi Chit Funds Private Limited at Hyderabad from 14 to 16 December 2022. During the search conducted at the corporate offices, it was observed that the chit fund collections from the branches were being transferred to the corporate office and the huge amounts, in turn, were being invested in mutual funds, which are contingent on capital markets’ risks.

According to the CID, the foreman, instead of depositing the future subscription amount into the second account as per the provisions of section 22, was transferring the said amount to the corporate office account and, in turn, issuing a ‘receipt’ carrying interest of 4–5% in the name of the subscriber.

Preliminary findings of CA

In view of the irregularities observed, a qualified chartered accountant was engaged to assist the registrar in verifying the financial statements submitted by MCFPL. As per the financial statements, the prescribed chit-wise balance sheet and profit and loss statements were not being maintained or submitted.

“An amount of Rs. 459.98 crores is shown in Note No. 7 of the balance sheets as investments. On a perusal of the said note 7, it is seen that the company has invested in mutual funds, government securities, and equity instruments, both quoted and unquoted, including subsidiaries and associates,” said an official.

In note 40–Related Parties, the company has disclosed a list of 3 subsidiaries viz., Margadarsi Chits Private Limited, Chennai, Margadarsi Chits (Karnataka) Private Limited, Bengaluru, and Ushakiron Media Private Limited, Hyderabad.

The CID, during examination of the list of shareholders (as on 31 March 2022) of each of these companies, filed on the MCA Portal, found that in Ushakiron Media Private Limited alone, the amount of share capital invested by the company is Rs. 2 crores (amounting to 88.5% of the paid-up capital). However, in Note 7 of the financial statements, the amount invested in subsidiaries is stated to be Rs. 1,05,80,000, both as on 31 March 2021 and 31 March 2022.

“While the first two companies are also engaged in chit fund business, Ushakiron Media Private Limited in which the company holds 88.5% of the paid-up capital is not engaged in chit fund business. According to section 12 of the Chit Fund Act 1982, except with the general or special permission of the state government, no company carrying on chit business shall conduct any other business,” said a CID officer.

The CID said that considering the fact that the company holds substantial voting power (88.5%) which makes it a subsidiary, it can be said that the company is carrying on other business through the subsidiary.

In view of these findings, including diverting subscribers’ money to mutual funds/speculative markets for their personal gain and indulging in commission of offences under various law provisions, the assistant registrars of chits lodged a complaint with the CID.