Finance Ministry Again Seeks 'Necessary' SFIO Probe in Mother Dairy's Alleged Rs1,000 Crore Scam
Moneylife Digital Team 23 December 2019
The department of economic affairs (DEA) under the ministry of finance has asked ministry of corporate affairs (MCA) to take necessary action (probe by serious fraud investigation office -SFIO) over the alleged Rs1,000 crore fraud involving about 800,000 farmers in Mother Dairy Fruit and Vegetable Private Ltd (MDFVPL or Mother Dairy). Mother Dairy is 100% subsidiary of National Dairy Development Board (NDDB). This is the second time the DEA has issued a similar request to MCA in eight months. 
In an office memorandum dated 9 December 2019, Tamanna Sinha, deputy director in DEA has said, "The undersigned is directed to refer to this department's memorandum of even number dated 29 April 2019 enclosing therewith a copy of letter dated 15 April 2019 received from Dharmendra Pratap Singh addressed to secretary, DEA, along with its enclosures on the above subject (Call for immediate investigation by SFIO into alleged frauds by MDFVPL of over Rs1,000 crore and involving eight lakh farmers) and to enclose a subsequent letter dated 30 May 2019 of Mr Singh on the same matter for further necessary action under intimation to this department."
As per a report from the Indian Express, the DEA had issued similar directions on 29 April 2019. "Besides the Infrastructure Leasing & Financial Services (IL&FS) investment issue, the complainant also alleged that the company diverted over Rs100 crore (from contributions of over Rs450 crore received from NDDB) into over 15 subsidiaries set up illegally and that later disappeared," the report says.
So the question is: Why has the DEA again issued letter with same content eighth months after sending first letter? Does this mean that, for eight months, MCA did not initiate ‘necessary action’, including probe by SFIO as demanded by Mr Singh, in the Mother Dairy matter?    
The Indian Express report also points out that the day after the DEA’s first letter, Sangram Chaudhary was appointed as the new managing director (MD) after Mother Dairy's chief executive officer (CEO) Sanjeev Khanna made exit from the company on health grounds. Mr Khanna is the same person who, on 13 February 2019, wrote a letter to prime minister Narendra Modi seeking intervention in recovering Mother Dairy's Rs190 crore invested in IL&FS. Mother Dairy had invested Rs190.84 crore in inter-corporate deposits of IL&FS for a period of eight to 16 days, in a series of six transactions during August 2018, days before IL&FS defaulted in loan repayments. 
"While Mother Dairy received grants of about Rs500 crore from the government under National Dairy Plan Scheme between 2014 and 2019 to set up milk producer companies, the complainant alleged that it is not knows as to how much amount was paid to various private dairies for supply of milk and is fraudulently being shown as milk bought from these milk producing companies," the report says.
As reported by Moneylife, between 2004-05 and 2011-12, Mother Dairy received funds worth Rs411 crore in the form of investment, grant and other considerations from NDDB.
It was also provided with subsidised dairy commodities worth Rs405 crore and other goods worth Rs542 crore at a discounted price. NDDB also allowed Mother Dairy the use of an entire office complex in Noida for several years. 
Further, NDDB extended loans of Rs688.7 crore to Mother Dairy at below market interest over the past 13 years. If that weren’t enough, seven subsidiaries of Mother Dairy separately received grants from NDDB. 
In return, over a 13-year period, Mother Dairy has paid a total dividend of Rs55 crore to NDDB, which is a return of less than 2%.
In May this year, Moneylife had reported how NDDB subsidiaries and subsidiaries of subsidiary seem to vanish with regularity and without any explanation from its annual reports. Whistleblowers inside NDDB are perturbed at what they call a growing trend of several hundred crore rupees of public money being pumped into subsidiaries without any discussion on what happens to the funds. 
Insiders had alleged that a study of NDDB’s accounts would reveal that for every rupee that it lent to dairy cooperatives between 1998 and 2010, around 50 paise went to some of its own subsidiaries. However, a reply from NDDB to Moneylife shows, for every rupee lent to dairy cooperatives between 2004-05 and 2017-18, nearly another rupee was lent to its own subsidiaries, the bulk of which went to Mother Dairy.
The biggest beneficiary of NDDB’s largess is Mother Dairy, which, over the years, has built a huge franchise and brand to compete with Amul.  
Earlier this month, Anurag Thakur, minister of state (MoS) for finance and corporate affairs, had confirmed in Rajya Sabha that NDDB did not take any approval from the government for setting up subsidiaries of Mother Dairy. 
Prof Manoj Kumar Jha, a member of Parliament (MP) from Rajya Sabha had asked questions whether the government had given previous approval to NDDB under Section 43 of the NDDB Act to form companies, which, in turn could independently form their own subsidiary companies.
Earlier, while responding to Moneylife, NDDB has claimed that it does not require permission to set up a stepdown subsidiary. “For an NDDB subsidiary to form another subsidiary, no prior Central government approval was taken as according to legal opinion this was not required,” it had said.
Mother Dairy, a subsidiary of NDDB, created nine of its own units for which no permission from the government was taken. In all these companies, NDDB is shown as holding company. These companies are Mother Dairy Foods Processing Ltd (set up on 24 May 2002), Mother Dairy Foods Ltd (24 May 2002), Mother Dairy Delhi Ltd (5 September 2002), Mother Dairy India Ltd (1 April 2003), Parag Milk Foods (UP) Ltd (28 August 2003), Mother Dairy Uttaranchal Ltd (formerly known as Aanchal Milk Foods Ltd) (17 October 2003), Mother Dairy (AP) Ltd (formerly known as Maathasri Milk Products Ltd) (21 March 2003), Mother Dairy Kerala Ltd (formerly known as Milma Milk Foods Ltd) (17 March 2003) and Safal National Exchange of India Ltd (20 September 2006).
According to the minister, eight of the subsidiaries were merged with Mother Dairy as per sanction given by the Delhi High Court between 2004 and 2013.
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