CHAPTER 21
MINISTRY OF STEEL

Hindustan Steelworks Construction Limited

Hindustan Steelworks Construction Limited (Company) introduced a Voluntary Retirement Scheme (VRS) for its employees with effect from November 1988. The scheme inter alia provided for payment of travelling allowance (TA) equivalent to actual fare of the class by Rail to which the employee was entitled for self and family for proceeding to recorded home town and reimbursement of actual expenditure incurred for transportation of personal effects as per TA Rules of the Company.

The said provision was changed in November 1993 entitling the employees opting for VRS, to make reimbursement of travelling expenses and cost of transportation of personal effects (by shortest route and as per entitlement) either to recorded home town or to the place where children of the employees were settled, or to any other place in India on the employee’s certification that it was his/her intended place of settlement. The rate of Rs.5 per kilometre for transportation of personal effects by road was fixed by the Board of Directors of the Company in June 1995.

Scrutiny of records revealed the following:

(i)    In Bokaro unit, 348 out of the 350 employees who had opted for VRS during 1997-99 had shown their place of settlement as ‘Kanyakumari’. In Vizag and Kolkata units, 33 and 31 employees had shown their place of settlement as ‘Pahalgam (J&K)’ and ‘Bondela forest, (Goa)’ respectively. In Chennai unit, 10 employees had shown their place of settlement as ‘Chengali, Leh and Taju’. In Bhilai unit, 46 employees out of 56 employees had shown their place of settlement as ‘Kanyakumari’ (40) and ‘Dibrugarh/Loda’ (6) and in Durgapur unit, 10 employees out of 13 employees had shown their place of settlement at ‘Bondela Forest, (Goa)’.

In all the cases, the employees had shown the farthest place in the country as their place of settlement. Transportation charges were also paid to the employees for the farthest place at the rate of Rs.5 per kilometre.

(ii)    Although almost all the employees separated under VRS had shown their place of settlement at the farthest place in the country, the Company did not initiate any step to verify their claims. Advances of Rs. 56.14 lakh towards transportation charges and Rs.27.28 lakh towards railway fare were paid to 476 employees separated during 1997-99 and their claims were passed in a routine fashion. In no case any adjustment bill was submitted by any of the employee.

There was no system of submission of TA bills by the employees indicating the details like time of departure and arrival, place of visit, number of persons travelling, class of accommodation, fare actually paid, train and tickets nos., railway/road receipts for transportation of personal effects etc. In the absence of TA bills, it was not clear as to how the genuineness of the actual expenses incurred was determined by the Company. The Company paid transportation charges and railway fare to its employees and family members simply on the basis of certification of the employees without ascertaining the genuineness of the claims.

The Ministry stated (March 2001) that the payments towards cost of transportation and travelling allowance had been made as per the relevant rules incorporated under the operating VRS duly approved by the Board of Directors. It added that all rules and relaxations had been reversed by the Board in August 2000. Further, subsequent to the decision that payment would be made only on submission of documentary evidence, the Company serviced notices to some of its ex-employees for recovery of the payment on account of transportation allowance. Against this, the ex-employees had filed petition in Hon’ble High Court, Patna/Ranchi Bench, which gave an interim stay order. The case was sub-judice (September 2001).

The fact remains that the Company made payment of Rs. 96.37 lakh on account of TA and Transportation allowance to its employees separated under VRS, the chances of whose recovery were remote. Besides, the Company was able to save Rs. 15 crore (appx.) at the rate of Rs. 20 thousand per employee from 7500 employees who opted for VRS during the last 12 months by changing the rules by the Board on 22 August 2000 after it was pointed out by Comptroller and Auditor General of India in August 2000.

Indian Iron & Steel Company Limited

Steel Authority of India Limited (SAIL) approved a proposal for construction of 144 dwelling quarters (96 ‘B’ type and 48 ‘C’ type quarters) and a 36 room guest house at an estimated capital cost of Rs.5.19 crore under the scheme for development of the Indian Iron & Steel Company Limited (Company) township at Kalajharia in Burnpur in July 1989. The scheme was to be completed by March 1991. The houses were primarily intended to provide accommodation to experts who would be stationed at Burnpur for the Company’s modernisation programme.

The Company issued a letter of intent (LOI) for construction of buildings to M/s. Dascon Projects (India) Company, Calcutta in March 1990, for a total value of Rs.2.82 crore. The work was to be completed within 15 months from the date of letter of intent. The Company placed contracts for a total value of Rs. 1.29 crore between July 1990 to May 1991.

Construction of 48 ‘C’ type quarters was completed in March 1992 at a total cost of Rs.1.43 crore. However, the construction of 96 ‘B’ type quarters and 36 room guest house on which the Company has spent an amount of Rs.1.88 crore had been lying partially completed since July 1992.

The work for completion of guest house and ‘B’ type quarters has not been taken up thereafter as there was no definite proposal for the Company’s modernisation programme, there were acute fund constraints and the contractor had suspended work pending settlement of claim lodged (June 1996) with the Company for Rs.1.54 crore (including escalation amount of Rs. 35.14 lakh). The Company in turn filed a claim of Rs.5.18 crore towards loss due to stoppage and foreclosing of work by the contractor. The dispute has not been settled so far (March 2001).

The Ministry stated (June 2000) that the funds required to complete the balance jobs were not made available as these were not priority jobs. So, in the absence of a clear indication regarding availability of funds from the Company’s internal resources, no concrete plan could be drawn up for completion of balance jobs.

The fact remains that the partially completed quarters and guest house on which the Company spent Rs.1.88 crore had been lying unused/unattended for the last 10 years rendering the investment unproductive. There was no likelihood of its completion in the near future as well.

Kudremukh Iron Ore Company Limited

Kudremukh Iron Ore Company Limited (Company) carries out the maintenance work of the Indurating Machine Furnace (IMF) annually. During shut down period, furnace refractories are also repaired. The Company decided (April 1996) to replace 275 MT of refractories partly with the plastic ramming mass (PRM) in IMF instead of low cement castables used on earlier occasions. Associated Cement Companies Limited, Bombay (supplier) was selected to supply their ready to use PRM and install the refractories inside the furnace. The decision was taken with a view to develop indigenous source, which had the advantage of availability of material at low cost and at short notice. The order for supply of 275 MT of refractories including 95 MT of PRM valued at Rs.80.75 lakh and installation (Rs.35.15 lakh) was entrusted to the supplier in June 1996.

As the PRM was manufactured specifically for the Company, the supplier despatched (July 1996) the samples for trial and test by the Company. The test samples did not meet the desired results and the Company did not cancel the order under the pretext that IMF required urgent repair and decision to change the supplier at that stage would result in stoppage of production. After completion of work by the supplier in September 1996, the PRM started falling and the supplier rectified the work free of cost. During the reworking of refractories, the supplier used low cement castables which were used on earlier occasions in 1994 and 1995. The cost of work done was Rs.1.58 crore on account of both supply and installation out of which the Company paid Rs.1.34 crore, withholding Rs.23.93 lakh.

After completion of job by the supplier the Company lodged (February 1997) a formal claim on the supplier for Rs.4.12 crore as detailed below:-

The supplier refused to honour the claim on the ground that as per their performance guarantee they had completed the rework job free of cost in the shortest possible time mobilising all their resources. The supplier further stated that such failures occur in the refractory lining work due to complexity of work and requested the Company not to insist on the claim. The claim was, however, reduced to Rs.37 lakh being the 60 per cent of difference in the cost of material in a bid to settle the issue amicably thereby reducing the total claim by Rs.3.75 crore.

The Ministry justified (September 2000) the Company’s action and stated that:

1. the claim of Rs.4.12 crore lodged by the Company was not reimbursable as per provisions of the contract and Company could enforce only performance guarantee; and
2. when the defects were detected, the option of import would have resulted in closure of the plant for a few months resulting in enormous loss of production.

The reply of the Ministry is not tenable because:

1. the Company was aware of the element of risk involved while going in for substitute material and therefore the interest of the Company should have been protected by including suitable clause in the contract for recovery of all consequential losses in case of failure of material; and
2. when the defects were noticed in the PRM even at the stage of sample testing, the Company could have insisted the supplier to carry out the work using time tested material which was used by them during 1994 and 1995.

Thus, failure to include suitable clause for recovery of consequential losses in the contract and not insisting for using time tested refractory material when defects were noticed in PRM resulted in an avoidable loss of Rs.3.75 crore. Moreover, the claim of Rs.37 lakh had also not been realised from the supplier so far (March 2001).

Maharashtra Elektrosmelt Limited

Department of Public Enterprises (DPE), Government of India issued (March 1996) guidelines that employees of Public Sector Enterprises (PSE) who were not entitled to payment of bonus/ex-gratia under the provisions of Payment of Bonus Act, 1965 (Act) on account of their wage/salary exceeding prescribed limits would not be paid bonus or ex gratia. It was also clarified that no ex gratia/honorarium or reward would be paid by the PSE to their employees over and above their entitlement under the provisions of Act, unless the amount was authorised under the duly approved scheme in accordance with the prescribed procedures. Bureau of Public Enterprises had earlier in June 1976 directed that any incentive scheme related to production/productivity would require prior approval of the Government of India.

Maharashtra Elektrosmelt Limited (Company) had paid ex gratia and additional amount to non-executives (Rs. 1.98 crore) and recoverable advances to executives (Rs.39.73 lakh) amounting to Rs.2.38 crore during the years 1995-96 to 2000-01. This was paid during the 1995-96 in addition to normal bonus under the Act to eligible employees and no employees were found eligible for bonus under the Act in subsequent years. The advance paid to executives from 1995-96 was also not recovered. Although the payment of ex gratia/additional amount to non-executives and advance to executives was in the nature of ex gratia over and above entitlement under provision of the Act, the payments were not falling under any approved incentive scheme.

