Mother Dairy’s decision to invest Rs 190 crore in IL&FS Group in August 2018, which remains unrecovered till date, has resulted in a loss of Rs 91 crore for the company in FY19, erosion in its net-worth and has also led the rating agency Care to revise, its long-term ratings assigned to the bank facilities of Mother Dairy Fruit & Vegetable Private Limited (MDFVPL), downward from AAA to AA+.
In its rating rationale, Care Ratings said, “The revision in the long term ratings assigned to the bank facilities MDFVPL is primarily on account of weakness in their internal control systems leading to an inter-corporate deposit in Infrastructure Leasing and Financial Services Limited (IL&FS). The amount had to be fully provided for in FY19 on default by IL&FS Ltd leading to a 35 per cent erosion of its net-worth.”
On April 5, 2019, The Indian Express first reported that MDFVPL had invested Rs 190 crore in IL&FS in August 2018 and then in February it wrote a letter to the Prime Minister seeking his intervention in recovering the due amount (Rs 190.84 crore) from IL&FS.
The rating agency further pointed that the auditors in the audit report for FY19, “have given a ‘Qualified Audit Opinion’ based on material weakness being identified, as the company did not have an appropriate internal control system for investing in the inter-corporate deposits.”
Meanwhile for the year ended March 2019, MDFVPL reported a loss of Rs 91.83 crore on account of “impairment of provision of Rs 190.85 crore arising from the investments made in IL&FS in the form of unsecured short term inter-corporate deposits,” said the rating agency.
The rating agency, however, said that the ratings for the facilities of MDFVPL continue to draw strength from the established brand presence through extensive marketing and distribution network, need based technical & managerial support from its parent- National Dairy Development Board (NDDB) and the experienced management team, well established procurement system and increasing value added dairy product business.
In April, The Indian Express reported that MDFVL, invested Rs 190.84 crore in inter-corporate deposits of IL&FS (for a period of 8-16 days) in a series of six transactions between August 20, 2018 and August 28, 2018.
In the same month in April, after having received a complaint and call for SFIO probe, the Department of Economic Affairs had directed the complaint to the Secretary, Ministry of Corporate Affairs for “necessary action”. The DEA also directed the complaint to the Secretary, Ministry of Agriculture.
While the DEA received a complaint in mid April, it directed the same to the MCA on April 29, 2019. In its April 29 letter, the DEA said, “I am directed to enclose herewith a copy of letter dated 15.04.2019 received from Shri Dharmendra Pratap Singh, Lucknow addressed to Secretary DEA along with its enclosures on the above subject (copy enclosed) for necessary action under intimation to the department.” In his letter, the complainant has alleged various instances of fraud amounting to over Rs 1,000 crore at MDFVPL, a wholly owned subsidiary of National Dairy Development Board.
A couple of months later, the government advised the NDDB to extend provisions of the Right to Information (RTI) Act, 2005 to its subsidiaries, including Mother Dairy Fruits and Vegetables Pvt. Ltd (MDFVPL) and NDDB Dairy Services among others.
The Ministry of Animal Husbandry, Dairying and Fisheries recently told the Parliament that as NDDB Dairy Services was set up through a Rs 200 crore contribution from NDDB, it has advised NDDB to “extend the provisions of the RTI Act, 2005 to its subsidiary companies including NDDB Dairy Services.”