NDDB’s Response Raises More Questions on its Subsidiaries and Authority- Part 3
Moneylife Digital Team 10 June 2019
On 22 May 2019, Moneylife wrote about the propensity of the National Dairy Development Board (NDDB) to set up numerous subsidiaries and quickly cause them to vanish through a closure or amalgamation or often without an explanation. 
At the time of publishing the article -- Mother of Dairy Sham. Where Have NDDB's 16 Subsidiaries Vanished?” we had sought NDDB’s response. We received it nearly a week after the article was published and after it has generated a huge buzz on social media and especially among NDDB’s own staffers and employees, who have provided many more facts and details though emails and whistle-blower letters. 
NDDB’s lengthy response, received only on 1st June, raises new questions and merits a fresh article, especially since NDDB alleges that our article was misleading and made factually incorrect allegations. 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. 
NDDB has gone into elaborate details to explain why its large number of subsidiaries were set up, amalgamated, or merged. In this there is no divergence from what Moneylife has written, except to provide reasons for setting them up.
The point is that there is a cost attached and these large number of entities have, indeed, been closed down with regularity or amalgamated, while the ones that survive have been mentioned by our article as well. 
In its response, the Board says, “All the decisions with regard to formation or amalgamation 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 skirts the issue of requiring government permission to set up and close down these subsidiaries. The response asserts that these decisions were taken by 'the competent authority' or the 'board of directors'. This merely side-steps the fact that NDDB clearly needed Central government permission, as was obtained in 2014 (see images below). 
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 says, adding, "The department of animal husbandry, dairy and fisheries (DAFD) sought the views of the department of legal affairs, who were of the opinion that prior sanction of the government is required for subsidiaries to form other subsidiaries. It also stated that the views of the department of company affairs be taken. The department of company affairs were of the opinion that that the provisions of the Companies Act will apply. Since the memorandum and articles of association does not prohibit it, there is no legal bar on the floating of further subsidiaries."
"NDDB took legal opinion from KK Venugopal, senior advocate (now the Attorney General) who supported the same. He further advised, if the Central government persists on taking actions based on the opinion of the department of legal affairs, NDDB should approach the appropriate High Court. In the meantime subsequent to the exchange of letters, the DADF wrote to NDDB that the matter was discussed with the agriculture minister, who had desired that NDDB should take up the matter again in their board meeting and seek ex-post facto ratification from DADF, which was done," NDDB added.
However, the letters published below clearly show that NDDB does require the pre-approval from the government for setting up a subsidiary or a step-down subsidiary.
When one examines the opinions from the department of company affairs and Mr Venugopal, both are not contradictory as made out to be by NDDB. This is because when a step 1 subsidiary resolves to form another subsidiary it has to be as per the requirements of the Companies Act and the relevant articles and memorandum of association. In fact, the requirements of the Companies Act have to apply even when NDDB forms a step 1 subsidiary company as per the opinion of Mr Venugopal.
A query filed under the RTI Act has revealed that based on the comments received from the department of legal affairs, the (then) solicitor general of India has classified Mother Dairy as a semi-government organisation. Mother Dairy too had accepted this classification and demonstrably endorsed this view by using its classification as a semi-government organisation to participate in the tender put out by the Union government for the long-term lease of the Delhi Milk Scheme.
Interestingly, not all chairpersons of NDDB have bothered with this requirement, and the government has remained silent too. It is also important to know that NDDB has its own statute and the giant organisation has often argued that the Companies Act is not applicable to it. This again establishes our point that NDDB chooses a regulation that is convenient to itself. 
Government Approval: Needed or Not Needed
A well settled principle of law is that if the NDDB Act explicitly states that prior approval of the Central government is required for NDDB to form a subsidiary company, then the converse or any other actions related to such previous approval also hold equally true. In short, the un-forming of the subsidiary company through sale of equity, winding up, liquidation or otherwise, too must require previous sanction from the government.
NDDB has provided us with a long explanation for the 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.”
However, the fact is that no detailed disclosures have been made, in response to our articles, in the annual reports when the subsidiaries were merged, amalgamated or disappeared from the reports. NDDB claims that all the amalgamations were mentioned in the respective director’s reports filed with the registrar of companies (RoC) without sharing the details.  
NDDB aggressively responds that it needs permission NOT from the government but only from a competent authority, without describing who or what exactly this competent authority is.
NDDB points out that following six subsidiaries were formed during the tenure of Dr Kurien as chairman NDDB:  Hindustan Packaging Co Ltd (NDDB’s shareholding was sold to a partner at a profit); Bhavnagar Vegetable Products Ltd (NDDB’s shareholding was sold at par to an NDDB subsidiary Dhara Vegetable Oil and Food Company Ltd), IDMC Ltd (continues as a subsidiary);  Bharat Aseptic Packaging Industries Ltd  (amalgamated with IDMC Ltd); Indian Dairy Board Overseas Pte Ltd (wound up);  Kriya Milk Industries of Lanka Ltd (NDDB’s shareholding sold to partner at par). 
Interestingly, the above-mentioned nowhere competing with the NDDB either in dairy cooperatives or the marketplace or even in procurement of milk from farmers, say insiders. 
The following subsidiaries were formed during Dr Amrita Patel’s tenure as chairman of NDDB.
Indian Immunologicals Ltd-IIL (continues as a subsidiary); Mother Dairy Fruit & Vegetables Pvt Ltd (Mother Dairy, continues as a subsidiary); Dhara Vegetable Oil and Foods Co (amalgamated with Mother Dairy Fruit & Vegetable Pvt Ltd); NDDB Dairy Services (ccontinues as a subsidiary). 
