The Bellary Mining Scam
Illegal mining in India is widespread in various ore-rich states of India, and has generated controversy, which spans encroachment of forest areas, underpayment of government royalties, conflict with tribals regarding land-rights. The spill-over of the effects of legal mining into problems such as Naxalism and the distortion of Indian democracy by mixed political and mining interests, has gained international attention.
Rising global iron-ore prices driven by Chinese demand brought focus to the iron ore rich Bellary
region of Karnataka. This iron ore is alleged to have been illegally mined after paying a minuscule royalty to the government. The major regularities involve mines in Bellary, including those of Obulapuram Mining Company
owned by G. Karunakara Reddy
and G. Janardhana Reddy
who are ministers in the Government of Karnataka.
Income Tax Department’s investigation on Reddy Brothers
In one of the largest single-day operations in Karnataka, the officials of the Income Tax Department raided the residential premises belonging to Health Minister B. Sriramulu
in Bangalore, and offices and residences of two BJP
legislators, who are involved in mining business. The premises belonging to BJP MLA from Koodligi B. Nagendra and BJP MLA from Kampli T.H. Suresh Babu, both considered close to the Reddy ministers, were raided in Bangalore as well as in their home towns . Searches were also conducted in the rooms allotted to Mr. Suresh Babu and Mr. B. Nagendra in the Legislators Home in Bangalore. According to the sources in the IT Department, a large number of documents have been seized, and their bank accounts have been frozen. The raids were said to be conducted at over 50 premises. The raids assume importance in the background of allegations from opposition parties that the ruling BJP is paying off MLAs from other parties to resign from their post. An important aspect of the operation is that it appears to be targeted against close confidants of the Reddy brothers. A large number houses, offices, business establishments, mining and construction firms have been raided by the IT Department. Sources in the Income Tax Department have also indicated that the residences and offices of one of Mr. Reddy’s personal assistants, Ali Khan, and a legal advisor, Raghavacharlu, were also searched by the officials at Bellary, Hospet and Bangalore. The raids were launched simultaneously at many cities including Bangalore, Hospet, Bellary, Hubli, Belgaum by officials of the Karnataka and Goa region.
Income tax sleuths unearthed under-invoicing and tax evasion of around Rs 86 crore by the Obulapuram Mining Company (OMC), run by Karnataka’s Reddy brothers and also their trusted confidante and state health minister B Sriramulu.
The scam, that can embarrass Karnataka’s BJP government further, is said to have alarmed the top guns in the state. The CBI is investigating illegal mining transactions in Andhra Pradesh. Ministers G Janardhana Reddy, G Karunakar Reddy and Sriramulu have mining business in AP.. The company had evaded Rs 86,42,88,802 during 2007-08.
Official sources said after getting clues to tax evasion by OMC B N Mohan, Sibichen Mathew and G M Belagali of Bangalore (Commissionerate) Central circle were assigned to work on the case. They found that the OMC had entered into a MoU
with a one-dollar company of Singapore to camouflage the company’s income suppression.This report was recorded in the book Let us Share by the Finance Ministry.
Officials found that the one-dollar company, GLA Trading International (GLATI), was established on November 30, 2007, with Janardhana Reddy as one of its directors. GLA, presumed to be named after Janardhana Reddy’s wife Gali Laxmi Aruna, has offices in Singapore, Dubai and the British Virgin Islands, which is a `tax haven’.
“OMC’s transactions through the MoU with GLATI are convoluted and devised to evade tax payment in India,” assessing officers said in the report.
A comparative study of shipping bills for export with other companies, which are exporting the same grade material, confirmed the malpractice by OMC. According to the report, OMC signed the MoU with GLATI to sell iron ore only to evade tax payment in India.
For the similar grade of iron ore or ferrous content (FE), OMC had under-invoiced. The per tonne rate of iron ore exported to GLATI ranged between $76.14 and $98.24 as compared to per tonne rate of $144 to $165.22 of other export sales of ore.
When I-T officials sought explanation from OMC, the Reddys claimed it suppressed sales for developing stronger relationship worldwide with global buyers through GLATI for financial stability against price fluctuations.
