How three tainted companies retained their grip over Madhya Pradesh’s nutrition scheme for children

For the past two years, food rights activist Sachin Jain has followed the twists and turns of a corruption scandal in Madhya Pradesh, involving three private companies and one public sector company supplying food rations to undernourished children under the nation-wide Integrated Child Development Scheme or ICDS.

The latest twist in April, however, has left Jain feeling indignant and increasingly concerned about the fate of five million beneficiaries of the social welfare scheme.

In July 2016, income tax raids had found the public sector company Madhya Pradesh State Agro Industries Development Corporation Limited and its three privately-owned joint ventures to be involved in money laundering. In mid-March, when the state government issued a new short-term tender for ICDS food supply across Madhya Pradesh, the state’s High Court in Jabalpur prohibited the three private companies from participating in the tender.

Despite that, the three tainted companies – Murliwala Agrotech, JVS Foods and Anil Industries – managed to find their way back into the system within just a few weeks.

In mid-April, all three companies were awarded contracts under the short-term tender, along with Madhya Pradesh State Agro Industries Development Corporation Limited. Activists claim that other large companies such as Kota Dal Mills and Suruchi Foods Private Limited are also among the seven companies to win contracts. The tenders are worth a total of Rs 560 crore, for supplying ICDS rations for the next five months. Among the newly-appointed contractors, Murliwala Agrotech and Kota Dal Mills have already been controversial for the past decade for monopolising ICDS food production worth Rs 500 crore per year in Gujarat.

Ironically, even though the Madhya Pradesh government’s stated purpose of issuing the short-term tender was to decentralise the system, local-level self-help groups and women’s groups did not win a single contract to supply ICDS rations under the tender. This is in violation of multiple Supreme Court orders since 2004 that direct state governments to keep private contractors out of ICDS food production by allowing rations to be produced and supplied only by local self-help groups and women’s organisations.

“There is absolutely no transparency in the system,” said Jain, the Madhya Pradesh co-ordinator of the non-profit Right to Food Campaign. “These private companies have been given ICDS contracts again despite evidence that this system is not functioning properly.”

In this report, Scroll.in examines how the three controversial companies that were meant to be excluded from Madhya Pradesh’s ICDS system found their way back in.

A damning CAG report

The ICDS is a supplementary nutrition programme that aims to tackle high malnutrition rates among the poor by providing either hot-cooked meals or nutrient-filled take-home rations to lactating mothers, infants and children below six at village-level anganwadis or government-run crèches. Madhya Pradesh, a state with more than 40% of its children under five malnourished, has five million beneficiaries under the ICDS.

Back in 2003, the Madhya Pradesh government had appointed the Madhya Pradesh State Agro Industries Development Corporation as its nodal agency to manufacture and supply ready-to-eat take-home rations for 92,000 anganwadis in the state. This is a business worth Rs 1,200 crore annually. Within three years, the company claimed that the demand for take-home rations had exceeded its production capacity.

Instead of decentralising the ICDS food production in keeping with Supreme Court orders, the state government allowed Madhya Pradesh State Agro Industries Development Corporation Limited to establish three joint venture companies between 2006 and 2009, for the purpose of manufacturing additional quantities of take-home rations. The joint venture companies are MP Agro Food and Industries Limited, MP Agrotonics Limited and MP Agro Nutri Foods Limited.

In 2009, a damning report by the Union government’s Comptroller and Auditor General or CAG had indicted the state’s public sector undertaking for allowing its joint venture companies to profit at the cost of the government and the beneficiaries of ICDS programmes.

The report pointed out that Madhya Pradesh State Agro Industries Development Corporation had established its joint ventures by making false claims about its own limited production capacity. On the ground, the CAG report found that the company was under-utilising the capacity of its production units while allowing the joint venture companies to produce 90% of the total take-home ration supplies, instead of the 50% that the government had approved.

The CAG report also found that the public sector company had submitted inflated production cost price data to the government, due to which the state’s Women and Child Development Department purchased the take-home ration packets at a higher price. This led to an undue profit of Rs 16.8 crore for the joint venture companies and Rs 1.8 crore for the public sector corporation. Overall, the report found that the company and its joint ventures were making a profit margin of 29% to 37% instead of the approved 10%.

A 2015 CAG report also found similarly questionable profiteering on the part of the public sector company and its joint ventures. Despite these reports, the state government did not take any action against the company. The state’s Women and Child Development department has not yet responded to Scroll.in’s queries about why action was not taken against these companies.

