CHAPTER 3
|
| Net sale of GSA on UK-India-UK sector (in million) | PLI rate payable (per cent) |
| £0-2 million | - |
| Above £2 and upto 4 | 1.00 |
| Above £4 and upto 6.5 | 2.00 |
| Above £6.5 upto 8.5 | 3.00 |
| Above £8.5 and upto 11 | 4.00 |
| Above £11 and upto 11.5 | 5.00 |
| Above £11.5 and upto 12 | 5.25 |
| Above £12 and upto 12.5 | 5.50 |
| Above £12.5 and upto 13 | 5.75 |
| Above £13 and upto 13.5 | 6.00 |
| Above £13.5 and upto 14 | 6.25 |
| Above £14 and upto 14.5 | 6.50 |
| Above £14.5 and upto 15 | 6.75 |
| Above £15 | 7.00 |
Air India went further to increase the hitherto maximum rate of 5 per cent on the highest slab to 7 per cent with effect from 1997-98 despite disagreement by its finance wing. After 1997-98 the maximum rate of PLI had remained at 7 per cent. Though separate rate of PLI was prescribed for each slab of net sales, Air India paid to the GSA on the total amount of the net sales of £ 15.365 million for the year 1997-98 on UK - India - UK sector at the rate of 7 per cent, which was applicable to the net sales exceeding £15 million only. This flawed interpretation of the payment of PLI from first Pound rather than at the rate applicable for each slab further resulted in an excess payment of £2.031 million, (equivalent to Rs. 13.82 crore) out of the total PLI of £3.664 million released during last three years ended 1999-2000 for all sectors. Similar excess payments had also taken place prior to 1997-98, which could not be worked out by the Audit in the absence of data.
Thus, the payment of PLI amounting to £10.79 million (equivalent to Rs. 57.02 crore at the official rates of exchange for the month of March of respective years) made to GSA during the period from 1987-2000 outside the scope of agreement in addition to the agreed 3 per cent overriding commission and 9 per cent normal commission was not justified. This coupled with flawed interpretation of payment of PLI from the first pound rather than at the rate prescribed for each slab and incorrect calculation of net revenue, which enabled the GSA to claim PLI at the highest slab, constituted extension of undue favour to him.
The Ministry stated (August 2001) that on an enquiry in the matter by the Chief Vigilance Officer of the Ministry, it was established that the Managing Director of Air India in concert with some other officers had misused their official position and showed unwarranted favour to the GSA. It added that the Managing Director and Regional Director (India) had been placed under suspension. The Ministry further stated that a report had been sent to the Central Vigilance Commission, and Central Bureau of Investigation had also been requested to investigate the matter.
Further action by the Ministry and outcome of the investigations were awaited (October 2001).
3.1.2 Avoidable expenditure on hiring of accommodation for London booking office
Due to improper planning, Air India incurred an avoidable expenditure of Rs. 3.64 crore on an extravagant lease for their office in London besides recurring liability of more than Rs. 5.66 lakh per month on its retention to accommodate 2 member booking staff.Air India leased in November 1994, prime office space measuring 1475 sq. ft. at Berkeley Square in Central London, to accommodate its Regional Manager's office and a booking office. The yearly rent payable was £ 38000 (equivalent to Rs. 26.77 lakh) (At the rate of 1 pound = Rs.70.45921) and the lease was to run upto 31 December 2013 with a rental review after every five years.
As per the original plan the premises was to accommodate the office of the Regional Manager, a Manager and the ticketing staff to man the three counters. Accordingly the leased premises was refurbished at a total cost of Rs.1.54 crore. The process of refurbishment took an unduly long time and the booking office could eventually be opened for business in June 1996, after more than 18 months of its taking over on lease. Subsequently, in January 1995 Air India purchased another built-up property measuring 24750 sq. ft. in Colnbrook near London Heathrow airport and the Regional Manager's office was accommodated in that building. The booking office when opened in June 1996 accommodated only three counter staff which has now come down to two.
As per Clause 5 (b) of the agreement with the General Sales Agent (GSA) signed in October 1986, the GSA was to provide suitable office accommodation and connected facilities to the representatives of Air India in his office free of charge. However, Air India did not obtain the same though the GSA had its office in prime location in Central London. It was noticed in Audit that the booking office staff of Air India were primarily concerned with Government booking and the booking on behalf of the GSA. Nearly 50 per cent of the booking, done in the booking office, was on behalf of the GSA, for which the GSA bears 50 per cent of the salary of one staff in booking office.
