42 shops, 3 owners: Tip of iceberg of Delhi liquor cartels, say officials
At least 42 liquor stores in Delhi were controlled by only three people, according to records seen by Hindustan Times, highlighting proxy ownership that plagues the Capital’s liquor business, and, according to experts, leads to cartelisation and suppression of State revenue.
HT reviewed relevant bank transaction records and interviewed industry and government operatives with knowledge of developments to establish the widespread practice of proxy ownership, which is a violation of excise rules.
Under the Capital’s 2010 excise policy, a retail licensee is prohibited from opening more than one liquor shop. Licensees flouting ownership rules are liable to have their licence cancelled. Records show that many private vends are controlled by a few individuals or groups, who list different operators, addresses, and excise licence names, to bypass the rules.
In several cases, however, the names of the authorised signatory needed for wholesale purchases are the same, show banking transactions.
“The extent and nature of cartelisation in retail liquor licences in Delhi has recently come to our notice and we will take strictest action possible. The new Delhi excise policy will effectively put an end to such cartelisation,” said a senior Delhi government official.
The Delhi government’s proposed new excise policy seeks to address several issues, including proxy ownership. Delhi has 849 liquor stores, of which 276 are privately run. Retail liquor licences are given through an application for a fee of ₹8 lakh.
HT tracked transactions of 42 liquor stores in the city in 2020 and early 2021. Payments made by these retail stores showed that the stores were controlled by only three people.
Of these, payments for 23 vends were made by one common authorised signatory — Rohit Arora — despite each of these stores being registered under different individuals or companies.
For example, a liquor vend at Star City Mall in Mayur Vihar Phase 1 is registered under Bigway Export Private Limited, which cleared its payments through cheques with the signature of Rohit Arora, its owner.
But the same person also issued cheques for the liquor stores at D-Mall Netaji Subhash Place; RG City Centre Mall at North Delhi’s Lawrence Road; Rohini Sector 10; Karol Bagh; and Bawana, among others. All these are registered under different names and companies in the government records.
A senior excise department official admitted that the practice of proxy ownership and flouting of the one licence-one shop rule exists in Delhi.
“Some of them have their own manufacturing units in Punjab and other states. Those who own 20-30 stores arm twist the wholesalers to agree to their terms and conditions. They decide the wholesale buying price and seek huge discounts even as the retail price doesn’t decrease accordingly, thereby increasing their profit margins. They seek extra credit days, because of which wholesalers don’t get payments up to three months and engage in stock blocking as well. This is the current situation in Delhi,” said the official, requesting anonymity.
Rohit Arora declined to comment. His cousin Prashant Arora, who is a wholesale dealer of liquor, said this practice was at least two decades old. “If what liquor retailers are doing is illegal, why did the Delhi government’s excise department keep renewing all the licences? Why was no action taken?” he asked.
He admitted that Rohit Arora, whose name was on the banking transactions, was his cousin but denied that he had broken any rules by controlling multiple liquor vends. “What is being alleged as proxy ownership is the outcome of loopholes in the excise policy,” he said.
As per existing rules, it is illegal for a wholesaler of liquor to open a retail store. “No licence for retail sale of liquor for consumption off the premises and for consumption on the premises shall be granted to the holder of wholesale licence and vice versa,” states the 2010 policy
Similarly, in 12 stores, the name of businessman Nitin Verma was common in all banking transactions. In seven stores, Amit Arora, who runs the Buddy group, was mentioned in banking transactions.
Verma did not comment on the matter. Amit Arora denied the allegation and said every licensee is a different entity, a different company.
“I have no proxy ownership in any of my companies, any of my stores. The name of the companies might sound similar, but none of them have similar shareholdings. Proxy ownership is happening in those shops that have proprietorship. Here, a few individuals after a decade or so bought several licenses which were in the proprietorship model. But signatories continue to be in the first owner’s name. You have to understand the difference between proprietorship, partnership and private limited companies. Ours are proper private limited companies,” he said.
But he couldn’t explain how the same name kept recurring in several banking transactions.
A liquor industry executive said the practice was widespread and the people named above were among a larger group of individuals who used loopholes in the existing rules to expand their business network.
“For example, when you sell a store to someone else, the name on the licence remains that of the original owner. So there’s little way to check if a monopoly is being established,” said this person, who requested anonymity.
“The problem right now goes beyond just the issue of proxy ownership. It has rather evolved into cartelisation with a few retailers also getting into manufacturing cheaper variants,” alleged a second government official on condition of anonymity. “It negatively affects the customer’s experience as many of the renowned and top-selling labels remain ostensibly out of stock in the shelves of Delhi’s shops.”
Nearly 100 such shops are run by three or four individuals, said the official quoted above. The extent of proxy ownership ranges from people running five shops to as many as 30-odd, he added. “The 42 shops are just the tip of the iceberg.”
A third official said new recommendations to change the excise policy will reduce tax evasion and ensure the government does not lose out on excise duty.
“The 270-odd private liquor shops earn a gross profit of about ₹350 crore, but what the retailers actually declare is just about ₹70-80 crore. The proposed policy will put an end to this as only big players who can show their income tax returns for at least three years, have a turnover of ₹250 crore and can pay the earnest money deposit of ₹30 crore per zone, will be able to bid for the tender. It will ensure that white money is put in the business,” the official said.
The new recommendations divide the Capital in 32 zones and end the system of collecting licence fees separately for each store. Instead, an upfront licence fee is charged. Each zone will have at least 27 liquor vends — all of which will go to one successful bidder.
Experts said the proxy ownership was responsible for cartelisation and “brand pushing”, where consumers have to make do with inferior brands pushed by the store.
Anand Vijay Jha, senior vice president (corporate affairs) of UBL (United Breweries Limited) said the proposed Delhi excise policy has some forward looking provisions.
“We welcome the push towards more consumer choice and the harmonisation of the LDA [legal drinking age] with most of the country .The new ‘Brand Registration’ policy is another positive, however the implications on MRP and population based redistribution of existing outlets can only be determined in due course of time,” he said.