India Gen Ltd was incorporated by subsidiary company IIL. Its shareholding was acquired by NDDB for technical reasons in 2008 and transferred back to Indian Immunologicals in 2008 and the step-down subsidiary was later amalgamated with IIL. NDDB did not share the technical reasons for this.
After Dr Patel’s tenure got over, T Nanda Kumar became the chairman of NDDB. He followed the procedure as stipulated in Section 43 and sought prior approval from the government while forming the step 2 subsidiary of Indian Immunologicals.
As shown in the letter above, the government, indeed, permitted the company to set up its subsidiary named Pristine Biologicals (NZ) Ltd. If there was no permission needed, as claimed by NDDB, the government would have informed the board. But, instead, the government gave its approval for setting up a subsidiary.  
In fact, when it comes to Mother Dairy and its eight subsidiaries, NDDB’s explanation only seems to confirm that the decision, which had been opposed by Dr Kurien in 2002-03, were amalgamated in Mother Dairy when the decision to form them was eventually reversed. “…these subsidiaries were created for a specific purpose and when that decision was reversed they were amalgamated in Mother Dairy after three-four years,” the statement from the board says.
Even when Mother Dairy decided to set up its own subsidiaries from 2000 onwards, Dr Kurien was not at the helm, having retired in 1998. Mother Dairy set up two subsidiaries, Mother Dairy Food Processing Ltd (MDFPL) to take care of the entire processing operations and Mother Dairy Foods Ltd (MDFL) to take care of the entire marketing operations. Mother Dairy Foods formed four joint ventures (JVs) with state dairy federations such as, Aanchal Milk Foods Limited (Uttaranchal), Parag Milk Foods (Uttar Pradesh), Milma Milk Foods Ltd. (Kerala) and Maathasri Milk Products Ltd (Andhra Pradesh) for marketing under four different brand names.
Mother Dairy Foods also set up two subsidiaries, Mother Dairy Delhi Ltd (MDDL) for the existing operations in Delhi and Mother Dairy India Ltd (MDIL) for marketing operations elsewhere under Mother Dairy brand name.
NDDB claims the decision to amalgamate all eight subsidiaries with Mother Dairy was taken despite opposition from Dr Kurien.  
NDDB further claims, “no funds from NDDB were utilized for this purpose”, but admits that the board did pay for the “brand building exercise for this initiative."
It has similar explanations for setting up the Safal National Exchange where again the decision and the eventual outcome only proves that NDDB rushed to set up businesses, which failed and had to be amalgamated.
“Though considerable effort and time was spent on the project, participation by buyers and sellers did not increase substantially. Thereafter the shares of the other partners were bought by Mother Dairy at a consideration of Re1 and the Safal National Exchange was amalgamated with Mother Dairy,” NDDB says.
Tomorrow: Financial Numbers and NDDB’s Grants to its Subsidiaries
You may also want to read…
3 years ago
Interesting, MoneyLife has suddenly woken up for the well known facts which has been always in public domain and trying to cobble together a story, which I don't know serves what purpose and whose purpose!
3 years ago
Having been closely associated with NDDB in my job as dairy cooperative professional, I can vouch for professionalism and their propensity to follow procedures and due process. I am confident that NDDB would never do anything as alleged which would not stand public scrutiny.
black and white
3 years ago
Initially when the article was first published in Moneylife in May, it came off as a genuine piece of investigative journalism which raised issues related to the governance of NDDB and its subsidiaries. But the follow up articles and certain comments that have been allowed to publish, reeks of a sinister and well thought out campaign to malign NDDB and its subsidiaries. Seems some disgruntled elements and vested interests are out to settle scores.
3 years ago
Let us hope that they stem the rot in time. Because, if they do not, then these co-operatives will face the same fate like sugar co-operatives in Maharashtra and other states. Though we cannot expect a person like Dr Kurien to come back from heaven, but it is vital that someone with high integrity and administrative ability to handle such large scale organization is brought in asap.
Iyer Siva
3 years ago
This is what is socially relevant journalism unlike any one sided politically and pseudo liberal journalism practiced by many as voiced against by general citizens. Excellent argument against the replies posted by NDDB, and validated on conceptual rigors as well. it is not always good to use ideological or vested interest prism to view thru the journalistic inquiry...
3 years ago
Thanks to Moneylife for this article. May I request an article on a random set of public limited coys to check whether they follow coy law ? This is very much required in the interest of public shareholders.
It will also be pertinent to note how many lakhs of public shareholding is involved in public limited companies and how the companies have protected or compromised public interest.
harsh vasanani
3 years ago
NDDB’s communication to moneylife is distorted in this report. If you wish to read our communication please click: http://pressclip.nddb.coop/PRC%20%20Press%20Clippings/NDDB%20reply.pdf
Replied to harsh vasanani comment 3 years ago
Hey Harsh - the pdf file you have uploaded is fake because anything official from NDDB always ends with the famous words, "This issues with the Approval of the Competent Authority". Nothing in the pdf is in NDDB's Annual Reports. Do you think NDDB will hide and try to evade reporting so much information from Parliament? Also if it is Abhijit Bhattacharjee according to you has sent the email to ML then he would have signed the hardcopy and sent it with his email. NDDB is very very pucca in these matters. Do you have signed copy of Abhijit? Why Abhijit himself has nit uploaded the pdf? Stop further misleading.
harsh vasanani
Replied to AB comment 3 years ago
The document is not fake. This has been posted here on behalf of NDDB.
Replied to harsh vasanani comment 3 years ago
Thanks for your clarification. Does this mean, you are official representative of NDDB and had posted the link in your official capacity? If you had gone through the NDDB reply, you will find it is too lengthy for an average reader. It also needs time to understand what exactly NDDB is trying to convey. We will report all details in separate articles. So keep reading Moneylife.
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