The Regional Director, U.K. while drawing the attention of Air India to the impending rent revision, had also observed in June 1999 that given the economic climate of the Company, there was insufficient justification for Air India to incur a higher rental at Berkeley Square. Instead of surrendering the premises, the Management increased the basic rent further from £38000 per annum to £60000 per annum from November 1999 at the time of rent review due after five years.
It could, thus, be seen that leasing of the booking office was poorly planned and the contractual obligations of the GSA to accommodate the Air India booking staff as provided in the agreement was also not enforced. Thus, Air India was saddled with 1475 sq. ft. prime office space in Central London to accommodate only two counter staff by incurring an avoidable expenditure of Rs. 3.64 crore (at an average rate of exchange for each year for Pound Sterling including refurbishment cost) over a period of five years ending December 1999, besides recurring expenditure of more than Rs. 5.66 lakh per month.
On this being pointed out in Audit in November 1999, Air India stated (February 2000) that since there was every likelihood of the rent increasing substantially, the only alternative available for them would be to surrender the premises and look for suitable alternative accommodation. However, in July 2000 Air India changed their stand and stated that taking into consideration the international operations, the space of 1475 sq. ft. was not extravagant and the area chosen was in a prestigious commercial location easily accessible and convenient for passengers. Air India further added (October 2000) that there was no plan to accommodate the Regional Manager's office, his secretariat and a Manager on permanent basis in the leased office. The delay in the occupation of the Berkeley Square office was attributed to appointment of an architect and a Project Manager as per Company's tender procedure and obtaining the approval of the landlords' for modification to the internal structure of the office.
The reply of Air India is not tenable as the architectural drawings for refurbishment of the premises mentioned the provision of Regional Manager and his staff also. It was not clear as to why Air India preferred to take office premises on lease involving heavy expenditure when it could obtain the required office accommodation in the prime location in the Central London along with all connected facilities free of charge from the GSA.
Thus, due to improper planning, hiring of 1475 sq. ft. space, initially for a different purpose than the present use resulted in an avoidable expenditure of Rs. 3.64 crore including its refurbishment cost of Rs. 1.54 crore for the period from November 1994 to December 1999. Its further retention to accommodate only two counter staff entailed the recurring liability of more than Rs. 5.66 lakh per month towards rent rates and taxes.
The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001).
3.1.3 Loss due to deficiency in monitoring issue of stock of tickets and inadequate bank guarantee
Deficiency in monitoring the stock of tickets issued to sales agents and remittances there against coupled with failure to obtain adequate bank guarantee resulted in an avoidable loss of Rs.2.44 crore to Air India.
Air India appoints International Air Travel Association (IATA) approved sales agents to widen its network for sale of air tickets. Such agents are eligible to retain stock and sell tickets after furnishing a bank guarantee to IATA. An airline placing stock of tickets to an agent can also obtain a dedicated guarantee if it feels that the guarantee obtained by IATA is inadequate. In accordance with IATA rules, agents are required to send a fortnightly report of sales and remittances to the concerned airlines. In case any agent delays remittance beyond 10 days of the due date, the airline has to immediately declare the agent in default and intimate this to IATA so as to enable it to take action at all locations of the agents.
Air India incurred a loss of Rs.2.44 crore due to improper monitoring of sales/remittances against the stock of tickets and by not insisting for the adequate bank guarantee from its two sales agent as indicated below:
Case (A)
M/s. Shama Airways Private Limited, New Delhi an IATA agent was allowed to sell Air India’s tickets from August 1993 after furnishing a bank guarantee for Rs.1.50 lakh to IATA and a dedicated bank guarantee of Rs.10.00 lakh to Air India. The agent was selling tickets mainly to Gulf and Middle East region and was allowed to hold stock of 80 tickets, the cost of which was within the guaranteed amount. Blank tickets were required to be replenished to the agent only after confirming the remittances in respect of sold tickets. From June 1996, the Passenger Sales Manager, Northern India, introduced a single window clearance system, under which the agent was allowed issue of 40 tickets per fortnight. However, no ‘Agent Document Control Register’ to keep control over the stock of tickets earlier issued to him and accounted for in the subsequent ‘Passenger Sales Reports’ was maintained. This omission enabled the agent to accumulate huge stock of tickets. Taking advantage of the lacuna, the agent did not report 513 tickets over the period from August 1996 to February 1997 against the permissible limit of 80 tickets. Instead of declaring the agent in default and reporting the matter to IATA as per IATA rules the Air India continued its dealing with the agent.
