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Cobrapost Special Report: National Dairy Development Board brews a scam of more than Rs. 475 crore
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Cobrapost Special Report: National Dairy Development Board brews a scam of more than Rs. 475 crore

Mahesh C. Donia and Malini Chakraborty |
December 28, 2019

A cabal of professionals and bureaucrats, many years past their superannuation, makes the scandal-ridden premier dairy development organization their favourite playground to brew another scam by creating six producer companies essentially procuring milk from them for Mother Dairy and pumping in them huge public money, thus hurting the interest of dairy farmers and undermining the dairy cooperative movement


New Delhi (Saturday: 28 December 2019): Cobrapost has unearthed a scam that the top management of National Dairy Development Board (NDDB) has brewed in its backyard by illegally creating six producer companies and putting in them more than Rs. 475 crore of public funds. The scam, say well-placed inside sources, is the handiwork of a strong nexus of bureaucrats, some retired but still continuing, and professionals who have carved a fiefdom of their own out of NDDB. It may be recalled that NDDB spearheaded Operation Flood, one of the most successful and largest cooperative movements in dairy farming in the world, under the stewardship of Verghese Kurien, making India one of the largest milk producers in the world.

An analysis of the documents available with Cobrapost reveals that NDDB helped form six producer companies within a span of two years, between 2013 and 2015, through its subsidiary NDDB Dairy Services (NDS), and has extended them more than Rs. 475 crore in grants. These are Paayas Milk Producer Company Ltd., Maahi Milk Producer Company Ltd., Saahaj Milk Producer Company Ltd., Shreeja Milk Producer Company Ltd., Baani Milk Producer Company Ltd. and Bapudham Milk Producer Company Ltd. The subsidiary, though, has no mandate to create step-down or granddaughter subsidiaries. The big question is when the NDDB Act does not allow NDDB to promote such privately held entities, how can its subsidiary NDS do so? Although NDDB can form a subsidiary with prior permission of the Central government, it cannot form any step-down subsidiaries under Section 43(1) of the NDDB Act (Annexure 1: The National Dairy Development Board Act, 1987). Section 43(1) of the Act inter alia states:

Where the Board considers it necessary so to do, for the implementation of any of its objectives, it may, subject to previous approval of the Central Government, form one or more companies either by itself or in conjunction with any of its subsidiaries or with any other undertaking.   

Strangely, NDDB has put all its subsidiaries including Mother Dairy, NDS and all these producer companies beyond the purview of laws such as the Right to Information Act (RTI) 2005 (https://indianexpress.com/article/business/govt-advises-nddb-to-bring-mother-dairy-other-units-under-rti-ambit-5829247/). It goes without saying that by doing so the babudom in control of NDDB has created an iron curtain around the organization to keep any public gaze off their scandalous activities. Our analysis brings to the fore a litany of questionable acts which undermine the spirit with which the edifice India’s Milk Man, Kurien, helped the government to build.

Here we sum up what we found:

  • NDDB has through its subsidiary NDS formed granddaughter subsidiaries which it calls producer companies, though NDDB has no mandate to do so.
  • The six privately held producer companies have been extended more than Rs. 475 crore in grants under National Dairy Plan (NDP), a Central government scheme.
  • Of these, only five companies figure in the annual reports of the NDDB for the fiscals 2014–15 and 2017–18.
  • Strangely, Bapudham Milk Producer Company Ltd. does not figure in these annual reports.
  • Although these producer companies were supposed to refund unused funds, the NDDB not only allowed them to use the unspent funds but also approved more funds for the producer companies while extending the implementation period of sub-projects to one more year under which funds were originally given as grants.

Paayas Milk Producer Company Ltd. is based in Jaipur, Rajasthan; Maahi Milk Producer Company Ltd. in Rajkot, Gujarat; Saahaj Milk Producer Company Ltd. in Agra, Uttar Pradesh; Shreeja Mahila Milk Producer Company Ltd. in Tirupati, Andhra Pradesh; and Baani Milk Producer Company Ltd. in Patiala, Punjab. The last of these farmer producer companies, Bapudham Milk Producer Company Ltd., is based in Motihari, Bihar, which falls in the constituency of former Union Agriculture Minister Radha Mohan Singh, where the Mother Dairy Fruit & Vegetables Ltd., or Mother Dairy in short, also set up a milk processing plant in February 2018 at a cost of about Rs. 15 crore (Press Release: https://www.motherdairy.com/pdf/PR/2019/2019-01-17.pdf).

