When N Chandrababu Naidu was in his late forties, he was hailed not as the CM but the ‘CEO’ of Andhra Pradesh, for removing what was called the ‘red tape’ of India’s bureaucracy to promote industry. It was during his stint as Chief Minister that terms such as ‘fast-track project’ and ‘single window clearance’ became part of the country’s urban business lexicon. Three decades later, his ‘fast-track’ style of working appears to have landed the Telugu Desam Party (TDP) chief in jail.

The Andhra Pradesh Crime Investigation Department (CID) has jumped into an ongoing probe by central agencies – focussed on a Rs 241 crore alleged fake invoicing scam involving a clutch of private companies – to say that Naidu was the mastermind of the whole operation when he was the CM between 2014-2019. TDP cadre broke into protests on September 9, when the 73-year-old leader was arrested by the state CID and remanded in the Rajahmundry Central Jail as prisoner number 7691.

The trail of papers in the case show that investigating agencies believe there was a complex web of private companies siphoning off government funds worth crores of rupees. Here’s a deep dive into the alleged scam, the CID’s case, Naidu’s defence, and the unanswered questions.

The CID has alleged that Naidu, his family, and the TDP have directly benefited from these misappropriated funds. But no money trail to Naidu has been established as yet, even as his supporters accused the YS Jagan Mohan Reddy government of pursuing a political vendetta. 

TNM has gone through an assortment of documents, including a forensic audit, provisional attachment order by the Enforcement Directorate (ED), court orders, and the agreements that lead to the skill development project with two private companies — Siemens Industry Software (India) Pvt Ltd and DesignTech Systems Pvt Ltd in 2015. The ED, Income Tax Department, and the GST Intelligence have insisted that a set of companies used a fake invoicing system to swindle crores.

Chandrababu Naidu was sworn in as the first Chief Minister of bifurcated Andhra Pradesh on June 8, 2014.

He vowed to build ‘Swarnandhra’ (golden Andhra), to speed up development, and make Andhra Pradesh one of the top three states in India by 2022, in time for the celebration of 75 years of India’s Independence. His government even got a Swarnandhra Vision 2029 policy document prepared by consultants, laying down the roadmap and investment plan for the state. The document detailed seven missions to prioritise sectors of growth, one of them being the ‘Knowledge and Skills Mission’.

Soon after, the government established the Andhra Pradesh State Skill Development Corporation (APSSDC) — a not-for-profit company — in Public Private Partnership (PPP) mode. The government order (GO) in this regard was passed by the Higher Education Department on September 10, 2014, appointing Ghanta Subbarao as the Managing Director and Chief Executive Officer, and K Lakshminarayana as the Director of APSSDC.

A tripartite agreement with Siemens and DesignTech was one of the first deals entered into by the Corporation. The outlay was simple — develop six skill development clusters across the state (comprising one Centre of Excellence and five technical Skill Development Institutes). DesignTech, a Pune-based company, was responsible for implementing the overall project, with the assistance and guidance of Siemens Industry Software (India), the Indian subsidiary of the German company. DesignTech has been a vendor of Siemens for several years (although now suspended amid the AP CID probe) and has experience conducting training in technical skills for college students. It was also part of the Siemens project with Gujarat.

What was Andhra government’s role, asks CID

There are three main documents with regard to the project. The CID claims that the language used is different in each document, which allowed Naidu to conjure up a scam. The first was a tripartite agreement dated May 28, 2015 – this agreement said that DesignTech would be the proposer and integrator of the project, Siemens the technology partner, and APSSDC would identify institutes and areas. The agreement said that Rs 330 crore (excluding taxes) would be given by the Andhra Pradesh government as financial assistance, while the rest of the costs would be borne by the two companies.

A GO issued on June 30, 2015 by the state government’s Skill Development Entrepreneurship and Innovation (SDE&I) Department clearing the project mentioned that the remaining 90% of the project cost would be provided as a ‘grant-in-aid’ by the technology partners (Siemens and DesignTech).

An undertaking signed on December 4, 2015 said that each cluster would cost Rs 559 crore to develop, and Andhra government’s “contribution” would be capped at Rs 55 crore or 10%.

According to the CID, Naidu misled his Cabinet by using the word ‘grant-in-aid’ in the GO, implying that the two private companies would be providing money for the project. The TDP and these private companies say that the contours of the project were clear from the beginning – the two companies would install, operate, and maintain the project, including the provision of software and hardware.

Suman Bose, the then Managing Director of Siemens Industry Software (India), told the media that the company’s contribution to the project was in the form of ‘grant-in-kind’, through heavy discounts while providing their products and services. He claimed that from the start of the project, multiple documents have mentioned ‘grant-in-kind’, and not ‘investments’. “There were software, hardware, intellectual property, and services components,” he said.

It is to be noted that the Comptroller and Auditor General defines ‘grants-in-aid’ as payments in the nature of assistance, donations, or contributions.

