The Adani Group emerged as one of the largest winners in commercial coal auctions held by the government in March, picking up four coal blocks at among the lowest prices.

One of the blocks it won, namely North West of Madheri, saw only one other bidder, Cavill Mining Private Limited.

A Scroll investigation has found that the owner of Cavill Mining is also the main promoter of Adicorp Enterprises, a small privately held company that American investment firm Hindenburg Research alleged was used to funnel funds between Adani companies to avoid mandatory related party disclosures.

The Opposition has demanded an investigation into Adani Group’s relationship with Adicorp.

Corporate filings show that Adicorp and Cavill Mining share the same address in Ahmedabad, as well as the same promoter – Utkarsh Shah.

Shah features in a recently published biography of Gautam Adani, the founder of the Adani Group, as a friend who is unable to compete with him in solving sudoku puzzles.

However, his newly incorporated company, Cavill Mining, with a paid-up capital of Rs 1 lakh and no mining experience, competed with an Adani subsidiary, MH Natural Resources Private Limited, for mining rights to the North West of Madheri block. Located in Chandrapur in Maharashtra, the block holds 200 million tonnes of coal.

Cavill Mining’s participation ensured that the auction for North West of Madheri was completed successfully. If Adani had been the sole bidder, the auction would have been annulled. According to the Union coal ministry’s rules, the auction for a commercial mine, on the first attempt, is valid only if there are at least two bidders.

Concerns over collusion

In the past, the Comptroller and Auditor General of India has raised concerns about collusion in coal block auctions. According to the government auditor, bid-rigging is “a form of cartel conduct” that takes place “when bidders agree among themselves to eliminate competition”.

In its audit of the first two tranches of coal auctions held in 2015, the CAG flagged the possibility of companies placing multiple bids for the same block through their subsidiaries and joint ventures, thereby stifling competition and depressing the prices fetched for valuable national resources. In subsequent rounds, the coal ministry tightened the rules to ensure bids by subsidiaries and joint ventures were counted as a single bid.

However, in 2021, citing the tepid response to coal auctions – many mines had failed to attract even a single bidder – the ministry reduced the minimum number of qualified bidders required for an auction to take place from three to two. This was done despite an expert committee recommending that an auction be annulled in the first attempt if there were less than three qualified bidders.

Even though poor participation had plagued previous rounds of auctions, in November 2022, the Union coal ministry put up 141 mines for sale – the biggest tranche of commercial coal mines ever auctioned.

But the auction saw shallow competition: only 59 companies participated, placing 96 bids for 36 mines, an average of less than three bids per mine. When the auction process ended on March 9, only 29 coal mines had been successfully bid out.

Many have questioned the government’s rationale of auctioning a large number of mines at one go. “You throw open 141 mines, knowing well that it will kill competition,” said Sudiep Shrivastava, a lawyer and activist who was a litigant in the Supreme Court case that resulted in the cancellation of captive coal blocks in 2014. “Only a few blocks faced real competition.”

Fewer bidders, lower prices

Experts say the number of bidders has an impact on the prices fetched for the coal mines.

Priyanshu Gupta, who teaches business sustainability at the Indian Institute of Management in Lucknow, has studied price data across several rounds of coal auctions. Gupta’s analysis of coal auctions till April 2022, which he shared with Scroll, showed mines with two bidders were bid out at the lowest rates. “There is a clear pattern as far as the correlation between the number of bidders and the bid rate goes,” he said.

This rings true for the latest round of auctions too, a Scroll analysis shows.

According to the government’s auction rules spelt out in the standard tender document, the floor price of a mine being auctioned for the first time is fixed at 4% share of the revenue that would be earned by the mining company. Therefore, the successful bidder would be the one who pledges to share the highest percentage of revenue it earns on the sale of the coal with the government.

The rules further state, “Bids should be higher than the floor price in multiples of 0.5% of revenue share till initial offer reaches 10% and thereafter in multiples of 0.25% revenue share.”

In other words, the minimum bid has to be at least 4.5% of the floor price.

Among the 29 mines that were successfully auctioned in the latest tranche, the average revenue share of the winning bids was 22.12%.

The Adani Group companies got three mines – including North West of Madheri – at 5.5% revenue share. The fourth mine it secured came at 7%.

