In 1950s, when a business house stood in the dock

The trigger for appointing the Commission — initially headed by Bombay High Court’s Justice S R Tendolkar and later by former Supreme Court Judge Justice Vivian Bose — was a speech by the Prime Minister’s son-in-law, Feroze Gandhi, in Parliament on December 6, 1955 that exposed the financial manipulations by India’s then third largest business house after Tata and Birla.

The Lok Sabha member from Rae Bareli had wound up his nearly two-hour-long marathon by suggesting that the government constitute “a Commission of Inquiry with full judicial powers to investigate the entire Dalmia-Jain affairs from 1945-46 or whenever it began up to date”. The Commission – it also had N R Mody, chartered accountant with the audit firm A F Ferguson & Co, and S C Chaudhuri, Commissioner of Income Tax, as members – submitted its 815-page report on June 15, 1962.

Compare that with the present time, where the Narendra Modi government is avoiding even a debate in both Houses, forget conceding to the Opposition’s demand for a Joint Parliamentary Committee probe, on the allegations against the Adani Group.

It’s not the contrasts alone, but also the parallels, that are striking. Gandhi’s speech did to the DJ Group what the US investor-activist firm Hindenburg Research’s January 24, 2023 report did to Adani, accusing it of stock price rigging and accounting fraud.

The DJ Group had interests in cement, banking (Bharat Bank and Punjab National Bank), insurance (Bharat Insurance), publishing (Bennett, Coleman), sugar, paper, chemicals, textile and jute mills, aviation, motor vehicles, light railways, collieries, electricity distribution, biscuit-making and dairy.

That made it a horizontally diversified conglomerate much like Adani, which has businesses from ports, airports, coal mining and trading, thermal power, electricity transmission and distribution, renewable energy, solar photovoltaic manufacturing and natural gas supply, to cement, edible oils, road and rail development, data centres, grain handling and fruit marketing.

Adani is today India’s No. 3 business house (after Tata and Reliance), just as the DJ Group once was. Both had upstart founders: Ramkrishna Dalmia’s first venture was a sugar factory at Bihta (Bihar) in 1933, while Gautam Adani’s Mundra Port at Gujarat took off only in 1998.

The similarities end there.

The Vivian Bose Commission showed how the funds of the DJ Group’s public limited companies, banks and insurance firms were used by the promoters’ proprietary concerns for speculative acquisitions or even personal purposes. The companies in which the public had invested their monies were often forced to lend without security at low interest rates. After being squeezed dry, even “the husks were discarded”. The Commission documented many instances of companies taken into voluntary liquidation, and their account books and records destroyed to leave no traces of fraud committed.

There isn’t evidence, so far, of such brazen fund diversion or embezzlement vis-à-vis the Adani Group. At least eight out of its 11 listed companies seem to be profit-making. Hindenburg’s charges were primarily about the conglomerate pumping up its company stock prices, pledging these as collateral to take on too much debt relative to free cash flows, and parking shares with offshore shell entities to conceal actual promoter ownership.

In the DJ Group case, not only was Feroze Gandhi allowed to speak, the Finance Minister, C D Deshmukh, helpfully butted in by noting Dalmia’s “extraordinary capacity” to intermix the finances of his various industrial, banking and insurance concerns. The DJ Group challenged the Tendolkar/Bose panel’s appointment under the Commissions of Inquiry Act, 1952, which, it claimed, dealt only with matters of public importance, as opposed to the conduct of individual persons or companies. The courts, however, upheld the government’s position that the “grave consequences…ensued to the investing public” from the “gross irregularities” in the management of the DJ Group companies were matters of “definite public importance”.

The government, then, didn’t feel the need to defend Dalmia, who had to endure the ignominy of a two-year jail sentence as well as dissolution of his business empire. The group’s most prized assets went to his son-in-law, Shanti Prasad Jain, and brother, Jaidayal. Gandhi’s speech was the precursor to the nationalisation of India’s life insurance industry, via an ordinance promulgated on January 19, 1956. It was also a time when India under Nehru had embarked on a strategy of planned economic development – in which the public sector, not private corporates, occupied the “commanding heights”.

Cut to the present, where the government and the main ruling party have, at best, sought to deflect and distance themselves from the Adani Group. This is despite the latest charges – pertaining to a “bribery scheme” of over $250 million payments to officials in India for securing solar energy supply contracts – coming from the US Department of Justice and the Securities and Exchange Commission, and not from some trader with short positions in Adani stocks.

The Modi government’s apparent reluctance to act against Adani could be because it views, more than previous administrations, big business as a partner in nation-building and also serving the country’s foreign policy and geostrategic interests.

But to what extent the current developments will impact the Adani Group’s own stock valuations and ability to raise credit for funding its ambitious investment plans, both domestic and overseas, remains to be seen. Business history is littered with examples of over-leverage and over-diversification exacting a heavy price.