With the introduction of Billing and Settlement Plan system where agent had access over a common stock of tickets and individual airlines only issue their carrier identification plate) with effect from 1 January 1998 the agent was also shifted to Billing and Settlement Plan system. Before switching over, the agent was required to surrender all unutilised tickets. However, Air India instead of collecting the balance tickets, issued the Carrier Identification Plate (CIP) to the agent in December 1997. In January 1998 when the agent defaulted in the payment for second half of December 1997 the CIP of the agent was withdrawn. Air India further asked the agent in March 1998 to intimate the accounting details in respect of 513 tickets issued between August 1996 and February 1997. After taking into account the receipts from the agent Rs. 11.53 lakh and Rs.10 lakh received on invoking bank guarantee, total amount due from agent was assessed to Rs. 1.47 crore. However, Air India could not receive any amount against bank guarantee of Rs.1.50 lakh furnished to IATA because dues of two other airlines were also outstanding.
Air India appointed (March 1998) an investigation team consisting of officers of its Commercial, Accounts and Internal Audit wings to look into various aspects leading to default by the Agent. The investigation team was also authorised to identify the persons responsible for financial loss to Air India. The investigation team in its report of May 1998 identified 12 officers of commercial and 10 officers of accounts wing at Delhi during the period from August 1994 to January 1998 responsible for various acts of omission and commission. However, no action was initiated against these officers so far (July 2001) and some of them have retired from the service.
Case (B)
Air India, appointed M/s. Almas Travels Pvt. Limited, New Delhi as its sales agent in August 1993. On 4 February 1998, Air India withdrew its CIP from the agent after three cheques aggregating to Rs.35.67 lakh issued by the agent during the period from October 1997 to January 1998 were dishonoured. However, the CIP was restored on 17 February 1998 after the assurance that all the payments would be made on due dates. The Management did not insist for a dedicated bank guarantee in spite of the agent’s poor track record. After CIP was restored, the agent again defaulted in remitting the sale proceeds of Rs.1.09 crore for the period from 1 to 31 March 1998.
Air India could recover only Rs.2.73 lakh pro rata out of bank guarantee of Rs.7.50 lakh furnished to IATA. Further tickets worth Rs.10.08 lakh were also received back from the agent for refund. Thus, after adjusting the value of tickets returned and pro-rata proceeds from the bank guarantee, Rs.96.45 lakh was still to be recovered from the agent.
The Management attributed (April 2000) the loss to system failure in monitoring and controlling stock of tickets with the agents at the Delhi. The Management added that it had initiated legal action against the defaulting agents for recovery of dues and also constituted a senior level Committee to investigate the matter and fix the responsibility on the concerned officials. Further, they stated that they issued instructions to all its stations so as to ensure compliance of system/procedure in terms of issuance and control of tickets stock to commensurate with the bank guarantee in future.
The reply of the Management is not tenable, as there was no system failure as claimed by the Company. The loss had occurred because the normal procedure regarding monitoring the sale of tickets, remittance of dues from agents, ticket stocks with agent was not followed by Air India and also due to inadequate bank guarantees obtained from the agents. This has also been reiterated by the investigation team, which found its officers responsible for various acts of omission and commission resulting in loss and recommended suitable action against them.
The matter was referred to the Ministry in October 2000; their reply was awaited (October 2001).
3.2.1 Avoidable payment of interest
Inadmissible claim for carrying forward the losses in income tax return resulted in avoidable payment of interest of Rs.13.51 crore by the Airport Authority of India to the Income Tax Department.
Section 139 (3) read with Section 80 of the Income Tax Act, 1961(Act) provides that loss depicted in the income tax return in a previous year can be carried forward to set off the profits by an assessee if return for that year is filed within the time allowed under the Act. Section 220(2) of the Act stipulates that if an assessee fails to pay tax as per the demand of the Income Tax Department, the assessee is liable to pay interest for the delay at the rate of one and a half per cent for every month or part thereof. Further, according to Section 234B of the Act, if the amount of advance tax deposited by an assessee for any assessment year (AY) is less than 90 per cent of the tax, the assessee is liable to pay interest on the amount short deposited at the rate of 2 per cent per month or part thereof till the actual date of payment of the tax.
