A single-judge Bench of the Andhra Pradesh (AP) High Court comprising Justice N. Jayasurya on August 11 stayed all proceedings related to the winding up of chit groups of Margadarsi Chit Fund Private Limited (MCFPL), for which the CID had issued a show cause notice.
He stated in his interim order that issues regarding the proposed winding up (of the chit fund groups) are interlinked with the writ petitions filed by subscribers and have to be dealt with comprehensively.
Justice Jayasurya observed that orders of winding up in respect of some chit groups were already suspended in a Writ Petition (WP) filed by subscribers, and any further action pursuant to the notice issued by CID would affect chit subscribers at large in various groups/branches apart from having a cascading effect on the company.
Further, he mentioned the company’s argument that it has been carrying on chit transactions successfully (having more than three lakh subscribers in 108 branches situated in four States including AP and Telangana), and that there was no single complaint by any of the subscribers about the payment of chit amounts and default except one allegedly induced at the instance of the government.
The company maintained that the government got movable properties worth ₹1,050 crore attached and that the impugned notice was intended to not only damage its reputation but also close down its business.
Justice Jayasurya noted that though there was considerable force in the submissions made by Advocate General about the competence of deputy registrars to initiate action, it needs to be examined after filing of a counter affidavit.
He would, therefore, not delve into various other submissions addressed by both sides with reference to legal precedents, at this stage.
One of the main charges faced by MCFPL is that it diverted the funds to other investments in violation of Reserve Bank of India regulations.