Thus, the Company contravened the instructions of DPE which resulted in irregular expenditure of Rs .2.38 crore and loss of interest of Rs. 99.57 lakh @ 16.5 per cent, being the minimum interest rate paid on cash credit availed by the Company during these years.

The matter was referred to the Management and the Ministry in June 2001; their replies were awaited (October 2001).

MECON (I) Limited

MECON (I) Limited (Company) received an order in June 1993 from M/s. Mideast Integrated Steel Limited (MISL) for providing engineering and consultancy services for Phase-I Pig Iron Plant with a rated capacity of 0.464 million MT per year. Total fee payable for both the phases I and II was Rs.5.50 crore, while Rs.3 crore was meant for Phase-I alone. In the event of Phase-II facilities being dropped altogether, the fee for Phase-I would be Rs.3.20 crore. The time schedule for implementation of Phase-I was upto June 1996.

The Company had completed 89 per cent of the job for Phase-I upto October 2001 after incurring a total expenditure of Rs.8.94 crore. However, as per the terms of payment, the Company could raise invoices for Rs.4.56 crore only (i.e. Rs. 3.91 crore against Phase-I and Rs. 65 lakh against Phase-II and 6 other jobs). Against the invoices raised, MISL paid Rs.2.61 crore only (Rs.2.60 crore against Phase-I and Rs. 1 lakh against other jobs) upto 1995. Although the client stopped quarterly payment as per the terms of the contract after June 1995 itself, the Company continued to provide services even beyond the contractual date of completion i.e. June 1996 and incurred a net total expenditure of Rs. 7.16 crore (Rs.9.77 crore incurred on all the jobs upto 1997-98 less Rs.2.61 crore paid by MISL).

The Company in order to get back at least a part of its outstanding dues, mutually agreed in a meeting with MISL in April 1999 for a payment totalling Rs.1.55 crore (payable in instalments from December 1999 to November 2002) as an overall settlement for all the works done by the Company. This would extinguish all listed and unlisted claims. However, no payment has been made by MISL so far (October 2001). The Company had finally gone in arbitration on 30 August 2000. The case was subjudice (October 2001).

The Ministry stated (February 2001) that due to paucity of funds in MISL, the project could not be implemented as per schedule and the Company had to continue its services both in the interest of the projects, its reputation and future business prospects in steel sector. It added that a major portion of the expenditure involved related to the cost of manhours. Such expenses were fixed in nature and the fee received in rendering such services could be treated as contribution to the fixed costs.

The reply is not factually correct as the Management themselves categorised engineering manpower into ‘direct cost’ and manpower relating to administration and personnel, office staff, town administration hospital etc, into ‘indirect cost’. As such it was not prudent to provide services without recovering at least the direct cost.

Thus, due to lack of proper monitoring system and failure of the Company to stop the execution of work immediately on non-receipts of dues from the client, the balance amount of Rs.7.16 crore (Rs. 1.96 crore for against invoices raised and Rs. 5.20 crore against which no invoice raised) could not be realised from a private firm - MISL, a subsidiary of MESCO group.

Foreign tours of senior officers of MECON (I) Limited (Company) for business purposes/ training are governed by the general guidelines/orders/circulars issued by Reserve Bank of India (RBI), Ministry of External Affairs (MEA), Department of Public Enterprises (DPE) and by the Company from time to time.

1. The Company issued a Circular in August 1995, which provided for per diem payment at the rate of US$ 220 for Chairman and Managing Director, US$ 175 for Directors and General Managers and US$ 150 for other officers. It also provided per diem payment at reduced rate depending upon facilities being extended for accommodation, transport and food by the Company during the period of an officer’s tour.
2. DPE in their circular dated 20 September 1995 clarified that the above consolidated rates would cover all expenses on room rent, taxi hire charges, official telephone bills, entertainment expenses, daily allowance and other contingent expenses. It also stipulated that PSU employees should render accounts on return from tour for all items other than daily allowance which normally covers food etc. as per MEA rates for each country.
3. The Ministry of Steel directions (April 1996) required proper bills for reimbursement to be submitted by the officers.

Audit of records relating to foreign tours undertaken by the officers of the Company, carried out in light of the above regulations revealed the following results:

The Company paid an amount of US $ 0.08 million (Rs.33.64 lakh) during the year 1996-97 to 1999-2000 for meeting expenses towards room rent, taxi hire charges, official telephone bills, entertainment expenses etc. without obtaining any actual bills/receipts.

The Management stated (October 2000) that the rates allowed by the MECON were lower than those permitted by RBI. Accordingly, they had requested Ministry to permit the Company to follow the existing practice.

The Management’s contention is incorrect, as the rates fixed by RBI are merely indicative of ceilings on the foreign exchange allowed to any public official travelling abroad on duty. Further, there is no linkage between rates allowable by RBI and submission of receipts, as the core issue is not only economy, but also accountability.

The Company paid US $ 8615 (Rs.3.77 lakh) to its senior executives towards entertainment allowances in addition to the per diem payment in foreign exchange during the aforesaid period, without obtaining any details of actual expenditure.

The Management stated (October 2000) that in the case of payment of entertainment allowance over and above the consolidated amount sanctioned by RBI in each case to CMD & Directors heading the delegation, proper bills in this connection would have to be submitted by the officials concerned.

The Management reply yet again fails to address the core issue that accounts need to be rendered for entertainment allowance availed of by the Company officials while on foreign tour.

Officers visiting abroad are entitled for per diem payment for the period starting from landing in the foreign country until takeoff from there. However, the Company had not maintained the uniformity in computation of period of deputation abroad for making per diem payment in foreign currency. Cases were noticed where the officers were paid for the transit period also i.e. the period between takeoff and landing both ways.

The Management stated (November 2000) that the days of foreign tour had been calculated from the date of departure from India to the date of arrival back in India and accordingly there was no over payment.

The Management’s contention is not tenable in view of the fact that the days on foreign tour for the purpose of admittance of dearness allowance are reckoned from the date of arrival in the foreign country and ends on the date on which departure takes place.

In cases where the period of tour extended beyond 15 days and 30 days, the Company was also required to apply reduced rates of daily allowance. However, in a number of cases such rates of daily allowance were not applied, which resulted in over-payment in foreign exchange. The total impact of over payment worked out to US $ 24704 (Rs.10.82 lakh) during the period 1994-2000.

By failing to lay down detailed rules that require an officer to furnish an account for each item of expenditure while on foreign tour, the Company had to incur a sum of US$ 0.11million (equivalent to Rs.48.23 lakh), not all of which can be stated to have been spent in a judicious manner.

The matter was referred to the Ministry in February 2001; their reply was awaited (October 2001).

Rashtriya Ispat Nigam Limited

The Company failed to make use of the Sublance systems, commissioned in March 1994 and March 2000. This had resulted in blocking up of funds to the extent of Rs.16.58 crore with consequential loss of interest of Rs.22.29 crore thereon.

Rastriya Ispat Nigam Limited (RINL) decided in September 1985 to install Sublance systems in LD converters of Steel Melting Shop based on a techno-economic study. The system enables in-process measurement of both temperature and carbon and also obtains steel samples during blowing operation without interrupting blowing. The study also envisaged annual saving of Rs. 4.43 crore per annum based on the cost of raw materials, power, refractory etc.

RINL placed orders for supply, erection and commissioning of three Sublance systems, two in December 1985 and one in October 1989 on M/s. Keltron Controls, Cochin/Arror at a cost of Rs.17.60 crore. Although the systems no. 1 and 2 were erected and commissioned in March 1994 and no. 3 in March 2000, RINL was yet to use these (September 2001).

Non-utilisation of Sublance systems resulted in blocking up of capital to the tune of Rs.16.58 crore since March 1994/March 2000. The consequential loss of interest due to blocking up of funds worked out to Rs.22.29 crore upto March 2001. Further RINL failed to obtain the envisaged savings of Rs.4.43 crore per annum.

The Management, while confirming the facts attributed (February 2001) the following reasons for not using the systems:

1. regular use of Sublance system was not possible during the initial stages while the plant operation was in the process of stabilisation as the System was to operate in conjunction with other equipment (viz., Dynamic control) and tuning of dynamic control of steel making process is quite an elaborate one;
2. implementation of the System requires experience and high degree of expertise of the shop personnel, which was not available at that point of time; and
3. the usage of Sublances would save a time of 7 minutes per heat but would increase the expenditure on consumption of tips at Rs.5 crore per annum which was substantial compared to the annual savings (Rs.4.43 crore per annum) that could be obtained by usage of Sublances.

The Management’s reply is not tenable in view of the following:

1. RINL should have considered the problems in the implementation of the project well in advance before taking up the project involving huge investment. The necessity to operate the system in conjunction with other equipment was well known to RINL and should have been considered before procurement of the system.
2. Considering the saving of 7 minutes per heat, RINL can obtain a minimum of 6 additional heats per day had the Sublances been used. This would have resulted in an additional contribution of Rs.21.53 crore per annum (@ Rs.358.75 lakh per annum per heat). Thus, the annual expenditure (i.e., Rs.5 crore per annum) on tips should have been compared not only to the savings in the costs of inputs (i.e. Rs.4.43 crore per annum) but also with the additional contribution (Rs.21.53 crore per annum) that could have been earned by saving in heat time due to usage of Sublances.

Thus, failure to make use of the Systems had resulted in blocking up of funds to the extent of Rs.16.58 crore with consequential loss of interest of Rs.22.29 crore thereon. In addition, RINL had foregone savings of Rs.4.43 crore (approx.) per year and additional revenue of Rs.21.53 crore per annum in the operation of the plant.