But while getting in detail into the scam, a throwback to how the national dairy development body came into being and evolved into a farmer-empowering agency will be in order to get a fair idea of its not-so-fair affairs.

Operation Flood and Coming of Age of NDDB:

The premier dairy development institution was formed as a cooperative society way back in 1965, with Kurien as its chairman. Its objective was to make the country self-sufficient in milk production. Kurien had by then pioneered a strong dairy cooperative movement Amul in Anand, Gujarat. After the success of Operation Flood, launched in 1970 with Kurien as its steward, NDDB was incorporated as a statutory body corporate by an Act of Parliament in 1987, merging Indian Dairy Corporation and NDDB. After steering the NDDB for more than three decades to dizzying heights, Kurien put his shoes down handing its reins to Amrita Patel in 1998.

Ironically, it was his protégé who soon began corporatizing and bureaucratizing the dairy cooperative movement, allege the sources. As soon as Kurien demitted office, the NDDB officialdom began all these activities in 2000. For instance, they set up subsidiaries and joint ventures with various state dairy federations, impinging on their functional independence in a clear departure from its mandate which is “to play the role of a catalyst and not to take over the role of the cooperatives”. All these years, NDDB and its subsidiary Mother Dairy have together formed 20 odd subsidiaries in the past, 16 of which have done a disappearing act intermittently. Only four of these exist today. Safal National Exchange, a joint venture, for instance, came a cropper barely three years after it was promoted by NDDB. According to its 2001–02 Annual Report, NDDB had invested over Rs. 700 crore in these ventures and subsidiaries, including an equity contribution of Rs. 219.88 crore, loans and advances amounting to Rs 422.37 crore, and grants of Rs 30.01 crore. The interest income and dividend received from these subsidiaries amounted to Rs 50.17 crore and Rs 1.38 crore, respectively. Compared to this, total loans extended to milk federations stood at Rs 1,006 crore. Not happy with the affairs at his brainchild, Kurien had in 2003 lamented, “What this shows is that NDDB's funds are being increasingly diverted to its own companies for commercial purposes rather than for development of cooperatives,” (“NDDB joint ventures against divestment policy: Kurien”, published online in The Hindu Business Line on February 9, 2003 at  https://www.thehindubusinessline.com/2003/02/09/stories/2003020901320300.htm). Between 2004–05 and 2017–18, according to news reports, the NDDB in all has lent Rs. 4477.95 crore, Rs. 2424.47 crore to dairy cooperatives and Rs 2053.48 crore to its own subsidiaries (“Exclusive! Mother of Dairy Sham. Where Have NDDB’s 16 Subsidiaries Vanished?”, published online in Moneylife on May 22, 2019 at https://www.moneylife.in/article/exclusive-mother-of-dairy-sham-where-have-nddbs-16-subsidiaries-vanished/57231.html).

When Kurien opposed Patel’s appointment for the second term, it led to Kurien’s unceremonious exit from the Institute of Rural Management Anand (IRMA), which he had founded in 1979 and nurtured for three decades. It is an irony that it was Kurien who had pressed for Patel’s appointment as Chairperson of NDDB in 1998 (“National Dairy Development Board suffers as V. Kurien, Amrita Patel battle over turf”, published online on April 8, 2005,  https://www.indiatoday.in/magazine/economy/story/19700101-national-dairy-development-board-suffers-as-v.-kurien-amrita-patel-battle-over-turf-787943-2005-04-18). Patel retired in 2014 after which T. Nanda Kumar took over the reins of NDDB. However, Nanda Kumar’s tenure was short-lived as he resigned in August 2016. His successor Dilip Rath, an ex-IAS officer, was initially brought in as Managing Director of NDDB by Patel in 2011 within a month of Rath having taken voluntary retirement from IAS. Rath was Joint Secretary in the Department of Animal Husbandry, Dairying and Fisheries between 2008 and 2010 and was also a Government nominee on the Board of NDDB. Sources say that Rath’s induction within one month of his retirement was against service rules which forbid any bureaucrat from taking an office of profit without a cooling off period of one year. Rath is now heading the NDDB as its Chairman, while Patel continues to be on the NDS Board as a “permanent invitee”.

