NDDB Never Took Approval from Govt for Setting up Subsidiaries of Mother Dairy, Confirms MoS Anurag Thakur
Moneylife Digital Team 09 December 2019
Anurag Thakur, minister of state (MoS) for finance and corporate affairs, has confirmed in Rajya Sabha that National Dairy Development Board (NDDB) did not take any approval from the government for setting up subsidiaries of Mother Dairy Fruit & Vegetable Pvt Ltd (Mother Dairy or MDFVPL) and for amalgamation of IndiaGen Ltd with Indian Immunologicals Ltd, a unit of NDDB. 
 
Responding to a question, Mr Thakur, says, "NDDB has applied for ex-post facto rectification in March 2008 for creation of IndiaGen Ltd, for which approval was not given by the then department of animal husbandry, dairying and fisheries (now department of animal husbandry and dairying). For other companies created by Mother Dairy, the government approval was not taken by NDDB."
 
 
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.
 
NDDB has four subsidiaries registered under the companies act. This include, Mother Dairy or MDFVPL), NDDB Dairy Services (NDS), Indian Dairy Machinery Co Ltd (IDMC) and Indian Immunologicals Ltd (IIL). Hyderabad-based "IIL has one subsidiary company Pristine Biologicals (NZ) Ltd. NDDB had obtained permission from government for forming aforesaid subsidiaries," Mr Thakur says in his written reply.
 
Quoting information provided by NDDB, the minister says, Indian Immunologicals was set up in 2004, for which the government did not give permission for amalgamation. He says, "Subsequently NDDB acquired the entire shareholding of IndiaGen in 2008. Later IndiaGen became wholly owned subsidiary of IIL in December 2008 and later got amalgamated with IIL in April 2010."
 
 
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. Here are the details...
 
 
However, as reported by Moneylife, while Mother Dairy Foods Ltd received a sanction for amalgamation with Mother Dairy on 23 July 2004, the subsidiary was last reported in 2002-03 in NDDB's annual report. 
 
Parag Milkfoods (UP) Ltd, a joint venture (JV), was last reported in 2004-05, Mother Dairy Delhi Ltd, a JV last reported in 2005-06, Mother Dairy Food Processing Ltd has vanished from NDDB reports after 2006-07.
 
Mother Dairy India Ltd, vanished from NDDB annual reports from 2006-07, while Milma Foods Ltd, a JV was last reported in 2005-06. Aanchal Milkfoods Ltd, other JV that was last reported in 2005-06 while Maathashri Milkfoods Ltd, a JV has last been reported in 2005-06. Safal National Exchange of India Ltd was a JV of which there is no record at all in NDDB annual reports.
 
Why is the disappearance significant? Because hundreds of crore rupees extended to these entities for multiple purposes appear to have gone down the drain along with the companies, without any disclosure. The auditors have had no comments to offer about these vanishing entities. 
 
Now let’s look at the sums involved. 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 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 for over 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%.
 
Earlier in June 2019, NDDB provided us a long explanation for setting up of each subsidiary and the reasons for their closure. It has claimed that “there has been no financial loss in the process of amalgamation or disinvestment, and all decision are taken by the competent authority. From time to time NDDB is called upon to carry out activities, which call for formation of subsidiaries and then based on the progress or changed circumstances decisions are taken to continue, sell stake or amalgamate with another subsidiary. NDDB’s annual report makes the related party disclosures as per accounting standard-18. If a subsidiary has ceased to exist, it would not appear in related party disclosures in the NDDB annual report. Therefore to state that the subsidiaries vanished is baseless and misleading.”
 
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 accountability and public scrutiny.     
 
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Comments
gcmbinty
2 years ago
Why it is necessary for the organisations like NDDB to take approval of the Government in the administrative ministry, if the constitution of the Board has the required provisions? I feel, just an information to the administrative ministry should work unless, of course, there are any objections from the Comptroller & Auditor general of India to any mismanagement . Let there be an element of independence of these government agencies.
Binoy Gupta
2 years ago
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.
In all fairness, the Govt. should quote some legal authority to counter this line of argument.
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