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).

RINL entered (July 1987) into a contract with M/s. Skoda Export Foreign Trading Corporation, Czechoslovakia (Contractor) for setting up a Medium Merchant and Structural Mill (MMSM). The contractor appointed Invest Export GmbH, Germany (foreign creditor company formerly known as M/s. Sket Export GDR) as foreign sub-supplier for manufacture and delivery of part of mechanical equipment and spares of MMSM at a contracted price of Rs.11.60 crore.

As per the contract, 80 per cent of the contract price amounting to Rs. 9.28 crore was covered under deferred credit arrangement from the foreign creditor company. It was payable in 12 successive annual instalments alongwith interest of 4.5 per cent per annum on outstanding balance starting from 30 June 1991 to 30 June 2002.

RINL re-paid four instalments together with interest upto 30 June 1994 leaving a balance deferred credit of Rs.6.19 crore. At that time the foreign creditor company who were under liquidation, proposed prepayment of balance outstanding deferred credit by 31 March 1995 with reduction in price. Two firms M/s Kuya Enterprises (Firm ‘K’) and M/s. Debis International Trading GmbH (Firm ‘D’) offered (December 1994 and January 1995 respectively) their services for negotiation for premature repayment.

The foreign creditor company intimated (February 1995) that Firm ‘D’ was the only agency empowered to conduct negotiations for settlement of outstanding deferred credit. As such, RINL did not consider the offer of Firm ‘K’ and also intimated (March 1995) the same to the Ministry of Steel.

The Management accepted (March 1995) the offer made by Firm ‘D’ after negotiations. The offer was valid upto 30 April 1995. The offer-envisaged prepayment of balance deferred credit and interest upto 31 March 1995 at the final negotiated value of Rs. 3.33 crore resulting in a financial benefit of Rs. 3.06 crore to RINL.

However, instead of concluding the above contract, RINL approached Firm ‘K’ (April 1995) and asked them to furnish the valid power of authority from the foreign creditor company with definite terms of settlement. Simultaneously RINL sought extension of time from Firm ‘D’ upto 30 June 1995 without any change in the terms and conditions. The foreign creditor company accepted extension of the date of payment upto 31 May 1995 provided RINL paid Rs.3.36 crore (inclusive of another month’s interest) subject to final approval of their share holders. However, the foreign creditor company subsequently (May 1995) did not agree for extension of time and advised RINL to make payment of the fifth instalment in time. RINL paid all the instalments as per the original schedule due for the period between 1995 and 1997. In the meantime RINL continued negotiations with Firm ‘K’ as well as Firm ‘D’. Finally Firm ‘D’ made an offer (July 1997) for prepayment of Rs. 2.74 crore against the outstanding deferred credit together with interest of Rs. 4.03 crore upto May 1998. This resulted in financial benefit of Rs. 1.29 crore only, which was accepted (May 1998) by RINL.

The Ministry stated (April 2001) that the Management could not assess the valid authority of the parties and that it was not possible for the Management to envisage in 1995 whether Firm ‘K’ would be able to come with a valid offer or not. It was further stated a that the Management could not foresee Firm ‘D’ withdrawing suddenly on 16 May 1995 on ground that their shareholders did not agree though the offer was valid upto 25 May 1995 and payment till 31 May 1995.

The reply is not tenable due to the following reasons:

1. there was only one party i.e. Firm ‘D’ with valid authority as confirmed by the foreign creditor company;
2. no firm offer was received from Firm ‘K’ eventhough a number of opportunities were given with the result that only one valid offer of Firm ‘D’ was available both in 1995 as well as in 1997;
3. RINL had found the initial offer (April 1995) of Firm ‘D’ lucrative, as it resulted in a debt waiver of 48 per cent. The actual debt waived obtained in 1997 was only 42 per cent; and
4. though sufficient time was given by the foreign creditor company to accept its proposal of April 1995, RINL failed to utilise the same to its advantage.

Thus, due to unwarranted negotiations with Firm ‘K’ RINL incurred avoidable loss of Rs.1.30 crore in liquidating the foreign deferred credit.

The Company sold two quantity based advance licenses at an un-remunerative premium without evaluating its economy in utilisation. This had resulted in an avoidable expenditure of Rs.76.58 lakh.

The Director General of Foreign Trade (DGFT) granted RINL two Quantity Based Advance Licences (QUBALs), for duty free import of low ash metallurgical (LAM) coke (75,250 MT) or coking coal (1,07,500 MT) besides other permitted items (Sea Water Magnesite, Silico Manganese etc.). Two QUBALs were valid for 12 months from the date of issue (July/August 1995). Vishakhapatnam Steel Plant (VSP) utilised these for the import of various items, inter alia Sea Water Magnesite, Silico Manganese for a cost insurance and freight (CIF) value of US$ 0.43 million. These were surrendered to DGFT in May 1996 and their validity period expired in July/August 1996. While the Company did not require LAM coke as the same was being produced internally, coking coal had been regularly imported at the then prevailing custom duty of 8 per cent.

Its export obligation having being fulfilled the Company decided to sell these two expired QUBALs through open tender (January/February 1998) pending revalidation and endorsement of transferability by DGFT. As the highest bidder, a private firm, failed to pay the quoted premium of 9 per cent within the stipulated time of seven days, the Company sold (March 1998) the said two QUBALs to Metal Scrap Trading Corporation Limited (MSTC), the second highest bidder, at quoted premium of 5.4 per cent. This was less than the then prevailing custom duty of 8 per cent on imported coking coal. The endorsement of transferability was granted by DGFT in May 1998 and the QUBALs were transferred to MSTC on the same day.

Immediately after the sale of two QUBALs the Company actually imported (4 June 1998 to 12 June 1998) 1,32,157 MT of coking coal after paying prevailing custom duty. The Company could have utilised the QUBALs itself for import of coking coal instead of selling the same at an unrumerative premium of 5.4 per cent. In the process the Company could have saved Rs.76.58 lakh, being the difference between 8 per cent customs duty paid on imported coking coal and 5.4 per cent premium received on the CIF value of Rs.29.45 crore on 1,07,500 MT of coking coal.

The Ministry stated (November 2000) that the said two QUBALs were surrendered to DGFT in May 1996 and were received back only on 20 May 1998 duly revalidated after a long persuasion. In the meantime, the Company went ahead with its decision to offer in absentia these expired licences for LAM coke etc. to MSTC on 21 March 1998 pending return and grant of transferability by DGFT only with a view to improve the cash flow position of the Company. Having entered into a contract with MSTC on 21 March 1998 for the sale of licences pending transferability, the Company was bound to hand over the licences on 20 May 1998 after grant of transferability as per the provision of the contract. Therefore, the question of evaluating the relative benefits of usage for coal versus sale for metallurgical coke on 21 March 1998 does not arise.

The contention of the Ministry is not tenable in view of the following:

1. The completion of sale or the utilisation of the licences by the Company was possible only after receipt of the licences from DGFT. The Company had utilised these licenses partially before surrender for revalidation. After DGFT returned these licenses, the Company imported other permitted items (Sea Water Magnesite, Silico Manganese etc.,). The Company, however, did not prefer to utilise the licenses for import of coking coal despite having the financial advantage.
2. At the time it decided (March 1998) to sell licences, the Company was aware of the fact that the premium offered by MSTC i.e. 5.4 per cent was much lower than the prevailing custom duty of 8 per cent on imported coking coal.

Thus, the Company’s failure to evaluate the economics in utilisation of the two QUBALs resulted in an avoidable expenditure of Rs.76.58 lakh.

Steel Authority of India Limited

Electricity requirement in the steel plants of Steel Authority of India Limited (SAIL) is generally met from the electricity purchased from outside sources as well as from generation in its own captive power plants. Employees’ of the steel plants who live in the SAIL’s townships are supplied electricity by the Company on payment basis. By and large there is similarity in the rates of power purchased from outside sources.

Scrutiny of the records revealed that there was wide difference between the rates of electricity purchased or generated and the rates charged from the employees/officers of the various plants.

1. In Bhilai Steel Plant, as against the procurement rate of electricity which ranged between Rs. 2.62 per unit (1995-96) and Rs. 3.85 per unit (1999-2000), the plant had charged only 24.5 paisa per unit from employees etc;
2. In Durgapur Steel Plant, as against the procurement rate of electricity which ranged between Rs. 1.53 per unit (1995-96) and Rs. 3.15 per unit (1999-2000), the plant had charged only 42 paisa per unit upto December 1997 and 60 paisa per unit for 200 units and 75 paisa per unit beyond 200 units from January 1998 from employees etc;
3. In Bokaro Steel Plant, as against the procurement rate of electricity which ranged between Rs. 1.46 per unit (1995-96) and Rs. 2.29 per unit (1999-2000), the plant had charged only 40 paisa per unit upto November 1998 and Re. 1 per unit from December 1998 from employees etc;
4. In Rourkela Steel Plant, as against the procurement rate of electricity which ranged between Rs. 3.01 per unit (1995-96) and Rs. 3.78 per unit (1999-2000), the plant had charged maximum Rs.1.30 per unit up to 1997-98; Rs. 2.20 per unit upto January 2000 and Rs.2.85 per unit from February 2000 from employees etc;
5. In Research and Development Centre for Iron and Steel (RDCIS), Ranchi, as against the procurement rate of electricity which ranged between Rs. 3.03 per unit (1995-96) and Rs. 2.69 per unit (1999-2000), the centre had charged only 18 paisa per unit right from 1961 to December 1999. From January 2000, the plant started charging 50 paisa per unit upto 265 units and 75 paisa per unit beyond that from employees etc.

