Hyderabad police have arrested K S Raju and P K Mahadevan, original promoter and director respectively of Nagarjuna Finance Limited, for allegedly defaulting on payments to depositors of NFL, a non-banking financial institution promoted by the group.

They were arrested under section 5 of the Andhra Pradesh Protection of Depositors of Financial Establishments Act, R S Praveen Kumar, DCP, Hyderabad detective department, said, adding, nearly 700 warrants issued by courts across the country were pending against the arrested.

NFL, incorporated as a non-banking financial institution in 1982, collected deposits to the tune of Rs98.3 crore from about 85,160 depositors during 1997-98. Out of them, the company failed to repay deposits of 16,122 depositors amounting to Rs23.02 crore, matured on 31 December 1999.

Following this, depositors lodged complaints with the police while the company management secured an order from the high court, staying proceedings against them by the police.

The depositors had sought return of about Rs98 crore, but NFL changed hands in 2000. The company announced that it had been acquired by Mumbai-based Mahalakshmi Factoring Services Limited (MFSL) and hence was absolved of repaying the depositors.

LVV Iyer, one of the directors of NFL, filed a plea before the Company Law Board (CLB) Southern Region in Chennai seeking 12-48 months' time for repayment of the deposits. CLB, in its order in February 2002, proposed a scheme for repayment at the rate of 12.5 per cent per annum over a period of 12-48 months.

NFL failed to comply with this as well, following which the depositors filed cases in various police stations and consumer forums. Several cases were filed between 2000 to 2003 and subsequently 82 of them were transferred to the Central Crime Station (CCS), Hyderabad in November 2003 for investigation. Another 12 cases were registered at CCS. All the 94 cases were under investigation against NFL.

The tribunal has not accepted this and ordered that NFL repay the monies irrespective of the transfer of ownership to MFSL.

NFL, since its inception in 1982, had collected deposits worth about Rs360 crore till 1996-97 from 52 branches across the country.

Raju claimed in 2005 that he had repaid deposits of about Rs278 crore. He also disowned the responsibility of repaying depositors any further after the company was sold to MFSL, to which the group had divested its equity holding.