Violating IPC Act, Forest Act, Mines and Mineral Development Act, Corruption Act, criminal conspiracy, cheating, theft, stealing property, mischief, criminal trespass, illegal mining and criminal misconduct
* Reddy’s Obulapuram Mining Company (OMC) accused of encroaching 40 hectares forest land in Bellary-Andhra Pradesh reserve forest area for illegal mining, damaging state border demarcation area, blasting Sugulamma Devi temple on border
* FIR by I-T officials from May 1998 to Dec 2009 relates to boundary disputes and illegal mining activities in Bellary reserve forest of Anantapur district, AP
* In its lease area of 68.50 hectares in Antharagangamma Konda, OMC shifted boundary pillar by 40 metres, constructed a permanent pillar there to encroach unallotted area for illegal mining. OMC stole minerals in the area, booked for criminal conspiracy, cheating, theft, trespass, violation of Indian Forest Act 1927 and Mines and Minerals Act 1957
* OMC dispatched 29.32 lakh tonne of iron ore to China between 2003-05, but mined pits and surface area removed were shown in records as less than 40%, indicating illegal export of iron ore
The Commissioner of Income Tax’s report throws light on OMC’s illegal mining in Karnataka, exporting ore via Andhra ports along east coast like Vishakhapatnam, Kakinada, even after ban on export of ore was imposed by Karnataka government
Chapter titled Under Invoicing, Evasion of Taxes and Duties by OMC highlights how Reddy brothers stashed away Rs 215,12,50,357 outside country
Man-Go Pub Pvt Limited, owned by Reddy, registered in 2004 at Singapore. Purpose of this company was to provide entertainment, food and beverages. In 2007, a special resolution was passed in which company’s principal activities were proposed to be changed from restaurant, bars and canteen to general wholesale trade, including general imports and exports
GJR Holdings International registered in British Virgin Islands and Isle of Man, internationally known tax havens. When Lokayukta initiated inquiry into illegal exports, Janardhana Reddy resigned and ceased to be director of the company with effect from December 30, 2009
GLA Pet Limited, named after Reddy’s wife Gali Lakshmi Aruna, imported iron ore to the tune of 8,52,033 tonne from OMC, Bellary — the origin of the ore is shown as ports from Karnataka. Report pertaining to Krishnapatnam, Vishakapatnam ports also indicates such exports. OMC exported 8,09,299 MTs (excluding exports from Mangalore) to GLA in 2007-08 and 2008-09. Total underinvoicing in US dollars and INR comes to $52,341,292, corresponding to Rs 215,12,50,387.
* Reddy ran well-oiled, sophisticated risk-protection system on returns for illegal miners, and provided lucrative returns for transporters and politicians. Risk protection was primarily provided by Reddy’s confidantes Swastik Nagaraj (K V Nagaraj) and Karapudi Mahesh through their firms Safia Minerals and Sri Manjunatheshwara Minerals respectively
This explanation was considered inept by the investigating agency. According to investigators, it’s difficult to believe a business house like the Reddys would enter into such an MoU with an offshore company to secure financial stability against price fluctuations from a one dollar company of Singapore and that too without any knowledge of its business, its board of directors and its standing in the line of business. The OMC has taken the issue to an appellate authority.
A report published by the Lokayukta uncovered major violations and systemic corruption in mining in Bellary, including in the allowed geography, encroachment of forest land, massive underpayment of state mining royalties relative to the market price of iron ore and systematic starvation of government mining entities. Justice N. Santosh Hegde resigned from the Lokayukta position on 23 June 2010 citing inability to be effective in his anti-corruption mandate owing to a non-cooperative Government of Karnataka In January 2010 Mr Kharge questioned the governoment about transfer of Dileepkumar PCCF who refused to sign the report but Government brought S Nagaraja as PCCF who signed the report.
Collusion of officials and politicians in permitting illegal mining
The guidelines under the Central and the state enactments, call for a sketch of the mining area when a mining lease is applied for. It was found by the Lokayukta that sometimes the actual mining areas are not related to the sketch given with the applications without officials crosschecking them. Further mining applicants falsely claim a prohibited forest area as a revenue area. Finally the actual area of the mine is much bigger than the claimed area. The Indian Bureau of Mines rules which control the type of mining, allow a maximum mining depth six metres to prevent environmental degradation. But miners have flouted this rule to over-extract iron-ore. For example, if they are allowed to take 100 metric tones, mines take 1,000 metric tonnes. Officials at road check posts reportedly collude in a massive under-counting of lorries and trucks transporting the iron-ore from the Bellary mines to the ports. News reports suggest that only 200 trucks are reported as against 4000 plying everyday.