There was no evidence of there being any conscious Management policy of allowing such a large-scale subsidy to its employees. Plant Management failed to increase the electricity tariff reasonably as and when the same was increased by BSEB (Bihar State Electricity Board)/MPSEB (Madhya Pradesh State Electricity Board) /WBSEB (West Bengal State Electricity Board)/DVC (Damodar Valley Corporation) etc. In principle, no approval had been obtained by the plant management from the SAIL Board for granting such heavy subsidy to the employees which goes against the principles of prudent financial practices.

As the rates charged in all the plants/units were less than the cost of generation and procurement of power, SAIL was put to loss to the extent of Rs.141.32 crore during 1995-96 to 1999-2000.

Since the rates charged from the employees were less than the cost of procurement, the benefit passed on to the employees was in the nature of perquisites and was, therefore, taxable under Section 17(2) of the Income Tax Act, 1961. The Management had, however, not treated the same as perquisite and as such not deducted income tax at source from its employees. In the case of Bhilai Steel Plant, Income Tax Authorities had already raised a demand of Rs.15.41 crore relating to the assessment years 1996-97 to 1999-2000.

Thus, by not revising the power tariff in its various plants, SAIL incurred a loss of Rs.141.32 crore during the aforesaid period. Apart from this, SAIL had made itself liable for penal provision due to non-deduction of income tax at source on the aforesaid perquisites.

The Ministry while accepting (January 2001) the facts and figures, had offered no further comments. However, it added that the issue relating to the income tax claim of Rs.15.41 crore raised by Income Tax Authorities was sub-judice (September 2001).

Rourkela Steel Plant (RSP), a unit of SAIL awarded a contract to M/s. Mukand Limited (Mukund) on 5 August 1992 for supply, erection, commissioning etc. of indigenous portion of plant and equipment pertaining to Basic Oxygen Furnace (BOF) under its modernisation scheme at a total price of Rs.531.87 crore. The contract price was subject to price variation, the validity of which was defined in clause 3.9 of the contract which, inter alia stated as follows:

‘If delay is on account of purchaser and extension has been granted, the same shall be taken into account for price variation. If there is delay on account of any other reason not withstanding the extension granted, price variation shall not apply’.

According to the terms of the contract, Mukand was required to complete the work by December 1995. Time being of the essence in the contract, the contractor was required to bear liquidated damage (LD) at the rate of 0.5 per cent of the contract price for each week of delay subject to a maximum of 5 per cent of the total contract price.

The progress of work by Mukand was, however, not found satisfactory right from the initial stage as it did not adhere to different milestones and repeatedly failed in its commitments resulting in an overall slippage of 14 months from the contractual completion date of December 1995. BOF was finally completed in February 1997 for which extensions from time to time were granted by SAIL. The main reasons for delay by Mukand included delayed decision in mode of structural fabrication work, delay in organising the required resources for fabrication, lack of effective co-ordination with the principal contractor, delay in supply of basic load data, delay in mobilising construction equipment etc.

Although the delay was not attributable to the SAIL, Mukand had claimed price escalation amounting to Rs.71.72 crore in its various bills during the period 1994-95 onwards. SAIL continued to admit the escalation claims upto the scheduled completion date and paid a total amount of Rs.21.81 crore upto 1997-98. However, SAIL in order to know the interpretation of ‘Validity of Price Variation’ clause in the contract, referred the matter to the Solicitor General of India (SGI) for opinion, who clarified (August 98) that ‘Whereas in cases where there has been delay due to any other reason even if SAIL has extended the period of the contract the contractors stand to lose the benefit of the price variation clause right from the beginning of the contract’ meaning thereby that in such a case no escalation was payable even for the period upto the scheduled completion date of BOF.

SAIL, however, interpreted the opinion of SGI differently and contended that if delay was not attributable to SAIL, only escalation beyond the contractual completion date was not payable. This contention was not correct. Instead of recovering the amount of Rs.21.81 crore already paid to Mukand, SAIL paid an additional amount of Rs.37.13 crore towards escalation upto the scheduled completion date although contractually nothing was payable on this account.

There was also a delay of 14 months in completion of the contract as BOF was completed only in February 1997 against the scheduled completion date of December 1995. Accordingly, as per clause of the contract, LD amounting to Rs.26.59 crore (i.e. 5 per cent of contract price of Rs.531.87 crore) was required to be recovered from Mukand. SAIL, however, deducted token LD of Rs.2 crore only leaving a balance of Rs.24.59 crore which was not pursued on the ground that it did not suffer any loss due to delay in completion BOF.

The Management while accepting the fact of delay on the part of Mukand, stated (August 2001) that the delay in design and engineering work by Tiazpromexport, Russia (TPE), the principal contractor, resultantly caused delay in supply and commissioning of the plant and machinery by Mukand. Further, TPE’s delay was attributable to procedural delay on the part of RSP in opening letter of credit. Regarding non-recovery of LD, the Management added that no LD was leviable as the commissioning of BOF was done within the revised/extended time of 31 March 1997. The Ministry in its reply reiterated (September 2001) the reply given by the Management.

The reply of the Management/Ministry is not tenable and is, in fact, a misrepresentation of the facts. In the various meetings held by Chairman, SAIL and the Secretary (Steel) to review the progress of work, it was, time and again, stated that Mukand delayed in starting supply and erection work, fabrication work and the contractor repeatedly failed in meeting the commitments given. Further, delay in design and engineering work by TPE was on account of change in the system design of Gas Cleaning Plant and delay in supply of basic load data for auxiliary units on the part of Mukand. Since, there was delay on the part of Mukand and the original completion schedule could not be maintained, the payment of escalation and non-recovery of LD was not justified. Argument relating to non-levy of LD due to SAIL not suffering any loss was not sustainable as delays had given rise to price escalations which had been duly paid by SAIL.

It is interesting to note that in case of an identical clause for price escalation incorporated in the contract for modernisation project of Bokaro Steel Plant, the payment of escalation to the associate firms of India was stopped immediately by it after receipt of the opinion of SGI.. This implied absence of co-ordination between different steel plants. While Bokaro Steel Plant stopped the payment of escalation after receipt of the opinion of SGI, RSP went ahead and made payment of escalation to the private firm irregularly.

Thus, SAIL allowed an unjustified and undue financial favour amounting to Rs.83.53 crore to a private contractor causing loss to it on account of giving undue escalation cost (Rs. 58.94 crore) and waiving recovery of the LD charges (Rs. 24.59 crore).

Bhilai Steel Plant, a unit of SAIL awarded a contract on M/s. ISGEC John Thompson, Calcutta in January 1988 for supply, erection and commissioning of a boiler in the Power and Blowing Station at a price of Rs.24.94 crore to be completed by January 1990. As per clause 4 of the contract, the supplier would guarantee a production of 150 tonnes/hour of steam from the boiler and if it fell below 150 tonnes/hour, the plant would be accepted with penalty. However, in case the production was less than 144 tonnes/hour, the plant would be rejected.

It was noticed that:

1. The boiler was lighted on 12 September 1992 i.e. after a delay of 31 months and Preliminary Acceptance Certificate was issued on 27 April 1993 with many defects. Reasons for the delay included revision of drawings, supply of instrumentation system, lack of expertise etc. on the part of the contractor. Although the contractor did not carry out the necessary repair/replacement to eliminate all the defects, the commissioning certificate was issued on 12 August 1994 with the stipulation that the contractor should perform the guarantee test within 3 months.
2. The post-commissioning performance of the boiler was not satisfactory due to design deficiencies and non-commissioning of certain instruments. The boiler could never be operated at its capacity and the average production achieved during 1994-95 to 2000-01 (upto August 2001) ranged between 52 tonnes/hour and 63 tonnes/hour against the minimum guaranteed production of 144 tonnes/hour. It was found from the post-completion audit report of the boiler dated 2 September 1994 that its output reached upto 153 tonnes/hour for 5 minutes only and could not be maintained at that level due to various problems especially in the raw coal circuit and instrumentation system.
3. However, clause 4 of the contract was not invoked by SAIL for rejecting the plant even when the production was less than the minimum guaranteed production of 144 tonnes/hour on the plea that such an action could be taken only after conducting Performance Guarantee (PG) test. However, 95 per cent payments amounting to Rs.24.37 crore (including Rs.67 lakh towards foreign exchange variation and wage escalation) had already been made to the contractor by January 1995.

The Ministry stated (June 2001) that the PG test of the boiler carried out on 14 November 2000 established that the boiler was capable of operating at the desired capacity of 150 tonnes/hour and it had been in use consistently.

The contention of the Ministry is not tenable in view of the fact that the average production of boiler was only 58 tonnes/hour and 60 tonnes/hour after the PG test. SAIL could have easily rejected the plant in terms of clause 4 of the contract as it failed to achieve even the minimum guaranteed production of 144 tonnes/hour.

Thus, non-adherence of the contractual provision has rendered the investment of Rs.24.37 crore unfruitful as the boiler failed to deliver the desired results.

Rourkela Steel Plant (RSP), a unit of SAIL had placed an order (October 1990) on M/s. Fuller KCP Limited for modification of existing Rotary Kiln-I in Lime and Dolomite Brick Plant at a total price of Rs.10.25 crore with the stipulation to complete the work by April 1992. The modification was intended to get improved quality of sintered dolomite required for production of tar bonded dolomite bricks to be used internally for lining of converters of Steel Melting Shop (SMS) - I and II to give lining life as envisaged in Detailed Project Report (DPR) of RSP’s modernisation. This envisaged a shutdown period of 4 months to complete the modification. In the meanwhile, the plant Management proposed to procure Magnesia Carbon Bricks (MCB) from outside sources to sustain continuous production during shutdown period.

