Andhra CID issues notice to Ramoji Rao, daughter-in-law in Margadarsi chit fund case

The CID had registered a case against the chit fund firm for allegedly violating the AP Protection of Depositors Financial Establishment Act, 1999 and the Chit Fund Act, 1982. The case was registered at the CID police station at Mangalagiri in Andhra Pradesh.

The CID had on March 12 conducted raids on Margadarsi’s branches across Andhra Pradesh and arrested four persons. On March 14, P Rajaji, the vice-president of Margadarsi Chit Fund Pvt Ltd, filed a petition in the Telangana High Court seeking a direction to the Andhra Pradesh CID not to take any coercive steps against any officials in Margadarsi branches, especially Rao and Sailaja who reside in Hyderabad.

Justice B Vijaysen Reddy asked the petitioner’s counsel on the maintainability of the petition as the FIRs are registered in Andhra Pradesh. However, the Special Standing Counsel for the Andhra Pradesh Government informed the court that the petitioners committed financial fraud in Andhra Pradesh but are residing in Telangana, however, that cannot be the reason for the Andhra Pradesh CID not to conduct searches in Telangana and take action against Ramoji Rao. The judge then directed the Andhra CID not to take any coercive steps against Rao and Sailaja until further orders.

The CID stated that it took up the investigation after complaints of irregularities were received from the assistant registrar of chits against Margadarsi and the authorised foremen of its branches located in Visakhapatnam, Rajahmundry, Eluru, Vijayawada, Guntur, Narasaraopeta and Anantapuram. Accordingly, registered FIRs and raided the offices of MCFPL and the staff were examined.

As per the CID report, they found that MCFPL had allegedly not paid subscription amounts into the chit accounts – which it is supposed to pay on par with that paid by the subscribers in each chit. The CID also alleged that statutory ledgers were not maintained. The deficit amount in a particular group is managed by utilising the amount received from one or more subscribers of another chit group.

Thus, the foreman is not paying the chit subscription as stipulated under Section 27 and Section 32 of the Chit Fund Act, the CID said. The CID gave the example of Guntur branch where there are 2,040 tickets in 45 chit groups. Out of this, 858 tickets were declared as subscribed by MCFPL. Later, they were partly replaced with new subscribers. The amount payable by MCFPL towards these 858 tickets till substitution by new subscribers amounted to Rs 16.96 crore. As confirmed by the foreman, MCFPL did not pay even a single rupee towards this liability. Yet, they benefited from the operations of the chit groups and managed the deficit in the subscription amounts by juggling funds from one chit group to another, the CID report said.

The CID alleged that there were violations in maintaining bank accounts by MCFPL to mask the alleged illegal diversion of funds for other investments. The report states that the chit agreement contains names of all the banks instead of specific bank account numbers in which the chit-related collection, payment, etc happens. Thus, the foreman was deliberately not disclosing the account numbers to the subscribers and collections of various chit groups were deposited in a single bank account by making it into a conglomerate of funds, without segregation of each chit group amount in a separate account.

The CID alleged that the bank accounts in various branches were being controlled by the corporate headquarters. It stated that the authorised foreman of the chit fund branch has no power to issue cheques or to make online transactions through the accounts maintained by the branches into which the chit subscribers are paying their subscriptions. Instead, the employees of the corporate office are vested with the power to issue cheques or do online transactions to debit account, though they are not the authorised foremen.

Thus, the foreman at the branch level was a mute spectator and failed to discharge his duties. The authorised foreman is handing over the cheque books from the bank to the corporate office. This control over the signatory authority over the branch accounts enables the corporate office to divert the funds to other investments in contravention of the laws, the CID has alleged. The subscribers do not have any information on the profits earned through such investments, though it is their money which is being subjected to market risks.

The four foremen arrested by the CID for the violations include Kamineni Rama Krishna, Visakhapatnam; Satti Ravi Shankar, Rajahmundry; B Srinivasa Rao, Vijayawada; and Gorijavolu Siva Rama, Krishna district.