Adani Group companies have been accused of over-invoicing coal and power equipment by an Indian government agency and by the Hindenburg report. 'Over-invoicing’ is a practice in which the prices of imported goods are jacked up by an intermediary owned by the buyer. The inflated price is passed on to consumers or is subsidised by government, with the buyer able to pocket the difference. A blizzard of litigation has occurred over these allegations in India’s courts. In early 2024, rulings by the Supreme Court and the Delhi High Court appear to have shunted any effective investigation of these allegations off into the never-never.
A key hearing at India’s Supreme Court in a case relating to the Directorate of Revenue Intelligence (DRI) investigation into alleged over-invoicing of coal imports by the Adani Group was quietly postponed by six months on 6 February 2024, with no apparent explanation. The court’s website states that on that day, when the case was listed for hearing, it was ‘not taken up’, and that the next date for listing is 6 August. This development has not been reported in the Indian media.
The case at the Supreme Court will determine whether the DRI – India’s customs investigation agency – is legally able to seek the issuance of Letters Rogatory (LRs), which are international legally-enforceable instruments (issued by an Indian court to a foreign court) by which Indian law-enforcement agencies can ensure the cooperation of foreign individuals and companies in an investigation.
The case at the Supreme Court is the latest act of a years-long effort by the Adani Group to prevent the DRI from accessing key information held by the group’s foreign subsidiaries, which the DRI suspects played a part in the alleged over-invoicing. The outcome of the case will determine whether the DRI is able to legally enforce cooperation with its investigation by the foreign Adani subsidiaries. If the DRI loses this case, its investigation will hit a dead end.
The Supreme Court is hearing the DRI’s appeal of an earlier decision by the Bombay High Court, which had ruled, on a petition by the Adani Group companies under the DRI’s scrutiny, that the DRI did not have the power to have LRs issued. The Adani Group had approached the Bombay High Court after several of its subsidiary companies registered outside India, some in tax havens, had received Letters Rogatory seeking their compliance and cooperation with the DRI’s investigation. This petition to the Bombay High Court by the Adani Group followed the failure of its previous attempt to get out of complying with the LRs. A subsidiary of the Group in Singapore had approached the courts in that country but had failed to secure an order in its favour.
Meanwhile, last month, in a separate case, the Delhi High Court kept ‘in abeyance’ its previous order of December 2023 that had urged the DRI and the Central Bureau of Investigation (CBI) to ‘meticulously and expeditiously’ look into allegations of over-invoicing of coal and power-equipment imports by the Adani Group.
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That case, a public interest litigation (PIL) which had been filed by a civil-society group in 2017, had finally concluded in 2023 with the court denying the petitioners’ request for the court to order the setting up of a cross-agency Special Investigation Team (SIT) under the court’s supervision to investigate all the violations of law flowing out of the alleged over-invoicing. While denying the request for an SIT, the court had urged the two agencies to ‘meticulously and expeditiously look into the allegations’ of over-invoicing, in an order pronounced on 19 December 2023.
While the case had taken over six years for this judgment to be reached, it took less than three weeks for the Delhi High Court to then suspend its own order. A petition filed by the Adani Group pointed out that one of the allegations that the court had ordered an investigation into was the subject of a pending petition at the Supreme Court, where the DRI is seeking review of a decision where the Supreme Court upheld the dismissal of its case against the Adani Group in one of the alleged instances of over-invoicing of power-plant equipment. The Delhi High Court heard this petition of the Adani Group with alacrity during the festive period and took little time to declare that its order that the CBI and the DRI ‘meticulously and expeditiously’ look into the allegations would be kept ‘in abeyance’ (effectively suspended) with regard to the accused Adani subsidiaries in the over-invoicing case pertaining to equipment for power plants.
These two legal developments combined mean that there is unlikely to be any substantial progress in the investigations into alleged over-invoicing at least until after the forthcoming general election. Ironically, these rulings that stall the investigations into alleged over-invoicing come on the heels of fresh evidence unearthed in investigations by the Organised Crime and Corruption Reporting Project (OCCRP) that detailed how funds obtained through alleged over-invoicing were funnelled into shell companies in tax havens that were owned by associates of the Adani Group. Similarly, the Financial Times revealed that the same pattern of apparently inflated costs of imports continued well past the period under scrutiny by the DRI and the CBI, until as late as 2019 at the very least. The original documents underlying the OCCRP’s investigation were published exclusively by AdaniWatch in a two-part series (part 1 and part 2).
