Conspiracy theories abounded at the peak of the dal crisis, not all of which were entirely unfounded. Everyone knew pulses were being hoarded, but no one had a clue how this was affecting the entire trade and the market. Could hoarding alone lead to such a shortage that prices would skyrocket so much? Unless, of course, this was being done in a concerted manner. And if at all bigger games were at play, then how did the stage-managed scarcity play out? The income tax (I-T) department’s appraisal report based on the raids carried out in the aftermath of the dal crisis did point towards the role that big corporations had played at the global level. It also got to the bottom of things by examining the books of a few key players who were manipulating stocks at the wholesale level in India.
Jindals: Suppression of incomes
The Dalip Jindal group comprising Jindal Agro International, Jindal Green Crop International, SG Polyplast and Faquir Chand Dalip Kumar and the Pradip Jindal group comprising Jindal Overseas Corporation suppressed their incomes through over-invoicing of purchases and under-invoicing of sales. They achieved this with the assistance of entry operator Ashok Gupta in Delhi and Jindal’s selling agent-cum-unofficial partner Manoj Agrawal in Indore. The I-T officials identified six bogus concerns of Gupta and 17 benami firms of Agrawal. It was found that a part of the transactions of Dalip and Pradip concerns were with genuine entities at market-determined prices. And, a part of the transactions were routed through the bogus concerns of Gupta and Agrawal. These were structured transactions at rates decided by the two Jindals, thereby reducing profits. The profit parked in these bogus and benami entities either came back to Dalip and Pradip Jindal and their concerns, or were utilised by Agrawal for buying unaccounted stock, playing dabba or entering into speculative transactions.
Gupta said in a signed statement, “ We have carried out billings on the instruction of Shri Dalip Jindal at the rate and dates decided by him. Such bills are not corroborated by any other documentary evidence.” He then elaborated on the modus operandi: “We work as commission agent and we wanted good business relations with big parties like Shri Dalip Jindal. He offered us to provide sale purchase bills of transactions which were not carried out and were just for passing entries. The sale purchase dates and sale purchase rates were instructed by Shri Dalip Jindal. We were offered negligible commission in lieu of this which we never received. We started this activity on the instruction of Shri Dalip Jindal around June 2015. We did this considering it as a normal business practice and in want of better clientele and reputation. We were not aware of any further transactions.” His bogus firms Ridhi Sidhi Impex, SA Agro International and Gunn Enterprises had transactions with four of Dalip Jinda’s companies. In all, fake bills of ₹1,160 crore were issued by Gupta’s firms to Jindal. The corroborative evidence came from Agrawal, who too submitted a signed statement to the tax authorities. Jindal could not furnish details of transactions because of a fire at his office that, he claimed, had destroyed the documents. Printed bill books of Ridhi Sidhi were recovered from Agrawal’s possession.
To estimate the tax evaded through bogus purchase and sales bills, officials picked up random examples. In one case, back-to-back sales bill were raised by one Narmada Ginning and Pressing Factory. The truck’s licence number, the quantity and dates were identical. In 2014–15 and 2015–16, roughly 24 per cent profits were evaded by Jindal Agro by routing it through Gunn and Narmada. Gupta said he issued purchase bills to concerns of Dalip Jindal at lower rates. These were then sold by Agrawal at higher rates. The money received by Gupta’s concerns were then transferred to the Dalip group which was shown by it as unsecured loan/sundry creditors. Towards the end of the year, it was squared off against bogus bills. The procedure was repeated ad infinitum, and incomes remained unaccounted for. In 2014–15, the ratio of unaccounted income to actual turnover for Parth International (one of Gupta’s firms) was around 32.8 per cent. On examining the books of Jindal Green Crop International, it was found that the concealed income as percentage of turnover was 34 per cent. In fact, the discrepancies that the income tax officials found mostly hovered around 33 per cent, or one-third of the overall amount.
