A Chartered Accountant was sent to 14 days of judicial remand by the third Additional Chief Metropolitan Magistrate, Vijayawada in connection with the Margadarsi Chit Fund Private Limited (MCFPL) case.
The arrest of CA Kudaravalli Shravan, by the Andhra Pradesh police has brought to light the financial irregularities and illegal practices committed by the company. The CID registered seven FIRs against MCFPL, including charges for criminal conspiracy, criminal breach of trust, cheating, and falsification of accounts, among others.
The investigation revealed that MCFPL was diverting funds deposited by chit subscribers to mutual funds and other speculative markets, which were not authorized. Additionally, the company was inflating balance sheets by citing unrealized cheques that never existed, getting certified by auditors for hundreds of crores of rupees as the balance on hand.
MCFPL had not deposited the future subscription amount into a second bank account as per the provisions of Section 22, Chit Funds Act, instead transferring it to the Corporate Office Account and issuing receipts carrying interest at the rate of 4 to 5% in the name of the subscriber.
CID officials questioned the Chartered Accountant and found that he had not followed due diligence and due process while certifying the annual financial statements of MCFPL. The auditor ignored auditing principles while confirming bank balances, and the CID found that the auditor could not explain the balances of fixed deposits shown on the balance sheet inflated by a few hundreds of crores. This casted doubt on the annual reports submitted by MCFPL to the Registrar of Chits.
The police seized Shravan’s laptop and a volume of records from him, which will help them further investigate the case and bring justice to the affected subscribers. The arrest and remand of the Chartered Accountant sends a strong message to auditors and financial institutions to conduct due diligence and follow due process to avoid such financial irregularities, illegal practices and consequent legal actions and penalties.
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