Understanding the over-invoicing allegations
The Adani Group generates electricity at its various coal-power plants and sells it to government-owned electricity-distribution companies across India, which distribute electricity to households and businesses, charging them for the power. The Adani Group is the largest private generator of electricity in India. A proportion of the coal that it uses at its power plants is imported, as are the equipment such as boilers that it uses to build its coal-power plants.
As a result of this arrangement, if it, as is alleged, inflates the cost of the import beyond the actual price it is paying to the foreign supplier, then the Adani Group company concerned is able to recover the inflated costs from the electricity tariff paid to it by the government-owned distribution company, and ultimately from the individual households and businesses that consume the electricity in India.
The alleged scheme by the Adani Group is as follows: an Adani subsidiary in a foreign jurisdiction such as Singapore or Dubai would purchase the items for import into India – a shipment of coal or a batch of equipment – from the foreign supplier at a certain price, and then sell it to another Adani subsidiary in India at an inflated price, which would utilise the imported coal to generate electricity for sale, or utilise the imported equipment in a power plant it was setting up from which it would then generate electricity for sale. The rate at which it sold electricity was determined based on the cost of inputs – equipment and coal – and an acceptable rate of profit (overseen by a regulatory commission). In effect, the public paid a much higher tariff than justified by the actual price of the inputs.
The foreign subsidiary would pocket the difference between the price for which it purchased the original items and the inflated invoice it charged the Indian importing company (the proceeds of the over-invoicing) and then route it into shell companies in a foreign jurisdiction – usually Mauritius. Documents indicate that the shell companies concerned were owned by associates of the Adani Group. Meanwhile, the Indian purchasers of electricity from Adani paid inflated rates for electricity.
The allegedly illicit gains through over-invoicing of equipment and coal by a number of different companies totalled at least Rs 39,000 crore (about US $4.6 billion), according to stories published by investigative journalist and AdaniWatch contributor Paranjoy Guha Thakurta for the Economic and Political Weekly in 2016, when he first broke the story. Of this amount, at least US $1.01 billion was attributable to equipment imports by the Adani Group. These amounts were drawn from evidence put together by the DRI, which Guha Thakurta released to the public in 2017. Adani Group companies were also named by the DRI as among the importers of coal alleged to have over-invoiced coal imports, but the specific amount involved has yet to be revealed, as the DRI was never able to complete its investigation or to draw up charges against the Adani Group companies concerned, due to the blocking of its efforts by litigation.
In the OCCRP’s stories of 2023, investigative journalist and AdaniWatch contributor Ravi Nair and his colleagues Anand Mangnale and NBR Arcadio accounted for US $100 million of the alleged gains through over-invoicing. They explained how those funds were held in shell companies linked to the Adani Group and were reinvested back into the Indian stock market through a network of Mauritius-based investment funds which were controlled by Vinod Adani (the older brother of Gautam Adani). Other documents referred to by the OCCRP showed that a separate set of shell companies controlled by Nasser Ali Shaban Ahli of the United Arab Emirates and Chang Chung-Ling of Taiwan invested millions of dollars into publicly-listed companies of the Adani Group. (At no stage was it asserted that the funds garnered from alleged over-invoicing were the same funds invested into Group companies.)
Where the investigations stand
The allegations of over-invoicing by the Adani Group have led to investigations by two law-enforcement agencies in India – the DRI and the CBI. While the DRI has investigated the alleged over-invoicing of equipment and coal, the CBI was involved in only one investigation of the alleged over-invoicing of equipment.
The scope of the various investigations varies. The DRI is the agency vested with the responsibility to enforce customs law, and its investigation is under the rubric of mis-statement of value of imported goods. In this framework it is only empowered to seize the imported goods, and if that is not possible, to impose a financial penalty. Any other potential crimes that the DRI might unearth, such as money laundering or fraud, must be referred to the relevant agency that has the jurisdiction to investigate those offences. The CBI, on the other hand, is India’s premier law-enforcement agency, empowered to investigate all violations of law.