Scrutiny of records revealed that:

1. Keeping in view the time frame of modification work and escalation in cost of MCB which was not envisaged earlier, the plant Management proposed (as suggested by M/s. Dastur & Company, the consultant) the installation of a new Rotary Kiln. Accordingly, it was decided (April 1993) by SAIL to form a sub-committee to examine the proposal.
2. Sub-committee concluded (May 1993) that as against modification, installation of a new Rotary Kiln would be advantageous because completion of shutdown job in 4 months might not be possible. Further, during the shutdown period, to sustain continuous production, the MCB would have to be purchased from outside sources at a cost of Rs. 3.40 crore per month as against the earlier assessment of 4 months of shut down involving a cost of Rs. 4 crore. This proposal was approved by the Board in June 1993.
3. Sub-committee also recommended that instead of engaging a new agency, the work for installation of the new Kiln could be awarded to M/s. Fuller KCP Limited so that the provisions in the existing contract could be utilised to the extent possible.
4. Order for new Kiln was placed on M/s. Fuller KCP Limited in November 1993 at a total cost of Rs.10.02 crore. Besides, the plant also placed separate orders on various contractors for erection and supply of some other equipment for new Kiln for which Rs.13.67 crore was paid.
5. New Rotary Kiln was commissioned in September 1996 as against the scheduled commissioning in December 1994 at a total cost of Rs.23.69 crore.
6. New Rotary Kiln could produce a total quantity of 6258 MT of sintered dolomite during the period of 10 months from December 1996 to October 1997 as against the yearly production capacity of 29200 MT. After that it produced only 198 MT of sintered dolomite upto September 1998.

Production in the new Rotary Kiln was stopped from December 1998 on the grounds that dolomite bricks have lower lining life (100 heats) as compared to MCB (450 heats) in converters, rendering the entire investment of Rs.23.69 crore as infructuous. SAIL Management made this investment fully aware of the techno-economics of MCB vis-à-vis dolomite bricks, i.e. before the placement of order in November 1993 as the steel plants had already started procuring/using MCB from 1992-93.

The Management stated (August 2001) that decision for installation of a new Rotary Kiln was taken based on the recommendation of the task force set up by SAIL Board. The decision was taken in view of the delay made by M/s. Fuller KCP Limited in execution of modification of existing Rotary Kiln and escalation in cost of MCB to be procured during shutdown period of 4 months. Further, as the equipment were already ordered and manufacturing/delivery under progress, it was not possible to cancel the old contract and, therefore, new contract was awarded to M/s. Fuller KCP Limited. The Management added that the projection made in DPR on the life of the dolomite bricks did not come true. Hence, the production of dolomite brick was stopped and in place MCB was used.

The reply is not acceptable as the Management changed the decision from modification of old kiln to installation of a new one to produce sintered dolomite bricks and parallely commenced the usage of MCB. When the economics of using MCB appeared more feasible, the new kiln, in operation for only fourteen months, was shut down for production.

Thus, lack of proper planning, faulty project appraisal mechanism and lack of timely analysis of the lining of Converters with different types of refractories, rendered the entire expenditure of Rs.23.69 crore incurred in installation of new Rotary Kiln as infructuous.

The matter was referred to the Ministry in August 2001; their reply was awaited (October 2001).

In order to remove bottlenecks in achieving the rated capacity of the Section Mill, Durgapur Steel Plant (DSP) of SAIL awarded (August 1990) a turnkey contract to MECON (I) Limited (MECON), for "Modification of Finishing End of Section Mill" at a cost of Rs.19.46 crore with a commissioning schedule of August 1993. This scheme was considered a pre-requisite to the modernisation of DSP. The scheme envisaged an on-line straightening system, comprising of three groups of activities:

Group-I :    relocation of straightening machine-1;

Group-II :    installation of equipment and auxiliaries for on-line facilities like cooling, straightening and piling-bundling; and

Group-III :    inter-connecting the existing machine-3 to this new line.

The work relating to Group I and II was completed in May 1992 and November 1995 respectively. However, under Group III, the equipment could not be erected by MECON on schedule mainly because DSP did not allow the shut down of system for 75 days, which was necessary for connecting Machine-3 to the on-line system.

Pending final outcome, the Project Department of DSP asked its Operations Department in November 1997 to either agree to shut down or advise short closure of the contract. In February 1998, the Operations Department advised short closure of the scheme, communicating that it had noticed many design defects in the system which contributed to breakdown and low performance of the system, making the system incapable of handling even the present level of production. The Department also recommended rejection of the whole system, considering it a total failure. Accordingly, a pre-emptive notice was issued to MECON in April 1998 calling upon them to rectify the defects. MECON, however, viewed that breakdown of the machines to be caused by mal-operation by DSP. In October 1999, MECON held discussions with DSP and requested to foreclose the contract. Based on these discussions, a Committee was constituted to arrive at financial/commercial settlement and to work out recommendations for closing of the contract.

Based upon the recommendations of the Committee (December 1999), the Company short closed the contract in May 2000 after paying MECON Rs.17.60 crore towards full and final settlement against the contract. It also decided to utilise the on-line system as off-line system after carrying out certain modifications.

It would be seen from the above that:

1. DSP had given preliminary acceptance certificate in October 1995 to Group I and II even when the on-line system displayed serious design defects.
2. It took DSP over two years to finalise the decision to short close the contract.
3. Non-installation of Group-III led to partial implementation of the scheme, which could not remove the bottleneck of Finishing End of Section Mill for achieving the rated capacity. The actual production of the Mill ranged from 49.65 per cent (1998-99) to 70.59 per cent (2000-2001) of rated capacity after partial implementation of the scheme.
4. Items valuing Rs.1.06 crore procured from MECON for Group-III scheme had remained unutilised.

The Management, while admitting the facts, has stated (January 2001) that action for carrying out the modification work for utilisation of the system on an off-line basis was under way and the equipment supplied by MECON remaining to be erected, were in DSP’s custody for further action.

The fact remains that the objective of the scheme having an on-line system of straightening and bundling had been totally frustrated by the present situation of the scheme which, if used at all, would only be used on the off-line system. Thus, the basic objectives have been defeated rendering the investment of Rs.17.60 crore as unfruitful to a large extent.

The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001).

The Company’s delay in implementation, unrealistic financial assessment and selection of a wrong site for the project had not only rendered the entire expenditure of Rs.14.98 crore as unfruitful but also made the project as commercially unviable.

In pursuance of the then Prime Minister’s direction on ‘new initiative for North Eastern Region’, the Board of Directors of SAIL approved an investment proposal in January 1997 to set up a Hot Dip Galvanising Plant at Dagaon, Assam with an annual capacity of 40000 MT per annum at a total cost of Rs.42.85 crore. Accordingly, the contract for turnkey project was awarded to MECON (I) Limited in July 1997 on single tender basis at a price of Rs.35.20 crore with a completion schedule of 18 months i.e by January 1999. Until March 2001, an amount of Rs.14.98 crore had been spent on the project and the project remained incomplete (September 2001).

In this connection, the following observations are made:

1. Project cost had been revised from Rs.42.85 crore to Rs. 50.50 crore due to delay in execution. The revised cost estimates were not approved (October 1999) by the Board of Directors and it was decided to keep the project in abeyance on the ground that the Assam Government had not provided the requisite facilities and concessions.
2. As against the approved financing pattern of debt equity ratio of 1:1, SAIL could not provide fund through internal sources;
3. project was conceived with the internal rate of return (IRR) of 18.2 per cent. However, as per the techno-economic appraisal made by IFCI Financial Services Limited in October 1999, the plant was expected to be in loss throughout as the IRR would be only 6.73 per cent as compared to the cost of capital of about 15.91 per cent. Accordingly, IFCI Financial Services Limited concluded that the project as commercially not viable.
4. Assam Government was to construct approach road to project site and a bridge on the river Chasa. The work had not been completed so far (September 2001).
5. The project site was located in a flood prone area and there had been regular flood during the last two years. This also adversely affected the execution of the project. This was not adequately anticipated or dealt with in the project.

Thus, inadequate project planning and poor execution and co-ordination with the State Government led to the project still remaining incomplete. The Company had incurred an expenditure of Rs. 14.98 crore so far without any results.

Keeping in view the above factors, the Management decided in March 2000 to keep the project in abeyance in view of its unviability. SAIL, accordingly informed the contractor in April 2000 to suspend the work temporarily.

The Ministry stated (November 2000) that the techno-economic viability of the project was based on the assumption that the project would be financed from SAIL’s internal resources and commercial borrowing in the ratio of 1:1. However, due to present market conditions and difficult position of SAIL, the entire expenditure had been funded through commercial borrowings. They added that the viability of the project was re-assessed by M/s. IFCI Financial Services Limited who indicated that under the present funding pattern, the project would be financially unviable without fund from external sources in the form of capital investment subsidy/grant. Accordingly, the Ministry approached the Planning Commission for release of Rs.25 crore as an investment subsidy but the same was not granted as the techno-economic viability of the project was doubtful. Hence, SAIL had kept the project in abeyance and had been searching a joint venture partner.

The fact remains that due to delay in implementation of the project, unrealistic financial and operational assessment, the project had become commercially unviable rendering the entire expenditure of Rs.14.98 crore incurred upto March 2001 as unfruitful. No decision had been reached in case of joint venture partner.

Research and Development Cess Act, 1986 (Act) provides for the levy and collection of a cess on all payments made for the import of technology. Section 2 (h) of the Act defines ‘technology’ as special or technical knowledge or any special service required for any other purpose whatsoever by any industrial concern under any foreign collaboration and includes design, drawings, publications and technical personnel. The Act and the Rules made thereunder came into force on the first day of December 1987.

