The Justice Michael D’Cunha Commission has recommended that BJP leaders BS Yediyurappa and B Sreeramulu be prosecuted for allegedly abusing their influence during their tenures as Chief Minister and Health Minister, respectively, for alleged irregularities in the procurement of PPE kits in April 2020.

In August 2023, the newly formed Congress government appointed retired Karnataka High Court judge Justice Michael D’Cunha to investigate allegations of corruption in the procurement of medical equipment and medicines during the COVID-19 pandemic. As a judge of special court, D’Cunha convicted the then Tamil Nadu CM J Jayalalithaa in the disproportionate assets case against her in 2014.

A portion of the report, which TNM has accessed, has alleged that BS Yediyurappa and B Sreeramulu “manipulated” the procurement process in April 2020 to “favour” two companies, DHB Global and Big Pharmaceuticals, and has recommended that criminal prosecution be initiated against them.

According to the report, the state government’s orders for the import of three lakh PPE kits in April 2020 to the two companies were non-transparent and arbitrary and a violation of the Karnataka Transparency in Public Procurements Act. 

This decision caused financial losses to the state government as they paid almost double the cost per PPE kit as compared to the amount charged by local suppliers. The state also incurred an additional expenditure of Rs 14.21 crore for transportation of the PPE kits from China to Bengaluru. The companies were also liable to pay penalties of several crores of rupees for delaying the delivery of the goods, the report said. 

TNM found that Big Pharmaceuticals was registered in 2019, barely a month before the outbreak of COVID-19 in China. DHB Global was also founded in 2019 by Douglas Corley and Sebastian Ko and appears to be defunct now.

Justice D’Cunha said that due to the “improper performance of public duty by the then CM and the Health Minister, either by themselves and/or in collusion with the suppliers by corrupt and illegal means, have obtained undue advantage for themselves and/or the supplier by abusing their position as public servants and/or by using their personal influence over other public servants involved in the transaction.” It also recommended disciplinary action against senior bureaucrats in the Health Department.

BS Yediyurappa was CM between July 26, 2019 and July 26, 2021, and B Sreeramulu, one of Ballari's infamous mining barons, was the Health Minister until October 12, 2020. 

What does the report say?

According to the report, which TNM has access to, the Karnataka government placed three orders to import three lakh PPE kits from DHB Global and Big Pharmaceuticals in April 2020. 

There were a number of alleged violations of the Karnataka (Transparency) in Public Procurement Act and Rules in these three transactions, according to Justice D’Cunha. These include non-transparent and arbitrary selection of the two companies, overpricing, disparity in prices, the failure to levy penalties for delayed supply, additional costs incurred by the state for transport, the supply of fewer units than the quantity paid for, and the supply of PPE kits past the expiry date. 

One of the most glaring alleged violations is the price paid by the state government for the orders. According to the report, the state government paid double the amount to these companies for each PPE kit compared to what it paid Indian suppliers barely two weeks prior. While domestic suppliers were charging the state government anywhere between Rs 400 and Rs 1,444 per unit, these two companies charged almost double at over Rs 2,000 per unit. 

On April 2, 2020, the Karnataka government placed an order for one lakh PPE kits with DHB Global at a cost of Rs 2,117.53 per unit with a total value of Rs 21.17 crore. 

It then placed two orders for one lakh PPE kits each on April 10, 2020. One order was placed with DHB Global with the unit cost for PPE kits fixed at Rs 2,104.53. 

On the same day, another order was placed with Big Pharmaceuticals at a unit cost of Rs 2,049.84. 

The report said domestic suppliers charged about half this amount around the same time. 

Read: Karnataka govt underreported 1.2 lakh COVID deaths, says PAC report

The commission noted that the state government had justified the choice of these two suppliers, claiming that local suppliers were not in a position to supply the required quantity of five lakh PPEs. However, the commission noted, “There is nothing on record to suggest that the Indian firms had expressed their inability to supply the quantity needed by KSMSCL at any point of time. This explanation appears to have been put forward as a mere ruse to justify supplies from the select supplier identified by the CM and the Health Minister,” the report said. 

These circumstances, the report said, “lead to suspect the motive in identifying foreign suppliers and placing orders with them at exorbitant and unconscionable rates when kits of similar specifications were readily available in the domestic market.”

TNM found that Big Pharmaceuticals was registered to an address in Jeevanbhimanagar in Bengaluru. The owner of those premises told TNM that the company had moved and that only legal notices addressed to the company still arrive. TNM is trying to get in touch with representatives of the company, which appears to be linked to a health institute in Bengaluru, for a response.

How were these two companies selected? 

The report alleged that the procurement from these two companies was done “purely” on the directions of the CM and the Health Minister without following basic procurement rules and procedures. 

“Though the records are built up to show that post facto approval of the CM was obtained on July 2, 2020, the earlier notings... clearly disclose that Supply Order (SO) was issued purely on the directions of the CM, which has rendered the whole process non-transparent, arbitrary, and tainted with fraud.” 

The report noted that no quotations were invited before the process was started, and it was not known how the price list of the foreign entities was obtained. It noted that when the Supply Order was issued, no order was issued regarding an exemption under Section 4(a) of the KTPP Act.

“Therefore, the procuring entity was duty-bound to call for tender/quotation and proceed to issue the SO only after ascertaining the eligibility and qualification of the suppliers and determination of price. The circumstances discussed above go to show the whole process was manipulated to grant the contract to the selected and favoured supplier of the CM and the Health Minister apparently with a view to obtain unfair advantage,” the report said. 

Violations and penalties

The report referred to emails exchanged between the Commissioner for Industrial Development and the Principal Secretary of Health and Family Welfare where the rates for the PPEs quoted by the two companies were mentioned. However, the report said, “It is important to note that the above rates appear to have been obtained without calling for any quotations.” 

The procuring agency “did not record any justification for the difference in the rate” even though the orders were placed around the same time. DHB Global charged Rs 54.66 higher than Big Pharmaceuticals, causing a loss to the state, the report said.  

Both DHB Global and Big Pharmaceuticals had initially quoted a price that included freight and transport costs. Big Pharmaceuticals also later undertook to airlift two lakh PPE kits, including one lakh supplied by DHB Global, from Guangzhou to Bengaluru, even though the prices quoted by both companies had included transportation costs. The report notes that the additional expenditure towards freight and transportation had resulted in a benefit of Rs 14.21 crore (excluding GST and IGST) to the suppliers. 

Calling the issue of the corrigendum “wholly arbitrary, malafide, and without authority of law and intended to confer undue advantage to the supplier,” the report said that the conduct of the government official concerned was tantamount to financial impropriety warranting disciplinary action. 

The report also noted that the conduct of the then CM and Health Minister in “approving the contract and the subsequent corrigendum amounts to criminal misconduct” under Sections 7 and 11 of the Prevention of Corruption Act and recommended that criminal prosecution be initiated against them. 

Justice D’Cunha also recommended disciplinary action against the Additional Director / signatory to the corrigendum and that steps be taken to recover Rs 14.21 crore from DHB Global for the additional transportation costs. 

The commission also noted that the two companies had delayed the supply of PPE kits in violation of the purchase order, which made DHB Global liable to penalties to the tune of Rs 1.57 crore and Big Pharmaceuticals to a penalty of Rs 1.53 crore. 

When Justice D’Cunha submitted the interim report on August 30, 2024, the state government announced that a Cabinet sub-committee headed by Chief Secretary Shalini Rajneesh and Additional Chief Secretary LK Atheeq would look into it. A Special Investigation Team was also formed. 

(With inputs from Samrah Attar)