The over-invoicing was first unearthed and alleged by the DRI itself. It gathered evidence sufficient to identify certain shipments of equipment imported by the Adani Group for use in setting up coal-power stations in the states of Maharashtra and Rajasthan and a network of transmission lines in Maharashtra. The DRI framed charges of mis-statement of import value for those imports of equipment and presented its evidence in the form of ‘show-cause notices’ (SCNs) that were served to the Adani Group companies involved. Two such notices were served – both dated 15 May 2014. One was to Adani Enterprises Limited, concerning transmission-equipment imports with over-invoicing of an alleged Rs 1526 crore (about US $183 million), and the other was to Adani Power Limited, concerning coal-power equipment imports with over-invoicing of an alleged Rs 3974 crore (about US $478 million).
These show-cause notices were then to be adjudicated upon by an authority within the DRI, that serves on the judicial side of the agency. This authority acquitted Adani Power of the charges in the coal-power plant equipment case in an adjudication order dated 22 August 2017.
The DRI had found evidence that a company named Electrogen Infra FZE (EIF) based in Dubai had acted as a middle-man for imports of equipment from China and South Korea. EIF was ultimately owned, through a complex corporate structure, by Vinod Adani, the DRI had shown, and EIF had inflated the cost of equipment it imported by 398% in the case of transmission equipment, and 220% in the case of power-plant equipment. The DRI had also obtained copies of contracts between EIF and the original equipment manufacturers (OEMs) in South Korea and China, and copies of contracts between EIF and the Adani Group subsidiaries importing the goods in India. Additionally, DRI had obtained copies of invoices paid by EIF to the OEMs and then invoices paid by the Adani Group subsidiaries in India to EIF. The DRI had also obtained evidence that while the sale of equipment from the OEM to the Adani Group in India proceeded on paper through EIF, with the significant increase in price as it passed through EIF, the physical shipment of the goods had taken place directly from the source country to India. These, together, constituted evidence of over-invoicing, according to the DRI.
The adjudication authority, however, glossed over these issues in its order and accepted the Adani Group’s argument that EIF was an engineering, procurement and construction contractor (despite the lack of evidence of any such services provided by it), and that it was offering services such as an extended warranty over and above that offered by the OEM that justified the inflated cost. This acquittal, that has been critiqued as dubious, and issued by an official who was placed in the position of adjudicating authority in questionable circumstances, has stood the test of appeals at the Central Excise and Service Tax Appellate Tribunal (CESTAT) and then at the Supreme Court. The DRI is currently pursuing a review petition at the Supreme Court against its decision to uphold the CESTAT’s dismissal of DRI’s appeal against the adjudicating authority’s order.
It is this review petition by the DRI that the Delhi High Court has effectively put on hold indefinitely.
The petition before the Delhi High Court had raised three sets of allegations – the over-invoicing of coal by 40 companies, Adani Group companies among them, alleged in a circular by the DRI in 2016; the over-invoicing of coal-power equipment and transmission-line equipment by the Adani Group alleged by the DRI in 2014; and the over-invoicing of equipment for thermal coal-plants, oil refineries, and fertiliser manufacturing by companies in the Essar group alleged by the DRI in 2015.
The Delhi High Court’s December 2023 order had sought investigations into all these allegations by the DRI and the CBI. Its order of ‘abeyance’ concerns only the investigations against Adani Power – where the specific allegations against it in the case about the power-plant equipment are concerned.
However, the DRI has stopped moving on the rest of its investigations of equipment over-invoicing while it awaits the conclusion of the legal process on the one case that has been adjudicated and dismissed – the Adani Power case of imports of coal-power plant equipment. Since its evidence and arguments are comparable in the rest of the equipment import cases, the DRI reasons that it faces a losing precedent unless it is able to overturn the dismissal of the Adani Power case. This is what it told the Delhi High Court in an affidavit during the proceedings of the PIL.
Meanwhile, the DRI’s coal-imports investigation is stuck indefinitely until the Letters Rogatory case comes to a conclusion at the Supreme Court. Here, too, it is faced with a losing precedent. One SCN was issued against a coal importer named Knowledge Infrastructure Systems Private Limited (KISPL) by the DRI on 31 August 2016. This SCN alleged over-invoicing of imports of coal to the tune of Rs 12.57 crore (about US $1.5 million). Here, the same adjudicating authority of the DRI upheld its case and imposed a penalty on KISPL in December 2016. However, the case was dismissed by the CESTAT on an appeal by KISPL in May 2018. The DRI sought to appeal the CESTAT’s order – but while the Supreme Court was the correct venue of appeal, the DRI curiously chose to appeal at the Bombay High Court. In June 2019 the Bombay High Court dismissed its appeal and told the DRI to appeal to the Supreme Court.