National Airports Authority (now National Airports Division of the Airports Authority of India) did not file its income tax returns (depicting losses) for the AYs 1987-88 to 1992-93 in time and, thus, became ineligible to claim the benefit of carry forward of losses for these years in subsequent returns. However, return for the AY 1993-94 was filed in time.
In its income tax return for the AY 1994-95, as against the taxable income of Rs.51.99 crore for the year, the Authority showed nil tax liability by claiming the benefit of carry forward of losses of Rs.78.51 crore in respect of earlier years (AYs 1987-88 to 1993-94 except AY 1992-93). Due to late filing of the returns, the Assessing Officer disallowed (March 1997) the benefit of carry forward of losses to the extent of Rs.65.18 crore and after declaring some more expenses as inadmissible for the purpose of computing taxable income, determined (27 March 1997) the taxable income of the Authority for AY 1994-95 at Rs.68.41 crore with a tax liability of Rs.35.40 crore which was to be deposited by the Authority within 30 days in accordance with Section 220(1) of the Act.
The Authority filed (30 April 1997) an appeal against the order of the Assessing Officer and deposited the tax belatedly on 15 July 1997. The Commissioner of Income Tax (Appeals) finally revised the assessment order in respect of expenses disallowed earlier by the Assessing Officer and determined (December 1997) the taxable income at Rs. 32.74 crore with a tax liability of Rs.16.94 crore which was accepted by the Authority. Thus, as against erroneous claim for nil tax liability for the AY 1994-95, the Authority was, de-facto, liable to pay the tax of Rs.16.94 crore. The amount was paid in July 1997. Due to delay in payment the Authority had to pay:
The Management, while admitting that the returns for AYs upto 1991-92 were filed late, contended (June 2000) that in view of the accumulated losses, there was no need to pay any income tax. The Ministry attributed (March 2001) the lapse of non-payment of advance tax to the shortage of staff with professional background and their lack of knowledge of the provisions of income tax rules and regulations. The Ministry also contended that in view of the accumulated losses, the Authority was under a bonafide belief that there was no need to pay advance tax.
The replies are not tenable as the Authority ignored the provisions of Section 139(3) read with Section 80 of the Act which clearly state that the loss for any assessment year was not allowed to be carried forward to off set the tax liability if the return was not filed within the time allowed under the Act.
3.2.2 Imprudent capital expenditure on upgradation of an airport
The Authority incurred an imprudent capital expenditure of Rs.8.88 crore for developing an airport having no traffic potential.
Vijaywada airport (airport) was suitable for operation of small aircraft like Avro/F-27. The working results of the airport for the six years ended 31 March 1998 revealed that against the revenue expenditure of Rs 3.63 crore, the Authority had earned a revenue of Rs 32.41 lakh only, leaving a deficit of Rs 3.31 crore rendering the airport economically unviable even for small aircraft. However, there was persistent demand from the VIPs and State Government of Andhra Pradesh (GoAP) to upgrade the airport for making it suitable for operating Boeing/Jet type of aircraft. In November 1993, the State Government handed over 79.57 acre of land free of cost to the Authority for development of the airport. GoAP also agreed to give interest free loan equivalent to 50 per cent of the cost of this project.
However, a survey conducted by Indian Airlines in 1994 indicated that the volume of passengers per day on Vijaywada-Hyderabad Sector and Vijaywada-Chennai Sector was only 60 and 40 respectively. The volume of passengers was not adequate for the economic operation of a Boeing type of aircraft on the airport. Moreover, no airlines had given any commitment to operate on this airport/sector. Despite this, the Authority decided in February 1996 to upgrade the airport in phases at an estimated cost of Rs 16.29 crore to make it fit for bigger aircraft like Boeing etc.
