In April 2023, discussions took place for India’s third-largest cement producer, Shree Cements, to acquire a smaller cement firm, Sanghi Industries. On 21 June, the Income Tax Department in the Ministry of Finance conducted search-and-seizure raids at five locations in the country where Shree Cements had offices and manufacturing plants. On 19 July, Shree Cements abruptly withdrew from the race to acquire Sanghi Industries. On August 3, the Adani company Ambuja Cements succeeded in a bid to take over Sanghi Industries.
There was a sense of déjà vu in what happened. The example of Shree Cements and Sanghi Industries is reminiscent of the circumstances that led to the Adani Group becoming the country’s second-largest producer of cement overnight in May 2022, after taking over the Indian assets of the world’s largest cement manufacturer, the Swiss multinational Holcim.
What preceded acquisition of Sanghi Industries by Adani?
Sanghi Industries is headquartered in Ahmedabad, Gujarat, where the Adani Group is also based. Founded in 1985 by members of the Sanghi family, the company became a significant player in the cement industry in western India. Having installed capacity to produce 6.1 million tonnes of cement per annum, it diversified into making ready-mix concrete (RMC) and bricks made from fly ash. Sanghi Industries has RMC plants in Gujarat and Rajasthan, and exports to various destinations in West Asia and Africa. Its shares are listed on stock exchanges for trading. Its plant in Sanghipuram, Gujarat, is India’s largest cement and clinker plant at a single location.
In recent years, the finances of Sanghi Industries had deteriorated. From 2008 onwards, its operations were adversely affected by disputes within the family that had promoted the company. It was ripe for a takeover bid. Among several contenders was Shree Cements, a prominent cement company that had been founded in 1979 in Beawar, Rajasthan. Over the next three decades, Shree Cements had expanded its manufacturing capacity from two million tonnes a year to over 50 million tonnes per year and had become India’s third largest cement producer.
In June 2023, after the Income Tax Department conducted a series of raids in 24 offices and factories of Shree Cements, including the ones located at Jaipur, Beawar, Udaipur, Ajmer and Chittorgarh (all in Rajasthan), unnamed sources claimed to the Economic Times that the company had evaded taxes and ‘defrauded’ the exchequer to the tune of at least Rs 23,000 crore (US $2.8 billion). The sources quoted in the news report alleged that Shree Cements had made fraudulent claims of tax deduction and that there were irregularities in accounting for coal purchases.
Soon after the raids took place, the company’s shares fell by 10%. According to another news report, Shree Cements issued a statement denying the allegations. Its vice chairman Prashant Bangur told journalists that the company would henceforth focus on expanding ‘internally’ and not through acquisitions.
In August 2023, the Adani-owned Ambuja Cements announced the acquisition of Sanghi Industries for Rs 5000 crore ($US 633 million).
Adani’s Acquisition of Holcim’s Cement Businesses in India
Holcim India, the Indian subsidiary of the Swiss conglomerate Holcim, was formed in 2005 through the merger of Ambuja Cements and ACC (earlier Associated Cement Companies). It became the second-largest cement producer in India, after UltraTech Cement that is part of the Aditya Birla Group.
In December 2020, the anti-trust regulator Competition Commission of India (CCI) raided Holcim India’s business premises, including those of Ambuja Cements and ACC. The action was prompted by allegations of collusion and price-fixing by cement producers such as UltraTech Cement and Shree Cements. If proven, the companies could have been penalised up to 10% of their annual turnover. This is hardly the first time the CCI – and its earlier avatar, the Monopolies and Restrictive Trade Practices Commission – investigated allegations of cartelisation by cement manufacturers. In the past, the penalties that were levied on companies for price-fixing were relatively low. The timing of the particular probe by the CCI on Holcim India is significant.
In April 2022, Holcim was considering selling its Indian businesses. It was reported that the Swiss group wanted ‘to mitigate its exposure to carbon-intensive cement production and elevate its environmental, social, and corporate governance (ESG) credentials’. Among the contenders for Holcim’s assets in India were the JSW (Jindal Steel Works) Group and Ultratech Cements. However, these two groups faced delays in obtaining the CCI’s approval for the acquisition of Holcim’s assets. This has been acknowledged by Holcim’s CEO. Despite their bids being significantly higher, JSW and Ultratech lost the race.