Underpayment of royalties to state
There is a huge difference in the market price of the ore and the royalty specified by the government as well as faulty measurement mechanisms of amount of ore extracted. It was found that 35 lakh (3.5 Million) tonnes of ore were illegally exported without paying a rupee of royalty to the exchequer, resulting in a loss of about Rs 16085 crores. With ore prices of USD 100-120 per ton, 3.5 Million tonnes adds up to about 350-4000 Million USD. There are proposals to link the royalties to the market price of iron-ore. There is also a proposal by the ministry of Environment and Forests to levy a tax.
LOKAYUKTA REPORT-2008• A report published by the LokAyukta uncovered major violations and systemic corruption in mining in Bellary, including in the allowed geography, encroachment of forest land, massive underpayment of state mining royalties relative to the market price of iron ore and systematic starvation of government mining entities.
LOKAYUKTA REPORT-2010• It gives details of the methods in which miners, government officials and ministers colluded to defraud the government of mining revenues. The report details the complete breakdown of democratic governance in the bellary area
The report uncovers the “zero risk system”, a protection and extortion racket, masterminded by G. Janardhana Reddy. The report describes the illegal money transfers to foreign companies and tax shelters by mining entities such as Obulapuram Mining Company, Associated Mining Company, GLA Trading and GJR Holdings owned by the Reddy Brothers. The report tells about illegal mining, bureaucrats-politicians- businessman nexus.
Even banks and public sector companies also participated in the loot. There are more than 100 names involved in illegal operation. NDMC, Adani enterprise, JSW Steel are some major name in fraud list. Charges against these companies are illegal movement of iron ore from mining yard without permits and without paying royalties, forest encroachment, mining lease violations, overloading of trucks and sandry violation etc.
The iron ore was illegally exported to china through ports of southern India and payment is made through more than 4000 banks account. Also the damage to environment can not be calculated.
Lokayukta Report of July 2011
The Lokayukta Report on illegal mining in Karnataka details the methods in which miners, government officials and ministers colluded to defraud the government of mining revenues. The report details the complete breakdown of democratic governance in the bellary area and uncovers the “zero risk system”, a protection and extortion racket, masterminded by G. Janardhana Reddy. The report describes the illegal money transfers to foreign companies and tax shelters by mining entities such as Obulapuram Mining Company, Associated Mining Company, GLA Trading and GJR Holdings owned by the Reddy Brothers. The report tells about illegal mining, bureaucrats-politicians-businessman nexus. Even banks and public sector companies also participated in the loot. There are more than 100 names involved in illegal operation. NDMC, Adani enterprise, JSW Steel are some major name in fraud list. Charges against these companies are illegal movement of iron ore from mining yard without permits and without paying royalties, forest encroachment, mining lease violations, overloading of trucks and sandry violation etc. The iron ore was illegally exported to china through ports of southern India and payment is made through more than 4000 banks account. Damage to environment can not be calculated.This report was prepared mainly from the Income Tax Commissionerate of Central Circle.
Union government commission to probe illegal mining
The mining ministry of the union government has announced a special commission to investigate the various cases of illegal mining in India. The union mining minister, B. K. Handique, announced that the investigation spanning Karnataka, Orissa and Jharkhand.
The decision seems to be a fallout of the cases involving the controversial Reddy brothers in Karnataka and some multinational companies. Highly placed sources said the decision was taken by a Cabinet meeting on Monday, chaired by Prime Minister Manmohan Singh.
The inquiry will cover the most affected States of Andhra Pradesh, Jharkhand, Karnataka, Chhattisgarh and Orissa. The Commission has been asked to submit its report in 18 months. But it will also submit interim reports to the Cabinet.
“The Commission will initially have the mandate for investigating cases of illegal mining of iron ore and manganese, and later its mandate could be extended for covering cases of illegal coal extraction too,” a senior official said. The sources said the Commission could be headed by a retired judge of the Supreme Court or High Court. The Prime Minister will take a decision soon.
The decision on a probe follows the recent controversies surrounding the Reddy brothers in Karnataka who have been accused of massive illegal mining of iron ore. It is also aimed at a number of companies and heavy weights in Andhra Pradesh allegedly close to a Congress Member of Parliament and having a nexus with the Reddy brothers.