Highlight

Delhi’s Chief Minister, Arvind Kejriwal, has been arrested by the Enforcement Directorate (ED). The ED has labelled him as the main leader and key planner in Delhi’s liquor scam. This is significant because Kejriwal is the first sitting Chief Minister in Independent India to be jailed.

Before understanding the scam, lets first understand how liquor is sold in India.

Background

Liquor shops of Delhi were places in a very bad condition where many people feel uncomfortable shopping. In 2021, Manish Sisodia highlighted how these shops create an unpleasant environment and don’t treat customers well. He promised to replace them with spacious, well-lit, and air-conditioned stores to improve the experience of the customers and to avoid unnecessary crowed on roads of Delhi.

Income of State Governments

State governments earn money in two ways: their own revenue or transfers from the central government. Own revenue includes taxes like state GST, VAT on fuel, and alcohol excise duty, plus non-tax sources like licenses and government company profits. Transfers from the centre include direct assistance and the state’s share of central taxes, determined by the Finance Commission.

Raising corporate tax or land revenue takes time due to necessary reforms, but increasing taxes on diesel, petrol, or alcohol provides a quicker boost. Other items are under GST, which is set by both state and central governments. States avoid raising fuel taxes as it can become a political issue, leaving alcohol as the best option.

Usually, when you increase taxes on an item, the demand decreases. But this isn’t the case with alcohol.

“Designing Vend Auctions Better”

For this, a state government needs to do two things: Firstly, stop illegal liquor distribution and Secondly, Improve Vend Auctions. Improving Vend Auctions is crucial, and you’ll understand why shortly. This was what the AAP aimed to do in Delhi to boost their alcohol revenue.

In 2020, the AAP identified three problems with Delhi’s excise policy, originally set by the earlier government:

1. 1. Poor customer experience – When the customer experience is bad, people are less likely to buy, which reduces revenue.
2. 2. Inability to compete with Haryana’s liquor shops – Many Delhi consumers prefer to buy alcohol in Gurugram or Noida.
3. 3. The presence of a liquor mafia in Delhi engaging in corruption, which cuts into government revenue.

Combating the Identified Problems

Firstly, In Delhi, the government had complete control over wholesale liquor distribution and controlled 60% of retail outlets, which were managed by four government bodies. A Delhi government report noted that crowds outside these shops were desperate for alcohol, creating an environment that discouraged many women from going near them.

To address this issue, Aam Admi Party (AAP) proposed stopping the government from selling alcohol and allowing private companies to handle sales instead.

Secondly, the issue raised by the Delhi government was that customers preferred buying alcohol from Uttar Pradesh or Haryana rather than Delhi. They pointed out that the legal drinking age in Uttar Pradesh is 21, and Haryana recently changed it to 21 as well, suggesting Delhi should lower its drinking age to stay competitive. Another problem was that retailers in Haryana could offer discounts, while Delhi had a law requiring alcohol to be sold at a fixed price. This led many customers to shop in Haryana for the better deals.

Thirdly, the issue was corruption. The Delhi government stated that there was collusion between manufacturers, distributors, and retailers, leading to “brand-pushing” where retailers preferred selling certain branded bottles that offered higher commissions. Additionally, many retailers were not paying taxes properly, underreporting their sales to avoid tax payments. Despite filing cases, this problem persisted. The government claimed that many retailers were smuggling bottles from Haryana and Uttar Pradesh without paying taxes. To avoid taxes, these shops often didn’t provide receipts to customers.

The New Excise Policy on Alcohol

In February 2021, Chief Minister Kejriwal established a committee of ministers to create a new excise policy. The committee was led by Manish Sisodia and included Health and Industry Minister Satyendra Jain and Transport Minister Kailash Gahlot. By June 2021, the new excise policy was introduced, with the Aam Aadmi Party claiming it would address all previous issues.

To improve the customer experience, the government decided to stop running liquor shops and instead sell licenses to private companies. They designed an auction system to ensure an even distribution of liquor stores across the city. Delhi was divided into 32 zones, with each

zone allowed to have up to 27 retail shops, totalling 864 liquor shops. The Delhi government would earn revenue from selling these licenses.

A government can generate revenue from alcohol in three ways, one of which is selling licenses to wholesalers or retailers.The second way for a state government to earn money from alcohol is through excise duties, which are paid by liquor manufacturers on each bottle that leaves their factories. The third way is through value-added tax (VAT), which consumers pay when they buy alcohol. Unlike GST, VAT is used for alcohol, allowing each state to set its own tax rate.

The Delhi government argued that they would generate revenue through all three methods. By allowing private companies to enter the market, they would earn from license fees, VAT, and excise duties, as customers would receive better service. Previously, there were only 630 shops, but now there would be 864 shops in Delhi, all privately owned. The license auction system was similar to the IPL bidding system, with a minimum price set and the highest bidder winning the license. The starting price for each zonal license was set at Rs. 221 crores, allowing the winning company to open 27 retail shops in that zone.

These retail shops had specific requirements: they had to be at least 500 square feet, air-conditioned, and well-lit to provide a good customer experience. Additionally, the Delhi government planned to open five super premium retail shops, each at least 2,500 square feet, with tasting areas for customers to sample different alcohols. These shops could also sell cigars, liquor chocolates, and high-end art.