Coal mines won by the Adani Group

Name of mine Revenue share
North West of Madheri 5.5%
Purunga 5.5%
Dahegaon Gowari 5.5%
Gondbahera Ujheni 7%

In three of the four blocks it won, the Adani Group faced only one other bidder.

In Purunga, its subsidiary CG Natural Resources Pvt Ltd was pitted against Power Mech Projects Ltd, a Hyderabad-based construction engineering firm that reportedly received orders worth more than Rs 6,000 crore from the Adani Group last year.

In Dahegoan Gowari, Adani-owned Ambuja Cements outbid Gangaramchak Mining Private Limited, the only other company that had bid for it.

Cavill Mining competed against Adani in two blocks. One of them was Gondbahera Ujheni, which also saw a bid by Gujarat Mineral Development Corporation, a state company.

The other was North West of Madheri, which was won by MH Natural Resources, a wholly-owned subsidiary of Adani Enterprises, the Adani Group’s flagship company, at 5.5% – one of the lowest prices seen at the auction.

A web of connections

Cavill Mining Private Limited was registered on April 24, 2022 in Ahmedabad, according to its submissions to the Ministry of Corporate Affairs.

Eighty percent of its paid-up capital of Rs 1,00,000 came from Utkarsh Shah, making him the effective owner of the company.

Utkarsh Shah also owned 96% of Adicorp shares, according to the firm’s 2022 corporate filings.

Before he died last year, Utkarsh Shah was the chairman of the Adi-Heritage Group. According to its website, the group worked across several sectors before “establishing itself as a trustworthy real estate development enterprise”.

After Utkarsh Shah’s death, his son Adarsh Shah replaced him as director in both Adicorp and Cavill, which, as already noted, share the same address in Ahmedabad.

In other words, Adicorp and Cavill are sister companies owned by the same family.

A 2013 profile of Gautam Adani in the Economic Times described Utkarsh Shah as “a friend of 30 years”.

However, according to Hindenburg Research, Adicorp’s relationship with the Adani Group extends beyond the personal friendship between their promoters.

The American research firm in its report flagged a series of transactions involving the company and a bunch of Adani Group companies.

In 2019-’20, four Adani group companies including two listed companies – Adani Enterprises and Adani Ports and Special Economic Zone – lent Adicorp Rs 622 crore. Adicorp used most of that money to extend another listed Adani Group company, Adani Power, a loan of Rs 608.4 crore in the same financial year.

Hindenburg Research alleged that this was suspicious. Its report pointed out that the year Adicorp got the loan of Rs 622 crore from Adani, it had registered a profit of Rs 68.6 lakh on revenue of just over Rs 64 crore. “Given its net profit, it would take Adicorp Enterprises around 900 years to earn enough to pay back the loans even without interest,” the report said. (Adicorp’s financial health has since declined. According to its latest filings, its revenue in 2021-’22 plummeted to less than Rs 14.3 crore.)

According to Hindenburg, Adani Group was using Adicorp to surreptitiously transfer funds between its group companies to circumvent mandatory market disclosures – transactions between group firms must be disclosed to the stock regulator to ensure transparency about a listed company’s financial health.

This alleged lack of transparency lies at the heart of Hindenburg’s report on Adani: it accuses the group of concealing transactions and relationships to inflate stock prices.

In its response to Hindenburg’s claims, the Adani Group has maintained “Adicorp is not a related party”.

However, weeks after the Hindenburg report put the spotlight on the Adani Group, leaders from 16 Opposition parties wrote to the Enforcement Directorate, the central agency that investigates financial crimes, asking for an inquiry into the allegations. Their letter highlighted the loan given by Adani Group to Adicorp. “This transaction alone merits serious scrutiny,” the letter said.

In addition, the business daily Mint reported that the chairman of the audit committee at Adani Power was a managing partner in the firm that audits Adicorp. This finding prompted “concerns about potential conflicts of interest and the inadequacy of disclosure practices,” the newspaper said.

A 2022 report by CreditEdge, a credit rating agency, had said the Adani Group and Adicorp “have a strong relationship… of over 15 years”. Detailing the relationship, CreditEdge wrote: “Adi Group was sourcing major coal requirement from Adani Enterprises Limited in the domestic market. However, for the past around 8 years, Adi group has started procuring coal from overseas market through Adani Global PTE Limited (Singapore) and Adani FZE (UAE), which belongs to Adani Group.”

Questions were sent to the Adani Group, Cavill Mining, and the coal ministry. No responses had been received at the time of publication.