The income tax raids

In 2016, the Income Tax department raided several offices of the Madhya Pradesh State Agro Industries Development Corporation; that of its directors Ravindra Chaturvedi, VR Dhawal and Hridyesh Dixit; as well as offices of the three joint venture companies and other businesses related to them. The raids recovered at least Rs 85 lakh in cash and seized several documents pointing to tax evasion, disproportionate assets and links between the companies and several government officials suspected of favouring them. At the time, officials estimated that the scam was worth more than Rs 100 crore.

The raids also found that Madhya Pradesh State Agro Industries Development Corporation owned a minority share of equity in all of its joint ventures. Scroll.in accessed the shareholding documents of the three joint venture companies and confirmed that the public sector company owns 30% equity each in MP Agrotonics, MP Agro Food and Industries and MP Agro Nutri Foods.

Meanwhile, the majority shares of MP Agrotonics are owned by JVS Foods, a Jaipur-based nutritious food production company run by the Mahnot family. At MP Agro Food and Industries, majority shares are owned by Delhi-based Murliwala Agrotech and members of the Gupta family that owns Murliwala. Ten years ago, soon after these two joint ventures were created, Madhya Pradesh State Agro Industries Development Corporation owned as little as 11% equity in each of them.

At MP Nutri Foods, 51% of equity is currently owned by Indore-based businessman Jai Perulia, while at least 15% shares are owned by Anil Jain and other members of the Jain family. According to documents submitted in the state’s High Court earlier this year, MP Nutri Foods is owned by Anil Industries.

Madhya Pradesh State Agro Industries Development Corporation partnered with these three privately-owned joint ventures for several years in order to supply ICDS take-home rations. According to a former bureaucrat and expert on public private partnerships in India, when a public sector partner does not own majority shares in a joint venture, the joint venture would effectively be considered a private company. “In such a case, if the public sector company makes any purchases from the private partners, it has to do so in a fair and transparent manner, which is by floating a tender,” said the former bureaucrat, who did not wish to be identified.

Scroll.in asked the state’s Women and Child Development Department whether it issued periodic tenders to allow for competitive bidding for the supply of ICDS rations. However, officials at the department declined to speak on the phone and emails sent to the Women and Child Development directorate and the ICDS commissioner have not yet received a response.

The battles in court

Around the time of the income tax raids on Madhya Pradesh State Agro Industries Development Corporation and its joint ventures, civil society organisations were already protesting the poor state of ICDS implementation in Madhya Pradesh. In 2016, in Sheopur district, 116 child malnutrition deaths had been reported in the span of just five months. In May that year, block officials from Jabalpur’s Goraiyyaghat area had found 40,000 packets of ICDS take-home rations illegally stored in a godown, ready to be sold in the open market as cattle feed.

The tax raids, therefore, triggered a wave of protests from activists across state, who demanded the decentralisation of ICDS ration supply in keeping with repeated Supreme Court orders. In response, Chief Minister Shivraj Singh Chouhan made an oral announcement in September 2016, claiming that the state government would do away with the centralised, contractor-based ICDS ration supply, and allow self-help groups, village collectives and women’s groups to take on the role.

Even before the government issued any written notification about this, an Indore-based non-profit organisation called Mahaabhuday Swechhik Sangathan moved the Indore bench of the Madhya Pradesh High Court asking for a stay on the government’s efforts to take ICDS food production away from Madhya Pradesh State Agro Industries Development Corporation and its joint venture companies. Mahaabhuday claimed that it is a non-profit working with children, and that allowing small self-help groups to manufacture take-home rations would adversely affect the quality of food given to children. In October 2016, the High Court ordered a stay and stopped the state government from framing a policy for decentralisation of ICDS food supply.

“Mahaabhuday’s petition in the High Court was not well-intentioned, and it did not make a mention of any of the previous Supreme Court orders in favour of decentralisation,” said Aditya Shrivastava, a lawyer representing the People’s Union for Civil Liberties, a national human rights organisation. According to Shrivastava, the High Court stay ended up stalling a process that was going in the right direction.

“What is more, when the local media tried to contact Mahaabhuday, they found no one at the NGO’s stated registered address,” he said. “It is possible that the NGO exists just on paper.” Scroll.in could not independently verify this claim, but a Google search for Mahaabhuday’s address did not throw up any results.