The Delhi government mentioned that such premium stores were successful in Hyderabad and Bengaluru and expected them to do well in Delhi too. Other changes included lowering the drinking age from 25 to 21, allowing bars and restaurants to stay open until 3 AM, reducing the number of dry days from 25 to 3, and introducing home delivery with selected retailers.

To compete with Haryana and Uttar Pradesh, the Delhi government allowed retailers to offer discounts of up to 25%, prompting many to advertise and provide these discounts. To prevent monopolies, no company could bid for more than two zones, and retailers were prohibited from being involved in wholesale and manufacturing to avoid price hikes for consumers, as seen during the Mayawati era in Uttar Pradesh.

To tackle tax evasion, the Delhi government decided to collect taxes and fees upfront with the license fee, preventing retailers from avoiding taxes. To stop the illegal import of alcohol from other states, high-security labels were introduced on bottles, and Excise Department officials were equipped with the Checko app developed by IIT Kanpur to verify if the necessary fees had been paid.

Despite these logical measures, you might wonder why Arvind Kejriwal and Manish Sisodia went to jail. This initially sounds like good news, but the bad news is yet to come.

Irregularities of the New Excise Policy
On July 22, Delhi’s Chief Secretary Naresh Kumar submitted a report to LG BK Saxena highlighting irregularities in the excise policy. The LG reviewed the report and called for a CBI investigation. The Chief Secretary’s report included three main allegations against the excise department, led by Manish Sisodia:
1.Policy changes that reduced government revenue, such as returning a Rs. 145 crore license fees to some companies due to COVID-19, refunding a Rs. 30 crore deposit to a company that failed to get an NOC from the airport authority, reducing foreign liquor prices, and lowering the import pass fee for beer.
2.The creation of a cartel, where several companies secretly collaborated, violating rules that prevented a single company from being a manufacturer, wholesaler, and retailer.
3.Unapproved policy changes made by the excise department without the LG and Cabinet’s consent, allegedly to secure funds from companies for the AAP’s election campaign in Punjab.
LG Saxena then requested a CBI investigation from the Home Ministry.

Arrest of Arvind Kejriwal and The Charges Against Him
On March 17, 2024, the ED issued its 9th summons to Arvind Kejriwal. Two days later, they labelled him the chief conspirator in the liquor scam. With the 10th summons, the ED arrested Kejriwal at his home, claiming to have evidence that he requested ₹100 crores from K Kavitha in exchange for favours in the excise policy.
The ED’s remand application from March 21, 2024, outlines the charges against AAP leaders, alleging that they accepted ₹100 crores from various companies, collectively called the South Group, in return for policy benefits. The ED accuses the Delhi government of aiding these companies in forming a cartel, securing wholesaler and retailer licenses.
The chargesheet states that Indo Spirits, part of the South Group, won a wholesaler license, while Khao Gali obtained retail licenses for two zones. The CBI claims that although several companies were involved, they were all controlled by the South Group, with K Kavitha being represented by Arun Ramchandra Pillai and Vijay Nair representing AAP.
The ED also alleges that before the policy’s release, Vijay Nair shared it with Arun Pillai and K Kavitha’s CA via WhatsApp, purportedly to benefit the South Group, with Kejriwal’s knowledge. They cite a FaceTime conversation between Kejriwal and South Group member Sameer Mahendru as evidence.
There are also allegations that the AAP increased the wholesaler fee from 5% to 12% to benefit the South Group’s wholesalers. This fee is paid by alcohol manufacturers to wholesalers. The CBI claims this significant change was made without approval, allowing the South Group to earn an additional ₹338 crore in 10 months.

The ED cited a statement from C Arvind, Manish Sisodia’s former secretary, who said this policy change was never discussed in official meetings. Instead, Sisodia allegedly wrote the change on a paper and instructed to draft a new policy based on it at Kejriwal’s home. This implies both Kejriwal and Sisodia were aware of the actions.

Additionally, the chargesheet mentions that on March 16, 2021, South Group member Magunta Reddy met with Kejriwal, stating that K Kavitha was ready to provide ₹100 crore for entry into the liquor business in Delhi. Kavitha allegedly demanded ₹50 crore for this entry, with Reddy instructing his son Raghav to prepare ₹25 crore with Vijay Nair’s help. The ED presented WhatsApp messages showing the money was sent through Hawala networks and used for election campaigning in Goa.

Conclusion

In cases under the Prevention of Money Laundering Act (PMLA), getting bail is nearly impossible, and this is what Arvind Kejriwal faces. Typically, the legal system assumes innocence until proven guilty, but under PMLA, the burden is on the accused to prove their innocence.

In 2018, the parliament made PMLA stricter by adding two tough conditions for bail. First, the accused must prove their innocence in court. Second, even when granted bail, they must demonstrate they didn’t commit the crime. The Supreme Court approved these changes, emphasizing that money laundering seriously hampers a country’s economic and social growth. The combination of PMLA and the Enforcement Directorate (ED) creates a very challenging legal situation for the accused.

This is the reason why Arvind Kejriwal is finding it hard to get bail, and his bail applications are continuously being rejected by the court.

Written by: Devesh Sharma,BBA LLB,Completed 4th Year,UPES, Dehradun