Though, the airport had not handled any scheduled flight since January 1996, the Work Advisory Board, which is headed by the Chairman of the Authority, approved the investment for the first phase i.e. upgradation/strengthening of the runway in November 1997 at an estimated cost of Rs.7.83 crore. This decision to embark upon first phase of upgradation was taken after the Authority received an interest free loan of Rs. 4 crore from GoAP. The work was completed at a cost of Rs.8.88 crore in July 1999. As of April 2001, the airport did not handle any scheduled flight and could earn only Rs.6.82 lakh against a revenue expenditure of Rs. 2.13 crore between July 1999 and March 2000.
The Management, while confirming the facts, stated (May 1999) that the development of the airport was undertaken due to a commitment from the Ministry of Civil Aviation to GoAP. They contended that they did not undertake any survey to assess traffic potential, as they were hopeful that airlines like Indian Airlines, Sahara Airlines, Jet Airways etc. might operate from the airport after the runway strengthening work was complete. The Ministry while admitting (July 2000) the losses being incurred by the airport, stated that keeping in view the gesture of the GoAP to give free land and interest free loan, it was felt that in the interest of socio-economic development of the region, the Authority considered the proposal and added that the proposal was approved by the Board of the Authority.
Assumption of the Ministry and the Management that various airlines would be using the airport after its completion was unfounded, as it was not based on any survey or commitment from any airline. Further, before undertaking the project, the Authority was also aware of the survey conducted by the Indian Airlines Limited which indicated a very low traffic to be handled by a Boeing aircraft. While approving such a big project, the economic viability and the interest of the Authority should have been kept in view by the Management and the Ministry.
3.2.3 Non-deduction of tax at source on canteen subsidy
Non-deduction of tax at source (TDS) on canteen subsidy paid in cash to the employees resulted in violation of provisions of TDS and avoidable liability of penal interest amounting to Rs.1.71 crore under the Income Tax Act, 1961.
As per instructions (July and October 1995) of the Central Board of Direct Taxes (CBDT), the expenditure incurred by an employer on provision of food or beverages to the employees, either inside or outside the place of work during working hours, upto Rs.35 per day per employees would not be treated as income of the employee provided the amount was paid by the employer directly to the caterer, restaurant, eating place, canteen etc. and not directly to the employees. The instructions were applicable from financial year 1995-96.
It was observed in Audit that during the financial years 1995-96 to 1999-2000 the Authority instead of paying the canteen subsidy to the employees through any caterer/restaurant etc., paid an amount of Rs.21.81 crore directly to the employees as part of their salary and did not deduct the TDS of Rs.4.67 crore (based on the tax slab of 20 per cent). Thus, the Authority not only failed to fulfill the statutory obligations cast upon it to deduct tax at source under Section 192 of the Income Tax Act, 1961 (Act) but also made itself liable to interest of Rs.1.71 crore (Upto 31/12/2000) under Section 201(1A) of the Act besides inviting the penalty provisions under sections 221 and 271C of the Act ibid. Following observations of the Audit, the Authority issued (May 2000) instructions for the payment of the canteen subsidy as per instructions of the CBDT and provisions of the Act but did not make good the loss of revenue to the Government for the past period.
The Management stated (July 2000) that the provisions of Section 15 to 17 of the Act defining salary, deductions therefrom and perquisites etc. were not attracted since the direct payment of canteen subsidy to the employees was for creating an efficient work environment and, thus, of staff welfare nature. The Management also contended that there was no liability on the Authority to deduct tax at source as this amount was neither an allowance nor a reimbursement. Quoting from a judgement of Delhi High Court, the Management stated that the Authority was under a bonafide belief that there was no need to deduct tax at source as the expenditure incurred by the employees on this account was certified by the employees themselves to have been incurred during the course of the discharge of their duties. The Management further contended (July 2001) that the recovery of tax from an employer on account of short deduction of tax would be infringement of the legal provisions existing in Section 191 of the Act which stipulates that in cases where income tax had not been deducted in accordance with the provisions of this Act, it should be payable by the assesses direct.
