More than a decade ago, when media and civil society were going gung-ho against the then UPA government for the “Coalgate” scandal, the furore was focussed on a report prepared by an independent institution, the Comptroller and Auditor General (CAG) of India, that revealed evidence implicating the Union government and multiple coal mining companies. The CAG had found that the government had allocated a slew of coal blocks to privately-owned mining companies without conducting fair auctions.

The subtext, that was never proven conclusively in most cases, was that the individuals behind these mining companies had bribed ministers and government officials to receive lucrative leases and contracts to mine coal. The “notional loss” to the exchequer in this scam, the CAG, then headed by Vinod Rai, had calculated, was a mind-boggling Rs.1.86 lakh crore (or Rs 1.86 followed by ten zeroes) in the form of revenue that the government could have earned if it had auctioned the mines. In 2014, the Supreme Court cancelled the allocation of over 200 coal blocks that had come under the scanner of the CAG.

At around the same time that this scandal was raging—which contributed to the downfall of the second Manmohan Singh government and paved the way for the rise of Prime Minister Narendra Modi in 2014—another government institution was unearthing a different coal scam. This scam’s main victim was the public at large rather than the government’s coffers. The Directorate of Revenue Intelligence (DRI), an investigation agency, which comes under the Ministry of Finance, had found evidence that over 40 companies were over-charging for coal that was imported and sold to thermal power plants across the country. (Over-invoicing means overstating the value of a product in its payment invoice and other documents.)

The scandal relating to alleged over-invoicing of coal imports that DRI had unearthed, which implicated many of India’s large corporate houses including Reliance, Tata, Essar, and Adani, besides public sector undertakings, was about directly transferring money from the pockets of ordinary Indian consumers in the form of illegally inflated electricity bills, to the pockets of these large corporate conglomerates. These illegal profits, the DRI alleged, were being laundered by routing them through shell companies in tax havens, then brought back into India in the form of foreign investment in corporate entities whose shares are listed on stock markets.

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These over-invoiced coal imports were only a part of a wider con on India’s electricity consumers by some of these players, according to the DRI, the country’s customs investigation agency. In late 2013, the DRI unearthed evidence that some of these companies had also allegedly overstated the value of equipment imported to set up thermal power plants and transmission lines in India. This too, the directorate claimed, similarly led to illegally inflated electricity bills as the consumers ended up paying for the cost of setting up power generation projects. The allegedly overstated value of the imported coal and equipment put together amounted to over Rs 35,000 crore, just between 2011 and 2014, according to the DRI.

In a different day and age, the DRI’s findings should have led to a wide range of investigative and enforcement actions. Whereas the DRI could only penalise those misstating values shown on invoices at the point of import, the wider scam should have attracted charges relating to money laundering and trade-based tax evasion which come under the jurisdiction of the Directorate of Enforcement (ED). Like the DRI, the ED comes under the administrative ambit of the Finance Ministry, besides the income tax authorities.

In addition, allegations of manipulation of share prices and violation of laws and rules relating to transactions in securities would come under the remit of the Securities and Exchange Bureau of India (SEBI). Moreover, prosecutable charges of fraud, conspiracy, bribery, and so on, could be investigated by the police or police agencies like the Central Bureau of Investigation (CBI). To be sure, all these agencies had registered cases related to this scam.

Unlike Coalgate, however, this scam that was also unearthed by the government’s law enforcement and investigation agencies has seemingly died a slow death in the system without leading to any substantial action. Does this mean that the entire issue was bogus, that there were no white-collar crimes committed? As we shall see, this is exceedingly unlikely. Instead, the more likely explanation is that the agencies concerned have been politically coerced into not following through on their investigations and some of the cases have been sabotaged because the biggest corporate player implicated—namely, the Adani Group, India’s largest private importer of coal and private generator of electricity—is perceived to be closely associated with the ruling regime and Prime Minister Narendra Modi.

That the agencies’ investigation into this scam was being undermined by the government itself was already evident to insiders in the early stages of their attempts to investigate and prosecute this scam, that is, in the first couple of years of the Modi regime’s decade in power. This was why, back in 2016, a source in the Finance Ministry chose to leak the findings of the DRI which were revealed by two of the present authors (Paranjoy and Abir) in the Economic and Political Weekly. Further leaks to the press have followed, including to journalists of The Guardian, in 2017, and to journalists of the Organized Crime and Corruption Reporting Project (OCCRP) including one of the present authors (Ravi) in 2023. In effect, investigative journalists have been filling in for the missing law enforcement agencies, bringing out evidence of crimes having been committed in the public domain that the agencies and courts are unable, or unwilling, to prosecute.