The Hon’ble Calcutta High Court (Court) in its judgement (13 March 1992) clarified that the research and development (R&D) cess was leviable in respect of payments towards technology imported under a foreign technological collaboration agreement. As such, cess is not payable on import of design and drawing, supervision etc. under the contract. An ‘agreement for sale’ can not be a foreign collaboration within the meaning of Section 2 (h) of the Act. Based on the judgement delivered by the Court in constitutional writ petition filed by Indian Oxygen Limited and others against the Union of India and others, the Corporate Office of SAIL advised its units/plants to regulate the payment of cess in accordance with the judgement delivered.

1. Audit of shipping and transport wing of Bokaro Steel Plant (BSL) had revealed the following:
2. although the Corporate Office had issued directions in October 1993 for implementation of Court’s orders, BSL took no action to obtain a copy of the order of Court to regulate the payments accordingly;
3. BSL continued to make payments of R&D cess upto March 2000 on purchases made under foreign contracts not covered under the Act, which resulted in unnecessary payment of cess to the extent of Rs.11.34 crore for the period March 1992 to March 2000;
4. incidentally a sister unit, Durgapur Steel Plant had stopped paying cess on the payments released towards foreign contracts with effect from 17 May 1994; and
5. BSL, however, approached the Ministry of Science and Technology only in March 2000 for refund of the cess already paid by them when advised by Law department. No refund had been granted so far (September 2001).

The Ministry while admitting that R&D cess was paid upto March 2000, stated (October 2001) that BSL had no other option but to pay cess at the rate of 5 per cent against foreign remittance through letter of credit in compliance with the procedural norms of Reserve Bank of India (RBI). The matter was taken up with RBI and the Ministry of Science and Technology in September 1998 and October 1998 respectively. However, the payment of cess was stopped only in March 2000 on the advice of Law department.

The Ministry’s reply is not tenable in view of the fact that although the judgement of the Court was delivered in March 1992, BSL took up the matter with RBI only in 1998 and discontinued payment of R&D cess from April 2000.

Thus, negligence of the BSL Management and lack of proper co-ordination of the Corporate Office caused the Company to pay Rs.11.34 crore as R&D cess and this particularly at a time when finances of the Company were passing through a difficult phase.

SAIL, with a view to improve the market share, started booking orders from 1994 from high stake customers after entering into Memorandum of Understanding (MOU) with them. The MOU entered into by the Company with the high stake customers during 1998-99 provided that the listed price would be firm for a calendar quarter. However, any increase in statutory duties and levies as applicable would be payable.

Scrutiny of records revealed the following:

1. During the quarter October-December 1998, the prices of steel products, prevailing as on 1 October 1998 were revised downward from 4 October 1998 by Rs.500 (HR sheet/coil/skelp etc.) and Rs.200 (plates, chequered plates/coils etc.) per MT. SAIL, accordingly, passed on the benefit of price reduction to the MOU customers although MOU did not provide for such reduction.
2. However, when the prices of the aforesaid products were increased by Rs.600 per MT (i.e. net increase of Rs. 100 and 400 per MT with reference to price prevailing on 1 October 1998) from 21 November 1998, the impact of increase had not been passed on to the MOU customers. SAIL continued to sell the products at the reduced price prevailing as on 4 October 1998 and did not even charge the customers the firm price prevailing on the first day of quarter i.e. 1 October 1998.

Charging of higher price from 21 November 1998 over and above the firm price prevailing at the beginning of the quarter i.e. 1 October 1998 was not possible under the provision of MOU. SAIL could have at least charged the MOU customers at the firm price applicable as on 1st October 1998 by withdrawing the benefit of reduction in the prices allowed to them from 4 October 1998. Non-charging of firm price resulted in avoidable loss of revenue to the extent of Rs.5.88 crore.

The Ministry while accepting the financial impact of non-charging of increased price, stated (August 2001) that non-charging of increased price by the specific branches from MOU customers during 21 November 1998 to 31 December 1998 was a pure market driven necessity. It was perceived at that time that the competitors might not effect any increase in their prices particularly where they had entered into quarterly tie-up/firm price booking.

The Ministry’s reply is not acceptable in view of the fact that as per provision of the MOU, the Company could have atleast charged the MOU customers at the firm price applicable as on 1st October 1998 by withdrawing the benefit of reduction in the prices allowed to them from 4 October 1998. The Company’s interest should not have been overlooked.

Thus, non-observance of prudent financial practices has put SAIL to avoidable loss of Rs.5.88 crore when finances of the Company were in shambles.

Modernisation scheme of Rourkela Steel Plant (RSP) of Steel Authority of India Limited (SAIL) envisaged transportation of slag from Steel Melting Shop (SMS) -II to Slag Yard through slag pot transporters. Accordingly, the plant procured two slag pot transporters from Tyazpromexport (TPE), Russia at a cost of Rs.3.17 crore.

The slag pot transporters were commissioned in November 1996. However, during trial run conducted between 7 November 1996 and 7 February 1997, certain defects like difficulty in manoeuvring inside shop floor, inadequately designed plant road and non-matching of orientation of MN Bay crane and vehicle were observed. Apart from this, use of the equipment created certain unsafe conditions. As a result, the equipment could not be used by RSP and has been lying idle since January 1997 (i.e. after working for just 2 months). The work of transportation of slag was being managed with the help of equipment like dumpers, pay loaders etc., which, as per Management, was a cheaper and easier method of transportation.

After a lapse of 3 years, in August 1999 the Management explored the possibility of the use of slag pot transporters in other steel plants. This too did not yield any fruitful results and the transporters procured at a total cost of Rs.3.17 crore had become redundant.

Although the existing constraints of the plant were well known to the Management as well as the consultant for the modernisation programme of RSP - M/s. M.N. Dastur & Company, these were not considered before initiating procurement action. Further, alternate mode of transportation which was easier and cheaper to operate was not looked into at the time of procurement action. The RSP Management did not take any action either against the consultant or the turnkey package supplier for failure of the equipment.

The Management while admitting the infructuous investment stated (June 2001) that it amounted to 0.3 per cent of the total package cost of Rs.1200 crore. The failure was due to adoption of a newer technology for slag handling. It also added that no separate procurement action was initiated for this equipment and it was a part of the supply of the turnkey contract from the concept stage.

The reply of the Management that cost of imports amounted to 0.3 per cent is not acceptable as the investment rendered infructuous was avoidable and considerable as the liquidity position of SAIL was precarious and it had to depend on the guarantees of the Government of India for raising resources. Further, the list of plant and equipment to be supplied under the turnkey package included two slag pot transporters, the price for which was separately indicated. Thus there was scope for SAIL to get the item excluded from the turnkey package. Even after award of work, this item could have been deleted as purchaser had a right, under the contract (clause no. 10.42.1), to change the scope or technical character of the project or the supplies and services stipulated in the contract.

The Ministry also accepted (October 2001) the facts and figure and directed SAIL to review all other similar projects and contracts to avoid faulty planning and lapses in future.

Thus, due to faulty planning of the consultant, serious lapses and lack of timely action on the part of the Management, the entire investment of Rs.3.17 crore on slag pot transporters has become infructuous.

Bokaro Steel Plant, a unit of SAIL placed purchase order on Yurgensky Machine Building Production Association, Russia (YMBPA) in September 1994 for supply of 120 rolls required for Cold Rolling Mill (CRM)-II at a total cost of US$ 1.06 million (equivalent to Rs.4.23 crore). As per delivery schedule, 24 rolls were to be delivered each quarter with effect from April 1995 and the entire supply was to be completed by April 1996. In case of failure of YMBPA to supply the goods within 6 months of the delivery schedule, the risk purchase action would be initiated by the buyer from the seventh month. Since YMBPA failed to supply the rolls till September 1995, the Company had to procure 120 rolls from M/s. Superior Forge & Steel Corporation, USA at an additional cost of US$ 0.64 million (equivalent to Rs. 2.56 crore) as the CRM-II was starving for want of these rolls.

Scrutiny of records revealed that:

1. At the instance of YMBPA, the Company agreed not to insist on bank guarantee mentioned in purchase order dated 15 September 1994. Under the guarantee clause, it was specifically mentioned that if the delivery of the rolls was delayed beyond 6 months then the Company had right to cancel the order and risk purchase action would be initiated by the purchaser from seventh month. The purchase order issued on 15 September 1994 was amended on several occasions. It was also seen that the bank guarantee clause mentioned in the purchase order dated 15 September 1994 was not included in the amended purchase orders dated 27 December 1994 and 3 January 1995.
2. Although YMBPA failed to supply the rolls within the delivery schedule i.e. upto September 1995, the Company did not lodge any claim for the differential amount towards cost. The claim was only lodged in May 1998 (i.e. after a lapse of 3 years), when pointed out by the internal wing of the Company and the Comptroller and Auditor General of India. It was inter alia, mentioned in the claim that if the YMBPA failed to reimburse the differential amount within 15 days, the matter would be referred to Arbitration. The claim was rejected by YMBPA in October 1998.
3. Being a breach of contract, the Chief Law Officer (CLO) categorically stated (March 1999) that the Company should have filed their claim before the International Court of Arbitration under ICC Rules by September 1998. In this case, the present claim had expired due to limitation under the Limitation Act. However, in July 1999, CLO proposed to make reference to ICC, Paris in accordance with the terms and conditions of the contract.

The Ministry endorsed the Management’s reply (July 2001) that the cost of arbitration under ICC Rules and cost of subsequent enforcement of the arbitration award (if at all in Company’s favour) in a foreign country was prohibitive, yet the issue was under consideration with the Corporate Law Department of the Company. The Ministry further stated (August 2001) that the Company was in process of filing a case with ICC invoking the arbitration clause in the matter.