The reply of the Management is not tenable as the payment of canteen subsidy to the employees in cash as part of their salary was taxable under Section 17(2)(iii)(c) of the Act, read with the instructions of the CBDT in this regard and the Authority was required to deduct tax at source from the employees and pay the same to the Government The judgement quoted by the Management relates to reimbursement/payment of conveyance allowance and, thus, is irrelevant in this case as the Authority themselves had admitted that the payment of canteen subsidy by it to the employees was not in the nature of reimbursement. Incidentally, it is also mentioned that in another case the Authority failed to pay advance tax to the Government under the stated ‘bonafide belief’ that it was not required to pay the tax and consequently due to delayed payment of tax of Rs.16.94 crore, it has to pay interest of Rs.13.51 crore thereon. The contention of the Management regarding infringement in accordance with the provisions of Section 191 of the Act is not tenable since Section 192 of the Act prescribed responsibility of the Authority towards TDS in respect of salary paid to the employees and Section 192 existed under the same Chapter viz. ‘Chapter XVII- Collection and Recovery of Tax’, the provisions of Section 191 of the Act were not applicable in the instant case and as such the Authority was in default as per provisions of Section 201 of the Act.
The matter was referred to the Ministry in February 2001; their reply was awaited (October 2001).
3.3.1 Extra expenditure on payment of allowances outside the scope of periodical wage revision
Hotel Corporation of India Limited incurred an extra expenditure of Rs.1.92 crore on payment of allowances to its staff which were outside the scope of periodical wage revision and guidelines issued by the Department of Public Enterprises.
With an objective of achieving parity of pay scales between the staff working in Hotel Units (HU) and the staff working in Head office, Flight Catering Units (FCU) and Dining Facility Canteen (DFC), the Board of Directors of Hotel Corporation of India Limited (HCI) approved revision of pay scales of the executives holding the post below Board level and non-unionised supervisors in August 1996. This Ministry ratified this revision of pay scales in February 1997.
After achieving the parity of the pay scales it was found that the total emoluments of the staff in HUs was higher due to the fact that they received service charges collected in the hotels. This was not taken into account while approving the revision of pay scales. Therefore, the Management submitted in September 1996, the following for approval of the Board:
The Board approved the above proposal in September 1996. The payment of these allowances was in violation the instructions of the Department of Public Enterprises (DPE) of July 1995 which, while permitting retrospective pay revision from January 1992, prohibited increase in any allowances after 1 April 1994. These instructions further stipulated that allowances unilaterally allowed by the Public Sector Enterprises after 1 April 1994 would have to be rolled back. In the instant case the Company not only ignored the instructions of DPE but also even without the approval of the Ministry paid the above mentioned allowances which amounted to Rs. 1.92 crore between October 1996 to March 2001.
The Management justified (April 1999) the payment on the grounds that its holding Company, Air India Limited had also been paying many allowances to its employees and HCI employees always compare their allowances with it. Further, all the PSUs coming under the Ministry of Civil Aviation had introduced performance linked incentive payments to their employees and there were constant demands from various staff unions for similar schemes. The Company, therefore, had to introduce these allowances to avoid staff resentment.
The reply of the Management is not tenable as the DPE’s guidelines prohibited any increase in allowances after 1 April 1994. Moreover, the grounds mentioned by the Management do not justify the payment of these allowances that too, without the approval of the Ministry.
The matter was referred to the Ministry in January 2001; their reply was awaited (October 2001).
3.3.2 Overpayment due to incorrect revision of allowances
HCI effected incorrect retrospective revision of certain allowances in contravention to the instructions of the Ministry of Civil Aviation/Department of Public Enterprises resulting in overpayment to the tune of Rs. 1.74 crore to its officers.
The pay scales of the executives holding posts below the Board level and non-unionised supervisors of Public Sector Enterprises (PSEs) are revised periodically on the basis of guidelines issued by the Department of Public Enterprises (DPE), Ministry of Industry. The Board of Directors (BOD) of PSEs implement the revision as allowed by the DPE after due approval by their administrative ministries. In July 1995, DPE circulated the decision of the Government of India for the revision of pay and allowances of the above two categories effective from January 1992 in all the PSEs. This included revision of House Rent Allowance (HRA) effective from April 1994. Thus, for the period from January 1992 to March 1994, there was no revision.
HCI placed a memorandum on revision of pay and allowances of aforesaid executives/officers before the Board of Directors in the meeting held in August 1996 inter alia proposing revision of HRA from April 1994, conveyance allowance and service increments from January 1992. HCI forwarded the proposal to the Ministry of Civil Aviation (MCA) in September 1996 for the revision of HRA from January 1992 against the approval of the BOD from April 1994. The MCA approved the said proposal on 20 December 1996, but subsequently, directed on 20 January 1997 the HCI to await for the concurrence of the DPE before implementing the wage revision. MCA forwarded the detailed wage revision as concurred by the DPE for implementation in February 1997 which only allowed the payment of revised HRA from April 1994 as against the proposal of the Company from January 1992, conveyance allowance effective from April 1996; and the service increments as proposed by the HCI were not approved.
