Why has the AP Govt filed cases against Margadarsi chit fund, owned by the Eenadu Group?

What are the allegations against Ramoji Rao’s company?

The Andhra Pradesh CID has alleged that Margadarsi indulged in gross financial irregularities, including falsifying financial records, and not furnishing balance sheet and accounts as is required under the Chit Funds Act, 1982.

In its FIRs filed against the company, the CID has named Ramoji Rao, who is also chairman of MCFPL, Sailaja Kiran, who is MD, branch managers, the MCFPL company, and the principal auditor, K Sravan.

The FIRs have been registered at the CID Police Station at Mangalagiri under Sections 420 (cheating), 409 (breach of trust), 120(B) (conspiracy), and 477(A) (falsification of accounts) of the Indian Penal Code (IPC), read with IPC Section 34 (acts done by several persons in furtherance of common intention); Section 5 of The Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999; and Sections 76 and 79 of the Chit Funds Act, 1982.

The Andhra Pradesh government has also attached movable properties of Margadarsi amounting to Rs 1,035 crore.

And what is Margadarsi Chit Fund Private Limited?

Founded by Ramoji Rao in October 1962, Margadarsi chit fund is one of the largest chit fund companies in the country, and now has 108 branches in four states — Andhra Pradesh, Telangana, Tamil Nadu, and Karnataka — with more than 4,000 employees and more than 3 lakh subscribers. The CID estimates the turnover of the Margadarsi Group in AP and Telangana at Rs 9,677 crore.

Margadarsi is a rare chit fund company that has never defaulted on paying its subscribers. The company claims that its chit fund system is simple, foolproof, and failproof.

Subscribers have to fill an enrolment form, and opt for an available chit scheme. They can choose from short- (25 months’ duration) and long-term (50 months’ duration) schemes ranging from Rs 25,000 to Rs 50 lakh, with monthly instalments between Rs 1,000 and Rs 1 lakh. Subscribers can bid at the auction after the first instalment has been paid.

So what is Margadarsi accused of doing?

Following a complaint from the Commissioner and Inspector General (Registration and Stamps) that Margadarsi was flouting Chit Funds Act rules, the CID raided several branches of the chit fund across Andhra Pradesh.

It accused several branch managers of not maintaining proper books of accounts, and alleged that Margadarsi group had diverted subscribers’ money to entities controlled by HUFs (Hindu Undivided Families), and into high-risk stock market speculation in violation of law.

According to the CID, the Margadarsi group had taken deposits illegally in the guise of receipts against future subscriptions by offering depositors annual interest rates of 4-5%. It accused the Margadarsi group of fudging its books and accounts by “window dressing” of balance sheets, and by not submitting required information.

Where does the media battle come in?

C Ramoji Rao and his Ushodaya Publications, which publishes the Telugu daily Eenadu, are bitter critics of the Jagan Mohan Reddy government. The Chief Minister on his part often accuses Eenadu of favouring the Telugu Desam Party (TDP) and its chief N Chandrababu Naidu.

The second issue is the turf war between Eenadu and Sakshi, the two largest-circulation Telugu dailies. In December 2022, the AP government ordered an allowance of Rs 200 per month to 3.78 lakh employees and volunteers working with ward or village sachivalayams (secretariats) to subscribe to a newspaper.

Eenadu believes that the order is meant to benefit Sakshi, run by Jagati Publications, which was founded by Jagan Mohan Reddy. While the government order does not mention Sakshi, it says the publication selected should be “a widely circulated daily Telugu newspaper”.