Vijayawada: The Andhra Pradesh department of registration and stamps has detected a series of lapses in 18 units of Margadarsi Chit Fund as well as other chit fund companies during recent inspections.
Its inspector general V. Rama Krishna told the media here on Monday that the inspections on Margadarsi were done on November 15. “There was noncooperation from the foreman and the staff. The foreman’s representative exercised no control on chit accounts. He had no knowledge of the bank accounts and other affairs of the chits business in its branches,” he said.
The serious lapses were non-payment of monthly subscriptions/installments vis-a-vis multiple tickets held in the name of the Margadarsi, which were later substituted with new subscribers; non-payment of monthly subscription amounts and non-submission of surety for the chit amount availed during the second draw against the foreman- subscribed chit ticket.
These apart, future subscriptions were deducted from prize chits and the deduced amounts were kept with Margadarsi towards security. The foreman transferred such amounts to the corporate office account in violation of norms, by issuing a ‘receipt’ carrying interest at 4 to 5 per cent in the name of ‘subscriber’. This was equivalent to collection and acceptance of ‘deposit’ in violation of the chit fund and RBI acts and non-disclosure of revenue and expenditure accounts, statement of assets and liabilities and details of investment, the inspector general said.
Another irregularity was filing of declaration as ‘all tickets are fully subscribed’ by mentioning the name of the company, Margadarsi, in place of multiple chit tickets to obtain the certificate of commencement of chit under section 9. Later, this was substituted with new members under section 29.
This aside, there was also non-maintenance of ledger for each ticket in a chit showing dealings of the subscription, non-payment of subscription amount under section 27 wherein Margadarsi is the non-pried subscriber.
There were also acts of non-payment of subscription amount under section 32, wherein Margadarsi is the prized subscriber; not providing security for future subscriptions under section 32, where Margadarsi is the prized subscriber; non-submission of form XXXI for each individual chit group; utilization of chit fund amounts in violation of section 14; acceptance of deposits under the guise of future subscriptions payable in violation of section 12.
It was also observed that Margadarsi never filed the balance sheet and ‘profit and loss’ accounts for the financial years after the 2014 reorganisation of the combined AP state. It was also investing in non-chit funds businesses like movies and TV. The investee companies appeared on their balance sheets submitted to the registrar of companies under the Companies Act.
Accordingly, Margadarsi invested Rs 11.80 crore in Ushakiron Movies Ltd, Rs 0.928 crore in Dolphin Hotels Ltd, Rs 4.11 crore invested in Colorama Printers Private Ltd, Rs 0.50 crore invested in Margadarsi Investment and Leasing Company Pvt Ltd and Rs 13.50 crore in Ushodaya Enterprises Pvt Ltd.
The official pointed out that these lapses were putting the subscribers’ money at risk. A show cause notice was being issued, intimating that stringent due diligence would be done before issuing prior approval for commencement of any new chit.
“They were directed to park all the funds held by foreman/Margadarsi in the name of security offered by the prized subscribers towards further subscriptions in a separate account opened at each branch under the control of the chit registrar. They were also directed to furnish security for the future subscriptions in respect of the chit amount claimed by the foreman as ‘subscribers’ and also to submit the balance sheet for AP operations as per the Chit Fund Act, 1982.
The inspector general also said that some chit fund companies carrying out chit business in association with other businesses had been diverting funds by way of advances to allied firms of the foreman or financing activities unconnected with chit business.
“Many such advances had become irrecoverable and affected the liquidity of the chit fund companies. As a result, these companies failed to pay the dues to the subscribers. Some were utilising the funds in the businesses for venturing into fields with a high degree of risk. When such ventures flopped, the chit fund companies were defaulting on payment of dues to the subscribers,” he said.
In view of such developments, the state government intended to curb such practices and action was initiated against the errant companies, he said and asked the citizens to exercise caution and discretion before joining in any new chits.
The registration and stamps authorities had inspected 12 chit fund units on Oct. 25 and five on Oct.31 and found large scale violations, financial mischief and procedure irregularities.
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