On 22 August 2017, the Additional Director General, Adjudication, Directorate of Revenue Intelligence, Ministry of Finance, Government of India, K V S Singh ruled against the Directorate of Revenue Intelligence (DRI) in favour of the Adani group company, Adani Power Maharashtra Limited, and others, dismissing the show-cause notice served on them on 15 May 2014 alleging over-invoicing of power plant equipment and money laundering with the assistance of related entities abroad to the tune of around ₹4,000 crore.

Interestingly, two show-cause notices were issued by the DRI against the Adani group of companies on 15 May 2014, one day before the results of the 16th general elections that elected the Bharatiya Janata Party (BJP) led by Narendra Modi to power were declared. A third notice was issued in 2016.

See the first two show-cause notices from May 2014 here and here.

See the adjudication report on the first show-cause notice here.

The adjudicating authority is yet to process the two other Show Cause Notices served by the DRI making similar allegations against companies in the Adani group. One of these notices alleged that over ₹1,500 crore were siphoned out of the country by Adani Power by overvaluing imports of power transmission equipment and paid to a front company in Dubai besides being diverted to shell companies and trusts linked to the Adani family.

On the issue of over-invoicing imports of coal (mainly from Indonesia), on the last day of March 2016, the DRI had sent out an alert against 40 of the country's biggest energy and infrastructure companies alleging tax evasion of ₹29,000 crore since 2014.

Big names in public and private sectors

Among the private companies some of the most well-known names include at least six firms belonging to the Adani Group: Adani Enterprises Ltd, Adani Power Ltd, Adani Power Rajasthan Ltd, Adani Power Maharashtra Ltd, Adani Wilmar Ltd and Vyom Trade Link.

The Adani group is headed by Gautam Adani who is known to be close to Prime Minister Narendra Modi. The group has supplied coal to various power producing companies, including Tamil Nadu Electricity Board, Gujarat State Electricity Corporation, Haryana Power Generation Corporation and Jhajjar Power Ltd.

Other privately-controlled companies in the list of firms being probed by the DRI include Reliance Infrastructure Ltd and Rosa Power Supply Co Ltd, both of which are part of Anil Dhirubhai Ambani Group (ADAG) led by Anil Ambani; two companies in the Essar group promoted by the Ruia family, Essar Oil Ltd and Essar Power Gujarat Ltd; JSW Steel Ltd headed by Sajjan Jindal; four companies in the Hyderabad-based NSL group (NSL Sugar, NSL Krishnaveni Sugar, NSL Sugar Tungabhadra and NSL Textiles) promoted by M Venkataramaiah and M Prabhakar Rao; India Cements Ltd led by former International Cricket Council chairman N Srinivasan; and Uttam Galwa Steels Ltd led by Rajinder Miglani.

The list also includes Gupta Coal India Ltd; MBG Commodities Pvt Ltd; Knowledge Infrastructure Systems Pvt Ltd; three companies in the Bhatia group, Bhatia Global Trading, Bhatia International Asia Natural Resources, Bhatia Industry and Infrastructure Hemang Resources; two companies in the Gandhar group, Gandhar Oil and Refinery India Ltd and Gandhar Coal and Mines; Coastal Energy Ltd; Aggarwal Coal Ltd; Suryadev Alloys and Power Pvt Ltd; Laxmi Organic Industries Ltd; Phoenix Comtrade Pvt; and Simhapuri Energy Ltd.

Government-owned companies being investigated include the country's largest power producer NTPC Ltd (formerly National Thermal Power Corporation), MMTC Ltd (formerly Metals and Minerals Trading Corporation), MSTC Ltd (formerly Metal Scrap Trading Corporation) and Karnataka Power Corporation Ltd.

The first show-cause notice on Adani Power, which is now being revealed for the first time, claims that the group additionally siphoned off over ₹3,900 crore ($808 million) between 2011 and 2013 by importing power generation equipment for its Maharashtra and Rajasthan plants at rates almost 220 per cent higher than their actual selling prices. The equipment was meant for the company’s projects in Tiroda, Maharashtra, and Kawai, Rajasthan, run by Adani Power subsidiaries, Adani Power Maharashtra Ltd (APML) and Adani Power Rajasthan Ltd (APRL).

The DRI’s show-cause notice claims that invoices shared with it by Adani Enterprises Ltd, the Adani flagship company, indicated that orders worth ₹3,469 crore and ₹7,161 crore were placed by APML and APRL respectively for power plant equipment (including boilers, turbines and generators) with a company in Dubai, Electrogen Infra FZE. Electrogen, in turn, placed orders with equipment manufacturers, mainly the Shanghai Electric Corporation in China and some in the United Kingdom and Europe. But while the orders went via Electrogen, the goods were shipped directly from the manufacturers to the power plant sites in India.

