Margadarsi Chit Fund Scam: 9 branches in AP set for closure, Rs 604 Crore up for distribution

Hyderabad: A total of nine branches of Margadarsi Chit Fund Private Limited (MCFPL) in Andhra Pradesh are set to be closed after the Andhra Pradesh Crime Investigation Department (CID) found violations. The Stamps and Registrations department issued orders and will take up the winding-up process of the violated chit groups, which have funds of Rs 604 crore that need to be distributed among the victims of the fraud by the chit fund.

After the CID attached movable properties worth Rs 1,035 crore of MCFPL, Additional Director General of Police CID N Sanjay held a press conference in Hyderabad. “MCPFL has 37 branches in Andhra Pradesh.

Among the total, nine branches with 23 groups were found violating norms. There are having 1,025 subscribers in 23 groups. Orders will be issued to close the branches, and return their money to the subscribers soon,” said Sanjay.

The MCFPL established on August 31, 1962, in Hyderabad, has a total of 108 branches in four states - Andhra Pradesh, Telangana, Karnataka and Tamil Nadu. The total number of branches in Andhra Pradesh is 37 with 2,351 chit groups having 1.04 lakh subscribers. For the finance year 2021-22, the annual turnover in both Andhra and Telangana states is Rs 9,677 crores.

“We are in the process of preventing one of the biggest financial frauds ever seen in the name of chit fund operations by exploiting the weak and innocent subscribers in Andhra Pradesh. The Margadarsi chit group, which has a history of accepting deposits illegally, is in violation of the Chit Fund Act 1982, deriving undue benefits from subscriptions of common people,” said Sanjay.

Seven FIRs were registered upon the complaint of the Commissioner & IG, Stamps and Registrations, AP u/s 420, 409, 120(B), 477(A) read with 34 IPC and Section 5 of APPDFE Act-1999 and Section 76, 79 of Chit Funds Act 1982 of CID PS, AP, Mangalagiri.

In all these FIRs, media baron Ramoji Rao (Accused 1 or A1) chairman of the company (MCFPL), Sailaja Kiran (A2) MD of MCFPL, branch managers (called foremen) (A3), The MCFPL company (cited as A4) and principal auditor K Sravan (A5) have been cited as accused so far.

Filing balance sheets under Company’s Act

During the investigation by the CID, it is found that Margadarsi Group has not furnished the balance sheet and accounts as required under the Chit Fund Act, 1982. Instead, they were taking the plea that the preparation of financial statements as per the Companies Act is sufficient, which is completely incorrect and wrong.

“When questioned, one of the accused Sailja Kiron, stated that they have updated balance sheets under Company’s Act but not in the Chit Funds Act. In this way, the inter-group transfers will not be found out, which is one of the serious economic offences,” said Sanjay.

Violations committed by the Margadarsi group include:

- Diversion of funds to their associate companies and other unknown investments clandestinely.

- Laundering money by accepting cash subscriptions in high amounts in violation of various prevailing laws.

- Forcing subscribers to retain their money continuously with the company in the name of offering interest and security by accepting deposits illegitimately.

It has been established prima facie that the Margadarsi Group is committing these violations by fraudulent accounting practices such as

- Inflating cash balances in the name of cheques on hand and cash on hand at the branch level.

- Not submitting the necessary documents to the regulators who are duty-bound to find out the genuineness of the bloated figures reported.

“During the investigation, we have found illegal activities such as money laundering, siphoning off funds, corporate frauds, helping ghost subscribers to indulge in benami transactions and evasion of income tax. As these violations pertain to the domain of central enforcement agencies, we have met concerned agencies at Delhi and Hyderabad and requested them to take timely action against the company,” said Sanjay.

The Margadarsi Group has been found forcibly taking deposits illegally in the guise of receipt against future subscriptions by offering them an annual interest rate of 4-5%.

Unaccounted subscribers

The investigation found that the chit fund money from one group is diverted to another group. The total funds were transferred to Hyderabad, which is the head office.

According to officials, the subscribers were never properly legally identified, which is a must. They have never followed the rules. “We found that the names of the subscribers who left the group are added to another chit-group. There are thousands of unaccounted subscribers and re-entering of names of removed subscribers,” Sanjay added.

The additional director general of police gave clarity that they did not issue orders to stop new chit business but have asked to file a balance sheet and follow the rules as per Chit Fund Act, 1982.

Similar to Satyam scam

According to Sanjay, the violations and fraudulent methods adopted by Margadarsi bear similarities with Satyam Computers, Sahara and Sarada Chits fraud.

“Deeper probe into the account books of Margadarsi is imperative to put a stop to this blatant exploitation by the Margadarsi group. He added that the investigation is continuing in this direction and that further developments will be briefed in due course,” he added.

False allegations

Speaking on the false allegations raised in certain sections of the media, Sanjay said that instead of cooperating in the investigation process, the accused are indulging in defaming and blaming the CID in various fora and by various means.