The suppression of income was done through various means. First, on re-examining the audited results, it was found that SG Polyplast, Jindal Agro and Jindal Green Crop had suppressed gross profits, with unaccounted income being ₹29.53 crore in 2014–15 alone. In 2015–16 (till the raids were conducted), Jindal Agro booked losses for trading in chana. However, from several files found from the computers of Agrawal it was found that the actual rates were much higher. Books were manipulated by over-invoicing of purchase bills and under-invoicing of sales bills, which resulted in apparent losses for trading in chana. So, an addition of ₹64.07 crore needed to be made to the income of Jindal Agro for 2015–16. Jindal was aware he had booked bogus losses for chana sales in the books of Jindal Agro. Jindal ignored them while working out his profit and loss as evident from multiple Excel sheets found from his computers. After accounting for the bogus chana losses and the actual profit made on chana trading, another addition of ₹86.27 crore for 2014–15 would have to be made to his income. Similarly, the suppression of income from SG Polyplast and Jindal Green Crop for that financial year came to about ₹16 crore.
Glencore was found to be prima facie involved in providing accommodation entries to Pradeep Jindal through manipulation of import prices. Mails showed that Jindal requested for remittance of $1 million as his credit balance with Glencore 17 March 2015. Another mail revealed the mechanism devised to provide this amount to him in Singapore. Glencore manipulated contracted prices to create a credit balance of $1 million in favour of Jindal Oversees Corporation (JOC) as evident from a mail from an employee of Dongre. This was in contrast with the books of JOC wherein Glencore appeared as a sundry creditor by $2 million. Thus, it was JOC who should have paid to Glencore and not vice versa.
Agrawal: The lowest-rung manipulation
Investigation into Manoj Agrawal’s activities revealed how all this played at the lowest level of the scam. Manoj Aggarwal alias Poddar was engaged in the commodity trading of pulses, peas and grains. The commodity trading was managed through his proprietorship concern Surya Foods in Indore. Surya Foods was also into physical trading of pulses, peas and grains. Agrawal had another proprietary concern called Manoj & Company which acted as a broker and commission agent of all types of food grains. Agrawal did commodity trading under the name of Arihant Future & Commodities Ltd, Indore. He controlled and managed several benami concerns for issuing bogus bills of purchase and sale, adjusting rates of transactions (i.e. over-invoicing/under-invoicing), and managing the dabba business. Evidence in the form of pre-signed cheque books, blank signed RTGS forms, bill books and books of accounts in Tally were found and impounded/seized. Agrawal accepted all this in his hand-written submissions.
Pre-search surveillance of Manoj Agrawal’s activities showed that he was running a dabba trade to hoard stocks and manipulate prices. This was corroborated through documents/evidence recovered during search and seizure operation on his firms. Agrawal maintained a list of clients with assigned client codes. Dalip Jindal of Jindal Agro International, Pradeep Jindal and Superior Agro (Vikas Gupta Group) were his main clients. The client codes were similar to the client code system used in recognised exchanges. Dabba trade is illegal as it is tantamount to running a parallel commodity exchange.
The dots were joined by tallying the numbers recovered from Agrawal, the Jindals and the NCDEX: all these matched. Except that the trades were being conducted off the books. Agrawal traded on NCDEX on behalf of others including the Jindals and settled their accounts out of the books. He and his clients are liable for prosecution for indulging in illegal activities, the I-T department concluded.
Agrawal also indulged in future trades. Before a shipment would reach India, brokers like Manoj & Co would be asked to find buyers at a price fixed by the importer. The broker would sell consignments to other parties or brokers at a price higher than that fixed by the importer. There could be subsequent trades of purchase and sales. Agrawal would buy them back and sell again, and so on. “It’s like a commodity exchange where members enter into future trades. In these transactions, no physical exchange of consignment takes place, but Manoj & Co and his clients may either earn a profit or loss. The profit or loss so obtained is not booked by Manoj & Co and his clients. These are settled with physical delivery. Manoj & Co only earns brokerage on the same,” the appraisal report remarked.
