MCCFL scam — HC wants scheme for fund recovery

He also asked counsel for the firm to furnish the court with all details regarding loan provided to `Cameo Corporate Services’, a major borrower and one of the companies formed by MCCFL.

Meanwhile, in response to an offer by the MCCFL to deposit about Rs 10 crore to secure the release of its chairman and the managing director to enable them to furnish details sought by the court, the Judge asked the firm to first deposit the amount and then approach the court for their release. MCC Finance chairman AL Vadivel (62)) and his son Jawahar Vadivel (35), who is the managing director, were arrested by the police attached to the Economic Offences Wing (EOW) on charges of cheating depositors to the tune of about Rs 200 crore. They are close relatives of A C Muthiah, chairman of M A Chidambaram Group of companies.

On September 12, Justice Jaisimha Babu had appointed the official liquidator of the High Court as Provisional Liquidator of MCCFL on the ground that the present state of affairs of MCCFL warranted such an appointment.

It had been alleged that about Rs 171.72 crore of Rs 200 crore invested in the company by about 50,000 depositors had become practically irrecoverable after being lent to 10 investment companies, set up by MCCFL, without undertaking a proper credit assessment of the companies.

MCCFL was born out of the 1997 merger of Excel Finance Ltd, Foresight Financial Services Ltd and Cameo Share Registry Ltd with Mercantile Credit Corporation of which the late M A Chidambaram was the first chairman.

According to police, the arrest followed complaints from over 200 depositors against the two and Aswin Muthiah. The complainants alleged that their deposits were not returned by the company after maturity. A case was registered for offences under Sections 409, 120-B and 420 IPC. Further investigation is on.

While passing orders on a batch of company applications from the depositors and the RBI, Justice R Jayasimha Babu of the Madras High Court, in his order dated August 21, had observed that the Additional DGP in charge of economic offences wing, to whom the RBI had forwarded a report of the Special Officer of the company, should treat the report as an FIR with regard to the apparent fraud committed by the company and those in charge of it.

This, he said would be in addition to any of the cases that might have been registered against the company. Those who were in charge of the company, directly or indirectly, should be interrogated and every step to the extent necessary for investigation should be taken against them. Steps should be taken against all those involved in the apparent conspiracy, the High Court had held.

RBI pulled up: The judge had also rapped the RBI for its callous attitude towards MCCFL. It was most unfortunate that the interests of over 50,000 depositors involving over Rs 200 crore, had been callously treated by the regulator of non-banking finance companies (NBFCs), namely the RBI, the judge had observed.

Following this order, the EO police wing stepped up the investigation, which resulted in the arrest. The police said that further investigation was on MCCFL’s clandestine investment of Rs 171 crore in its associate companies and the disappearance of about Rs 240 crore out of its total assets of Rs 300 crore.