Interestingly, Deepak Tikku who retired as Managing Director of NDDB in 2010 was appointed as Chairman of the newly formed subsidiary NDS and continued till March 2017. After he sought retirement, Rath took over as the Chairman of NDS as well. However, Tikku continues to work with NDS as mentor and advisor, while he is still on the board of Mother Dairy long after his superannuation (https://www.moneylife.in/article/nddb-gets-retired-executives-in-nds-at-top-pay-as-it-couldnt-get-better-professionals/57472.html).         

How NDDB Gives Primacy to Producer Companies over Dairy Cooperatives

Coming back to the story, a scrutiny of funds allocation by NDDB makes it clear how these private producer companies receive a preferential treatment from NDDB officialdom. Between 2013–14 and 2017–18, NDDB has given huge grants to these companies out of the funds it received from the Central government under the National Dairy Plan (NDP), Phase I. The total funds for this World Bank scheme provided by the Indian government stand at Rs. 2041 crore (http://projects.worldbank.org/P107648/national-dairy-support-project?lang=en). It is no coincidence that Rath, Chairman of the NDDB, also happens to be the Mission Director of the NDP, which clearly shows a conflict of interest. As the table given below illustrates, all these private companies have been given funds to the tune of more than Rs. 475 crore (Annexure 2: Minutes of 10th Meeting of Project Steering Committee of NDP I; Annexure 3: Minutes of 11th  Meeting of Project Steering Committee of NDP I; Annexure 4: Minutes of 19th Meeting of Project Steering Committee of NDP I; Annexure 5: Minutes of 23rd Meeting of Project Steering Committee of NDP I).

Table: Breakup of Funding Six Private Producer Companies Received from NDDB between 2012–13 and 2018–19.  

S. No.

Name of the Producer Company

Years of Funding

Amount Funded by NDDB (in Rs. lakh)

1.

Paayas Milk Producers Co. Ltd.

2012–13 to 2018–19

11,610.83

2.

Maahi Milk Producers Co. Ltd.

2012–13 to 2018–19

9960.91

3.

Saahaj Milk Producer Co. Ltd.

2012–13 to 2018–19

12,309.83

4.

Shreeja Milk Producer Co. Ltd.

2012–13 to 2018–19

5817.18

5.

Baani Milk Producer Co. Ltd.

2012–13 to 2018–19

4487.82

6.

Bapudham Milk Producer Co. Ltd.

2016–17 to 2018–19

3335.88

Total

47,522.45

All this funds allocation has been detailed in the minutes of meetings of the Project Steering Committee of the NDP I that took place on November 1, 2013, December 12, 2013, April 6, 2015 and March 22, 2017 at the NDDB Anand headquarters (see Annexure 2–5). The minutes of the March 2017 meeting while detailing the allocation of funds to producer companies Paayas, Maahi, Saahaj, Shreeja and Bani and other End Implementation Agencies (EIAs) also give an idea of how the NDDB management bent its own rules to allow the producer companies to use unspent funds. Under Minute 14 on page 6 titled “Proposal for extension of project period of sub projects approved under NDP I”, we find the NDDB management to have not only extended the implementation period of all sub-projects undertaken under NDP I “till 2018–19” on account of the government extending NDP I implementation period till 2018–19 but also allowed these companies to utilize unspent funds. To quote the relevant part of the minute,

  • The sub projects being implemented by the Producer Companies have been provided the extension of the implementation period till 2018–19. Further, approval is also granted for utilizing the unspent funds including savings till 2016–17 (Annexure 5: Minutes of 23rd Meeting of the Project Steering Committee of NDP I, Dated 22 March 2017, Minute 14, Page 6).