Transactions went around in circles, making money at each stage. For instance, on 28 September 2015 (shortly before the government woke up) Surya Foods (of Agrawal) sold to Fakirchand Vinodkumar & Co 6,260 bags of imported tur dal @ ₹9500 per unit, which was immediately sold to Laxmi Cotton Industries @₹9600 per unit. Laxmi Cotton again immediately sold this to Surya Foods @₹10,500 per unit. Thus, Surya Foods sold dal for ₹ 3,00,05,280 and bought back the same for ₹3,31,59,000, thus incurring a loss of ₹ 31,53,720. Of course, both Fakirchand Vinodkumar & Co and Laxmi Cotton Industries were associated concerns of Manoj Agrawal. Similarly, on 3 August 2015, Surya Foods sold 5,200 bags for ₹2,00,00,267 to Jindal Super Dal, which sold the same to Narmada Ginning &Pressing Factory for ₹ 2,02,59,977. The same was sold back to Surya Foods for ₹2,07,79,397 thus creating a loss of ₹7,79,130 for Surya Foods. Narmada Ginning and Pressing Factory was a benami concerns of Agrawal. All this was done with such impunity that the lorry number mentioned in each set of transactions was the same.
NCDEX: Under a cloud
The indirect role played by the National Commodity & Derivatives Exchange Limited (NCDEX) in accentuating the dal crisis is still being investigated. The speculation in pulses and their price manipulation was to a great extent facilitated by the NCDEX which played right into the hands of the cartel. Coincidentally, it was in January 2015 that the Forward Markets Commission granted approval to agri-commodity bourse NCDEX to launch forward contracts in seven additional commodities including some pulses. The approval was given to launch both transferable and non-transferable specific delivery forward contracts at a fixed price in urad, tur, yellow peas, yellow soyabean meal, pepper, RBD palmolein and bajra. The NCDEX commanded almost 100 per cent market share in speculation of agri-commodities. The deliveries of goods at the end of contracts were only 1–2 percent. Moreover, a person could easily escape delivery be paying a meagre penalty of 2–3 per cent to the exchange. “So, it is a 100 per cent speculative exchange,” the appraisal report commented.
Documents showed that Edelweiss hoarded stocks of castor through its clients who bought on the NCDEX and sold entire stocks offline to Edelweiss to avoid scrutiny by the regulator. One such client was Pooja Mittal, who never traded on the NCDEX platform, but was registered under a broker named EC Commodities Ltd, a group company of Edelweiss, as a client. Mittal has purchased (delivery taken) from the NCDEX (as a client of EC Commodities Ltd) and sold the entire delivery to Edelweiss Commodities.
The I-T department is currently working on a supplementary report about the NCDEX.
Piecing it all together
The I-T officials could put everything together by tallying with one another the hard copies and digital documents that were recovered during the raids. Not everything could be recovered, but by cross-referencing whatever documents were impounded, what emerged was the existence of a cartel that operated at multiple levels and created the dal crisis of 2015.
The story, however, did not end there. In June 2016 too, dal prices had surged with tur selling at ₹170/kg and urad at ₹196/kg. In September, a panel headed by Chief Economic Advisor Arvind Subramanian called for procurement of pulses on a "war footing." It suggested better incentives for farmers in the form of higher MSP combined with effective procurement to increase domestic availability and prevent price spikes. Prices finally crashed in the winter of 2016 in the wake of a bumper crop in Maharashtra and Karnataka, and the acute crash crunch created by demonetisation. Four months later, tur dal prices hit an all-time low of ₹3,950–4,050 per quintal after the deadline for Central procurement at MSP through NAFED and other agencies expired on 22 April 2017. Farmers were reported to be still holding over one-fourth of the stocks. In fact, the Centre was already in a quandary in April over what to do with the 20 lakh tonnes of pulse stocks.
Surprisingly, there were no high-profile raids in 2016, and even the Economic Survey 2016–17 gushed earlier this year, “The prices of pulses, in particular tur or urad, remained persistently high from mid–2015 to mid–2016 due to shortfall in domestic and global supply. Since July 2016, pulses prices except gram dal prices have been declining owing to near normal monsoon, increase in the rabi pulses sowing and buffer build up by the government.” The survey, however had added a word of caution: “Vigilance is essential to prevent other agricultural products becoming in 2017–18 what pulses was in 2015–16 in terms of supply deficiencies and consequential higher inflation.”
The fact that it was a multi-level scam that had created a crisis in 2015 seems to have been forgotten.
Subir Ghosh (www.subirghosh.in) is a Bengaluru-based writer and researcher. He can be reached on indianeditor@gmail.com.
References:
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