In September 2022, the Adani Group successfully acquired Ambuja Cements and ACC for Rs 51,821 crore (US$6.4 billion). The deal was described as the biggest merger and acquisition of its kind in India’s infrastructure and building materials sector.
The interpretation of the rules of the Income Tax Department with reference to the imposition of a tax on capital gains in the acquisition of Holcim India’s businesses in India by the Adani Group through offshore entities in Mauritius controlled by Gautam Adani’s older brother Vinod Adani, has also raised questions.
As AdaniWatch pointed out in June 2022, a retrospective amendment to the Income Tax Act meant that Indian tax authorities could tax capital gains that accrued on transfer of shares outside the country on any transaction that had taken place since the Income Tax Act was enacted in 1961 all the way till the law was again amended in 2012. The AdaniWatch story said:
‘This amendment to the law was reversed by the Narendra Modi government. The 2020 amendment to the Income Tax Act specifies that the Indian government has the right to tax a merger or acquisition that takes place between or among entities registered outside the country if over half the value of assets is located within India, and that too only prospectively (not retrospectively). The Adani-Holcim case will be the first of its kind since the 2020 amendment relating to indirect transfer of shareholdings and will test the provisions of the double taxation avoidance agreement (DTAA) between the governments of India and the Netherlands.’
On 16 May 2022, the Economic Times quoted unnamed officials of the Income Tax Department saying that the Holcim-Adani deal was unlikely to face capital-gains tax if Holcim had acquired its stakes in India before 2017, when India and Mauritius renegotiated their bilateral tax treaty and withdrew the capital-gains tax exemption available to investments from the island nation. A Mauritius-based investment company of the Holcim group had acquired Ambuja Cements (then Gujarat Ambuja Cement) in January 2006 for Rs 4500 crore (US $543 million). All transactions routed via Mauritius prior to the 2017 amendments were ‘grandfathered’, allowing them to enjoy exemptions on capital-gains tax.
On 2 July 2022, the portal MoneyLife published an article titled ‘Adani Takeovers: Different Tax Rules for Holcim and Walmart?’ pointing out that the Income Tax Department had adopted a different view when it insisted on the levy of capital gains on an overseas transaction for the American corporation Walmart to acquire a controlling interest in the Indian retailer Flipkart through a hedge fund. The deal came through in 2018 when Walmart reportedly bought a 77% stake in Flipkart for about $16 billion.
‘Hostile takeover’ of NDTV
The acquisition of the media company NDTV (earlier New Delhi Television) of the husband-wife duo of Prannoy and Radhika Roy by the Adani Group in 2022 occurred through a two-stage process: Adani first picked up a 29.18% stake in NDTV by acquiring Vishvapradhan Commercial Private Limited (VCPL), a company that had extended loans to RRPR Holding Private Limited, a promoter of NDTV, a company whose shares were publicly listed.
VCPL was controlled by the Reliance Industries Limited Group, led by India’s richest man Mukesh Ambani (ousted from his position for a while by Gautam Adani) and his associate Mahendra Nahata. VCPL had extended an interest-free loan of over Rs 400 crore (US $48 million) to RRPR more than 12 years earlier; this was converted into shares after it was acquired by the Adani Group in August 2022 in what the Roys described as a ‘hostile takeover’.
In December 2022, the Adani Group executed an open offer to secure an additional 26% stake in NDTV, enabling the Adani Group to acquire a controlling interest in the company. While the group claimed it was committed to maintaining NDTV’s editorial independence, many saw the acquisition as a move to control one of India’s few media groups routinely criticised the policies of the government of Prime Minister Narendra Modi.
After Adani took over NDTV, several prominent journalists, including Ravish Kumar, quit the organisation they had worked in for decades. Before the acquisition of NDTV, the Roys faced a series of actions by agencies such as the Central Bureau of Investigation (CBI), the Income Tax Department, and the regulator of the country’s capital markets, the Securities and Exchange Board of India (SEBI). They were prevented from leaving the country in August 2019 after being detained at Mumbai airport on what they claimed was a ‘fake’ case.
