Transparency in Public Purchase

Lalit Shastri

 Mostly the system remains shrouded and the government working remains under wraps as long as there is no disgruntled element, someone who has been rubbed the wrong way by his superiors or co-workers, who ends up spilling the beans. Even when that happens, the entire government machinery becomes a cohesive unit and officers at each level become instrumental in creating a protective shield to protect the guilty, the wayward and the dishonest. Even when complaints are filed, FIRs get lodged, either the relatively junior officers get accused or the complaints get restricted to leveling charges of irregularities or non-compliance of rules leading to financial loss. One rarely sees officers down the line being accused of conspiracy and siphoning money from the exchequer.

As a journalist, first covering the state of Madhya Pradesh for The Hindu for almost 18 years and The Asian Age and Deccan Chronicle for more than 4 years, I have had the advantage of seeing the government working from close quarters. Before the enactment of the Right to Information Act, governments at the Centre and in the states have been accountable to Parliament and the state legislatures. Then we have the Comptroller and Auditor General of India as the apex audit agency and the pointers from the CAG based on random surveys are major eye openers. The media has also been playing its role as a watchdog unearthing and exposing corruption related scams—both big and small.

While the RTI is a monumental step forward towards ensuring accountability and transparency (to some extent) but the law as it stands today when it comes to guaranteeing people’s right to have access to a whole gamut of information including that relating to public procurement or government purchases does not wholly insulate the system from the malaise of corruption. It is another matter that proposals have been mooted to take away much from the present reach of the CIC. It is also debatable whether or not those from the judiciary should have primacy over others when it comes to appointment as Information Commissioners or during the course of hearing appeals under RTI Act.

Babus in Madhya Pradesh

The case of a Rs. 12, 000 crore claim pending before a sole Arbitrator

Case of Dewas Udyog, an industrial unit originally valued at Rs. 58.24 lakh owned by Madhya Pradesh State Industries Corporation Limited (MPSIC), which was handed over to a private Indore based business house on the basis of a 20-year management contract in 1998. State government departments had been issued letters by MPSIC to give Dewas Udyog preferential treatment in purchase matters.

Some bureaucrats in Madhya Pradesh apparently devised methods to abuse the process of the court to bleed the exchequer and extend huge financial benefits to business houses. This got amply reflected by the case of Dewas Udyog, an industrial unit originally valued at Rs. 58.24 lakh owned by Madhya Pradesh State Industries Corporation Limited (MPSIC), which was handed over to a private Indore based business house on the basis of a 20-year management contract in 1998.

In the Dewas Udyog case, which came up before a sole arbitrator appointed by the Supreme Court, Bhagwati enterprises, the proprietary firm managing this unit, filed a claim demanding Rs. 12000 crore. This case become more complicated as the state government passed a “deed of assignment” on April 30, 2011 to acquire all 16 industrial units owned by MPSIC. This despite the fact that Bhagwati Enterprises’ 20-year management agreement was still valid when the deed if assignment was issued.

The state government ordered transfer of Dewas Udyog from MPSIC to Madhya Pradesh Laghu Udyog Nigam (MPLUN) in 2002. Bhagwati Enterprises challenged the state government order in an Indore court, where MPLUN took the stand that the managing director of MPSIC was the arbitrator under an arbitration clause and hence the court had no jurisdiction in this case. Since the Indore court accepted this plea, Bhagwati Enterprises went to High Court, which set aside the Indore court order.

The state Government contested the High Court order in Supreme Court and when the apex court was seized of the matter, state Industries commissioner V.K. Semwal gave consent to a proposal by Bhagwati Enterprises to appoint retired judge P.C. Agrawal as arbitrator on August 5, 2010. Immediately thereafter, On August 31, 2010 Bhagwati Enterprises filed an application in Supreme Court to include “other disputes” in this case. During the course of hearing, the state Government took a u-turn and surrendered its position by giving consent for appointment of an arbitrator and also did not oppose enlargement of scope of this case. In this situation, the Supreme Court passed an order on January 13, 2011 appointing Justice Agrawal as the sole arbitrator in this case. In the meanwhile, Justice Agrawal had awarded a compensation of Rs. 16.50 crore to Bhagwati Enterprises in a case against the state Irrigation department. This was contested by the state government in High Court, which passed an order saying the arbitrator was not “fair and just” to have proceeded in this matter.

