Hyderabad: Coming down heavily on the Andhra Pradesh government for appointing a private 'chit auditor' to audit Margadarsi Chit Fund, the Telangana High Court has stayed all proceedings against MCF by the auditor while observing that the appointment was "impermissible under law".
A bench of Justice Mummineni Sudheer Kumar passed the stay order on April 20 while observing that the Andhra Pradesh Commissioner and Inspector General of Stamps and Registration did not have the power to order the audit.
"Prima facie, this Court is of the view that the action of the second respondent in invoking his power under sub-section 4 of Section 61 of the Chit Funds Act, 1982 for the purpose of conducting a general audit into the affairs of the petitioner-Company is without jurisdiction. There is no such power conferred on respondent No.2 herein to order audit of the nature covered by the impugned proceeding," the court observed in its detailed stay order.
Interestingly, Andhra Pradesh Commissioner and Inspector General of Stamps and Registration had appointed one Vemulapati Sridhar as a private Chit auditor for a period of one year with effect from 15.03.2023. Sridhar was asked to conduct a detailed audit in respect of 37 chit units of Margadarsi Chit Fund in Andhra Pradesh.
Following it, Margadarsi filed a petition in the Telangana High Court seeking quashing of the Andhra government orders directing Sridhar to conduct the audit. While staying any and all action from the auditor, the court questioned how the private auditor conducted an inquiry into the affairs of Margadarsi Chit Fund on his own.
"In the circumstances, this Court is of the considered view that the action of respondent No.2 (Andhra Stamps and Registration) in the appointment of respondent No.3 (Vemulapati Sridhar) as Chit Auditor and ordering for auditing into the general affairs of the petitioner-Company without there being any specific reference to any chit or group of chits is, prima facie, impermissible under law," the court observed.
"The services of respondent No.3 were hired on 09.01.2023 for the purpose of assisting the inspecting officers in conducting audit of the chit fund companies. But, from the preliminary report placed before this Court, it is noticed that respondent No.3 himself conducted an inquiry and submitted a report to respondent No.2 without there being any involvement of the inspecting officers," read the stay order.
How respondent No.3 conducted an inquiry into the affairs of the petitioner-Company on his own is a matter to be examined finally after the counter affidavits are filed by the respondents. Further, the preliminary report referred to personal discussions. When respondent No.3 was appointed to assist the Inspecting Officers, as to why respondent No.2 had personal discussion with respondent No.3 is not known. The same would prima facie add strength to the contention of Mr. Mukul Rohatgi that the impugned action is for extraneous considerations," it added.
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Earlier, Senior Advocate Mukul Rohatgi, representing Margadarsi Chit Fund, argued that the Chit Auditor was only entitled to conduct an audit into a particular chit or group of chits, but not against the functioning of the Company in general. Rohatgi contended that the respondents with a view to cause prejudice to the petitioner, because of extraneous considerations were trying to conduct a "fishing and roving enquiry" without there being any specific allegations in respect of any particular chit or chit group.
He also contended that if the statute mandates a particular thing to be done in a particular manner, the same be done in that manner alone and cannot be done in any other manner. Thus, he contended that the impugned proceedings were issued only to harass the petitioner and to effect the business of the petitioner because of various extraneous considerations .
He further submitted that any allegation of financial irregularity made against a financial institution like the petitioner "will result in serious repercussions thereby effecting the petitioner-Company prejudicially and there is every possibility of public losing the confidence in the petitioner-Company which is in this business since 1962 and that it is a case of the colourable exercise of power."
In the circumstances, the court ordered that there shall be interim stay of all further proceedings pursuant to the impugned proceedings. It posted the matter to June 19.
Also read: Telangana HC directs Andhra govt not to take action against Margadarsi employees