Earlier, in June 2017, the offices and homes of the Roys were raided by the CBI on a complaint that they had defrauded a bank. The CBI claimed that the Roys had defaulted on repaying a loan of Rs 366 crore (US $44 million) from ICICI Bank. It was further alleged that a part of the loan had been used for personal expenditure rather than for its intended application for a new media venture. The Roys refuted the CBI’s allegations and contended that the raids were politically motivated since NDTV had broadcast content critical of the Modi government. The CBI’s actions were criticised by large sections of the media, the political opposition and civil-society groups.
Acquisition of Krishnapatnam Port
The story of how Adani came to acquire the rights to operate the Krishnapatnam Port Company Limited in Andhra Pradesh in south India is another example of interventions by government agencies aiding (intentional or otherwise) expansion plans by the Adani Group. The port operations were acquired from Vishwa Samudra Holdings, an entity in the Navayuga Group. The Navayuga Group is a widely diversified conglomerate with interests spanning engineering, construction and power, and was the majority stakeholder in the privately operated Krishnapatnam Port. The Income Tax (IT) Department scrutinised the accounts of group companies on two occasions, in 2012 and 2018.
In 2012, the IT Department (which is headquartered in New Delhi and comes under the Union Ministry of Finance) conducted search-and-seizure raids on the Navayuga Group’s offices and the residences of its top executives, including those of group chairman C Visweswara Rao. The Department alleged that taxes had been evaded through shell companies and claimed it had found undisclosed investments. Six years later, another series of raids took place, and the additional allegation of money laundering was levelled against group firms after cash and documents had been confiscated.
The promoters of the Navayuga Group were considered close to Nara Chandrababu Naidu, a former chief minister of Andhra Pradesh who belonged to the Telugu Desam Party. They belonged to the same caste. Naidu’s arch political rival in the state is current Chief Minister Yeduguri Sandinti Jagan Mohan Reddy (popularly known as Jagan Reddy).
Jagan Reddy has had a colourful political career. In May 2012, he was arrested by the CBI. He was alleged to have accumulated disproportionately large assets through kickbacks from representatives of 58 companies that he had allegedly helped to obtain mining leases and project contracts while his father, Y S Rajsekhara (YSR) Reddy, was the chief minister of Andhra Pradesh. YSR belonged to the Congress. After YSR’s death in a helicopter crash in September 2009, Jagan Reddy failed to convince the Congress high command to appoint him chief minister, so he set up his own political party named after his father’s initials, the Yuvajana Shramika Ryuthu (YSR) Congress Party.
Jagan Reddy was behind bars in judicial custody for around 16 months. He became leader of the Opposition in the Andhra Pradesh legislative assembly in 2014 and, five years later, led his party to a landslide victory winning 151 out of 175 seats in the assembly. He aligned his party with Modi’s BJP in New Delhi and his MPs have voted with the central government on several occasions.
After he assumed power, Jagan Reddy reviewed several contracts for infrastructure projects that had been awarded by the previous state government headed by his rival, Naidu, and cancelled some of them. Among them were two contracts awarded to the Navayuga Group – one linked to the construction of Polavaram irrigation project on the Godavari River and the other to develop the Machilipatnam Port. The ground was ready for another big player to move in.
In February 2020, Adani Green Energy was awarded a contract to build five solar-energy installations in the state. Then, in July that year, Adani Ports Special Economic Zone (‘Adani Ports’) received the consent of the Competition Commission of India (CCI) to acquire a 75% stake in Krishnapatnam Port from the Navayuga Group. The remaining 25% was acquired by Adani Ports the following year, the total amount exceeding Rs 13,500 crore (US $1.7 billion).
There was no looking back for Adani in Andhra Pradesh. In September 2021, the Adani Group acquired the rights to operate another port in the state, at Gangavaram. Subsequently, Adani announced plans to set up two data centres in Visakhapatnam. The foundation stone for the project was laid by Chief Minister Jagan Reddy in May. Reddy’s political opponents accused him of favouring the Adani Group, saying he had converted Andhra Pradesh into ‘Adani Pradesh’.