Inquiry has revealed how many state government departments had been issued letters by MPSIC to give Dewas Udyog preferential treatment in purchase matters. In a later development it has also come to light that since Bhagwati Enterprises had been using MPSIC letter-heads, a decision has been taken to file an FIR against the business house. The state government  also filed a petition in Supreme Court contesting Justice Agrawal’s appointment as arbitrator in this case since he had been censured by the High Court in another matter.

Government insiders point out that only a thorough inquiry would expose those in the government who delayed the filing of FIR and were instrumental in leaking classified documents and protecting the interests of the business group involved in this case.

In 2010, a retired High Court judge appointed arbitrator by an order of the High Court had ordered the state electricity Board to pay a compensation of Rs. 205 crore to Shubham Agency of Indore. This company and Bhagwati Enterprises have a common director. Fresh probe in this matter at the state government level drew a blank as the case in now shrouded in secrecy.

CAG: ATIR Report (Urban Local Bodies & Panchayati Raj Institutions), Madhya Pradesh For the Year 2009-10. The expenditure of Rs. 51.29 lakh incurred on procurement of office furniture and computers without establishing the sub divisional offices by Zila Panchayat, Khargone, was injudicious.

According to Rule 9 (ii) of Madhya Pradesh Finance code Vol.-I:

Expenditure should not be prima facie more than the occasion’s demands.

Government of Madhya Pradesh Panchayat and Rural Development Department decided (May 2008) to establish an intermediate sub-divisional level office to supervise, monitor and guide 10-12 Gram Panchayats and to maintain better co-ordination between Gram Panchayats and Janpad Panchayats of the area out of funds received for National Rural Employment Guarantee Scheme. These offices would be headed by Janpad Level Extension officers.

The expenditure on establishment of such office could be incurred on building rent, purchase of furniture, stationary, computer, telecommunication devices and drinking water subject to the limit of four percent of scheme fund prescribed for administrative charges.

Scrutiny of the records of Zila Panchayat, Khargone (September 2010) revealed that Zila Panchayat (ZP) decided (May 2008) to establish 43 sub-divisional offices in the district. For operation of proposed sub divisional offices, furniture and computers worth Rs. 51.29 lakh were procured from MPLUN and DG&SD in June 2008 and issued to all nine Janpad Panchayats including Zila Panchayat (July to December 2008) so far (August 2010) as shown in Appendix -XVI. During test check of records of Janpad Panchayats of Bhikangaon, Kesrawad, Maheswar (September 2010) of Khargone district it was observed that neither any sub divisional office was established nor

progress was made in this regard. Thus, the expenditure of Rs.51.29 lakh incurred on procurement of office furniture and computers was without establishment of sub divisional office in the district which was contrary to the Rule-9 (ii) of M.P.F.C Vol. -I.

On being pointed out in audit (September 2010) the Chief Executive Officer (CEO) Zila Panchayat Khargone stated that an office order to open the sub-divisional offices had been issued to all Janpads and the progress would be reported to audit later on. It was however stated in March 2011 that

Government of Madhya Pradesh had not sanctioned the posts of Janpad level extension officers and after obtaining sanction of the posts, the sub-divisional offices would be established. Thus the expenditure of Rs. 51.29 lakh incurred on procurement of office furniture and computers without sanction and availability of the staff for formation of sub divisional offices was injudicious and contrary to the Rule-9 (ii) of M.P.F.C. Vol.-I and was against the standards of financial propriety. It has also come to light that Social audit is not being conducted by gram sabhas (village general bodies).