On 19 August 2019, at a five-hour review, Giriraj Singh, Union minister of animal husbandry, dairy and fisheries is understood to have closely questioned top executives of the NDDB (National Dairy Development Board) and its subsidiaries over funds lent to subsidiaries over which the parent organisation has no control.
The minister, say our sources, posed tough questions during this detailed review of NDDB and its subsidiaries and specifically asked about NDDB’s Rs200 crore fund transfer to NDDB Dairy Services (NDS).
"When government has no control neither NDDB has any control (over NDS), how can you transfer such huge amount to subsidiary companies? How can we defend this in the Parliament?" the minister reportedly asked the top executives of NDDB, say people familiar with the discussions.
On 22 May 2019, Moneylife wrote
about the propensity of NDDB to set up numerous subsidiaries and quickly cause them to vanish through a closure or amalgamation or often without an explanation.
As we have pointed out, NDDB Dairy Services or NDS was set up as a private limited company in 2009 with NDDB subscribing to only Rs1 crore as share capital.
Moneylife has reached out to several officials in the government for details about the meeting, but have not received a formal confirmation.
Thereafter, NDDB’s nominee members moved a resolution to convert NDDB Dairy Services Pvt Ltd into a not-for-profit company under Section 25 of the Companies Act 1956 (now Section 8 of the Companies Act 2013). NDS was set up to function as the delivery unit of NDDB for field operations relating to promoting producer companies and productivity enhancement services.
"...based on detailed discussions it was decided that since some of NDDB's current roles would be undertaken by NDS, it follows that a part of funds available with NDDB, which finances its expenditure would need to be transferred to NDS. It was proposed and approved that around 15% of the funds available with NDDB be transferred as equity to NDS. This worked out to be around Rs200 crore. The authorised capital of NDS was raised to Rs200 crore and NDDB subscribed to the entire authorised capital of Rs200 crore," NDDB had said in its response to our queries.
NDDB Dairy Services was re-incorporated as a not-for-profit company in the very year that it was first incorporated as a private limited and wholly-owned subsidiary of NDDB. Immediately thereafter, the Board transferred Rs199 crore to NDDB Dairy Services, in the form of contribution of capital for purchase of equity of an equal amount.
The permission given by the Central government to NDDB was only for forming NDDB Dairy Services as a private limited company and the contribution of Rs1 crore as NDDB’s equity in NDDB Dairy Services when it was a private limited company could be considered in line with Section 43(2)(a). The contribution of another Rs199 crore to NDDB Dairy Services as share capital from NDDB needed specific approval from the Central government as per Section 43(2)(b) of the NDDB Act.
NDDB, however, had said, "NDS is a wholly owned subsidiary of NDDB and therefore under 43(2)(a), no prior approval is required from Central Government. Your article also states that NDS is a private company. The NDDB Act makes no distinction between them as far as the transfer of assets or funds is concerned."
During the meeting held on 19 August 2019, Mr Singh, the minister asked Dilip Rath, chairman of NDDB to provide all details about Rs199 crore given to NDS.
Mr Rath, from the Indian Administrative Service (IAS) cadre, was the joint secretary in the department of animal husbandry, dairying and fisheries, in Government of India between 2008 to 2010. After taking an early retirement, on 1 December 2011, he joined NDDB as its managing director (MD) and is now working as its chairman.
Moneylife had essentially said that NDDB has incorrectly and in a legally questionable manner used Section 43(1) of the NDDB Act to set up more than a dozen subsidiary companies, mostly step 2 and step 3 subsidiaries, transfer hundreds of crores of capital, assets and assistance from NDDB to such subsidiaries and then quietly amalgamate all the step 2 and step 3 subsidiaries with NDDB’s step 1 subsidiary companies, without any disclosures in the relevant annual reports of NDDB, hoping that nobody will ever notice.
We also said that this has been going on for a decade and has not been highlighted by NDDB’s statutory auditors. We also pointed out that NDDB fights hard to remain out of the purview of the Right to Information (RTI) Act as well scrutiny by the Central Vigilance Commission or CAG (Comptroller & Auditor General).
The famous statutory body, once led by the legendary Dr Verghese Kurien, better known as India’s milkman or father of the white revolution, clearly deserves greater public scrutiny.
With Mr Singh, the minister reportedly asking tough questions, we hope there will be a proper scrutiny of all the affairs of NDDB and its subsidiaries.
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