In a circular issued on April 23, 2015, however, the NDDB Project Unit (PMU) had categorically asked the EIAs to return all unused funds to it. “We would like to inform you that the EIAs should not use the savings for undertaking activities other than those approved by Project Steering Committee and should not send any such requests to PMU for consideration. All the savings in the sub projects would be returned back by EIAs to PMU, NDDB,” thus read the circular (Annexure 6: CMC:NDPI:Circular: 1504, 23 April 2015). In an obvious move to extend an undue favour to these private producer companies, the Project Steering Committee meeting chaired by none other than Rath thought it wise to allow them to use the unspent funds while trashing the circular to the dustbin.

Strangely, only five companies find mention in the annual reports of the NDDB for the fiscal years 2014–15 and 2017–18, whereas Bapudham Milk Producer Company Ltd. does a disappearing act. Inside sources say that the formation of Bapudham Milk Producer Co. Ltd. was a kind of payback to the then Agriculture Minister for extending Rath’s tenure and like other subsidiaries this would also be quietly buried. It is interesting to note here that all these geographically diverse companies have one common auditor, the Gurgaon-based SB Billimoria & Co. Sources say that NDS has formed 10 more such producer companies, and while promoting all these private producer companies, the NDS is using Mother Dairy to buy all the milk procured through them. Out of 3 million liters of milk procured daily by Mother Dairy, sources allege, about 2.25 million liters is bought from producer companies at a higher price and the rest from dairy farmer cooperatives. This they say is a clear instance of NDDB working at cross-purposes to the detriment of the dairy cooperative movement in the country.

Sources at the NDDB rue that creating producer companies is something totally contrary to not only NDDB’s mandate but also to its objective to promote dairy farmer cooperatives, not to impinge on their roles. Although all this is being done in the name of dairy farmer, Mother Dairy or even NDS has no dairy farmer or producer company representative on their board. In contrast, the NDDB has two representatives from state cooperative dairy federations on its Board.

All Producer Companies have Directors Drawn from NDDB Stable

Moreover, the directorship or ownership of these six farmer producer entities makes the motive behind their formation suspect as it is divided between directors or employees of either the NDDB or its other subsidiaries. Take Paayas Milk Producer Company Ltd., for instance. Of its four directors, Ratan Kumar Singh has been employed with both NDDB and Mother Dairy, while Omveer Singh (Managing Director of NDS) and Sriram Singh are employees of NDS. We find Omveer Singh and Sriram Singh again on the Board of Directors of Maahi Milk Producer Company Ltd., while Madhavi Mehta, another Director, is an IRMA employee. It is no co-incidence that, according to sources, Mehta’s husband, Satinder Gill works in an influential position in NDDB’s HR Department. Rath also happens to be the Chairman of IRMA. Omveer Singh, who had earlier worked in Mother Dairy’s Fruit and Vegetable Project and, according to sources, owes his job for his allegiance to Tikku and Patel, is on the Board of Directors of yet another producer company Shreeja Mahila Milk Producer Company Ltd., while two other directors N.V. Belavadi and K.V. Prasad on its Board are former employees of NDDB. We find Belavadi again on the Board of Saahaj Milk Producer Company Ltd., while Rishi Raj, a former employee of Mother Dairy, is another director. Ajay Kumar Khosla, former Executive Director of NDS and a long-time former employee of Mother Dairy, is one of the directors in Baani Milk Producer Company Ltd. and Saahaj Milk Producer Company Ltd.

It is obvious that all these producer companies are being managed and controlled by NDS. It is no surprise if the NDDB top brass is going out of way to promote these entities. Rath in our analysis emerges as an omnipotent force controlling the entire organization and subsidiaries, as he not only heads NDDB but also NDS, Mother Dairy and IRMA as their Chairman, apart from heading NDP-I as its Mission Director.   

How Subsidiary after Subsidiary has Done a Vanishing Act

As our analysis suggests, creating subsidiaries and step-down subsidiaries and investing in them huge sums of public money contrary to its mandate is, in fact, a way of life with NDDB. The past decade-and-half history of the NDDB, as already indicated earlier, is replete with instances such as these which show it never cared to follow its mandate which forbids it to form granddaughter subsidiaries or privately held companies. The formation of NDS in itself is questionable which, sources say, was created as a parallel organization undertaking similar activities to those of its parent NDDB but catering to the private interests instead of those of dairy farmers. The subsidiary was incorporated as a private limited company in 2009–10 with NDDB investing Rs. 1 crore. But the next year, NDS was converted into a non-profit organization after which NDDB invested Rs. 199 crore in it. The conversion of a commercial enterprise to a non-profit also means one cannot hold either the NDDB or the subsidiary in question accountable if all the money invested thus is lost.