Instead of implementing the wage revision as approved by the Government in February 1997, the Managing Director ordered (April 1997) the payment of 90 per cent of the arrears by allowing HRA, conveyance allowance and service increments from January 1992 as recoverable advance to all the officers covered by wage revision. In May 1997, MCA reiterated that the Company should implement the wage revision as approved by Government of India in February 1997 and to report compliance within a fortnight. This was also not complied with and HCI released the balance 10 per cent payment in February 1998.
Thus, non-adherence to the wage revision as approved by Government of India resulted in an over payment to the tune of Rs. 1.74 crore as detailed below:
| (i) | HRA for the period from 1 January 1992 to 31 March 1994 | 0.82 |
| (ii) | Conveyance Allowance for the period from 1 January 1992 to 31 March 1996 | 0.12 |
| (iii) | Service Increments from 1 January 1992 to 31 December 1996 | 0.80 |
| Total | 1.74 |
The Management (April 1999) while justifying the payment of pay and allowances effective from January 1992, stated that Company’s proposals for the implementation of the above allowances were approved by the MCA in December 1996 and immediately made known to the officers. Therefore, the Company was committed to the officers to pay these allowances from January 1992. Moreover, the revised order of the MCA to hold back its earlier approval was not accepted by the Officers' Association who threatened industrial unrest. The Management further intimated (October 2000) that the distortions made in the wage revision effective from January 1992 had partially been adjusted in the fresh proposal of wage revision due from January 1997.
The reply of the Management is not tenable in as much as the Company had no autonomy to revise the pay scales of their staff and executives on its own. It was mandatory on the part of the HCI to implement the orders of the MCA/DPE which were received by the Management before implementing the pay revision.
The Ministry in their reply confirmed (May 2001) overpayment of Rs. 1.74 crore in the payment of allowances.
3.4.1 Avoidable loss due to delay in procurement of equipment
Delay in procurement of own equipment for ground handling of aircraft at Kathmandu resulted in avoidable loss of saving of Rs.4.21 crore during June 1998 to December 2000.Indian Airlines Limited (Company) had been hiring equipment from Royal Nepal Airlines Corporation (RNAC) at Kathmandu for ground handling of its A-300 flights to Nepal. In March 1997, The Company observed that RNAC was charging very exorbitantly and felt the need for positioning its own equipment for handling A-300 flights. RNAC was also not providing the full complement of equipment for handling the flights which was affecting the services rendered by the Company which invited criticism from the passengers. In spite of this, the Company continued to obtain ground handling services from RNAC and incurred an expenditure of Rs.3.11 core from March 1997 to March 1998 towards hire charges.
In February/March 1998, the Company estimated that by transferring some of the essential equipment from various locations in India for the ground handling of A-300 aircraft at Kathmandu, the Company would not only be saving an annual net cash outgo of Rs.1.30 crore (Saving: US$ 1600(hire charges per flight) minus {US$ 5000(being expenditure on salary of staff and maintenance of equipment) plus US$ 200 (for Push-back tractor envisaged to be provided at Kathmandu airport for the time being)} = US$ 900 per flight (equivalent to Rs.35487 per flight) i.e. Rs.1.30 crore per annum for 365 flights (being one flight per day) Exchange rate 1US$ = Rs.39.43) per annum but would also create avenues for earning revenue by hiring out these equipment to RNAC and other airlines. The cost of such new equipment was estimated at Rs.2.88 crore. No action, however, was taken by the Company in this regard even when pointed out by Audit in April 2000.
In July 2000 again, the Company anticipated a recurring saving of Rs.4.70 crore per annum by purchasing and positioning new equipment at Kathmandu at an investment of Rs.3.78 crore with a recurring expenditure of Rs.60 lakh per annum on maintenance and operation of the equipment. Though sanction for purchase of the equipment was accorded in February 2001, these had not been procured till the end of May 2001 and the Company continued to pay exorbitant hire charges to RNAC.