The first indications of the Modi government’s inclinations came in the form of sidelining officials investigating the veracity of the allegations. The DRI’s Mumbai Zonal Unit had led the investigations into the allegations of over-invoicing of imported thermal power equipment by the Adani Group, and subsequently, the alleged over-invoicing of coal imports. The unit had started its investigations in 2013 when the UPA-II government was in power, and issued show-cause notices (the DRI’s equivalent to a charge sheet) to Adani Power Limited and Adani Enterprises Limited on 15 May 2014, a few days before the 2014 election results were declared.

The Ahmedabad branch of the ED also filed a preliminary complaint based on the information it received from the DRI, and J.P. Singh, an official of the DRI’s Mumbai Zonal Unit, who had been transferred to head the ED’s Ahmedabad branch, was overseeing the ED’s investigation.

In 2016 J.PSimla Stock. Singh became the target of an investigation by the CBI, alleging that he owned disproportionate assets. He was pushed out of his position, and subsequently, the cases against the Adani Group went inside the cold storage.

P.K. Dash had led the DRI Mumbai Zonal Unit’s investigations into the allegations of over-invoicing power equipment. His signature appears at the bottom of the show-cause notices issued in May 2014, and he was closely involved in the coal imports investigation as well. In 2016, Dash was given a new assignment at the National Academy for Customs, Indirect Taxes, and Narcotics, a training institute.

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A separate preliminary investigation by the CBI in one of the Adani power equipment import cases was shut down because the Maharashtra government denied it permission to probe the allegations.

While officials who investigated the case were being shunted around, a new official was brought in to adjudicate on the show-cause notices in the power equipment case. K.V.S. Singh was appointed as an adjudicating authority at the DRI, and in 2017, he dismissed its cases against the Adani Group. Curiously, the same official had earlier given an opposite ruling in the first of the coal over-invoicing cases that the DRI sought to prosecute. In 2016, Singh upheld the DRI’s show-cause notice against a relatively small coal-importing company named Knowledge Infrastructure Systems Private Limited (KISPL) and ordered that its promoters pay a penalty. More on this a bit later.

The next indication of the government’s plans came in the form of non-cooperation from public sector banks. The DRI had sought documents from overseas branches of the State Bank of India, the Bank of Baroda, the UCO Bank, and two private banks in its investigation of coal over-invoicing. Middlemen based abroad who were used by the coal importers to allegedly inflate prices held accounts with these banks, and the DRI sought documentation from the banks relating to these middlemen and entities controlled by them. While the two private banks complied and handed over the documents requested by the DRI, the public sector banks refused to comply.

The DRI then sought the help of the Reserve Bank of India (RBI), only to be rebuffed by the country’s central bank. The RBI claimed it could not order the banks to part with customer information. The DRI sought the help of the then Revenue Secretary, Hasmukh Adhia, who was one of the most senior bureaucrats in the Finance Ministry. Adhia shot off a letter to the chairpersons of the three banks, to no avail.

Finally, the DRI decided to take legal action to try to force the banks to comply. It approached the courts and got Letters Rogatory issued to seek the help of the authorities in the concerned countries. A Letter Rogatory (LR) is an instrument under various Mutual Legal Assistance Treaties that the Indian government has signed with multiple countries, wherein an Indian court can write to a foreign court seeking directions from the foreign court to ensure compliance of individuals, firms, and other entities in its jurisdiction, with the requests of Indian investigation agencies.

It was at this juncture when the banks were about to be “forced” to hand over the information sought, that the Adani Group stepped in with a lawsuit that halted the DRI in its tracks.

In 2017, an Adani Group company approached a court in Singapore asking it to not act upon the LRs issued at the behest of the DRI. The request of the group failed. The Adani group then changed the forum and approached the Bombay High Court. It succeeded. In October 2019, a bench of the High Court ruled that only police personnel were permitted to issue LRs and that the DRI did not “qualify” as a police force. The court not only set aside the Letters Rogatory in this case but effectively took away the DRI’s ability to request their issuance altogether.

The DRI appealed in the Supreme Court, and the country’s apex court issued a partial stay of the Bombay High Court’s order, restoring the DRI’s ability to seek LRs in other cases, but did not restore the Letters in the case relating to the Adani Group. That case, which started before the outbreak of the COVID-19 pandemic, has been pending at the apex court ever since.