Similarly, NDDB invested Rs. 18.4 crore in Indian Immunologicals Ltd. and Rs. 35.5 crore in Indian Dairy Machinery Co. Ltd., both subsidiaries, in the form of capital contribution and grants. If we put all these figures together, NDDB has given away more than Rs. 1000 crore to its subsidiaries and step-down subsidiaries, as in case of Mother Dairy, which have given away the money to their subsidiaries further down, though they do not have a mandate to do so, without the approval of the Central government. In the past 13 years or so, NDDB has made capital investments of more than Rs. 600 crore in the form of equity and grants in its subsidiary Mother Dairy, which created nine subsidiaries further down which disappeared some years later. These are Mother Dairy Foods Ltd., Parag Milkfoods (UP) Ltd., Mother Dairy Delhi Ltd., Mother Dairy Food Processing Ltd. Mother Dairy India Ltd., Milma Foods Ltd, Aanchal Milkfoods Ltd, Maathashri Milkfoods Ltd. and Safal National Exchange of India Ltd. All these subsidiaries were joint ventures.

The most glaring example is the creation of Mother Dairy Foods Ltd. (MDFPL). The subsidiary was used in 2006 as a vehicle to form Safal National Exchange, a joint venture with the scandal-ridden Financial Technologies India Limited (FTIL) and Multi Commodity Exchange of India (MCX), which was shut down three years later. According to news reports, Mother Dairy is alleged to have committed a fraud of Rs. 1000 crore and for this reason has drawn attention of the Department of Economic Affairs in recent times (“Mother Dairy under scanner: DEA seeks ‘necessary action’ over alleged Rs 1,000-crore fraud”, published online in The Indian Express: https://indianexpress.com/article/business/mother-dairy-under-scanner-dea-seeks-necessary-action-over-alleged-rs-1000-crore-fraud-5720171/).

Another example showing fiscal imprudence is the investment of Rs. 190 crore that Mother Dairy has made in IL&FS, a company that is encumbered with an insurmountable public debt of more than Rs. 90,000 crore in what is billed as mother of all financial scams (https://indianexpress.com/article/business/companies/mother-dairy-invested-rs-190-cr-in-ilfs-sent-sos-to-pm-after-default-5659549/). On account of this reckless investment, Mother Dairy has lost its AAA rating. For this reason, the then Managing Director of Mother Dairy Sanjeev Khanna was shown the door. Sources, however, say Khanna was made a scapegoat as such decisions are made only by Rath and Tikku. Surprisingly, some of such acts of omission and commission have also been brought to the notice of the Parliament and Union Ministry of Agriculture, yet no corrective measures have been taken to stem the rot.

Of all the subsidiaries NDDB created in all these years only Mother Dairy, NDS, Indian Dairy Machinery Company (IDMC) Ltd. and Indian Immunologicals Ltd. exist. While the first two are based in Delhi, the last two are, respectively, in Anand and Hyderabad. The rest have disappeared, so have all the money and resources invested therein. Some of these companies are IndiaGen Ltd., Dhara Vegetable Oil & Foods Co. Ltd., Bharat Aseptic Packaging Ltd., Bhavnagar Vegetable Products Ltd., Kiriya Milk Industries of Lanka Pvt. Ltd. and Hindustan Packaging Co. Ltd.  Some of them were merged or amalgamated with the existing subsidiaries. Dhara Vegetable Oil & Foods Co. Ltd., for instance, was amalgamated with Mother Dairy and its staff accommodated therein. Similarly, IndiaGen Ltd. has been amalgamated into Indian Immunologicals Ltd. Interestingly, Patel has been director of six of these subsidiaries, including IndiaGen Ltd., Dhara Vegetable Oil & Foods Co. Ltd., IDMC Ltd., Safal National Exchange and Indian Immunologicals Ltd. (Annexure 7: Zaubacorp.com.pdf). Recently, Anurag Thakur, minister of State for Finance and Corporate Affairs made a candid admission on the floor of the Rajya Sabha, the Upper House of Indian Parliament, that NDDB never sought approval from the Central government for setting up subsidiaries of Mother Dairy and for the amalgamation of IndiaGen Ltd. with Indian Biologicals Ltd. (“NDDB Never Took Approval from Govt for Setting up Subsidiaries of Mother Dairy, Confirms MoS Anurag Thakur”, published December 9, 2019 on https://www.moneylife.in/article/nddb-never-took-approval-from-govt-for-setting-up-subsidiaries-of-mother-dairy-confirms-mos-anurag-thakur/58857.html).

