After maintaining silence over allegations against his family-owned firm Heritage Foods Limited, TDP president N Chandra Babu Naidu finally spoke on Monday. “Even when I was chief minister I only encouraged growth of business through fair business and not by resorting to any illegal practices. Heritage Foods has neither fudged its accounts nor has it cheated its shareholders,” Naidu says.

Naidu broke his silence only after the ‘grand alliance’ with TRS, CPI and CPM was forged on Saturday evening. Throughout last week, although he was constantly troubled by the allegations against the firm where his wife is vice-chairman and managing director and son Lokesh is executive director, Naidu did not react so as not to jeopardize the fragile talks that were going on between the alliance parties. Allegations that Maoist Andhra-Orissa Border Committee member Sudarshan alias Sriramulu Srinivas wrote a letter to TRS MLA Harish Rao on January 17 to warn his uncle K Chandrasekhar Rao not to join the grand alliance had already put strain on the talks.

It all started with vernacular daily ‘Sakshi’ carrying a report on the eve of the grand alliance talks alleging that Heritage Foods Limited cooked up profits while it was actually running in losses. Finance Minister K Rosaiah demanded an explanation from Naidu who retorted that the firm’s directors will respond to the allegations and not the TDP. The report in Sakshi, owned by the Chief Minister’s son Y S Jaganmohan Reddy, appeared at a time when the Congress government was facing allegations of favouring the family firms of B Ramalinga Raju.

The Heritage Group was founded in 1992 by N Chandra Babu Naidu and is into retail and dairy products through Heritage Foods (India) Limited (HFIL) based in Hyderabad. Other companies in the group include Heritage Infra Developers Limited, Heritage Finlease Limited, Heritage International Limited and Heritage Agro Marine Private Limited. According to Heritage Foods president Sambasiva Rao the firm’s annual turnover in 2006-2007 was Rs 347 crores and close to Rs 700 crores in 2007-2008.

Presently Heritage’s dairy products are marketed in Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Maharastra and its retail stores are across Bangalore, Chennai and Hyderabad. The supply of vegetables for the retail stores are sourced from farmers in Naidu’s native district Chittoor, and Medak. The firm’s retail chain is suffering losses though the diary products division is making profits.

While the Sakshi report hinted that Heritage Foods cooked up profits, the government came up with new allegations with the Finance Minister alleging that Naidu and the firm were involved in shady land deals prompting the Chief Minister to order and inquiry. The main allegation was that Heritage Foods sold its land Heritage Infra at less than the market price thereby causing losses to its shareholders.

President of Heritage Foods Sambasiva Rao says that the firm presented its financial statements accurately to its shareholders indicating not only the profits earned in the dairy division but also the losses incurred in the retail operations and income received due to disinvestments of its shares in Heritage Infra Developers Limited separately. “At no point the business results were wrongly reported,” he says.

“The annual accounts statement was published in newspapers in July 2008 and printed in the annual report circulated to share holders and reported to stock exchange. Any one who reads our company reports available with shareholders, regulatory authorities and posted on website can easily understand the losses incurred in the retail business and other income received from disinvestments of shares,” he says.

Heritage Foods decided to float an Infrastructure company with 51 per cent investment from Heritage Foods and the balance 49 per cent by promoters of Heritage Foods during January 2006 under the name of Heritage Infra Developers Ltd. and 3.42 acres of land owned by Heritage Foods in Kondapur and Kothaguda village, Ranga Reddy district was sold to the new subsidiary, Heritage Infra, for Rs 2.74 Crores, during March 2006. Heritage Foods had acquired this land, first 3.23 acres in 1995 and .19 acres in 2000 (0.19 by paying Rs.19.65 Lakhs. The value of the land as per the Registration and Stamps department was Rs 30 lakhs per acre during March 2006 when the land was sold at the rate of Rs.80 lakhs per acre to Heritage infra.

Heritage Foods required funds for loss-funding its retail business further and for expansion of dairy and agriculture infrastructure, sources said. As part of its fund raising, Heritage Foods disinvested its total 20.40 lakh shares in March 2008 in Heritage Infra in favor of Sri Chakra Merchandising Pvt Ltd at the rate of Rs.174.99 per share. An amount of Rs.35.69 crores was thus raised. “Due to this transaction Heritage Foods could not only fuel the business growth but also gain substantially to the benefit of its shareholders. The value of the property of Heritage Infra had gone up substantially during 2008 due to couple of reasons namely: Government of Andhra Pradesh issued regularization order under urban land ceiling vide its order on September 27, 2006, as per the regularization scheme in force, and due to the boom in the prices of vacant lands in and around Kondapur because of the development of other support infrastructure in this area during 2008. This appreciation of share value of Heritage Infra benefited the shareholders and Heritage Foods immensely. The procedural requirements for conducting this transaction were followed by us. This transaction was also notified in two newspapers, reported to stock exchange on March 28, 2008. These details were also explained to the share holders during the 16th Annual General Meeting held on September 26, 2008,” Sambasiva Rao says.

Naidu says that the issue was raked up because after the Satyam scam the Congress government is facing allegations of favouritism and trying to protect the Raju family.