DRI probe into alleged over-valuation illegal, invalid: Adani Enterprises petition in Bombay HC

The petition claimed that section 166A of CrPC which deals with issuance of LRs is “ex-facie not applicable” to investigations under the Customs Act.

Adani Enterprises Ltd (AEL), the flagship firm of the Adani Group, in a writ petition filed in the Bombay High Court has claimed that the Directorate of Revenue Intelligence (DRI) probe into alleged over-valuation of Indonesian coal imports by Adani Group firms is illegal and invalid as the agency did not follow the investigation procedure laid out under the Criminal Procedure Code (CrPC). “The investigation qua the companies herein was commenced without following the mandatory procedural safeguards contained in section 154 to 157 of the Code (CrPC), and hence the same is ex-facie illegal and void ab-initio,” said the Adani Enterprises petition.

Section 154 to 157 of the CrPC deal with the filing of a first information report (FIR); procedure for investigating cognizable and non-cognizable cases; and preliminary enquiries by the police. On August 28, AEL moved the high court seeking to quash all Letters Rogatory (LRs) issued in 2017 by DRI to foreign countries including Singapore against a few Adani Group firms that are being probed in connection with alleged overvaluation of Indonesian coal imports.

An LR is a formal request seeking judicial assistance from a foreign country in investigating an offshore entity. According to the AEL petition, the LRs were issued “without any notice and hearing the companies” and “no cognizance of any offence” under the Customs Act 1962 has been registered till now by the DRI against the Adani firms.

The petition claimed that section 166A of CrPC which deals with issuance of LRs is “ex-facie not applicable” to investigations under the Customs Act. AEL also said that LRs can be issued under section 166A only when an offence is is being probed by a police officer or a person authorised by a magistrate on his behalf.

“The letter rogatory issued (by DRI) is without jurisdiction and without authority of law,” said AEL’s petition.” The writ filed by AEL assumes significance as the DRI is probing at least 40 companies including two companies of the Anil Dhirubhai Ambani Group (ADAG), two Essar Group firms and a few public sector power firms for alleged overvaluation of coal imports from Indonesia pegged at Rs 29,000 crore between 2011 and 2015.

In 2016, three state-owned banks declined to provide to the DRI information lying with their overseas branches regarding transactions by leading power companies in connection with the coal imports case. The banks had cited confidentiality norms which prompted Revenue Secretary Hasmukh Adhia to write to these lenders to cooperate with the ongoing investigation. However, DRI is yet to get the documents from the banks.

The plea said that AEL and Adani Power Ltd procured Indonesian coal from Adani Global Pte Ltd, Singapore and Adani SZE, UAE between 2010 and 2016. AEL has claimed that while Adani Global and Adani SZE are its subsidiaries, the coal procurement was done “on principal to principal basis, and at an arm’s length”. It said that the companies have paid customs duty or availed exemption on the declared value of coal imports in accordance with the law and “there is no loss of revenue or evasion of duty”.

AEL’s petition also claimed that in 2015-16 Adani Power submitted the documents pertaining to buying of Indonesian coal imports from its subsidaries with the Central Electricity Regulatory Commission (CERC) for revision of tariff and the regulator did not find any illegality in the transactions.

However, CERC in a September 28, 2017 order gave interim compensation of Rs 800 crore to Adani Power in case of power supply to Uttar Haryana Bijli Vitran Nigam Ltd and Dakshin Haryana Bijli Vitran Nigam Ltd on the condition that that it may revisit the compensation granted to the power firm if the DRI submits its findings on alleged over-valuation of Indonesian coal imports by Adani Power to the power tariff regulator.

In March 2016, DRI issued a general alert to its field formations across India, outlining the modus operandi of over-invoicing of coal imports from Indonesia. DRI alleged that money was being “siphoned” outside the country and the electricity-generating firms were availing of “higher tariff compensation based on artificially inflated cost of the imported coal”.

The DRI alleged that Indonesian coal was directly imported from ports in that country to India while import invoices were routed through one or more intermediaries based in Singapore, Hong Kong, Dubai and the British Virgin Islands to artificially inflate its value. The agency, according to sources, found that inflated invoices received in India were issued by intermediaries, allegedly subsidiary companies of Indian importers or their fronts. The DRI alleged that in certain cases, the import value of Indonesian coal was artificially inflated by about 50 to 100 per cent by changing test reports which measure the calorific value of coal.

A report by the Comptroller and Auditor General (CAG) too has found Tamil Nadu Generation and Distribution Corporation Ltd, procured poor quality coal between 2012- 2016, resulting in an excess payment of Rs 813.68 crore to four coal suppliers including an Adani Group firm. The CAG has hinted at a planned conspiracy and has recommended an investigation into the case.