Conclusions: It is apparent from our analysis that the top NDDB brass enjoys an overwhelming influence in the corridors of power so much so that they have been able to keep the organization off limits to laws such as RTI Act and institutions such as Controller and Auditor General of India (CAG). It is no surprise then that the government advises, rather than directing them, to bring all NDDB subsidiaries under RTI Act (Annexure 8: Reply by the Minister of State for Fisheries, Animal Husbandry and Dairying to the Rajya Sabha on 12th July 2019; “Govt advises NDDB to bring Mother Dairy, other units under RTI ambit”, The Indian Express, published online on July 15, 2019 at https://indianexpress.com/article/business/govt-advises-nddb-to-bring-mother-dairy-other-units-under-rti-ambit-5829247/). In fact, they have resisted tooth and nail any attempt to make NDDB accountable. The two-page order of the Central Information Commissioner makes an interesting reading giving a peek into the functioning of NDDB and its subsidiary Indian Immunologicals Ltd., wherein both denied information to an appellant on the pretext that “the company was not a public authority” to be covered under RTI Act 2005. Trouncing such an averment, however, the CIC order of May 2017 directed the NDDB to furnish the information sought by the appellant as they were a public authority (Annexure 9: Central Information Commission decision File No. CIC/SH/A/2016001106/MP dated May 17, 2017). In other words, the CIC order establishes beyond doubt the applicability of the law to both NDDB and its subsidiaries. In spite of the government advising the NDDB to submit to the RTI Act, it has dodged the issue on one pretext or the other, which speaks volume about government unwillingness to make the organization accountable (“NDDB Continues to Dodge RTI Cites Sub-Judice Case to Ignore Govt Advice” published online https://www.moneylife.in/article/nddb-continues-to-dodge-rti-cites-sub-judice-case-to-ignore-govt-advice/58811.html).

 

In yet another instance of warding off any attempt to bring transparency to its functioning, the NDDB filed a petition in the Delhi High Court in 1998 “challenging CAG’s right to conduct audit in the case of the petitioner under Section 14(2) of the CAG Act” after disputes were raised before the Committee of Secretaries in this regard (“Delhi High Court: National Dairy Development Board vs Union Of India & The Comptroller & Auditor General of India, date of decision 27 January 2010” available online on https://indiankanoon.org/doc/10226073/). But the High Court rejected the contention of the NDDB management “that if CAG conducts audit under section 14(2) of the CAG Act, autonomy and freedom of the NDDB will be compromised contrary to the provisions of the NDDB Act”, thus allowing CAG to conduct both financial and performance audit of NDDB.

Almost a decade has passed since the High Court passed the order; however, the CAG has failed to fulfill its constitutional obligation, while the NDDB is yet act on RTI advisory that the government has issued some months back. This, we believe, speaks volumes about the influence the NDDB top honchos wield. Given the government’s kid-glove handling of the NDDB it is unlikely the retired bureaucrats and professionals will loosen their stranglehold on the organization and make its functioning transparent. In order to have their version, Cobrapost has sent this detailed questionnaire to Agricultural Secretary and NDDB Chairman on 26 December 2019. Till the publication of the story we have not received their response. However we promised to publish their response in subsequent post as soon we receive the same. On 23 January 2020, we received their response stating, “At the outset, we note that the Article is replete with false assertions, allegations and insinuations, made recklessly and irresponsibly without verifying and checking their factual accuracy and without exercising due care and attention.” For detailed reply from NDDB please click here.


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