Subsequently, the DRI appealed before the Supreme Court in a suit filed in 2020, but in January 2023 it withdrew its appeal, without the ‘question of law’ in the case being adjudicated upon by the Supreme Court. What was the question of law? Here is what makes the matter of the Letters Rogatory so crucial.
The evidence the DRI had marshalled in the KISPL case consisted of multiple sets of invoices and coal-quality testing certificates for the same coal imports from Indonesia. One set of invoices and testing certificates was recovered from Indian customs authorities, which had been submitted by KISPL at the time of import, showing KISPL purchasing the coal from two Hong Kong based companies, and the other was recovered from a Switzerland-headquartered company named IMR that claimed to have sold the same coal to a KISPL subsidiary in Singapore. The second set of invoices showed a lower amount paid for the coal, and the second set of testing certificates showed the coal to be of a lower quality than the corresponding figures in the first set of invoices. The DRI also unearthed Bills of Lading for the shipments of coal from Indonesia that showed IMR as the seller, KISPL as the buyer, and the Hong Kong companies as the intermediaries. Together, these bills of lading and the invoices and certificates recovered from IMR proved that the value of coal had been inflated, and that fraudulent testing certificates had been produced to justify the higher price, the DRI argued.
The CESTAT, however, rejected the entire second set of invoices and testing certificates that the DRI obtained from IMR, accepting KISPL’s defence that these documents had been provided by IMR itself and had not been authenticated further. Additionally, the CESTAT charged the DRI with gaps in its investigation, for not having probed into the Hong Kong intermediaries and the coal-testing agencies that issued the allegedly fraudulent coal-testing reports.
This is the context in which the DRI is seeking to force foreign companies to participate in its investigation using Letters Rogatory. Once a Letter Rogatory is served on a foreign company, it is enforceable in that country’s legal system because such a letter is technically a formal notice from an Indian court to the court with the appropriate jurisdiction in that company’s country. If the DRI’s LRs are enforced, it will be able to obtain all the detailed information needed to authenticate documents and close gaps in its investigation of coal over-invoicing in the case of the remaining 39 companies apart from KISPL, including the Adani Group companies.
The Letters Rogatory issued by the DRI are teetering on a legal ledge. In its petition to the Bombay High Court, the Adani Group argued that under the statutes that allow a Letter Rogatory to be issued, only the police or an agency deemed to have policing powers can issue such a letter, and it can be done only following the registering of a First Information Report or equivalent. The Group argued that since the DRI has not registered such a report, and since it is not explicitly deemed an agency with police powers in the law that created it, it should not be allowed to issue such letters. The Bombay High Court accepted these arguments and cancelled the DRI’s Letters Rogatory in the coal over-invoicing case, while declaring the DRI unable to issue such letters at all. The Supreme Court, on DRI’s appeal, issued a stay on the Bombay High Court’s order declaring the DRI unable to issue Letters Rogatory, but is yet to rule on the validity of the letters issued in the coal over-invoicing investigation, or the broader legal question.
And now, following the (non-)events of 6 February, the Supreme Court will take at least another six months before hearing the case next.
The quandary that these investigations are facing is partly the result of the DRI being the only agency pursuing them, with its remit being only the enforcement of customs law. The CBI has been loathe to involve itself. In the case of equipment imports by an Adani subsidiary in Maharashtra, the CBI had started an investigation, but closed the case saying that it had been denied permission by the Maharashtra government to investigate (as a federal agency the CBI must take the permission of a state government to investigate in its jurisdiction). In no other of these cases has the CBI opened an investigation, even following the Delhi High Court’s order.
The CBI would face no legal hurdle in issuing a Letter Rogatory, as it is by definition a policing agency, established under the Delhi Special Police Establishment Act. It would also be empowered to investigate charges outside of customs violations of mis-statement of value, including criminal offences such as fraud and money laundering. Perhaps this is precisely the reason it has yet to be involved. While the CBI is nominally an autonomous agency, in practice the cases it chooses to take up are often politically determined.
A previous article argued that the investigations of alleged over-invoicing by the Adani Group are being stymied and sabotaged for political reasons. There is no reason yet to believe that this has changed.
The author is an independent journalist based in New Delhi.