Meanwhile, three of the over-invoicing cases kept moving through the corridors of the courts: the two Adani cases relating to allegations of over-invoicing of power equipment, and the KISPL case relating to coal. Both verdicts had been issued by K.V.S. Singh and went to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on appeal. Things got even more strange at the CESTAT.

KISPL challenged Singh’s order that upheld the case against it, while the DRI challenged Singh’s orders that quashed its case against the Adani Group companies. As these were the first cases in the wide-ranging over-invoicing investigation by the DRI, these were perceived to be of tremendous significance, with the fate of the rest of the investigation depending on the precedents to be set in the outcomes of these cases.

The KISPL case moved quickly. During the hearings on the appeal, the DRI apparently came to believe that the deck was stacked against it and appealed to the President of the CESTAT (who heads the tribunal) that one of the members of the CESTAT bench that was hearing the case be recused, claiming that his conduct in the case had been “far from fair and impartial”. This was reported by two of the authors of this article in The Caravan.

The DRI’s application failed and in May 2018, the CESTAT bench ended up ruling in favour of KISPL. This was the first of the over-invoicing cases that had reached a conclusion at the level of the tribunal. The verdict of the CESTAT hinged on whether the DRI’s evidence was adequate. The tribunal ruled that key copies of coal quality testing certificates obtained by the DRI had not been authenticated, and that only photocopied documents had been provided.

The DRI then appealed the CESTAT verdict in the KISPL case. Procedurally, the court of appeal in such cases should have been the Supreme Court of India. But in a strange move, the DRI instead appealed to the Bombay High Court. In June 2019, the Bombay High Court dismissed the DRI’s appeal, stating that it was not the appropriate venue for the appeal.

Meanwhile, in the cases relating to companies in the Adani Group, the CESTAT sided with the group companies. While the CESTAT bench accepted the notion that the KISPL case at the Supreme Court would set a precedent for the Adani cases, it noted that the apex court had yet to issue a stay on the operation of that order. Therefore, the operational judicial precedent affecting the Adani Group cases was the CESTAT’s order that had dismissed the DRI’s investigation of KISPL. This, the CESTAT bench ruled, invalidated the DRI’s arguments.

Crucially, the CESTAT noted in its order, that the DRI had not taken key steps needed to seek a stay order from the Supreme Court. The appeal had “only been filed... and no further follow-up action either for disposal of the stay application or for admitting the appeal pending before the Hon’ble Supreme Court [had] been taken,” the tribunal’s order noted.

The DRI later withdrew its appeal in the KISPL case altogether from the Supreme Court, stating that the amount of money involved was relatively low.

Allegations of “sabotage of the probe” by the DRI have been made by a member of the Bharatiya Janata Party (BJP). Dr Subramanian Swamy, a senior leader of the BJP, a former Union Minister, and a Member of Parliament, had written to Prime Minister Narendra Modi in September 2018, pointing out the “mess” that the over-invoicing cases were in. His letter had alleged that “officers of questionable integrity” had been posted to the DRI to handle the investigations and the adjudication process in Mumbai and that the DRI had “consistently failed in handling” litigation with “due diligence” and that this had “gone unchecked” by the Finance Ministry.

It is in this context that reportage over the past year, led by the Organised Crime and Corruption Reporting Project (OCCRP) has taken up the mantle of the investigation agencies. (The OCCRP has been described by the right wing in India as a body funded by George Soros whereas the entity that he helms is only one among several organisations, including government ones like the State Department of the United States government, that have funded the OCCRP.)

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In 2023, the OCCRP unearthed evidence of how excess profits earned by the Adani Group through over-invoicing had been funnelled to shell companies controlled by Adani Group chairman Gautam Adani’s brother Vinod in tax havens and then reinvested into the group’s listed companies in India. Last month, it unearthed invoices and coal testing certificates to show that the quality of coal had been overstated (and therefore over-valued) for a specific set of coal shipments to the Tamil Nadu government-owned Tamil Nadu Generation and Distribution Company.

Another investigation by the Financial Times in 2023 also showed that the modus operandi of overvaluation of coal imports had potentially continued well beyond the period that the DRI had scrutinised. The opposition INDIA bloc has promised an investigation by a Joint Parliamentary Committee into the scandal should it come to power. Where will this coal mega-scam go from here? Only time will tell.