VIJAYAWADA: Stamps and Registration department Inspector General V Ramakrishna said the State government would go to the extent of initiating stringent action against the Margadarsi Chit Fund Pvt Ltd (MCFPL), if the alleged violations were proved and the company failed to cooperate with the probe agency in the alleged chit fund scam.
Addressing a joint media briefing on Monday, Ramakrishna, along with Andhra Pradesh Crime Investigation Department (APCID) chief N Sanjay said that the management of MCFPL committed irregularities in the chit fund business by investing the public money in mutual funds and other subsidiaries for its personal gains.
Explaining that staff of MCFPL did not provide necessary documents during search operations and the company was operating without giving cheque powers to foremen, Sanjay said the company indulged in grave financial irregularities such as diverting chit fund amount to speculative markets, mismanagement of crore of rupees belonging to chit subscribers, violation of Chit Fund Act, evasive behaviour in sharing crucial information with assistant registrars (regulatory body of chits).
The State CID chief said that they received seven complaints from assistant registrars of Visakhapatnam, Kakinada, Eluru, Vijayawada, Guntur, Palnadu, Kurnool, Anantapur and registered cases immediately and began the investigation into the alleged irregularities in the MCFPL.
‘Foremen have no power to deal with financial services’
“Chit fund companies should not invest the public money into other companies, especially as mutual funds. Margadarsi chit fund company invested around `2 crore in Ushakiron Media Pvt Ltd, which is not into chit fund business. The Supreme Court has clearly mentioned that the Chit Funds Act itself is one of the socio-economic legislations, which has been enacted primarily and predominantly to safeguard the interest of chit subscribers, who are gullible and unwary public and those who have been subjected to exploitation by chit foremen,’’ he said.
The Act is intended to regulate and bring in financial discipline in chit business as the foremen deal and dabble with the funds of the subscribing public. However, the foremen of MCFPL have no power to deal with financial services. They do not have cheque power of more than Rs 500 and have no idea where the subscribers’ money has been going.
“Instead of vesting powers to foremen, the company in question gave powers to board members, which is a violation of Chit Funds Act and other sections of Andhra Pradesh Protection of Depositors in Financial Establishments Act, 1999,” he said adding that court too believed the same and remanded the accused foremen arrested in the process of investigation.
Sanjay further said that eight complaints were received from the public against Margadarsi alleging delay in payments after the CID registered cases against media baron Ramoji Rao and others.
Ramakrishna said the department inspected around 37 chit fund companies in the State as a part of ongoing regulatory mechanism in the months of October and November last year. During the inspection, the branch managers, who were legally called as foremen, failed to provide data pertaining to their chits and transactions of chit amount. “When the Stamps and Registration department officials inspected MCFPL corporate office in Hyderabad in November last year, officials reportedly witnessed a strong resistance from the staff. A curious system is being operated in Margadarsi by keeping the cheque issuing power with 11 board members sitting in Hyderabad instead of the foremen.
The company was diverting funds of subscribers residing in AP, carrying out operations by others from another State, and failed to provide data to the regulatory body. After analysing the financial statements and bank statements through a certified chartered accountant, we came to know that MCFPL invested the subscribers money in risky areas and subsidiaries, which are prohibited by the law violating Section 12 of Chit Fund Act,” Ramakrishna said adding that there is a need to examine the flow of funds and other bank statements.
Ramakrishna added the company invested around Rs 50 crore in ICICI prudential mutual fund, Edelweiss Arbitrage fund and other subsidiaries. It is observed that the source of transfer is the fund received from the branches, which means money collected from chit subscribers.
“Based on preliminary findings, we learnt that the accused company is utilising the public money for its personal gains and that its statements needed a thorough examination. In this context, we have lodged complaints with APCID for further course of action. The company also failed to maintain records of credit and debit of chit subscribers. All these irregularities make us believe that MCFPL is operating as Ponzi schemes. We would not hesitate to order the firm to wind up its operations,” he said.