After the High Court’s stay order, the People’s Union for Civil Liberties filed an intervention in the case and spent almost a year fighting for the stay to be lifted. Its petition emphasised that Madhya Pradesh had already been violating Supreme Court orders for several years by allowing a large contractor and its joint ventures to supply take-home rations, and that this system should no longer be allowed to continue.

In September 2017, the High Court finally lifted the stay on the government. This order – passed by a different bench from the one that heard the Mahaabhuday petition – gave the government 30 days to formulate a policy for decentralising ICDS food supply and to issue fresh tenders for self-help groups to participate.

Over the next six months, the state government kept petitioning the court for more time to comply with the order, even though the court turned down its pleas on multiple occasions. On March 12, the High Court bench registered a case of contempt of court against the principal secretary and chief secretary of the Women and Child Development Department, for failing to comply with its orders to issue fresh tenders for take-home rations. In its judgement, the court observed that “in spite of categorical directions, it appears that the state government wanted to favour private persons who were in joint venture supplying take-home ration to the government”.

A Supreme Court twist in the tale

However, while one bench of the High Court slammed the state government for contempt of court, another bench had issued contradictory orders while hearing a petition by an non-governmental organisation called Sadhana Mahila Mandal. This Ratlam-based non-profit had approached the court in February, seeking to stay the government’s efforts to issue a decentralisation policy since it had failed to comply with the court’s September order anyway. On February 27, the other bench of the court granted the stay.

In light of these contradictory orders from the Indore bench of the High Court, the case was transferred to a bench in Jabalpur headed by the Chief Justice of Madhya Pradesh. On March 14, this bench directed the state government to formulate a new policy and issue a short-term tender for ICDS food supply within two weeks.

The court allowed women’s self-help groups as well as private companies to participate in the short-term tender, but in a significant part of its order, the court categorically prohibited the majority share owners of the three tainted joint venture companies from bidding for the tender. According to the court’s order, “the state is permitted to invite short term tender, but, M/s Anil Industries, JVS Food or Murliwala Agro or the proprietors or any of their partners or relations will be ineligible to participate in the short term tender”.

In response to this strict High Court order, Murliwala Agrotech filed an appeal in the Supreme Court on March 30 on behalf of the three private companies in question. “The appeal was filed on a Friday, heard within three days on the following Monday, and the order was passed on the same day itself,” said Sachin Jain. In a move that stumped the People’s Union for Civil Liberties and Right to Food campaigners, the apex court’s order on April 2 allowed the three companies to participate in the short-term tender.

“The appeal petition by the three companies put forth only selective details before the Supreme Court,” said Jain. “And because the petition was heard so quickly, there was no time for anyone else to properly intervene.”

Scroll.in sent detailed questions about the court cases, the short-term tender and the ICDS ration supply controversy to Madhya Pradesh State Agro Industries Development Corporation, Murliwala Agrotech, JVS Foods and the three joint venture companies. However, none of the companies have responded to the queries.

MP state government officials declined to answer questions about the controversy over the phone, and have not yet responded to Scroll.in’s email queries. This report will be updated if the government or any of the companies respond.

Communities losing control

The Madhya Pradesh government is yet to draft its new policy on decentralising ICDS food supply, but the short-term tender was meant to be a step in that direction. However, according to Shrivastava, the terms and conditions of the short-term tender were such that small-scale self-help groups could not have participated in the first place.

For example, the tender required bidders to have fully automated plants for manufacturing ready-to-eat take-home rations, which requires purchasing expensive machines. It also expected bidders to have an average annual turnover for ready-to-eat packets worth 300% the value of the tender. Bidders were additionally expected to have a production capacity that was 125% of the volume of rations needed in the district.

Not surprisingly then, when the state government finally awarded the contracts for the short-term tender in mid-April, no self-help groups were on the list. Instead, Madhya Pradesh State Agro Industries Development Corporation, Murliwala Agrotech, JVS Foods and Anil Industries have all won contracts to continue providing take-home rations for the next five months.

The effect of all this, says Shrivastava, is that local communities have lost complete control over the kind and quality of meals being given to undernourished children. And the problem is not restricted to Madhya Pradesh alone. Shrivastava points out that some states like Kerala and Odisha have succeeded in decentralising ICDS food supply in anganwadis, but others – such as Maharashtra, Rajasthan and Gujarat – have repeatedly allowed private contractors to take over ICDS rations for more than a decade. “Big companies have been continuously influencing state administrations to grab multi-crore contracts without paying much attention to quality and palatability of meals for children,” he said.