Did Naidu overlook comments advising caution?

The CID says file notings by two IAS officers also strengthen their case. K Suneetha, the then Secretary of the Finance Department, had objected to releasing the entire share of Rs 371 crore (the total amount including taxes), saying it may not be appropriate at such an early stage in the project without obtaining any guarantee, and suggesting that they wait for a pilot project to be implemented.

The CID also alleged that Naidu created pressure on the then Chief Secretary IYR Krishna Rao and then Principal Finance Secretary PV Ramesh to release funds in a hasty manner, before the 90% ‘grant-in-aid’ was received from Siemens and DesignTech. Ramesh noted in a shadow file of the Finance Department that the Chief Secretary met him regarding immediate release of funds and that the Chief Minister had instructed the same.

This led to speculation in some sections of the media that it was PV Ramesh’s statement to the CID that had incriminated Naidu in the case, leading to his arrest. However, Ramesh has denied this conjecture. “It is unbelievable that it is based on my statement that the police have arrested the former Chief Minister [Naidu]... I’ve said before the magistrate and the police what the facts were, none of them can remotely be considered responsible for anyone’s arrest, let alone [Naidu],” he said.

TNM has the 104-page shadow file in which there are many other notings by officers including on what intervals to release money. In November 2015, PV Ramesh noted that Siemens and DesignTech have demonstrated outcomes in Gujarat and therefore the entire amount can be released in two instalments provided the companies lay the ground for fulfilling their commitment.

The CID says that the haste shown by Naidu in setting up the APSSDC, bringing it under the SDE&I Department (from the Higher Education Department), not calling a tender, not setting up a monitoring committee, handpicking who would head these bodies, and releasing the entire amount of Rs 371 crore to DesignTech in a matter of four months — December 2015 to March 2016 — shows that he was impatient to have direct access to the Siemens project files, in order to have the funds released and diverted through shell companies so that ultimately he and his family as well as the TDP could benefit from them.

Naidu’s son Nara Lokesh said that his father is being incarcerated for being efficient. “He had a vision and he wanted it implemented fast. Can he be jailed for that?” Lokesh asked. PV Ramesh, who has also worked with Jagan Mohan Reddy as Additional Chief Secretary to the CM, said that it was normal for Naidu to tell Secretaries to follow up on important projects. He said that considering Naidu’s vision to accelerate the manufacturing sector’s output and the huge investments being brought into the state at the time such as the Kia Motors plant, a skilled workforce had to be provided on a large scale and not on a pilot project basis.

The question then is — does the CID’s case prove criminal intent on Naidu’s part?

The maze of companies

In August 2018, the Pune division of the DGGI, or Directorate-General of Goods and Services Tax (GST) Intelligence, arrested 50-year-old Vishal Srivastav Shirish Shah. Shirish Shah was running a company called Allied Computers International (Asia) Ltd or ACI. The DGGI alleged that Shah was running more than 200 shell companies, had issued fake invoices worth Rs 70 crore to various companies and was collecting commissions for this. Two of the companies, according to DGGI, that used this fake voucher system were DesignTech and Skillar Enterprise India Private Ltd. At the time, a DGGI officer told Pune Mirror that the significance of these two companies was that they were part of an Andhra government project.

The DGGI’s findings and a forensic audit done by the Andhra Pradesh government became the basis for an FIR that was filed by the Andhra CID on December 9, 2021. The APSSDC also filed a complaint with the CID and as is the norm, the ED stepped in to investigate the financial angle.

TNM has gone through a 110-page provisional attachment filed by the ED in April 2023. The ED said that Siemens and DesignTech sub-contracted their work to a company called Skillar Enterprise India Private Ltd. Skillar was in fact set up only on July 30, 2015, a month after the GO clearing the APSSDC project was issued. Of the Rs 371 crore that the APSSDC released, Rs 241 crore was transferred to Skillar (formerly called PSVP) and this entire amount was embezzled, according to the ED.

The ED’s case is that DesignTech claimed Skillar provided software training development; however, Skillar took a contradictory stand regarding the nature of services. Skillar told the ED that they bought the training software from Shirish Shah’s ACI and five other companies. All these companies – including Skillar – are shell companies that were not doing any work but providing fake invoices, the investigating agencies alleged.

The scam, according to the ED, worked like this – money went from DesignTech to Skillar, from Skillar to tier I of 6 shell companies, and from there on to a second tier of shell companies.

The ED also said that Skillar was set up by an acquaintance of Siemens India’s Suman Bose, a man named Praveen Bhatia. Bhatia also said that Suman introduced him to two fresh shareholders to whom the majority of Skillar’s shares were transferred. Suman Bose denied this to the ED, saying he only introduced Bhatia to DesignTech MD Vikas Khanvelkar. The ED thus alleged that a close group of people floated new companies or used their existing companies to funnel out the money.

One of the accused, Mukul Chandra Agarwal, is part of three companies that received Rs 56 crore from Skillar. Two of these companies (that got Rs 18 crore from the total) were set up in 2016 and 2017 respectively. 