As Electrogen Infra transacted with Indian banks in Dubai, such as Bank of Baroda, ICICI Bank and Axis Bank, the DRI summoned details of transactions carried out by Electrogen from these banks. This information revealed that Electrogen had actually paid the original manufacturers less than half of what Electrogen had charged Adani Power. Against ₹3,469 crore and ₹7,161 crore charged to APML and APRL, Electrogen had paid the original manufacturers ₹1,557 crore and ₹3,187 crore respectively.

Source: The Guardian

The alleged overvaluation for both plants works out to ₹3,974 crore or $808 million at the prevailing rates, as calculated by the DRI. In other words, this is the amount that Electrogen Infra earned as “profit” for simply being a middleman in the transaction, without even seeing the equipment (as they were shipped directly to India).

Where did this money go?

The records accessed by DRI showed that between 2011 and 2013, Electrogen Infra had wired $899.8 million from its Bank of Baroda account to its Mauritius-based holding company Electrogen Infra Holdings Ltd in 87 different transactions labelled ‘dividend’, ‘loan’ or ‘advance’. Bank declarations made by Electrogen Infra FZE (and reported by The Guardian) further revealed that this Mauritius company was owned by Asankhya Resources Pvt Ltd, which in turn was owned by Eagle Holdings Pvt Ltd, a nominee shareholder in Asankhya Resources Family Trust. Incidentally, Vinod Adani, the eldest Adani sibling is the settler of this family trust. The beneficiaries of the trust are not known yet.

As for Electrogen Infra Holdings Ltd, Mauritius filings by Electrogen Infra FZE show that Vinod Adani was the owner of Electrogen Infra Holdings Ltd until May 2011, by when several orders for power equipment were placed. Electrogen Infra FZE, the Dubai intermediary, had as its director one Jatin Shah, who was employed by Adani Group for nearly eight years. He quit as general manager in Adani Power in August 2009 and joined Electrogen Infra in less than two months. Electrogen Infra itself was formed only in July 2009 under a different name. Another director in Electrogen Infra was Moreshwar V Rabade. The DRI found that Rabade was also an ex-employee of Adani Power and had in fact signed contracts with Electrogen on behalf of APML, before quitting and joining the Dubai company. The DRI thus concluded that Electrogen Infra was a front company created by Adani Power to purposely pay higher prices for the power equipment, as any reasonable company would not pay 220 per cent extra for goods it can directly purchase. Since the goods never went to Dubai, there was also no question of any value addition by Electrogen to demand the extra amount.

In the DRI notice it is alleged that Electrogen paid $244 million to APL (Beijing) Exim Co, China, for components sourced from Europe in 2012 and 2013. Although the DRI show-cause does not delve into this, a simple internet search shows at least two trade websites list APL (Beijing) Exim Co’s legal representative as “M V Rabade”.

Is he the same Moreshwar V Rabade who quit Adani Power Maharashtra Ltd to join Electrogen Infra FZE? In fact, the website of the Embassy of India at Beijing till date lists M V Rabade as Adani Global’s chief representative in China. At the currency conversion rates implied by the DRI notice, the amount paid to this company works out to ₹1,078 crore.

Besides prima facie violating Section 14 of Customs Act (which deals with misdeclaration of values of imports), the notice had raised red-flags on money laundering to the tune of $808 million or about ₹3,571 crore at the then exchange rate were transferred from Adani Power to companies in Mauritius we know little about, except that they have links with Vinod Adani. This money has been subsidised by consumers as electricity tariffs are based on various considerations including the cost of power equipment. In other words, if these allegations are true, then the people of Rajasthan and Maharashtra have unknowingly gifted ₹3,500 crore to the Adani family.

Adding to the ₹1,500 crore allegedly siphoned off in undertaken imports of power transmission equipment as reported by The Guardian, the total money allegedly laundered by Adani now stands at more than ₹5,000 crore. The DRI has reportedly referred the allegations of money siphoned off abroad to the Enforcement Directorate, India’s central agency working to prevent money laundering.

The article by Varun Santhosh analyses the flaws in the 22 August 2017 adjudicating order of the Additional Director General, Adjudication, DRI, K V S Singh, who ruled in favour of the companies in the Adani group dismissing the show-cause notice served to them on 15 May 2014 alleging over-invoicing of power plant equipment and money laundering with the assistance of related entities abroad to the tune of around ₹4,000 crore.