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Big setback for DRI in Adani probe, HC scraps its global info requests

Says agency should have registered FIRs first but doesn’t go into merits

Written by Sailee Dhayalkar , Khushboo Narayan | Mumbai |
Updated: October 18, 2019 7:03:45 am
Directorate of Revenue Intelligence, adani enterprises, Bombay High Court, DRI request on adani coal block, indian express news DRI sent requests to foreign countries pertaining to alleged overvaluation of Indonesian coal imports from 2011 to 2015 by two Adani firms. (Express Photo by Anil Sharma/File)

In a big setback to the Directorate of Revenue Intelligence (DRI), the Bombay High Court Thursday ruled in favour of Adani Enterprises Ltd (AEL) and quashed all Letters Rogatory (LRs) sent by DRI to foreign countries pertaining to alleged overvaluation of Indonesian coal imports from 2011 to 2015 by two Adani firms, halting the investigations by the agency which were going on since 2016.

An LR is a formal request between two countries party to a Mutual Legal Assistance Treaty (MLAT), seeking judicial assistance in accessing information on an offshore entity in connection with an ongoing probe.

A division bench of Justice Ranjit More and Justice Bharati H Dangre, allowing the writ petition filed by Adani Enterprises, said that DRI cannot issue LRs under Section 166A of the Code of Criminal Procedure until a First Information Report (FIR) is registered in a case under Section 154/155 of the CrPC.

“…we are of the express opinion that Section 166A is not an independent island on which any investigating/inquiring authority can jump on without taking recourse to Section 154/155, we hold and declare that the action of the respondents (DRI) in giving effect to the letter of rogatory issued by the learned Metropolitan Magistrate, Mumbai, in relation to the import of coal of Indonesian origin cannot be sustained and it deserves to be quashed and set aside,” said the order. However, the High Court said it has not gone into the merits of the LRs issued by the Magistrate in this case.

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Email, phone calls and text message to the official spokesperson of Adani Group remained unanswered.

The HC order assumes significance as apart from the Adani Group, 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. With this order, cases against Adani and other companies is likely to come to a halt.

“The Bombay High Court order will impact issuance of LRs by other agencies including the income tax (IT) department, Serious Fraud Investigation Office (SFIO) and the Enforcement Directorate (ED),” said a lawyer on the condition of anonymity.

DRI claimed before the court that unlike with police officers, an investigation by officers of Customs, ED, Wildlife Crime Control and the SFIO under the Customs Act, Prevention of Money Laundering Act, Wildlife (Protection) Act and the Companies Act respectively, does not commence by registering FIRs or by seeking an order from a Magistrate.

Therefore, under the Customs Act, an FIR under the Code of Criminal Procedure or magisterial intervention is not required for initiation of Customs investigation. The DRI also told the court that Adani Enterprises moved the High Court to question the issuance of LRs only after a Singapore court allowed India’s request to access documents that allegedly contain “clinching evidence” against Adani Group’s “blatant” price hike of imported coal for “siphoning” money and “increasing” the cost of power sold to the public in India.

Senior counsel Maninder Singh for DRI argued that (AEL’s) petition “is an attempt to frustrate the investigation being carried out by the DRI and is nothing but an attempt to thwart an entirely legal investigation being carried out by it into a serious allegation”.

AEL claimed the LRs were issued by DRI without cognizance of any offence or registering of FIR against the Adani firms in the coal case. It also said that the LRs were issued without any notice and hearing the companies.

It is not immediately known if the government will file an appeal against the order in the Supreme Court.

So far, the DRI had issued 14 LRs to multiple foreign jurisdictions such as Singapore, Hong Kong, Switzerland, UAE, among others, seeking information in the alleged over-valuation of imports of Indonesian coal.

The probe agency specifically sought import documents negotiated by the Singapore and the Dubai branch of Indian banks with Indonesian coal suppliers. These documents contain the actual price of coal before it was allegedly inflated. While private banks submitted data to DRI, public sector banks declined to submit the information citing confidentiality clauses of the foreign country.

Last year, AEL moved the Bombay High Court seeking to quash all LRs issued by DRI in 2017. In September 2018, the court gave an interim stay to AEL but the DRI moved the Supreme Court as its probe had come to a halt, following the high court’s interim ruling. The Supreme Court asked the high court to pass a final order by end of June 2019.

The DRI probe against Adani and other companies began after the agency issued a general alert to its field formations across India in March 2016 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 British Virgin Islands to artificially inflate its value.

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. Artificial inflation of value of the imported coal increases the landed cost of coal, which is a primary fuel in coal fired thermal power plants. The higher tariff dispensed by the electricity regulator to the power generator enhances the cost of purchase of the power distributor which, in turn, factors this artificially enhanced cost in its billing to consumers.

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