Hit by the IT Department’s raids, the fortunes of the Navayuga Group did not pick up.
Adani takes over operations of Mumbai International Airport
In July 2020, an investigation was initiated by the Enforcement Directorate (ED) into the activities of the GVK Group that had the rights to operate India’s second-largest airport at Mumbai and to build a new airport at Navi (New) Mumbai. The ED alleged that the GVK Group had been involved in financial irregularities amounting to over Rs 800 crore (US $97 million) relating to expenditure on the development and maintenance of the airport.
These intrusive operations were carried out at the GVK Group’s offices in Mumbai and Hyderabad, in addition to the premises of Mumbai International Airport Limited (MIAL). Residences of several high-ranking GVK Group executives, including Chairman GVK Reddy, were also searched and substantial volumes of documents and electronic evidence were seized. The GVK Group called the ED’s actions a targeted ‘witch hunt’, affirmed its ‘commitment to upholding the highest benchmarks of corporate governance’ and expressed its willingness to cooperate fully with the ED.
After the ED came the CBI. In June 2020, the CBI registered a case of criminal conspiracy and fraud against fourteen individuals and entities, including GVK Airport Holding Ltd, MIAL, GVK Group chairman GVK Reddy, his son Sanjay Reddy and ‘unknown public servants’ for alleged financial irregularities.
Earlier, in February 2019, the Indian government took a decision to invite private enterprises to assume responsibility for the operations, management and developmental facets of six airports. The Adani Group outbid 25 firms to secure the coveted mandate to oversee all these six airports located at different parts of India: Ahmedabad (Gujarat), Guwahati (Assam), Jaipur (Rajasthan), Lucknow (Uttar Pradesh), Mangaluru (Karnataka) and Thiruvananthapuram (Kerala).
Although the Adani Group had been operating seaports, it had had no experience running airports. The government changed its policies to waive the customary prerequisite of prior experience for participating in the bidding process for the airports, clearly helping the Adani Group. Bidders were also allowed to submit proposals for multiple airports. These policy changes have been detailed in several articles, including one by Ravi Nair and another co-authored with him by one of the writers of this article.
In July 2021, the Adani Group acquired a 74% share in MIAL. It obtained a 50.5% ownership stake from the GVK Group and the 23.5% from minority partners, including the Airports Company South Africa and the Bidvest Group from the same country. With Mumbai airport came the new airport project at Navi Mumbai and with eight airports under its wing, Adani Airport Holdings became India’s largest private operator of airports.
After Rahul Gandhi, leader of the Indian National Congress party, claimed in Parliament in February 2023 that the transfer of the operations of the Mumbai airport was because of interventions by the ED and CBI, GVK Group Vice Chairman Sanjay Reddy denied that his group was under pressure to sell to Adani. He told the Adani-owned NDTV: ‘There was absolutely no pressure from the Adani Group or any other entities to prompt us to sell the Mumbai airport.’
Sanjay Reddy added that the objective of the GVK Group was to raise funds to service the debt that had been incurred to acquire the operations of the airport at Bengaluru.
The CBI dropped the corruption charges against the ‘unnamed’ public servants associated with the GVK Group in January 2023.
Many were not convinced by Sanjay Reddy’s averments. On 5 August, Jairam Ramesh, the Member of Parliament who heads the Congress party’s media and communications division, issued a statement highlighting how the acquisitions by Adani Group were preceded by ‘action’ by the CBI, the ED and the Income Tax Department. He said there was a clear pattern to dissuade Adani’s competitors from bidding for projects in which the Adani Group is a contender.
The Adani Group’s actions in the corporate machinations of the Indian business world have led to great controversy in recent times. Rahul Gandhi’s trenchant criticism of the Group on 7 February 2023 was removed from the official records of the Lok Sabha (the lower house of India’s Parliament).
The 31 August expose by the Organised Crime and Corruption Reporting Project (OCCRP) by Anand Mangnale, Ravi Nair and N B R Arcadio that was reported exclusively by The Financial Times and The Guardian is another indication that the Adani story will continue to dominate business affairs in India.