The fact remains that although the decision was taken in July 1999 by the Company to file the claim with ICC, Paris but no claim had been filed so far (September 2001). Thus, due to lack of timely action, absence of foresightedness and negligence on the part of the Management, the Company could not enforce risk purchase clause which led the Company to a loss of Rs.2.56 crore.

Central Marketing Organisation (CMO) of SAIL instructed all its regions/branches in December 1996 to include a clause in the offer letter/Memorandum of Understanding (MOU)/Agreement to the effect that SAIL would charge interest at specified rate per annum in case of delayed payment by the customer.

Scrutiny of records revealed that:

1. The MOU entered into with M/s. Tube Investments of India Limited, (TIIL) during 1997-98 and 1998-99 contained general provision for charging interest on delayed payment (though no specific rate was indicated).
2. SAIL entered into an MOU with TIIL in February 1999 under which the customer along with its sister units agreed to buy 50,000 MT of hot rolled/cold rolled steel during the year 1999-2000. Although the terms of the MOU provided that interest free credit (IFC) for 15 to 60 days would be available depending on monthly lifting of the material (extended to 67 days in March 1999), but no clause was inserted to ensure recovery of interest on delayed payment.
3. One of the units of TIIL, M/s. Tube Products of India (TPI) defaulted in making payment of their dues in most of the cases after expiry of the IFC period which ranged between 1 and 54 days. As such, interest amounting to Rs.68.23 lakh became recoverable (1999-2000) from TPI. Similarly, interest amounting to Rs.74.33 lakh also become recoverable on delayed payment upto September 2001 (2000-2001).
4. Interest amounting to Rs. 50.36 lakh and Rs.85.58 lakh also became recoverable from TPI for delayed payments as per terms of MOU entered into with TIIL during 1997-98 and 1998-99 respectively.

When the Management took up the matter in October 1999 to make payment of interest relating to the period 1999-2000 and 2000-2001, TPI pleaded that they were not liable to pay as no explicit provision was contained in the MOU.

The Management, while accepting the fact that MOU did not contain specific clause for charging interest at specified rate on delayed payment, stated (September 2001) that it was apparent and logical that interest was leviable after the prescribed period of IFC. On deletion of general provision for charging interest in the MOU entered into during 1999-2000, the Management added that the absence of a provision to charge interest on delayed payment did not bar SAIL from claiming interest.

Reply of the Management is not tenable in view of the fact that in the absence of clause in the MOU to charge interest at a specified rate for the delayed payment, SAIL could not acquire a legal right to realise the interest. The customers had also cited same ground for non-payment of interest on delayed payments.

Thus, due to non-incorporation of a suitable clause in the MOU specifying rate of interest to be charged for delayed payment, SAIL failed to realise interest to the extent of Rs.2.79 crore from customer.

The matter was referred to the Ministry in August 2001; their reply was awaited (October 2001).

Twin Hearth Furnace (THF) was commissioned in August 1992 with the objective of producing steel, till commissioning/stabilisation of Basic Oxygen Furnace (BOF) route of steel making under modernisation programme of Durgapur Steel Plant (DSP).

In November 1994, SAIL Board approved a scheme for installation of a Gas Cleaning Facility for THF as a pollution control and energy conservation measure at a cost of Rs.18.61 crore. The proposal envisaged that the facility would control the discharge of high dust laden hot gas emitting from THF in the atmosphere as per Central Pollution Control Board’s norms. Though the high dust laden hot gas emitting from THF could be processed either by wet or dry system, the DSP opted for a mixed type plant with inclusion of Waste Heat Boiler (WHB) in an otherwise wet type system on the consideration of the economy and effectiveness. It was proposed to curtail the revenue expenditure of wet type Gas Cleaning Plant (GCP) by generating low-pressure steam as a by-product to meet the requirement of Steel Melting Shop and other areas.

The work order for installation of GCP along with WHB was awarded to M/s. NICCO Corporation Limited in December 1994 at a cost of Rs.14.20 crore (including Rs.6.08 crore for installation of WHB) with the completion date of December 1995. The GCP was, however, commissioned in April 1996 but without WHB. In July 1997, DSP decided to delete WHB from the scope of the contract as it was considered uneconomical to operate WHB. By that time, the supplier had already supplied a part of the equipment valuing Rs.1.22 crore required for WHB. After negotiation, it was decided in July 1999 that the amount paid to the supplier for WHB would be treated as full and final settlement.

The Management stated (February 2001) that the production of steel through BOF route improved gradually during 1995-97 as a result of modernisation programme of DSP while volume of production through THF route was correspondingly reduced. By May 1997, the production of steel through THF had come down drastically and it was decided to use THF as a stand-by facility. In July 1997, it was decided to delete WHB from the scheme. It added that the alternative use of supplies made for WHB was explored and accordingly all the supplies except ducting and expansion bellow (costing Rs.1.84 lakh), were taken over by different departments. The Ministry reiterated (September 2001) the reply of the Management

Thus, due to lack of co-ordination between project planning and operation departments and lack of timely corrective action, DSP incurred an infructuous expenditure of Rs.1.22 crore. Regarding taking over of the supplies made for WHB by the other departments for use, although Management had not furnished any details but it had made a provision for obsolescence amounting to Rs.90.84 lakh in the accounts for the year 2000-2001 which implies the non-utilisation of materials.

Allowing of unsecured credit to a customer resulted in non-realisation of sale proceeds amounting to Rs.1.15 crore by Steel Authority of India Limited.

Salem Steel Plant, a unit of SAIL sold (November 1999 to January 2000) 113 MT of Cold Rolled Stainless Steel Coil (CRSS) and Hot Rolled Stainless Steel Coil (HRSS) valued at Rs.1.15 crore against post dated cheques with 30 days interest free period and next 30 days as interest bearing period to M/s. Tubex Metals Private Limited, Mumbai (TMPL). On presentation the cheques were dishonoured (March 2000) by the bank on the ground that the drawer had asked the bank to stop the payment.

Consequently, SAIL filed a summary suit in March 2000 in the High Court of Bombay (Court) against the TMPL. Temporary injunction against selling off the already mortgaged properties with another state public sector undertaking (Gujarat State Financial Corporation Limited) that had brought it to sale was obtained in January 2001. The final orders of the Court were awaited (October 2001). In addition, Court proceedings were filed by SSP against dishonour of cheques with the Magistrate Court in Mumbai. Here again, the matter was sub-judice (October 2001).

The Management stated (January/September 2001) that unsecured credit sales were extended to TMPL against post-dated cheques as per guidelines of the Company. The Management further stated that in the prevailing competitive stainless steel market unsecured credit sales was a most common and unavoidable as importers extended credit upto six months to the buyers.

The reply is not tenable, as the credit worthiness of the TMPL was not verified at the time of release of goods from the quarterly accounts and Banker’s certificate on credit worthiness as prescribed by SAIL. Meanwhile, as the attempts to realise the dues proved futile the Company provided Rs.58.11 lakh as doubtful debts in its accounts (March 2001). In addition, the Central Bureau of Investigation (CBI) had reportedly taken up the matter for investigation (May 2001). CBI report was awaited (October 2001).

Thus, the action of the Company by allowing credit without obtaining appropriate security besides, satisfying themselves about the creditworthiness of TMPL resulted in non-realisation of sale proceeds amounting to Rs.1.15 crore.

The matter was referred to the Ministry in September 2001; their reply was awaited (October 2001).

SAIL entered into an export contract on 29 August 1998 with SECO Steel Trading, USA (buyer) for supply of 20000 MT of Hot Rolled (HR) Plate at the rate of US$ 258 per MT. As per terms of the contract, the materials were required to be shipped by 30 November 1998 for delivery at Mexico. The buyer opened letter of credit (LC) for US$ 5.16 million on 28 August 1998 valid for shipment up to 30 November 1998.

Subsequently, on 23 September 1998, the buyer came up with a proposal to reduce the contracted quantity from 20000 MT to 15000 MT and again to 13500 MT on 16 October 1998 which was accepted by the Company. This required amendment of the LC to bring it in conformity with the contract amendments. However, on 17 October 1998, the buyer intimated the Company to put the order on suspense for a period of two weeks on the apprehension of anti-dumping proceedings on Indian plates by the Mexican Government adding that if they did not re-confirm the order within two weeks, the order would have to be treated as permanently suspended. The fact was that there was no movement for anti-dumping legislation against Indian imports. In the meantime, the Company considering high price of this order and prevailing market condition, apprehended that buyer might not extend the LC beyond 30 November 1998, instructed Bhilai Steel Plant (BSP) to produce and despatch the material to Vizag Port by 18 November 1998. BSP, accordingly, despatched 14072 MT of plates to Vizag Port by the stipulated date against the contracted quantity of 13500 MT (+/- 5 per cent).

The Company served ‘Notice of Readiness’ to the buyer on 5 November 1998 with the request to amend the LC and to nominate the vessel with lay days from 18 November 1998 to 26 November 1998. The buyer, however, neither amended the LC nor nominated any vessel. As such, the Company issued a notice on 27 November 1998 to the buyer intimating that they were constrained to take legal action to recover the losses suffered due to ‘breach of contract’. When no response was received from buyer, the Company terminated the contract on 15 January 1999 but failed to apply clause 6 - Red clause -of the contract which inter alia, stipulated that in the event of failure of the buyer to nominate a suitable vessel within 21 days including lay days from the date of service of seller’s ‘Notice of Readiness’, the seller would be entitled to negotiate his commercial invoices against the LC opened by the buyer and realise 100 per cent of the materials ready for shipment.

