Kerala-based Popular Finance, which recently collapsed with Rs 2,000 crore of depositors’ money, unauthorisedly mobilised funds despite the warning from the Reserve Bank of India (RBI) eight years ago. The firm had 2,000 employees and 274 branches in various states, including Karnataka, Haryana, Tamil Nadu and Maharashtra, when it closed down last month amid allegations of fund diversion, mismanagement and violation of various laws and regulations.
Though a case was filed against the finance firm six years ago, it got stuck in legal procedures and stays granted by the courts for several years, enabling the promoters — Thomas Daniel and family — to continue duping depositors using various clauses under the Kerala Money Lenders Act till 2020. The crime was originally registered on the basis of a letter dated May 15, 2012, sent by a Deputy General Manager of the RBI to the Director General of Police, Economic Offences Wing, Thiruvananthapuram, according to the Kerala High Court judgment signed by Justice Alexander Thomas on September 25, 2015.
The RBI letter said the partnership firm called “Pathanamthitta Popular Finance” owned by the Daniels had been engaged in financial activities such as extending gold loans and foreign exchange, and that public funds are being collected in the name of “Popular Traders”, a sister concern of Popular Finance, which was in contravention of Section 45S of the RBI Act. The DGM of the RBI had requested state police authorities to take appropriate action against the firm.
In another letter dated July 16, 2012, the RBI informed the Commissioner of Commercial Taxes, Govt of Kerala, Thiruvananthapuram — which is also the licensing authority for moneylenders — about the violations. The Commissioner acted on the intimation given by the RBI and instituted a complaint before the Chief Judicial Magistrate’s Court, Pathanamthitta against the violation of the RBI Act.
The Daniels moved the High Court for quashing the offences registered under the Kerala Moneylenders Act and the RBI Act. The HC ordered an investigation into offences under the Moneylenders Act to be monitored by an officer nominated the ADGP of Crime Branch. However, the court quashed the offences registered under the RBI Act. The legal issues and court proceedings involved in the functioning of Popular Finance never came into the limelight and depositors remained in the dark about the status of the finance firm, said a source.
With court cases not reaching their logical conclusion, Popular Finance continued mobilising money offering high interest rates for deposits and gold loans to lure customers. The firm had offered interest up to 18 per cent and interest was paid regularly, creating an impression that deposits were safe. However, interest was paid from fresh deposits raised from the public. When the nationwide lockdown implemented in March reduced the flow of fresh deposits, funds dried up gradually. Gold pledged by depositors with the firm for loan were re-pledged in banks by promoters for further loans. Investigating agencies suspect a major chunk of deposits has been diverted abroad by the promoters.
The firm is likely to face action from market regulator Sebi as it acted as a ponzi scheme. While investors deposited money thinking it was an FD, the finance firm allegedly duped them by issuing shares of a sister firm instead of FD.
Thomas Daniel (Roy), son of founder TK Daniel, is the MD, while his mother Marykutty is the chairperson of the firm. Various business activities were carried out under its sister concerns such as Popular Dealers, Popular Developers and Popular Printers.
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