Many decades before the Hindenburg Research report, which halved the market value of the Adani Group company stocks, was a speech in Parliament that brought down India’s then third largest business house after Tata and Birla.
Feroze Gandhi’s marathon performance, delivered on December 6, 1955, was an exposé that laid bare the financial manipulations by what was known as the Dalmia-Jain or DJ Group. The revelations by the Lok Sabha MP from Rae Bareli – he happened to also be the son-in-law of Prime Minister Jawaharlal Nehru – led to the nationalisation of the country’s life insurance industry. A more enduring legacy was the general distrust of big business that it created among ordinary Indians.
The DJ Group, like Adani, started off by building solid assets on the ground. That included Dalmianagar, an industrial town in Bihar à la the Tatas’ Jamshedpur, Ambani’s Jamnagar or Adani’s Mundra. The 3,800-acre complex had cement, sugar, paper, chemicals, vanaspati, soap and asbestos sheets-making units – even its own power house and light railways. The Group also had cement plants at Trichy (Madras), Charkhi Dadri (near Delhi), Dandot (Lahore) and Karachi, besides a biscuit factory in Patiala and collieries in Bihar’s Jharia and Bengal’s Raniganj fields. Its rise, from a lone sugar mill in 1933, was as meteoric as Adani.
The fall catalysed by Gandhi’s disclosures, similar to what Hindenburg did to Adani, was largely a product of the founder Ramkrishna Dalmia’s proclivity for speculation and unrelated diversifications. The modus operandi, in Gandhi’s words, was to “get hold of this company, get hold of that company”, jumble up their accounts and float bogus companies whose special purpose was “just to make some companies disappear” (the Mauritius, Cyprus and Caribbean Islands route hadn’t been discovered yet).
In 1946, the DJ Group bought two Bombay-based textile concerns, Sir Shapurji Broacha Mills and Madhowji Dharamsi Manufacturing Company, for a sum of Rs 3.7 crore. The same year, it also snapped up Bennett, Coleman & Co. Ltd (BCCL), publisher of The Times of India, for about Rs 2 crore.
Gandhi showed that the objective behind the purchase of the mills was to drain their reserves and invest these in the shares of BCCL: “I do not know whether this was legal…because the nature of business in which they were indulging was quite different. To the best of my knowledge, no machinery for the spinning of yarns was installed in BCCL”. Further, the day the shares were acquired, an amount of Rs 84 lakh was withdrawn by the mills from the Gwalior Bank: “What happened to the Gwalior Bank a few years later is probably known…it was liquidated.” And the mills’ auditors who weren’t happy with the goings-on – S.B. Billimoria and A.F. Ferguson – both resigned.
Equally significant were the facts brought to light on Dalmia-Jain Airways, a public-limited company with a paid-up capital of Rs 3.5 crore, floated again in 1946. Although ostensibly formed to run an aviation business, its actual purpose was to partner with another DJ Group company, Allen Berry, which was privately owned. The two jointly bought the entire stock of surplus motor vehicles and spare parts belonging to the US government in India, which it wanted to dispose of after the end of World War II, for over Rs 5.8 crore. These monies were mobilised mainly through the initial public offer by a company that, instead of flying airplanes, was engaged in the resale of American surplus vehicles after overhauling and repainting.
As it turned out, the profits from the business accrued solely to Allen Berry. The Rs 3.1 crore raised from some 25,000 shareholders of Dalmia-Jain Airways was lent out to Allen Berry. Not only did that loan remain unpaid, the partnership itself was dissolved and Dalmia-Jain Airways went into liquidation.
Gandhi also documented investments by the DJ Group-controlled Bharat Insurance Company in other group concerns, including BCCL, Allen Berry and Lahore Electric Supply Company. The monies of policyholders were used by the Group to exert control or consolidate their holdings in various companies through a maze of family trusts. In Allen Berry, for instance, the ordinary shares were wholly held by the Yogiraj Trust and Bhriguraj Trust. The funds for the two trusts to subscribe to the shares, in turn, came from Bharat Insurance. Both Bharat Insurance and Bharat Bank served as captive fund pools for the Group’s expansions and speculative investments.
On January 19, 1956, not very long after Gandhi had spoken, an ordinance was issued nationalising all the 245 insurance companies and provident societies then doing business in the country. It was followed by the establishment of the Life Insurance Corporation of India on September 1, 1956 through an Act of Parliament. “The nationalisation of life insurance is an important step in our march towards a socialist society,” declared Nehru. His daughter Indira – also the wife of Feroze Gandhi – went on to nationalise 20 private banks in 1969 and 1980.
A major difference between the Dalmia-Jain and Adani affairs is that the former group did not have a particularly great relationship with the government of the day. There was little love lost between Nehru and Ramkrishna Dalmia; Gandhi’s intervention was apparently not without the ruling dispensation’s blessings.
The DJ Group split, with the founder’s brother Jaidayal Dalmia and son-in-law S P Jain charting independent courses. They were to run leaner, and more focused, businesses. Lean and focused is, perhaps, where Adani is also headed.