Out of the stock of 14072 MT of plates despatched to Vizag Port, the Company could sell 13454 MT (i.e. 11933 MT to another foreign buyer and 1521 MT in domestic market) leaving balance stock of 618 MT lying for more than two and half years (September 2001). Such sale of material to other parties at a lower price resulted in loss of Rs.68.26 lakh to the Company.

The Management stated (August 2001) that the Red clause could have been operated. It added that in order to operate Red clause the quantity available at the port should be in conformity with the LC terms. Since in this case, a quantity of 20000 MT was provided in LC as against the quantity of 14072 MT available at port, the LC could not be encashed. However, steps had been initiated to recover losses through Arbitration, holding the buyer responsible for ‘breach of contract’.

However, the fact remains that the decision of the Management to produce the material and despatch the same to the port without obtaining nomination of vessel/valid amended LC from buyer was premature and imprudent which resulted in a loss of Rs.68.26 lakh.

The matter was referred to the Ministry in September 2001; their reply was awaited (October 2001).

SAIL was operating from Sankrail stockyard under Branch Sales Office (BSO), Howrah from 1980. Subsequently, a modernised stockyard at Dankuni under BSO, Kolkata was developed at a cost of Rs.33 crore which became operational from 2 December 1997. With a view to improve customers’ satisfaction by better handling and storage facilities available at Dankuni and to cut stockyard expenditure at Howrah, the Company decided in January 1998 to merge the above two BSOs (Howrah and Kolkata). However, apprehending the closure of the stockyard, the labourers of handling contractor at BSO, Howrah started restricting deliveries of iron and steel materials from 25 February 1998, and finally they stopped all deliveries from 25 April 1998 when about 12500 MT of iron and steel materials were lying at the yard. The dispute was finally resolved in November 1998 by way of a settlement between SAIL and the contract labourers.

Meanwhile, the lease period of stockyard land at Sankrail also expired on 31 May 1998. Since the vacant possession of the land could not be handed over on 1 June 1998, the landlord refused to extend the lease at the existing rates. After negotiation, an increase of 38 per cent was agreed to by the Management resulting in increase in rent from Rs.6.31 lakh per month to Rs.8.71 lakh per month from June 1998. The land was finally handed over to the landlord on 31 December 1998. Thus, although there was no activity in the stockyard, the Company had to pay rent of Rs.60.98 lakh for the extended lease period from 1 June 1998 to 31 December 1998.

The Management stated (May 2001) that SAIL had been taking action since the very beginning but due to the legal cases which came up during the intervening period, the stockyard of BSO, Howrah could not be handed over to the landlord on expiry of the lease as considerable amount of material was lying in the stockyard which had to be shifted out.

The Management’s reply is not acceptable in view of the fact that after receiving Chairman, SAIL’s approval for merger of the BSO, Howrah stockyard with BSO, Kolkata, the Management had 5 months (as the lease period was to expire on 31May 1998) to sort out the matter. Failure to foresee the industrial relations problem and react swiftly to it, and failure to negotiate a new lease contract with the landlord before expiry of the extant lease led to SAIL incurring avoidable expenditure of Rs.60.98 lakh.

The matter was referred to the Ministry in August 2001; their reply was awaited (October 2001).

SAIL appointed Star Wire (India) Limited (SWIL) as the consignment agent at Branch Sales Office, Faridabad in September 1992 on certain terms and conditions, subject to a formal agreement to be executed later on. The contract was awarded initially for 12 months, with a provision of extension for a further period of 12 months. SAIL forwarded the contract papers to the party on 21 September 1993 for signature, but the Party did not sign the contract on the grounds that clause 32(a) of the contract relating to the accounting of shortage of materials was not acceptable to them. Although no formal agreement could be executed, the contract continued to be extended by SAIL until 30 June 1998.

At the end of the contract, SAIL noticed a net shortage of 358.219 MT of materials worth Rs.51.57 lakh. Although it was clearly mentioned in clause 34 of the contract that the value of shortages and excesses would be assessed annually based on the annual stock cum sales statements and would be payable by the contractor to SAIL immediately on demand, it did not lodge any claim for shortages. The Management, however, held back the bank guarantee (BG) amounting to Rs. 50 lakh and payment of Rs.27.69 lakh (including final bill for Rs. 14.02 lakh for interest, compensation etc.).

SWIL, the agent, protested (June 1998) the holding back the BG and the payment of their bills for a total amount of Rs.27.69 lakh. In order to resolve the dispute, SAIL appointed an Arbitrator in August 1999. While the arbitration proceedings were still on, SAIL made a counter claim for the first time in November 1999 for Rs.63.95 lakh (Rs.51.57 lakh towards shortage and Rs.12.38 lakh towards interest).

The Arbitrator’s award (January 2000) went in SWIL’s favour directing SAIL to return the BG (Rs.50 lakh), to pay its last bill (Rs. 14.02 lakh plus interest at the rate of 12 per cent per annum from 1 July 1998 until the date of award) and further interest at the rate of 12 per cent per annum for delay in payment over 30 days from the date of award. The issues that militated against SAIL were (a) no agreement existed between SAIL and SWIL regarding shortages of materials; (b) SAIL could not prove that shortages had occurred in the clearing agent’s premises; (c) shortages pertained to the period from 1992-93 to 1994-95 and there was no shortage after that period; and (d) the Company raised claims for the first time only in November 1999 and, therefore, such a claim was entirely barred by laws of limitation. SAIL’s legal section also opined (February 2000) that its claim was barred by limitation and there would be no fruitful result for filing petition for correction of the award.

It is, therefore, concluded that:

1. although the consignment agent did not sign the agreement, the Management continued to extend the appointment for 6 years without any formal contract;
2. as per clause 34 of the agreement, although the Management was required to assess shortages annually and realise the amount from the agent, it preferred no claims until October 1999 with the result that the claim became time barred;
3. the Company reserved the right to recover the amount of shortage from the contractor’s bills but the same was also not done on time; and
4. no responsibility was fixed for the above lapse.

The Management while accepting the facts stated (October 2001) that the reasons for the shortages could be calibrated differences of weighbridge at plant and the consignment agency yard. It added that SAIL’s claim of Rs.51.57 lakh could not be proved as it was not possible to establish that the shortages had been caused by the consignment agent. Therefore, the decision of the Arbitrator in favour of SWIL was also not challenged.

In the absence of examination of weight recorded at different weighbridges, the reply of the Management is only a presumption. Further, the Management did not take any action to examine the reasons for the shortages and to lodge claim in time although being occurred right from 1992-93 to 1994-95.

Thus, due to extension of the appointment of consignment agent without formal agreement and delay in lodging the claim within the permissible time limit, SAIL was put to a loss to the extent of Rs.51.57 lakh.

The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001).

Visvesvaraya Iron & Steel Limited

In order to increase the sales in specific primary mill products SAIL allowed credit sales to its customers by relaxing its credit sale terms and accepted pre-signed and post-dated cheques which were not presented on due dates. In some cases letter of credit (LC) facility was obtained from the customers but documents were not presented by Visvesvaraya Iron & Steel Limited (Company) to the bank in time or there were discrepancies in the documents. Two such cases where avoidable loss to the extent of Rs. 3.52 crore was sustained by one of the units of the Company are highlighted below:

The Company used to supply goods to M/s. Patheja Group of Companies, Pune, against post dated cheques (PDCs), letter of credit and open credit facility till January 1999 though the customer had defaulted in payments from 1997-98 onwards to the Company. The PDCs submitted by the firm were not presented to the bank on due dates and they were even rolled over to accommodate the party. The amount outstanding (March 2001) against these PDCs was Rs.2.00 crore. Additionally, Rs.97 lakh was overdue for supplies against LCs as the Banks refused payment due to discrepancies in the documents submitted by the Company in terms of LC and the same was confirmed by the Bank Ombudsman. The total dues of Rs.2.97 crore became unrealisable (March 2001). Meanwhile, the group companies stood referred to BIFR in 1998 and 1999. The Company, being an unsecured creditor, had little chances of recovering the above dues.

In respect of another customer viz. M/s. Shimoga Steels Limited, Mysore (SSL) during the same period (November 1997 to January 1998) goods were supplied with 60 days credit, the sales dues were secured by the Company under an irrevocable, stand-by LC established by the buyers’ bank. As per LC condition, documents were to be presented for negotiation within 30 days from the date of despatch. Such presentation, in practice, was meaningless due to the fact that credit facility was available upto sixty days. Instead of presenting the bills within 30 days deadline as per LC condition, The Company presented the overdue bills of SSL amounting to Rs.54.66 lakh for negotiation against LC even beyond 60 days. The bills were promptly rejected by the bankers on the ground that the LC condition with regard to due date was violated. Thereafter, the Company issued (July 1998) notice to SSL to settle the amount but SSL (a sick and closed unit) did not respond. Ultimately the Company made provision in the accounts for the above dues and initiated (September 1999) legal action for winding up of SSL. The court granted an opportunity to SSL to settle the dues of the Company by 1 June 2001. However, no payment was made by SSL (August 2001).

The Management while confirming the facts of these cases admitted (April 2001) that they extended credit and continued sale despite non-payment by M/s. Patheja because market was competitive. In respect of sales made to SSL, the Company admitted (February 2001) that bills which were drawn under stand-by LC were not presented to bank within 30 days from the date of despatch on the specific request of SSL who had assured direct payment. The Ministry endorsed (August/September 2001) the views of the Management.

The action of the Management in accepting PDCs for sales dues, roll back of Party’s cheques without valid reasons and to continue sales to defaulting customers without adequate security led to non-realisation of sales dues of Rs.3.52 crore for about 3 years.