The ED also said that they traced messages between Suman Bose and Vikas Khanvelkar about handing over cash. These are, however, cash transactions of Rs 8 lakh and Rs 64 lakh and the duo claimed these were for other purposes. The ED does not mention any cash dealings in its conclusion.

In March this year, Jagan spoke about the case in the Assembly, arguing that Naidu must be considered the main accused. He said that Siemens had distanced itself from the GO and MoU related to the project. But according to the ED’s provisional attachment order, the present MD of Siemens India, Mathew Thomas, acknowledged the deal with APSSDC, saying that their company’s role was understood as that of supplying software with Siemens IP at a discounted price and supervising DesignTech’s management of the project.

However, Mathew Thomas also shared details of Siemens India’s internal probe, which indicated that Suman Bose, the company’s former CEO, played an active role in the project along with vendors such as ACI, Skillar, and DesignTech, “with the purpose of misusing public funds.”

Skillar has also contested the ED’s contention that it is a shell company. In its submission before the High Court of Andhra Pradesh at Amaravati, Skillar said that since the project undertaken in Andhra was bigger than the one in Gujarat, Siemens and DesignTech decided to engage a trusted vendor and asked Praveen Bhatia and his Provestment Services – which had experience as a vendor company – to set up a new entity. Skillar called the ED’s allegation that it was a shell company “bald” and said that it engaged 350 employees.

Sarath, a lawyer representing Suman Bose, DesignTech, and Skillar points to a bail granted by the High Court to the accused in the case, including Suman Bose and Vikas Khanvelkar. “Getting a bail in an ED case is not possible unless one satisfies Section 45 of the PMLA Act.” This section says that a person can be given bail only if the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.

Sarath adds, "The mere creation of any of these entities post entering of the tripartite agreement in 2015 does not by itself make these entities “shell” as alleged by the CID or ED. The true test to conclude a particular entity as “shell” is only by examination of the nature of transactions, whether it had any real employees, whether there is any revenue being generated out of the businesses for which it is established."

While all these private individuals and entities are fighting various cases, what is crucial to note here is that the investigations by the DGGI, IT, and ED are restricted to the private companies and their alleged money laundering – there is no mention of involvement by the Andhra Pradesh government, the APSSDC, or Naidu himself yet.

Did Naidu make money?

On September 19, as the Andhra Pradesh High Court heard arguments in a petition filed by Naidu to quash the case against him, the state government submitted a 36-page counter. In its remand report after Naidu’s arrest, the CID had said, “Investigation revealed that Sri N Chandrababu Naidu and the Telugu Desam Party were the end beneficiaries of the misappropriated money.” However, no mention of this is made in the latest counter. Instead it regurgitated the allegations made by the CID and added that Naidu’s detention was vital to take the investigation to its logical conclusion. “The investigation is still inconclusive for collecting further evidence which include the information which is considered to be in exclusive knowledge of the Petitioner/Accused.”

An exasperated Harish Salve, who was representing Naidu in the High Court challenging the FIR, argued that since the skill development centres under the project have come up, this means the service has been rendered to the government, and subcontractors not delivering services was not something the state government needed to go into.

This has been Naidu’s biggest contention – that 2.13 lakh students passed out from 40 Siemens Skill Development Centres and that 200 labs have been duly handed over by DesignTech to APSSDC and the respective colleges, in good working condition. Naidu has also called out the forensic audit by the AP government and accused the CID of not conducting any physical checks to see if the centres are functioning properly. A source in the AP government defended this and said that a forensic audit has many steps and in this case, misappropriation was evident after the first stage itself. "Another agency called Connor Consulting did an audit on the software purchased and found that many of it were not installed at all."

Though the CID says the project was overvalued and the money was diverted through Hawala transactions, Salve said, “What DesignTech might have done to save taxes is where the problem started, to involve [Naidu] is malafide.” He argued that since the skill development centres were now functioning, whether the partner firms and their vendors had inflated invoices were not the government’s concern.

When asked about the money trail, sources in the AP government point to the interrogation of businessman Manoj Vasudev Pardasany by the I-T Department. According to I-T, Manoj said that he used to meet Naidu’s personal assistant Pendyala Srinivas, who in turn threatened him to use fake vouchers and raise election funding. However, in the three pages of the interrogation that AP government sources have handed over to the media, Manoj does not speak of the APSSDC. “Manoj has not spoken about APSSDC, but there must be some other agents. It is important to confront Naidu with other accused to find the truth,” the government source said. "Pendyala fled to the USA as soon as he was served a notice from the CID," the source added.

The CID insists that Naidu’s detention is important to establish the money trail, but if that does not happen, the case will most likely fall apart. Both the TDP and the YSRCP are vying to be heard, however, any order from the court can shift the narrative completely. Meanwhile, more cases have been filed against Naidu and a fresh arrest warrant issued.