Thus, failure to procure and position equipment for handling A-300 aircraft at Kathmandu resulted in an avoidable loss of saving of Rs.4.21 crore (net of maintenance expenses and salary of the staff to be posted at Kathmandu) during the period from June 1998 to December 2000 at a conservative rate of saving of Rs.35487 per flight that had been anticipated by the Company in March 1998. The loss is likely to increase in view of the gradual increase in number of A-300 monthly flights to Kathmandu from 33 in March 1998 to 60 in October 2000.
The Management stated (December 2000) that the procurement of equipment could not be done due to fund constraints and contended that positioning of old equipment at Kathmandu was not possible as it needed more maintenance. The reply of the Management is not tenable, as the Company had been paying Rs.4 crore to Rs.4.82 crore per annum to RNAC towards hire charges, which was higher than the amount required even to purchase new equipment. After having visualised the encouraging rate of recovery of investment of Rs.2.88 crore on purchase of new equipment within a short span of 2.2 years at the rate of Rs.1.30 crore per annum, the Company could have purchased new equipment for Kathmandu by better financial management to save loss of Rs.4.21 crore from June 1998 to December 2000. The Company ignored the fact that in view of increased scale of operations of the Company’s flights to Kathmandu, usage of own equipment at Kathmandu would have resulted in savings at a much higher rate.
The matter was referred to the Ministry in March 2001, their reply was awaited (October 2001).
3.4.2 Non-realisation of dues due to breach of agreement
Breach of agreement with Andhra Bank and affording uncalled for credits by the Company directly to the credit card issuing banks resulted in non-recovery of Rs.1.83 crore from Andhra Bank.
Indian Airlines Limited (Company) entered (January 1997) into an agreement with Andhra Bank (AB) for collection of proceeds of tickets sold on Master/ Visa credit cards. As per the agreement, on receipt of details from the Company for sale of the tickets on such credit cards, AB was to remit the payment to the Company the following day against a commission ranging between 1.4 to 1.8 per cent of the total fare. Afterwards AB was to collect payment from the card issuing banks. In respect of cancellation of such tickets, the Company was to make payment of all refunds only to AB, which in turn, was to pass on the credit to the cardholders’ accounts promptly but not later than 10 days in any case. The agreement was effective from February 1997 and remained operative till the end of July 1999.
A review of the transactions for the period ended July 1999 revealed that the Company did not send refund statements along with funds to AB during the following periods:
Instead, credit slips in respect of the refunds for cancelled tickets were directly sent to the card issuing banks and, thus, violated the terms and conditions of the agreement. Even during the period i.e. August 1997 to October 1997 and April 1998 to March 1999 in which the refund statements were sent to AB, there was delay ranging from 8 to 92 days as against the lead time of 10 days for affording credit to the credit-card holders.
As a result, AB started deducting from payments due to the Company on the ground that the Bank was not receiving all the refunds from the Company and that the credit card issuing banks, despite having received the refunds directly from the Company, were raising contra debits on them. Consultations were held between the Company and AB to sort out the issue and as no solution was found to this problem, the Company suspended (August 1999) the agreement with AB. As of 30 June 2000, AB withheld an amount of Rs.1.83 crore from Company’s dues being outstanding contra debits raised on them by card issuing banks. In response to the Company’s attempts in getting the amount released, AB refused (June 2000) to release any money on the plea that the amount was appropriated towards the loss sustained by them due to failure of the Company to refund the money to them towards the cancelled tickets.
Thus, due to adoption of a procedure in contravention of the agreement with the AB, the Company not only passed uncalled for credits aggregating Rs.1.83 crore to the card issuing banks, but also could not realise an equivalent amount from the AB.
The Management stated (May 2000) that after a few months of entering into the agreement with the AB, they continued to receive complaints from cardholders about delays in sending refunds to the accounts of their bankers. To avoid this, they started sending credit slips against refunds directly to the respective banks. The Management further stated that AB had unjustly withheld the amount payable to the Company. The reply of the Management is not acceptable as the breach of the agreement was committed by the Company by (i) delaying submission or not-submitting the refund statements to the bank from February 1997 itself which was the first month of operation of the agreement, (ii) submission of refund statement not accompanied by funds and (iii) affording credits for refunds directly to the card issuing banks.
The matter was referred to the Ministry in April 2001; their reply was awaited (October 2001).